HALMA
Annual Report
& Accounts 2004
HALMA ANNUAL REPORT AND ACCOUNTS 2004
Halma p.l.c.
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE
Tel: +44 (0) 1494 721111
Fax: +44 (0) 1494 728032
www.halma.com Halma p.l.c.
Annual Report and Accounts 2004
Financial Highlights 1
Halma at a glance 2
Chairman’s Statement 4
Chief Executive’s Review 7
Financial Review 10
Operating Review 14
Shareholder Information 26
Directors and Advisers 27
Management Team 28
Report of the Directors 30
Corporate Responsibility Report 33
Corporate Governance 36
Report on Remuneration 40
Responsibilities of the Directors 46
Independent Auditors’ Report 47
Consolidated Profit and Loss Account 48
Consolidated Balance Sheet 49
Statement of Total Recognised
Gains and Losses 50
Movements in Equity Shareholders’ Funds 50
Consolidated Cash Flow Statement 51
Halma p.l.c. Balance Sheet 52
Accounting Policies 53
Notes on the Accounts 55
Notice of Meeting 74
Summary 1995 to 2004 76
Group Directory 78
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environmental accreditation. Change 2004 2003
£m £m
Turnover +9% 292.6 267.3
Overseas sales +10% 206.1 188.2
Profit before taxation
(1)
+8% 50.3 46.5
Earnings per share
(2)
+10% 9.44p 8.55p
Earnings per share – statutory 6.09p 7.76p
Dividend per share +7% 6.19p 5.812p
Return on sales
(3)
17.2% 17.4%
Turnover to net tangible assets 3.05 times 3.08 times
Return on capital employed
(4)
52.4% 53.5%
1
Before goodwill amortisation of £4,220,000 (2003: £3,235,000) and exceptional items on disposal of non-core businesses of £9,149,000
(2003: £nil).
2
Before goodwill amortisation of 1.07p (2003: 0.79p) and exceptional items of 2.28p (2003: nil) per share.
3
Return on sales is defined as profit before taxation
(1)
expressed as a percentage of turnover.
4
Return on capital employed is defined as profit before taxation
(1)
expressed as a percentage of net tangible assets (being equity shareholders’
funds less intangible assets).
Highlights
– Organic and acquisition growth contribute to record pre-tax profit
(1)
– Widespread improvement in sales performance across the Group’s businesses
and regions produced 9% turnover growth
– Return on capital employed
(4)
above 50% delivered cash generation of £22m
during the year
– Quality of Halma’s operations strengthened by the sale of three non-core
businesses in the year followed by two acquisitions since the year end
– Progressive dividend policy maintained with 7% growth
Financial Highlights HALMA
Halma p.l.c. 2004 1 Businessprofile Halma is a strongly cash generative and highly profitable group which develops,
makes and markets products worldwide that are used to enhance public safety and
minimise hazards at work.
Our six specialist business groupings are:
Fire and Gas detection
Water leak detection and UV treatment
Elevator and Door Safety
Bursting discs and sequential locking for Process Safety
High power electrical Resistors
Optics and Specialist technology
Valuecreationstrategy Our over-riding objective is to create shareholder value by:
Building global businesses that sustain a leading position in specialised markets in
areas of long-term sales growth
Concentrating on high margin activities where products and services are
differentiated on the basis of performance, not price, and where barriers to entry
are high
Tightly managing our asset base in order to maintain our outstanding operating
ratios and powerful cash generation
Investing in marketing, new product development and innovation to maintain high
organic growth
Acquiring businesses and intellectual assets that extend our existing activities, add
value, contribute to growth and will produce our exceptional operating ratios
Maintaining a high return on capital employed to self-fund organic growth,
acquisition activity and rising dividends
Recruiting and retaining top quality management by preserving an entrepreneurial
culture within a framework of rigorous financial planning, reporting and control
Halma at a glance HALMA
Halma p.l.c. 2004 2 Dividendgrowth
An exceptional record of unbroken
dividend growth over more than
20 years
Profitgrowth
(beforegoodwill
amortisationand
exceptionalitems)*
Long-term profit growth
accompanied by excellent cash
generation.
Sales
Growing sales in tough
world markets.
ROCE*
ROCE consistently
above 40% delivering
real shareholder value.
£25m
£15m
£5m
0
95 98 01 04
£60m
£40m
£20m
0
95 98 01 04
£300m
£200m
£100m
0
95 98 01 04
60%
40%
20%
0
95 98 01 04
*see Financial Highlights
Halma at a glance continued
HALMA
Halma p.l.c. 2004 3 In my first year as Chairman of Halma, I am delighted to announce record profit
before tax* of £50.3 million.
Observations from a new Chairman
However, before turning to more of the headline numbers, I thought it might be
useful, as a new boy to the Group, to share some of my initial observations, and to
glimpse behind the scenes at some of the issues we have been tackling.
FirstlyletmesaythatIwasattractedtoHalmabyitsextraordinarytrackrecord(one
of the top performing stocks on the London Stock Exchange over 20 years), its
management style and the robustness of demand for its products even under
difficult market conditions. I was intrigued. My induction into the Group, guided by
DavidBarber,wasexemplary.HeleftmealonetogowhereIwanted,askwhatever
I wished, yet was always available to discuss, debate and question what I had
observed.
Over the first few months I visited operations accounting for about half our profits.
I saw companies both large and small; some fighting in tough markets, many
successful – the picture became clearer. The strengths were evident:
* demand related to health and safety provided a driver or (at least) support to
demand.
* high market shares gave some protection to pricing.
* autonomously run companies gave clarity of responsibility and ownership of
performance.
* high returns on sales and capital.
* financial control was tight.
* a track record of which to be proud.
* many truly excellent and dedicated people.
*see Financial Highlights
‘‘...no shortage of
ideas, determination
or actions...’’
Geoff Unwin,
Chairman
Chairman’s Statement HALMA
Halma p.l.c. 2004 4 However, over the last few years, performance as measured by our high historic
standards had not moved ahead as we would have wished. This was undoubtedly
due, to a certain extent, to the tough economic conditions we have seen recently,
but had other factors crept in that were holding us back?
Our Response
This was the question that was posed to the Board and senior management.
Extremely thoughtful answers came in followed by very lively debates – no factor
remained unexamined, no cow, sacred or otherwise, undisturbed. The outcome?
Work was accelerated on a number of potential bottlenecks:
* management: much strengthening (from both within and outside) and
training programmes increased.
* incentives:newbonusschemestoexplicitlyalignperformancetoshareholder
value.
* knowledgetransfer:‘‘wiringup’’theGrouptofacilitatetransferofknowledge
without destroying the foundations of autonomy.
* reducedspanofcontrol: remarkably, senior management felt they could be
more effective if they had fewer companies to manage and could therefore
implement necessary change faster. Done.
* sales:renewedemphasisonallaspectsofsellingandsharingofthebestideas
for tackling new markets across the Group.
* innovation:morefundsallocatedtoinnovationandnewtechniquesintroduced
to get improved or new products to market, faster.
* resource allocation: the beginnings (more to come) of a more rigorous
allocation of resources (capital and management) to higher growth areas. This
year we have made three non-core disposals.
Have the actions on these issues had some effect on performance? Impossible to
quantifybutnooneisinanydoubtwearethebetterforfocusingonthesepriorities.
However, what is undeniable is that the results from these actions are due to the
hard work and single-mindedness of the management team together with the
dedication from all our employees towards our customers.
The Results
Profitbeforetax*wasarecord£50.3millionandearningspershare*,alsoarecord,
increased by10%to9.44p.Returnoncapital*was52.4%andnetcashattheyear
end was £22 million.
Turnover grew by 9% to a record £292.6 million. During the year we disposed of
three businesses deemed to be non-core, and shortly after the year end acquired
Diba Industries, Inc., strengthening our position in the life sciences market, and
Ocean Optics, Inc., extending our optical technology.
TheBoardrecommendafinaldividendof3.75pencepershare,givinganincreaseof
7% for the year.
*see Financial Highlights
Chairman’s Statement continued
HALMA
Halma p.l.c. 2004 5 Prospects
There is no shortage of ideas, determination or actions and these should show
through next year, as they have this year, in our results. We continue to focus on
those areas that are clearly under our control or influence, notwithstanding that
there is still little evidence of any significant uplift in our markets.
Geoff Unwin
Chairman’s Statement continued
HALMA
Halma p.l.c. 2004 6 Strong and active management delivers record profits
The Group performance has been strong despite market conditions remaining
difficult. We achieved record profits* of £50.3 million on a lower level of operating
assets, despite a net £1 million profit hit from currency movements. Widespread
improvement in sales performance across the Group’s businesses and regions
produced 9% sales growth. These results reflect our active management approach
through which we achieve growth through focused acquisitions, efficiency
improvementsandtheorganicdevelopmentofourexistingbusinesses.Iampleased
that excellent efforts from our management teams produced a return on capital
employed* of52%,outstanding foranyengineering andmanufacturing company.
Intheyearwesoldthreenon-corebusinessesfromourOpticsandSpecialistsector
thatwerenotcompatiblewithourtargetsforgrowthandfinancialreturns. Sincethe
year end we have made two important acquisitions for a total initial sum of
£22 million, significantly strengthening this sector. Looking forward we expect to
gain useful benefits from our acquisition and disposal activities. Two further
businesses were also consolidated to achieve the benefits of greater integration.
We remain strongly cash generative, creating net cash of £22 million during the
year. We funded our acquisitions from profits and also paid a record sum in
dividends to our shareholders.
Well positioned for growth
Our growth has come primarily from new products, the new customers they attract
and new applications for long-term repeat ordering customers. We spent a record
amount on research and development which now accounts for 4% of sales and
launched many new products. Our cost base has been well managed so that we
maintained our 17%return on sales* foryet anotheryear. TheGroup is in astrong
position to benefit from improvements in our end markets although we saw no
upturninthe2003/04financialyearandarenotreliantonamarketrecoveryforour
future growth.
*see Financial Highlights
‘‘strong and active
management delivers
record profits’’
Stephen O’Shea,
Chief Executive
Chief Executive’s Review HALMA
Halma p.l.c. 2004 7 Management team strengthened
There has been a seamless transition with our Chairman, Geoff Unwin, stepping up
fromhispreviousroleasDeputyChairmaninJuly2003andwiththeappointmentof
anewnon-executiveDirector,StephenPettit,inSeptember2003.Themanagement
team has been further strengthened with the recruitment of two additional senior
managers,NigelTroddandAndyRichardson,whomwewelcomeintotheGroup.We
said goodbye to David Barber, the founder and architect of the Halma culture who
servedtheGroupoveranoutstandingtenureof31years.Weowemuchtohimand
all of us wish him well in his retirement.
Widespread sales and profit growth
I am encouraged by the number of countries where we have built up stronger
positions. Territorial sales were grown to the UK, Europe, USA, Middle and Far East
and Other Countries. The US Dollar weakened considerably during the year so that
although sales in the USA grew by 12% in local currency, this translated to a 2%
increaseinSterlingterms.WemakeoveraquarterofourprofitsfromourUSbased
companies.TheyincreasedUSDollarprofitsalthoughinSterlingtermsthisconverts
toasmalldeclineof5%,£0.7million.Wewerehelpedintheearlypartoftheyearby
the strength of the Euro.
SalesfromourEuropeancompanies grewby42%to£43.7million.WeownedBEA,
the world market leading supplier of automatic door sensors, for the whole of the
year(comparedtoa6monthcontributionlastyear).Thisverysuccessfulacquisition
continuestodeliverimpressiveresultsbyproducingexcellentproductsandgrowing
its customer base across the world. We have rolled out one of BEA’s innovation
techniques across the whole of the Group, demonstrating our commitment to
transferring best practice.
Just over half our sales and profits are made by the UK companies. Continuing
operationsearnedprofitsof£26.6million,reflectingorganicgrowthof£1.9million,
and increased sales by £10.6 million. Profits from our companies outside of the
UK and USA, helped by £2.7 million from BEA, rose by £3.2 million.
New Elevator safety products
OurElevatorandDoorSafetysectorperformedparticularlywelldemonstratingboth
organicandacquisitiongrowth.Itsprofitsarenow£12.1million,24%oftheGroup’s
total. The Far East and Asia are increasingly important territories and we extended
our premises in Beijing and our manufacturing facilities in Shanghai and Beijing, as
well as growing in Singapore. Important product innovations include new
emergencycommunicationequipment,demandforwhichislikelytogrowfollowing
new European legislation in this area.
Repositioning in Optics and Specialist sector
We are increasing the focus on higher technology products and more technically
advanced customers. Evidence of this can be seen in both the disposals made this
year and in the acquisitions of Diba and Ocean Optics since the year end, both of
which significantly broaden ourcapabilities inour Opticsand Specialist sector. Diba
productsextendourproductrangeofferedtoinstrumentmakersinthegrowingfield
oflifesciences.OceanOpticsmakespectrometers thathelpanalyse substancesvia
their reaction to light. They are closely related to our water purity measuring
photometers and other optical diagnostic equipment. Our trading in this sector
Chief Executive’s Review continued
HALMA
Halma p.l.c. 2004 8 produced increased profits. However within the sector we report our Head Office
companiesandtheimprovedtradingwasmorethanoffsetbythecostsofincreasing
senior management and lower income from subsidiaries who reduced their capital
employed whilst growing profits. The net effect was a reduction in profits of
£0.4 million to £7.1 million.
Organic growth in Fire and Gas sector
TheFireandGassectorincreasedbothsalesandprofitswithnewfiredetectorsand
personal gas warning monitors. They earned £1.6 million of organic profit growth.
This sector increased its already effective use of assets, producing a return on
capital employed of 85%, exceeding even the Group’s strong ratios.
Resistors sector as predicted
As expected, our Resistors sector continued to suffer a depressed market,
particularly in US heavy industry. There are some indications of improvement in
one of our customer areas, mass transit systems. The sector has been managed
vigorously in terms of both cost and working capital reductions though we have yet
to reverse the decline in profits.
Investment in new products
Our Process Safety sector did not quite match last year’s sales and profits. The UK
market proved difficult although there are now improving conditions in the
petrochemical sector, which look likely to continue. New applications and specially
developed products are particularly important in this sector. New products
introduced late in the year that improve safety at delivery bays and provide
enhanced emergency pressure relief, are examples of increasing innovation in this
otherwise stable sector.
Product leadership helps Water sector to increased profits
Our Water sector increased both sales and profits this year. We believe we are now
offering customers the best UV sterilisation systems for drinking water on the
market.SalesofwaterleakdetectionandcontrolequipmentaregrowingintheUSA
and there are prospects of capital spending by UK water utilities beginning to rise.
We see this as a long-term growth sector.
Sustained growth based on sustained innovation
Our focus on innovation and investment in research and development is bringing
forwardincreasingnumbersofnewproductsandacceleratingtheacquisitionofnew
customers. The free cash generated by our businesses and through disposals has
been invested in maintaining this momentum and building our range of products
through judicious acquisitions. We will benefit significantly once our markets
improve but we are not dependant on this. We have the talent and the resources
weneedtobuildonourprogressthroughourownefforts.Theevidenceforthisisthe
record sales and profits earned this year and the confidence we have in continuing
our rapid rate of dividend increase. I look forward to the coming year.
Stephen R O’Shea
Chief Executive’s Review continued
HALMA
Halma p.l.c. 2004 9 Record profit with organic growth despite adverse currency movements
I am pleased to report that turnover for the year was 9% higher than last year at
£293 million (2002/03: £267 million). Turnover on continuing operations was
increased by 10%. Profit before tax* set a new record at £50.3 million (2002/03:
£46.5 million). Return on sales* exceeded 17%, as it has now done every year for
more than a decade.
Currencytranslation,withaboutone-thirdofourprofitslinkedtothecurrentlyweak
US Dollar, offset slightly by profits earned in stronger Euros, reduced 2003/04
reported sales and profits by around 2%. Looking ahead, if the US Dollar and Euro
weretostayattheirlevelsofarinthisnewfinancialyearandwiththecurrentmixof
results we might expect a further 3% adverse translation impact on our 2004/05
profits.
The extra £1.7 million of UK National Insurance, pension and general insurance
costs which I anticipated in my review last year have arisen and have been funded
within this year’s profits. These extra costs are ongoing. However, their effects are
mitigated by our success in producing consistently high net and gross margins
through continuous improvements in procurement and processes.
6%oftheturnoverincreaseoverlastyearcamefromacquisitions.Strippingoutthe
currency effect and the incremental impact of acquisitions and disposals, I am very
pleasedtoreportthatthesefiguresshow6%organicgrowthinturnover,andprofits
show the same trend.
Consistently high returns generate strong cash flow
Each year I comment on our key metric, return on capital employed (profit before
tax*expressedasapercentageofnettangibleassets).Thiskeyindicatorguidesour
operations, combining both return on sales and asset turns. We have generated
£22 million of cash in the year and despite its inclusion in the Group’s return on
capital employed calculation we still produced a figure of 52%– remarkable by any
measure.
*see Financial Highlights
‘‘...aresilientgroupin
excellent shape...’’
Kevin Thompson,
Finance Director
Financial Review HALMA
Halma p.l.c. 2004 10 On my regular visits to our businesses I see the benefits we obtain from a deep
understanding of the importance of producing high returns from the minimum
possible level of assets. This efficient use of assets benefits our customers and
shows through in our return on capital* which has exceeded 40% for well over
20 years. We grew this year and used less operating assets to do it. The result of
these outstanding returns is a strong flow of cash available to us for further
investment in our businesses, to pay dividends and to make acquisitions.
Investing for the future
Newproductsandinnovationinourprocessesunderpinourfuturegrowth.Thisyear
weinvestedarecordamountof£11.2million,about4%ofturnover,inresearchand
development.Wehavemaintainedtheinvestmentinthecapitalassetsusedacross
ourbusinesseswithcapitalexpenditureonceagainatatypicallevelofaround125%
of depreciation. We have used the tougher market conditions which we have
experienced in the recent years to strengthen our businesses with this type of
investment,togainmarketshareandputourselvesinthebestshapeforthefuture.
A progressive dividend policy with dividend cover edging up
The Board recommends a final dividend of 3.75p per share, giving a full year
dividend of 6.19p per share, 7% up on last year’s record level. This dividend
represents a continuation of Halma’s progressive dividend policy and also makes a
small contribution toward increasing the dividend cover which is our intention over
the medium term.
Ifapproved,thisfinaldividendwillbepaidon23August2004toshareholdersonthe
registeratthecloseofbusinesson23July2004.Togetherwiththeinterimdividend
this will give a total of £23 million paid to shareholders in relation to the 2003/04
year financed by our strong cash flow, with a total of £88 million distributed as
dividends in the past five years.
Prudent approach to treasury, tax and pensions
Withthree-quartersoftheGroup’ssalesmadeoverseasandhalftheprofitsmadeby
companiesbasedoutsidetheUK,theGroup’sresultsaresensitivetomovementsin
exchange rates, particularly the US Dollar and Euro. Currency movements in the
year affect our results through the translation into Sterling of profits earned in local
currencies as well as affecting the underlying transactions. We have an element of
natural hedging, in particular through the purchase of components in US Dollars.
Our operating companies hedge their trading transactions back into their local
reporting currency. We do hedge the majority of our US Dollar and Euro net assets
using currency loans. The objective of our treasury activities is risk management
and control, no speculative transactions are undertaken.
Theeffectivetaxrateonprofits*was31.3%comparedwith32.9%in2002/03.We
benefited from higher profits earned in lower tax jurisdictions, including China.
We have continued to adopt the transitional provisions of FRS 17 (Retirement
Benefits)pendingtheintroductionofInternationalAccountingStandards.Thevalue
ofthepensionplans’assetshaveincreasedsincethelastbalancesheetdateascan
be seen from the FRS 17 disclosures, however revised inflation assumptions have
increasedthecalculatedliabilities.ThenetdeficitonanFRS17basishasreducedby
7% to £29 million after the related deferred tax.
