Halma Annual Report 2006

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Halma p.l.c. Annual report and accounts 2006

We are protecting lives
and improving the
quality of life for people
worldwide.

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H A L M A

Halma p.l.c.
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE

Tel: +44 (0)1494 721111
Fax: +44 (0)1494 728032
Web: www.halma.com

H A L M A

01_Our performance
Financial highlights
Chairman’s statement
Chief Executive’s strategic review
Three sectors... one approach
Products in action
Business and financial review

04
05
06
08
10
22
22
26
26
28
30
– Operating environment, risks and uncertainties 32
34
– Financial review

Infrastructure Sensors
Health and Analysis
Industrial Safety

– Group overview
– Sector reviews

Strong organic growth
Delivering good growth not only from acquisitions but
widespread across the Group

A clearer strategy
Reporting in three sectors each with clear strategic objectives

Important acquisitions and disposals
Entry made into the security market and disposal of
underperforming Resistors business

02_Our results
40
Consolidated income statement
41
Consolidated balance sheet
42
Statement of recognised income and expense
Reconciliation of movements in shareholders’ equity 42
43
Consolidated cash flow statement
44
Accounting policies
47
Notes to the accounts
73
Independent Auditors’ report – Group
74
Company balance sheet
75
Notes to the Company accounts
81
Independent Auditors’ report – Company
82
Summary 1997 to 2006

03_Our governance
Management team, Directors and advisers
Report of the Directors
Statement of Directors’ responsibilities
Corporate governance
Report on remuneration
Corporate responsibility
Group directory
Notice of meeting
Shareholder information

86
88
90
91
95
100
104
106
108

Dividend grows further
Progressive dividend policy with 5% growth and
dividend cover raised

Further strengthening of Internal Control
“Warning signs” embraced across the Group stimulating
positive action to reduce risk

Designed and produced by Radley Yeldar (London)

Halma p.l.c. 2006 01

We protect lives and improve
quality of life for people worldwide.
We do this through innovation in
market leading products. We make
our customers: safer, more
competitive, and more profitable.
We invest in and develop
businesses where: people are
creating innovative products; there
are significant barriers to entry;
and the market is demand driven
and global.

02 Halma p.l.c. 2006

We are continually
growing.

01_Our performance
Financial highlights
Chairman’s statement
Chief Executive’s strategic review
Three sectors... one approach
Products in action
Business and financial review

04
05
06
08
10
22
22
26
26
28
30
– Operating environment, risks and uncertainties 32
34
– Financial review

Infrastructure Sensors
Health and Analysis
Industrial Safety

– Group overview
– Sector reviews

Halma p.l.c. 2006 03

04 Halma p.l.c. 2006

Financial highlights

Continuing operations:

Revenue

Adjusted profit before taxation(1)

Statutory profit before taxation

Adjusted earnings per share(2)

Statutory earnings per share

Total dividends (paid and proposed) per share

Return on sales(3)

Return on total invested capital(4)

Return on capital employed(4)

Change

2006

2005
(restated)

+16%

+20%

+18%

+20%

+18%

+5%

£310.8m

£268.7m

£58.1m

£56.6m

£48.3m

£48.0m

11.01p

10.73p

6.83p

18.7%

12.8%

56.9%

9.16p

9.10p

6.50p

18.0%

12.1%

48.8%

The comparative figures for the 52 weeks to 2 April 2005 have been restated to reflect the adoption of International Financial Reporting Standards. See note 29 for details.

Pro-forma information:
(1) Adjusted to remove the amortisation of acquired intangible assets of £1,500,000 (2005: £343,000).
(2) Adjusted to remove the amortisation of acquired intangible assets. See note 2 for details.
(3) Return on sales is defined as adjusted(1) profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.
(4) Organic growth rates, return on total invested capital and return on capital employed are non-GAAP performance measures used by management in measuring the returns

achieved from the Group’s asset base. See note 3 for details.

Profit* £m

Revenue* £m

06
05
04
03
02
01
00
99
98
97

£20m

£40m

£60m

£50m

£150m

£250m

£350m

ROTIC** %

Dividends*** £m

06
05
04
03
02
01
00
99
98
97

10%

20%

£10m

£20m

£30m

Weighted average cost of capital

* Revenue and profit include the results of the discontinued activities up to the date of discontinuance. Profit is before amortisation of acquired intangibles/goodwill.

Figures prior to 2005 have not been restated for IFRS.

** Return on Total Invested Capital (“ROTIC”) prior to 2005 has not been restated for IFRS.

*** Dividends paid and proposed.

Halma p.l.c. 2006 05

Chairman’s statement
During the last year, Halma has
made significant progress.

What is also very noticeable is the impact of our new CEO
Andrew Williams. Our strategy is clearer than it has been since
I arrived on the Board (this is articulated later in this report both
at the Group level and for each of the three new major operating
sectors). Speed of decision making has improved dramatically
(the same piece of paper rarely gets picked up off his desk
twice) and this is spreading throughout the Group, although
Andrew would be the first to modestly say “it’s a team effort”,
and he’s right.

With this strategy as a template, the direction of cash allocation
is much clearer. In line with this, we have disposed of eight
businesses during the year and acquired three, so, in turn,
our structures and focus are also far clearer. Our balance sheet
remains strong – at the year end we had net cash of £4 million
despite investing £36 million in acquisitions and receiving
£15 million from disposals. Including £60 million of debt capacity,
we have significant firepower to acquire more companies in line
with our strategic directions. We are also investing in more sales
and production infrastructure in the new fast-growing economies
– particularly China, the aim being to make it easier for our
individual companies to make further, and in some cases first,
steps there in developing more business.

I should like to thank all of our employees for their dedication
to our customers and their constant ability to come up with
innovative ideas. The increased investment in people seems to
be having a very significant payback with a healthy queue of
excellent internal candidates now clamouring to participate
in our customised management training.

So, behind these record results also lies record investment – in
people, innovation and new markets as well as new acquisitions.
This, together with clarity of direction and increased momentum
gives us confidence for the future.

All in all, an excellent vintage.

Geoff Unwin Chairman

During the last year, Halma has made significant progress.
First of all, the headline numbers. The total Group including
discontinued operations, which is what we were responsible
for throughout the year, increased revenue by 12.8% to
£337.3 million (2004/05: £299.1 million). Profit before tax and
amortisation of acquired intangibles on this basis increased by
19.4% to £59.6 million (2004/05: £49.9 million*). Revenue and
profit before tax and amortisation of acquired intangibles from
continuing operations increased by 15.7% to £310.8 million and
20.3% to £58.1 million respectively. Statutory profit before tax
increased by 17.9% to £56.6 million. All these figures are clear
records for the Group. These results reflect organic revenue
growth** of 10.8% and organic profit growth** of 14.9%.
The Board is recommending a final dividend of 4.12p per
share, an increase of 5% for the year, in line with our policy of
progressively increasing the dividend but also increasing cover
which now moves to 1.6 times (2004/05: 1.5 times). Return on
total invested capital** improved to 12.8% (2004/05: 12.1%).

Over the last few years our focus has been on re-establishing
organic growth; a point emphasised and supported by
shareholders at last year’s annual general meeting. In previous
statements I highlighted some of the areas that may have been
holding us back and some of our actions to address them,
for example – more and faster innovation, upgrading our sales
capabilities, more investment in training our people, sharpening
and simplifying our devolved management structures, rethinking
management incentives and so on. Well, the action we took
certainly worked last year. The statistician in me would love to
be able to determine what benefit we got from what changes –
intriguing, but impossible to do with precision. What I can say,
is that we are not resting on one year’s results and we continue
to examine and debate each and every factor that may be
impeding us.

*Restated under IFRS see note 1 to the accounts.
**See Financial highlights.

06 Halma p.l.c. 2006

Chief Executive’s strategic review
Record profit and revenues
achieved against a background
of major strategic change.

We have had an outstanding year producing profit growth
from continuing operations* of 20% (18% on a statutory basis)
and revenue growth of 16%. Organic growth* was 15% and 11%
for profit and revenue respectively.

This is a record performance by a significant margin and
was achieved against a background of major strategic change.
This is a testament to the robustness of our growth strategy
and the quality of the contributions made by our employees.

We now report our results under three market-defined sectors:
Infrastructure Sensors, Health and Analysis and Industrial Safety.
These replace the previous six product-based divisions and
more closely reflect the coherent nature of our activities and the
way we operate, as well as making it easier for shareholders
to gain a better understanding of what we do. You will find
details about each sector in the comprehensive business review
which follows.

Our return to organic growth was widespread across the Group
and was underpinned by a tremendous performance in the
Health and Analysis sector. Strong organic growth was boosted
further by a rapid recovery by our Water business. Infrastructure
Sensors started to show promising revenue growth in the second
half, although continued investment in the sales and support
structure for the longer term suppressed short-term profits.
All parts of our Industrial Safety sector performed strongly
with the buoyant oil and petrochemical market contributing
to healthy revenue and profit growth.

I am very pleased with the record Return on Capital Employed
(“ROCE”)* of 57% achieved during the year. Our success in
achieving growth has not come at the expense of diluting the
quality of our returns. Another year of strong cash generation
has funded organic growth, acquisitions and, for the 27th
consecutive year, enabled a further increase in our dividend
of 5%. Between self-generated cash and a longer term debt
facility of £60 million, we have sufficient capital resources to
support our growth plans for the coming year.

*See Financial highlights.

Halma p.l.c. 2006 07

Strategic achievements

Strategic directions

> Organic profit growth* 15%, organic revenue growth* 11%
> 3 acquisitions inject new technology and new markets
> 8 disposals generate £15 million cash
> New Chinese, Indian and Middle East sales offices
> New manufacturing facilities in low cost areas
> Over 100 new products launched
> Management development programme launched
> 57% ROCE* funds organic growth, acquisitions

and dividend increase
> Ungeared at year end

> Organic growth to exceed 5% p.a.
> Continued management development
> Establish “hubs” in China
> Maintain strong new product innovation
> Acquisitions – particularly in Health and Analysis

Our highly decentralised operating structure makes us
particularly dependent on the quality of our local management
teams. Following the significant people changes made at
operating company board level over the past two years,
it is pleasing to see this action translate into improved results.
To build further momentum, we have created a bespoke
development programme for our senior management at
Henley Management College, a leading UK business school.
This leadership development programme not only helps our
management become even more successful in their current role,
but also gives us a stronger pool of talent to draw on as new
opportunities arise.

I thank all the employees for their contribution during an exciting
and successful year. We can take great confidence in the
exceptional results that have been achieved during the year
but recognise there is no room for complacency. Our goal is to
achieve growth and create value for shareholders every year.

We have made tremendous progress in 2005/06 in terms of both
achieving organic growth in the short term and improving our
growth potential for the future. Our underlying growth prospects
remain good and we enter the new year better placed to exploit
them due to the rapid recovery in our Water business and new
acquisitions. I look forward to the year ahead with confidence.

Andrew Williams Chief Executive

We completed three acquisitions, all of which are performing
ahead of expectations. Netherlocks, acquired in July, increased
our presence in the oil and petrochemical market and
strengthened further our leadership in valve safety interlocks.
Radio-Tech, acquired in August, brought important wireless
communications technology to our Water business and offers
new opportunities elsewhere in the Group. In November, we
acquired Texecom giving us an entry into the strategically
important security sensor market. Texecom offers us attractive
growth potential in its own right. It has common sales distribution
channels with Fire and similar technology platforms to our
Door Safety activities, providing additional opportunities for
the longer term.

The disposal of eight businesses demonstrated our commitment
to actively allocate capital and people resources. In February
we sold our high power Resistors business for £14 million.
While this business had generated good value for shareholders
over many years, its recent performance relative to other Halma
companies, and in absolute terms, fell short of expectations.
The net result of the acquisitions and disposals made this year
is that we are making more profit, we have allocated more
resource to markets with higher growth potential and we have
10% fewer companies.

We are expanding geographically. We have opened additional
sales and technical support offices in China, India, Malaysia,
Spain, Ireland, US and, most recently, Dubai. In addition, we have
established new manufacturing facilities in Eastern Europe and
Tunisia. Although we have manufactured Infrastructure Sensor
products in China for over a decade, we are increasing our direct
presence in this important long-term growth market at a faster
pace. For example, we are creating new Halma “hubs” in
Shanghai and Beijing to help our companies get new activities
established or develop their existing activities more rapidly. We
expect those companies which are successful to spin-out and
develop as strong, independent operations in their own right.

Last year, I mentioned the need for us not only to maintain our
high level of investment in Research & Development (“R&D”),
currently 4% of revenues, but improve speed to market too.
This year we launched over 100 new products. There are some
early signs of improvement in speed to market in some parts
of the Group, although we can still do more. For example, high
quality R&D resources in lower cost territories, such as India,
can supplement our essential in-house technical capabilities to
achieve shorter product development cycles.

*See Financial highlights.

08 Halma p.l.c. 2006

We have
three sectors...

Infrastructure Sensors
We make products which
detect hazards to protect people
and property in public and
commercial buildings.

Health and Analysis
We make components and
products used to improve
personal and public health.
We also develop technologies
and products which are used for
analysis in safety, environmental
and leisure related markets,
including Water.

Industrial Safety
We make products which protect
property and people at work.

Infrastructure Sensors revenue 2006 £m
£132m
42%

Health and Analysis revenue 2006 £m
£112m
36%

Industrial Safety revenue 2006 £m
£67m
22%

Infrastructure Sensors profit* 2006 £m
£24m
40%

Health and Analysis profit* 2006 £m
£23m
38%

Industrial Safety profit* 2006 £m
£13m
22%

Sub-sectors
Fire detection
Security sensors
Automatic door sensors
Elevator safety

*See note 1 to the accounts.

Sub-sectors
Water
Fluid technology
Photonics
Health optics
Specialist

Sub-sectors
Gas detection
Bursting discs
Safety interlocks

...and
one approach

Halma p.l.c. 2006 09

As a group we are:
> Autonomous and entrepreneurial
> Highly cash generative
> Financially strong
> Successful acquisition integrators
> Effective people/team builders
> Good at sharing opportunities

Our businesses have:
> Robust growth drivers
> Worldwide opportunities
> High performance products
> Innovative product development
> Market leading positions
> High barriers to entry
> Empowered local management

Take a look at what we have been doing >

10 Halma p.l.c. 2006

This is saving El Paso 6 million
gallons of water per day.

> Health and Analysis

City-wide electronic surveillance cuts water wastage
The 700,000 residents of the city of El Paso, Texas, are benefiting from our water
pipework leak location technology which is credited with saving the city about 6 million
gallons of water a day.

El Paso has invested in the world’s largest permanently installed network of underground
water pipework leak detectors. About 11,000 of our Permalog sensors monitor the city’s
water distribution network. On top of the environmental benefit of conserving water
resources, the city has made financial savings in reduced water treatment costs, and also
energy and cost savings from reduced pumping.

Halma p.l.c. 2006 11

12 Halma p.l.c. 2006

This is helping to keep
Shanghai safely on the move.

> Infrastructure Sensors

High speed trains run safely with our door sensors
Protected by our automatic door control products, passengers on China’s revolutionary
magnetic levitation railway in Shanghai enter and exit carriages in safety. Our infrared
sensors protect passengers from harm by ensuring that the doors cannot close while
people enter or exit the train.

Claimed to be the fastest train in the world, the Maglev transports passengers from
Longyang Road Station in downtown Shanghai to Pudong International Airport at
extraordinary speeds of up to 430 kph (267mph). The 30 kilometre (19 mile) journey
takes just 7 minutes.

Halma p.l.c. 2006 13

14 Halma p.l.c. 2006

This is protecting thousands
of holiday makers in Slovakia
every day.

> Health and Analysis

We keep the water safe at AquaCity
Holiday makers enjoying the pools and spas at AquaCity, a luxury holiday resort recently
opened in Slovakia, have fun and relax in sparkling clear water treated by our UV water
disinfection systems.

A modern alternative to chlorination, ultraviolet light treatment of pool water has many
benefits for swimmers and pool operators. A unique feature of this resort is that the pools,
whirlpools, saunas and spas are fed from a naturally pressurised and geothermally heated
underground lake. AquaCity’s developers chose our non-chemical UV water treatment
technology partly because it complements their desire to minimise the environmental
impact of the resort.

Halma p.l.c. 2006 15

16 Halma p.l.c. 2006

This is preventing injury
to the staff at Walkers
Snack Foods.

> Industrial Safety

Forklift operators can load lorries safely
Forklift truck operators at Walkers, Britain’s biggest snacks maker, are now protected
from the danger of lorries driving away while they are still loading them by a unique safety
product that we launched last year. Our Salvo safety system has been fitted across six
of Walkers’ UK logistics centres.

Salvo makes workplaces safer by imposing rigorous control on people’s behaviour, which
could otherwise lead to accidents. It simply removes the opportunity for human error.
You can find out more about Salvo on our dedicated website www.salvosafe.com.

Halma p.l.c. 2006 17

18 Halma p.l.c. 2006

This is protecting the lives
of shoppers in Dubai.

> Health and Analysis

We provide instant warning of gas hazards at this
shopping mall in the United Arab Emirates
If potentially deadly carbon monoxide gas from car exhausts reaches danger levels in the
car parks of the Mall of the Emirates shopping and leisure complex in Dubai, a network of
660 gas sensors will activate the ventilation system and trigger an alarm.

Dubai, part of the United Arab Emirates, is fast becoming the business capital of the
Middle East and is a key trading route between East and West. With a rapidly expanding
economy founded on oil exports, the UAE is investing heavily in tourism infrastructure.
Dubai’s recently announced £14 billion Bawadi Project will see the construction of
31 luxury hotels, 100 theatres and 1,500 restaurants.

Halma p.l.c. 2006 19

20 Halma p.l.c. 2006

This is keeping lift
passengers in Mumbai safe.

> Infrastructure Sensors

High-rise buildings in India are being fitted with our lift safety sensors
The Hinduja Hospital in India’s fast-expanding capital, Mumbai, is one of hundreds of
high-rise offices and residential buildings throughout India where our infrared lift door
sensors have been installed to protect people from contact with moving doors.

India’s rapid economic growth, estimated at around 8% per year, plus a constant
population drift to metropolitan centres, is driving a construction boom and demand for
our elevator products. During 2005/06 we opened a new sales and technical support
centre in Mumbai which has the largest number of skyscrapers in South Asia and a
population estimated at 13 million.

Halma p.l.c. 2006 21

22 Halma p.l.c. 2006 Business and financial review

Group overview

Halma protects lives and improves quality of
life for people worldwide through innovation
in market leading products which make our
customers safer, more competitive and
more profitable.

Business overview
Halma is made up of three sectors each comprising autonomous
operating companies which mainly manufacture innovative
electronic and electrical products for niche markets with global
dimensions. We are an international group with businesses in
20 countries and major operations in Europe, the USA, Asia and,
most recently, Africa. You will find a description of our products,
the industries in which we operate and trends in our markets in
the sector reviews on pages 26 to 31. These sectors are:

> Infrastructure Sensors detecting hazards, and protecting
people and property in buildings

> Health and Analysis

> Industrial Safety

improving public and personal health;
protecting the environment

protecting property and people
at work

Group target

>5%

2006

11%

15%

2005

~18%

18.7%

18.0%

Key performance indicators
Financial key performance indicators (KPIs) used by the
Board to monitor progress are listed in the table on the
left. Similar indicators are used to review performance in
our three sectors. KPIs are calculated on results from
continuing operations.

We have performed well this year against our KPI targets.
This impressive operating performance is not uncommon
for Halma although 2005/06 demonstrated levels of organic
revenue and profit growth well above those seen in recent
years. The stated targets represent the shape we aim for in
our business.

We achieved a higher percentage of organic profit growth (15%)
than organic revenue growth (11%) and this is a relationship
we expect to see because of our high operating leverage.
Our ROCE and ROTIC both increased this year and these are
important measures of our creation of value for shareholders.
Further discussion of the Group’s financial performance can
be found in the Financial review below.

KPI

Organic revenue growth1

Organic profit growth1

Return on sales2

ROCE3 (Return on
Capital Employed)

ROTIC3 (Return on Total
Invested Capital)

>45%

56.9%

48.8%

>12%

12.8%

12.1%

R&D as a % of sales4

~4%

Operating cash to operating profit5 100%

4.3%

117%

4.2%

121%

1. Organic growth measures the change in the revenue and profit from continuing
Group operations. The effect of acquisitions made during the current or prior
financial period has been equalised by subtracting from the current year results a
pro-rated contribution based on their revenue and profits at the date of acquisition.

2. Return on sales is defined as adjusted6 profit before taxation from continuing

operations expressed as a percentage of revenue from continuing operations.

3. ROCE and ROTIC are non-GAAP measures used by management in measuring the
returns achieved from the Group’s asset base. See note 3 to the Accounts for details
of the calculation basis.

4. Research and development expenditure as a percentage of revenue from

continuing operations.

5. Cash generated from continuing operations is expressed as a percentage of

adjusted6 operating profit from continuing operations.

6. Adjusted to remove the amortisation of acquired intangible assets.

This Business and financial review is based on the guidelines
for Operating and Financial Reviews published by the
Accounting Standards Board. To help shareholders get a clear
insight into our business we look at issues affecting the Group
as a whole on pages 22 to 25, followed by an analysis of our
three principal operating sectors in more detail on pages 26 to
31, and then we summarise Operating environment, risks and
uncertainties, concluding with a Financial review.

Business and financial review Halma p.l.c. 2006 23

Strategy and business objectives
Our strategy for driving growth and creating shareholder value
centres on five key principles:

> Operate in specialised global markets offering long-term

growth underpinned by robust growth drivers;

> Build businesses which lead specialised global markets

through innovative products differentiated on performance
and quality rather than price alone;

> Recruit and develop top quality boards to lead our businesses
and nurture an entrepreneurial culture within a framework of
rigorous financial discipline;

> Acquire companies and intellectual assets that extend

our existing activities, enhance our entrepreneurial culture,
fit into our decentralised operating structure and meet our
demanding financial performance expectations;

> Achieve a high Return on Capital Employed to generate

cash efficiently and to fund organic growth, closely targeted
acquisitions and sustained dividend growth.

Organic growth is the key to our value creation strategy.
The “blended” long-term growth rate of our markets is around
5% per year and our aim is grow faster than our markets.
Achieving organic revenue and profit growth above 10% this
year was, therefore, a very good performance, especially
since organic growth has been disappointing in recent years.

R&D and innovation play an important role. Strategically, we
aim to provide technical resources within each business as
close as possible to the customer. We encourage collaboration
between Halma companies and see this as a potential
competitive advantage that has been under-utilised in the
past. The creation of three major market-focused sectors will
provide greater transparency and already we are seeing new
collaboration opportunities.

Growth drivers

> Safety regulations and legislation
> Risk and cost of accidents
> Construction industry growth (new build and refurbishment)
> Capital investment in industrial facilities
> Population growth, ageing and urbanisation
> Rising expectations of health and safety
> Industrial growth in developed countries
> Industrialisation of developing world
> Energy and water resources markets growth
> New technology

24 Halma p.l.c. 2006 Business and financial review

Group overview continued

Our businesses build competitive advantage and strengthen
barriers-to-entry in many ways including patents, product
approvals, technical innovation, product quality, customer service
levels and branding. We look for these qualities in the businesses
we seek to acquire. We like regulated markets which require
suppliers to achieve compliance with demanding product
standards but also look for other long-term growth drivers such
as demographic change. For example, during the year our
Fire detectors business added 500 new product approvals
totalling over 2,500 international, national and local approvals.

We cultivate a highly decentralised operating culture which
encourages our businesses to focus on establishing market
leadership in their selected niche within a global market.
Each subsidiary is led by a management team who enjoy
genuine autonomy and the freedom to grow in an
entrepreneurial environment.

These management teams are chaired by Halma’s Divisional
Chief Executives (DCEs) who understand the market needs and
can contribute broadly to the individual company’s strategy in
technical, operational and commercial areas. These DCEs meet
with the Group Chief Executive regularly to review progress
against their operating division’s strategic objectives.

When new acquisitions join Halma they invariably retain their
name and identity, and vendors often continue to work with
us. Elsewhere entrepreneurs typically find working in a large
international organisation too constraining but our autonomous
culture and decentralised structure allows them to develop
further. Over the years, many of our top executives have joined
us through acquisition.

Halma p.l.c. 2006 25

Results
The 2005/06 results are summarised as follows:

£ million

Infrastructure Sensors

Health and Analysis

Industrial Safety

Inter-segmental sales

Central companies

Amortisation of acquired intangibles

Net finance expense

Continuing operations

Taxation

Discontinued operations

Result for the year

Revenue

Profit before taxation

2006

131.9

111.7

67.6

(0.4)

–

2005

118.2

93.1

57.9

(0.5)

–

% change

11.6%

20.0%

16.8%

310.8

268.7

15.7%

–

310.8

268.7

15.7%

–

26.5

337.3

–

30.4

299.1

12.8%

2006

24.1

23.4

12.9

–

(0.4)

60.0

(1.5)

(1.9)

56.6

(17.0)

39.6

1.3

40.9

2005

23.7

15.0

10.1

–

0.6

49.4

(0.3)

(1.1)

48.0

(14.5)

33.5

1.1

34.6

% change

1.7%

56.0%

27.7%

21.5%

17.9%

18.2%

See the individual sector reviews and the Financial review below for a discussion of these results.

Outlook
As well as achieving excellent short-term progress during
2005/06 by substantially raising organic growth, we established
firm foundations for the long-term growth of our business.

We will pursue geographic expansion and new product
development energetically. Continued investment to extend our
presence in key developing markets and continuing development
of senior management are key actions aimed at sustaining
profitable revenue growth.

Key growth drivers, like regulation, legislation and attitudes to the
risk of accidents, will continue to play an important role in
creating favourable market conditions. Growth in the coming year
will be aided by a full year’s contribution from our new
acquisitions and we will continue to explore collaboration
opportunities between our businesses.

Our underlying growth prospects are positive and we are in a
better position to exploit them following the rapid recovery of our
Water business and the acquisitions and disposals completed
during the year. We enter the new year in good shape.

26 Halma p.l.c. 2006 Business and financial review

Infrastructure Sensors sector review

We make products which detect hazards
to protect people and property in public
and commercial buildings.

Sector overview
Infrastructure Sensors is our largest business contributing 42%
of Group revenue (£132 million) and 40% (£24 million) of Group
profit. There are four main sub-sectors:

Group target

>5%

2006

12%

2005

(2%)

(3%)

Fire detectors We make fire and smoke detectors and
audible/visual warning devices. We are the second largest
manufacturer of point smoke detectors in the world. We make fire
products in the UK and US with sales offices in the US, Europe,
Africa, the Near East and Asia.

