Final Results

Halma PLC 21 June 2005 HALMA p.l.c. PRELIMINARY RESULTS FOR THE YEAR TO 2 APRIL 2005 21 JUNE 2005 Halma, the leading safety, health and environmental technology group, today announces its preliminary results for the 52 weeks to 2 April 2005. Highlights include: • Pre-tax profits* of £50.4m marginally exceed last year's record level (2004 - 53 week period: £50.3m). On a statutory basis profit before taxation was £44.9m (2004: £36.9m). • Turnover from ongoing operations up 7% at £299.1m (2004: £279.6m), reflecting an increased contribution from the Group's enlarged Optics and Specialist business. • Healthy margins maintained as Halma consistently delivers strong returns, with ROCE** of 62% and ROTIC*** of 13%. • Strong cash generation with two high quality acquisitions made and no gearing at year end (net cash £12m). • Continuation of progressive dividend policy with an increase of 5%. * Before goodwill amortisation of £5.5m (2004: £4.2m) and exceptional items of £nil (2004: £9.1m) ** Return on capital employed is defined as pre-tax profit* expressed as a percentage of net tangible assets (being equity shareholders' funds less intangible assets) *** Return on total invested capital is defined as profit before goodwill amortisation and exceptional items and after taxation of £34.7m (2004: £34.6m) expressed as a percentage of net assets plus goodwill in reserves of £70.9m (2004: £70.9m) and cumulative goodwill amortisation of £18.7m (2004: £13.2m) Commenting on the results, Andrew Williams, Chief Executive of Halma, said: 'Our ability to maintain strong returns reflects well on our strategy of creating unique, high value products which help our customers become safer, more competitive and more profitable. 'Actions to reposition the Group for higher growth will continue both operationally and structurally. I am looking for greater consistency of performance across the Group to deliver the sustained organic growth which provides valuable returns for shareholders. Having visited all of Halma's subsidiaries during the year, I am confident in our strength and prospects.' Geoff Unwin, Chairman of Halma, said: 'We have strong market positions and we are highly cash generative. We are accelerating our own rate of change - particularly on innovation. Overall, despite little fundamental help from our markets, we remain cautiously optimistic for the year ahead.' For further information, please contact: Halma p.l.c. +44 (0)1494 721111 Andrew Williams, Chief Executive Kevin Thompson, Finance Director Hogarth Partnership Limited +44 (0)20 7357 9477 Rachel Hirst/Andrew Jaques A copy of this announcement, together with other information about Halma, may be viewed on its website: www.halma.com. A copy of the Annual Report and Accounts will be sent to shareholders on 4 July 2005 and will be available to the general public on written request to the Company's registered office at: Misbourne Court, Rectory Way, Amersham, Bucks HP7 0DE. PHOTOGRAPHS High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustrating Halma business activities can be downloaded from its website: www.halma.com. Click on the 'News' link, then 'Image Gallery'. Photo queries: David Waller +44 (0)20 8205 0038, e-mail: dwaller@halmapr.com. NOTE TO EDITORS Halma p.l.c. develops products used worldwide to enhance safety and to minimise hazards. The Group comprises six business groups: • Fire and Gas detection • Water leak detection and UV treatment • Elevator and Door Safety • Bursting discs and sequential locking for Process Safety • High power electrical Resistors • Optics and Specialist technology The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growth potential. Each business group is a clear market leader in its specialist field and, in a number of cases, is the dominant world supplier. HALMA p.l.c. Group Results for the 52 weeks to 2 April 2005 Financial Highlights 2005 2004 Change 52 weeks 53 weeks Turnover + 2% £299.1m £292.6m Profit before taxation (1) 0% £50.4m £50.3m Earnings per share (2) 0% 9.42p 9.44p Earnings per share - statutory + 31% 7.97p 6.09p Dividend per share + 5% 6.50p 6.19p Return on sales (3) 16.8% 17.2% Return on total invested capital (4) 13.1% 13.7% Return on capital employed (5) 62.4% 52.4% Pro-forma information: 1 Before goodwill amortisation of £5,491,000 (2004: £4,220,000) and exceptional items on disposal of non-core businesses of £nil (2004: £9,149,000). 2 Before goodwill amortisation of 1.45p (2004: 1.07p) and exceptional items of nil (2004: 2.28p) per share. 3 Return on sales is defined as profit(1) before taxation expressed as a percentage of turnover. 4 Return on total invested capital is defined as profit before goodwill amortisation and exceptional items and after taxation of £34,690,000 (2004: £34,557,000) expressed as a percentage of net assets plus goodwill in reserves of £70,931,000 (2004: £70,931,000) and cumulative goodwill amortisation of £18,668,000 (2004: £13,177,000). 5 Return on capital employed is defined as profit(1) before taxation expressed as a percentage of net tangible assets (being equity shareholders' funds less intangible assets). Chairman's Review Geoff Unwin, Chairman of Halma, said: 'The Group produced a profit before tax* of £50.4 million, another record profit for Halma - just. 