*see Financial Highlights
Financial Review continued
HALMA
Halma p.l.c. 2004 11 As noted last year, we have closed our defined benefit schemes to new members
and established a defined contribution scheme. Contributions into the defined
benefit schemes are in line with the actuaries’ recommendations, following the
triennial actuarial valuations last year and are fully reflected in the Consolidated
Profit and Loss Account, with no further increases necessary at this time.
I note that the funding of pension obligations is a long-term issue, even though
schemeassetsaresubjecttoshort-termfluctuations.Ourlong-termfundingbasisis
solid and the currently reported deficit, by any set of rules, is small relative to the
Group’s market capitalisation.
Compliance and control continue at a high level
I remain committed to maintaining strong internal control across the Group. For
many years we have successfully used our senior finance staff to carry out reviews
of our operating companies at half year and year end, making rotational visits at
other times to assess internal controls. During the year we have enhanced these
procedures and in particular those relating to internal control visits by the
introduction of independent reporting lines. In 2004/05 we intend to confirm that
our procedures amount to a formal internal audit function.
Throughclosemonitoringofourbusinesses,theuseofsimplerelevantsystemsand
involvement of high quality finance executives based at each operating company,
we continue to have a strong control environment whilst providing value to our
entrepreneurial operations.
Active management of our operations
Wehavetakenanumberofactionstoimproveourbusinessesandmakegooduseof
our cash. Shortly before the end of the year we sold three non-core businesses for
£5 million. They accounted for turnover of £13 million and in aggregate were
operating around breakeven. If these discontinued operations are excluded the
Group’s return on sales is 18%. After deducting the costs of sale and pension and
property obligations retained within the Group, the net result was an exceptional
chargeof£9.1million including goodwillof£5.8million. Thegoodwilladjustment is
anon-cashitemandincludes£5.6millionpreviouslywrittenofftoreservesandnow
recycled.TheneteffectofthedisposalswillbeanetcashinflowtotheGrouphaving
met all necessary costs.
Combining the proceeds from the above transactions with our existing self-
generated cash, we spent £22 million just after the year end on two high-quality
acquisitions, Diba Industries, Inc., and Ocean Optics, Inc. This active management
produces an even stronger base for future growth.
International Accounting Standards on the horizon
International Accounting Standards will be in full effect for the first time in our
2005/06accounts,althoughpreparationsareinprogressnowtocollectdataforuse
in the comparative figures. Other than the additional disclosures which will be
required, we anticipate that these new Standards will have most impact in the
followingareas:accountingforshareoptions,pensionsandaccountingforresearch
and development.
Financial Review continued
HALMA
Halma p.l.c. 2004 12 Continuously creating value
Ourreturnsandcashflowperformancethisyearhavebeenuptothehighstandards
we have established over many years. The business has been strengthened by
investment in new product innovation, prudent acquisitions, the disposal of non-
coreassetsandbyfurtherprocessimprovement.Theobjectiveremainsunchanged,
to maintain a resilient group in excellent shape to create even more value for our
shareholders.
Kevin J Thompson
Financial Review continued
HALMA
Halma p.l.c. 2004 13 Sector Overview
Our Fire and Gas sector companies
lead the world in sensor technologies
that detect hazards before they
become life-threatening and give
people warning to get out of harm’s
way. Our commercial quality fire
detection products, sold to 70
countries, protect both people and
buildings from the risk of fire.
Workers in many industries rely on
our gas detectors to safeguard their
livesandprotectthemfromexposure
to toxic or explosive gases. We also
make specialist products for
conditioning gas samples before they
are analysed.
The principal sales channels for fire
detectors are distributors and fire
alarm installers, whereas customers
for gas detectors range from lone
contractors to multinational oil
companies. During 2003/04 our Fire
and Gas sector companies produced
27% of continuing Group turnover
and 33% of operating profit*.
We achieved significant advances in
both sales and profits throughout this
sector. All of our fire products
companies raised profits during
2003/04, coupled with increased
market shares. Most growth in fire
detector sales came from the UK,
Europe, the Middle East and the US. We
also grew gas detector sales and profits
significantly,aidedbytherecruitmentof
a direct sales force in the US.
Increased co-operation between our fire
product companies on research and
development, marketing and shared
saleschannelsenhancedourcompetitive
advantage. Development of new smoke
detectors and electronic fire sounders
benefited from inter-company
collaboration. New microprocessor-
based smoke detectors were
successfully launched, opening new
markets in Eastern Europe and the
Middle East. In total, twenty new fire
productswerelaunchedduring2003/04.
Despite fierce price competition in the
global fire products market, and
dropping prices, our companies
achieved improved gross margins. This
was due to continued manufacturing
investment, improved supplier
relationships and skilful marketing.
The regulatory burden on fire safety
product manufacturers continues to
increase. New standards were imposed
in all major markets during 2003/04.
Through regular presentations, the
Group educates customers, regulatory
bodiesandgovernmentdepartmentson
the impact of new regulations.
Restructuring of European gas detector
sales through directly controlled branch
operations in Holland, Germany, Poland
and France led to significant European
sales growth. Prices of portable gas
detectorsdeclinedasmanufacturerscut
production costs through improved
manufacturing and offshore sourcing.
However, lower pricing is creating
greater demand and increasing the use
of personal protection products,
particularly in developing countries.
Certification of our gas detectors by the
principal marine approvals organisation
has created new sales opportunities in
the high growth marine market. We
expect to reach many new customers
via a new distribution agreement with a
leading multinational marine support
business. A new multi-gas portable
detector was successfully launched with
easeofmaintenance,leadingtolowcost
of ownership, proving critical.
Forseveralyearswehavebeenworking
closely with US developers of fuel cells.
These are electro-chemical devices that
function like batteries or electric
generators but run on hydrogen gas as
fuel. Until now, this has mainly been a
prototyping market. However, in 2003/
04 we began to sell gas conditioning
components used in fully commercial
fuel cell systems for small-scale power
generation.
Fire and Gas turnover
2004 £75.0m
2003 £70.0m
Fire and Gas profit*
2004 £16.6m
2003 £15.0m
Segmental turnover, 2004
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 75.0
Segmental profit, 2004*
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 20.0
*before interest, tax and goodwill
amortisation – see note 1 on the
Accounts
Operating Review – Fire and Gas HALMA
Halma p.l.c. 2004 14 Our latest gas detectors
protect workers from four
different gas hazards
simultaneously.
Halma p.l.c. 2004 15 Sector Overview
We have world class companies
operating in three areas of water
technology: ultraviolet (UV) light
water treatment, instruments for
conserving water in distribution
networks and water analysis
products. All of these markets are
global and exports account for a high
proportion of sales in this sector.
Our principal customers in this sector
are drinking water supply companies
and municipal authorities together
with food and process industry
manufacturers. Based in the UK, the
Netherlands, France and the US,
during 2003/04 our Water sector
companies produced 12% of
continuing Group turnover and 11%
of operating profit*.
Worldwide growth in demand for clean
drinking water, industrial process water
and wastewater treatment results from
continuingindustrialisation,urbanisation
and population growth. Other factors,
such as tighter water quality and waste
regulations, environmental issues and
water shortages, also stimulate the
need for our water technology products.
During 2003/04 we saw sales and
profits grow in this sector.
We won significant new leak
instrumentation business in the US and
South-East Asia. In the American mid-
west there is growing interest in
managingandconservingexistingwater
supplies, instead of further depletion of
natural sources. US sales of water
conservation instruments doubled.
We won a major contract for leak
detection equipment from the city
authority in Las Vegas, Nevada. Las
Vegas has the fastest growing
population of any US city with 20,000
new homes built each year. Nevada’s
water supplies are under pressure and
mayhitcrisispointwithoutnewsupplies
and conservation measures.
The world market for UV water
treatment technology is predicted to
double within 5 years, mainly driven by
environmentalconcerns.Thereisashift
away from chemical techniques in
treatingdrinkingwater,wastewaterand
swimming pool water towards the UV
process which greatly reduces or
eliminates the use of chemicals.
MajorprogresshasbeenmadeintheUS
in supplying UV drinking water
treatment plants that comply with new,
stringent US Environmental Protection
Agency requirements. A 15 million
gallons per day treatment plant that we
supplied to the city of Henderson,
Nevadawasthefirstmajorprojectinthe
US which met the new regulations.
Sales of water analysis instruments
werebuoyant,particularlyinEuropeand
Australia. A new photometer water
analyser, launched during 2003/04, is
already the laboratory sector market
leader. We will soon launch a low cost
water analyser for monitoring private
swimming pools and spas, transferring
technologydevelopedforthepublicpool
market into the domestic arena. A large
UK water company has chosen our
ammonia monitoring system to control
its wastewater plants, which will
positively impact on sales in 2004/05.
Water turnover
2004 £34.5m
2003 £33.1m
Water profit*
2004 £5.8m
2003 £5.5m
Segmental turnover, 2004
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 75.0
Segmental profit, 2004*
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 20.0
*before interest, tax and goodwill
amortisation – see note 1 on the
Accounts
Operating Review – Water HALMA
Halma p.l.c. 2004 16 Las Vegas, Nevada, where
our leak detection technology
helps to conserve the city’s
water supplies.
Halma p.l.c. 2004 17 Sector Overview
We are world leaders in infrared and
microwavesensorsforcontrollingthe
opening and closing of elevator doors
andautomaticdoors.Ourdoorsensor
products have three functions. They
ensure public safety, make buildings
more accessible to people with
disabilities and optimise traffic within
buildings. We also make control
systems, voice communication and
visual display equipment for
elevators. These businesses are
based in Belgium, the UK, New
Zealand, the US, Singapore and
China.
Both the elevator and automatic door
markets split into new-build and
refurbishmentsectors.Thenew-build
sector is dominated by a small
number of multinational elevator and
door manufacturers, whereas
refurbishment projects are usually
handled by relatively small local
contractors. During 2003/04, this
sector produced 23% of continuing
Groupturnoverand24%ofoperating
profit*.
We saw a large rise in both sales and
profits from the Elevator and Door
sector in 2003/04. This followed
inclusion of the first full year of trading
at Belgian door sensor specialist BEA,
whichweacquiredinOctober2002.Our
other companies in this sector delivered
good overall organic growth despite
adverse currency movements,
reinforcing BEA’s excellent progress.
Sales growth in Asia was exceptionally
strong, with major volume increases in
China, Japan and Australia. We now
have two manufacturing facilities in
China and satisfy half of the entire
Chinese market for both elevator door
sensors and automatic door sensors.
Sales of in-elevator LCD display panels
also achieved substantial growth aided
by the Group’s worldwide distribution
network.
One fundamental driver affecting
demandfordoorautomationproductsis
the global trend towards urbanisation.
Increasing population densities in cities
require high rise office and residential
buildings, and also large public access
buildings where automatic doors are
commonly used.
Population growth is declining in many
countries. This demographic shift is
creating an ageing population more
likely to benefit from elevators and
automated doors. New legislation that
improves access to public buildings for
people with disabilities continually
raises demand for our door safety and
emergency communication products.
WearetheclearleaderintheUSmarket
for automatic door sensors. A new
elevator intercom product was
introduced mid-year designed to meet
new US building codes and sales have
been very promising.
New European regulations covering
elevator door safety and emergency
communications should also help drive
up demand in 2004/05. European sales
of elevator emergency telephones
almost doubled last year and we are
rapidly establishing market leadership
for these products in the UK.
One in ten of our employees in this
sector works on research and
development. Innovative new products
protect market share where we are
dominantandprovideleverageintonew
markets. An entirely new type of visual
safety product launched recently warns
when elevator doors are closing. This is
a unique product that is creating a new
market. Another new product that
controls pedestrian access barriers in
retail and transport facilities is already
selling well in Europe.
Elevator and Door Safety turnover
2004 £65.1m
2003 £46.3m
Elevator and Door Safety profit*
2004 £12.1m
2003 £8.1m
Segmental turnover, 2004
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 75.0
Segmental profit, 2004*
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 20.0
*before interest, tax and goodwill
amortisation – see note 1 on the
Accounts
Operating Review – Elevator and Door Safety HALMA
Halma p.l.c. 2004 18 Visitors to The Louvre
Museum, Paris, are
protected by our elevator
safety and door control
products.
Halma p.l.c. 2004 19 Sector Overview
In this sector we make two types of
industrial safety products. Our
companiesareworldleadersinsafety
interlocks, products that safeguard
dangerous machinery and process
equipment. They protect industrial
workers from death or injury and
prevent damage to plant. Our second
process safety speciality is bursting
discs. These devices prevent
excessive pressure and protect
people, the environment and process
equipment fromtheriskofexplosion.
Process safety markets are global,
but demand varies from one country
to another due to wide variation in
safety legislation. Customers for our
process safety systems range from
very small businesses up to the
world’s largest corporations.
Operating from the UK, the US and
France, Process Safety generated
13% of continuing Group turnover
and 13% of operating profit* in
2003/04.
During 2003/04 buoyancy of the
petrochemicals market has been at an
alltimehigh,andisstillrising.Growthis
fuelled by the quest for new energy
sources, particularly by China, Japan
and the US. High oil prices encourage
capital expenditure in petrochemicals
exploration and processing which, in
turn, creates demand for our process
safety products.
We are seeing a worldwide trend
towardsraisinglocalsafetystandardsto
match the best international practice.
Oil companies are increasingly adopting
the best practices from their worldwide
exploration and production sites and
applying them globally. This raises
safety standardsinmanyterritories and
strengthens underlying demand for our
products. Recent UK and EU safety
legislation also continues to exert a
positive influence on demand,
particularly in the operation of pipelines
and pressurised process plant.
Sales of safety interlocks for controlling
valves in the petrochemicals sector
increased significantly. However, sector
performance overall was flat. Increased
UK export sales to the enlarged EU
offset a decline in UK demand. We
responded by developing new,
technically innovative products, due for
launch in 2004/05, and through
diversification.
We have recently launched a unique,
patented product, targeted at the
growing retail logistics market, which
prevents accidents to fork lift truck
operators. The initial reaction from
some of the UK’s largest retailers and
logistics companies is very positive.
During 2004/05 we will also launch a
new generation of industrial access and
controlproducts,withbenefitsfarahead
of any competitor, and create sales
opportunities in new areas of
manufacturing industry worldwide.
Our two bursting disc manufacturers
maintained market share during 2003/
04. Over the past 3 years, our bursting
discbusinesseshavebeenrestructured;
production costs have been cut, new
managers have been recruited and new
methods of servicing the European
market are now in place. The end result
is higher product quality, lower cost
products, improved delivery and a
stream of innovative new products that
should increase market share.
Process Safety turnover
2004 £36.0m
2003 £35.2m
Process Safety profit*
2004 £6.6m
2003 £6.8m
Segmental turnover, 2004
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 75.0
Segmental profit, 2004*
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 20.0
*before interest, tax and goodwill
amortisation – see note 1 on the
Accounts
Operating Review – Process Safety HALMA
Halma p.l.c. 2004 20 Our process safety products
prevent accidents and
explosions at chemical and
petrochemical plants
worldwide.
Halma p.l.c. 2004 21 Sector Overview
The high power resistor market is
global, with demand subject to
macroeconomic trends. The principal
applications are in rail transport, the
process industries and power
distribution where our products are
used to safely dissipate electrical
energy. Our strategy to maintain
world leadership in this sector is to
continuously innovate and develop
resistor products with global sales
potential.
Our six resistor makers, based in the
US, Canada, Australia and the UK,
contributed 10% of continuing Group
sales and 5% of operating profit* in
2003/04.
Wesucceededingrowingexportsinthis
sector and saw strong sales growth in
transit and power filtration markets
during 2003/04. However, overall
resistor sales were flat and profits
declined. The impact of Dollar/Sterling
exchangeratemovementsdisguisesour
North American performance; an
8% Dollar increase in resistor sales
translated into a 1% Sterling decline.
Competition in this sector is tougher
thanithaseverbeen.Weareprotecting
market share and margins through
innovation,overheadcostreductionand
raised productivity. With a US economic
upturn, the trend of declining demand
could reverse. Expansion in key resistor
markets, notably mining, metals
refining and oil and gas processing,
should lead to rising demand.
Sales of filter resistors increased due to
rising capital investment by metals
processing industries in response to
commodity price rises. Tighter US
emissions regulations for diesel
locomotives, coming into force in 2005,
could stimulate rolling stock
replacement and restore transit resistor
demand to the normal historical level.
We supply both of the US diesel
locomotive builders. Predictions of
higher fuel costs for cars, together with
increased government spending on
mass transport infrastructure, also
suggest that transit sector demand will
rise.
New US safety legislation designed to
protect industrial workers from
electrical arc flash hazards should
stimulate demand for high resistance
grounding systems in the future. This
technology protects workers from
injury. It also cuts costs by reducing
production stoppages caused by
electrical faults. As the market leader in
high resistance grounding equipment in
North America, we expect to benefit
from the new regulations.
We have continued to rationalise
manufacturing between production
centres to gain efficiency benefits.
Manufacture of transit resistors has
been concentrated in the US, creating a
true world player, well positioned to
exploit the huge Chinese market for
urban transit systems.
During 2003/04 our resistor businesses
took advantage of the growing
commercial opportunities in China.
Increased raw materials sourcing from
Chinese suppliers has helped shield
marginsfromerosion.Atthesametime,
resistor sales into the Chinese market
rose substantially. A new partnership
project to manufacture our resistors in
Shenzhen, China, will add impetus to
Asian regional sales growth in 2004/05
and also deliver highly competitive
products to sell into our traditional
markets.
Resistors turnover
2004 £27.2m
2003 £27.5m
Resistors profit*
2004 £2.2m
2003 £3.1m
Segmental turnover, 2004
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 75.0
Segmental profit, 2004*
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 20.0
*before interest, tax and goodwill
amortisation – see note 1 on the
Accounts
Operating Review – Resistors HALMA
Halma p.l.c. 2004 22 In the energy sector, our
resistor products protect
electrical power distribution
networks from damage when
faults occur.
Halma p.l.c. 2004 23 Sector Overview
We own two world leading optical
technology businesses. We make
ophthalmic instruments and lenses,
for examining eyesight and
diagnosing visual defects, and optical
sensing systems for measuring
colour, brightness and chemical
properties. Our secondary focus in
this sector is on high precision fluid
controlproductsforuseinclinicaland
analytical instrumentation. Both
areas have been strengthened by
acquisitions since the year end. We
have made several changes in this
sector, including selling three
non-core businesses.
Themarketforouropticalproductsis
global and exports account for a high
proportionofsales.Customersforour
fluid technology products are
primarily high-tech instrument
manufacturers, mostly based in the
US or Europe. The companies in this
sector are based in the UK and the
US, and in 2003/04 contributed 15%
of continuing Group turnover and
14% of operating profit*.
Improved sales and profits at our core
optics and fluid technology companies
were offset by slightly disappointing
performances from some of the
specialist businesses in this sector.
Head Office company results are
reported within this sector, and their
income reduced this year. As a result,
the Optics and Specialist sector sales
performance wasflatin2003/04 andits
profit contribution declined.
Bothofourophthalmicopticscompanies
pushed up export sales, with significant
growth in the US, Japan and Australia.
Our US ophthalmic lens business has
been increasingly successful at
developing OEM business. Several
manufacturers of electro-optical
instruments now design our optical
components into their products. Two
new types of surgical lens will help
protect patients from disease
transmission; one format will withstand
high temperature sterilisation and
another is disposable.
Sales of ophthalmic instruments
benefited from a series of new and
improvedproducts.Themostsignificant
were cordless, battery-powered
versions of our indirect
ophthalmoscopes, worldmarketleading
products. These instruments offer
significant benefits to ophthalmologists
andinitialsaleshavebeenencouraging,
particularly in the US.