KPI

Revenue growth1

Profit growth2

Return on sales3

ROCE4 (Return on
Capital Employed)

R&D as a % of sales5

~18%

18.3%

20.1%

>45%

~4%

60%

4.4%

70%

4.2%

KPIs are calculated on results from continuing operations.

1. Sector revenue compared with the prior year.

2. Adjusted6 sector profit before finance expense compared with the prior year.

3. Return on sales is defined as adjusted6 sector profit before finance expense and

taxation expressed as a percentage of sector revenue.

4. Adjusted6 sector profit before finance expense expressed as a percentage of

sector operating assets.

5. Sector research and development expenditure expressed as a percentage of

sector revenue.

6. Adjusted to remove the amortisation of acquired intangible assets.

Security sensors Through our acquisition of Texecom, we have
established a strong presence in this strategically important and
fast growing market. We are the market leaders in the UK and
South Africa for security sensors used in public and commercial
property. These products are made in the UK.

Automatic door sensors We are the world’s largest manufacturer
of sensors used on automatic doors in public and commercial
buildings. These products are made in China, Europe and
the US.

Elevator safety We are the world’s largest manufacturer of
elevator/lift door safety sensors. We also make emergency
communication devices, display modules and control panels for
elevators. These products are made in the UK, Eastern Europe,
New Zealand, the US, China and Singapore.

Sector strategy
In this sector, our strategy is to be the leading supplier of sensors
(and other critical components) and not an installer of complete
fire, security, automatic door or elevator systems. Our strong
focus on safety-critical sensor components enables us to sell to
the major global players in the building infrastructure markets
who supply complete, installed systems such as GE, Honeywell
and Tyco in Fire, and OTIS, Mitsubishi and Kone in Elevator
Safety. By concentrating all our efforts on a single system
component, we can offer high performance products complying
with all the major international and national regulations
and standards.

Strategic achievements

Strategic directions

> Revenue increased by 12%, profit by 2%
> New sales and technical support offices in China, India,

USA, Spain, Ireland, Dubai and South Africa

> New low cost manufacturing in Czech Republic for

Elevator Safety

> Texecom acquired for £26 million in November 2005.

The strategically important Security market has relatively
higher growth potential and increasing legislation
and regulation

> Over 30 new products launched

> Organic profit growth driven by revenue growth
> Increase direct presence further in China and Asia regions
> Devise and implement revised growth strategies for

Elevator and Door Safety businesses
> Continue to reduce manufacturing costs
> Complete integration of Texecom and develop

technical/commercial collaboration opportunities

Business and financial review Halma p.l.c. 2006 27

During 2005/06 we saw continuing price competition in our
elevator products and automatic door sensor markets.
The Middle East, China and India are experiencing some of the
highest rates of high-rise building development in the world.
To strengthen our local presence, we recently established new
elevator product sales offices in Dubai, Mumbai and Chongqing
(our fourth regional office in China).

In our 2004/05 Operating review we identified growing demand
for products which assist evacuation during fire emergencies.
Our investment in advanced technology audible and visual
devices which assist safe building evacuation produced
double-digit sales growth for these products.

Sector performance
Revenue growth at 12% for this sector included the benefit
of the Texecom acquisition made in the year. Despite this,
profit growth at 2% was below our target largely because of
the extra investment in overheads made this year to improve
longer-term growth potential. This also has had the effect of
reducing the return on sales although this remains at a high
level because product margins were sustained. ROCE
continues to be excellent.

Sector outlook
Investment to increase our direct presence in key developing
markets and changes to senior management are aimed at
accelerating profitable revenue growth. In the coming year, we
expect those actions taken in 2005/06 to start to deliver organic
profit growth. Growth in this sector will also be boosted by a full
year’s contribution from our new security business, Texecom.
We will continue to explore collaboration opportunities across
all Infrastructure Sensor businesses.

Our Infrastructure Sensor products are used in both new
build and refurbishment projects, so we work hard to ensure
new sensor products are backwards-compatible with
existing installations.

R&D investment and product innovation is central to maintaining
competitive advantage in this sector. This is because constantly
changing technical standards and regulations drive our
infrastructure sensor markets. We make an active contribution to
the development of international technical standards. In the past
year we worked closely with trade bodies such as CENELEC and
EURALARM which set standards in the EU for intruder alarms,
and also with the British Security Industry Association and the
British Standards Institute on the interpretation and
implementation of EU standards.

To enhance public safety, governments worldwide set
increasingly stringent standards for fire protection products.
In the past year alone, our fire products companies have
added 500 new technical approvals which allow us to sell
our products worldwide.

Market trends
Our security sensors sell into a global market, worth
approximately £2 billion annually, which is growing at 6% to 7%
per year. Since acquisition, Texecom has continued to grow
faster than the market and we hold a dominant market share
in the UK and South Africa.

A global fire detection market growth of 4% per year is expected
to continue for the foreseeable future. Demand for fire detectors
is particularly strong in China and India, where infrastructure
investment is generating annual market growth of 15%, and in
the Middle East which is growing by 8% per year. Conversely,
demand in developed markets such as Europe and the US has
lagged behind the global market growth rate. Falling end-user
fire detector prices coupled with shorter product life cycles have
been characteristics of this market since we first entered it over
20 years ago. However, we believe that our investment in product
development, manufacturing and the supply chain will continue
to deliver organic growth and maintain our excellent margins.

Geographic regions

Main growth drivers

Belgium
China
Czech Republic
Germany
India
Japan
New Zealand
Singapore
South Africa
UK
USA

••

•
•
••• • •

•

28 Halma p.l.c. 2006 Business and financial review

Health and Analysis sector review

We make components and products used
to improve personal and public health.
We also develop technologies and products
which are used for analysis in safety,
environmental and leisure related markets,
including Water.

KPI

Revenue growth1

Profit growth2

Return on sales3

ROCE4 (Return on
Capital Employed)

R&D as a % of sales5

Group target

>5%

2006

20%

56%

2005

27%

17%

~18%

21.0%

16.1%

>45%

~4%

79%

4.9%

58%

4.6%

KPIs are calculated on results from continuing operations.

1. Sector revenue compared with the prior year.

2. Adjusted6 sector profit before finance expense compared with the prior year.

3. Return on sales is defined as adjusted6 sector profit before finance expense and

taxation expressed as a percentage of sector revenue.

4. Adjusted6 sector profit before finance expense expressed as a percentage of sector

operating assets.

5. Sector research and development expenditure expressed as a percentage of sector

revenue.

6. Adjusted to remove the amortisation of acquired intangible assets.

Sector overview
Health and Analysis is our fastest growing business sector
and contributed 36% (£112 million) of Group revenue and 38%
(£23 million) of Group profit.

We serve a very wide range of specialised applications in
areas such as eye health, food and beverage manufacturing,
clinical and medical diagnostics, bio-hazard detection, water
purification, water conservation and leisure industries.
There are four major sub-sector businesses.

Water We are the world leaders in monitoring and finding leaks
in underground water pipelines and among the world leaders in
UV technology used to disinfect and treat water. We manufacture
water instrumentation in the UK, Europe and the US.

Fluid technology We make critical components such as pumps,
probes, valves, connectors and tubing used by the major
scientific, environmental and medical diagnostic instrument
manufacturers for demanding fluid handling applications.
These products are made in the US and UK.

Photonics We have market-leading technologies and products
which generate light, condition light and analyse the interaction
of light on substances. The range of applications is vast, ranging
from cancer detection to specialised architectural and theatre
lighting filters. We have three manufacturing sites in the US
and two in Europe.

Health optics We make handheld devices used to assess
eye health, diagnose disease and assist with eye surgery.
Our Keeler and Volk brands are used by the world’s leading
ophthalmologists and eye surgeons. Our ophthalmic products
are made in the UK and US.

Sector strategy
After a year of restructuring, our Water business recovered
ahead of schedule. The costly product rationalisation completed
on our network monitoring and leak detection product range
and the changes to US management in our ultraviolet (“UV”)
business, enabled double-digit organic revenue and profit growth
to be delivered this year. Market conditions helped because UK
water companies increased capital investment as they started a
new five-year AMP period (a five-yearly capital investment cycle
regulated by the Drinking Water Inspectorate).

The acquisition of Radio-Tech brought new RF wireless
communications technology to our Water business and a
broader asset monitoring and wireless connectivity opportunity
to many other businesses across the Group.

Strategic achievements

Strategic directions

> Revenue increased by 20% and profit by 56%
> Water business recovered profitability ahead of schedule
with revenue growth of 13% and profit growth of 134%
> Radio-Tech acquired in August 2005 bringing new wireless
communications technology to our Water business and
other Group companies

> Over 60 new products launched during the year
> £1 million+ investment in expanding our leading edge optical

coating manufacturing facility at Ocean Optics, US

> Organic profit growth driven by revenue growth
> Target further acquisitions
> Increase sales and operational resources in China

and Asia regions

> Launch new products in Photonics and Water
> Increase investment in Optics/Photonics manufacturing

to secure and leverage IP further

Business and financial review Halma p.l.c. 2006 29

Our rate of innovation and that of our customers, in new
products and processes, is a major driver of success in this
sector. During the year we increased our investment in R&D
at 4.9% of revenue and launched over 60 new products.

Relative to our other two sectors, Health and Analysis has a
larger proportion of revenue and profit made in US Dollars,
hence significant movement in this currency can have an
impact on Sterling results.

Market trends
We sell fluid technology products into the analytical, life science
and medical instrumentation markets which continue to grow at
high single-digit rates. Demand is driven by growing populations,
improving conditions in developing countries and biotech/
pharmaceutical research. Typically, instrumentation for these
markets must meet stringent testing and regulatory requirements
which make it difficult for the instrumentation manufacturer
to change key components once they are designed-in and
certified. Our primary global market, life science instrumentation,
continued to grow in the high single-digit range.

As we indicated in our 2004/05 Operating review, the United
States Postal Service awarded further contracts for biohazard
detection equipment which created additional demand for our
components. Also predicted last year, the fuel cell market is
moving slowly from prototyping towards low production volumes.

Markets for our ophthalmic instruments are heavily regulated.
New health optics products require lengthy technical approvals,
and instruments using new diagnostic methods need clinical
trials. These factors add cost and time to new product
development, but are a strong disincentive to new competitors.

There are very strong underlying drivers for moderate growth
to continue in the health optics sector. The increasing number of
older people in the developed world inevitably promotes demand
for eye care. Added to this, as GDP rises in developing countries,
demand for healthcare rises too.

We estimate the size of the global market for UV water treatment
systems to be in the region of £350 million per year. Forecast
growth rates vary from 5% to 15%, with highest growth predicted
in the municipal sector. Demand for UV drinking water treatment
systems in the US was boosted in 2005/06 when the
Environmental Protection Agency (the principal regulator)
approved UV technology for controlling the cryptosporidium
micro-organism in drinking water.

UV water treatment is another market dominated by product
certifications. During 2005/06 we launched new products to
satisfy the latest European DVGW and Önorm approvals and a
product line complying with the new US National Water Research
Institute standards will be launched in 2006/07. The forecast
recovery in our UV business, following reorganisation in the US,
delivered 20% sales growth. The leisure industry is showing high
growth and sales to semiconductor fabricators were the highest
for several years.

Our photonics business saw record revenue and profit with
the latter 24% ahead. Our core photonics products, miniature
spectrometers which measure light, are sold into a highly
fragmented but rapidly growing global market valued at
between £50 million and £150 million per year.

The largest market for water leakage control products remains
the UK due to its ageing water network, environmental and
regulatory pressures on water companies, regional population
growth and recent drought conditions. We expect these factors
to drive UK demand for the foreseeable future. The US is our
second largest leakage control market where we won further
large contracts in 2005/06, notably for the cities of Albuquerque,
New Mexico, and Birmingham, Alabama, and for the island of
Hawaii. There is little regulatory pressure on US water companies
to reduce leakage and rising US demand for our products is
driven by water shortages and increasing energy costs.

Sector performance
The strong revenue and profit growth (20% and 56%
respectively) continued the trend of the previous year.
This growth came in part from acquisitions but predominantly
from the recovery in our Water businesses and strong
performances across the sector. These factors restored the
return on sales to a more typically high figure of 21%.
ROCE and investment in new products were both at good levels.

Sector outlook
The exceptional growth levels achieved in 2005/06 included the
benefit of a rapid recovery in our Water business. We expect
the Health and Analysis sector to make further progress in the
coming year albeit without this one-off extra boost to profits.

Geographic regions

Main growth drivers

Canada
France
Germany
Netherlands
UK
USA

•

•••••
•

•
•
•••
•••

•

30 Halma p.l.c. 2006 Business and financial review

Industrial Safety sector review

We make products which protect property
and people at work

KPI

Revenue growth1

Profit growth2

Return on sales3

ROCE4 (Return on
Capital Employed)

R&D as a % of sales5

Group target

>5%

2006

17%

28%

2005

(6%)

~18%

19.0%

17.4%

>45%

~4%

75%

3.1%

59%

3.3%

KPIs are calculated on results from continuing operations.

1. Sector revenue compared with the prior year.

2. Adjusted6 sector profit before finance expense compared with the prior year.

3. Return on sales is defined as adjusted6 sector profit before finance expense and

taxation expressed as a percentage of sector revenue.

4. Adjusted6 sector profit before finance expense expressed as a percentage of sector

operating assets.

5. Sector research and development expenditure expressed as a percentage of sector

revenue.

6. Adjusted to remove the amortisation of acquired intangible assets.

Sector overview
This is our smallest sector, contributing 22% of Group revenue
(£67 million) and 22% of Group profit (£13 million). Following the
sale of our high power Resistor business in February 2006,
there are now three sub-sectors.

Gas detection We make portable instruments and fixed systems
which detect flammable and hazardous gases. We have a
leading position in the UK market. We make our gas detectors
in the UK.

Bursting discs We make ‘one time use’ pressure relief devices
used to protect large vessels and pipe work in process
industries. We are UK market leaders and number four in the
world market. Our bursting discs are made in the UK and US.

Safety interlocks We make specialised mechanical, electrical
and electromechanical locks which ensure that critical processes
operate safely and prevent accidents. We have significant
market strength in petrochemical, oil and gas and significant
geographic market share in Western Europe and Australasia.
We manufacture interlocks in the UK, The Netherlands,
France, Tunisia and Australia.

Sector strategy
Competition in the portable gas detectors sector is stepping up,
particularly for fixed-life disposable products. Our response has
been to differentiate our offering through technical innovation
and high quality customer service. To maintain competitive
position in gas detectors, we are strengthening management,
focusing on reducing manufacturing costs and sharpening
procurement. This strategy led to improved margins and gas
detector profit 7% ahead in 2005/06.

Speeding up product development cycles to continually refresh
product lines is a key strategic objective to drive gas detector
growth during the next five years. Our R&D function has been
extended and we are also using development resources in China
and India to help cut development timescales.

Strategic achievements

Strategic directions

> Profit grew by 27% and revenue by 17%
> Underperforming high power Resistors business group sold

> Organic profit growth driven by revenue growth
> Increase direct international sales presence in Eastern Europe

for £14 million in February 2006

and Asia

> Netherlocks acquired in July 2005 adding to our presence in

the oil and petrochemical safety market

> Develop low cost manufacturing operation in Tunisia
> Continue to exploit the fast growing oil and petrochemical

> New low cost safety interlocks manufacturing operation

market opportunity

established in Tunisia

> Major new products launched including the Tetra 3 gas
detector and new e-Gard interlock and machine control
system

Business and financial review Halma p.l.c. 2006 31

The acquisition of Netherlocks, based in The Netherlands,
extended our presence in the growing petrochemical, oil and
gas market. We believe this market offers attractive prospects
for the next decade and beyond. Adoption of Western safety
standards in China and Eastern Europe is a clear trend but sales
of interlocks to these territories will build more slowly than for
petrochemical, oil and gas.

Over the past two years we have been creating a new market
for interlocking devices in the logistics industry. Our Salvo safety
system, which prevents accidents to forklift truck operators, has
been very well received by the market and has contributed over
£1 million of revenue.

Sector performance
Following the sale of our Resistors business, we achieved
organic growth in all sub-sectors and in all major geographic
territories. Revenue growth was particularly strong in our
traditional markets of the UK, mainland Europe and the USA.
Revenue and profit growth included some benefit from
acquisitions but also strong organic growth in our businesses
serving the oil and gas markets. Return on sales improved and
product margins increased. ROCE continued to be very strong.
As planned a relatively lower percentage of sales was invested
in R&D in this sector than in our other sectors as the markets
served here tend to be more mature and conservative.
However, good growth opportunities continue to exist.

Sector outlook
Whilst we have had an excellent year, we will continue to pursue
our geographic expansion and new product development plans
energetically. Regulation and legislation and reducing the risk of
accidents play an increasingly important role in the working
environment. We are well placed to deliver growth in line with
market growth rates, at least, for the coming year.

Our bursting disc competitors consolidated during 2005/06;
we now compete with just six other manufacturers worldwide.
On a global scale, we rank fourth. To realise our aim of raising
global market share, we will extend our sales operations and
continue to improve our operating efficiencies.

During the year, one of our French safety interlock businesses
established a new manufacturing operation in Tunisia. This offers
an interesting alternative to “traditional” low cost locations giving
us a highly educated work force and no language or time zone
issues. The early signs of this strategic move are positive.

Market trends
The trend towards higher levels of health, safety and
environmental awareness globally provides long-term growth
prospects for our Industrial Safety businesses. While a lot of
manufacturing industry is moving East, much of it is still driven by
the relocation of Western companies who are “exporting” safety
standards. Overall, we believe the long-term growth rate of the
market to be 3% to 4% per year.

The global market for portable personal protection gas
detectors is estimated to be valued at £275 million per year.
We also sell fixed gas detection systems into a global market
worth approximately £250 million per year. Both markets are
expanding annually at about 3%. Because gas detection
equipment is safety-critical, it requires regular servicing
and calibration. Service is a key component of our gas
instrumentation offer and makes a substantial contribution
to sales.

We have built a market-leading position in the UK for boiler
combustion test instruments which optimise gas burning
efficiency and minimise energy use. We recently won a tender
valued at £1 million to supply these instruments to British Gas.

The world market for bursting disc pressure safety devices
continues to grow slowly. We are seeing a gradual relocation
of our customers’ manufacturing activities to low labour cost
countries. Our response is to step up selling operations in
Eastern Europe, India and China. We won significant new
business in both Europe and the US due to our strategy of
providing industry-leading technical support and fast deliveries.
This contributed to bursting disc profit growth of 30% in 2005/06.

Geographic regions

Main growth drivers

Australia
France
India
Italy
Malaysia
Netherlands
Singapore
Tunisia
UK
USA

•

•
•

•

••

•

•••••
•

•

32 Halma p.l.c. 2006 Business and financial review

Operating environment, risks and uncertainties

Macro-economic, regulatory and competitive environment
With a world economic growth rate forecast to be in the region
of 4.8%, we anticipate that the 2006/07 macro-economic
environment will be broadly favourable to our growth strategy.
In global terms, we see the US and Chinese economies as the
principal growth drivers. We also expect that the continuing
development of the Indian economy will create growth in
demand for several core products, albeit from a low base.

Safety and environmental legislation is constantly evolving,
worldwide, towards increased safeguards and protection.
This favours us because it relentlessly drives demand growth
in many of our core markets. Legislative change challenges
us to continually refresh our product portfolio whilst regulatory
compliance is also a powerful barrier-to-entry for competitors.
Our well developed capacity to innovate, coupled with strong
R&D resources, positions our companies for leadership of
chosen markets dominated by regulatory control.

The markets we operate in are generally highly competitive.
Our diversified product portfolio and wide geographic
coverage means that competitive product manufacturers are
analysed at subsidiary company or operating sector level.
We have commented on the competitive environment
in the sector reviews.

Employee, health and safety and environmental issues
Our core values are Innovation, Empowerment and Achievement.
Our culture is one of openness, integrity and accountability.
We encourage our employees to act fairly in their dealings with
fellow employees, customers, suppliers and business partners.
We recognise that our employees determine our success and
therefore have invested in and encouraged their development
more this year than ever before, not only through our new
intranet training facilities and Halma Executive Development
Programme, but also through clearer leadership and decisive
action. By ensuring that our team has the approach and skills
required to succeed, we are better placed to meet the
challenges of the future.

We recognise the necessity of safeguarding the health and
safety of our own employees whilst at work and operate so
as to provide a safe and comfortable working environment for
employees, visitors and the public. Our policy is to manage our
activities to avoid causing any unnecessary or unacceptable
risks to health and safety and the environment. We have an
excellent long-term record 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.

Many of our innovative products play a very direct role in
monitoring and improving the environment. Our brands lead
the world in a number of technologies which help to minimise
environmental damage.

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.

Halma was designated a member of the FTSE4Good UK index
on its establishment in July 2001.

Resources, risks and uncertainties
The main intangible resources which deliver competitive
advantage and which support our strategic objectives are:
the patents and trade marks which protect our products; our
employees, whose understanding of our customers’ needs and
the dynamics of the markets we operate in, enable us to maintain
leadership in many markets; and the enviable reputation enjoyed
by our brands for superior product quality and market-leading
customer support. Our businesses build competitive advantage
and strengthen barriers-to-entry in many ways including patents,
product approvals, technical innovation, product quality, customer
service levels and branding. We look for these qualities in the
businesses we seek to acquire.

We like regulated markets which require suppliers to achieve
compliance with demanding product standards but also look
for other long-term growth drivers such as demographic
change.

Business and financial review Halma p.l.c. 2006 33

We seek to continuously grow our profit, generating a high return
for shareholders over the long term. We view risk within the
context of this objective as well as in absolute terms.

In any business the inherent risks that are an integral component
of business activities must be identified, managed and mitigated.
Our key means of risk control is the choice of the markets in
which we operate and the people and methods we use to exploit
those market opportunities. We perceive our primary operational
risks to emanate from remoteness of operation and the actions
and quality of our people.

Our choice to operate in the safety products and health-related
technology markets, and the depth of market knowledge we
have built up within the Group, allows us to adequately evaluate
and assess the risks we encounter throughout our operations.

We do not place undue reliance on any one Group company nor
does any one Group company rely heavily on one customer or
transaction. In managing the portfolio of companies within the
Group and in managing the transactions in any one company, we
seek to spread our risks. We have processes in place to ensure
any major transactions are reviewed at the appropriate level,
including at Board level if necessary.

Another factor limiting risk is that our products are predominantly
critical components or instruments which are warranted as fit for
the purpose rather than systems or intangible products where
satisfactory performance is contingent upon third parties.

Our procedures to identify, manage and mitigate the risks within
the Group address the following major risk factors:

Organic growth and competition The Group is affected by
competition in the form of pricing, service, reliability and
substitution. Our focus on improving our rate of innovation
is a direct result of assessing this risk and determining how
best to concentrate our efforts. In addition, all businesses
analyse revenue and margin by product line on a monthly
basis. By ensuring that management are well resourced and
responsive to their markets, we feel that the adverse impact
of competition can be mitigated.

Financial and treasury risks The Group does not use complex
derivative financial instruments and no speculative treasury
transactions are undertaken. Foreign currency risk is
the most significant treasury related risk for the Group.
Significant currency denominated net assets are hedged but
future currency profits are not hedged. Therefore, the Sterling
value of overseas profit earned during the year is sensitive to the
strength of Sterling, particularly against the US Dollar and the
Euro. The Group is exposed to a lesser extent to other treasury
risks such as interest rate risk and liquidity risk. These financial
risks are discussed more fully in note 26 to the Accounts.

Financial irregularities We recognise that the size and
remoteness of some operations may not permit full segregation
of duties and that Internal and External Audit procedures may
not always identify a financial irregularity. Therefore the Group
regularly reiterates to the operating company officers their
fiduciary responsibilities and ensures they are adequately trained
in financial matters whilst maintaining a culture of openness to
promote disclosure.

Pension deficit Monitoring the funding needs of the pension
obligations is essential to controlling the cash the pension plan
requires from Halma. We are currently awaiting the final results
of the main scheme’s December 2005 Actuarial Valuation at
which time the Company will examine its options to deliver on
its pension obligations at an acceptable cost.

Laws and regulations Group operations are subject to
wide-ranging laws and regulations including employment,
environmental and health and safety legislation. All Group
companies have an employee handbook detailing employment
practices and, we consider our relations with our employees
to be good. Each operating company has a health and safety
manager responsible for compliance and our performance
in this area is excellent.

34 Halma p.l.c. 2006 Business and financial review

Financial review

Kevin Thompson Finance Director

Revenue from continuing operations by destination

£ million

United States of America

United Kingdom

Mainland Europe

Asia Pacific and Australasia

Africa, Near and Middle East

Other

Revenue

94.0

82.9

77.2

33.3

14.8

8.6

310.8

%
change

19.4%

18.0%

6.2%

10.2%

49.5%

23.6%

15.7%

Organic growth* in revenue of 11% and profit of 15%
Revenue from continuing operations increased by £42.0 million
(15.7%) to £310.8 million of which £13.1 million (4.9%) came
from acquisitions made this year and from the extra months’
benefit of acquisitions made last year. Underlying organic
revenue growth* was therefore 10.8%. Profit before tax from
continuing operations before amortisation of acquired
intangibles grew by 20.3% to the record figure of £58.1 million
and after adjusting for acquisitions, organic profit growth*
was 14.9%. Statutory profit before tax was 17.9% higher at
£56.6 million. Currency translation contributed a modest 1%
to revenue and profit growth.

We disposed of eight businesses in the year. The table on the
opposite page shows the results both excluding and including
those businesses.

In overview, revenue growth was strong in the year and
gross margins held firm. Overheads were increased, in particular
in the Infrastructure Sensors sector, to accelerate future
opportunity across the world. The net result of our operational
activity, acquisitions and disposals was to grow the return on
sales to 18.7% and increase profit on continuing operations
before amortisation of acquired intangibles and tax by
£9.8 million.

During the year under review we increased revenues in all
territories, with 73% of sales being made outside the UK.
Indeed, sales outside of our traditional primary markets in
the UK, mainland Europe and the USA grew by 20%.

Revenue from continuing operations increased to all of our
geographic destinations and is shown on the table to the left.

The biggest absolute revenue growth came in our largest
geographic sectors of the USA and UK where organic growth
was strong. There was double-digit organic growth in Africa,
Near and Middle East, in addition to the extra revenue in that
region coming from the acquisition of our security sensor
business, Texecom, which has a substantial branch network in
South Africa. Mainland Europe showed a lower rate of growth
and although Asia Pacific and Australasia grew by more than
10%, we see the opportunity for higher rates of growth here in
the future.