'The year was characterised by significant change within the Group - some of it visible, some less so. The most visible change was the appointment of Andrew Williams as CEO at the end of February 2005, having been appointed Deputy CEO in December 2004. Andrew succeeded Stephen O'Shea who reaches the normal retirement age for Halma this year, and on behalf of the Board I should like to record our gratitude to Stephen for all that he has contributed to the Group during his career with us. The succession process has gone extremely smoothly and Andrew is bringing a fresh impetus to our operations - I encourage those of you that can, to meet him at our AGM. 'Last year I referred to a number of factors that the Board and senior management felt could possibly be holding back our performance. Some of them were issues that could be quickly addressed e.g. incentives, span of control; others were more long-term, such as resource allocation and the efficiency of our balance sheet. We are continuing to upgrade the quality of our management right across the Group and particularly at subsidiary board level. 'All aspects of selling have received particular attention and we are disappointed not to see better progress on the revenue line. However, in common with many sectors, we face continuing pressure from price transparency via the internet and deflationary trends through lower manufacturing costs. Our response is the continual re-design and improvement of our products, allowing more outsourcing and 'off-shore' production as we re-double our efforts on innovation. We are having success but it is patchy, we need to do more - faster. 'In terms of our sectoral performance (more detail is given in the Chief Executive's Review): Resistors continued to have a difficult year and the problems there are being tackled in new ways and with renewed vigour. Water too had a tough year. Other sectors held their own or better. 'Our two new acquisitions Diba Industries, Inc. and Ocean Optics, Inc. performed extremely well, exceeding our expectations. The results 'Profit before tax* was a record £50.4 million (previous year £50.3 million) and earnings per share* were slightly down at 9.42p (previous year 9.44p). On a statutory basis, profit before taxation and earnings per share were £44.9 million and 7.97p respectively. These results were produced despite adverse currency translation impacts and raw material movements of the order of £2.5 million. The return on the capital* that our managers control was a clear all time record for a full year at 62% - a staggering achievement, and return on total invested capital* (including all goodwill) was 13.1% - far exceeding our cost of capital. Net cash at the year-end was £12 million. Turnover edged ahead by 2% to £299 million (previous year £293 million). Excluding discontinued operations, sales increased by 7%. 'The Board recommend a final dividend of 3.92 pence per share giving an increase of 5% for the year. 'On behalf of the Board, I should like to thank all our employees for their dedication in producing this record result, and also for their imagination in continually improving our products and service to our customers. Prospects 'We have strong market positions and we are highly cash generative. We are accelerating our own rate of change - particularly on innovation. 'Overall, despite little fundamental help from our markets, we remain cautiously optimistic for the year ahead.' * See Financial Highlights Chief Executive's Review Andrew Williams, Chief Executive of Halma, said: Record sales, profits and ROCE, but ..... 'The Group delivered record sales, record profits and a ROCE* of 62% despite the headwind of currency and rising raw material prices - particularly stainless steel. It is always pleasing to report such achievements together with a record dividend payment for shareholders, but there is more to be done if we are to achieve the performance levels we really aspire to. 'The Group did do well to compensate for some adverse factors, achieve excellent cash generation and make two high quality acquisitions. However, the underlying level of organic growth was inconsistent with parts of the business failing to make satisfactory progress, thereby eroding the growth delivered elsewhere. 'We take encouragement from our achievements but do not shy away from the challenges. Setting high standards and expectations of our performance has been a key element of Halma's continuing success in delivering outstanding returns. Strong cash generation and a record dividend 'The Group's excellent cash generation and outstanding ROCE* record is not achieved easily but by the disciplined management of our assets at all levels. During the year this enabled us to make £9 million of capital investment in our existing operations, pay a record dividend to shareholders for the 26th consecutive year, make two significant acquisitions and still have £12 million of net cash available at the year end. Flat sales performance in continuing operations 'Sales from continuing operations, excluding acquisitions, increased to all territories except for the US where turnover fell by 10%. Clearly currency was a key factor, but again, is not the whole story. We must become more active in the way we build the distribution channels of our businesses, particularly in the US and other key markets. We have sometimes lacked clarity and speed of action in this area in the past and not allocated a significant proportion of our resources to make it happen. Exciting value-adding acquisitions strengthen Optics and Specialist sector 'During the year we acquired Ocean Optics, based in Florida, and Diba Industries, based in Connecticut, for a total of £22 million. They have significantly enhanced our capability in optical sensing and fluid technology and have performed well since joining the Group. We remain committed to making such high quality acquisitions as they become available in accordance with our strategy of focussing more closely on those markets offering the best growth opportunities. 