In May 2004 we acquired Ocean Optics,
Inc., a manufacturer of optical sensing
systems. A world market leader in
miniature fibre-optic spectrometers, its
specialistmeasurementinstrumentsare
used in consumer electronics, process
control, environmental monitoring, life
sciences and medical diagnostics. Like
other Halma businesses, Ocean Optics
has strong positions in niche markets
and significant growth opportunities
exist for its optical sensor-based
products.
Three non-core subsidiaries were sold
during 2003/04. They did not achieve
our profit growth or return on
investment targets due to long-term
market changes.
We extended our interests in fluid
technology with the acquisition of Diba
Industries, Inc. in May 2004. Our
specialist fluid technology companies
grew sales in two high-tech markets:
bio-hazard detection and clinical
diagnostics. We won contracts for
critical components built into biological
hazard detection equipment, a new
emerging market. These systems
analyse air samples from mail sorting
machines and identify anthrax or other
terrorist biological threats. The United
States Postal Service will use this
equipment in mail distribution centres
across the US.
Optics and Specialist turnover
2004 £42.8m
2003 £42.7m
Optics and Specialist profit*
2004 £7.1m
2003 £7.5m
Segmental turnover, 2004
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 75.0
Segmental profit, 2004*
Fire and Gas
Water
Elevator and Door Safety
Process Safety
Resistors
Optics and Specialist
£m 20.0
*before interest, tax and goodwill
amortisation – see note 1 on the
Accounts
Operating Review – Optics and Specialist HALMA
Halma p.l.c. 2004 24 Biological hazard detection
is an emerging market
for our high-precision fluid
control and optical sensing
products.
Halma p.l.c. 2004 25 Financial calendar
2003/04 Interim results 9 December 2003
2003/04 Interim dividend paid 9 February 2004
Trading update 29 April 2004
2003/04 Preliminary results 22 June 2004
2003/04 Report and Accounts issued 5 July 2004
Annual General Meeting 4 August 2004
2003/04 Final dividend payable 23 August 2004
Trading update end October 2004
2004/05 Interim results 7 December 2004
2004/05 Interim dividend payable February 2005
Trading update end April 2005
2004/05 Preliminary results June 2005
Analysis of shareholders
at 2 June 2004
Shareholders Shares
Number % Number %
Numberofsharesheld
1 - 7,500 5,439 78.4 11,105,243 3.0
7,501 - 25,000 866 12.5 11,446,651 3.1
25,001 - 100,000 366 5.3 17,792,427 4.8
100,001 - 750,000 191 2.8 57,086,667 15.6
750,000 and over 63 1.0 269,588,043 73.5
AAAAA
6,925 100.0 367,019,031 100.0
AAAAA
Categoryofshareholders
Notifiable shareholders 3 0.1 103,099,183 28.1
Directors 8 0.1 1,166,163 0.3
Privateshareholders 5,091 73.5 33,709,943 9.2
Others 1,823 26.3 229,043,742 62.4
AAAAA
6,925 100.0 367,019,031 100.0
AAAAA
Share price
London Stock Exchange, pence per 10p share
2004 2003 2002 2001 2000
Highest 151 166 175 145 137
Lowest 109 97 126 82 94
Year end 149 114 164 129 95
Dividends
Pence per 10p share
2004 2003 2002 2001 2000
Interim 2.44 2.285 2.077 1.806 1.570
Final 3.75 3.527 3.206 2.787 2.423
Total 6.19 5.812 5.283 4.593 3.993
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.
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when significant announcements are made.
Shareholding information
Please contact our registrars directly for all enquiries about
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information about your shareholding. (You will need your
shareholder reference number which can be found on your
share certificate).
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol BS99 7NH
UK
Tel: +44 (0)870 702 0000
Fax: +44 (0)870 702 0005
E-mail: web.queries@computershare.co.uk
Investor relations contacts
Stephen O’Shea
Halma p.l.c.
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE
UK
Tel: +44 (0)1494 721111
Fax: +44 (0)1494 728032
E-mail: halma@halma.com
Rachel Hirst/Andrew Jaques
Hogarth Partnership Limited
The Butlers Wharf Building
36 Shad Thames
London SE1 2YE
Tel: +44 (0)20 7357 9477
Fax: +44 (0)20 7357 8533
Brokers
Dresdner Kleinwort Wasserstein Limited
20 Fenchurch Street
London EC3P 3DB
Tel: +44 (0)20 7475 7319
Fax: +44 (0)20 7283 4667
E-mail: halma@drkw.com
Annual General Meeting
The 110th Annual General Meeting of Halma p.l.c. will be
held at The Ballroom, The Berkeley Hotel, Wilton Place,
LondonSW1X7RLonWednesday,4August2004at12noon.
The Notice convening the Meeting is on page 74.
Shareholder Information HALMA
Halma p.l.c. 2004 26 BoardofDirectors E Geoffrey Unwin Chairman*
Stephen R O’Shea Chief Executive
Kevin J Thompson BSc FCA
Neil Quinn BSc
Richard A Stone MA FCA*
Keith J Roy MSc
Andrew J Walker MA CEng*
Stephen R Pettit MSc*
Secretary Carol T Chesney BA FCA
*Non-executive
ExecutiveBoard Stephen R O’Shea Chief Executive
Nigel J Young Specialist Products
Neil Quinn Fire
Kevin J Thompson Group Finance Director
John S Campbell Resistors
Keith J Roy Water and Gas
William J Seymour Elevator and Door Safety
Andrew J Williams Optics
Adam J Meyers Fluid Technology
Nigel J B Trodd Process Safety
Andrew J Richardson Water Management
RegisteredOffice Misbourne Court Rectory Way
Amersham Bucks HP7 0DE
Telephone: +44 (0)1494 721111
Fax: +44 (0)1494 728032
Website: www.halma.com
RegisteredNumber 40932
Auditors Deloitte & Touche LLP
Abbots House Abbey Street
Reading Berks RG1 3BD
Bankers The Royal Bank of Scotland plc
15 Bishopsgate
London EC2P 2AP
FinancialAdvisers Lazard Brothers & Co., Limited
50 Stratton Street
London W1J 8LL
BrokersandJoint
FinancialAdvisers
Dresdner Kleinwort Wasserstein Limited
20 Fenchurch Street
London EC3P 3DB
Solicitors CMS Cameron McKenna
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
Directors and Advisers HALMA
Halma p.l.c. 2004 27 1 GeoffUnwin
(aged 61) is non-executive Chairman of the Halma Group
and serves on the Audit Committee, Remuneration
Committee and the Nomination Committee (Chairman).
He was appointed Deputy Chairman and Chairman Elect in
September2002andChairmaninJuly2003.HeisChairman
of United Business Media plc, Trigenix Limited and
Liberata plc and a non-voting board director of Capgemini
Group. He is also an advisory Board member of Hartwell plc
and Palamon Capital Partners LLP.
3 StephenPettit
(aged 53) was appointed a non-executive Director of Halma
in September 2003 and serves on the Audit Committee and
RemunerationCommittee. He is a non-executive Director of
Norwood Systems, National Grid Transco plc, National Air
Traffic Services and KBC Advanced Technologies plc.
5 AndrewWilliams
(aged37)isChiefExecutiveoftheOpticsDivision.Hejoined
Halma in1994 asManufacturing Directorof Reten Acoustics
(nowPalmerEnvironmental)andbecameManagingDirector
of that company in 1997. He was appointed Assistant
Divisional Chief Executive of the Optics and Water
Instrumentation Division in 2001 and became Divisional
Chief Executive of that division and a member of the
Executive Board in 2002. Andrew is a Chartered Engineer
and a production engineering graduate of Birmingham
University.
7 CarolChesney
(aged 41) is Company Secretary of Halma p.l.c. She spent
three years with English China Clays p.l.c. before joining
Halma in 1995 as Group Finance Manager. Carol was
appointed Company Secretary in 1998. She is a maths
graduate of Randolph-Macon Woman’s College, Virginia and
qualified as a Chartered Accountant with Arthur Andersen.
9 BillSeymour
(aged44)isChiefExecutiveof theElevatorandDoorSafety
Division. He joined Halma on the acquisition of Janus
Elevator Products in December 1990 and became Vice
President of that company in 1991. In 1993 he was
appointed Joint President of Janus and in 1999 became an
Assistant Divisional Chief Executive. In 2000 Bill was
appointed Divisional Chief Executive of the Elevator
Electronics Division and a member of the Executive Board.
He is an electrical engineering graduate of Limerick College
of Technology.
11 AndrewWalker
(aged 52) was appointed a non-executive Director of Halma
inMay2003andservesontheAuditCommittee(Chairman)
and Remuneration Committee. He is a non-executive
DirectorofUltraElectronicsHoldingsplc,ManganeseBronze
plc and API Group plc.
13 AndrewRichardson
(aged 39) is Chief Executive of the Water Management
Division. He joined Halma in April 2004 and is a member of
the Executive Board. Andrew is an engineering graduate of
Cambridge University. Prior to joining Halma he was
Divisional Managing Director of the Clutch Division for the
Automotive Products Group.
15 RichardStone
(aged 61) was appointed a non-executive Director of Halma
in January 2001. He serves on the Audit Committee,
Remuneration Committee (Chairman) and Nomination
Committee and is the Senior Independent Director. He is
Chairman of Shearings Group Limited and CSW Group
Limited, a non-executive Director of British Nuclear Fuels
plc, Gartmore Global Trust p.l.c., Trust Union Finance
(1991)plc,EngandscotLimitedandTRPropertyInvestment
Trust plc.
2 StephenO’Shea
(aged 58) is Chief Executive of the Halma Group. He was
one of the founders of Apollo Fire Detectors Limited in 1980
andwasManagingDirectorwhenitjoinedtheGroupin1983.
He joined the Halma p.l.c. Board in 1990 and became a
DivisionalChiefExecutivein1992.HewasappointedDeputy
Chief Executive in 1994 and Chief Executive in 1995.
4 KevinThompson
(aged44) is FinanceDirectorof the HalmaGroup.He joined
theGroupin1987asGroupFinancialControllerandin1995
was appointed to the Executive Board as Finance Director.
In1997hebecame GroupFinanceDirector andin1998was
appointed to the Halma p.l.c. Board. An economics and
accounting graduate of Bristol University, Kevin qualified as
a Chartered Accountant with Price Waterhouse.
6 NigelYoung
(aged 54) is Chief Executive of the Specialist Products
Division. He joined Halma as Managing Director of Fortress
Interlocks Limited when the company joined the Group in
1987. Nigel was appointed Assistant Divisional Chief
Executive in 1990 and took up his current position as
Divisional Chief Executive in 1992. He was appointed to the
Executive Board in 1994. He has an MBA from Aston
University.
8 AdamMeyers
(aged42)isChiefExecutiveoftheFluidTechnologyDivision.
HejoinedHalmain1996asPresidentofBio-ChemValveInc.
He was appointed Assistant Divisional Chief Executive in
April 2001 and became Divisional Chief Executive of the
newlyformedFluidTechnologyDivisionandamemberofthe
Executive Board in April 2003. He is a systems engineering
graduate of the University of Pennsylvania and gained his
MBA from Harvard Business School.
10 NeilQuinn
(aged 54) is Chief Executive of the Fire Division. He joined
the Group as Sales Director of Apollo Fire Detectors Limited
in 1987, becoming Managing Director in 1992. In 1994 he
was appointed Chief Executive of the Fire Detection Division
andwasappointedtotheHalmap.l.c.Boardin1998.Heisa
material science graduate from Sheffield University.
12 KeithRoy
(aged 54) is Chief Executive of the Water and Gas Division.
HejoinedHalmahavingbeenjointownerofRetenAcoustics
when Halma acquired it in 1992 and was appointed
Managing Director and subsequently Chairman of Palmer
Environmental Limited. He became an Assistant Divisional
Chief Executive in 1998. In 2000 Keith was appointed
Divisional Chief Executive of the Water Technology Division
and was appointed to the Halma p.l.c. Board in 2001. He is
an electronic engineering graduate of both Nottingham
University (BSc) and Aston University (MSc).
14 JohnCampbell
(aged 45) joined the Group in 1995 as President of IPC
Resistors Inc. and became Chief Executive of the Resistors
Division upon its formation in 1998 and a member of the
Executive Board. He is an electrical engineering graduate of
the University of Toronto and before joining Halma was a
senior sales and marketing executive within the Industrial
Power Group of Rolls-Royce p.l.c.
16 NigelTrodd
(aged 46) is Chief Executive of the Process Safety Division.
He joined Halma in July 2003 and is a member of the
Executive Board. Prior to joining Halma he was V.P. Europe,
Middle East and Africa for Tyco Suppression Systems based
in Frankfurt. Nigel is a business studies graduate of Thames
ValleyUniversityandisamemberoftheCharteredInstitute
of Marketing.
Halma Management Team HALMA
Halma p.l.c. 2004 28 2
1
3
4
5
6
10
8
9
7
11
12
15
13
16
14
Halma p.l.c. 2004 29 The Directors present their annual report on the affairs of the Group, together with
the Accounts and the Independent Auditors’ Report, for the 53 weeks to 3 April
2004.
Activities Halma p.l.c. is a holding company. A list of its principal subsidiary companies and
their activities is set out on pages 78 and 79.
Resultsoftheperiod TheConsolidatedProfitandLossAccountforthe53weeksto3April2004issetout
onpage48.TheGroupprofitbeforetaxation,goodwillamortisationandexceptional
items is £50,284,000 (2003: £46,508,000). The profit after taxation, goodwill
amortisationandexceptionalitemsamountsto£22,322,000(2003:£28,359,000).
Ordinarydividends The Directors will submit a resolution at the Annual General Meeting proposing a
final dividend of 3.75p per share and if approved this dividend will be paid on
23August2004toordinaryshareholdersontheregister atthecloseofbusiness on
23 July 2004. Together with the interim dividend of 2.44p per share already paid,
this will make a total of 6.19p per share for the financial year.
Review Areviewofactivitiestogetherwithbusinessandfuturedevelopmentsisincludedon
pages 7 to 25 inclusive.
Sharecapital Details of share capital issued in the financial year are set out in note 19 on the
Accounts.
Allotmentauthority 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
DirectorsauthorityuntilthedateofthenextAnnualGeneralMeeting,firstlytoissue
sharestoemployeesundershareschemespreviouslyapprovedingeneralmeeting,
and secondly, to allot up to 5% of the issued ordinary share capital for cash
otherwise than pro-rata to existing shareholders.
ArticlesofAssociation InaccordancewiththeElectronicCommunicationsAct2000andinaccordancewith
the Institute of Chartered Secretaries and Administrators’ recommendations, the
CompanyisproposingtoamenditsArticlestoallowittheflexibilitytointroducethe
useofelectroniccommunicationsincircumstanceswheretheDirectorsthinkfitand
where agreed between the members and the Company. This includes the use of
electroniccommunicationsforproxyvoting(Articles85to90)andforthesendingof
noticestoanaddressnotifiedbythememberforthatpurposeorthepostingofsuch
noticesonawebsitewithcorrespondingnotificationtothemembers(Articles150to
156). There are also consequential amendments in relation to the deemed date of
delivery of an e-mail (Article 155).
TheamendedArticlesalsoallowforminorchangestotheconductofmeetingsofthe
Boardandtotheappointmentofdirectorsandalternatedirectors(Articles101,109,
119 and 123). There are also amendments in relation to: the definitions and
interpretations of words and phrases (Article 2); the method of consent for a
variationofclassrights(Article11.1);theeffectsofomissiontosendornon-receipt
of a notice (Article 59); amendments to resolutions (Article 69); votes of incapable
members (Article 81); and the authentication of documents (Article 130).
Report of the Directors HALMA
Halma p.l.c. 2004 30 It is the Board’s intention, with the personal consent of each member, to gradually
introduce electronic communications with members upon the adoption of the
amended Articles of Association.
Copies of the proposed new Articles of Association and interlined copies of the
current Articles of Association are available for inspection at CMS Cameron
McKenna, Mitre House, 160 Aldersgate Street, London EC1A 4DD until the close of
theAnnualGeneralMeetingandwillalsobeavailableatTheBallroom,TheBerkeley
Hotel, Wilton Place, London SW1X 7RL for fifteen minutes preceding, and then
during, the Annual General Meeting.
Purchaseofownshares TheCompanywasauthorisedatthe2003AnnualGeneralMeetingtopurchaseupto
36,000,000(approximately10%)ofitsown10pordinarysharesinthemarket.This
authorityexpiresattheendofthe2004AnnualGeneralMeeting.Inaccordancewith
the Directors’ stated intention to seek annual renewal, a special resolution will be
proposed at theAnnual General Meeting to renew this authority until the endof the
nextAnnualGeneralMeeting.TheDirectorsconsideritdesirablethatthepossibility
of making such purchases, under appropriate circumstances, is available. The
Directorshavenopresentintentionofusingthisauthority.Inreachingadecisionto
purchaseshares,theDirectorswilltakeintoaccounttheCompany’scashresources,
capital requirementsandtheeffect ofanypurchaseontheCompany’searnings per
share.Itisanticipatedthatrenewaloftheauthoritywillberequestedatsubsequent
Annual General Meetings.
Supplierpaymentpolicy TheCompanydoesnotfollowanyparticularsupplier paymentcodeofpractice.The
Companyhasdueregardtothepaymenttermsofsuppliersandgenerallysettlesall
undisputed accounts within 30 days of the due date for payment. At 3 April 2004
the Company’s trade creditors represented 35 days (2003: 38 days) of annual
purchases.
Employees MatterswhichaffecttheGrouparecommunicatedtoemployeesthroughformaland
informal meetings, internal announcements, theGroup Intranet, the Group bulletin
boardonoursecureVirtualPrivateNetwork(VPN)andregularcontactwithDirectors
and Divisional Chief Executives.
An employee share scheme is open to all UK employees of the Group following a
qualifying period and has been operating since 1980.
The Company is an equal opportunity employer with particular reference to
non-discrimination and non-harassment on the basis of ethnic origin, religion,
gender, age, disability and sexual orientation. Halma gives disabled people the
same consideration as other individuals.
Directors’remuneration The Directors consider it appropriate that shareholders be given the opportunity to
approve theremunerationofDirectors assetoutintheReporton Remunerationon
pages 40 to 45. The special business of the Annual General Meeting contains an
ordinary resolution seeking such shareholder approval.
Corporateresponsibility The Group’s Corporate Responsibility report is set out on pages 33 to 35.
Researchand
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.
Report of the Directors continued
HALMA
Halma p.l.c. 2004 31 Donations Group companies made charitable donations amounting to £9,923 (2003: £1,308)
during the financial year. There were no political donations (2003: £nil).
Directors TheDirectorsoftheCompanyarelistedonpage27.Briefbiographiesaresetouton
page 28.
Mr A J Walker was appointed to the Board as a non-executive Director on 8 May
2003.
Mr D S Barber retired from service with the Group and resigned as Chairman of the
Board immediately after the 2003 Annual General Meeting on 29 July 2003.
Following the resignation of Mr Barber, Mr E G Unwin, who was appointed Deputy
Chairman (Chairman Elect) on 2 September 2002, was appointed Chairman of the
Board with effect from the close of the 2003 Annual General Meeting.
Mr S R Pettit was appointed to the Board as a non-executive Director on
16 September 2003.
Lord McGowan, who joined the Board in 1997, died on 7 May 2003.
Directorsproposed
forre-election
MrRAStone,MrKJRoyandMrSRO’Shearetirebyrotationandbeingeligibleoffer
themselves for re-election.
Mr S R Pettit, who joined the Board since the last Annual General Meeting, retires
under Clause 95 of the Articles of Association and being eligible offers himself for
re-election.
Shareholdings As at 11 June 2004 the Company has been notified under Section 198 of the
Companies Act 1985 of the following notifiable holdings of the Company’s ordinary
shares:
shares per cent
Silchester International Investors Limited 65,511,005 17.8
Sprucegrove Investment Management Limited 25,267,545 6.8
Legal & General Investment Management Limited 12,320,633 3.3
Noothernotification hasbeenreceivedinrespectofaholdingof3%or moreofthe
Company’s ordinary share capital.