All three of our sectors increased revenue by more than 10%,
with the Infrastructure Sensors sector benefiting from the
acquisition of Texecom. The Industrial Safety sector grew
revenues by 16.8% and the Health and Analysis sector increased
by the highest rate at 20.0%, with the growth in these two sectors
predominantly organic. All three sectors increased profits.

Revenue, profit and returns are discussed on a sector basis in
the Sector reviews on pages 26 to 31.

Adjusted earnings per share* (which we consider gives a more
consistent measure of underlying performance) and statutory
earnings per share on continuing operations increased by 20%
and 18% respectively, very good rates of growth. A reconciliation
of adjusted earnings figures to statutory figures is given in note 2
to the accounts.

*See Financial highlights.

Business and financial review Halma p.l.c. 2006 35

Important acquisitions and disposals were completed
in the year
We paid out cash of £36 million on acquisitions and received
£15 million for disposals in 2005/06, a net outflow of £21 million.
The acquisition payments included £8 million in deferred
consideration, mainly in relation to Ocean Optics which we
acquired in 2004/05 and which achieved its maximum targets.
These acquisitions and disposals were an important part of
reallocating Group resources and positioning us for higher
rates of growth.

The largest acquisition in the year was that of Texecom Limited
(UK) in November 2005. We paid a total cash consideration of
£26 million with the last audited accounts showing revenues of
£19.2 million and earnings before interest and tax of £3.9 million.
Prior to this we acquired Netherlocks Safety Systems B.V.
(The Netherlands) in July 2005 for 13 million (£2.1 million)
and Radio-Tech Limited (UK) in August 2005 for £2 million,
these two businesses having a combined annual profit of
£0.7 million on revenue of £3.2 million in their last audited
accounts. There is no deferred consideration for Texecom but
there is the potential to pay a further £7.3 million of consideration
for the other two businesses conditional on substantial profit
growth. The performance of each business has exceeded
our expectations with all achieving very good growth and all
delivering a return well in excess of the Group weighted average
cost of capital which is calculated as being 8%.

In April 2006, early in the new financial year, we purchased
Mikropack GmbH Aufbautechnik in der Sensorik (“Mikropack”)
for 12.3 million (£1.5 million) with up to a further 12.3 million
(£1.5 million) payable depending on performance. Mikropack
manufactures light sources and photonic accessories and joins
our Ocean Optics business.

Growing investment in new products and business assets
Expenditure on Research & Development (“R&D”) in our
continuing operations increased by 20% to £13.5 million,
representing 4.3% of revenue – a little higher than the prior year.
R&D expenditure as a percentage of revenue in each of our
three sectors was consistent with last year, with Health and
analysis the highest at 4.9% of sales and Infrastructure sensors
at a similar rate. Under IFRS we are required to capitalise certain
development expenditure and include it as an asset on the
Consolidated balance sheet and also to amortise expenditure
from prior years. In the year we capitalised £2.5 million of such
expenditure and amortised £1.4 million, resulting in an asset of
£3.8 million on the closing balance sheet. All of these figures are
at higher levels than in the prior year, demonstrating the increase
in the amount of development work which we believe will have
a future benefit. The net impact is that the Consolidated income
statement was charged with an 11% higher cost than last year.

Expenditure on property, plant, equipment and computer
software was 34% (£3.2 million) higher than 2004/05
at £12.6 million. There was less expenditure on property this
year but more investment in operating assets to improve the
performance of our businesses. The year’s expenditure was
150% of depreciation/amortisation, a higher ratio than typical but
indicative of our continued intention to invest for future growth.

Strong cash flow with significant financial resource available
Cash flow was once again very good. Cash generated from
operations was £70 million, including a small cash outflow
(£0.7 million, 2005: £2.5 million inflow) into working capital
despite high rates of growth in the business overall. We started
and finished the year ungeared. The table on the next page
summarises the change in net cash, the main elements of which
are discussed in this financial review.

Disposal of the eight businesses converted assets, which
were performing below acceptable Group levels, into cash.
In aggregate the businesses sold contributed operating
profit of £1.5 million to total Group profit in 2005/06 and
£1.6 million in the prior year. The largest element of the
disposal proceeds came from the sale of our group of five
high power Resistor businesses, sold for £14 million in February
2006. The Consolidated income statement shows a profit from
discontinued operations of £1.3 million. This comprises a pre-tax
gain on disposal of £5.9 million, tax on disposal of £0.1 million,
operating profit less tax of £0.9 million and is after writing off
goodwill of £5.4 million attributable to these businesses.

During the year we started to purchase Halma shares to
be held in Treasury to fund the new performance share plan.
In the coming year we would expect to purchase £1 million to
£2 million of Halma shares for this purpose and this is likely to
be an ongoing activity. We also expect to increase the amount
of cash paid into the Halma pension schemes following the
anticipated outcome of the main scheme valuation now in
progress. The additional cash contributions in 2006/07 are
expected to be in the order of £4 million. These additional
demands on our cash will have some impact on our financial
position but we do not believe they will significantly affect our
investment or growth potential.

£ million

Revenue

Profit before tax*

Return on sales

Continuing operations

Including discontinued operations

2006

310.8

58.1

18.7%

2005

268.7

48.3

18.0%

% change

15.7%

20.3%

2006

337.3

59.6

17.7%

2005

299.1

49.9

16.7%

% change

12.8%

19.4%

*Excludes amortisation of acquired intangibles and profit on disposal of operations.
Comparatives have been restated on an IFRS basis. See Financial highlights on page 4.

36 Halma p.l.c. 2006 Business and financial review

Financial review continued

Change in net cash

£ million

Cash generated from operations

Acquisition of businesses

Disposal of businesses

Development costs capitalised

Net capital expenditure

Dividends paid

Taxation paid

Issue of shares

Net finance (expense)/income

Exchange adjustments

Net cash brought forward

Net cash carried forward

2006

70.2

2005

61.4

(36.2)

(24.6)

14.6

(2.5)

(11.6)

(24.5)

(16.8)

0.6

(0.4)

(1.9)

(8.5)

12.0

3.5

(1.7)

(1.1)

(9.0)

(23.3)

(14.5)

2.5

0.2

0.6

(9.5)

21.5

12.0

The Group finances its operations from retained earnings
and third party borrowings when needed. There are no
material funds outside the UK where repatriation is restricted.
The Group’s Treasury policies seek to minimise financial
risks and ensure sufficient liquidity for foreseeable needs.
No speculative transactions are undertaken. Day to day
implementation of the policy is largely delegated to the operating
companies, overseen by Halma Head Office and co-ordinated
in areas where we feel value will be added. Purchase and sale
transactions are hedged into the functional currency of the
relevant operating company and balance sheet net currency
assets are hedged but foreign currency profits are not hedged.

Whilst we were again ungeared at the year end we seek to
maintain financial flexibility so that short and long-term funding
needs can be met and to allow opportunities to be taken as they
arise. The Group is able to borrow at competitive rates and
therefore consider this the most effective means of funding
increased investment in the immediate future. During the year
we secured a £60 million five-year debt facility from our
well-established banking partners, improving our ability to
fund our medium-term growth plans.

Strong margins and returns with ROTIC increased to 12.8%
High margins and strong returns underpin the resilience and
strength of Halma. We have benefited from the improvement in
returns resulting from the sale of lower return businesses and
this is demonstrated by the fact that return on sales for the total
Group, including discontinued operations, would have increased
from 16.7% to 17.7% in the year. Return on sales* on continuing
operations increased from 18% to 18.7% this year with Health
and Analysis growing sharply from 16.1% to 21.0%, in part
benefiting from the recovery in our Water business but across
the Group we achieved a widespread improvement.

We do not specifically target improvement in return on sales
however we have found that as our businesses grow, many
of them generate higher returns and higher margins due to
significant operational leverage – we have high-margin
businesses which benefit greatly from sales growth.

*See Financial highlights.

Return on Capital Employed (“ROCE”) is our measure of
operating performance (see the calculation in note 3 to the
accounts) and it increased to 56.9% (2004/05: 48.8%), a high rate
but not untypical for Halma. ROCE measures our stewardship of
the assets we use and the efficiency with which we run our
businesses to generate the Group’s strong cash flows.

Return on Total Invested Capital (“ROTIC”) increased to 12.8%
(2004/05: 12.1%). The calculation basis is described in note 3
to the accounts – it is a post-tax measure and includes in the
denominator all historic goodwill but excludes the pension deficit
and also excludes the creditor relating to the pension obligations
for companies sold. We feel that a basis where an increased
pension deficit improved ROTIC would not be appropriate.
The increased ROTIC arises because we have grown earnings
faster than the underlying capital base and we continue to
exceed our weighted average cost of capital (“WACC”) by
a large margin, sustaining the generation of significant value
for shareholders. Together with Total Shareholder Return,
ROTIC is the key measure of performance which we employ
in our performance share plan, aligning our senior executives
with shareholders.

5% dividend increase and dividend cover raised
We have a progressive dividend policy; growing our dividend
but with the objective of increasing cover towards a figure of
around 2 over time, a level we feel is appropriate for our business.
With the high level of earnings growth this year we have taken a
good step towards this objective. The Board has recommended
a 5% increase in the final dividend to 4.12p which together
with the interim dividend (which was also 5% higher than last
year) will give a total dividend of 6.83p per share, assuming the
final dividend is approved. The total cost of the final dividend is
expected to be £15.2 million, giving a total cost of £25.2 million
for the dividends paid in respect of the year ended 1 April 2006.
We believe we have adequate distributable reserves for the
foreseeable future after taking into account the impact of
inclusion of the pension deficit discussed below. Dividend cover,
based on continuing operations before amortisation of acquired
intangibles, is 1.6 times (2004/05: 1.5 times).

IFRS adopted with little impact on profits
During 2005/06 the Group adopted International Financial
Reporting Standards (“IFRS”) in common with other listed
companies in the European Union. This has required restatement
of the 2004/05 results reported previously under UK GAAP.
The financial information in respect of the Company, Halma p.l.c.,
is not required to be reported under IFRS and has therefore
been prepared under UK GAAP and is included from page 74
to 80, at the end of the financial section of this Annual report.

There was little overall impact on Halma’s reported financial
results from the adoption of IFRS. The Group’s underlying
business economics are unchanged.

Profit before taxation and amortisation of acquired
intangibles/goodwill under IFRS was £0.1 million higher than
under the accounting policies used in 2004/05. The two main
elements of these IFRS adjustments are as follows:

Business and financial review Halma p.l.c. 2006 37

Share-based payments Under IFRS an expense is now included
in the Consolidated income statement in relation to employee
share related schemes operated by the Group. A performance
share plan (“PSP”) was introduced in 2005 and phasing it in
has caused the major element of the year on year increase in
the share-based payment expense. There would have been
an extra element of cost for this and future years under the old
share option plans which the PSP replaces. The total cost of
all share-based payments is expected to have an annual run
rate of approximately £2 million by March 2008, depending
on performance.

Development costs Certain development costs are capitalised
and amortised although the majority of R&D continues to be
expensed as incurred. Capitalisation of development costs
exceeded amortisation by £1.1 million in the year.

The main IFRS changes on the Consolidated balance sheet
are as follows:

Dividends Now only accrued when the dividend is approved.

Pensions The net pension liability on the Group’s two defined
benefit schemes, which are closed to new members, is now
included in the Consolidated balance sheet. At 1 April 2006 the
liability amounts to £46.0 million with £13.8 million deferred tax
asset (2 April 2005: £40.8 million with £12.3 million deferred tax
asset). In addition to the Consolidated balance sheet includes
a creditor of £4.8 million relating to the pension obligations for
the businesses sold during the year. The total pensions related
liability at 1 April 2006 was £50.8 million (2005: £41.4 million).
Although the value of scheme assets has grown over the year,
the deficit has increased as a result of the decrease in the
discount rate being applied to the scheme liabilities and by
longer life expectancy. The net charge included in the
Consolidated income statement is now split between an
operating charge and a finance charge.

An unaudited summary of the restatement to IFRS was issued
by the Group on 2 September 2005. There are a number of
disclosure changes throughout these financial statements
and note 29 below gives the restatement of opening figures
in further detail.

Tax rate stays at 30%
The effective rate of tax on profit from continuing operations,
before amortisation of acquired intangibles, is 30.1% (2004/05:
30.2%). This year’s tax rate is expected to be representative of
the tax rate in the near future, depending on the actual mix of
profits made across the world.

Foreign exchange movements were not significant this year
The Group has both translational and transactional currency
exposures. Translational exposures arise on the consolidation of
overseas company results into Sterling. Transactional exposures
arise where the currency of sale or purchase differs from the
functional currency in which each company prepares its local
accounts and these exposures are the responsibility of local
management. The largest translational exposures are to the
US Dollar and to a lesser extent the Euro.

Translational impacts on the 2005/06 results were modest
and increased revenue and profit by approximately 1%.
US Dollar results were translated into Sterling at a rate of
1.78 (2004/05: 1.84) and Euros were translated at 1.47
(2004/05: 1.47). Around one-third of Halma’s revenue and
profit is generated in US Dollars and so a 1% weakening of

the US Dollar relative to Sterling would reduce revenue and
profit by approximately 0.33% which represents £1 million in
terms of revenue and £0.2 million of profit.

Sector reporting changed to improve clarity and collaboration
On 28 November 2005 we announced the change to reporting
the Group’s financial performance under three new sectors,
defined by markets rather than product type. A restatement of
the last three years’ financial results under the new sector
headings was given at that time together with growth drivers
and market characteristics by sector.

Each new sector, Infrastructure Sensors, Health and Analysis
and Industrial Safety, includes businesses with similar operating
and market characteristics. This makes the Group more simple
to understand, helps us further develop our market driven
strategies and enables more proactive collaboration across
the Group.

FTSE sector classification changed
Halma has recently disposed of a number of non-core
businesses including its high power Resistors businesses and
over the past two years acquired significant new electronics
based businesses so that now over 60% of Group revenues
are generated from electronics based businesses. As a result
Halma has been reclassified into the Electronic and Electrical
Equipment Sector of the FTSE.

Key risks are actively managed
The main risks and uncertainties facing Halma are discussed
above. The structure of the Group, with a number of relatively
small autonomous companies, is designed to spread risk.
High quality local teams manage each business, including
a finance professional, so that they can respond quickly and
effectively to risks as they emerge.

Our internal control processes have been strengthened even
further during the year. There has been a widespread positive
response to the use of financial “warning signs” in each business
which highlight potential risks at an early stage for corrective
action. The actions taken have actively reduced risk across the
Group. However, we must never be complacent and our internal
control processes, discussed in more detail on pages 93 and 94
remain under constant review.

Cautionary note
This Business and financial review has been prepared solely
to assist shareholders to assess the Board’s strategies and their
potential to succeed. It should not be relied on by any other party,
for other purposes. Forward-looking statements have been made
by the Directors in good faith using information available up
until the date that they approved the Report. Forward-looking
statements should be regarded with caution because of the
inherent uncertainties in economic trends and business risks.

In preparing this Business and financial review, the Directors
have aimed to comply with the Accounting Standards Board’s
2006 Reporting Statement guidance on Operating and Financial
Reviews. However, non-financial Key Performance Indicators
have not been included in this Annual Report as they are not
at a sufficiently advanced stage of development. See pages 100
to 103 for commentary on employee and environmental issues.

38 Halma p.l.c. 2006

We are achieving
good results

Halma p.l.c. 2006 39

02_Our results
40
Consolidated income statement
Consolidated balance sheet
41
Statement of recognised income and expense
42
Reconciliation of movements in shareholders’ equity 42
43
Consolidated cash flow statement
44
Accounting policies
47
Notes to the accounts
73
Independent Auditors’ report – Group
74
Company balance sheet
75
Notes to the Company accounts
81
Independent Auditors’ report – Company
82
Summary 1997 to 2006

40 Halma p.l.c. 2006

Consolidated income statement

52 weeks to 1 April 2006

52 weeks to 2 April 2005

Before acquired
intangibles
amortisation
and goodwill
written off
£000

Amortisation
of acquired
intangibles
and goodwill
written off
£000

Notes

Before acquired
intangibles
amortisation
and goodwill
written off
(restated)
£000

Amortisation
of acquired
intangibles
and goodwill
written off
(restated)
£000

Total
£000

Total
(restated)
£000

Continuing operations

Revenue

Operating profit

Finance income

Finance expense

Profit before taxation

Taxation

Profit for the year from
continuing operations

Discontinued operations

Net profit for the year from
discontinued operations

Profit for the year attributable to
equity shareholders

Earnings per ordinary share

From continuing operations

Basic

Diluted

From continuing and
discontinued operations

Basic

Diluted

Dividends in respect of the year

Paid and proposed (£000)

Paid and proposed per share

310,768

–

310,768

268,719

–

268,719

59,960

6,207

(8,027)

58,140

(1,500)

–

(1,500)

58,460

6,207

(8,027)

56,640

49,358

5,663

(6,715)

48,306

(17,507)

473

(17,034)

(14,585)

(343)

–

(343)

120

49,015

5,663

(6,715)

47,963

(14,465)

40,633

(1,027)

39,606

33,721

(223)

33,498

6,739

(5,470)

1,269

1,065

(12)

1,053

47,372

(6,497)

40,875

34,786

(235)

34,551

11.01p

9.16p

10.73p

10.69p

11.08p

11.03p

25,216

6.83p

9.10p

9.09p

9.38p

9.37p

23,972

6.50p

The comparative figures for the 52 weeks to 2 April 2005 have been restated for the adoption of International Financial Reporting
Standards. See note 29 to the accounts.

Consolidated balance sheet

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment

Deferred tax assets

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

Total assets

Current liabilities

Borrowings

Trade and other payables

Tax liabilities

Net current assets

Non-current liabilities

Retirement benefit obligations

Trade and other payables

Deferred tax liabilities

Total liabilities

Net assets

Shareholders’ equity

Called up share capital

Share premium account

Treasury shares

Capital redemption reserve

Translation reserve

Other reserves

Retained earnings

Total shareholders’ equity

Halma p.l.c. 2006 41

Notes

1 April 2006
£000

2 April 2005
(restated)
£000

122,038

12,166

50,054

13,803

99,276

4,817

47,784

12,253

198,061

164,130

36,660

77,523

35,826

150,009

348,070

32,308

66,035

7,316

105,659

44,350

35,502

69,816

45,348

150,666

314,796

33,344

54,228

5,137

92,709

57,957

46,019

40,845

5,096

3,216

54,331

159,990

188,080

36,933

10,702

(379)

185

5,944

1,592

5,768

2,215

48,828

141,537

173,259

36,880

10,111

–

185

144

513

133,103

188,080

125,426

173,259

The comparative figures as at 2 April 2005 have been restated for the adoption of International Financial Reporting Standards.
See note 29 to the accounts.

Approved by the Board of Directors on 20 June 2006.

E G Unwin
Directors

K J Thompson

42 Halma p.l.c. 2006

Statement of recognised income and expense

Exchange differences on translation of foreign operations

Exchange differences recycled from reserves on disposal of operations

Actuarial losses on defined benefit pension schemes

Tax on items taken directly to equity

Net (loss)/income recognised directly in equity

Profit for the year

Total recognised income and expense for the year

Reconciliation of movements in shareholders’ equity

Shareholders’ equity brought forward

Profit for the year

Dividends paid

Exchange differences on translation of foreign operations

Exchange differences recycled from reserves on disposal of operations

Actuarial losses on defined benefit pension schemes

Tax on items taken directly to equity

Net proceeds of shares issued

Treasury shares purchased

Movement in other reserves

Total movement in shareholders’ equity

Shareholders’ equity carried forward

52 weeks to
1 April 2006
£000

5,826

(26)

(10,355)

1,625

(2,930)

40,875

37,945

52 weeks to
2 April 2005
(restated)
£000

144

–

(48)

(4)

34,551

34,643

52 weeks to
1 April 2006
£000

52 weeks to
2 April 2005
(restated)
£000

173,259

159,027

40,875

34,551

(24,468)

(23,320)

5,826

(26)

(10,355)

1,625

644

(379)

1,079

14,821

144

–

(48)

(4)

2,546

–

363

14,232

188,080

173,259

Consolidated cash flow statement

Net cash inflow from operating activities

Cash flows from investing activities

Purchase of property, plant and equipment

Purchase of computer software

Proceeds from sale of property, plant and equipment

Development costs capitalised

Interest received

Acquisition of businesses

Disposal of businesses

Net cash used in investing activities

Financing activities

Dividends paid

Proceeds from issue of share capital

Interest paid

(Repayment)/drawdown of borrowings

Net cash used in financing activities

Decrease in cash and cash equivalents

Cash and cash equivalents brought forward

Exchange adjustments

Cash and cash equivalents carried forward

Halma p.l.c. 2006 43

52 weeks to
1 April 2006
£000

52 weeks to
2 April 2005
(restated)
£000

53,362

46,944

Notes

(11,878)

(8,896)

(717)

1,032

(2,500)

1,026

(523)

418

(1,122)

1,086

(36,178)

(23,536)

14,641

(1,681)

(34,574)

(34,254)

(24,468)

(23,320)

644

(1,455)

(3,050)

2,546

(889)

5,764

(28,329)

(15,899)

(9,541)

45,348

(3,209)

48,482

35,826

45,348

The comparative figures for the 52 weeks to 2 April 2005 have been restated for the adoption of International Financial Reporting
Standards. See note 29 to the accounts.

44 Halma p.l.c. 2006

Accounting policies

Basis of accounting
The accounts are prepared under International Financial
Reporting Standards (“IFRS”) adopted for use in the European
Union (“EU”) and therefore comply with Article 4 of the EU IAS
legislation and with those parts of the Companies Act 1985 that
are applicable to companies reporting under IFRS. The financial
statements have also been prepared in accordance with IFRS
and International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations issued and effective or issued and early
adopted at the time of preparing these accounts.

Halma p.l.c. and its subsidiary companies (the “Group”) adopted
IFRS for their consolidated (“Group”) accounts with a transition
date of 4 April 2004. Comparative figures for the year ended
2 April 2005 and the Consolidated balance sheet as at
2 April 2005 that were previously reported under applicable
United Kingdom Generally Accepted Accounting Principles
(“UK GAAP”) have been restated to comply with IFRS.
Details of this restatement are given in note 29 to the accounts.

IFRS 1 “First Time Adoption of IFRS” allows certain exemptions
from the retrospective application of IFRS prior to 4 April 2004.
Where these exemptions have been used, they are explained
under the relevant headings below.

The principal Group accounting policies are explained below
and have been applied consistently in preparing an opening
IFRS Consolidated balance sheet at 3 April 2004 and throughout
the years ended 2 April 2005 and 1 April 2006.

The Group accounts have been prepared under the historical
cost convention, except as described below under the heading
“Financial Instruments”.

The preparation of Group accounts in conformity with IFRS
requires the Directors to make judgments, estimates and
assumptions that affect the application of policies and reported
amounts of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on historical
experiences and various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis of making judgments about carrying values of assets
and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
The key areas where estimates have been used and
assumptions applied are in impairment testing of goodwill and
in assessing the defined benefit pension scheme liabilities.

Basis of consolidation
The Group accounts include the accounts of Halma p.l.c. and
its subsidiary companies made up to 1 April 2006, adjusted
to eliminate intra-Group transactions, balances, income and
expenses. The results of subsidiary companies acquired or
discontinued are included from the month of their acquisition
or to the month of their discontinuation.

and is recognised as an intangible asset in the Consolidated
balance sheet. Goodwill therefore includes non-identified
intangible assets including business processes, know-how and
workforce-related industry-specific knowledge and technical
skills. Negative goodwill arising on acquisitions would be
recognised directly in the Consolidated income statement.
On closure or disposal of an acquired business, this goodwill
would be taken into account in determining the profit or loss
on closure or disposal.

As permitted by IFRS 1, the Group has elected not to apply IFRS
3 “Business Combinations” to acquisitions prior to 4 April 2004
in its consolidated accounts. As a result, the net book value of
goodwill recognised as an intangible asset under UK GAAP
at 3 April 2004 was brought forward unadjusted as the cost
of goodwill recognised under IFRS at 4 April 2004 subject to
impairment testing on that date; and goodwill that was written
off to reserves prior to 28 March 1998 under UK GAAP will
not be taken into account in determining the profit or loss on
disposal or closure of previously acquired businesses from
4 April 2004 onwards.

Other intangible assets
(a) Product development costs
Research expenditure is written off in the financial year in which
it is incurred.

Development expenditure is written off in the financial year in
which it is incurred, unless it relates to the development of a new
or substantially improved product, is incurred after the technical
feasibility and economic viability of the product has been proven
and the decision to complete the development has been taken,
and can be measured reliably. Such expenditure is capitalised
as an intangible asset in the Consolidated balance sheet at cost
and is amortised through the Consolidated income statement
on a straight-line basis over its estimated economic life of
three years.

(b) Acquired intangible assets
An intangible resource acquired with a subsidiary undertaking
is recognised as an intangible asset if it is separable from the
acquired business or arises from contractual or legal rights, is
expected to generate future economic benefits and its fair value
can be measured reliably. An acquired intangible asset is
amortised through the Consolidated income statement on a
straight-line basis over its estimated economic life of between
three and ten years.

(c) Computer software
Computer software that is not integral to an item of property,
plant or equipment is recognised separately as an intangible
asset, and is amortised through the Consolidated income
statement on a straight-line basis over its estimated economic
life of between three and five years.

Impairment of non-current assets
All non-current assets are tested for impairment whenever events
or circumstances indicate that their carrying value may be
impaired. Additionally, goodwill and capitalised development
expenditure relating to a product that is not yet in full production
are subject to an annual impairment test.

Goodwill
Goodwill in respect of acquisitions after 4 April 2004 represents
the difference between the cost of an acquisition and the fair
value of the net identifiable assets of the business acquired,

An impairment loss is recognised in the Consolidated income
statement to the extent that an asset’s carrying value exceeds
its recoverable amount, which represents the higher of the
asset’s net realisable value and its value in use. An asset’s

Halma p.l.c. 2006 45

value in use represents the present value of the future cash
flows expected to be derived from the asset or from the cash
generating unit to which it relates. The present value is calculated
using a post-tax discount rate that reflects the current market
assessment of the time value of money and the risks specific
to the asset concerned.

The Group uses foreign currency borrowings to hedge its
investment in foreign subsidiaries. The effective part of any gain
or loss on these currency borrowings is recognised directly in
the Translation reserve within Shareholders’ equity. The ineffective
portion is recognised immediately in the Consolidated income
statement.