'Excluding these acquisitions and costs of holding companies, the Optics and Specialist sector achieved underlying profit growth of 12%. New product innovation, improved sales processes and increasing efficiencies in manufacturing contributed to an excellent result. Elevator and Door safety maintains market leadership 'At constant currency, the sector reported marginal increases in both profits and sales. In the US our voice communications equipment sales fell significantly. Since the year end we have merged this business with our US elevator safety products company to benefit from its well-developed sales channels. 'BEA, the door safety business, performed slightly better in the second half than flagged at the Interim stage. After rapid growth since acquisition, this was encouraging and underpinned a reasonable sector performance overall. Water sector repositioned for new market needs 'We have taken actions to position the business for better growth in the future. There were significant changes to senior management and to the product range, which had short-term consequences for operating costs and margins. For example, it was necessary to rationalise our range of instruments which measure flow and pressure in water networks to meet more precisely the growing demand for these products worldwide. This resulted in additional costs associated with stock write downs, field service replacements, and adjustments to product design and selling resources. In addition, there was no repeat of a major US leak detection contract this year following last year's success in Las Vegas. However, we continue with our investment in the US for leak detection, UV treatment and water quality. Our water business is now in better shape to meet the opportunities presented by this long-term growth market. Resistors struggle against impact of currency and raw material prices 'As indicated at the half year, the margins on our Resistor business came under intense pressure from stainless steel price increases. In the second half, we had some success in mitigating these increases although in certain cases long- term contract terms proved difficult to renegotiate. We have recognised for some time that our Resistors business has been struggling against rising raw material prices, currency and tough market conditions. Since the year end, more vigorous action is being taken and already we have consolidated two of our manufacturing operations based near Cincinnati, Ohio. Fire and Gas delivers solid result in changing market 'We responded positively to the major M&A activity in the global Fire and Gas market. New product developments and industry leading customer service levels helped us to compete with US based rivals who benefited from a weaker dollar when selling into export markets. Whilst the market is undergoing a period of significant consolidation we continue to find, and exploit, new opportunities. Process Safety introduces new products for new applications 'A number of products were launched targeting new applications for our safety interlock products. The roll out was more gradual than expected in some cases, but the year ended with greater momentum than it started, particularly in the oil and petrochemical market. Overall, the sector continues to deliver a satisfactory return on sales and excellent ROCE. Talented people and excellent products 'During the year, I visited all of Halma's principal subsidiaries and saw how hard our people are working towards our goal of higher growth. Halma has a talented workforce that creates, builds and sells excellent products covering a huge range of applications. Improving the timing of new product introductions is an area we need to improve continually and, although great strides have been made recently, a further improvement will have a significant impact on our organic growth prospects. 'It is encouraging to see the increasing commitment of our businesses towards exceeding the expectation of customers. Our innovation often makes a big difference to our customers' success and quicker new product introduction is another way in which we can exceed their expectation for our mutual benefit. Stephen O'Shea's retirement 'I would also like to record my thanks to Stephen O'Shea for his generous help during the recent handover period and for his contribution to the Group's many successes since he joined us as MD of Apollo Fire Detectors 22 years ago. I am sure you will join me in wishing him a long and happy retirement. A robust strategy although striving for greater growth 'Our ability to maintain strong returns reflects well on our strategy of creating unique, high value products which protect lives, or improve the quality of life, for individuals and businesses worldwide. We will continue to invest in, and develop, high return technology businesses which operate in niche, 'demand driven' global markets with strong barriers to entry. 