Auditors ResolutionswillbeproposedattheAnnualGeneralMeetingtore-appointDeloitte&
Touche LLP as Auditors and to authorise the Directors to determine their
remuneration.
By Order of the Board
C T Chesney Secretary
Misbourne Court Rectory Way Amersham Bucks HP7 0DE
22 June 2004
Report of the Directors continued
HALMA
Halma p.l.c. 2004 32 Sociallyresponsible
investment
Investing in Halma shares meets the criteria of many professional and private
investors who base their decisions on environmental, ethical and social
considerations. The Group is a world leader in several key environmental
technologies and has a reputation for honesty and integrity in its relationships
with employees, customers and business partners.
Social conditions can be improved for all through the creation of wealth. Halma
creates wealth responsibly allowing our employees, customers, business partners
and shareholders to determine where this wealth is best distributed.
In each of the following areas, the regulatory demands upon us vary considerably
around the world, so Halma establishes the core structure to ensure that Group
companiesfullycomplywithregulatoryrequirementswhilepermittingthemtotailor
the solutions to their particular needs.
Theenvironment 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.
Ourproducts
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 and UV water treatment. We
tirelesslypromotetheuseofUVwatersterilisationwhicheliminatestheneedtouse
dangerous chemicals, as well as products that minimise the waste of clean water.
Our commitment to the development of equipment for measuring environmental
changes and controlling the damaging impact of industrial activities is long-term.
For example, Palmer Environmental’s Permalog
 is an acoustic leak noise logger
which transmits leakage information to a radio receiver to enable leaks in water
supplypipestobelocatedforpromptrepairtherebyreducingthelossofcleanwater.
Atmospheric levels of highly flammable hydrogen can be precisely monitored in
locations such as laboratories, refineries, battery rooms and fuel cell facilities with
Crowcon’s TXgard-IS+.
We make safety equipment for use at work, in public places and in transportation
systems that contribute to increased personal safety by ensuring safe practice at
work, protecting people from fire and making elevators and automatic doors safe
andeffective.Wearethemajorworldsupplierinseveraloftheseareas.VolkOptical
has developed a new autoclavable vitrectomy lens for use in retinal surgery which
means that ethylene oxide gas is not required for sterilisation.
Environmentalpolicy
The Group’s policy on environmental issues is published on our website and has
been distributed and explained to all Halma business units.
Asenior executive ineachofour business unitsis responsible forimplementing the
environmental policy at local level. The Group Finance Director, Mr K J Thompson,
has principal responsibility for coordinating and monitoring the policy.
During the past year, Perma
PureLLCelectedtopurchase
a state-of-the-art extrusion
system for precision tubing
to replace its existing
extruder. Perma Pure
anticipated that the new
extruder would reduce
consumptionofanexpensive
fluoropolymer Nafion
 ,
which it uses as a key
component, by reducing
rejected material and
permitting extrusion of finer
walled tubing, saving
materialaswell. Sixmonths
after installing the new
extruder at a cost of
$250,000, Perma Pure has
already observed not only
increased production
capacity but also a
considerable reduction in
rejected material,
amounting to more than
$50,000 per annum.
Additional savings are
anticipated as the
dimensions of the extruded
tubing are refined to benefit
from the narrow tolerances
of the new extruder.
Corporate Responsibility Report HALMA
Halma p.l.c. 2004 33 Environmentalmanagementsystem
Wearecommitted todeveloping andimplementinganenvironmentalmanagement
system (‘EMS’) throughout the Group to measure, control and, where practical,
reduce our environmental impacts. We are developing performance indicators that
willassistlocalmanagementinimplementingthepolicyanddevelopinganEMS.The
requirement for an EMS and the related reporting has been rolled out to all UK
business units, which represent over 50% of Group production facilities in terms of
external turnover. All Group companies are encouraged to undertake ISO 14001,
the international environmental standard, accreditation where warranted. The
requirement to implement an EMS will be extended to the rest of the Group in the
medium term.
None of the UK Group companies has incurred a Health and Safety Executive fine,
receivedanotificationofabreachorbeenprosecutedduringtheyearunderreview.
Equivalent information is not currently collected for the rest of the world.
Ourimpacts
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.
TheGroupissponsoringanInnovationInitiativewhichencouragestheresearchand
development teams at each Group company to re-examine their product designs
with a view to being more efficient and effective using components which are more
environmentally acceptable.
Group companies are encouraged to improve energy efficiency, reduce waste and
emissions and to reduce the use of materials in order to reduce our environmental
impact. The Group is carrying out an audit in 2004/05 to establish baseline data on
emissions to air and water, water and energy consumption and waste production.
The data collected will enable the Group to set objectives for reducing its
environmental impacts in those areas and to look at setting targets for reduction
in key areas. The Group plans to report shortly on CO
2
emission and water
consumption as well as waste disposal.
The baseline data is expected to confirm that the main areas of impact on the
environment are energy consumption and waste disposal. The Group does not
operate a fleet of distribution vehicles although we do own a number of company
cars.Fewofourassemblyprocessesrequirewater,sotherearenotlargequantities
of waste water to manage.
Afterthe2004/05datacollectionexerciseiscompletedandtargetshavebeensetin
key areas of environmental impact, the Group is committed to examining the
establishment of green procurement policies.
The Group’s environmental performance will continue to be reported in both the
Annual Report and on our website.
Demonstrating the Group’s
commitment to ensure all
companies comply with
applicable regulations,
Apollo Fire Detectors Limited
isworkingoncomplyingwith
the requirements of the
Restriction of Hazardous
Substances Directive
removing cadmium,
chromium, mercury and
certain flame-retardants
from their products even
though fire detectors are
currently exempt from the
EU legislation. Apollo has
also commenced its
compliance plan for the
Waste Electrical and
Electronic Equipment
Directive that comes into
force in August 2005.
Across the Group we also
operate programmes, where
commercially viable, to
ensure the responsible
disposal of packaging,
including the re-use and
recycling of all packaging
types and, where necessary,
the use of licensed
contractors to dispose of
non-recyclable waste
packaging safely. In
addition, the use of
biodegradable packaging
materialis ontheincreasein
Group companies. One
Group company, Memco
Limited has invested in a
cardboard compactor, which
reduces the volume of their
cardboard waste
considerably. The waste is
now collected, free of
charge, by a local company
who recycles the cardboard.
Corporate Responsibility Report continued
HALMA
Halma p.l.c. 2004 34 Healthandsafety TheGrouprecognisesthenecessityofsafeguardingthehealthandsafetyofourown
employees whilst at work and operates so as to provide a safe and comfortable
workingenvironmentforemployees,visitorsandthepublic.TheGrouphasahealth
andsafetypolicy,whichissetoutontheCompany’swebsite.ItistheGroup’spolicy
to manage its activities to avoid causing any unnecessary or unacceptable risks to
health and safety. The policy is understood by all Group companies. Given the
autonomous structure of the Group, operational responsibility for compliance with
relevant local health and safety regulations is delegated to the board of directors of
each Group company. Health and safety training is carried out within companies as
appropriate and we intend to commence collecting data on accident rates with a
view to publishing them in the medium term. Adequate internal reporting exists in
orderthattheGroupFinanceDirectormaymonitoreachcompany’scompliancewith
this policy.
Ethics Halma encourages its employees to act fairly in their dealings with fellow
employees, customers, suppliers and business partners. Our suppliers are of high
quality and operate to acceptable international standards. Halma operates a
confidential ‘‘whistleblowing’’ policy, which enables all Group employees to raise
any concerns they may have.
FTSE4Goodindex HalmawasdesignatedamemberoftheFTSE4GoodUKindexonitsestablishmentin
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.
Corporate Responsibility Report continued
HALMA
Halma p.l.c. 2004 35 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
accordancewiththePrinciples ofGoodGovernanceandtheCodeProvisions setout
in Section 1 of the Combined Code on Corporate Governance (‘‘the Combined
Code’’) issued by the Financial Services Authority in June 1998.
Applicationofthe
principlesofgood
governance
The Group is controlled and directed by a Board consisting of a non-executive
Chairman, four executive Directors and three other non-executive Directors. Their
biographies appear on page 28. The Board considers each of the non-executive
Directorstobeindependent.TheBoardrecognises thattherevisedCombinedCode
considersthatanon-executivedirectorceasestobeindependentuponappointment
aschairman,howevertheBoardbelievesthatMrUnwin’sChairmanshipoftheBoard
does not interfere with his independence as regards, in particular, membership of
the Audit and Remuneration Committees. In assessing independence, the Board
considers that the Chairman and non-executive Directors are independent of
management and free from business and other relationships which could interfere
with the exercise of independent judgement now and in the future. The Board
believes that any shareholdings of non-executive Directors serve to align their
interests with those of all shareholders. Mr Stone is acknowledged as the Senior
Independent Director. Upon appointment and at regular intervals, all Directors are
offered appropriate training. Each Director is subject to re-election at least every
three years.
The Directors retain responsibility for the formulation of corporate strategy,
investment decisions, and treasury and risk management policies. There is a
formalscheduleofmattersreservedfortheBoard’sdecisionandtheBoardmeetsat
least eight times each year with further ad hoc meetings as required. Directors are
issued an agenda and comprehensive board papers in the week preceding each
BoardMeeting.AllDirectorshaveaccesstotheadviceandservicesoftheCompany
Secretary as well as there being an agreed procedure for obtaining independent
professional advice.
Mr Stone chairs the Remuneration Committee of which each of the non-executive
Directors is a member. Mr Walker and Mr Pettit joined the Committee during the
year. Mr Barber was a member until his retirement in July 2003 and Lord McGowan
remained a member until his death in May 2003. Formal terms of reference exist
which follow the recommendations of the Combined Code and are available on
request from the Company Secretary. The Committee makes recommendations to
the Board on the framework for executive Directors’ and senior executives’
remuneration based on proposals formulated by the Group Chief Executive. The
Committee meets at least twice per year.
FollowingLordMcGowan’sdeath,MrUnwinchairedtheAuditCommittee.InOctober
2003, Mr Walker assumed the Chairmanship of the Audit Committee. Each of the
non-executive Directors is a member of the Committee. Formal terms of reference
existwhichfollowtherecommendationsoftheCombinedCodeandareavailableon
request from the Company Secretary. The Committee reviews the interim and
annual accounts, the statement on internal controls and is responsible for the
relationship with the external auditors. The Group Chief Executive, Group Finance
Director and representatives from the Auditors attend Committee meetings by
invitation in order to provide appropriate advice. The Committee meets at least
three times per year.
Mr Barber chaired the Nomination Committee until his retirement at which
point Mr Unwin assumed the role of Chairman. Mr Stone and Mr O’Shea are also
members of the Committee. Formal terms of reference exist which follow the
Corporate Governance HALMA
Halma p.l.c. 2004 36 recommendations of the Combined Code and are available on request from the
Company Secretary. The Committee makes recommendations to the Board on the
appointment of new Directors. External search consultancies are retained when
recruiting non-executive Directors. The Committee meets at least annually.
Controlof divisionaloperating mattersis delegated totheExecutiveBoard of which
the Group Chief Executive, Group Finance Director and all of the Divisional Chief
Executives are members. Biographies of Executive Board members appear on
page 28. The Group Chief Executive chairs the Executive Board, which meets
regularly, thereby ensuring the Board’s strategies are communicated to those
overseeing operations.
The Executive Board reviews operational activities, trading results, budgets, policy
matters, investment opportunities, resource allocation and risk exposures. Any
matters arising out of the Executive Board meetings are reported to the Board via
the Group Chief Executive’s report to the Board.
TheGroupChiefExecutiveandGroupFinanceDirectoralsomeetregularlywitheach
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
legislationandregulations,andforinternalreporting.Thesystemofinternalcontrol
exercised within the Group is described below.
Investorrelations In regular meetings with shareholders and analysts the Group Chief Executive and
Group Finance Director communicate the Group’s methods and results. Meetings
include the Annual General Meeting and briefings following the interim and annual
results. The Financial Calendar is set out on page 26.
TheGroupwebsite,www.halma.com,containscopiesorsummariesofallCompany
announcements, summaries of presentations toanalysts, electronic versions of the
latest Annual Report and Accounts, biographical information on key Directors and
Officers,sharepriceinformation,andfullsubsidiarycompanycontactdetailsaswell
as hotlinks to their own websites. The website also contains the facility to request
e-mail alerts relating to announcements made by the Group.
Goingconcern 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.
Internalcontrol TheBoardofDirectorshasoverallresponsibilitytotheshareholdersfortheGroup’s
systemofinternalcontrolandresponsibilityforreviewingitseffectivenesshasbeen
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
internalcontrol(‘‘InternalControl:GuidanceforDirectorsontheCombinedCode’’),
the Board confirms that there is an ongoing process for identifying, evaluating and
managingthesignificantrisksfacedbytheGroup,thatthishasbeeninplaceforthe
yearunderreviewanduptothedateofapprovaloftheAnnualReportandAccounts.
This process has been reviewed by the Board, and the Group accords with the
Turnbull guidance.
Corporate Governance continued
HALMA
Halma p.l.c. 2004 37 The Group’s external auditors, Deloitte & Touche LLP, have audited the financial
statements and have reviewed the internal financial control systems to the extent
they consider necessary to support their audit report.
The Board meets regularly throughout the year and has adopted a schedule of
matters which are required to be brought to it for decision. This procedure is
intended to ensure that the Directors maintain full and effective control over all
significant strategic, financial and organisational issues.
Group companies operate under a system of controls which includes but is not
limited to:
* adefinedorganisationalstructurewithanappropriatedelegationofauthorityto
operational management
* the identification and appraisal of risks both formally, through the annual
process of preparing business plans and budgets, and informally through close
monitoring of operations
* a comprehensive financial reporting system within which actual results are
compared with approved budgets and previous year’s figures on a monthly
basis and reviewed at both local and Group level
* an investment evaluation procedure to ensure an appropriate level of approval
for all capital expenditure
* self-certificationbyoperatingcompanymanagementofcomplianceandcontrol
issues
* a prescribed robust structure under which it is appropriate to adopt means of
electronic communication and to conduct e-commerce.
The processes which the Board has applied in reviewing the effectiveness of the
Group’s system of internal control are summarised below.
* Operating companies carry out a detailed risk assessment each year and
identify mitigating actions in place or proposed for each significant risk. A risk
register is compiled from this information, against which action is monitored
through to resolution. In addition, Divisional Chief Executives carry out an
independent risk assessment for each operating company. A review of Group
risks is also conducted.
* Eachmonththeboardofeachoperatingcompanymeets,discussesandreports
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.
* TheGroupChiefExecutivesubmitsareporttoeachHalmap.l.c.Boardmeeting
whichincludesfinancialinformation,themainfeaturesofGroupoperationsand
an analysis of the significant risks facing the Group at that time.
* Internal controlvisits are carried out by senior financestaff resulting inactions
fedbacktoeachcompanyandfollowedupbyDivisionalFinanceDirectors;visit
reports are coded in terms of risk with any significant control failings reported
directlytotheAuditCommitteeandasummaryofallsuchvisitsreportedtothe
Audit Committee regularly; senior finance staff also carry out financial reviews
ateachoperatingcompanypriortopublicationofhalfyearandyearendfigures.
Corporate Governance continued
HALMA
Halma p.l.c. 2004 38 * The Group Finance Director and Group Chief Executive report to the Audit
Committee on all aspects of Internal Control for its review. The Board receives
the minutes of the Audit Committee meetings and uses these as a basis for its
annual review of internal control.
As noted above, a programme of internal control visits is conducted. Following its
review of internal control activities in 2004, the Audit Committee has now put in
place procedures for independent reporting of the outcome of these visits to the
Audit Committee. Whilst internal audit is not a separate function within the Group,
the Board anticipates that the procedures now in place will allow it to report in
2004/05 that it has procedures which amount to an internal audit function.
Auditorindependence The Audit Committee has responsibility for reviewing auditor independence and
objectivityannually.Duringtheyear,theCommitteesetdownthe‘‘PolicyonAuditor
Independence and Services provided by the External Auditor’’. This policy states
thattheGroup willonlyusetheappointedexternal auditorfornon-audit servicesin
cases where these services do not conflict with the auditor’s independence. The
policyalsosetsafeelevelabovewhichnon-auditservicesaresubjecttoatendering
process.
Compliancewiththe
codeofbestpractice
The Company complied with the provisions of the Combined Code throughout the
financial year.
Corporate Governance continued
HALMA
Halma p.l.c. 2004 39 The following sections of the Report on Remuneration have been audited: the table
of Directors’ remuneration; pension benefits; Directors’ interests in shares.
Remunerationpolicy The policy on Directors’ Remuneration is to provide the remuneration packages
necessarytoattract,retainandmotivateDirectorsofthequalityrequiredtorunthe
Group successfully, manage the business of the Group and to align the interests of
the Directors with those of the shareholders.
In accordance with rule 12.43A(c) of the Listing Rules of the Financial Services
Authority the Board presents its Report on Remuneration to the shareholders. The
Board confirms that when determining the remuneration policy for executive
Directors for 2003/04 full consideration was given to the Combined Code
appended to the Listing Rules of the Financial Services Authority.
The Remuneration Committee consists entirely of non-executive Directors, the
current members being Mr R A Stone (Chairman of the Committee), Mr E G Unwin,
Mr A J Walker and Mr S R Pettit. Messrs Walker and Pettit were appointed to the
Committee during the past year. Mr D S Barber was a member of the Committee
prior to his retirement and Lord McGowan was a member prior to his death. The
Board has considered and confirmed Mr Stone’s independence following the third
anniversary of his appointment to the Board. The Board has also affirmed its
decision to appoint Mr Unwin to the Committee as the Board believes that his
Chairmanship of the Board does not interfere with his independence as regards
membership of the Committee. Mr Unwin does not take part in discussions
concerning his own remuneration.
The Committee makes recommendations to the Board on the framework for
executive remuneration, based on proposals formulated by the Group Chief
Executive, and determines the terms of service and remuneration of executive
Directors andsenior executives. The Committee’s Terms of Reference are available
from the Company Secretary on request.
Basicsalaryandbenefits Indeterminingrecommendedbasicsalarylevelsforeachindividual,theCommittee
doesnotcurrentlyemployremunerationconsultantsbutusesindependentsurveys,
compiled by New Bridge Street Consultants, IDS and Deloitte & Touche LLP, and
other relevant data to relate remuneration levels to comparable publicly quoted
companies. In assessing the data that the Committee utilises, the Committee
considers the benefits in comparable companies, the Company’s market
capitalisation, the Group’s turnover and the complexity of Group operations in
order to determine each Executive’s basic salary level. Basic salary levels are set in
order to achieve a balance between fixed and variable remuneration.
Shareoptions The Directors have long believed that share option plans are an excellent way to
aligntheinterests ofseniormanagementwiththoseofshareholdersandthatshare
options provide excellent motivation. The Committee recognises the need to
continually assess and evaluate such incentives and therefore has asked Ernst &
YoungLLPtoassistthemindevelopingthenextphaseofincentivearrangementsto
introduce across the Group.
The1990and1996ShareOptionPlanseachprovideforthegrantoftwocategories
of option both of which are subject to performance criteria. The exercise criteria for
these two plans are noted in Note 19 on the Accounts. No further grants may be
made from either of these plans.
Report on Remuneration HALMA
Halma p.l.c. 2004 40 Options under the 1999 Company Share Option Plan have more stringent exercise
criteria than the 1990 and 1996 Share Option Plans. Section ‘A’ options are
exercisable after three years if the Company’s earnings per share growth exceeds
the growth in the Retail Price Index plus 3% per annum. Section ‘B’ options are
exercisableafterfiveyearsiftheCompany’searningspersharegrowthexceedsthe
earningspersharegrowthofallbutthetopquarterofcompanieswhichwerewithin
a peer group at the date of grant of any option.