Impairment losses recognised in previous periods for an asset
other than goodwill are reversed if there has been a change in
the estimates used to determine the asset’s recoverable amount,
but only to the extent that the carrying amount of the asset does
not exceed its carrying amount had no impairment loss been
recognised in previous periods. Impairment losses in respect of
goodwill are not reversed.

Foreign currencies
The Group presents its accounts in Sterling. Transactions in
foreign currencies are recorded at the rate of exchange at
the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date
are reported at the rates prevailing at that date. Any gain or
loss arising from subsequent exchange rate movements is
included as an exchange gain or loss in the Consolidated
income statement.

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. Goodwill arising on the
acquisition of a foreign business is treated as an asset of the
foreign entity and is translated at the rate of exchange ruling at
the end of the financial year. Exchange gains or losses arising on
these translations are taken to the Translation reserve within
Shareholders’ equity.

In the event that an overseas subsidiary is disposed or closed,
the profit or loss on disposal or closure will be determined after
taking into account the cumulative translation difference held
within the Translation reserve attributable to that subsidiary.
As permitted by IFRS 1, the Group has elected to deem the
Translation reserve to be £nil at 4 April 2004. Accordingly, the
profit or loss on disposal or closure of foreign subsidiaries will not
include any currency translation differences which arose before
4 April 2004.

Financial instruments
The Group does not hold or issue derivatives for speculative or
trading purposes, but uses forward foreign currency contracts
to reduce its exposure to exchange rate movements. Under UK
GAAP, transactions in foreign currency that were matched by a
forward currency contract were translated at the contracted rate.
From 4 April 2004, forward currency contracts are measured at
cost (usually zero) and subsequently remeasured at fair value.
Where a forward currency contract is designated as a hedge
against variability in the cash flows of a recognised asset or
liability or a highly probable forecasted transaction, the effective
part of any gain or loss on the forward contract is recognised
in Shareholders’ equity. The cumulative gain or loss is removed
from Shareholders’ equity and recognised in the Consolidated
income statement at the same time as the hedged transaction.
The ineffective part of any gain or loss, or gains or losses
on forward currency contracts that are not designated as
hedges, are recognised immediately in the Consolidated
income statement.

Revenue
Revenue represents sales, less returns, by subsidiary companies
to external customers excluding value added tax and other
sales related taxes. Transactions are recorded as sales when
the delivery of products or performance of services takes place
in accordance with the contracted terms of sale.

Provisions
A provision is a liability of uncertain timing or amount, and is
recognised when the Group has a present legal or constructive
obligation as a result of past events, it is more likely than not that
an outflow of resources will be required to settle the obligation,
and the amount can be reliably estimated.

Property, plant and equipment
Property, plant and equipment is stated at historic cost less
provisions for impairment and depreciation which, with the
exception of freehold land which is not depreciated, is provided
on a straight-line basis over each asset’s estimated economic 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%
Period of lease
8% to 20%
20%
331⁄3%

Leases
Leases that confer rights and obligations similar to those
that attach to owned assets are classified as finance leases.
All other leases are classified as operating leases.

Assets held under finance leases are included within property,
plant and equipment and initially measured at their fair value
or, if lower, the present value of the minimum lease payments,
and a corresponding liability is recognised within the
Consolidated balance sheet as obligations under finance leases.
Subsequently the assets are depreciated on a basis consistent
with owned assets or over the term of the lease, if shorter. At the
inception of the lease, the lease rentals are apportioned between
an interest element and a capital element so as to produce a
constant periodic rate of interest on the outstanding liability.
Subsequently, the interest element is recognised as a charge to
the Consolidated income statement and the capital element is
applied to reduce the outstanding liability.

Operating lease rentals, and any incentives receivable, are
charged to the Consolidated income statement on a straight-line
basis over the lease term.

46 Halma p.l.c. 2006

Accounting policies continued

Pensions
The Group makes contributions to various pension schemes,
covering the majority of its employees.

For defined benefit schemes, the asset or liability recorded in
the balance sheet is the difference between the fair value of
the schemes’ assets and the present value of the defined
obligation at that date. The defined benefit obligation is
calculated separately for each scheme on an annual basis by
independent actuaries using the projected unit credit method.

All actuarial gains and losses as at 3 April 2004 were recognised
in full in the Consolidated balance sheet at that date. All actuarial
gains and losses arising after 4 April 2004 are taken to
Shareholders’ equity.

Current and past service costs, along with the impact of any
settlements or curtailments, are charged to the Consolidated
income statement. Interest on pension schemes’ liabilities are
recognised within finance expense and the expected return on
the schemes’ assets are recognised within finance income in
the Consolidated income statement.

Contributions to defined contribution schemes are charged to
the Consolidated income statement when they fall due.

Employee share schemes
Share-based incentives are provided to employees under the
Group’s share incentive plan, the share option plans and the
performance share plan.

(a) Share incentive plan
Awards of shares under the share incentive plan are made to
qualifying employees depending on salary and service criteria.
The shares awarded under this plan are purchased in the
market by the plan’s trustees at the time of the award, and
are then held in trust for a minimum of three years. The costs
of this plan are recognised in the Consolidated income statement
over the three-year vesting periods of the awards.

(b) Share option plans
All grants of options under the 1990 and 1996 share option plans
and the 1999 company share option plan (together, the “share
option plans”) are equity-settled, and so, as permitted by IFRS 1,
the provisions of IFRS 2 “Share-Based Payment” have been
applied only to options awarded on or after 7 November 2002
which had not vested at 3 April 2005.

The fair value of awards under these plans has been measured
at the date of grant using the Black-Scholes model and will not
be subsequently remeasured. The fair value is charged to the
Consolidated income statement on a straight-line basis over the
expected vesting period, with adjustments being made during
this period to reflect expected and actual forfeitures and changes
to the vesting period itself arising from non-market based
performance conditions. The corresponding credit is to
Shareholders’ equity.

No further awards will be made under the share option plans
after 3 August 2005.

All awards under this plan are equity-settled and are subject
to both market based and non-market based vesting criteria.
Their fair value at the date of grant is established by using
an appropriate simulation method to reflect the likelihood of
market-based performance conditions being met. The fair
value is charged to the Consolidated income statement on a
straight-line basis over the vesting period, with appropriate
adjustments being made during this period to reflect expected
and actual forfeitures arising from the non-market based
performance conditions only. The corresponding credit is
to Shareholders’ equity.

Inventories
Inventories and work in progress of subsidiary companies are
included at the lower of cost and net realisable value. Cost is
calculated either on a “first in, first out” or an average cost basis
and includes direct materials and the appropriate proportion of
production and other overheads considered by the Directors to
be attributable to bringing the inventories to their location and
condition at the year end. Net realisable value represents the
estimated selling price less all estimated costs to complete and
costs to be incurred in marketing, selling and distribution.

Taxation
Taxation comprises current and deferred tax. Tax is recognised
in the Consolidated income statement except to the extent that
it relates to items recognised directly in Shareholders’ equity, in
which case it is recognised in Shareholders’ equity. Current tax
is the expected tax payable on the taxable income for the year,
using tax rates enacted or subsequently enacted at the balance
sheet date, along with any adjustment to tax payable in respect of
previous years. Taxable profit differs from net profits as reported
in the Consolidated income statement because it excludes items
that are never taxable or deductible.

Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes and is
accounted for using the balance sheet liability method, apart
from the following differences which are not provided for:
goodwill not deductible for tax purposes; the initial recognition
of assets or liabilities that affect neither accounting nor taxable
profits; differences relating to investments in subsidiaries to the
extent they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amounts
of assets and liabilities, using tax rates and laws which are
expected to apply in the period when the liability is settled or
the asset is realised. Deferred tax assets are only recognised
to the extent that recovery is probable.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits
with an initial maturity of less than three months, and bank
overdrafts that are repayable on demand. Bank overdrafts are
shown within borrowings in current liabilities in the Consolidated
balance sheet.

Dividends
Dividends payable to the Company’s shareholders are
recognised as a liability in the period in which the distribution
is approved by the Company’s shareholders.

Halma p.l.c. 2006 47

Profit

2005
(restated)
£000

23,739

15,002

10,089

–

528

49,358

1,606

(1,052)

49,912

(361)

–

2006
£000

24,106

23,395

12,857

–

(398)

59,960

1,501

(1,820)

59,641

(1,529)

494

(17,731)

(15,000)

Notes to the accounts

1 Segmental analysis
Sector analysis

Infrastructure Sensors

Health and Analysis

Industrial Safety

Inter-segmental sales

Central companies

Continuing operations

Discontinued operations (note 6)

Net finance expense

Revenue

2005
(restated)
£000

118,200

93,149

57,923

(553)

–

2006
£000

131,860

111,653

67,648

(393)

–

310,768

268,719

26,580

30,400

–

Group revenue/profit before amortisation of acquired intangibles

337,348

299,119

Amortisation of acquired intangible assets

Profit on disposal of operations before tax (note 6)

Taxation

Revenue/profit for the year

Inter-segmental sales are charged at prevailing market prices.

Infrastructure Sensors

Health and Analysis

Industrial Safety

Central companies

Continuing operations

Discontinued operations

Cash and cash equivalents/borrowings

Goodwill

Acquired intangible assets

Total Group

–

337,348

299,119

40,875

34,551

Assets

2005
(restated)
£000

49,652

40,064

26,208

39,413

Liabilities

2005
(restated)
£000

15,519

14,198

9,028

64,192

2006
£000

23,223

18,467

12,379

73,613

2006
£000

63,542

47,965

29,593

41,980

183,080

155,337

127,682

102,937

–

35,826

122,038

7,126

13,869

45,348

99,276

966

–

32,308

–

5,256

33,344

–

348,070

314,796

159,990

141,537

Central companies include all of the Group’s land and buildings, deferred taxation, deferred purchase consideration and retirement
benefit provisions.

48 Halma p.l.c. 2006

Notes to the accounts continued

1 Segmental analysis continued

Infrastructure Sensors

Health and Analysis

Industrial Safety

Central companies

Continuing operations

Discontinued operations

Total Group

Capital additions

Depreciation and amortisation

2006
£000

5,015

4,862

3,500

1,341

14,718

377

2005
(restated)
£000

2,832

2,496

2,819

1,706

9,853

688

2006
£000

3,111

2,479

2,558

2,468

10,616

727

15,095

10,541

11,343

2005
(restated)
£000

2,672

2,409

2,091

1,319

8,491

825

9,316

Capital additions comprise purchases of computer software, property, plant and equipment and capitalised development costs.
Central companies include all of the continuing Group’s charge for amortisation of acquired intangible assets.

Geographical analysis

United Kingdom

United States of America

Mainland Europe

Asia Pacific and Australasia

Africa, Near and Middle East

Other countries

Inter-segmental sales

Revenue from continuing operations

Discontinued operations (note 6)

Group revenue

Inter-segmental sales are charged at prevailing market prices.

Revenue by destination

Revenue by origin

2006
£000

82,930

94,043

77,183

33,293

14,709

8,610

–

2005
(restated)
£000

70,260

78,758

72,702

30,198

9,838

6,963

2006
£000

173,168

104,295

45,788

15,455

–

2005
(restated)
£000

149,790

85,245

43,112

14,536

–

(27,938)

(23,964)

310,768

268,719

310,768

268,719

26,580

30,400

26,580

30,400

337,348

299,119

337,348

299,119

1 Segmental analysis continued

United Kingdom

United States of America

Mainland Europe

Asia Pacific and Australasia

Profit from continuing operations

Discontinued operations (note 6)

Net finance expense

Group profit before amortisation of acquired intangibles

Amortisation of acquired intangible assets

Profit on disposal of operations before tax (note 6)

Taxation

Profit for the year

United Kingdom

United States of America

Mainland Europe

Asia Pacific and Australasia

Continuing operations

Discontinued operations

Net cash

Goodwill

Acquired intangible assets

Total Group

Halma p.l.c. 2006 49

Profit

2005
(restated)
£000

25,758

13,674

7,258

2,668

49,358

1,606

(1,052)

49,912

(361)

–

2006
£000

30,354

20,149

7,632

1,825

59,960

1,501

(1,820)

59,641

(1,529)

494

(17,731)

(15,000)

40,875

34,551

Capital additions

2005
(restated)
£000

6,769

1,525

1,350

209

9,853

688

–

2006
£000

9,510

3,050

1,659

499

14,718

377

–

Net assets

2005
(restated)
£000

23,037

12,229

13,450

3,685

52,401

8,612

12,004

99,276

966

2006
£000

18,035

22,284

11,597

3,482

55,398

–

3,518

122,038

7,126

188,080

173,259

15,095

10,541

United Kingdom net assets include all of the Group’s retirement benefit provisions and their related deferred taxation assets.

50 Halma p.l.c. 2006

Notes to the accounts continued

2 Earnings per ordinary share
Basic earnings per ordinary share are calculated using the weighted average of 369,053,181 shares in issue during the year
(net of shares purchased by the Company and held as treasury shares) (2005: 368,181,035). Diluted earnings per ordinary share
are calculated using the weighted average of 370,435,138 shares (2005: 368,697,347) which includes dilutive potential ordinary
shares of 1,381,957 (2005: 516,312). Dilutive potential ordinary shares are calculated from those exercisable share options where the
exercise price is less than the average price of the Group’s ordinary shares during the year.

Earnings from continuing operations excludes the net profit from discontinued operations. Adjusted earnings is calculated as
earnings from continuing operations excluding the amortisation of acquired intangible assets after tax. The Directors consider that
adjusted earnings represents a more consistent measure of underlying performance. A reconciliation of earnings and the effect on
basic earnings per share figures is as follows:

Per ordinary share

Earnings from continuing and discontinued operations

Remove earnings from discontinued operations

Earnings from continuing operations

Add back amortisation of acquired intangibles (after tax)

Adjusted earnings

3 Non-GAAP measures
Return on capital employed

2006
£000

40,875

(1,269)

39,606

1,027

40,633

2005
(restated)
£000

34,551

(1,053)

33,498

223

33,721

Operating profit from continuing operations before amortisation of acquired intangibles

Operating profit from discontinued operations in prior period before amortisation of acquired intangibles

Operating return

Computer software costs within intangible assets

Capitalised development costs within intangible assets

Property, plant and equipment

Inventories

Trade and other receivables

Trade and other payables

Tax liabilities

Non-current trade and other payables

Add back retirement benefit accruals included within payables

Add back accrued deferred purchase consideration

Capital employed

Return on capital employed

2006
pence

11.08

(0.35)

10.73

0.28

11.01

2006
£000

59,960

–

59,960

1,213

3,827

50,054

36,660

77,523

2005
(restated)
pence

9.38

(0.28)

9.10

0.06

9.16

2005
(restated)
£000

49,358

1,606

50,964

1,112

2,739

47,784

35,502

69,816

(66,035)

(54,228)

(7,316)

(5,096)

4,763

9,803

(5,137)

(5,768)

558

12,039

105,396

104,417

56.9%

48.8%

3 Non-GAAP measures continued
Return on total invested capital

Profit from continuing operations before amortisation of acquired intangibles after taxation

2006
£000

40,633

Profit from discontinued operations in prior period before amortisation of acquired intangibles after taxation

–

Return

Total shareholders’ equity

Add back retirement benefit accruals included within payables

Add back retirement benefit obligations

Less associated deferred tax assets

Cumulative amortisation of acquired intangibles

Goodwill on disposals

Goodwill amortised prior to 3 April 2004

Goodwill taken to reserves prior to 28 March 1998

Total invested capital

Return on total invested capital

Halma p.l.c. 2006 51

2005
(restated)
£000

33,721

1,065

34,786

40,633

188,080

173,259

4,763

46,019

558

40,845

(13,803)

(12,253)

1,890

5,441

13,177

70,931

361

–

13,177

70,931

316,498

286,878

12.8%

12.1%

Organic growth
Organic growth measures the change in revenue and profit from continuing Group operations. The effect of acquisitions made
during the current or prior financial year has been equalised by subtracting from the current year results a pro-rated contribution
based on their revenue and profit at the date of acquisition, and has been calculated as follows:

Continuing operations

Acquired revenue/profit

*Before amortisation of acquired intangible assets.

4 Finance income

Interest receivable

Expected return on pension scheme assets

5 Finance expense

Interest payable on bank loans and overdrafts

Interest charge on pension scheme liabilities

Other interest payable

Revenue

%
growth

2006
£000

2005
(restated)
£000

310,768

268,719

(13,085)

–

297,683

268,719

10.8%

Profit* before taxation

%
growth

2005
(restated)
£000

48,306

–

48,306

14.9%

2006
£000

58,140

(2,638)

55,502

2006
£000

1,027

5,180

6,207

2006
£000

1,456

6,138

433

8,027

2005
(restated)
£000

1,080

4,583

5,663

2005
(restated)
£000

780

5,680

255

6,715

52 Halma p.l.c. 2006

Notes to the accounts continued

6 Discontinued operations
During 2005/06 the Group sold the following non-core businesses:

Company

SEAC Limited

Secomak Limited

Marathon Sensors Inc.

Cressall Resistors Limited

IPC Resistors Company

IPC Power Resistors Inc.

Mosebach Manufacturing Company

Post Glover Resistors Inc.

Date of disposal

Principal activity

Country of incorporation

September 2005

December 2005

Industrial Safety

December 2005

Health and Analysis

February 2006

Industrial Safety

United Kingdom

USA

United Kingdom

Canada

USA

The results of these discontinued operations, which have been included in the Consolidated income statement, were as follows:

Revenue

Operating expenses

Operating profit before amortisation of acquired intangibles

Amortisation of acquired intangible assets

Operating profit

Taxation

Profit from operations after taxation

Profit on disposal of operations

Foreign exchange differences recycled from reserves

Associated goodwill and acquired intangible assets

Profit on disposal of operations before taxation

Tax on profit on disposal of operations

Profit on disposal of operations after taxation

2006
£000

26,580

2005
(restated)
£000

30,400

(25,079)

(28,794)

1,501

(29)

1,472

(552)

920

5,909

(5,441)

494

(145)

349

1,606

(18)

1,588

(535)

1,053

–

Net profit from discontinued operations

1,269

1,053

The profit on disposal of operations includes gross disposal proceeds received and receivable of £17,291,000. The net cash inflow in
the year on disposal of operations was £14,641,000.

The net assets of these businesses at the date of disposal were as follows:

Intangible assets recognised on acquisition of business

Property, plant and equipment

Computer software

Inventories

Receivables

Cash and cash equivalents

Payables

Deferred taxation

£000

2,902

156

4,158

6,049

124

(3,368)

(477)

9,627

Halma p.l.c. 2006 53

Discontinued
operations
£000

2006

Total
£000

26,580

337,348

Continuing
operations
(restated)
£000

268,719

Discontinued
operations
(restated)
£000

2005

Total
Group
(restated)
£000

30,400

299,119

Continuing
operations
£000

310,768

(207,441)

(21,437)

(228,878)

(183,629)

(24,428)

(208,057)

103,327

(7,072)

(38,063)

268

(1,820)

56,640

(1,081)

(2,590)

–

1,472

5,143

108,470

(8,153)

85,090

(6,328)

(40,653)

(30,016)

268

(1,820)

58,112

269

(1,052)

47,963

5,972

(1,064)

(3,320)

–

1,588

91,062

(7,392)

(33,336)

269

(1,052)

49,551

7 Profit before taxation
Profit before taxation comprises:

Revenue

Cost of sales

Gross profit

Distribution costs

Administrative expenses

Other operating income

Net finance expense

Profit before taxation

Included within administrative expenses is the amortisation of acquired intangible assets.

Profit before taxation is stated after charging:

Depreciation

Amortisation

Research and development1

Auditors’ remuneration2: Audit services

Tax compliance services

Tax advice on disposals

Other assurance services

Operating lease rents: Property

Other

Continuing operations

2006
£000

7,246

3,370

2005
(restated)
£000

7,094

1,397

Total Group

2005
(restated)
£000

7,901

1,415

2006
£000

7,892

3,451

10,951

10,087

11,705

10,641

548

148

3,779

581

415

–

3,020

382

558

148

4,014

617

455

–

3,261

446

1 A further £2,500,000 (2005: £1,122,000) of development expenditure has been capitalised in the period. See note 13.
2 A further £1,000 (2005: £193,000) of non-audit fees paid to the auditors in respect of acquisition advice have been included in cost of investments. In addition, the auditors

received £11,000 (2005: £10,000) for their audit of the Halma Group Pension Plan.

8 Employee information

The average number of persons employed by the Group (including Directors) was:

United Kingdom

Overseas

Group employee costs comprise:

Wages and salaries

Social security costs

Other pension costs (note 28)

Continuing operations

2006
Number

2005
Number

2006
Number

Total Group

2005
Number

1,637

1,254

2,891

1,415

1,207

2,622

1,736

1,451

3,187

1,560

1,442

3,002

Continuing operations

Total Group

2006
£000

2005
£000

69,829

61,395

9,914

4,799

9,266

4,683

84,542

75,344

2006
£000

76,291

11,170

5,130

92,591

2005
£000

68,496

10,684

5,115

84,295

54 Halma p.l.c. 2006

Notes to the accounts continued

9 Directors’ remuneration
Details of Directors’ remuneration are set out on pages 96 to 98 within the Report on remuneration and form part of these
financial statements.

10 Taxation

Current tax

UK corporation tax at 30% (2005: 30%)

Overseas taxation

Adjustments in respect of prior years

Total current tax charge

Deferred tax

Origination and reversal of timing differences

Adjustments in respect of prior years

Total deferred tax (credit)/charge

Tax on profit from continuing operations

Tax on profit from discontinued operations

Total tax charge recognised in the Consolidated income statement

Reconciliation of the effective tax rate:

Profit before tax – continuing operations

Profit before tax – discontinued operations

Tax at the UK corporation tax rate of 30% (2005: 30%)

Overseas tax rate differences

Items not subject to tax

Adjustments in respect of prior years

Effective tax rate

11 Ordinary dividends

Amounts recognised as distributions to shareholders in the year

Final dividend for the year to 2 April 2005 (3 April 2004)

Interim dividend for the year to 1 April 2006 (2 April 2005)

Dividends declared in respect of the year

Interim dividend for the year to 1 April 2006 (2 April 2005)

Proposed final dividend for the year to 1 April 2006 (2 April 2005)

2006
£000

9,246

8,271

133

2005
(restated)
£000

7,615

6,436

(28)

17,650

14,023

(558)

(58)

(616)

423

442

17,034

14,465

697

535

17,731

15,000

56,640

1,966

58,606

17,582

1,116

(1,042)

17,731

30.3%

47,963

1,588

49,551

14,865

840

(696)

(9)

15,000

30.3%

Per ordinary share

2006
pence

2005
pence

2006
£000

2005
£000

3.92

2.71

6.63

2.71

4.12

6.83

3.75

2.58

6.33

2.58

3.92

6.50

14,462

10,006

24,468

10,006

15,210

25,216

13,810

9,510

23,320

9,510

14,462

23,972

The proposed final dividend is subject to approval by shareholders at the annual general meeting and has not been included as a
liability in these financial statements.

12 Goodwill

Cost

At beginning of year

Additions (note 24)

Disposals

Exchange adjustments

At end of year

Provision for impairment

At beginning and end of year

Net book amount

Halma p.l.c. 2006 55

2006
£000

2005
(restated)
£000

99,276

23,195

(5,358)

4,925

71,425

27,924

–

(73)

122,038

99,276

–

122,038

99,276

Goodwill is allocated at acquisition to the business units that are expected to benefit from that acquisition. The carrying value of
goodwill has been allocated as follows:

Infrastructure Sensors

Health and Analysis

Industrial Safety

Disposed companies

2006
£000

69,833

41,054

11,151

–

2005
(restated)
£000

53,007

33,791

7,488

4,990

122,038

99,276

Goodwill values have been tested for impairment by comparing them against the value in use of the relevant cash generating units.
The value in use calculations were based on projected post-tax cash flows, derived from the latest budget approved by the Board,
discounted at 8% per annum to calculate their net present value.

56 Halma p.l.c. 2006

Notes to the accounts continued

13 Other intangible assets

Acquired
intangibles
£000

Development
costs
£000

Computer
software
£000

Cost

At 3 April 2004 (restated)

Assets of businesses acquired

Additions at cost

Disposals

Exchange adjustments

At 2 April 2005 (restated)

Assets of businesses acquired

Assets of businesses sold

Additions at cost

Disposals

Exchange adjustments

At 1 April 2006

Accumulated amortisation

At 3 April 2004 (restated)

Assets of businesses acquired

Charge for the year

Disposals

Exchange adjustments

At 2 April 2005 (restated)

Assets of businesses acquired

Assets of businesses sold

Charge for the year

Disposals

Exchange adjustments

At 1 April 2006

Net book amounts

At 1 April 2006

At 2 April 2005 (restated)

7,915

3,521

20,442

Total
£000

6,963

1,413

1,645

(53)

(19)

9,949

7,711

(523)

3,217

(158)

246

3,342

1,845

(53)

(11)

5,132

(284)

3,451

(140)

111

8,276

4,235

–

1,122

–

2,728

523

(53)

(5)

5,376

3,254

–

2,500

–

(394)

717

(158)

1,583

–

1,054

–

1,759

430

(53)

(3)

2,637

2,142

–

1,352

–

(33)

1,319

7,695

(129)

–

121

9,006

–

361

–

(8)

353

–

(46)

–

1,529

1,441

–

(238)

481

(140)

1,880

4,088

2,308

7,126

966

3,827

2,739

1,213

1,112

12,166

4,817

Halma p.l.c. 2006 57

14 Property, plant and equipment

Land and buildings

Freehold
properties
£000

Long leases
£000

Short leases
£000

Plant, equipment
and vehicles
£000

Total
£000

Cost

At 3 April 2004 (restated)

Assets of businesses acquired

Additions at cost

Disposals

Exchange adjustments

At 2 April 2005 (restated)

Assets of businesses acquired

Assets of businesses sold

Additions at cost

Disposals

Exchange adjustments

At 1 April 2006

Accumulated depreciation

At 3 April 2004 (restated)

Assets of businesses acquired

Charge for the year

Disposals

Exchange adjustments

At 2 April 2005 (restated)

Assets of businesses acquired

Assets of businesses sold

Charge for the year

Disposals

Exchange adjustments

At 1 April 2006

Net book amounts

At 1 April 2006

At 2 April 2005 (restated)

2,593

61,644

92,091

–

164

–

(16)

–

233

–

(11)

26,406

–

1,291

–

(16)

1,448

171

–

27,681

1,684

2,741

410

(264)

179

(450)

577

–

(241)

767

(62)

28,133

1,775

3,312

4,626

–

416

–

(4)

350

112

–

5,038

509

1,674

–

(54)

439

(365)

102

–

(91)

261

(56)

5,160

591

1,854

22,973

22,643

1,184

1,175

1,458

1,067

2,417

7,376

(5,119)

(309)

66,009

5,496

(7,566)

10,859

(6,696)

1,878

69,980

2,588

8,896

(5,119)

(341)

98,115

5,929

(8,071)

11,878

(7,208)

2,557

103,200

1,788

6,710

(4,722)

(159)

43,110

4,762

(5,024)

7,124

(5,599)

1,168

45,541

24,439

22,899

1,835

7,471

(4,722)

(174)

50,331

4,780

(5,169)

7,892

(6,020)

1,332

53,146

50,054

47,784

1,452

39,493

45,921

58 Halma p.l.c. 2006

Notes to the accounts continued

15 Inventories

Raw materials and consumables

Work in progress

Finished goods and goods for resale

16 Trade and other receivables

Falling due within one year:

Trade receivables

Other receivables

Prepayments and accrued income

2006
£000

18,538

5,379

12,743

36,660

2005
£000

19,086

5,474

10,942

35,502

2006
£000

2005
(restated)
£000

70,076

63,500

2,664

4,783

1,508

4,808

77,523

69,816

Trade receivables are stated net of provisions for estimated irrecoverable amounts of £1,051,000 (2005: £905,000). This provision has
been determined by reference to previous default experience.