Thegrantingofoptionsisspreadoverthelifeoftheplan.ExecutiveDirectorsreceive
a triennial award of ‘A’ options, an annual award of ‘B’ options and the possibility of
further ‘A’ options under the Performance Related Bonus Scheme.
Performancerelated
bonusscheme
This scheme, which applies only to executive Directors and Divisional Chief
Executives, is reviewed annually by the Remuneration Committee and approved
by the Board. Without approval of this scheme there is no alternative bonus
arrangement for Directors and Divisional Chief Executives. During 2003/04 the
Remuneration Committee carefully considered existing bonus arrangements and
determined that incentive levels are appropriately set.
InthecaseofaDivisionalChiefExecutiveabonuswouldbeearnediftheprofitofthe
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
eachDivisionasastand-alonegroupofcompanieschargingitwiththecostofcapital
it utilises including the cost of acquisitions.
FortheGroupChiefExecutiveandGroupFinanceDirector,bonusesarebasedonthe
aggregated profit of the Divisions exceeding a target calculated from the profits of
the Divisions for the three preceding financial years.
A pre-determined percentage of the profit improvement is payable in cash and
generallyafurtherpercentageisgrantedintheformofSection‘A’shareoptions.The
percentagepayableincashcommencesatalowlevelformodestgrowthincreasing,
in percentage terms, as performance improves. The maximum cash bonus payable
toanyone Director or Divisional ChiefExecutive is capped at100%of hissalary.
Directors’remuneration
Salaries 2004 2003
and fees Bonus Benefits Total Total
£000 £000 £000 £000 £000
D S Barber 52 – – 52 81
E G Unwin 112 – 12 124 65
S R O’Shea 315 90 24 429 314
C Q Summerhayes –––– 16
Lord McGowan 8––8 22
H M J Ritchie –––– 10
K J Thompson 160 46 9 215 158
N Quinn 160 81 18 259 162
R A Stone 32 – – 32 22
K J Roy 135 2 18 155 143
A J Walker 27 – – 27 –
S R Pettit 16 – – 16 –
AAAAA
1,017 219 81 1,317 993
AAAAA
The fees paid in relation to Mr E G Unwin were paid to Gunwin Limited.
Report on Remuneration continued
HALMA
Halma p.l.c. 2004 41 After inclusion of gains on the exercise of share options, where applicable,
Mr S R O’Shea was the highest paid director in the financial year.
Pensionbenefits The executive Directors participate in the appropriate section of the Halma Group
Pension Plan. This section is a funded, Inland Revenue approved, final salary
occupational pension scheme, which provides a pension equal to the lower of two-
thirds of final pensionable salary and the Inland Revenue maximum pension at
normal pension age (60). Pensionable salary is the greatest salary of the last three
complete tax years immediately before retirement or leaving service. Bonuses and
otherfluctuatingemolumentsandbenefitsinkindarenotpensionable.Thescheme
also provides for life cover of three times pensionable salary, pensions in the event
of early retirement through ill health and dependants’ pensions of one-half of the
member’s prospective pension. Early retirement pensions, possible from age 50
withtheconsentoftheCompanyandtheTrusteesoftheHalmaGroupPensionPlan,
are subject to actuarial reduction. Pensions in payment increase by 3% per annum
forserviceupto5April1997andbypriceinflationthereaftersubjecttoamaximum
of 5%.
Details of the value of individual pension entitlements are shown below.
Accrued Accrued
Years of pension Increase pension
Age at service at 2003 in the year 2004
3.4.04 3.4.04 £000 £000 £000
S R O’Shea 58 28 145 16 165
K J Thompson 44 16 44 6 51
N Quinn 54 16 52 6 60
K J Roy 53 11 23 9 33
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
Transfer in transfer Transfer
value Directors’ value net of value
29.3.03 contributions contributions 3.4.04
£000 £000 £000 £000
S R O’Shea 2,279 25 418 2,722
K J Thompson 363 12 69 444
N Quinn 674 12 126 812
K J Roy 297 10 132 439
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.
Totalshareholderreturn The graph below shows the Company’s total shareholder return performance over
the five years to 3 April 2004 as compared to the FTSE 250 and Engineering &
Machinery indices which have been chosen as the Company is a constituent of both
of these indices. Over the period indicated, the Company’s total shareholder return
was 95% compared to 33% for the FTSE 250 and 8% for the FTSE Engineering &
Machinery sector.
Report on Remuneration continued
HALMA
Halma p.l.c. 2004 42 Atthecommencementofthefive-yearperioddepictedinthegraph,theHalmap.l.c.
ordinarysharepricewas92pandthetotalofdividendsinrespectoftheyearended
3 April 1999 was 3.327p per share. The Halma p.l.c. ordinary share price at 3 April
2004 was 149.25p and the total of dividends in respect of the year then ended was
6.19p per share.
Directors’interestsin
shares
The beneficial interests of Directors and their families in the ordinary shares of the
Company during the financial year were as follows:
Shares Shares
3.4.04 29.3.03
E G Unwin 38,250 38,250
S R O’Shea 258,075 242,482
K J Thompson 49,749 47,786
N Quinn 33,788 25,596
R A Stone 5,000 5,000
K J Roy 744,587 744,587
A J Walker 35,714 –*
S R Pettit 1,000 –*
*as at date of appointment
There are no non-beneficial interests of Directors.
There were no changes in Directors’ interests from 3 April 2004 to 22 June 2004.
The movements in share options during the financial year were as follows:
As at As at
29.3.03 Granted Exercised Lapsed 3.4.04
S R O’Shea 1,458,328 94,030 142,398 – 1,409,960
K J Thompson 579,346 167,164 8,354 – 738,156
N Quinn 731,358 167,164 34,442 – 864,080
K J Roy 436,992 40,299 16,177 – 461,114
ThetotalgainsonoptionsexercisedbyDirectorsduringthefinancialyearamounted
to £39,853. The gains are calculated by deducting the exercise price from the
closingmiddlemarketpriceatthedateofexerciseortheactualgrosssalesproceeds
if appropriate.
Report on Remuneration continued
HALMA
Halma p.l.c. 2004 43 Options granted to Directors during the financial year were at an exercise price of
134p.The closing middle market priceof the Company’s ordinary shares on Friday,
2April2004,thelasttradingdayprecedingthefinancialyearend,was149.25pper
share and the range during the year was 109p to 151.25p.
Details of Directors’ options outstanding at 3 April 2004 are set out in the table
below. The status of the options can be summarised as follows:
1 Exercisable at that date at a price less than 149.25p.
2 Not yet exercisable, will only be exercisable when the performance criteria, set
out above, have been met and have an exercise price per share of less than
149.25p.
3 Not yet exercisable, will only be exercisable when the performance criteria, set
out above, have been met and have an exercise price per share of greater than
149.25p.
Status of Weighted average
options Year of Number of exercise price
(see above) grant shares (p) per share
S R O’Shea 1 1994-99 690,131 126.34
2 1997-00; 2002-03 619,029 132.68
3 2001 100,800 163.50
K J Thompson 1 1994-98 260,206 121.73
2 1997-00; 2002-03 429,550 125.15
3 2001 48,400 163.50
N Quinn 1 1994-99 297,630 120.38
2 1997-00; 2002-03 469,550 123.64
3 2001 96,900 163.50
K J Roy 1 1994-99 169,565 120.78
2 1997-00; 2002-03 236,849 132.61
3 2001 54,700 163.50
All options lapse if not exercised within 10 years from the date of grant.
The Company’s Register of Directors’ Interests, which is open to inspection at the
Registered Office, contains full details of Directors’ shareholdings and share
options.
Servicecontracts It is the Company’s policy that executive Directors should have contracts with an
indefinitetermprovidingforamaximumofoneyear’snotice.Theservicecontractof
MrSRO’Sheahasatwo-yearrollingnoticeperiodwhichreducesmonthlyinthetwo
years preceding normal retirement. At the date of this report, Mr O’Shea’s notice
period is, effectively, 18 months. The Board reviewed this contract term during the
yearandconfirmeditsappropriateness.AllotherexecutiveDirectorshavecontracts
with a notice period of one year. None of the contracts has pre-determined
compensation clauses in the event of early termination. The Board and the
Remuneration Committee confirm that these contracts are appropriate having
regard, amongst other things, to the individuals’ length of service.
Non-executiveDirectors All non-executive Directors have specific terms of engagement and their
remuneration is determined by the Board based on independent surveys of fees
paid to non-executive directors of similar companies. The non-executive Directors
receive a basic fee supplemented by additional fees for membership and/or
chairmanship of the Audit and Remuneration Committees.
Report on Remuneration continued
44 Halma p.l.c. 2004
HALMA The contract in respect of Mr Unwin’s services provides for termination, by either
party, by giving not less than six months’ notice. Mr Unwin’s basic fee for 2003/04
was set at £108,000 per annum excluding Committee membership fees, and he
received a contribution of £1,000 per month towards his office costs.
The other non-executive Directors do not have service contracts.
Non-executive Directors’ fees were last reviewed by the Board of Directors in April
2004.
By Order of the Board
R A Stone Chairman of the Remuneration Committee
Misbourne Court Rectory Way Amersham Bucks HP7 0DE
22 June 2004
Report on Remuneration continued
45 Halma p.l.c. 2004
HALMA United Kingdom Company Law requires the Directors to prepare financial
statements for each financial year which give a true and fair view of the state of
affairs of the Company and the Group as at the end of the financial year and of the
profit or loss for that period.
The Directors have responsibility for ensuring that proper accounting records are
maintained which disclose with reasonable accuracy at any time the financial
position of the Company and the Group and which enable them to ensure that the
financial statements comply with the Companies Act 1985.
The Directors also have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Group and to prevent and
detect fraud and other irregularities and are responsible for the system of internal
control.
TheDirectorsconsiderthat,inpreparingthefinancialstatementsonpages48to73
andthedisclosuresonpages40to45relatingtotheremunerationoftheDirectors,
appropriate accounting policies have been used, which have been consistently
applied and supported by reasonable and prudent judgements and estimates, that
all accounting standards which they consider to be applicable have been followed.
Responsibilities of the Directors
46 Halma p.l.c. 2004
HALMA TotheMembersofHalmap.l.c.
We have audited the consolidated financial statements of Halma p.l.c. for the 53 weeks to 3 April
2004whichcomprisetheConsolidatedProfitandLossAccount,theBalanceSheets,theConsolidated
CashFlowStatement,thestatementofAccountingPoliciesandtherelatedNotesnumbered1to25,
together with the Statement of Total Recognised Gains and Losses and the reconciliation of
MovementsinEquityShareholders’Funds.Thesefinancialstatementshavebeenpreparedunderthe
accountingpoliciessetouttherein.WehavealsoauditedtheinformationinthepartoftheDirectors’
Remuneration Report that is described as having been audited.
This report is made solely to the Company’s members, as a body, in accordance with section 235 of
the Companies Act 1985. Our audit work has been undertaken so that we might state to the
Company’smembersonthosematterswearerequiredtostatetotheminanauditors’reportandfor
nootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilityto
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.
RespectiveresponsibilitiesofDirectorsandAuditors
AsdescribedinthestatementofDirectors’Responsibilities,theCompany’sDirectorsareresponsible
forthepreparationofthefinancialstatementsinaccordancewithapplicableUnitedKingdomlawand
Accounting Standards. They are also responsible for the preparation of the other information
containedintheAnnualReportincludingtheDirectors’RemunerationReport.Ourresponsibilityisto
audit the financial statements and the part of the Directors’ Remuneration Report described as
having been audited in accordance with relevant United Kingdom legal and regulatory requirements
and auditing standards.
We report to you our opinion as to whether the financial statements give a true and fair view and
whether the financial statements and the part of the Directors’ Remuneration Report described as
having been audited have been properly prepared in accordance with the Companies Act 1985. We
also report to you if, in our opinion, the Directors’ Report is not consistent with the financial
statements, if the Company has not kept proper accounting records, if we have not received all the
information and explanations we require for our audit, or if information specified by law regarding
Directors’ remuneration and transactions with the Company and other members of the Group is not
disclosed.
WereviewwhethertheCorporateGovernancestatementreflectstheCompany’scompliancewiththe
seven provisions of the Combined Code specified for our review by the Listing Rules of the Financial
ServicesAuthority,andwereportifitdoesnot.WearenotrequiredtoconsiderwhethertheBoard’s
statementsoninternalcontrolcoverallrisksandcontrols,orformanopinionontheeffectivenessof
the Group’s corporate governance procedures or its risk and control procedures.
WereadtheDirectors’ReportandtheotherinformationcontainedintheAnnualReportfortheabove
period as described in the contents section including the unaudited part of the Directors’
Remuneration Report and consider the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with the financial statements.
Basisofauditopinion
We conducted our audit in accordance with United Kingdom Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements and the part of the Directors’ Remuneration
Reportdescribedashavingbeenaudited.Italsoincludesanassessmentofthesignificantestimates
andjudgementsmadebytheDirectorsinthepreparationofthefinancialstatementsandofwhether
the accounting policies are appropriate to the circumstances of the Company, consistently applied
and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we
considered necessary in order to provide us with sufficient evidence to give reasonable assurance
thatthefinancialstatementsandthepartoftheDirectors’RemunerationReportdescribedashaving
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
informationinthefinancialstatementsandthepartoftheDirectors’RemunerationReportdescribed
as having been audited.
Opinion
In our opinion:
* the financial statements give a true and fair view of the state of affairs of the Company and the
Group as at 3 April 2004 and of the profit of the Group for the 53 week period then ended; and
* the financial statements and part of the Directors’ Remuneration Report described as having
been audited have been properly prepared in accordance with the Companies Act 1985.
Deloitte&ToucheLLP
Chartered Accountants and Registered Auditors
Reading
22 June 2004
Independent Auditors’ Report HALMA
Halma p.l.c. 2004 47
Neither an audit nor a review provides assurance on the maintenance and integrity of the 
website, including controls used to achieve this, and in particular whether any changes 
may have occurred to the financial information since first published. These matters are 
the responsibility of the directors but no control procedures can provide absolute 
assurance in this area. Legislation in the United Kingdom governing the preparation and 
dissemination of financial information differs from legislation in other jurisdictions. 53 weeks to 3 April 2004 52 weeks to 29 March 2003
Before Before
goodwill Goodwill goodwill Goodwill
amortisation amortisation amortisation amortisation
and and and and
exceptional exceptional exceptional exceptional
items items Total items items Total
A
Turnover 1
A
Continuing operations 279,611 – 279,611 254,001 – 254,001
A
Discontinued operations 13,029 – 13,029 13,292 – 13,292
AAAAAAA
292,640 – 292,640 267,293 – 267,293
AAAAAAA
Operatingprofit 3
A
Continuing operations 50,422 (4,209) 46,213 46,023 (3,224) 42,799
A
Discontinued operations (370) (11) (381) 77 (11) 66
A
50,052 (4,220) 45,832 46,100 (3,235) 42,865
AAAAAAA
Exceptionalitems 4
A
Loss on sale of businesses – (3,394) (3,394) –––
A
Associated goodwill – (5,755) (5,755) –––
A
Loss on disposal of
discontinued operations – (9,149) (9,149) –––
AAAAAAA
Profitonordinary
activities beforeinterest
andtaxation 50,052 (13,369) 36,683 46,100 (3,235) 42,865
A
Interest 7 232 – 232 408 – 408
AAAAAAA
Profitonordinary
activities beforetaxation 1 50,284 (13,369) 36,915 46,508 (3,235) 43,273
A
Taxation 8 (15,727) 1,134 (14,593) (15,279) 365 (14,914)
AAAAAAA
Profitforthefinancial
year 34,557 (12,235) 22,322 31,229 (2,870) 28,359
AAAAAAA
Ordinarydividends 9 (22,725) (21,246)
AA A
(Loss)/profittransferred
(from)/toreserves 10 (403) 7,113
AA A
Earningsperordinary
sharebeforegoodwill
amortisationand
exceptionalitems 2 9.44p 8.55p
A
Earningsperordinary
share 2 6.09p 7.76p
A
Dilutedearningsper
ordinaryshare 2 6.09p 7.75p
A
The notes on pages 55 to 73 form part of these Accounts.
Notes
Consolidated Profit and Loss Account £000
Halma p.l.c. 2004 48
HALMA At 3 April At 29 March
2004 2003
A
Fixedassets
A
Intangible assets 11 71,425 76,592
A
Tangible assets 12 47,139 49,883
AAA
118,564 126,475
AAA
Currentassets
A
Stocks 13 31,208 35,186
A
Debtors 14 67,080 73,076
A
Short-term deposits 33,898 14,309
A
Cash at bank and in hand 14,584 13,265
AAA
146,770 135,836
AAA
Creditors:amountsfallingduewithinoneyear
A
Borrowings 15 26,934 27,667
A
Creditors 16 44,394 46,090
A
Current taxation 5,563 5,286
A
Dividends payable 13,762 12,892
AAA
90,653 91,935
AAA
Netcurrentassets 56,117 43,901
AAA
Totalassetslesscurrentliabilities 174,681 170,376
AAA
Creditors:amountsfallingdueafteroneyear 17 1,254 1,665
A
Provisionsforliabilitiesandcharges 18 6,067 5,265
AAA
167,360 163,446
AAA
Capitalandreserves
A
Called up share capital 19 36,677 36,549
A
Share premium account 10 7,768 6,375
A
Capital redemption reserve 10 185 185
A
Profit and loss account 10 122,730 120,337
AAA
Equityshareholders’funds 167,360 163,446
AAA
Approved by the Board of Directors on 22 June 2004
E G Unwin K J Thompson Directors
Notes
Consolidated Balance Sheet £000
Halma p.l.c. 2004 49
HALMA 2004 2003
53 weeks 52 weeks
A
Profitforthefinancialyear 22,322 28,359
AAA
Otherrecognisedgainsandlosses
A
Exchange adjustments (2,799) (2,408)
A
Related corporation tax – 364
AAA
(2,799) (2,044)
AAA
Recognisedgainsandlossesrelatingtotheyear 19,523 26,315
AAA
Movements in Equity Shareholders’ Funds
2004 2003
53 weeks 52 weeks
A
Profitforthefinancialyear 22,322 28,359
A
Dividends (22,725) (21,246)
A AA
(Loss)/profit transferred (from)/to reserves 10 (403) 7,113
A
Total other recognised gains and losses (2,799) (2,044)
A
Net proceeds of shares issued 1,521 820
A
Goodwill transferred to the Consolidated Profit and
Loss Account in respect of businesses sold 5,595 –
A AA
Increase in equity shareholders’ funds 3,914 5,889
A
Equityshareholders’fundsbrought forward 163,446 157,557
AAA
Equityshareholders’fundscarriedforward 167,360 163,446
AAA
Notes
StatementofTotalRecognisedGainsandLosses £000
Halma p.l.c. 2004 50
HALMA 2004 2003
53 weeks 52 weeks
A
Cashflowfromoperatingactivities 22 59,782 60,309
A
Returnoninvestmentsandservicingoffinance
A
Interest received 952 1,280
A
Interest paid (731) (622)
AAA
221 658
AAA
Taxation
A
Current taxation paid (14,093) (15,498)
AAA
Capitalexpenditure
A
Purchase of tangible fixed assets (9,686) (11,257)
A
Sale of tangible fixed assets 1,004 1,872
AAA
(8,682) (9,385)
AAA
Acquisitionsanddisposals
A
Acquisition of businesses 22 (2,947) (49,857)
A
Cash and overdrafts acquired – 2,655
A
Disposal of businesses 4,567 –
AAA
1,620 (47,202)
AAA
Equitydividendspaid (21,855) (20,066)
AAA
16,993 (31,184)
AAA
Managementofliquidresources
A
(Increase)/decrease in short-term deposits 22 (19,662) 20,064
AAA
Financing
A
Issue of ordinary share capital 1,521 820
A
Increase in loans 2,683 13,399
AAA
4,204 14,219
AAA
Increaseincash 22 1,535 3,099
AAA
Notes
Consolidated Cash Flow Statement £000
Halma p.l.c. 2004 51
HALMA At 3 April At 29 March
2004 2003
A
Fixedassets
A
Tangible assets 12 3,136 3,663
A
Investments 20 40,959 42,760
AAA
44,095 46,423
AAA
Currentassets
A
Debtors 14 124,042 119,983
A
Short-term deposits 32,410 14,000
A
Cash at bank and in hand – 57
AAA
156,452 134,040
AAA
Creditors:amountsfallingduewithinoneyear
A
Borrowings 15 26,758 27,506
A
Creditors 16 21,376 17,084
A
Current taxation 1,138 1,462
A
Dividends payable 13,762 12,892
AAA
63,034 58,944
AAA
Netcurrentassets 93,418 75,096
AAA
Totalassetslesscurrentliabilities 137,513 121,519
AAA
Creditors:amountsfallingdueafteroneyear 17 1,157 143
A
Provisionsforliabilitiesandcharges 18 294 534
AAA
136,062 120,842
AAA
Capitalandreserves
A
Called up share capital 19 36,677 36,549
A
Share premium account 10 7,768 6,375
A
Capital redemption reserve 10 185 185
A
Profit and loss account 21 91,432 77,733
AAA
Equityshareholders’funds 136,062 120,842
AAA
Approved by the Board of Directors on 22 June 2004
E G Unwin K J Thompson Directors
Notes
Halma p.l.c. Balance Sheet £000
Halma p.l.c. 2004 52
HALMA Basis of accounting
The accounts set out on pages 48 to 73 are prepared under the historical cost
convention and comply with applicable United Kingdom Accounting Standards. The
principal Group accounting policies have been applied consistently throughout the
current and preceding year and are described below. The accounts also reflect the
transitional requirements of FRS 17 (Retirement Benefits).