17 Borrowings

Falling due within one year:

Unsecured bank loans and overdrafts

18 Trade and other payables

Falling due within one year:

Trade payables

Other taxation and social security

Provision for deferred purchase consideration

Other payables

Accruals and deferred income

19 Trade and other payables: falling due after one year

Provision for deferred purchase consideration

Other payables

2006
£000

2005
£000

32,308

33,344

2006
£000

2005
(restated)
£000

33,529

28,743

3,748

8,391

3,857

16,510

66,035

2006
£000

1,412

3,684

5,096

3,563

8,011

1,951

11,960

54,228

2005
(restated)
£000

4,028

1,740

5,768

20 Deferred taxation
An analysis of Group deferred taxation is as follows:

Employee benefits

Acquired intangible assets

Accelerated capital allowances

Short-term timing differences

Goodwill timing differences

Net deferred taxation asset

This has been recognised in the Consolidated balance sheet as follows:

Non-current deferred taxation assets

Non-current deferred taxation liabilities

Net deferred taxation asset

Movement in deferred taxation asset:

At beginning of year

Credit/(charge) to Consolidated income statement:

Overseas

Credit/(charge) to Shareholders’ equity

Acquired

Disposed

Exchange adjustments

At end of year

Halma p.l.c. 2006 59

2006
£000

13,803

(2,122)

(3,369)

3,836

(1,561)

2005
(restated)
£000

12,253

(260)

(3,216)

2,597

(1,336)

10,587

10,038

2006
£000

13,803

(3,216)

10,587

2006
£000

10,038

1,387

(771)

1,663

(2,159)

477

(48)

2005
(restated)
£000

12,253

(2,215)

10,038

2005
(restated)
£000

10,087

194

(636)

(166)

649

–

(90)

10,587

10,038

No provision is made for taxation which might become payable if profits retained by overseas subsidiary companies are distributed
as dividends unless there is an intention to distribute such profits.

At 1 April 2006 the Group had unused capital tax losses of £1,927,000 (2005: £924,000) for which no deferred tax asset has been
recognised. None of these losses has an expiry date.

60 Halma p.l.c. 2006

Notes to the accounts continued

21 Share capital

Ordinary shares of 10p each

Authorised

Issued and fully paid

2006
£000

2005
£000

2006
£000

2005
£000

43,656

36,933

36,880

The number of ordinary shares in issue at 1 April 2006 was 369,330,680 (2005: 368,800,919).

Changes during the year in the issued ordinary share capital were as follows:

At 2 April 2005

Share options exercised

At 1 April 2006

Issued and fully paid
£000

36,880

36,933

The total consideration received in cash in respect of share options exercised amounted to £644,000.

At 1 April 2006 options in respect of 15,199,515 (2005: 16,980,339) ordinary shares remained outstanding. Further details of these
are given in note 23 to the accounts.

22 Reserves

At 3 April 2004 (restated)

Profit for the year

Share options exercised

Foreign exchange translation differences

Dividends paid

Actuarial losses on defined benefit pension schemes

Share-based payments

Tax on items taken directly to equity

At 2 April 2005 (restated)

Profit for the year

Share options exercised

Foreign exchange translation differences

Exchange differences recycled from reserves on
disposal of operations

Dividends paid

Actuarial losses on defined benefit pension schemes

Share-based payments

Treasury shares purchased

Tax on items taken directly to equity

Share
premium
account
£000

7,768

–

2,343

–

10,111

–

591

–

Translation
reserve
£000

–

144

–

144

–

5,826

(26)

–

Capital
redemption
reserve
£000

185

–

185

–

At 1 April 2006

10,702

5,944

185

Treasury
shares
£000

Other reserves
£000

Retained
earnings
£000

–

(379)

–

(379)

150

114,247

–

363

–

513

–

1,079

–

34,551

–

(23,320)

(48)

–

(4)

125,426

40,875

–

(24,468)

(10,355)

–

1,625

1,592

133,103

The capital redemption reserve was created on repurchase and cancellation of the Company’s own shares.

The translation reserve is used to record differences arising from the retranslation of the financial statements of foreign operations.

The other reserve represents the provision being established in respect of the value of the equity-settled share option plans and
performance share plan.

Treasury shares are ordinary shares in Halma p.l.c. purchased by the Company and held to fulfil the Company’s obligations under the
performance share plan. At 1 April 2006 the market value of the treasury shares held was £375,500.

Halma p.l.c. 2006 61

23 Share-based payments
The total cost recognised in the Consolidated income statement in respect of equity-settled share-based payment schemes was
as follows:

Share incentive plan

Share option plans

Performance share plan

2006
£000

375

447

296

1,118

2005
(restated)
£000

209

342

–

551

Share incentive plan
Shares awarded under this scheme are purchased in the market by the Plan’s trustees at the time of the award and are held in trust
until their transfer to qualifying employees, which is conditional upon completion of three years’ service. The costs of providing this
scheme are recognised in the Consolidated income statement over the three-year vesting period.

Share option plans
The Group has issued options to acquire ordinary shares in the Company under three share option plans, approved by shareholders
in 1990, 1996 and 1999. These 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 Group’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 ten years from the date of grant.

No further awards will be made under the Company share option plans after 3 August 2005.

Options in respect of 67,133 ordinary shares remained outstanding at 1 April 2006 under the 1990 Plan. 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

9,333

17,600

11,400

24,000

4,800

144.76p

122.50p

101.50p

120.0p – 129.0p

120.0p

2004

1999

2000

2001

2002

Options in respect of 2,443,996 ordinary shares remained outstanding at 1 April 2006 under the 1996 Plan. 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

83,998

385,200

238,200

397,700

133,198

290,400

299,200

616,100

1999

2000

2001

2002

138.0p – 139.5p

122.5p – 138.5p

101.5p – 123.5p

120.0p – 136.0p

138.0p – 139.5p

122.5p – 133.0p

101.5p – 123.5p

120.0p – 136.0p

2001

2002

2003

2004

62 Halma p.l.c. 2006

Notes to the accounts continued

23 Share-based payments continued
Options in respect of 12,688,386 ordinary shares remained outstanding at 1 April 2006 under the 1999 Plan. 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

1,709,500

835,500

1,203,901

2,198,136

2,045,302

753,399

788,000

658,900

775,367

823,751

896,630

111.0p

163.5p

144.33p

134.0p

142.25p

145.67 – 157.92p

2003

2004

2005

2006

2007

2008

111.0p

163.5p

144.33p

134.0p

142.25p

2005

2006

2007

2008

2009

A summary of the movements in options issued under the share option plans is as follows:

Outstanding at beginning of year

Exercised during the year

Granted during the year

Lapsed during the year

Outstanding at end of year

Exercisable at end of year

2006

2005

Number of Weighted average
option price

share options

Number of Weighted average
option price

share options

16,980,339

134.24p

16,580,213

131.27p

(529,761)

121.56p

(2,026,974)

125.60p

496,707

145.67p

3,444,072

143.42p

(1,747,770)

136.62p

(1,016,972)

134.06p

15,199,515

134.62p

16,980,339

1,300,629

123.29p

1,845,190

134.24p

122.82p

The options outstanding at 1 April 2006 had exercise prices from 101.5p to 163.5p and a weighted average remaining contractual life
of six years.

Under the transitional provisions of IFRS 1 only the options awarded in 2004, 2005 and 2006 under the 1999 Plan have been recognised
under IFRS 2. The fair value of these options was calculated using the Black-Scholes model using the following assumptions:

Option section

Dividend yield

Expected volatility

Expected life (years)

Risk free rate (%)

Option price (p)

Fair value per option (p)

2006

25%

4.1%

25%

4.3–4.9%

145.67

142.25–157.92

24.70

25.71-27.22

2005

25%

4.9%

142.25

29.25

25%

3.8%

134.00

22.18

2004

25%

4.0%

134.00

25.35

The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous six years.

Halma p.l.c. 2006 63

23 Share-based payments continued
Performance share plan
The performance share plan was approved by shareholders on 3 August 2005 and replaced the share option plans from which no
further grants will be made.

Awards made in 2005/06 under this Plan vest after three years on a sliding scale subject to the Group’s relative Total Shareholder
Return against the Engineering and Machinery sector, combined with an absolute Return on Total Invested Capital measure. Awards
which do not vest on the third anniversary of their award lapse.

A summary of the movements in share awards granted under the performance share plan is as follows:

Outstanding at beginning of year

Granted during the year

Vested during the year (pro-rated for “good leavers”)

Lapsed during the year

Outstanding at end of year

Exercisable at end of year

2006
Number of
shares awarded

–

1,932,060

(15,403)

(181,405)

1,735,252

–

The fair value of these awards was calculated using an appropriate simulation method to reflect the likelihood of market-based
performance conditions being met, using the following assumptions:

Expected volatility (%)

Expected life (years)

Share price on date of grant (p)

Option price (p)

Fair value per option (% of Present Economic Value)

25%

148.42

nil

46%

The expected volatility was determined by calculating the historic volatility of the Group’s share price over the previous three years.

64 Halma p.l.c. 2006

Notes to the accounts continued

24 Acquisitions

Non-current assets

Intangible assets

Property, plant and equipment

Current assets

Inventories

Receivables

Deferred tax

Cash and cash equivalents

Total assets

Current liabilities

Payables

Deferred tax

Total liabilities

Net assets of businesses acquired

Cash consideration, including costs

Deferred purchase consideration

Total consideration

Goodwill arising on current year acquisitions

Goodwill arising on prior year acquisitions

Goodwill arising on acquisition

Book value
£000

Fair value
adjustments
£000

1,149

4,741

4,797

2,756

13,504

(6,358)

–

(6,358)

7,146

7,695

–

(193)

(15)

(51)

–

7,436

(336)

(2,159)

(2,495)

4,941

Total
£000

7,705

1,149

4,548

4,782

–

2,756

20,940

(6,694)

(2,159)

(8,853)

12,087

30,390

3,844

34,234

22,147

1,048

23,195

The goodwill on current year acquisitions arose on the following acquisitions:

Company

Netherlocks Safety Systems B.V.

Radio-Tech Limited

Texecom Limited

Date of
acquisition

July 2005

Country of
incorporation

Principal activity

The Netherlands

Industrial Safety

Initial
consideration
13,000,000

August 2005

United Kingdom

Health and Analysis

£2,000,000

November 2005

United Kingdom

Infrastructure Sensors £26,000,000

Together these acquisitions contributed £14,116,000 of revenue and £3,406,000 of profit before tax and amortisation of acquired
intangible assets to the Group results for the year ended 1 April 2006.
Additional purchase consideration of up to 17,000,000 and £2,500,000 is payable in respect of Netherlocks and Radio-Tech
respectively, and has been provided at the estimated amount payable. The amount ultimately payable is dependent upon the profit
growth of the businesses over the financial years ending March 2006 and March 2007. The adjustments to goodwill relating to prior
years’ acquisitions comprise revisions to the estimate of deferred purchase consideration payable.

Adjustments were made to the book value of the net assets of the companies acquired to reflect their provisional fair value to the
Group. Acquired inventories were valued at the lower of cost and net realisable value adopting Group bases and any liabilities for
warranties relating to past trading were recognised. Other previously unrecognised assets and liabilities at acquisition were included
and accounting policies were aligned with the Group where appropriate.

25 Notes to the consolidated cash flow statement

Reconciliation of profit from operations to net cash inflow from operating activities

Profit from continuing operations before taxation

Profit from discontinued operations before taxation

Depreciation and amortisation of computer software

Amortisation of capitalised development costs

Amortisation of acquired intangible assets

Share-based payment expense in excess of amounts paid

Additional payments to pension scheme

Loss/(profit) on sale of property, plant and equipment and computer software

Operating cash flows before movement in working capital

Decrease/(increase) in inventories

(Increase)/decrease in receivables

Increase in payables

Cash generated from operations

Taxation paid

Net cash inflow from operating activities

Halma p.l.c. 2006 65

2006
£000

2005
(restated)
£000

58,460

49,015

1,472

8,373

1,441

1,529

742

1,588

7,901

1,054

361

192

(1,357)

(1,139)

174

70,834

647

(6,225)

4,921

70,177

(21)

58,951

(1,000)

780

2,707

61,438

(16,815)

(14,494)

53,362

46,944

The cash outflow of £36,178,000 on the acquisition of businesses includes cash acquired of £2,756,000 and the payment of
£8,544,000 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

Decrease in cash and cash equivalents

Loans acquired

Cash outflow/(inflow) from borrowings

Exchange adjustments

Net cash brought forward

Net cash carried forward

Analysis of net cash

Cash and cash equivalents

Overdrafts

Bank loans

2006
£000

2005
(restated)
£000

(9,541)

–

3,050

(1,995)

(8,486)

12,004

3,518

(3,209)

(1,125)

(5,764)

554

(9,544)

21,548

12,004

At 2 April 2005
(restated)
£000

Cash flow
£000

Exchange
adjustments
£000

At 1 April 2006
£000

45,348

(9,541)

(240)

45,108

(33,104)

12,004

241

(9,300)

2,809

(6,491)

(1)

(2,013)

(1,995)

35,826

–

35,826

(32,308)

3,518

66 Halma p.l.c. 2006

Notes to the accounts continued

26 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, Malaysia, Singapore, China, India and Africa. 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.

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.
Overdraft 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 Consolidated income statement as a result of movement in exchange rates. As at year end these exposures
were as follows:

2006
Functional currency of operation

Sterling

US Dollar

Euro

Other

Total

Net foreign currency monetary assets/(liabilities)

Sterling
£000

–

(93)

(24)

US Dollar
£000

2,151

–

212

246

Euro
£000

1,213

–

(111)

2,609

1,260

Other
£000

140

(2)

(33)

302

407

Total
£000

3,504

(94)

155

600

4,165

Halma p.l.c. 2006 67

26 Financial instruments continued

2005
Functional currency of operation

Sterling

US Dollar

Euro

Other

Total

Sterling
£000

–

829

(60)

(24)

745

US Dollar
£000

1,137

–

536

699

2,372

Net foreign currency monetary assets/(liabilities)

Euro
£000

(387)

288

–

(21)

Other
£000

(568)

–

505

200

137

Total
£000

182

1,117

981

953

3,233

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 interest bearing cash equivalents which totalled
£11,501,000 at 1 April 2006 (2005: £35,581,000). These comprised Sterling denominated deposits of £11,386,000 (2005: £24,073,000),
US Dollar denominated deposits of £nil (2005: £3,663,000), and Euro and other currency deposits of £115,000 (2005: £7,845,000)
which are placed on local money markets and earn interest at market rates. Cash balances of £24,325,000 (2005: £9,767,000) earn
interest at local market rates.

The financial liabilities which are subject to interest rate fluctuations are bank loans, bank overdrafts and certain unsecured loans,
which totalled £32,308,000 at 1 April 2006 (2005: £33,344,000). All are subject to floating rates of interest. These comprise US Dollar
denominated bank loans of £18,497,000 (2005: £19,577,000) which bear interest with reference to the US Dollar LIBOR rates,
US Dollar denominated bank overdrafts of £nil (2005: £13,000) which bear interest at rates referenced to US Dollar base rates,
Euro denominated bank loans of £13,811,000 (2005: £13,527,000) which bear interest with reference to the Euro LIBOR rates,
Euro denominated bank overdrafts of £nil (2005: £111,000) which bear interest at rates referenced to Euro base rates and
Sterling denominated bank overdrafts of £nil (2005: £116,000) which bear interest at rates referenced to UK base rates.

Maturity of financial liabilities
With the exception of the deferred purchase consideration and other payables 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
£1,346,000 (2005: £3,948,000) due between one and two years, with the balance of £66,000 (2005: £80,000) due between two
and five years. Other creditors due after more than one year include £1,220,000 (2005: £740,000) due between one and two years,
£2,279,000 (2005: £786,000) due between two and five years, with the balance of £185,000 (2005: £214,000) 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.

In September 2005 the Group cancelled its existing £40 million of 364-day bilateral bank facilities and entered into a £60 million,
five-year unsecured revolving credit facility with a small syndicate of its principal bankers.

The Group’s undrawn committed facilities available at 1 April 2006 were £42,721,000, of which £15,029,000 mature within one year
and £27,692,000 between four and five years.

Fair values of financial assets and financial liabilities
As at 1 April 2006 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 purchases 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 1 April 2006 and 2 April 2005 are not significant.

With the exception of currency exposures, the disclosures in this note exclude short-term receivables and payables.

68 Halma p.l.c. 2006

Notes to the accounts continued

27 Commitments
Capital commitments
Capital expenditure authorised and contracted at 1 April 2006 but not provided in these accounts amounts to £2,187,000
(2005: £2,070,000).

Commitments under operating leases
Annual payments under non-cancellable operating leases will be made as follows:

Within one year

Within two to five years

After five years

Land and buildings

2006
£000

3,947

8,075

2,767

2005
£000

2,777

6,338

3,204

2006
£000

492

522

14,789

12,319

1,017

Other

2005
£000

428

501

942

28 Retirement benefits
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 defined benefit sections with assets held in separate trustee administered funds.
Both of these sections were closed to new entrants during 2002/03 and a defined contribution section was established within the
Halma Group Pension Plan. Defined contribution schemes are mainly adopted in overseas subsidiaries.

Full actuarial valuations of the defined benefit schemes are carried out every three years. 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 2004, using the projected
unit method. At those dates the market value of the scheme assets were £42,533,000 for the Halma Group Pension Plan and
£8,278,000 for the Apollo Pension and Life Assurance Plan. The actuarial value of these assets represented 69% and 59%
respectively of the benefits that had accrued to members after allowing for expected future increases in earnings. These
shortfalls are being addressed by increased company contributions.

Defined contribution schemes
The amount charged to the Consolidated income statement in respect of defined contribution schemes was £1,685,000
(2005: £1,499,000).

Defined benefit schemes
The assumptions used to calculate scheme liabilities are:

Rate of increase in salaries

Rate of increase of pensions in payment (pre-April 1997)

Rate of increase of pensions in payment (post-April 1997)

Discount rate

Inflation assumption

2006

4.25%

2.75%

5.00%

2.75%

2005

4.25%

2.75%

5.40%

2.75%

2004

4.25%

2.75%

5.50%

2.75%

The mortality assumption of the Halma Group Pension Plan was strengthened during the year to be consistent with the provisional
assumption the Trustees agreed for the December 2005 actuarial valuation currently under review. The actuary has used PA 92
tables with the Medium Cohort improvement factors plus one year for future mortality as compared with PA 92 tables for pensioners
and PA 92 less three years for non pensioners in previous years. The future life expectancies are around four years longer than those
assumed at the previous financial year end. For the Apollo Pension and Life Assurance Plan, the actuary has used PA 92 tables
C=2020 for non pensioners and C=2010 for pensioners; this will be strengthened in accordance with the next actuarial valuation.

Halma p.l.c. 2006 69

28 Retirement benefits continued
If assumed life expectancies had been one year greater in the defined benefit schemes, the gross deficit would have increased by
£3.5 million.

The expected rates of return and the net deficit in the schemes were:

Equities

Bonds

Property

Total fair value of assets

Present value of scheme liabilities

Net deficit

Expected rate
of return
%

7.25

4.75

5.75

Expected rate
of return
%

7.75

4.75

6.25

2006

Fair
value
£000

70,447

22,071

3,043

95,561

(141,580)

(46,019)

2005

Fair
value
£000

55,649

13,876

2,544

72,069

(112,914)

(40,845)

The fair value of scheme assets includes a receivable of £4,763,000 (2005: £558,000) in respect of pension scheme liabilities that
Halma p.l.c. has assumed on discontinued UK operations. The equivalent liability is included in the Consolidated and Company
balance sheets within trade and other payables/other creditors.

The amount charged/(credited) to the Consolidated income statement in respect of the schemes was as follows:

Current service cost (administrative expenses)

Curtailment gain (profit on disposal of operations)

Expected return on pension scheme assets

Interest on scheme liabilities

Net finance cost

Total charge

2006
£000

2,741

2005
£000

2,919

(577)

–

(5,180)

(4,583)

6,138

958

5,680

1,097

3,122

4,016

The amount charged to the Statement of recognised income and expenses in respect of the actuarial losses of the schemes was
£10,355,000 (2005: £48,000).

The movements in scheme assets, liabilities and the net deficit are as follows:

At beginning of year

Current service cost

Contributions paid

Curtailment gain

Net finance cost

Actuarial (loss)/gain

Receivable from principal employer

Fair value of
scheme assets
£000

Present value of
scheme liabilities
£000

2006

Net deficit
£000

Fair value of
scheme assets
£000

Present value of
scheme liabilities
£000

2005

Net deficit
£000

72,069

(112,914)

(40,845)

61,427

(102,196)

(40,769)

–

(2,741)

–

577

(6,138)

(2,741)

4,098

577

(958)

(20,364)

(10,355)

–

4,205

4,098

–

5,180

10,009

4,205

–

(2,919)

3,988

–

4,583

2,071

–

(5,680)

(2,119)

–

(2,919)

3,988

–

(1,097)

(48)

–

At end of year

95,561

(141,580)

(46,019)

72,069

(112,914)

(40,845)

70 Halma p.l.c. 2006

Notes to the accounts continued

28 Retirement benefits continued
History of experience adjustments:

Present value of defined benefit obligations

(141,580)

(112,914)

(102,196)

(90,545)

(67,705)

2006
£000

2005
£000

2004
£000

2003
£000

2002
£000

Fair value of scheme assets

Deficit in the scheme

Experience adjustments on scheme liabilities:

Amount

Percentage of scheme liabilities

Experience adjustments on scheme assets:

Amounts

Percentage of scheme assets

*Not available.

95,561

72,069

61,427

46,574

55,144

(46,019)

(40,845)

(40,769)

(43,971)

(12,561)

536

–

11,271

12%

–

2,821

–

(3,260)

(4)%

7,717

13%

(17,042)

(37)%

Amounts disclosed for 2004 and earlier are under UK GAAP as it is not practicable to restate these amounts prior to the date of
transition to IFRS.

The principal differences between UK GAAP and IFRS are explained in note 29 to the accounts.

29 Transition to IFRS
The following reconciliations of equity at 3 April 2004 (the date of transition to IFRS) and 2 April 2005 and of the income statement
for the 52 weeks ended 2 April 2005 complement the summary reconciliations given in the document “Adoption of International
Financial Reporting Standards”, released by the Company on 2 September 2005, and available from its website www.halma.com
or from the Company Secretary, which includes further explanations on the adjustments.

Reconciliation of profit

As reported
under
UK GAAP
£000

Defined
benefit
pension Share-based
payments
schemes
£000
£000

52 weeks to 2 April 2005

Revenue from continuing operations 268,719

Revenue from discontinued operations 30,400

Total revenue

Profit from continuing operations

Loss from discontinued operations

299,119

43,247

1,606

44,853

–

767

–

767

Net finance income/(charges)

(1,097)

–

(192)

–

(192)

–

Profit before taxation

44,898

(330)

(192)

Taxation

(15,540)

–

Profit for the period

29,358

(330)

(192)

Development
costs

Reverse Amortisation Deferred tax
goodwill of acquired on goodwill

capitalised amortisation
£000

£000

intangibles
£000

in reserves restatements
£000

£000

Other As restated
under IFRS
£000

–

5,491

–

5,491

–

(343)

(18)

(361)

–

5,491

(361)

–

5,491

(361)

–

344

–

268,719

30,400

299,119

(23)

49,015

–

1,588

(23)

50,603

–

(1,052)

(23)

49,551

196

173

(15,000)

34,551

Halma p.l.c. 2006 71

29 Transition to IFRS continued
Reconciliation of equity

As reported
under
UK GAAP
£000

Defined
benefit
pension Share-based
payments
schemes
£000
£000

Release Development
dividend
accrual
£000

capitalised
£000

costs Holiday pay
accrual
£000

Acquired
intangible
assets
£000

Other As restated
Goodwill restatements under IFRS
£000

£000

As at 4 April 2004

Goodwill

Other intangible assets

71,425

–

Property, plant and equipment

47,139

–

Deferred tax asset

–

12,231

Total non-current assets

118,564

12,231

Inventories

Trade and other receivables

Cash and cash equivalents

Total current assets

31,208

67,080

48,482

146,770

–

Total assets

Borrowings

Trade and other payables

Current taxation

Dividends payable

265,334

12,231

26,934

45,648

5,563

13,762

–

(69)

–

Retirement benefit obligations

–

40,769

–

604

–

604

–

Deferred tax liability

6,067

156

–

(13,762)

–

2,653

–

2,653

–

2,653

–

816

Total liabilities

Net assets

Share capital

Share premium

Capital redemption reserve

Currency translation reserve

Other reserves

Retained earnings

Total equity

97,974

40,700

156 (13,762)

167,360 (28,469)

448

13,762

1,837

36,677

7,768

185

–

122,730 (28,469)

167,360 (28,469)

–

150

298

448

–

13,762

1,837

(547)

–

806

–

(259)

547

(547)

–

(4,636)

4,636

–

71,425

969

3,622

(969) 46,170

–

12,231

– 133,448

–

31,208

67,684

48,482

– 147,374

– 280,822

–

26,934

46,385

5,563

–

40,769

2,144

– 121,795

– 159,027

–

36,677

7,768

185

–

150

4,636

– 114,247

– 159,027

72 Halma p.l.c. 2006

Notes to the accounts continued

29 Transition to IFRS continued
Reconciliation of equity

As reported
under
UK GAAP
£000

Defined
benefit
pension Share-based
payments
schemes
£000
£000

Release Development
dividend
accrual
£000

capitalised
£000

costs Holiday pay
accrual
£000

Acquired
intangible
assets
£000

Other As restated
Goodwill restatements under IFRS
£000

£000

(990)

5,418

–

99,276

As at 2 April 2005

Goodwill

Other intangible assets

94,848

–

Property, plant and equipment

48,896

–

Deferred tax asset

–

12,253

Total non-current assets

143,744

12,253

Inventories

Trade and other receivables

Cash and cash equivalents

Total current assets

35,502

69,062

45,348

149,912

–

Total assets

Borrowings

Trade and other payables

Current taxation

Dividends payable

293,656

12,253

33,344

58,934

5,137

14,457

–

233

–

Retirement benefit obligations

–

40,845

Deferred tax liability

6,186

–

(14,457)

–

754

–

754

–

118,058

41,078

63 (14,457)

–

2,739

–

2,739

–

2,739

–

854

–

829

–

(266)

563

966

–

(24)

5,418

–

(24)

5,418

–

260

(4,882)

175,598 (28,825)

691

14,457

1,885

(563)

(284) 10,300

Total liabilities

Net assets

Share capital

Share premium

Capital redemption reserve

Currency translation reserve

Other reserves

Retained earnings

Total equity

36,880

10,111

185

–

128,422 (28,825)

175,598 (28,825)

–

513

178

691

–

(171)

–

14,457

1,885

(563)

(284) 10,471

(315) 125,426

(284) 10,300

– 173,259

1,112

4,817

(1,112) 47,784

–

12,253

– 164,130

–

35,502

69,816

45,348

– 150,666

– 314,796

–

33,344

59,996

5,137

–

40,845

2,215

– 141,537

– 173,259

–

315

–

36,880

10,111

185

144

513

Independent Auditors’ report to the members of Halma p.l.c.