Basis of consolidation
The consolidated accounts include the accounts of Halma p.l.c. and its subsidiary
companies made up to 3 April 2004. The results of subsidiary companies acquired
are included from the month of acquisition.
Acquisitions
Fairvaluesareascribedtotangibleassetsandliabilitiesofsubsidiarycompaniesand
businesses atthedates ofacquisitionandtheresultantgoodwill iscapitalised asan
intangibleasset.Priorto28March1998anygoodwillsurplusordeficiencywastaken
to reserves as a matter of accounting policy.
Intangible assets
Goodwill arising on acquisitions after 28 March 1998 is capitalised and is classified
as an intangible asset in the Consolidated Balance Sheet. Goodwill arising on
acquisitions prior to that date was written off to reserves, and would be included in
thedeterminationofprofitorlossarisingfromthesaleorclosureofthebusinessto
which it relates. Capitalised goodwill is amortised through the Consolidated
Profit and Loss Account on a straight line basis over its estimated economic life of
20 years.
Foreign currencies
Transactions inforeign currencyare recorded attherate ofexchangeatthedateof
the transaction unless matched by a forward currency contract. Monetary assets
and liabilities denominated in foreign currencies at the balance sheet date are
reported at the rates prevailing at that date, or, where appropriate, at the forward
currency contract rate. Any gain or loss arising from subsequent exchange rate
movements is included as an exchange gain or loss in the Consolidated Profit and
Loss Account.
NetassetsofoverseassubsidiarycompaniesareexpressedinSterlingattheratesof
exchangerulingattheendofthefinancialyear,andtradingresultsandcashflowsat
the average rates of exchange for the financial year. Exchange gains or losses
arising on these translations, together with those on foreign currency borrowings
which are taken out to hedge the Group’s overseas investments, are taken to
reserves.
Turnover
Turnover represents sales, less returns, by subsidiary companies to external
customers excluding value added tax. Transactions are recorded as sales when
the delivery of products or performance of services takes place in accordance with
the contracted terms of sale.
Investments
Investments are stated at cost less provision for impairment.
AccountingPolicies
Halma p.l.c. 2004 53
HALMA Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less provisions for impairment and
depreciation which, with the exception of freehold land which is not depreciated,
is provided on all tangible fixed assets on the straight line method, each item being
written off over its estimated life. The principal annual rates used for this purpose
are:
Freehold buildings 2%
Leasehold properties -
more than 50 years unexpired 2%
less than 50 years unexpired Period of lease
Plant, machinery and equipment 8% to 20%
Motor vehicles 20%
Short-life tooling 33
1
⁄
3
%
Leases
The costs of operating leases of property and other assets are charged as incurred.
Pensions
The Group makes contributions to various pension schemes, covering the majority
of its employees, which are charged against profits on a systematic and rational
basis over the period during which benefit is derived from the service. Any
differences between this charge and amounts payable to the schemes are recorded
as provisions or prepayments as appropriate.
Research and development
Expenditureonresearchanddevelopmentiswrittenoffinthefinancialyearinwhich
it is incurred.
Stocks
Stocks and work in progress of subsidiary companies are included at the lower of
costandnetrealisablevalue.Costincludestheappropriateproportionofproduction
and other overheads considered by the Directors to be attributable to bringing the
stock to its location and condition at the year end.
Deferred taxation
The Group provides for taxation deferred because of timing differences between
profits as computed for taxation purposes and profits as stated in the accounts, on
an undiscounted basis. Deferred taxation is measured at the average tax rates that
are expected toapply intheperiods inwhich thetiming differences are expected to
reverse, based on tax rates and laws that have been enacted or substantially
enacted by the balance sheet date.
The principal timing differences in the Group accounts arise on the excess of tax
allowances on tangible fixed assets over the corresponding depreciation charged in
theaccounts;andongoodwillarisinginjurisdictionswhereitiseligiblefordeduction
against tax, where it has been charged against reserves in the Group accounts but
would be accounted for through the Consolidated Profit and Loss Account on a sale
or closure of the business to which it relates.
Accounting Policies continued
Halma p.l.c. 2004 54
HALMA 1 Segmentalanalysis
Geographical analysis
By destination By origin
2004 2003 2004 2003
Turnover
United Kingdom 77,534 70,503 159,462 148,902
United States of America 84,047 82,003 87,958 84,724
Europe excluding UK 70,730 58,941 43,690 30,823
Far East and Australasia 28,054 24,385 14,133 10,199
Africa, Near and Middle East 9,944 9,576 – –
Other 9,302 8,593 2,853 2,840
Inter-segmental sales – – (28,485) (23,487)
AAAA
Turnover from continuing operations 279,611 254,001 279,611 254,001
Discontinued operations 13,029 13,292 13,029 13,292
AAAA
Group turnover 292,640 267,293 292,640 267,293
AAAA
Profitbeforetaxation
United Kingdom 26,601 24,691
United States of America 13,617 14,366
Europe excluding UK 7,111 5,228
Other countries 3,093 1,738
AA
Continuing operations 50,422 46,023
Discontinued operations (370) 77
AA
Segmental profit 50,052 46,100
Goodwill amortisation and exceptional items (13,369) (3,235)
Interest 232 408
AA
Profit on ordinary activities before taxation 36,915 43,273
AA
Netassets
United Kingdom 41,348 43,745
United States of America 16,873 22,916
Europe excluding UK 11,494 12,659
Other countries 4,672 4,609
AA
Continuing operations 74,387 83,929
Discontinued operations – 3,018
AA
74,387 86,947
Net cash/(debt) 21,548 (93)
AA
Net tangible assets 95,935 86,854
Intangible assets 71,425 76,592
AA
Equity shareholders’ funds 167,360 163,446
AA
NotesontheAccounts £000
Halma p.l.c. 2004 55
HALMA 1 Segmentalanalysiscontinued
Sector analysis
2004 2003
Turnover
Fire and Gas 74,998 70,026
Water 34,485 33,090
Elevator and Door Safety 65,070 46,308
Process Safety 36,030 35,241
Resistors 27,195 27,493
Optics and Specialist 42,824 42,704
Inter-segmental sales (991) (861)
AA
Turnover from continuing operations 279,611 254,001
Discontinued operations 13,029 13,292
AA
Group turnover 292,640 267,293
AA
Profitbeforetaxation
Fire and Gas 16,621 15,028
Water 5,767 5,517
Elevator and Door Safety 12,102 8,126
Process Safety 6,579 6,753
Resistors 2,218 3,067
Optics and Specialist including holding companies 7,135 7,532
AA
Continuing operations 50,422 46,023
Discontinued operations (370) 77
AA
Segmental profit 50,052 46,100
Goodwill amortisation and exceptional items (13,369) (3,235)
Interest 232 408
AA
Profit on ordinary activities before taxation 36,915 43,273
AA
Netassets
Fire and Gas 19,578 18,239
Water 14,279 14,747
Elevator and Door Safety 16,130 16,416
Process Safety 10,504 11,176
Resistors 7,347 8,483
Optics and Specialist including holding companies 6,549 14,868
AA
Continuing operations 74,387 83,929
Discontinued operations – 3,018
AA
74,387 86,947
Net cash/(debt) 21,548 (93)
AA
Net tangible assets 95,935 86,854
Intangible assets 71,425 76,592
AA
Equity shareholders’ funds 167,360 163,446
AA
AlloftheGroup’slandandbuildings,dividendspayable,taxation(includingprovisionsfordeferredtaxation)
and deferred purchase consideration are included within the net tangible assets of the sector described as
Optics and Specialist including holding companies.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 56
HALMA 2 Earningsperordinaryshare
Earnings per ordinary share on a statutory basis are calculated by dividing the profit for the
financial year of £22,322,000 (2003: £28,359,000) by the weighted average of 366,237,803
shares in issue during the year (2003: 365,411,453).
Dilutedearningsperordinarysharearecalculatedusingthesameearningsasforearningsper
ordinary share, divided by 366,686,599 shares (2003: 365,809,420) which includes dilutive
potential ordinary shares of 448,796 (2003: 397,967). The Company’s dilutive potential
ordinarysharesarecalculatedfromthoseexercisableshareoptionswheretheexercisepriceis
less than the average price of the Company’s ordinary shares during the year.
Earnings per ordinary share before goodwill amortisation and exceptional items as presented
on the Consolidated Profit and Loss Account, represents a more consistent measure of
underlying performance. A reconciliation of earnings and the effect on per share figures is
presented below:
Per ordinary share
2004 2003
2004 2003 p p
Earnings 22,322 28,359 6.09 7.76
Add back: goodwill amortisation (after tax) 3,880 2,870 1.07 0.79
exceptional items (after tax) 8,355 – 2.28 –
AAAA
Earnings before goodwill amortisation
and exceptional items 34,557 31,229 9.44 8.55
AAAA
3 Operatingprofit
2004 2003
Operating profit comprises:
Turnover 292,640 267,293
Cost of sales (205,118) (187,006)
AA
Gross profit 87,522 80,287
Distribution costs (7,545) (6,725)
Administrative expenses (including goodwill amortisation) (34,320) (31,092)
Other operating income 175 395
AA
45,832 42,865
AA
Included in the above are the following amounts related to discontinued operations: cost of
sales £11,679,000 (2003: £11,499,000); gross profit £1,350,000 (2003: £1,793,000);
distribution costs £416,000 (2003: £430,000); administrative expenses £1,315,000 (2003:
£1,297,000) (including goodwill amortisation £11,000 (2003: £11,000)).
NotesontheAccountscontinued £000
Halma p.l.c. 2004 57
HALMA 3 Operatingprofitcontinued
2004 2003
Operating profit is arrived at after charging:
Depreciation 7,879 7,554
Goodwill amortisation 4,220 3,235
Research and development 11,242 9,623
Auditors’ remuneration: Audit services 463 430
Non-audit services 44 3
Operating lease rents property 3,138 3,129
other 300 132
Auditors’ remuneration includes £65,000 (2003: £60,000) in respect of the Company.
4 Exceptionalitems
Exceptional items arose on the sale of the entire share capital of Thames Side-Maywood
Limited, Kerry Ultrasonics Limited and S&P Coil Products Limited in March and April 2004.
Ofthelossondisposalof£9,149,000,£5,755,000relatedtogoodwill,ofwhich£5,595,000had
been previously written off directly to reserves on acquisition. Cash of £4,567,000 has been
received by 3 April 2004 and, after settlement of costs, the net cash inflow on disposal is
expected to be £3,687,000.
5 Employeeinformation
2004 2003
Number Number
The average number of persons employed by the Group during the year was:
United Kingdom 1,788 1,801
Overseas 1,137 992
AA
2,925 2,793
AA
Group employee costs comprise: £000 £000
Wages and salaries 68,207 63,334
Social security costs 10,137 8,485
Other pension costs (note 25) 5,095 3,859
AA
83,439 75,678
AA
6 Directors’remuneration
Details of Directors’ remuneration are set out on pages 40 to 45 within the Report on
Remuneration and form part of these financial statements.
7 Interest
2004 2003
Interest receivable on short-term deposits 995 1,220
Interest payable on bank loans and overdrafts (700) (717)
Other interest (63) (95)
AA
232 408
AA
NotesontheAccountscontinued £000
Halma p.l.c. 2004 58
HALMA 8 Taxation
2004 2003
Current tax
UK corporation tax at 30% (2003: 30%) 7,573 7,114
Overseas taxation 7,434 6,829
Adjustments in respect of prior years (383) 203
AA
Total current tax 14,624 14,146
AA
Deferred tax
Origination and reversal of timing differences (49) 738
Adjustments in respect of prior years 18 30
AA
Total deferred tax (credit)/charge (31) 768
AA
14,593 14,914
AA
Reconciliation of effective tax rate Before goodwill amortisation After goodwill amortisation
on profit on ordinary activities: and exceptional items and exceptional items
2004 2003 2004 2003
% % % %
UK corporation tax rate 30.0 30.0 30.0 30.0
Higher tax rates on overseas profits 2.7 3.3 3.5 3.6
Adjustments in respect of prior years (0.7) 0.5 (1.0) 0.5
Other timing differences (0.7) (0.9) 7.0 0.4
AAAA
Effective tax rate 31.3 32.9 39.5 34.5
AAAA
9 OrdinaryDividends
2004 2003
p p 2004 2003
Interim paid 2.44 2.285 8,945 8,352
Final proposed 3.75 3.527 13,762 12,892
Balance of final dividend – – 18 2
AAAA
6.19 5.812 22,725 21,246
AAAA
Theaccrualforthe2003/04finaldividendtakesintoaccountsharesissuedsince3April2004.
10 Reserves
Share Capital Profit
premium redemption and loss
account reserve account
At 29 March 2003 6,375 185 120,337
Loss transferred from reserves – – (403)
Share options exercised 1,393 – –
Exchange adjustments – – (2,799)
Goodwill transferred to the Consolidated Profit and Loss
Account in respect of businesses sold – – 5,595
AAA
At 3 April 2004 7,768 185 122,730
AAA
NotesontheAccountscontinued £000
Halma p.l.c. 2004 59
HALMA 11 Fixedassets–intangibleassets
Goodwill
Cost
At 29 March 2003 85,602
Adjustments (787)
Disposals (213)
A
At 3 April 2004 84,602
A
Amortisation
At 29 March 2003 9,010
Charge for the year 4,220
Disposals (53)
A
At 3 April 2004 13,177
A
Netbookamounts
At 3 April 2004 71,425
At 29 March 2003 76,592
The adjustments to goodwill comprise revisions to the estimate of contingent deferred
purchase consideration payable in respect of prior years’ acquisitions.
Cumulativegoodwillwrittenoffagainstreservesonacquisitionspriorto28March1998,netof
that attributable to closures and sales, amounts to £70,931,000 (2003: £76,526,000).
12 Fixedassets–tangibleassets
Land and buildings Plant
Freehold Long Short equipment
Group properties leases leases & vehicles Total
Cost
At 29 March 2003 27,503 1,448 2,623 67,090 98,664
Assets of businesses sold (345) – (141) (3,802) (4,288)
Additions at cost 717 – 303 8,666 9,686
Disposals (437) – (82) (5,082) (5,601)
Exchange adjustments (1,032) – (110) (2,500) (3,642)
AAAAA
At 3 April 2004 26,406 1,448 2,593 64,372 94,819
AAAAA
Accumulateddepreciation
At 29 March 2003 4,420 319 1,357 42,685 48,781
Assets of businesses sold (112) – (44) (2,607) (2,763)
Charge for the year 543 31 253 7,052 7,879
Disposals (63) – (59) (4,366) (4,488)
Exchange adjustments (162) – (55) (1,512) (1,729)
AAAAA
At 3 April 2004 4,626 350 1,452 41,252 47,680
AAAAA
Netbookamounts
At 3 April 2004 21,780 1,098 1,141 23,120 47,139
At 29 March 2003 23,083 1,129 1,266 24,405 49,883
NotesontheAccountscontinued £000
Halma p.l.c. 2004 60
HALMA 12 Fixedassets–tangibleassetscontinued
Land and buildings Plant
Freehold Short equipment
Halmap.l.c. properties leases & vehicles Total
Cost
At 29 March 2003 3,778 167 1,012 4,957
Additions at cost 37 – 288 325
Disposals (772) – (116) (888)
AAAA
At 3 April 2004 3,043 167 1,184 4,394
AAAA
Accumulateddepreciation
At 29 March 2003 670 51 573 1,294
Charge for the year 45 6 159 210
Disposals (172) – (74) (246)
AAAA
At 3 April 2004 543 57 658 1,258
AAAA
Netbookamounts
At 3 April 2004 2,500 110 526 3,136
At 29 March 2003 3,108 116 439 3,663
13 Stocks
2004 2003
Raw materials and consumables 15,337 15,231
Work in progress 6,000 8,024
Finished goods and goods for resale 9,871 11,931
AA
31,208 35,186
AA
14 Debtors
Group Halma p.l.c.
2004 2003 2004 2003
Falling due within one year:
Trade debtors 61,772 65,578 – –
Amounts due from Group companies – – 122,857 117,588
Prepayments and accrued income 3,603 3,979 1,096 1,259
Other debtors 1,705 3,519 89 1,136
AAAA
67,080 73,076 124,042 119,983
AAAA
NotesontheAccountscontinued £000
Halma p.l.c. 2004 61
HALMA 15 Borrowings
Group Halma p.l.c.
2004 2003 2004 2003
Falling due within one year:
Unsecured bank loans and overdrafts 26,934 26,584 26,758 26,423
Other unsecured loans – 1,083 – 1,083
AAAA
26,934 27,667 26,758 27,506
AAAA
16 Creditors
Group Halma p.l.c.
2004 2003 2004 2003
Trade creditors 26,971 28,878 428 375
Other taxation and social security 3,574 3,842 1,208 1,197
Amounts owing to Group companies – – 15,163 13,609
Accruals and deferred income 9,089 8,778 1,813 1,144
Other creditors 4,760 4,592 2,764 759
AAAA
44,394 46,090 21,376 17,084
AAAA
17 Creditors:amountsfallingdueafteroneyear
Group Halma p.l.c.
2004 2003 2004 2003
Deferred purchase consideration 159 1,665 62 143
Other creditors 1,095 – 1,095 –
AAAA
1,254 1,665 1,157 143
AAAA
18 Provisionsforliabilitiesandcharges
Group Halma p.l.c.
2004 2003 2004 2003
Deferred taxation 6,067 5,265 294 534
A
Analysis of Group deferred tax provided is as follows:
2004 2003
Accelerated capital allowances 3,098 3,186
Short-term timing differences (2,468) (2,223)
Goodwill timing differences 5,437 4,302
AA
Net deferred tax liability 6,067 5,265
AA
NotesontheAccountscontinued £000
Halma p.l.c. 2004 62
HALMA 18 Provisionsforliabilitiesandchargescontinued
Movement in deferred tax liability
Group Halma p.l.c.
At 29 March 2003 5,265 534
Charge/(credit) to profit and loss account:
UK (821) (240)
Overseas 790 –
Disposals (55) –
Exchange adjustments 888 –
AA
At 3 April 2004 6,067 294
AA
No provision is made for taxation which might become payable if profits retained by overseas
subsidiary companies are distributed as dividends. There are no plans to pay such dividends.