Halma p.l.c. 2006 73

We have audited the Group financial statements of Halma p.l.c.
for the 52 weeks to 1 April 2006 which comprise the
Consolidated income statement, the Consolidated balance sheet,
the Consolidated cash flow statement, the Statement
of recognised income and expense and the Reconciliation of
movements in shareholders’ equity together with the statement
of Accounting policies and the related notes numbered 1 to 29.
These Group financial statements have been prepared under
the accounting policies set out therein. We have also audited
the information in the part of the Directors’ Report on
remuneration that is described as having been audited. We
have reported separately on the individual Company financial
statements of Halma p.l.c. for the 52 weeks to 1 April 2006.

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 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
The Directors’ responsibilities for preparing the Annual report,
the Directors’ Report on remuneration and the Group financial
statements in accordance with applicable law and International
Financial Reporting Standards (“IFRS”) as adopted by the
European Union are set out in the Statement of Directors’
responsibilities. Our responsibility is to audit the Group financial
statements and the part of the Directors’ Report on remuneration
described as having been audited in accordance with relevant
United Kingdom legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Group financial
statements give a true and fair view and whether the Group
financial statements and the part of the Directors’ Report on
remuneration described as having been audited have been
properly prepared in accordance with the Companies Act 1985
and article 4 of the IAS Regulations. We report to you if, in our
opinion, the information given in the Report of the Directors is not
consistent with the Group financial statements. We also report to
you if we have not received all the information and explanations
we require for our audit, or if information specified by law
regarding Directors’ transactions with the Company and other
members of the Group is not disclosed. We also report to you if,
in our opinion, the Group has not complied with any of the four
Directors’ remuneration disclosure requirements specified for our
review by the Listing Rules of the Financial Services Authority.
These comprise the amount of each element in the remuneration
package and information on share options, details of long-term
incentive schemes, and money purchase and defined benefit
retirement benefit schemes. We give a statement, to the extent
possible, of details of any non-compliance.

We review whether the Corporate governance statement reflects
the Company’s compliance with the nine provisions of the 2003
FRC 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 Report of the Directors 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’ Report on remuneration and consider the implications
for our report if we become aware of any apparent
misstatements or material inconsistencies with the Group
financial statements.

Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
Group financial statements and the part of the Directors’
Report on remuneration described as having been audited.
It also includes an assessment of the significant estimates and
judgments made by the Directors in the preparation of the Group
financial statements and of whether the accounting policies are
appropriate to the Group’s circumstances, 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 Group financial statements and the part of
the Directors’ Report on remuneration 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 Group financial statements and the part
of the Directors’ Report on remuneration described as having
been audited.

Opinion
In our opinion:

– the financial statements give a true and fair view, in accordance
with International Financial Reporting Standards as adopted
for use in the European Union, of the state of affairs of the
Group as at 1 April 2006 and of its profit for the 52 week period
then ended;

– the Group financial statements and part of the Directors’

Report on remuneration described as having been audited
have been properly prepared in accordance with the
Companies Act 1985 and article 4 of the IAS Regulations; and

– the information given in the Report of the Directors is consistent

with the Group financial statements.

Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Reading

20 June 2006

74 Halma p.l.c. 2006

Company balance sheet

Fixed assets

Tangible assets

Investments

Current assets

Debtors

Current taxation receivable

Short-term deposits

Cash at bank and in hand

Creditors: amounts falling due within one year

Borrowings

Creditors

Current taxation payable

Net current assets

Total assets less current liabilities

Creditors: amounts falling due after more than one year

Net assets

Capital and reserves

Called up share capital

Share premium account

Treasury shares

Capital redemption reserve

Other reserves

Profit and loss account

Equity shareholders’ funds

Approved by the Board of Directors on 20 June 2006.

E G Unwin
Directors

K J Thompson

Notes

1 April 2006
£000

2 April 2005
(restated)
£000

4,115

102,566

106,681

4,191

48,967

53,158

115,242

134,689

307

–

11,386

22,950

–

126,935

157,729

44,814

61,383

–

106,197

20,738

33,104

24,074

849

58,027

99,702

127,419

152,860

4,507

1,266

122,912

151,594

C10

C11

C12

36,933

10,702

(379)

185

569

36,880

10,111

–

185

126

74,902

122,912

104,292

151,594

Notes to the Company accounts

Halma p.l.c. 2006 75

C1 Accounting policies
Basis of accounting
The separate Company accounts are presented as required
by the Companies Act 1985 and have been prepared in
accordance with applicable United Kingdom Accounting
Standards. The accounts are prepared on the historical cost
basis, and reflect the adoption of Financial Reporting Standard
(“FRS”) 17 “Retirement Benefits”, FRS 20 “Share-Based
Payment”, FRS 21 “Events after the Balance Sheet Date”,
FRS 23 “The Effects of Changes in Foreign Exchange Rates”,
FRS 25 “Financial Instruments: Disclosure and Presentation”,
FRS 26 “Financial Instruments: Measurement” and FRS 28
“Corresponding Amounts”. Further information is given in
Note C13 to the Company Accounts.

Foreign currencies
Transactions in foreign currency are recorded at the rate of
exchange at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies at the balance
sheet date are reported at the rates prevailing at that date.
Any gain or loss arising from subsequent exchange rate
movements is included as an exchange gain or loss in the
profit and loss account.

Exchange differences on foreign currency borrowings which are
taken out for the purpose of hedging the Company’s investments
in overseas subsidiary companies are taken to reserves.

Share-based payments
Equity-settled share-based payments are provided to employees
under the Company’s share incentive plan, share option plans
and performance share plan. The Company recognises a
compensation cost in respect of these schemes that is based
on the fair value of the awards. For equity-settled schemes,
the fair value is determined at the date of the grant and is not
subsequently remeasured unless the conditions on which the
award was granted are modified. The fair value at the date of
the grant is calculated using appropriate option pricing models
and the cost is recognised on a straight-line basis over the
vesting period. Adjustments are made to reflect expected and
actual forfeitures during the vesting period due to failure to
satisfy service conditions or non-market performance conditions.
As permitted by FRS 20 “Share-based payment”, the Company
has applied FRS 20 retrospectively only to equity-settled awards
that were granted on or after 7 November 2002 which had not
vested at 3 April 2005.

Investments
Investments are stated at cost less provision for impairment.

Fixed assets and depreciation
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 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 and equipment
Motor vehicles

2%
Period of lease
8% to 20%
20%

Leases
The costs of operating leases of property and other assets
are charged as incurred.

Pensions
The Company makes contributions to defined contribution
pension schemes, which are charged against profits when
they become payable. The Company also participates in a
Group-wide defined benefit pension scheme. This scheme is
operated on a basis that does not enable individual companies
to identify their share of the underlying assets and liabilities,
and in accordance with FRS 17 the Company accounts for its
contributions to the plan as if it was a defined contribution plan.

Deferred taxation
The Company 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. Deferred tax assets are only recognised if recovery is
reasonably certain.

76 Halma p.l.c. 2006

Notes to the accounts continued

C2 Profit before taxation
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.

Auditors’ remuneration for audit services to the Company was £91,000 (2005: £68,000).

Total employee costs (including Directors) were:

Wages and salaries

Social security costs

Other pension costs

Number of employees

2006
£000

3,068

417

550

4,035

2006
Number

2005
£000

3,317

370

721

4,408

2005
Number

Details of Directors’ remuneration are set out on pages 96 to 98 within the Report on remuneration and form part of these
financial statements.

C3 Fixed assets – tangible assets

Cost

At 2 April 2005

Assets of businesses sold

Additions at cost

Disposals

At 1 April 2006

Accumulated depreciation

At 2 April 2005

Assets of businesses sold

Charge for the year

Disposals

At 1 April 2006

Net book amounts

At 1 April 2006

At 2 April 2005

Land and buildings

Freehold
properties
£000

4,217

(264)

–

Short
leases
£000

Plant
equipment and
vehicles
£000

Total
£000

167

1,254

5,638

–

369

(197)

(264)

410

(197)

3,994

167

1,426

5,587

597

(54)

–

576

3,418

3,620

–

782

–

179

(139)

822

604

472

1,447

(54)

218

(139)

1,472

4,115

4,191

C4 Investments
Shares in Group companies

At cost less amounts written off at beginning of year

Additions

Amounts written off in financial year

Disposals

At cost less amounts written off at end of year

Halma p.l.c. 2006 77

2006
£000

48,967

54,649

–

(1,050)

2005
£000

40,959

8,090

(82)

–

102,566

48,967

Additions in the year relate to the acquisitions of Radio-Tech Limited and Texecom Limited, and the acquisition of a Group subsidiary
from an intermediate holding company. Disposals relate to the sale of SEAC Limited, Secomak Limited and Cressall Resistors Limited.

Details of principal subsidiary companies are set out on pages 104 and 105. 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

Fortress Systems Pty. Limited

HF Sécurité S.A.S.*

Hydreka S.A.S.*

S.E.R.V. Trayvou Interverrouillage S.A.S.*

Apollo Gesellschaft für Meldetechnologie mbH*

Berson Milieutechniek B.V.*

Netherlocks Safety Systems B.V.*

Bureau D’Electronique Appliquée 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.*

Electronic Micro Systems Inc.*

Janus Elevator Products Inc.*

Monitor Controls Inc.*

Ocean Optics, Inc.*

Oklahoma Safety Equipment Co. Inc.*

Perma Pure LLC*

Volk Optical Inc.*

*Interests held by subsidiary companies.

Country of incorporation

Australia

France

Germany

The Netherlands

Belgium

New Zealand

Singapore

USA

78 Halma p.l.c. 2006

Notes to the accounts continued

C5 Debtors

Amounts due from Group companies

Deferred taxation (note C9)

Other debtors

Prepayments and accrued income

C6 Borrowings

Falling due within one year:

Bank loans

Overdrafts

2006
£000

2005
(restated)
£000

112,179

132,494

385

2,614

2,072

115,242

134,689

2006
£000

2005
£000

32,308

12,506

44,814

33,104

–

33,104

The bank loans at 1 April 2006 and 2 April 2005 mature within one year. The facility under which they are drawn expires within two to
five years (2005: within one year) and at 1 April 2006 £27,692,000 (2005: £6,896,000) remained committed and undrawn.

The bank overdrafts at 1 April 2006 were drawn on uncommitted facilities which all expire within one year, and were held pursuant to
a Group pooling arrangement which offsets them against credit balances in subsidiary undertakings.

C7 Creditors

Falling due within one year:

Trade creditors

Amounts owing to Group companies

Other taxation and social security

Other creditors

Accruals and deferred income

C8 Creditors: amounts falling due after one year

Deferred purchase consideration

Other creditors

These liabilities fall due as follows:

Within two to five years

After more than five years

2006
£000

704

2005
£000

410

51,371

19,663

1,174

3,602

4,532

1,206

1,186

1,609

61,383

24,074

2006
£000

1,061

3,446

4,507

4,322

185

4,507

2005
£000

1,241

1,266

1,178

1,266

C9 Deferred taxation

Movement in deferred taxation asset:

At 2 April 2005

Credit/(charge) to profit and loss account

At 1 April 2006

Deferred taxation comprises short-term timing differences.

C10 Called up share capital

Ordinary shares of 10p each

Halma p.l.c. 2006 79

2006
£000

2005
(restated)
£000

294

(242)

Authorised

Issued and fully paid

2006
£000

2005
£000

2006
£000

2005
£000

43,656

36,933

36,880

The number of ordinary shares in issue at 1 April 2006 was 369,330,680 (2005: 368,800,919).

Changes during the year in the issued ordinary share capital were as follows:

At 2 April 2005

Share options exercised

At 1 April 2006

Issued and fully paid
£000

36,880

36,933

The total consideration received in cash in respect of share options exercised amounted to £644,000.

Details of share options in issue on the Company’s share capital and share-based payments are included in note 23 to the
Group accounts.

C11 Reserves

At 2 April 2005 (as originally stated)

Prior year adjustment (note C13)

At 2 April 2005 (restated)

Loss transferred to reserves

Share options exercised

Movement in other reserves

Treasury shares purchased

Exchange adjustments

At 1 April 2006

Share
premium
account
£000

10,111

–

10,111

–

591

–

10,702

Treasury
shares
£000

Capital
redemption
reserve
£000

Other
reserves
£000

Profit and loss
account
£000

–

(379)

–

(379)

185

–

185

–

185

–

126

–

443

–

569

89,139

15,153

104,292

(26,629)

–

(2,761)

74,902

The capital redemption reserve was created on repurchase and cancellation of the Company’s own shares.

The other reserves represent the provision being established in respect of the value of equity-settled share option plans
and performance share plan awards made by the Company.

Treasury shares are the Company’s own shares purchased and held to fulfil its obligations under the performance share plan.

80 Halma p.l.c. 2006

Notes to the accounts continued

C12 Reconciliation of movement in equity shareholders’ funds

At beginning of year (as originally stated)

Prior year adjustment (note C13)

At beginning of year (restated)

(Loss)/profit after taxation

Dividends paid

Exchange adjustments

Net proceeds of shares issued

Treasury shares purchased

Movement in other reserves

At end of year

2006
£000

2005
(restated)
£000

136,062

14,245

151,594

150,307

(2,161)

21,008

(24,468)

(23,320)

(2,761)

644

(379)

443

959

2,546

–

122,912

151,594

C13 Prior year adjustment
The Company’s accounting policies for share-based payments and dividends were changed during the year in order to implement
FRS 20 “Share-Based Payment” and FRS 21 “Events after the Balance Sheet Date”. The comparative figures in the primary
statements and notes have been restated to reflect the new policies. The effects of the changes in policies are as follows:

Profit and loss account

Share-based payments

Dividends

Increase in profit for the year

Balance sheet

Dividends payable

Prepayments

Deferred tax

Increase in net assets

Reserves

Other reserves

Profit and loss account

Increase in net assets

2006
£000

(5)

747

742

2005
£000

(450)

695

245

15,210

1,469

14,457

1,119

(209)

(297)

16,470

15,279

569

15,901

16,470

126

15,153

15,279

The adoption of FRS 17 “Retirement Benefits”, FRS 23 “The Effects of Changes in Foreign Exchange Rates”, FRS 25 “Financial
Instruments: Disclosure and Presentation”, FRS 26 “Financial Instruments: Measurement” and FRS 28 “Corresponding Amounts”
had no effect on profit or net assets.

Independent Auditors’ report to the members of Halma p.l.c.

Halma p.l.c. 2006 81

Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
individual Company financial statements. It also includes an
assessment of the significant estimates and judgments made by
the Directors in the preparation of the financial statements, and
of whether the accounting policies are appropriate to
the Company’s circumstances, 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 individual Company financial statements
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 individual Company financial statements.

Opinion
In our opinion:

– the individual Company financial statements give a true

and fair view in accordance with United Kingdom Generally
Accepted Accounting Principles of the state of affairs of the
Company as at 1 April 2006;

– the individual Company financial statements have been

properly prepared in accordance with the Companies Act
1985; and

– the information given in the Report of the Directors is consistent

with the individual Company financial statements.

Deloitte & Touche LLP
Chartered Accountants and Registered Auditors
Reading

20 June 2006

We have audited the individual Company financial statements of
Halma p.l.c. for the 52 weeks to 1 April 2006 which comprise the
Balance sheet together with the statement of Accounting policies
and the related notes numbered C1 to C13. These individual
Company financial statements have been prepared under the
accounting policies set out therein. The Corporate governance
statement and the Directors’ Report on remuneration are
included in the Group Annual report of Halma p.l.c. for the
52 weeks to 1 April 2006. We have reported separately on the
Group financial statements of Halma p.l.c. for the 52 weeks to
1 April 2006 and on the information in the Directors’ Report on
remuneration 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 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
The Directors’ responsibilities for preparing the Annual report
and the individual Company financial statements in accordance
with applicable law and United Kingdom Accounting Standards
(United Kingdom Generally Accepted Accounting Principles)
are set out in the Statement of Directors’ responsibilities.
Our responsibility is to audit the individual Company financial
statements in accordance with relevant United Kingdom legal
and regulatory requirements and International Standards on
Auditing (UK and Ireland).

We report to you our opinion as to whether the individual
Company financial statements give a true and fair view, in
accordance with the relevant financial reporting framework, and
whether the individual Company financial statements have been
properly prepared in accordance with the Companies Act 1985.
We also report to you whether in our opinion the information
given in the Report of the Directors is not consistent with the
individual Company financial statements. We also report to you if,
in our opinion, 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 other transactions
is not disclosed.

We read the Report of the Directors and the other information
contained in the Annual report for the above period as
described in the contents section and consider the implications
for our report if we become aware of any apparent
misstatements or material inconsistencies with the individual
Company financial statements.

82 Halma p.l.c. 2006

Summary 1997 to 2006

Revenue (note 2)

Overseas sales (note 2)

Profit before taxation, acquired intangibles amortisation and goodwill written off (note 3)

Net tangible assets/capital employed

Borrowings

Cash and cash equivalents

Employees

Earnings per ordinary share (note 2)

Adjusted earnings per ordinary share (note 3)

Year on year increase/(decrease) in adjusted earnings per ordinary share

Return on sales (notes 2 and 4)

Return on capital employed (note 5)

Year on year increase in dividends per ordinary share

Ordinary share price at financial year end

Market capitalisation at financial year end

Notes:
1. The amounts disclosed for periods up to and including 2003/04 are stated on the basis of UK GAAP, as it is not practicable

to restate amounts prior to the date of transition to IFRS. The principal differences between UK GAAP and IFRS are
explained in note 29 to the accounts, which explains the transition to IFRS.

2. From continuing and discontinued operations.
3. Adjusted to remove amortisation of goodwill and acquired intangible assets. IFRS figures include results of discontinued operations up

to the date of their sales or closure but exclude profit on sale or closure.

4. Return on sales is defined as profit before taxation, goodwill amortisation and exceptional items expressed as a percentage of revenue.
5. Return on capital employed is defined in note 3 to the accounts.
6. UK GAAP figures prior to 2000/01 have not been restated for the adoption of FRS 19 (Deferred Taxation).

UK GAAP
1996/97
£000

200,140

119,235

37,076

81,209

3,763

13,447

2,677

7.01p

8.9%

18.5%

48.2%

20%

134p

UK GAAP
1997/98
£000

213,777

126,863

42,391

98,249

2,784

22,639

2,861

6.87p

8.26p

17.8%

19.8%

49.5%

20%

124p

UK GAAP

1998/99

£000

217,758

134,189

41,823

102,101

7,730

29,894

2,827

7.91p

7.99p

(3.3%)

19.2%

45.4%

20%

92p

UK GAAP

1999/00

£000

233,485

150,727

43,751

89,755

14,700

21,900

2,975

6.08p

8.41p

5.3%

18.7%

44.7%

20%

95p

UK GAAP

2000/01

£000

268,322

181,831

49,698

99,991

7,758

21,484

3,059

8.91p

9.34p

11.1%

18.5%

48.4%

15%

129p

UK GAAP

2001/02

£000

267,597

183,259

48,255

117,515

15,047

45,657

2,859

8.58p

9.10p

(2.6%)

18.0%

45.7%

15%

164p

UK GAAP

2002/03

£000

267,293

188,161

46,508

86,854

27,667

27,574

2,793

7.76p

8.55p

(6.0%)

17.4%

41.7%

10%

114p

UK GAAP

2003/04

£000

292,640

206,102

50,284

95,935

26,934

48,482

2,925

6.09p

9.44p

10.4%

17.2%

50.5%

149p

UK GAAP

2004/05

£000

299,119

218,745

50,389

80,750

33,344

45,348

3,002

7.97p

9.42p

(0.2%)

16.8%

52.1%

161p

IFRS

2004/05

£000

299,119

218,745

49,912

104,417

33,344

45,348

3,002

9.38p

9.45p

N/A

16.7%

48.8%

161p

£479.2m

£447.3m

£330.6m

£340.1m

£465.7m

£598.2m

£416.7m

£546.5m

£593.8m

Halma p.l.c. 2006 83

UK GAAP
1998/99
£000

217,758

134,189

41,823

102,101

7,730

29,894

2,827

7.91p

7.99p

(3.3%)

19.2%

45.4%

20%

92p

UK GAAP
1999/00
£000

233,485

150,727

43,751

89,755

14,700

21,900

2,975

6.08p

8.41p

5.3%

18.7%

44.7%

20%

95p

UK GAAP
2000/01
£000

268,322

181,831

49,698

99,991

7,758

21,484

3,059

8.91p

9.34p

11.1%

18.5%

48.4%

15%

129p

UK GAAP
2001/02
£000

267,597

183,259

48,255

117,515

15,047

45,657

2,859

8.58p

9.10p

(2.6%)

18.0%

45.7%

15%

164p

UK GAAP
2002/03
£000

267,293

188,161

46,508

86,854

27,667

27,574

2,793

7.76p

8.55p

(6.0%)

17.4%

41.7%

10%

114p

UK GAAP
2003/04
£000

292,640

206,102

50,284

95,935

26,934

48,482

2,925

6.09p

9.44p

10.4%

17.2%

50.5%

149p

UK GAAP
2004/05
£000

299,119

218,745

50,389

80,750

33,344

45,348

3,002

7.97p

9.42p

(0.2%)

16.8%

52.1%

161p

IFRS
2004/05
£000

299,119

218,745

49,912

104,417

33,344

45,348

3,002

9.38p

9.45p

N/A

16.7%

48.8%

161p

IFRS
2005/06
£000

337,348

249,055

59,641

105,396

32,308

35,826

3,187

11.08p

11.27p

19.3%

17.7%

56.9%

188p

£330.6m

£340.1m

£465.7m

£598.2m

£416.7m

£546.5m

£593.8m

£693.4m

84 Halma p.l.c. 2006

We are aware of
our responsibilities

Halma p.l.c. 2006 85

86
88
90
91
95
100
104
106
108

86 Halma p.l.c. 2006
86 Halma p.l.c. 2006

Management team, Directors and advisers

Management team
01 Geoff Unwin
(aged 63) is Chairman of the Halma Group and serves on
the Nomination Committee (Chairman). He was appointed
Deputy Chairman and Chairman Elect in September 2002 and
Chairman in July 2003. He is also Chairman of United Business
Media plc, Liberata plc and The Cloud Networks Limited. He is
a non-voting board director of Capgemini Group, a member of
the advisory board of Palamon Capital Partners and also chairs
one of their investments, OmniBus Systems Limited.

02 Andrew Williams
(aged 39) is Chief Executive of the Halma Group. He joined
Halma in 1994 as Manufacturing Director of Reten Acoustics
(now Palmer Environmental) and became Managing Director of
that company in 1997. He became Divisional Chief Executive
of the Optics and Water Instrumentation Division and a member
of the Executive Board in 2002. He was appointed Deputy Chief
Executive in 2004 and Group Chief Executive in February 2005.
Andrew is a Chartered Engineer and a production engineering
graduate of Birmingham University.

03 Kevin Thompson
(aged 46) 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.

04 Stephen Pettit
(aged 55) was appointed a non-executive Director of Halma
in September 2003 and serves on the Audit Committee,
Remuneration Committee and Nomination Committee.
He is Chairman of ROK Property Solutions plc and a
non-executive Director of National Grid plc, National Air Traffic
Services and BT Group plc – Equality of Access Board.

05 Carol Chesney
(aged 43) 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.

06 Andrew Walker
(aged 54) was appointed a non-executive Director of Halma
in May 2003 and serves on the Audit Committee (Chairman),
Remuneration Committee and the Nomination Committee.
He is Chairman of Bioganix plc, a non-executive Director
of Ultra Electronics Holdings plc, Manganese Bronze Holdings
plc, API Group plc, Porvair plc, Delta plc, Fountains plc and
Brintons Limited.

07 Andrew Richardson
(aged 41) 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.

08 Richard Stone
(aged 63) was appointed a non-executive Director of Halma in
January 2001. He serves on the Audit Committee, Remuneration
Committee (Chairman) and the Nomination Committee and is
the Senior Independent Director. He is Chairman of Drambuie
Limited and CSW Group Limited, a non-executive Director of
Gartmore Global Trust p.l.c., Trust Union Finance (1991) plc,
Engandscot Limited, TR Property Investment Trust plc and
Candover Investments plc.

09 Nigel Young
(aged 56) is Chief Executive of the Specialist Products Division
and has responsibility for Group IT and the Halma Executive
Development Programme. 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.

Halma p.l.c. 2006 87
Halma p.l.c. 2006 87

Registered Office
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
Deloitte & Touche LLP
Abbots House, Abbey Street
Reading, Berks RG1 3BD

Bankers
The Royal Bank of
Scotland plc, 280 Bishopsgate
London EC2M 4RB

Financial Advisers
Lazard Brothers & Co.,
Limited, 50 Stratton Street
London W1J 8LL

Brokers and Joint
Financial Advisers
Dresdner Kleinwort
Wasserstein Limited
PO Box 52715
30 Gresham Street
London EC2P 2XY

Solicitors
CMS Cameron McKenna LLP
Mitre House, 160 Aldersgate
Street, London EC1A 4DD

Registrars
Computershare Investor
Services PLC, PO Box 82
The Pavilions, Bridgwater Road
Bristol BS99 7NH
Telephone:+44(0)870 702 0000

10 Adam Meyers
(aged 44) 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.

11 Neil Quinn
(aged 56) is Chief Executive of the Fire and Security 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 56) is Chief Executive of the Water and Gas Technology
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).

13 John Campbell
(aged 47) is Chief Executive of the Elevator and Door Safety
Division. He joined the Group in 1995 as President of IPC
Resistors Inc. and was Chief Executive of the Resistors Division
upon its formation in 1998 until the division was sold in February
2006. 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.

14 Nigel Trodd
(aged 48) 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.

Directors
and advisers
Board of Directors
E Geoffrey Unwin,
Chairman
Andrew J Williams,
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*

*Non-executive

Secretary
Carol T Chesney BA FCA

Executive Board
Andrew J Williams,
Chief Executive
Nigel J Young,
Specialist Products
Neil Quinn,
Fire and Security
Kevin J Thompson,
Finance Director
John S Campbell,
Elevator and Door Safety
Keith J Roy,
Water and Gas Technology
Adam J Meyers,
Fluid Technology
Nigel J B Trodd,
Process Safety
Andrew J Richardson,
Water Management

88 Halma p.l.c. 2006

Report of the Directors

The Directors present their Annual report on the affairs of the
Group, together with the Accounts and the Independent Auditors’
reports, for the 52 weeks to 1 April 2006.

Activities
Halma p.l.c. is a holding company. A list of its principal subsidiary
companies and their activities is set out on pages 104 and 105.

Results of the period
The Consolidated income statement for the 52 weeks to 1 April
2006 is set out on page 40. The Group profit on continuing
operations before amortisation of acquired intangible assets
and taxation is £58,140,000 (2004/05: £48,306,000). The profit
attributable to equity shareholders amounts to £40,875,000
(2004/05: £34,551,000). This Annual report represents the first
time the results for the financial year have been prepared under
International Financial Reporting Standards (“IFRS”) and the
prior period comparatives have been amended where necessary
to comply with IFRS.

Ordinary dividends
The Directors will submit a resolution at the annual general
meeting proposing a final dividend of 4.12p per share and if
approved this dividend will be paid on 23 August 2006 to
ordinary shareholders on the register at the close of business
on 21 July 2006. Together with the interim dividend of 2.71p
per share already paid, this will make a total of 6.83p per share
for the financial year.

Business review
A review of activities together with business and future
developments is included on pages 5 to 37 inclusive.

Share capital
Details of share capital issued in the financial year are set out
in note 21 to the accounts.

Allotment authority
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.

Purchase of own shares
The Company was authorised at the 2005 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 2006 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. Following approval of the performance share plan
(“PSP”) at the 2005 annual general meeting, the Directors made
and intend to continue to make routine purchases of Halma
shares in the market and hold them in treasury until required
for shares that vest under the PSP. In the year to 1 April 2006,
200,000 shares were purchased in the market for treasury.
Otherwise 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.

Articles of Association
A special resolution will be submitted to shareholders at the
annual general meeting proposing that the Company’s Articles
be updated for some matters of clarification as indicated in the
Chairman’s letter to shareholders.

The most significant change relates to the Company’s ability
to enter into deeds of indemnity with its Directors which are
qualifying third party indemnity provisions for the purpose of
the Companies Act 1985.

Supplier payment policy
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 1 April 2006 the
Company’s trade creditors represented 39 days (2005: 34 days)
of its annual purchases.

Halma p.l.c. 2006 89

Employees
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 provides equal employment opportunities to all
employees and applicants for employment without regard to
ethnic origin, religion, gender, age, disability, sexual orientation
or any other reason prohibited by local legislation. Halma gives
disabled people the same consideration as other individuals.

Directors’ remuneration
The Directors support the shareholders approving the
remuneration of Directors as set out in the Report on
remuneration on pages 95 to 99. An ordinary resolution will
be proposed at the annual general meeting seeking such
shareholder approval.

Corporate responsibility
The Group’s Corporate responsibility report is set out on
pages 100 to 103.

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.

Donations
Group companies made charitable donations amounting to
£5,209 (2005: £11,913) during the financial year. There were no
political donations (2005: £nil).

Directors
The Directors of the Company are listed on page 87.
Brief biographies are set out on pages 86 and 87.

Directors proposed for re-election
Andrew Walker, Richard Stone and Keith Roy retire by rotation
and being eligible offer themselves for re-election.

Shareholdings
As at 9 June 2006 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

Barclays Bank PLC

Sprucegrove Investment
Management Limited

Harris Associates LP

Legal & General Investment
Management Limited

Per cent

62,596,278

25,891,147

25,267,545

14,636,500

12,320,633

16.9

7.0

6.8

3.9

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
In the case of each of the persons who are Directors of the
company at the date when this report was approved:

• so far as each of the Directors is aware, there is no relevant
audit information (as defined in the Companies Act 1985)
of which the Company’s Auditors are unaware; and

• each of the Directors has taken all the steps that he ought
to have taken as a Director to make himself aware of any
relevant audit information (as defined) and to establish that
the Company’s Auditors are aware of that information.

Deloitte & Touche LLP have expressed their willingness to
continue in office as Auditors and resolutions to re-appoint them
and to authorise the Directors to determine their remuneration
will be proposed at the forthcoming annual general meeting.

By order of the Board

C T Chesney
Secretary
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE

20 June 2006

90 Halma p.l.c. 2006

Statement of Directors’ responsibilities

The Directors are responsible for preparing the Annual report
and the Group and Company financial statements, in accordance
with applicable law and regulations.

The Directors are also required to:

• properly select and apply accounting policies;

Company law requires the Directors to prepare Group and
Company financial statements for each financial year. Under that
law the Directors are required to prepare the Group financial
statements in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the EU and have elected to
prepare the Company financial statements in accordance with
UK Accounting Standards.

The Group financial statements are required by law and IFRS
as adopted by the EU to present fairly the financial position and
performance of the Group; the Companies Act 1985 provides
in relation to such financial statements that references in the
relevant part of that Act to financial statements giving a true and
fair view are references to their achieving a fair presentation.

The Company financial statements are required by law to give a
true and fair view of the state of affairs of the parent company.

• present information, including accounting policies, in a manner

that provides relevant, reliable, comparable and understandable
information;

• for the Group financial statements, provide additional

disclosures when compliance with the specific requirements in
IFRS is insufficient to enable users to understand the impact of
particular transactions, other events and conditions on the
entity’s financial position and financial performance; and

• for the Company financial statements, state whether applicable
UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the Company
financial statements.

The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time
the financial position of the Company, for safeguarding the
assets, for taking reasonable steps for the prevention and
detection of fraud and other irregularities and for the preparation
of a Report of the Directors and Directors’ Report on
remuneration and business and financial review which comply
with the requirements of the Companies Act 1985.

The Directors are responsible for the maintenance and integrity
of the Company website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.

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
corporate governance contained in the Combined Code on
Corporate Governance which is appended to the Listing Rules
of the Financial Services Authority and for which the Board is
accountable to shareholders.

Compliance with the code of best practice
Throughout the financial year, the Company complied with
the Code provisions set out in Section 1 of the July 2003 FRC
Combined Code on Corporate Governance except in respect
of provisions A3.2, A4.1 and C3.1 all of which involve the
composition of the Board or its committees and the number
of members who are independent non-executive Directors.
The Board reaffirmed its decision to maintain the composition
of the Board based on its assessment that this is the most
appropriate structure for the Company; the Chairman also
specifically raised this point with shareholders during the 2005
Annual General Meeting and received the unanimous support of
those present. However Geoff Unwin, Chairman of the Board,
did step down from membership of the Audit and Remuneration
Committees in August 2005 to ensure compliance with the
Combined Code. The Board believes it important that the
Chairman continue to attend these Committee meetings, by
invitation, to enable him to contribute to their deliberations and to
enable him to properly discharge his responsibilities as Chairman.

From August 2005, the Nomination Committee comprises a
majority of independent non-executive Directors.

Halma p.l.c. 2006 91

Application of the principles of good governance
The Group is controlled and directed by a Board consisting of a
Chairman, four Directors and three other non-executive Directors.
Their biographies appear on pages 86 and 87. The Board
considers the Chairman and each of the non-executive Directors
to be independent. 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 judgment now and in the future. The Board believes
that any shareholdings of the Chairman and 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
six 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.

Board and Committee meeting attendance
During the year attendance by Directors at Board and Committee meetings was as follows:

Total scheduled meetings

Geoff Unwin

Andrew Williams

Kevin Thompson

Neil Quinn

Richard Stone

Keith Roy

Andrew Walker

Stephen Pettit

Board

Remuneration
Committee

Audit
Committee

Nomination
Committee

N/A

*Geoff Unwin was not a member of the Remuneration Committee and the Audit Committee when two of the three meetings of each Committee were held. Andrew Walker and
Stephen Pettit were not members of the Nomination Committee when one of the two meetings was held.

92 Halma p.l.c. 2006

Corporate governance continued

Committees of the Board
Halma has six committees of the Board: the Remuneration
Committee, the Audit Committee, the Nomination Committee,
the Share Plans Committee, the Bank Facilities and Guarantees
Committee and the Acquisitions and Disposals Committee.
Each of these committees has terms of reference approved by
the Board, copies of which are available on request from the
Company Secretary.

Remuneration Committee
Richard Stone chairs the Remuneration Committee of which
each of the non-executive Directors is a member. 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. Further information
about the Committee is contained in the Report on remuneration
on pages 95 to 99.

Audit Committee
Andrew Walker chairs the Audit Committee. Each of the
non-executive Directors is a member of the Committee.
The Committee reviews the interim and annual accounts and
the disclosures contained therein, accounting policies and
matters of significant judgement, the statement on internal
controls, the process of Internal Audit and the Group
whistleblowing procedures. The Committee is also responsible
for the relationship with the external auditors including terms
of engagement, fee levels, approval of the annual audit plan,
a review of the findings of the audit and assessing auditor
effectiveness and independence. The Chairman, Group Chief
Executive, Group Finance Director and representatives from the
Auditors attend Committee meetings by invitation in order to
provide appropriate advice. The Committee routinely meets with
the Auditors without the involvement of the executive Directors;
the Committee meets at least three times per year.

Nomination Committee
Geoff Unwin chairs the Nomination Committee. Andrew Williams
joined the Committee on his appointment as Group Chief
Executive in February 2005. Richard Stone is also a member of
the Committee, and Andrew Walker and Stephen Pettit joined
the Committee on 3 August 2005. The Committee makes
recommendations to the Board on the appointment of new
Directors. External search consultancies are retained when
recruiting non-executive Directors and are used to evaluate
internal and external candidates for succession planning.
The Committee meets at least annually.

Other committees
The Share Plans, Bank Facilities and Guarantees and
Acquisitions and Disposals Committees’ terms of reference
provide that certain Directors and the Company Secretary
may form sub-committees to cover administrative matters or to
formally enact matters that have already been determined by
the Board in principle.

Executive Board
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 pages 86 and 87. 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.

Board effectiveness
The Board evaluates its performance and that of the
Remuneration, Audit and Nomination Committees at least
annually. In 2005/06 the evaluation commenced with a
self-assessment questionnaire, the results of which were
compiled by the Company Secretary and discussed by the
Board at the November 2005 Board meeting. The Board then
met in February 2006, separate from any scheduled meeting,
for a general discussion on Board effectiveness followed by a
meeting of the executive Directors with the Chairman, a meeting
of the Chairman and non-executive Directors, and then a
meeting of the non-executive Directors without the Chairman
present. The outcomes of these meetings were then fed back
to individuals by the Chairman, Senior Independent Director
or Group Chief Executive, as appropriate.

Investor relations
In regular meetings with shareholders and analysts the Group
Chief Executive and Group Finance Director communicate
the Group’s strategy and results, disclosing such information
as is permitted within the guidelines of the Listing Rules.
Such meetings ensure that institutional shareholders
representing over 50% of the Company’s issued share capital
meet with the Company on a regular basis. Major shareholders
are also offered the additional opportunity to meet with the
Chairman and/or Senior Independent Director.

All shareholders are encouraged to attend the Annual General
Meeting, and major shareholders are also invited to briefings
following the interim and annual results. The content of
presentations to shareholders and analysts at results
announcements and all announcements are contained
on the Group website, www.halma.com.

The Group website also contains electronic versions of the latest
Annual Report and Accounts, Interim Reports, 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.

The Financial Calendar is set out on page 108.

Going concern
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.

Halma p.l.c. 2006 93

Internal control
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.

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 risk is mitigated by means of an operating structure which
spreads the Group activities across a number of autonomous
subsidiary companies. Each of these companies operates with
a high quality board of directors including a finance executive.

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,
through an annual detailed risk assessment carried out at local
level 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.

94 Halma p.l.c. 2006

Corporate governance continued

As noted above, a programme of internal control visits is
conducted. Following its review of internal control activities in
2004, the Audit Committee established an internal audit function
for independent reporting of the outcome of these visits to the
Audit Committee.

During the year several benchmarking activities have been
undertaken to assess the Group’s Internal Audit activities. As a
result further improvements have been targeted for the coming
year to enhance our processes.

Auditor independence
The Audit Committee has responsibility for reviewing auditor
independence and objectivity annually. During 2003/04, 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
of £100,000 above which non-audit services are subject to a
tendering process. The above fee levels for non-audit services
regarding the external auditors are also subject to an annual cap
equal to the audit fee.

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.

• A set of “warning signs” which are specifically relevant to every
Halma operating company has been developed and these are
reported and monitored each month with actions taken at senior
level where required. During the year the use of these “warning
signs” has become further embedded within the operating
processes of each company. As a result, potential risks are
highlighted at an earlier stage for corrective action.

• 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.

• Cyclical internal control visits, the frequency of which has been
increased this year, are carried out by senior finance staff
resulting in actions fed back to each company and followed up
by Divisional Finance Directors and Divisional Chief Executives
with the feedback process having been further strengthened
during the year; 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.

• 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 papers and minutes of the Audit
Committee meetings and uses these as a basis for its annual
review of internal control.

Report on remuneration

The following sections of the Report on remuneration have been
audited: the table of Directors’ remuneration; pension benefits;
Directors’ interests in shares.

Remuneration Committee
The Remuneration Committee consists of the three non-executive
Directors, the members being Richard Stone (Chairman of the
Committee), Andrew Walker and Stephen Pettit. During the year,
Geoff Unwin stepped down from the Committee in recognition
of best practice under the current Combined Code. No Director
takes 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, which
are available from the Company Secretary on request, include:

• determining and agreeing with the Board the framework or
broad policy for the remuneration of the Group Chief Executive,
the executive Directors, the Company Secretary and such other
members of the executive management as it is designated
to consider;

• approving the design of, and determining targets for, any
performance related pay plans operated by the Company and
approval of the total annual payments made under such plans;

• reviewing the design of all share incentive plans for approval by
the Board and shareholders. For any such plans, determine each
year whether awards will be made, and if so, the overall amount
of such awards, the individual awards to executive Directors and
other senior executives and the performance targets to be used;

• determining the policy for, and scope of, pension arrangements
for each executive Director and other senior executives;

The Committee also monitors the framework of remuneration
for subsidiary chief executives and directors.

The Committee has appointed Watson Wyatt to advise on
certain aspects of executive remuneration. This firm provided
the Company with limited additional advice, regarding the
UK defined benefit pension plan, during the year.

Remuneration policy
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 determining
such packages, the Committee considers whether members
of the executive management of the Group are provided with
appropriate incentives to encourage enhanced performance
and are, in a fair and responsible manner, rewarded for their
individual contributions to the success of the Group.

Halma p.l.c. 2006 95

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
2005/06 full consideration was given to the Combined Code
appended to the Listing Rules of the Financial Services Authority.

Basic salary and benefits
Basic salary levels for each individual are determined with
reference to independent surveys and other relevant data in
order to relate remuneration levels to comparable publicly
quoted companies. The Group Chief Executive is responsible
for assessing the performance of each senior executive, the
complexity of the operations under their control and their
opportunities for advancement within the Group. He then
formulates a remuneration proposal for the Committee’s approval.
Basic salary levels are set around the market median, and the
Committee ensures that a balance between fixed and variable
remuneration is achieved.

Remuneration of subsidiary boards is set at competitive levels
to reflect the size, complexity and geographic locations of
these businesses.

Share plans
The Directors have long believed that share plans are an excellent
way to align the interests of senior management with those of
shareholders and that share plans provide excellent motivation.
The Committee recognises the need to continually assess and
evaluate such incentives and therefore adopted a performance
share plan following approval at the 2005 annual general meeting.

The Plan contains provisions permitting share option grants,
restricted share awards and performance share awards,
however, the Committee intend to initially use the Plan to award
performance shares only. The first awards were made in August
2005. Awards, which are made annually, are determined by
evaluating the financial performance of the executive Directors’
and the Divisional Chief Executives’ operations and the attainment
of certain personal goals. The maximum award is fixed at 140%
of salary for executive Directors and 100% of salary for Divisional
Chief Executives. The expected level of award is 110% of salary
and 80% of salary respectively. Awards vest after three years on a
sliding scale subject to the Company’s relative TSR performance
against its FTSE sector, combined with an absolute Return on Total
Invested Capital measure. Awards which do not vest on the third
anniversary of their award lapse. The performance share plan is
also extended to certain centrally based executives and subsidiary
chief executives with maximum awards of 40% of salary.

The 1990, 1996 and 1999 share option plans all provided for the
grant of two categories of option both of which are subject to
performance criteria. The exercise criteria for these three plans
are noted in note 23 to the accounts. No further grants may be
made from the first two of these plans nor does the Company
plan to make any further grants from the 1999 Plan now that the
performance share plan was approved by shareholders at the
2005 annual general meeting. The granting of options was
spread over the life of the Plan.

96 Halma p.l.c. 2006

Report on remuneration continued

Performance related bonus scheme
This scheme, which applies 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 the year the
Remuneration Committee carefully assessed 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 calculated as above but based on the aggregated
profit of the Divisions exceeding a target calculated from the
profits of the Divisions for the three preceding financial years.

For 2005/06 and subsequently, executive Directors and Divisional
Chief Executives may increase their cash bonus, subject to the
100% of salary cap, by either 10% of salary if the Return on
Capital Employed of their Division (or aggregate thereof)
exceeds 45%, or by 15% of salary if accompanied by absolute
profit growth in their Division (or aggregate thereof).

Subsidiary directors participate in bonus arrangements similar
to those established for senior executives.

Directors’ remuneration

Geoff Unwin

Andrew Williams

Kevin Thompson

Neil Quinn

Richard Stone

Keith Roy

Andrew Walker

Stephen Pettit

Stephen O’Shea

Salaries
and fees
£000

Bonus
£000

Benefits
£000

112

339

225

187

162

–

320

225

–

162

–

2006
Total
£000

128

685

460

222

339

–

2005
Total
£000

124

240*

248

201

237

810+

1,118

729

1,927

1,953

Gains on share options

Aggregate remuneration

+to date of resignation

*from date of appointment

242

1,961

2,195

The fees paid in relation to Geoff Unwin were paid to Gunwin
Limited. Andrew Williams’ salary above includes a supplement
of £18,581 (2005: £nil) to compensate him for the fact that his
pension entitlement under the Halma Group Pension Plan
defined benefit arrangements is limited by the earnings cap.

Andrew Williams was the highest paid Director in the
financial year.

Pension benefits
The executive Directors participate in the appropriate section
of the Halma Group Pension Plan. This section is a funded final
salary occupational pension plan registered with HM Revenue
& Customs, which provides a maximum pension of two-thirds
of final pensionable salary after 25 or more years’ service at
normal pension age (60). Final 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 Plan
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, currently possible from age 50
with the consent of the Company and the Trustees of the 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.

Years of
Age at service at
1.4.06
1.4.06

Accrued
pension

Increase
2005 in the year
£000
£000

Accrued
pension
2006
£000

Andrew Williams

Kevin Thompson

Neil Quinn

Keith 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.

Increase
in transfer
value
net of
contri-
butions
£000

278

281

185

Transfer
value
1.4.06
£000

205

847

1,301

754

Transfer Directors’
contri-
butions
£000

value
2.4.05
£000

153

555

1,006

557

Andrew Williams

Kevin Thompson

Neil Quinn

Keith 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.

As noted under Directors’ remuneration, Andrew Williams’
pension benefit under the Plan was capped by HM Revenue
& Customs’ limits as of 1 December 2005. To the extent that
Andrew Williams’ uncapped pensionable salary exceeds such
limits, the Company compensates Andrew at an annual rate of
26% of the excess.

Halma p.l.c. 2006 97

Total shareholder return
The graph below shows the Company’s total shareholder return
performance over the five years to 1 April 2006 as compared
to the FTSE 250, the FTSE 350 Industrial Engineering and the
FTSE 350 Electronic & Electrical Equipment indices which have
been chosen as the Company was a constituent of the first two
indices throughout the financial year and subsequent to year end
was reclassified to the FTSE 350 Electronic & Electrical Equipment
sector. Over the period indicated, the Company’s total shareholder
return was 180% compared to 187% for the FTSE 250, 194%
for the FTSE 350 Industrial Engineering sector and 44% for the
FTSE 350 Electronic & Electrical Equipment sector.

Total shareholder return %
250

200

150

100

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:

Geoff Unwin

Andrew Williams

Kevin Thompson

Neil Quinn

Richard Stone

Keith Roy

Andrew Walker

Stephen Pettit

Shares
1.4.06

38,250

36,493

72,649

50,052

20,000

Shares
2.4.05

38,250

19,493

60,857

43,586

5,000

748,536

744,587

71,520

2,000

5,500

2,000

There are no non-beneficial interests of Directors.

There were no changes in Directors' interests from 1 April 2006 to
20 June 2006.

2001

2002

2003

2004

2005

2006

Halma
FTSE 250

FTSE 350 Industrial Engineering
FTSE 350 Electronic & Electrical Equipment

Source: Datastream total return indices

At the commencement of the five-year period depicted in the
graph, the Halma p.l.c. ordinary share price was 129p and the total
of dividends paid in the year ended 31 March 2001 was 4.229p
per share. The Halma p.l.c. ordinary share price at 1 April 2006
was 187.75p and the total of dividends paid in the year then
ended was 6.63p per share.

98 Halma p.l.c. 2006

Report on remuneration continued

Performance share plan
The movements in performance share awards during the financial year were as follows:

Andrew Williams

Kevin Thompson

Neil Quinn

Keith Roy

As at
2.4.05

–

Granted

241,482

169,792

141,305

122,250

Vested

–

As at
1.4.06

241,482

169,792

141,305

122,250

Performance conditions for the awards made in the financial year are set out above.

Share option plans
The movements in share options during the financial year were as follows:

Andrew Williams

Kevin Thompson

Neil Quinn

Keith Roy

As at
2.4.05

354,999

841,774

957,652

496,397

Granted

Exercised

Share price
on exercise

As at
1.4.06

2006
Gains on
exercise (£)

2005
Gains on
exercise (£)

105,922

92,626

37,855

61,427

–

(51,866)

(28,666)

(17,466)

–

460,921

144.5p

882,534

149.0p

966,841

146.5p

540,358

–

17,186

10,677

5,836

–

17,886

18,155

7,331

There were no share plan lapses during the financial year.

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.

Options granted to Directors during the financial year were at an exercise price of 145.67p. The closing middle market price of the
Company’s ordinary shares on Friday, 31 March 2006, the last trading day preceding the financial year end, was 187.75p per share
and the range during the year was 138.5p to 194p.

Details of Directors’ options outstanding at 1 April 2006 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 187.75p.

2 Not yet exercisable, will only be exercisable when the performance criteria, set out in note 23, have been met and have an exercise

price per share of less than 187.75p.

Andrew Williams

Kevin Thompson

Neil Quinn

Keith Roy

Status of options
(see above)

Year of
Grant

Number of Weighted average
exercise price
(p) per share

1997-2005

1996-1998

1997-2005

1996-1999

1997-2005

1996-1999

1997-2005

460,921

161,232

580,276

214,166

752,675

137,166

403,192

141.63

126.01

129.59

120.95

133.55

123.45

139.99

All options lapse if not exercised with in ten 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.

Halma p.l.c. 2006 99

Service contracts
It is the Company’s policy that executive Directors have
contracts with an indefinite term up to the normal retirement
age of 60 and providing for a maximum of one year’s notice.
There are no exceptions to this policy. 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.

Non-executive Directors
Unless otherwise indicated, all non-executive Directors have a
specific three-year term of engagement which may be renewed
for further three-year terms if both the Director and the Board
agree. The remuneration of the Chairman and the non-executive
Directors is determined by the Board based on independent
surveys of fees paid to the Chairman and the non-executive
Directors of similar companies. The Chairman and the
non-executive Directors receive a basic fee supplemented by
additional fees for membership and/or chairmanship of the
Audit and Remuneration Committees.

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 2005/2006 was set at £112,000
per annum and he received a contribution of £15,500 towards
his office costs.

The other non-executive Directors do not have service contracts.

The Chairman and the non-executive Directors’ fees were last
reviewed by the Board of Directors in April 2006 at which time
the revised fee levels were set for three years from 2006/2007
as follows:

Geoff Unwin (appointed September 2002), Chairman

£140,000

Richard Stone (appointed January 2001),
Senior Independent Director, Remuneration
Committee Chairman and Audit Committee member

£43,000

Andrew Walker (appointed May 2003), Audit Committee
Chairman and Remuneration Committee member

£40,000

Stephen Pettit (appointed September 2003),
Remuneration and Audit Committees member

£36,000

No fees are payable for membership of the Nomination
Committee of which each of the above Directors is a member.

By order of the Board

R A Stone, Chairman of the Remuneration Committee
Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE

20 June 2006

100 Halma p.l.c. 2006

Corporate responsibility

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, business partners and shareholders.

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.