19 Calledupsharecapital
Authorised Issued and fully paid
2004 2003 2004 2003
Ordinary shares of 10p each 43,656 43,656 36,677 36,549
The number of ordinary shares in issue at 3 April 2004 was 366,773,945.
Changes during the year in the issued ordinary share capital were as follows:
Issued and fully paid
At 29 March 2003 36,549
Share options exercised 128
A
At 3 April 2004 36,677
A
The total consideration received in respect of share options exercised amounted to
£1,521,000.
Options in respect of 1,136,639 ordinary shares remained outstanding at 3 April 2004 under
the share option plan approved by shareholders in 1990. Subject to the performance
restrictions on the exercise of options granted under this plan, options are exercisable for
the periods and at the prices set out below:
Number of shares Option price Five years from Seven years from
307,903 122.63p – 130.52p 1997
185,598 111.75p – 126p 1998
52,665 138p – 144.76p 1999
122,200 122.5p – 126.5p 2000
22,200 101.5p – 116.5p 2001
91,600 120p – 137p 2002
167,013 104.24p – 124.88p 1999
178,794 111.75p – 126p 2000
3,866 138.02p 2001
4,800 120p 2004
NotesontheAccountscontinued £000
Halma p.l.c. 2004 63
HALMA 19 Calledupsharecapitalcontinued
Options in respect of 4,348,758 ordinary shares remained outstanding at 3 April 2004 under
the share option plan approved by shareholders in 1996. Subject to the performance
restrictions on the exercise of options granted under this plan, options are exercisable for
the periods and at the prices set out below:
Number of shares Option price Five years from Seven years from
341,594 138p – 144.75p 1999
767,600 122.5p – 138.5p 2000
331,600 101.5p – 123.5p 2001
1,025,800 120p – 137p 2002
302,264 138p – 144.75p 2001
394,200 122.5p – 137p 2002
394,500 101.5p – 123.5p 2003
791,200 120p – 136p 2004
Options in respect of 11,094,816ordinary shares remained outstanding at 3 April 2004 under
the share option plan approved by shareholders in 1999. Subject to the performance
restrictions on the exercise of options granted under this plan, options are exercisable for
the periods and at the prices set out below:
Number of shares Option price Five years from Seven years from
2,035,900 111p 2003
1,205,000 163.5p 2004
1,801,170 132p – 144.33p 2005
2,474,804 134p 2006
906,900 111p 2005
688,600 163.5p 2006
963,671 144.33p 2007
1,018,771 134p 2008
The1990,1996and1999ShareOptionPlansprovideforthegrantoftwocategoriesofoption,
both of which are subject to performance criteria.
SectionAoptionsareexercisableafterthreeyearsiftheCompany’searningspersharegrowth
exceeds,forthe1990Plan,thegrowthintheRetailPriceIndex,for the1996Plan,thegrowth
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
1996Plans,allbutthetopquarterofcompanieswhichwerewithintheFTSE100atthedateof
grant of any option and for the 1999 Plan, all but the top quarter of companies which were
within a peer group at the date of grant of any option.
All options lapse if not exercised within 10 years from the date of grant.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 64
HALMA 20 Investments
SharesinGroupcompanies 2004 2003
At cost less amounts written off at 29 March 2003 42,760 40,119
Additions – 2,641
Disposals (1,801) –
AA
At cost less amounts written off at 3 April 2004 40,959 42,760
AA
The disposals relate to the sale of the whole of the issued share capital of Kerry Ultrasonics
Limited, Thames Side-Maywood Limited and S&P Coil Products Limited, all of which were
incorporated in Great Britain.
Detailsofprincipalsubsidiarycompaniesaresetoutonpages78and79.Allthesesubsidiaries
are wholly owned and, apart from the following, are subsidiaries of Halma p.l.c. and are
incorporated in Great Britain where they principally operate.
Name of company Country of incorporation
Fortress Systems Pty. Limited Australia
*IPC Resistors Inc. Canada
*HF Se ´curite ´S.A.S. France
*Hydreka S.A.S. France
*S.E.R.V. Trayvou Interverrouillage S.A.S. France
*Apollo Gesellschaft fu ¨r Meldetechnologie mbH Germany
*Berson Milieutechniek B.V. The Netherlands
*Bureau D’Electronique Applique ´e S.A. Belgium
*TL Jones Limited New Zealand
*E-Motive Display Pte Limited Singapore
*Halma Holdings Inc. USA
*Air Products and Controls Inc. USA
*Aquionics Inc. USA
*B.E.A. Inc. USA
*Bio-Chem Valve Inc. USA
Diba Industries, Inc. USA
*Electronic Micro Systems Inc. USA
*IPC Power Resistors Inc. USA
*Janus Elevator Products Inc. USA
*Marathon Sensors Inc. USA
*Monitor Controls Inc. USA
*Mosebach Manufacturing Company USA
*Ocean Optics, Inc. USA
*Oklahoma Safety Equipment Co. Inc. USA
*Perma Pure LLC USA
*Post Glover Resistors Inc. USA
*Volk Optical Inc. USA
*Interests held by subsidiary companies.
 Acquired since year end.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 65
HALMA 21 ProfitandlossaccountofHalmap.l.c.
AspermittedbySection230oftheCompaniesAct1985,theProfitandLossAccountofHalma
p.l.c. is not presented as part of these accounts. The movements on that account during the
year were:
2004 2003
At 29 March 2003 77,733 82,041
Profit after taxation 34,094 18,152
Dividends (22,725) (21,246)
Exchange adjustments 2,330 (1,214)
AA
At 3 April 2004 91,432 77,733
AA
22 Consolidatedcashflowstatement
2004 2003
Reconciliationofoperatingprofittonetcashinflowfrom
operatingactivities
Operating profit 45,832 42,865
Depreciation 7,879 7,554
Goodwill amortisation 4,220 3,235
Loss/(profit) on sale of tangible fixed assets 109 (155)
Decrease/(increase) in SSAP 24 pension prepayment 112 (916)
Property sale receivable 1,100 (1,100)
Decrease in stocks 744 3,288
(Increase)/decrease in debtors (1,404) 122
Increase in creditors 1,190 5,416
AA
Net cash inflow from operating activities 59,782 60,309
AA
Included in the Consolidated Cash Flow Statement are the following amounts related to
discontinued operations: net cash inflow from operating activities £270,000 (2003:
£1,073,000); net interest paid £49,000 (2003: £17,000 received); taxation paid £79,000
(2003: £248,000); net capital expenditure £287,000 (2003: £378,000).
The cash outflow of £2,947,000 on the acquisition of businesses relates to the payment of
deferred purchase consideration which arose from acquisitions made in earlier years, and
where provision was made in prior years’ financial statements.
2004 2003
Reconciliationofnetcashflowtomovementinnetcash/(debt)
Increase in cash 1,535 3,099
Increase/(decrease) in liquid resources 19,662 (20,064)
Loan notes issued – (1,083)
Cash inflow from loans (2,683) (13,399)
Exchange adjustments 3,127 744
AA
21,641 (30,703)
Net (debt)/cash brought forward (93) 30,610
AA
Net cash/(debt) carried forward 21,548 (93)
AA
NotesontheAccountscontinued £000
Halma p.l.c. 2004 66
HALMA 22 Consolidatedcashflowstatementcontinued
At Other At
29 March Cash non-cash Exchange 3 April
2003 flow changes adjustments 2004
Analysis of net cash/(debt):
Cash 13,265 1,639 – (320) 14,584
Overdrafts (162) (104) – 8 (258)
A
1,535
Short-term deposits 14,309 19,662 – (73) 33,898
Bank loans (26,422) (3,766) – 3,512 (26,676)
Other unsecured loans (1,083) 1,083 – – –
AAAAA
(93) 18,514 – 3,127 21,548
AAAAA
23 Financialinstruments
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
thesearemainlytomanagethecurrencyrisksarisingfromnormaloperationsanditsfinancing.
Operations are financed mainly through retained profits and in certain geographical locations,
bankborrowings.ForeigncurrencyriskisthemostsignificantaspectfortheGroupinthearea
offinancialinstruments.Itisexposedtoalesserextenttootherriskssuchasinterestraterisk
and liquidity risk. The Board reviews and agrees policies for managing each of these risks and
thesepoliciesaresummarisedbelow.Policieshaveremainedunchangedsincethebeginningof
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.Significantsalesarehedgedatthedateofinvoicingbymeansofmatchedborrowings
and forward currency contracts. Significant purchases are hedged by means of forward
currency contracts.
The Group which is based in the UK and reports in Sterling, has a significant investment in
overseas operations in the USA and Europe, with further investments in Australia, New
Zealand,Canada,Malaysia,SingaporeandChina.Asaresult,theGroup’sbalancesheetcanbe
affectedbymovementsinthesecountries’exchangerates.Wheresignificantandappropriate,
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
SterlingvalueofoverseasprofitsearnedduringtheyearissensitivetothestrengthofSterling,
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.BorrowingsusedtomanageforeigncurrencyriskaredrawnontheGroup’sloanfacilities
and have fixed interest rates with maturities of not more than one year.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 67
HALMA 23 Financialinstrumentscontinued
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-ratedbanks.Forshort-termworkingcapitalpurposes,mostoperatingcompaniesutilise
local bank overdrafts. These practices allow a balance to be maintained between continuity of
funding,securityandflexibility.Becauseofthenatureoftheiruse,thefacilitiesaretypically‘on
demand’ and as such uncommitted. Borrowing facilities, including the Group’s revolving loan
facilities, are typically renewed annually.
Currency exposures
Thetablebelowshowsthe Group’snet foreigncurrencymonetary assetsandliabilities.These
are the assets and liabilities of Group companies which are not denominated in the functional
currencyofthecompanyinvolved.Theycomprisecashandoverdrafts,andcertaindebtorsand
creditors. These foreign currency monetary assets and liabilities give rise to the net currency
gainsandlossesrecognisedintheprofitandlossaccountasaresultofmovementinexchange
rates. As at year end these exposures were as follows:
2004 Net foreign currency monetary assets/(liabilities)
Functional currency
of operation Sterling US Dollar Euro Other Total
Sterling – 747 1,850 (115) 2,482
US Dollar 5 – (3) – 2
Euro (79) 1,509 – 77 1,507
Other 79 1,249 13 (2) 1,339
AAAAA
Total 5 3,505 1,860 (40) 5,330
AAAAA
2003 Net foreign currency monetary assets/(liabilities)
Functional currency
of operation Sterling US Dollar Euro Other Total
Sterling – 1,345 2,593 146 4,084
US Dollar (45) – 19 – (26)
Euro 20 666 – 40 726
Other 129 798 1 53 981
AAAAA
Total 104 2,809 2,613 239 5,765
AAAAA
The amounts shown in the tables above take into account the effect of any forward currency
contracts entered into to manage these currency exposures.
Interest rate risk profile
The Group’s financial assets which are subject to interest rate fluctuations comprise cash
deposits which totalled £33,898,000 at 3 April 2004 (2003: £14,309,000). These comprised
Sterling denominated deposits of £32,531,000 (2003: £14,022,000), US Dollar denominated
deposits of £nil (2003: £58,000), Euro and other currency deposits of £1,367,000 (2003:
£229,000) which are placed on local money markets and earn interest at market rates.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 68
HALMA 23 Financialinstrumentscontinued
The financial liabilities which are subject to interest rate fluctuations are bank loans, bank
overdrafts and certain unsecured loans, which totalled £26,934,000 at 3 April 2004 (2003:
£27,667,000). All are subject to floating rates of interest. These comprise US Dollar
denominated bank loans of £20,218,000 (2003: £19,745,000) which bear interest with
reference to the US Dollar LIBOR rates, US Dollar denominated bank overdrafts of £76,000
(2003: £152,000) which bear interest at rates referenced to US Dollar base rates, Euro
denominatedbankloansof£6,458,000(2003:£6,678,000)whichbearinterestwithreference
to the Euro LIBOR rates, Euro denominated bank overdrafts of £142,000 (2003: £nil) which
bearinterestatratesreferencedtoEurobaseratesandSterlingdenominatedbankoverdrafts
of £40,000 (2003: £9,000) and Sterling loan notes of £nil (2003: £1,083,000) which bear
interest at rates referenced to UK base rates.
Maturity of financial liabilities
With the exception of the deferred purchase consideration and other creditors due after one
year,alloftheGroup’sfinancialliabilitiesmatureinoneyearorlessorondemand.Thetotalof
deferredpurchaseconsiderationdueafteroneyearincludes£44,000(2003:£1,492,000)due
betweenoneandtwoyears,withthebalanceof£115,000(2003:£173,000)duebetweentwo
andfiveyears.Othercreditorsdueaftermorethanoneyearinclude£105,000(2003:£nil)due
between one and two years, £379,000 (2003: £nil) due between two and five years, with the
balance of £611,000 (2003: £nil) due after more than five years.
Borrowing facilities
The Group’s principal source of borrowing facilities is through ‘on demand’ bank overdrafts
which are, by definition, uncommitted. These facilities are generally reviewed on an annual or
ongoing basis and hence the facilities expire within one year or less.
TheGroupalsohascommittedborrowingfacilitieswhichareusedforthepurposeofmanaging
foreign currency risk. At 3 April 2004 committed facilities of this type amounted to
£57,219,000 of which £26,676,000 was drawn down. The borrowing facilities are reviewed
annually, and as such the weighted average maturity of the facilities is less than one year.
Fair values of financial assets and financial liabilities
Asat3April2004therewasnosignificantdifferencebetweenthebookvalueandfairvalue(as
determined by market value) of the Group’s financial assets and liabilities.
Hedging
Asexplainedabove,theGroup’spolicyistohedgesignificantsalesanddenominatedinforeign
currency using forward currency contracts. The gains and losses on these instruments are
recogniseduponrecognitionoftheunderlyingexposure.Theamountsofunrecognisedgainsor
lossesoninstruments usedfor hedging at 3April2004and29 March2003arenotsignificant.
With the exception of currency exposures, the disclosures in this note exclude short-term
debtors and creditors.
24 Commitments
Capital commitments
Capital expenditure authorised and contracted at 3 April 2004 but not provided in these
accounts amounts to £523,000 (2003: £2,101,000).
NotesontheAccountscontinued £000
Halma p.l.c. 2004 69
HALMA 24 Commitmentscontinued
Commitments under operating leases
Annual commitments under non-cancellable operating leases expire as follows:
Land and buildings Other
2004 2003 2004 2003
Within one year 352 380 39 44
Within two to five years 1,482 1,594 193 254
After five years 930 1,229 8 –
AAAA
2,764 3,203 240 298
AAAA
Total annual commitments under non-cancellable operating leases amount to £3,004,000
(2003: £3,501,000).
25Pensions
Groupcompaniesoperatebothdefinedbenefitanddefinedcontributionpensionschemes.The
HalmaGroupPensionPlanandtheApolloPensionandLifeAssurancePlanhavesectionsofthe
defined benefit type with assets held in separate trustee administered funds. During the
previousfinancialyear,bothofthesedefinedbenefitsectionswereclosedtonewentrantsand
a defined contribution section was established within the Halma Group Pension Plan. Defined
contribution schemes are mainly adopted in overseas subsidiaries. Pension contributions for
the Group are paid in accordance with the advice of professionally qualified actuaries.
The total pension cost for the Group was £5,095,000 (2003: £3,859,000) of which £812,000
(2003: £757,000) relates to overseas schemes.
The Halma Group Pension Plan was last assessed as at 1 December 2002, and the Apollo
Pension and Life Assurance Plan as at 1 April 2002, using the projected unit method. The
principal actuarial assumptions adopted in both valuations were firstly that the investment
returnwouldexceedtherateofsalarygrowthby3.25%perannumdependentonthescheme
membershipcategory,andsecondlythatpensionsinthecourseofpaymentwouldincreaseat
2.5%perannumor,forfutureservice,inaccordancewiththerequirementsofthePensionAct
1995.
At 1 December 2002 the market value of the Halma Group Pension Plan’s assets was
£42,533,000.Theactuarialvalueofthescheme’sassetsrepresented69%ofthebenefitsthat
hadaccruedtomembersafterallowingforexpectedfutureincreasesinearnings.Theshortfall
is being addressed by increased company contributions.
At 1 April 2002 the market value of the Apollo Pension and Life Assurance Plan’s assets was
£7,283,000. The actuarial value of the scheme’s assets represented 77% of the benefits that
hadaccruedtomembersafterallowingforexpectedfutureincreasesinearnings.Theshortfall
is being addressed by increased company contributions.
Financial Reporting Standard 17 (Retirement Benefits)
The Group has adopted the transitional provisions of FRS 17 (Retirement Benefits), and the
following third year transitional disclosures are required.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 70
HALMA 25Pensionscontinued
Thefinancialassumptionsusedtocalculateschemeliabilitiesat3April2004underFRS17are:
2004 2003 2002
Rate of increase in salaries 4.25% 4.00% 4.25%
Rate of increase in pensions in payment (pre April 1997) 2.75% 3.00% 3.00%
Rate of increase of pensions in payment (post April 1997) 2.75% 2.50% 2.75%
Discount rate 5.50% 5.50% 6.00%
Inflation assumption 2.75% 2.50% 2.75%
The expected rates of return and the aggregated assets in the UK defined benefit schemes
were:
Expected Expected Expected
rate Market rate Market rate Market
of return value of return value of return value
2004 2004 2003 2003 2002 2002
Equities 7.75% 51,323 7.50% 37,301 8.25% 45,407
Bonds 4.75% 8,349 4.50% 7,569 5.25% 8,128
Property 6.25% 1,755 6.00% 1,704 6.75% 1,609
AAA
Total market value of assets 61,427 46,574 55,144
Present value of scheme
liabilities (102,196) (90,545) (67,705)
AAA
Deficit in schemes (40,769) (43,971) (12,561)
Related deferred tax asset 12,231 13,191 3,768
AAA
(28,538) (30,780) (8,793)
AAA
Analysis of the amount that would have been charged to operating profit under FRS 17 in
respect of the UK defined benefit schemes:
2004 2003
Current service cost 3,160 2,924
Curtailment gain (979) –
AA
Total operating charge 2,181 2,924
AA
Analysis of the amount that would have been (charged)/credited to net finance income under
FRS 17:
2004 2003
Expected return on pension scheme assets 3,377 4,438
Interest on scheme liabilities (5,032) (4,153)
AA
Net finance (cost)/income (1,655) 285
AA
NotesontheAccountscontinued £000
Halma p.l.c. 2004 71
HALMA 25Pensionscontinued
Analysisof theactuarial gain/(loss)that wouldhave beenrecognised inthe statementof total
recognised gains and losses:
2004 2003
Actual return less expected return on scheme assets 7,717 (17,042)
Experience losses arising on scheme liabilities – (3,260)
Changes in assumptions (4,731) (12,427)
AA
Net gain/(loss) recognised 2,986 (32,729)
AA
Movement in deficit during the year:
2004 2003
Deficit at beginning of year (43,971) (12,561)
Current service cost (3,160) (2,924)
Contributions paid 4,052 3,958
Curtailment gain 979 –
Net finance (cost)/income (1,655) 285
Actuarial gain/(loss) 2,986 (32,729)
AA
Deficit at end of year (40,769) (43,971)
AA
History of experience gains/(losses):
2004 2003
Difference between expected and actual return on scheme 7,717 (17,042)
Percentage of scheme assets 13% (37)%
Experience losses on scheme liabilities – (3,260)
Percentage of scheme liabilities –% (4)%
Total actuarial gain/(loss) recognised in the statement of total recognised
gains and losses 2,986 (32,729)
Percentage of scheme liabilities 3% (36)%
NotesontheAccountscontinued £000
Halma p.l.c. 2004 72
HALMA 25Pensionscontinued
If the above amount were recognised in the Accounts, the Group’s net assets and profit and
loss account reserve would be as follows:
2004 2003
Net assets excluding pension liability 167,360 163,446
SSAP 24 pension prepayment (930) (1,042)
SSAP 24 accrual in respect of discontinued operations 1,557 –
Pension liability (28,538) (30,780)
AA
Net assets including pension liability 139,449 131,624
AA
Profit and loss account reserve excluding pension liability 122,730 120,337
SSAP 24 pension prepayment (930) (1,042)
SSAP 24 accrual in respect of discontinued operations 1,557 –
Pension liability (28,538) (30,780)
AA
Profit and loss account reserve including pension liability 94,819 88,515
AA
Other post retirement benefits liabilities are already fully included in net assets.