Regulatory demands upon us vary considerably around the
world, so in each of the following areas 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 workplace
Halma demonstrated that it is one of the UK’s most admired
businesses by a high ranking in Management Today magazine’s
annual survey of corporate reputation. The awards are a peer
review, distilling the opinions of directors who run 220 of the UK’s
largest companies. This is a revealing survey based on the key
elements that help make companies successful. Companies are,
in effect, judged by their competitors, and the survey is unique in
the UK.

Halma was ranked the 27th most admired company out of a
list of more than two hundred businesses. The awards are
based on a survey by Nottingham Business School of the ten
largest UK-based companies in each of 22 different sectors.
Respondents rate companies in categories such as quality of
management, financial soundness, quality of products, ability
to attract, develop and retain talented managers, value as a
long-term investment and capacity to innovate.

We believe that everyone who works for Halma can take pride
in this result because everyone, whatever their role, contributes
to the Group’s reputation. It is a great compliment to our
business, especially when you see that we are ranked above
big companies like Shell, British Airways, J Sainsbury and
Marks & Spencer.

Training
2005/06 saw the launch of the Halma Executive Development
Programme (“HEDP”) which is based on our recognition of the
fundamental part our people play in the success of the Group.
HEDP is an integrated development plan for our senior people –
the next generation of Managing Directors and Divisional Chief
Executives. Our objective is to provide these individuals with
the tools and training to achieve more in their existing role
and potentially to advance through the organisation playing
a pivotal role in continuing the success of the Group.

HEDP is aimed squarely at employees already serving on
subsidiary boards but we also encourage applications from
senior managers who can demonstrate they already have
equivalent responsibilities and will benefit from the programme.

The programme has been developed from a proven course
structure and is specifically tailored to suit Halma’s needs.
It focuses strongly on strategic and leadership capabilities
and on developing personal attributes – commitment,
determination and resilience. There is an emphasis on
Performance Management and Team Development. It includes
skill-based elements such as Sales and Marketing Management,
Project Leadership, Personal Communication, Corporate
Governance, Finance and Innovation, but all are presented
in a strategic context.

Additional training on the Group intranet also provides the
opportunity for all Group employees to expand their skill set by
making available to them a wide ranging menu of courses for
completion at their own pace. The courses available broadly fall
into the classifications of innovation, management, personal
development, sales and technical areas of expertise such as
manufacturing and accounting. Since the launch of e-learning
in October 2004, 178 modules have been completed.

Halma p.l.c. 2006 101

Health and safety
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’s health and
safety policy, which is set out on our website, is to manage our
activities to avoid causing any unnecessary or unacceptable
risks to health and safety. The policy is understood by all Group
companies, and 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. We believe health and safety
training is very important and it is carried out within companies
as appropriate. Adequate internal reporting exists in order that
the Group Finance Director may monitor each company’s
compliance with this policy.

The Group has collected details of its worldwide reported health
and safety incidents which are available on our website.

Ethics
The Group culture is one of openness, honesty and
accountability. Halma encourages its employees to act fairly in
their dealings with fellow employees, customers, suppliers and
business partners. We aim to have suppliers 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.

Innovation
Continuous innovation is a critical ingredient for Halma’s growth.
Continually refreshing our intellectual property leads to new
products and processes and helps us to maintain the strong
market positions held by many of our companies. Innovation is
not just the responsibility of our development departments but
is integral to all commercial activities within the business.
Innovative ideas can range from a novel way to enter a new or
remote market to administration process improvements speeding
the delivery of products to customers. All employees within the
Group have the opportunity to deliver innovative ideas to help
their company and the Group achieve the growth objectives.

During 2005/06, Halma introduced Eureka!, a monthly prize for
the most creative innovation idea submitted during any one
month. The idea does not need to have been implemented or
even have proven financial viability – we are simply looking for
the actual birth of the idea, the creative spark, the eureka! that
heralds the start of an original thought process which upon
germination will bring new benefit to a Group business.

The Group continued the successful Innovation Initiative,
launched in 2004/05, 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.
The 2005/06 Gold Award of £20,000 was presented at the annual
CEO Conference by Geoff Unwin to Ed Agar of Palintest for his
work on the Cool Pool Tester, a hand-held electronic instrument
for monitoring water quality of residential swimming pools and
spas. The Silver Award of £10,000 was awarded to Carol
Cessford of Elfab for her Think Global, Act Local project, a
global telecommunications network in 50 countries linked to
a multilingual sales team. The Bronze Award of £5,000 was
shared by two teams – Matt Carroll, Bill Benson and Gordon
Denny of Mosebach for their H-Pin Resistor Retention System,
a new design for Mosebach’s off-highway dynamic braking
resistors – and Brian Rogers and David Landis of Ocean Optics
for their Custom Fiber Optic Assembly Quoting and CAD
Drawing Creation Website, a website for the rapid creation
of quotations and CAD drawings, incorporating a customer
approval e-mail service.

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.

102 Halma p.l.c. 2006

Corporate responsibility continued

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.

Our principal environmental technologies are water leakage
detection, gas emissions monitoring, water and effluent analysis,
UV water treatment and fibre optic spectrometers. 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.

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.

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, Kevin Thompson, has principal responsibility for
coordinating and monitoring the policy.

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, and during the year, Apollo Fire
Detectors Limited and Berson Milieutechniek BV obtained
ISO 14001 approval. The requirement to implement an EMS
will be extended to the rest of the Group in the medium term.

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.

Group companies are encouraged to improve energy efficiency,
reduce waste and emissions and to reduce the use of materials
in order to reduce their environmental impact. The Group
carried out an exercise in 2004/05 to establish baseline data on
emissions to air and water, water and energy consumption, and
waste production. The Group updates the results of this annual
exercise on its website each July. The data collected for the past
two years 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.

Halma p.l.c. 2006 103

The collected data confirms 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 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.

FTSE4Good index
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.

104 Halma p.l.c. 2006

Halma Group directory

Air Products and Controls Inc.
Apollo Fire Detectors Limited
Apollo Gesellschaft für Meldetechnologie mbH
Aquionics Inc.
Berson Milieutechniek B.V.

Bio-Chem Valve Inc.

Bureau D’Electronique Appliquée S.A.
Castell Safety International Limited
Crowcon Detection Instruments Limited
Diba Industries, Inc.

Elfab Limited
E-Motive Display Pte Limited
Fire Fighting Enterprises Limited
Fortress Interlocks Limited

Fortress Systems Pty. Limited
Halma Holdings Inc.
Hanovia Limited

HF Sécurité S.A.S.
Hydreka S.A.S.

Janus Elevator Products Inc.

Keeler Limited
Klaxon Signals Limited
Memco Limited
Monitor Controls Inc.
Netherlocks Safety Systems B.V.

Ocean Optics, Inc.

Oklahoma Safety Equipment Co. Inc.
Palintest Limited
Palmer Environmental Limited

Perma Pure LLC
Post Glover Lifelink

Radcom (Technologies) Limited

Radio-Tech Limited
SERV Trayvou Interverrouillage S.A.S.
Smith Flow Control Limited
Texecom Limited
TL Jones Limited

Main products

Duct detectors and control relays for smoke control systems
Smoke and heat detectors, sounders, beacons and interfaces
Smoke and heat detectors, sounders, beacons and interfaces
Ultraviolet light equipment for water sterilisation
Ultraviolet light equipment for treating drinking water, waste water
and process water used in the manufacture of food and drinks
Miniature valves, micro pumps and fluid components for medical, life science
and scientific instruments
Sensors for automatic doors
Safety systems for controlling hazardous industrial processes
Gas detection instruments for personnel and plant safety
Specialised components and complete fluid transfer subassemblies for medical,
life science and scientific instruments
Pressure sensitive relief devices to protect process plant
Electronic displays for providing information to elevator passengers
Beam smoke detectors and specialist fire extinguishing systems
Safety systems for controlling access to dangerous machines

Machinery and process safety systems and high power electrical resistors
US holding company
Ultraviolet light equipment for treating drinking water and water used
in the manufacture of food, drinks, pharmaceuticals and electronic components
Safety systems and high security locks
Equipment and software for flow analysis of water and sewerage systems and
leak detection systems
Infrared safety systems and emergency communication systems
for elevator doors and elevator electronic displays
Ophthalmic instruments for diagnostic assessment of eye conditions
Audio/visual warning systems for fire and industrial security
Infrared safety systems for elevator doors and elevator emergency communications
Elevator signal fixtures
Process safety systems for petrochemical and industrial applications

Miniature fibre optic spectrometers for consumer electronics, process control,
environmental monitoring, life sciences and medical diagnostics
Pressure sensitive relief devices to protect process plant
Instruments for analysing water and measuring environmental pollution
Instrumentation for quantifying, detecting and controlling leakage in
underground water pipelines
Gas dryers and humidifiers for fuel cell, medical, scientific and industrial use
Electrical isolation panels and electrical raceways for hospital, laboratory
and industrial facilities
Instrumentation for recording data, and detecting and controlling leakage,
in water distribution pipelines
Radio telemetry
Safety systems for controlling access to dangerous machines
Process safety systems for petrochemical and industrial applications
Security alarm products
Infrared safety systems, emergency communications and displays for elevators

Volk Optical Inc.
Volumatic Limited

Ophthalmic equipment and lenses as aids to diagnosis and surgery
Cash handling and security from point of sale to cash centre

Coventry, West Midlands

Paul Bonné +44 (0)247 668 4217

info@volumatic.com

www.volumatic.com

Peter Mastores

+1 (1)440 942 6161

volk@volk.com

www.volk.com

Location

Pontiac, Michigan

Havant, Hampshire

Gütersloh, Germany

Erlanger, Kentucky

Eindhoven,

The Netherlands

Contact

Telephone

E-mail

Website

Jim Ludwig

+1 (1)248 332 3900

info@ap-c.com

www.ap-c.com

Danny Burns

+44 (0)2392 492412

enquiries@apollo-fire.co.uk

www.apollo-fire.co.uk

Falk Blödorn

+49 (0)5241 33060

info@apollo-feuer.de

www.apollo-feuer.de

Jon McClean

+1 (1)859 341 0710

sales@aquionics.com

www.aquionics.com

Sjors van Gaalen

+31 (0)40 290 7777

sales@bersonuv.com

www.bersonuv.com

Boonton, New Jersey

George Gaydos

+1 (1)973 263 3001

info@bio-chemvalve.com

www.bio-chemvalve.com

Liège, Belgium

Philippe van Genechten

+32 (0)4361 6565

info@bea.be

www.beasensors.com

Kingsbury, London

David Milner +44 (0)20 8200 1200

sales@castell.com

www.castell.com

Abingdon, Oxfordshire

Allan Stamper

+44 (0)1235 557700

crowcon@crowcon.com

www.crowcon.com

Danbury, Connecticut

Chuck Dubois

+1(1)203 744 0773

salesdept@dibaind.com

www.dibaind.com

North Shields, Tyne & Wear Simon Keenan +44 (0)191 293 1234

sales@elfab.com

www.elfab.com

Singapore

Steven Black

+65 6776 4111

sales@emotivedisplay.com www.emotivedisplay.com.sg

Hitchin, Hertfordshire

Warren Rees +44 (0)845 402 4242

info@ffeuk.com

www.ffeuk.com

Mike Golding +44 (0)1902 499 600

sales@fortress-interlocks.co.uk www.fortress-interlocks.co.uk

Melbourne, Australia

David Dean

+61 (0)408 11 2200

fortress@fortress.com.au

www.fortress.com.au

Steve Sowell

+1 (1)513 772 5501 halmaholdings@halmaholdings.com

www.halmaholdings.com

Craig Howarth

+44 (0)1753 515300

sales@hanovia.com

www.hanovia.com

Gérard Denis +33 (0)4 50 98 96 71

hfsecurite@hfsecurite.com

www.hfsecurite.com

Alain Soulié +33 (0)4 72 53 11 53

hydreka@hydreka.fr

www.hydreka.com

Wolverhampton,

West Midlands

Cincinnati, Ohio

Slough, Berkshire

Cluses, France

Lyon, France

Hauppauge, New York

Mike Byrne

+1 (1)631 864 3699

sales@januselevator.com

www.januselevator.com

Windsor, Berkshire

Mark Lavelle

+44 (0)1753 857177

info@keeler.co.uk

www.keeler.co.uk

Oldham, Lancashire

Barry Coughlan +44 (0)161 287 5555

sales@klaxonsignals.com

www.klaxonsignals.com

Maidenhead, Berkshire

Peter Bailey

+44 (0)1628 770734

sales@memco.co.uk

www.memco.co.uk

Hauppauge, New York

John Farella

+1 (1)631 543 4334

sales@mcontrols.com

www.mcontrols.com

Alphen aan den Rijn,

Albert Buschgens

+31 (0)172 471339

sales@netherlocks.com

www.netherlocks.com

The Netherlands

Dunedin, Florida

Mike Morris

+1(1)727 733 2447

info@oceanoptics.com

www.oceanoptics.com

Broken Arrow, Oklahoma

Joe Ragosta

+1 (1)918 258 5626

info@oseco.com

Gateshead, Tyne & Wear

Chris Welch +44 (0)191 491 0808

palintest@palintest.com

Cwmbran, South Wales

Rob Fish +44 (0)1633 489 479

sales@palmer.co.uk

www.oseco.com

www.palintest.com

www.palmer.co.uk

Toms River, New Jersey

David Leighty

+1 (1)732 244 0010

info@permapure.com

www.permapure.com

Erlanger, Kentucky

Judy Kathman

+1(1)859 283 5900

sales@postgloverlifelink.com www.postgloverlifelink.com

Romsey, Hampshire

Richard Pollard +44 (0)1794 528 700

sales@radcom.co.uk

www.radcom.co.uk

Brian Back +44 (0)1992 576 107

sales@radio-modem.com

www.radio-tech.co.uk

Stéphane Majerus +33 (0)1 48 18 15 15

sales@servtrayvou.com

www.servtrayvou.com

Mike D’Anzieri

+44 (0)1376 517901

sales@smithflowcontrol.com www.smithflowcontrol.com

Haslingden, Lancashire

Robert Austen +44 (0)1706 234 800

Chris Stoelhorst

+64 (0)3 349 4456

uksales@texe.com

info@tljones.com

www.texe.com

www.tljones.com

Epping, Essex

Paris, France

Witham, Essex

Christchurch,

New Zealand

Mentor, Ohio

Halma p.l.c. 2006 105

www.halma.com
visit the Halma website and register for e-mail news alerts

Location

Contact

Telephone

E-mail

Website

Pontiac, Michigan
Havant, Hampshire
Gütersloh, Germany
Erlanger, Kentucky
Eindhoven,
The Netherlands
Boonton, New Jersey

Jim Ludwig
Danny Burns
Falk Blödorn
Jon McClean
Sjors van Gaalen

+1 (1)248 332 3900
+44 (0)2392 492412
+49 (0)5241 33060
+1 (1)859 341 0710
+31 (0)40 290 7777

info@ap-c.com
enquiries@apollo-fire.co.uk
info@apollo-feuer.de
sales@aquionics.com
sales@bersonuv.com

www.ap-c.com
www.apollo-fire.co.uk
www.apollo-feuer.de
www.aquionics.com
www.bersonuv.com

George Gaydos

+1 (1)973 263 3001

info@bio-chemvalve.com

www.bio-chemvalve.com

Liège, Belgium
Kingsbury, London
Abingdon, Oxfordshire
Danbury, Connecticut

Philippe van Genechten

+32 (0)4361 6565
David Milner +44 (0)20 8200 1200
+44 (0)1235 557700
+1(1)203 744 0773

Allan Stamper
Chuck Dubois

North Shields, Tyne & Wear Simon Keenan +44 (0)191 293 1234
Steven Black
Singapore
+65 6776 4111
Warren Rees +44 (0)845 402 4242
Hitchin, Hertfordshire
Mike Golding +44 (0)1902 499 600
Wolverhampton,
West Midlands
Melbourne, Australia
Cincinnati, Ohio
Slough, Berkshire

David Dean
Steve Sowell
Craig Howarth

info@bea.be
sales@castell.com
crowcon@crowcon.com
salesdept@dibaind.com

www.beasensors.com
www.castell.com
www.crowcon.com
www.dibaind.com

sales@elfab.com

www.elfab.com
sales@emotivedisplay.com www.emotivedisplay.com.sg
www.ffeuk.com
sales@fortress-interlocks.co.uk www.fortress-interlocks.co.uk

info@ffeuk.com

fortress@fortress.com.au
+61 (0)408 11 2200
+1 (1)513 772 5501 halmaholdings@halmaholdings.com
sales@hanovia.com
+44 (0)1753 515300

www.fortress.com.au
www.halmaholdings.com
www.hanovia.com

Cluses, France
Lyon, France

Gérard Denis +33 (0)4 50 98 96 71
Alain Soulié +33 (0)4 72 53 11 53

hfsecurite@hfsecurite.com
hydreka@hydreka.fr

www.hfsecurite.com
www.hydreka.com

Hauppauge, New York
Windsor, Berkshire
Oldham, Lancashire
Maidenhead, Berkshire
Hauppauge, New York
Alphen aan den Rijn,
The Netherlands
Dunedin, Florida

Mike Byrne
Mark Lavelle

+1 (1)631 864 3699
+44 (0)1753 857177
Barry Coughlan +44 (0)161 287 5555
+44 (0)1628 770734
+1 (1)631 543 4334
+31 (0)172 471339

Peter Bailey
John Farella
Albert Buschgens

sales@januselevator.com
info@keeler.co.uk
sales@klaxonsignals.com
sales@memco.co.uk
sales@mcontrols.com
sales@netherlocks.com

www.januselevator.com
www.keeler.co.uk
www.klaxonsignals.com
www.memco.co.uk
www.mcontrols.com
www.netherlocks.com

Mike Morris

+1(1)727 733 2447

info@oceanoptics.com

www.oceanoptics.com

Broken Arrow, Oklahoma
Gateshead, Tyne & Wear
Cwmbran, South Wales

Joe Ragosta
+1 (1)918 258 5626
Chris Welch +44 (0)191 491 0808
Rob Fish +44 (0)1633 489 479

info@oseco.com
palintest@palintest.com
sales@palmer.co.uk

www.oseco.com
www.palintest.com
www.palmer.co.uk

Toms River, New Jersey
Erlanger, Kentucky

David Leighty
Judy Kathman

+1 (1)732 244 0010
+1(1)859 283 5900

info@permapure.com

www.permapure.com
sales@postgloverlifelink.com www.postgloverlifelink.com

Romsey, Hampshire

Richard Pollard +44 (0)1794 528 700

sales@radcom.co.uk

www.radcom.co.uk

Epping, Essex
Paris, France
Witham, Essex
Haslingden, Lancashire
Christchurch,
New Zealand
Mentor, Ohio
Coventry, West Midlands

Brian Back +44 (0)1992 576 107
Stéphane Majerus +33 (0)1 48 18 15 15
Mike D’Anzieri
+44 (0)1376 517901
Robert Austen +44 (0)1706 234 800
+64 (0)3 349 4456

Chris Stoelhorst

sales@radio-modem.com
sales@servtrayvou.com

www.radio-tech.co.uk
www.servtrayvou.com
sales@smithflowcontrol.com www.smithflowcontrol.com
www.texe.com
www.tljones.com

uksales@texe.com
info@tljones.com

Peter Mastores

+1 (1)440 942 6161
Paul Bonné +44 (0)247 668 4217

volk@volk.com
info@volumatic.com

www.volk.com
www.volumatic.com

106 Halma p.l.c. 2006

Notice of meeting

Notice is hereby given that the one hundred and twelfth annual
general meeting of Halma p.l.c. will be held at The Ballroom, The
Berkeley Hotel, Wilton Place, London SW1X 7RL on Wednesday,
2 August 2006 at 11.30 am for the following purposes:

Ordinary business
1 To approve the Report of the Directors, the audited part of

the Report on remuneration and the Accounts for the period
of 52 weeks to 1 April 2006.

2 To declare a dividend on the ordinary shares.

3 To approve the Report on remuneration as set out on

pages 95 to 99 of the Report and accounts for the 52 weeks
to 1 April 2006.

4 To re-elect as a Director Andrew J Walker* who retires from
the Board by rotation and being eligible offers himself for
re-election.

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 or equity
securities held as treasury shares to be sold after such
expiry; and the Directors may allot equity securities and/or sell
equity securities held as treasury shares 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.

11 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:

5 To re-elect as a Director Richard A Stone* who retires from
the Board by rotation and being eligible offers himself for
re-election.

(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;

6 To re-elect as a Director Keith J Roy who retires from the
Board by rotation and being eligible offers himself for
re-election.

7 To re-appoint Deloitte & Touche LLP as Auditors.

8 To authorise the Directors to determine the remuneration of

the Auditors.

Special business
To consider, and if thought fit, pass the following special
resolutions:

9 That the regulations contained in the document produced to
this meeting and signed by the Chairman for the purposes of
identification, are approved and adopted as new Articles of
Association in substitution for, and to the exclusion of, the
existing Articles of Association.

10 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 (as defined in
Section 94(2) of the Companies Act 1985) of the Company
pursuant to the authority contained in Resolution 10 passed
at the Company’s annual general meeting on 1 August 2002
and/or sell equity securities held as treasury shares for cash
pursuant to Section 162D of the Companies Act 1985, in
each case as if Section 89(1) of the Companies Act 1985
did not apply to any such allotment or sale, provided that
such power shall be limited to the allotment and/or sale 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 £1,845,000,

(b) the maximum price which may be paid for any ordinary
share is an amount equal to 105% 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

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 shareholder entitled to attend and vote at the meeting is
entitled to appoint a proxy or proxies to attend and on a poll,
vote on his or her behalf. A proxy need not be a shareholder
of the Company. A personalised form of proxy is enclosed.
Completion of a form of proxy (or submission of proxy
instructions electronically) will not prevent a shareholder
from attending the meeting and voting in person.

By order of the Board

C T Chesney
Secretary
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE

3 July 2006

Halma p.l.c. 2006 107

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 2 August 2006 and at The Berkeley
Hotel from 11:15 am on the day of the meeting until the close
of the meeting.

Copies of the proposed new Articles of Association of
Halma p.l.c. are available for inspection at the offices of CMS
Cameron McKenna LLP, 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 on the Directors proposed for
re-election appears on pages 86 and 87 of the Report
and accounts.

* Denotes membership of the Remuneration, Audit and Nomination Committees of
the Board.

** The Board’s present intention is that the shares purchased under the authority will
(to the extent statutory requirements are met) be held in treasury for future cancellation,
sale for cash or transfer for the purposes of, or pursuant to, an employee share scheme,
although in the light of circumstances at the time it may be decided to cancel them
immediately on repurchase.

108 Halma p.l.c. 2006

Shareholder information

Financial calendar

2005/06 Interim results

2005/06 Interim dividend paid

Trading update

2005/06 Preliminary results

2005/06 Report and Accounts issued

Annual General Meeting

2005/06 Final dividend payable

Trading update

2006/07 Interim results

2006/07 Interim dividend payable

Trading update

2006/07 Preliminary results

Analysis of shareholders
at 31 May 2006

6 December 2005

8 February 2006

27 April 2006

20 June 2006

3 July 2006

2 August 2006

23 August 2006

end October 2006

5 December 2006

February 2007

end April 2007

June 2007

Number of shares held

1 – 7,500

7,501 – 25,000

25,001 – 100,000

100,001 – 750,000

750,001 and over

Number

Shareholders
%

Shares
Number

5,357

769

344

176

79.8

11.5

5.1

2.6

10,302,723

10,108,553

17,119,260

50,781,082

1.0 281,067,662

2.8

2.7

4.6

13.8

76.1

6,710

100.0 369,379,280

100.0

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

Tel: +44 (0)870 702 0000
Fax: +44 (0)870 703 6101
E-mail: web.queries@computershare.co.uk

Investor relations contacts
Andrew Williams
Halma p.l.c.
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE

Tel: +44 (0)1494 721111
Fax: +44 (0)1494 728032
E-mail: halma@halma.com

Share price
London Stock Exchange, pence per 10p share

Highest

Lowest

Year End

2006

194

139

188

Dividends
Pence per 10p share

Interim

Final

Total

2006

2.71

4.12

6.83

2005

170

142

161

2005

2.58

3.92

6.50

2004

151

109

149

2004

2.44

3.75

6.19

2003

166

114

2002

175

126

164

Rachel Hirst/Andrew Jaques
Hogarth Partnership Limited
2nd Floor
Upstream
No 1 London Bridge
London SE1 9BG

Tel: +44 (0)20 7357 9477
Fax: +44 (0)20 7357 8533

2003

2.285

3.527

5.812

2002

2.077

3.206

5.283

Brokers
Dresdner Kleinwort Wasserstein Limited
PO Box 52715
30 Gresham Street
London EC2P 2XY

Share dealing facilities
A low cost telephone dealing service has been arranged with
Stocktrade which provides a simple way for buying or selling
Halma shares. Basic commission is 0.5% up to £10,000,
reducing to 0.2% thereafter (subject to a minimum commission
of £15). For further information please call 0845 601 0995 and
quote reference Low Co0198.

Tel: +44 (0)20 7475 7319
Fax: +44 (0)20 7283 4667
E-mail: halma@drkw.com

Annual general meeting
The 112th annual general meeting of Halma p.l.c. will be
held at The Ballroom, The Berkeley Hotel, Wilton Place,
London SW1X 7RL on Wednesday, 2 August 2006 at 11.30 am.
The Notice convening the meeting is on page 106.

01_Our performance
Financial highlights
Chairman’s statement
Chief Executive’s strategic review
Three sectors... one approach
Products in action
Business and financial review

04
05
06
08
10
22
22
26
26
28
30
– Operating environment, risks and uncertainties 32
34
– Financial review

Infrastructure Sensors
Health and Analysis
Industrial Safety

– Group overview
– Sector reviews

Strong organic growth
Delivering good growth not only from acquisitions but
widespread across the Group

A clearer strategy
Reporting in three sectors each with clear strategic objectives

Important acquisitions and disposals
Entry made into the security market and disposal of
underperforming Resistors business

86
88
90
91
95
100
104
106
108

Dividend grows further
Progressive dividend policy with 5% growth and
dividend cover raised

Further strengthening of Internal Control
“Warning signs” embraced across the Group stimulating
positive action to reduce risk

Designed and produced by Radley Yeldar (London)

Halma p.l.c. Annual report and accounts 2006

We are protecting lives
and improving the
quality of life for people
worldwide.

H
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H A L M A

Halma p.l.c.
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE

Tel: +44 (0)1494 721111
Fax: +44 (0)1494 728032
Web: www.halma.com

H A L M A