NotesontheAccountscontinued £000
Halma p.l.c. 2004 73
HALMA Notice is hereby given that the one hundred and tenth Annual General Meeting of
Halma p.l.c. will be held at The Ballroom, The Berkeley Hotel, Wilton Place, London
SW1X 7RL on Wednesday, 4 August 2004 at 12 noon for the following purposes:
Ordinarybusiness
1 To approve the Report of the Directors, the audited part of the Report on
Remuneration and the Accounts for the period of 53 weeks to 3 April 2004.
2 To declare a dividend on the ordinary shares.
3 To re-elect as a Director Mr R A Stone* who retires from the Board by rotation
and being eligible offers himself for re-election.
4 To re-elect as a Director Mr K J Roy who retires from the Board by rotation and
being eligible offers himself for re-election.
5 To re-elect as a Director Mr S R O’Shea who retires from the Board by rotation
and being eligible offers himself for re-election.
6 Tore-electasaDirectorMrSRPettit**whowasappointedinSeptember2003
and who retires in accordance with the Articles of Association.
7 To re-appoint Deloitte & Touche LLP as Auditors.
8 To authorise the Directors to determine the remuneration of the Auditors.
Specialbusiness
To consider, and if thought fit, pass the following ordinary resolution:
9 ThattheReportonRemunerationassetoutonpages40to45oftheReportand
Accounts for the 53 weeks to 3 April 2004 be approved.
To consider, and if thought fit, pass the following special resolutions:
10 ThatthedraftArticlesofAssociationassetoutinthedocumentproducedtothe
meetingand,forthepurposesofidentification,signedbytheChairman,beand
are hereby adopted as the new Articles of Association of the Company.
11 ThattheDirectorsbeandareherebyempoweredpursuanttoSection95ofthe
Companies Act 1985 to allot or to make any offer or agreement to allot equity
securities oftheCompanypursuant totheauthoritycontainedinResolution10
passed at the Company’s Annual General Meeting on 1 August 2002 as if
Section 89(1) of the Companies Act 1985 did not apply to any such allotment,
provided that such power shall be limited to the allotment of equity securities:
(a) pursuanttothetermsofanyshareschemeforemployeesapprovedbythe
Company in general meeting; and
(b) otherwise than pursuant to sub-paragraph (a) above, up to an aggregate
nominal amount of £1,835,000,
and shall expire at the conclusion of the next Annual General Meeting of the
Company, save that the Company may make any offer or agreement before
such expiry which would or might require equity securities to be allotted after
such expiry; and the Directors may allot equity securities in pursuance of any
such offer or agreement notwithstanding that the power conferred hereby has
expired; words and expressions defined in or for the purposes of Section 89 to
96 inclusive of the Companies Act 1985 shall bear the same meanings in this
resolution.
Notice of Meeting
Halma p.l.c. 2004 74
HALMA 12 ThattheCompanybeandisherebygenerallyandunconditionallyauthorisedto
make market purchases (within the meaning of Section 163(3) of the
Companies Act 1985) of ordinary shares of 10p each ("ordinary shares")
provided that:
(a) the maximum number of shares hereby authorised to be acquired is
36,000,000 ordinary shares, having an aggregate nominal value of
£3,600,000;
(b) themaximumpricewhichmaybepaidforanyordinaryshareisanamount
equal to 105 per cent of the average of the middle market quotations for
suchanordinaryshareasderivedfromtheLondonStockExchange’sDaily
Official List for the five business days immediately preceding the day on
which the share is contracted to be purchased and the minimum price
whichmaybepaidforanysuchordinaryshareshallbethenominalvalueof
that share; and
(c) the authority hereby conferred shall expire at the conclusion of the
Company’s next Annual General Meeting (except in relation to the
purchase of ordinary shares the contract for which was concluded before
suchdateandwhichwouldormightbeexecutedwhollyorpartlyaftersuch
date), unless such authority is renewed prior to such time.
Amemberentitledtoattendandvoteatthemeetingisentitledtoappointaproxyor
proxiestoattendandonapoll,voteinsteadofhim. Aproxyneednotbeamember.
A personalised form of proxy is enclosed. By signing and returning the form of
proxy, a shareholder will not be precluded from attending and voting in person
should he subsequently find it possible to be present.
By Order of the Board
C T Chesney Secretary
Misbourne Court Rectory Way Amersham Bucks HP7 0DE
5 July 2004
InaccordancewiththerequirementsoftheCompaniesAct1985,asummaryofany
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
inspectionattheregisteredofficeoftheCompanyfromthedateoftheabovenotice
until 4 August 2004 and at The Berkeley Hotel from 11:45 am on the day of the
meeting until the close of the meeting.
In addition, in accordance with the Listing Rules, copies of the draft Articles of
Association referred to in resolution 10 are available for inspection at the offices of
CMS Cameron McKenna, Mitre House, 160 Aldersgate Street, London EC1A 4DD
from the date of the above notice until the close of the meeting and will also be
available for inspection at the Berkeley Hotel 15 minutes prior to and during the
meeting.
Full biographical information of the Directors proposed for re-election appears on
page 28 of the Report and Accounts.
* denotes non-executive Director and membership of the Remuneration, Audit and Nomination
Committees of the Board
** denotes non-executive Director and membership of the Remuneration and Audit Committees of the
Board
Notice of Meeting continued
Halma p.l.c. 2004 75
HALMA 94/95 95/96 96/97 97/98 98/99 99/00
A
Turnover 153,739 173,652 200,140 213,777 217,758 233,485
A
Overseas sales 90,045 104,432 119,235 126,863 134,189 150,727
A
Profit before taxation,
goodwill amortisation and
exceptional items 29,234 33,619 37,076 42,391 41,823 43,751
A
A
A
Net tangible assets 63,833 77,650 81,209 98,249 102,101 89,755
A
Borrowings 7,096 8,350 3,763 2,784 7,730 14,700
A
Cash and short-term deposits 19,759 27,459 13,447 22,639 29,894 21,900
A
Employees 2,226 2,384 2,677 2,861 2,827 2,975
A
A
A
Earnings per ordinary share
(Note 1) 5.59p 6.44p 7.01p 6.87p 7.91p 6.08p
A
Earnings per ordinary share
before goodwill amortisation
and exceptional items (Note 1) 5.59p 6.44p 7.01p 8.26p 7.99p 8.41p
A
Year on year increase/(decrease)
in earnings per ordinary share
before goodwill amortisation and
exceptional items 16.7% 15.2% 8.9% 17.8% (3.3)% 5.3%
A
Net tangible assets per ordinary
share (Note 1) 17.9p 21.7p 22.5p 27.1p 28.2p 24.9p
A
Year on year increase/(decrease)
in net tangible assets per ordinary
share 14.7% 21.2% 3.7% 20.4% 4.1% (11.7%)
A
Return on sales (Note 2) 19.0% 19.4% 18.5% 19.8% 19.2% 18.7%
A
Return on capital employed
(Note 3) 45.8% 43.3% 45.7% 43.1% 41.0% 48.7%
A
Year on year increase in dividends
per ordinary share 20% 20% 20% 20% 20% 20%
A
Ordinary share price at financial
year end (Note 1) 113p 138p 134p 124p 92p 95p
A
Market capitalisation at financial
year end £401.5m £492.1m £479.2m £447.3m £330.6m £340.1m
A
Notes:
1. Restated for the capitalisation issues made in 1995 and 1997.
2. Return on sales is defined as profit before taxation, goodwill amortisation and exceptional items as a % of turnover.
3. Return on capital employed is defined as profit before taxation, goodwill amortisation and exceptional items expressed as a % of net tangible
assets (being equity shareholders’ funds less intangible assets).
4. Figures prior to 2000/01 have not been restated for the adoption of FRS 19.
Summary 1995 to 2004
Halma p.l.c. 2004 76
HALMA 00/01 01/02 02/03 03/04
A
268,322 267,597 267,293 292,640
A
181,831 183,259 188,161 206,102
A
49,698 48,255 46,508 50,284
A
A
A
99,991 117,515 86,854 95,935
A
7,758 15,047 27,667 26,934
A
21,484 45,657 27,574 48,482
A
3,059 2,859 2,793 2,925
A
A
A
8.91p 8.58p 7.76p 6.09p
A
9.34p 9.10p 8.55p 9.44p
A
11.1% (2.6%) (6.0%) 10.4%
A
27.7p 32.2p 23.8p 26.2p
A
11.2% 16.2% (26.1%) 10.1%
A
18.5% 18.0% 17.4% 17.2%
A
49.7% 41.1% 53.5% 52.4%
A
15% 15% 10% 7%
A
129p 164p 114p 149p
A
£465.7m £598.2m £416.7m £546.5m
A
Earnings per share
(before goodwill amortisation
and exceptional items)
10p
6p
2p
0p
95 98 01 04
Overseas sales
£250m
£150m
£50m
£0m
95 98 01 04
Net tangible assets
per share
35p
25p
15p
5p
0p
95 98 01 04
£000
Halma p.l.c. 2004 77
HALMA Main products
A
Air Products and Controls Inc. Duct detectors and control relays for smoke control systems
A
Apollo Fire Detectors Limited Smoke and heat detectors for commercial fire alarm systems
A
Apollo Gesellschaft fu ¨r Meldetechnologie mbH Smoke and heat detectors for commercial fire alarm systems
A
Aquionics Inc. Ultraviolet light equipment for water sterilisation
A
B.E.A. Inc. Sensors for automatic doors
A
Berson Milieutechniek B.V. Ultraviolet light equipment for treating waste water and process water used in the
manufacture of food and drinks
A
Bio-Chem Valve Inc. Miniature valves, micro pumps and fluid components for medical, life science and scientific
instruments
A
Bureau D’Electronique Applique ´e S.A. Sensors for automatic doors
A
Castell Safety International Limited Safety systems for controlling the use of and access to dangerous machines
A
Cressall Resistors Limited High power electrical resistors
A
Crowcon Detection Instruments Limited Gas detection instruments for personnel and plant safety
A
Diba Industries, Inc. Specialist components and complete fluid transfer subassemblies for medical, life science and
scientific instruments
A
Electronic Micro Systems Inc. Elevator controls and emergency communication systems
A
Elfab Limited Pressure sensitive relief devices to protect process plant
A
E-Motive Display Pte Limited Electronic displays for providing information to elevator passengers
A
Fire Fighting Enterprises Limited Beam smoke detectors and specialist fire extinguishing systems
A
Fortress Interlocks Limited Safety systems for controlling access to dangerous machines
A
Fortress Systems Pty. Limited Machinery and process safety systems and high power electrical resistors
A
Halma Holdings Inc. American holding company
A
Hanovia Limited Ultraviolet light equipment for treating drinking water and water used in the manufacture
of food, drinks, pharmaceuticals and electronic components
A
HF Se ´curite ´S.A.S. Safety systems and high security locks
A
Hydreka S.A.S. Equipment and software for flow analysis of water and sewerage systems and leak
detection systems
A
IPC Power Resistors Inc. High power electrical resistors
A
IPC Resistors Inc. High power electrical resistors and ground fault detection equipment
A
Janus Elevator Products Inc. Infrared safety systems for elevator doors and elevator electronic displays
A
Keeler Limited Ophthalmic instruments for diagnostic assessment of eye conditions
A
Klaxon Signals Limited Audio/visual warning systems for industrial security
A
Marathon Sensors Inc. Sensors and instruments for combustion control and heat treatment processes
A
Memco Limited Infrared safety systems for elevator doors and elevator emergency communications
A
Monitor Controls Inc. Elevator signal fixtures
A
Mosebach Manufacturing Company High power electrical resistors
A
Ocean Optics, Inc. Miniature fibre optic spectrometers for consumer electronics, process control, environmental
monitoring, life sciences and medical diagnostics
A
Oklahoma Safety Equipment Co. Inc. Pressure sensitive relief devices to protect process plant
A
Palintest Limited Instruments for analysing water and measuring environmental pollution
A
Palmer Environmental Limited Instrumentation for quantifying, detecting and controlling leakage in underground water
pipelines
A
Perma Pure LLC Gas dryers and humidifiers for fuel cell, medical, scientific and industrial use
A
Post Glover Resistors Inc. High power electrical resistors
A
Post Glover Lifelink Electrical isolation panels and electrical raceways for hospital, laboratory and
industrial facilities
A
Radcom (Technologies) Limited Instrumentation for recording data, and detecting and controlling leakage, in water
distribution pipelines
A
SEAC Limited Specialist fasteners for the building trade
A
Secomak Limited Industrial heaters, fans, drying systems, heat tunnels, loudspeakers and microphones
A
S.E.R.V. Trayvou Interverrouillage S.A.S. Safety systems for controlling access to dangerous machines
A
Smith Flow Control Limited Process safety systems for petrochemical and industrial applications
A
TL Jones Limited Infrared safety systems for elevator doors
A
Volk Optical Inc. Ophthalmic lenses as aids to diagnosis and surgery
A
Volumatic Limited Cash security and handling from point-of-sale to cash office
A
Halma Group Directory
Halma p.l.c. 2004 78 Location Contact Telephone E-mail Website
A
Pontiac, Michigan Jim Ludwig +1 (1)248 332 3900 info@ap-c.com www.ap-c.cc
A
Havant, Hampshire Michael Hamilton +44 (0)23 9249 2412 enquiries@apollo-fire.co.uk www.apollo-fire.co.uk
A
Gu ¨tersloh, Germany Falk Blo ¨dorn +49 (0)524 133060 info@apollo-feuer.de www.apollo-feuer.de
A
Erlanger, Kentucky John Murta +1 (1)859 341 0710 sales@aquionics.com www.aquionics.com
A
Pittsburgh, Pennsylvania Patrick Mercier +1 (1)412 249 4100 sales@beainc.com www.beainc.com
A
Eindhoven, The Netherlands Sjors van Gaalen +31 (0)40 290 7777 sales@bersonuv.com www.bersonuv.com
A
Boonton, New Jersey George Gaydos +1 (1)973 263 3001 info@bio-chemvalve.com www.bio-chemvalve.com
A
Lie `ge, Belgium PhilipevanGenechten +32 (0)4361 6565 info@bea.be www.beasensors.com
A
Kingsbury, London David Milner +44 (0)20 8200 1200 sales@castell.co.uk www.castell.com
A
Leicester David Boughey +44 (0)116 273 3633 info@cressall.com www.cressall.com
A
Abingdon, Oxfordshire Allan Stamper +44 (0)1235 553057 crowcon@crowcon.com www.crowcon.com
A
Danbury, Connecticut Jack Olich +1(1)203 744 0773 salesdept@dibaind.com www.dibaind.com
A
Hauppauge, New York Mike Ryan +1 (1)631 864 4742 sales@emscomm.com www.emscomm.com
A
North Shields, Tyne & Wear Simon Keenan +44 (0)191 293 1234 sales@elfab.com www.elfab.com
A
Singapore Steven Black +65 6776 4111 sales@emotive.com.sg www.emotive.com.sg
A
Stevenage, Hertfordshire Warren Rees +44 (0)1438 317216 info@ffeuk.com www.ffeuk.com
A
Wolverhampton, West Midlands Mike Golding +44 (0)1902 499600 sales@fortress-interlocks.co.uk www.fortress-interlocks.co.uk
A
Melbourne, Australia David Atkin +61 (0)3 9587 4099 fortress@fortress.com.au www.fortress.com.au
A
Cincinnati, Ohio Steve Sowell +1 (1)513 772 5501 halmaholdings@halmaholdings.com www.halmaholdings.com
A
Slough, Berkshire Jon McClean +44 (0)1753 515300 sales@hanovia.com www.hanovia.com
A
Cluses, France Ge ´rard Denis +33 (0)4 50 98 96 71 hfsecurite@hfsecurite.com www.hfsecurite.com
A
Lyon, France Alain Soulie ´ +33 (0)4 72 53 11 53 hydreka@hydreka.fr www.hydreka.com
A
Erlanger, Kentucky Richard Field +1 (1)859 282 2900 eng@ipcresistors.com www.ipcresistors.com
A
Toronto, Canada Andy Cochran +1 (1)905 673 1553 info@ipc-resistors.com www.ipc-resistors.com
A
Hauppauge, New York Mike Byrne +1 (1)631 864 3699 sales@januselevator.com www.januselevator.com
A
Windsor, Berkshire Mark Lavelle +44 (0)1753 857177 info@keeler.co.uk www.keeler.co.uk
A
Oldham, Lancashire Barry Coughlan +44 (0)161 287 5555 sales@klaxonsignals.com www.klaxonsignals.com
A
Cincinnati, Ohio Eric Boltz +1 (1)513 772 1000 sales@marathonsensors.com www.marathonsensors.com
A
Maidenhead, Berkshire Peter Bailey +44 (0)1628 770734 sales@memco.co.uk www.memco.co.uk
A
Hauppauge, New York John Farella +1 (1)631 543 4334 sales@mcontrols.com www.mcontrols.com
A
Pittsburgh, Pennsylvania Gordon Denny +1 (1)412 220 0200 info@mosebachresistors.com www.mosebachresistors.com
A
Dunedin, Florida Mike Morris +1(1)727 733 2447 info@oceanoptics.com www.oceanoptics.com
A
Broken Arrow, Oklahoma Joe Ragosta +1 (1)918 258 5626 info@oseco.com www.oseco.com
A
Gateshead, Tyne & Wear John Lever +44 (0)191 491 0808 palintest@palintest.com www.palintest.com
A
Cwmbran, South Wales Neil Summers +44 (0)1633 489479 sales@palmer.co.uk www.palmer.co.uk
A
Toms River, New Jersey David Leighty +1 (1)732 244 0010 info@permapure.com www.permapure.com
A
Erlanger, Kentucky John Whincup +1 (1)859 283 0778 sales@postglover.com www.postglover.com
A
Erlanger, Kentucky Judy Kathman +1(1)859 283 5900 sales@postgloverlifelink.com www.postgloverlifelink.com
A
Romsey, Hampshire Mick Merrick +44 (0)1794 528 700 sales@radcom.co.uk www.radcom.co.uk
A
Leicester David Buckley +44 (0)116 273 9501 enquiries@seac.uk.com www.seac.uk.com
A
Stanmore, Middlesex Ian Roffe +44 (0)20 8952 5566 sales@secomak.com www.secomak.com
A
Paris, France Ste ´phane Majerus +33 (0)1 48 18 15 15 enquiries@servtrayvou.com www.servtrayvou.com
A
Witham, Essex Mike D’Anzieri +44 (0)1376 517901 sales@smithflowcontrol www.smithflowcontrol.com
A
Christchurch, New Zealand Chris Stoelhorst +64 (0)3 349 4456 info@tljonesltd.com www.tljonesltd.com
A
Mentor, Ohio Pete Mastores +1 (1)440 942 6161 volk@volk.com www.volk.com
A
Coventry, West Midlands Paul Bonne ´ +44 (0)247 668 4217 info@volumatic.com www.volumatic.com
A
www.halma.com visit the Halma website and register for e-mail news alerts
Halma p.l.c. 2004 79 Pillans&Waddies,Edinburgh.76306 HALMA
Annual Report
& Accounts 2004
HALMA ANNUAL REPORT AND ACCOUNTS 2004
Halma p.l.c.
Misbourne Court
Rectory Way
Amersham
Bucks HP7 0DE
Tel: +44 (0) 1494 721111
Fax: +44 (0) 1494 728032
www.halma.com