'Actions to reposition the Group for higher growth will continue both operationally and structurally. I am looking for greater consistency of performance across the Group to deliver the sustained organic growth which provides valuable returns for shareholders. Whilst there is still much work to be done, there are good opportunities available to us and I am very much looking forward to leading the Group in the year ahead.' * See Financial Highlights Finance Director's Review Kevin Thompson, Finance Director of Halma, said: Some underlying organic sales growth with marginal profit growth to a new high 'Group turnover was 2% higher than last year at £299 million (2003/04: £293 million) and ongoing turnover grew by 5% on a constant currency basis, excluding the turnover of new businesses at the time of acquisition. Profit before tax* at £50.4 million (2003/04: £50.3 million) was the highest ever made by the Group, by a small amount. On a statutory basis profit before taxation increased to £44.9 million (2003/04: £36.9 million). These results were achieved in 52 weeks rather than 53 weeks last year. We maintained healthy margins, strong returns and good cash flow, but we aim for greater improvement. The currency headwind played a notable part in the results this year 'Around one-third of Halma's turnover and profits are made in US Dollars and US Dollar-related currencies, with around 15% in Euros. The average rate at which we translate US Dollars has deteriorated by 9% in the year and even though the Euro translation rate was reasonably stable, the total currency impact reduced turnover by £10 million (3.7%) and profits by £1.6 million (3.2%). The commercial effects of currency movements on transactions, which show themselves for example in the advantage gained by US competitors, are difficult to quantify, but have a notable adverse impact on our business. 'Measured at constant exchange rates, four of our sectors moved ahead in sales and profits, the exceptions being Resistors and Water - these are discussed in the Chief Executive's Review. 'Whilst the adverse currency effect was not as bad as we feared at the Interim stage, it impeded our progress. Our acquisitions exceeded expectations and helped development of the Optics sector 'In May 2004 we acquired Diba Industries, Inc. for £8 million and in June 2004 we paid an initial consideration of £14 million for Ocean Optics, Inc. In both cases the purchase price was approximately equal to their turnover at the time of acquisition, and pro-rata they would have added £17 million to our 2004/05 turnover. Up to a further £14 million is payable for Ocean Optics, with the maximum reached if it doubles its profit in the two years post acquisition. In the first year, it met its target. 'Both are high-return businesses and have developed well since acquisition, contributing to the ongoing development of our Optics and Specialist sector which started with the disposal of three non-core businesses last year. Within the Optics and Specialist sector we also report holding company costs which increased this year, in part due to the cost of management changes. Healthy margins and high returns continue shareholder value creation 'Return on sales* at 16.8% was slightly below last year's figures of 17.2%. High and consistent margins are a feature of the Group and all sectors except Resistors and Water maintained their return on sales. The benefit to Group margins from the disposals mentioned above was eliminated this year by the impact of those two sector performances. One important factor which affected the Resistors sector in particular, was the increase in stainless steel prices this year taking £0.9 million from Group profit. 'A key indicator used internally in managing our businesses is Return on Capital Employed (ROCE*) and we have therefore published its progress over many years. It demonstrates the effectiveness of our managers in utilising the tangible assets under their direct control. At 62% for the Group this year, ROCE* is high even for Halma reflecting the good management of resource at operating company level. 'We recognise the value to shareholders in reporting Return on Total Invested Capital (ROTIC*) and so this year we are also reporting that figure. We are reporting a post-tax ROTIC* which includes goodwill going back over the years. ROTIC* recognises that businesses must use both retained earnings and debt wisely to give shareholders good returns. This year's ROTIC* of 13.1%, is far in excess of our weighted average cost of capital, continuing the trend established over many years. Our strong cash flow funded increased dividends with no year end net debt 'Halma has a history of good cash generation and this year was no exception. Operating cash flow net of capital expenditure as a percentage of operating profit was 101%. We finished the year with net cash of £12 million. As noted below we do carry loans to hedge our currency assets but overall we are currently ungeared. 'These strong cash flows will finance another record dividend. The Board recommends a final dividend of 3.92p per share, giving a dividend for the full year of 6.5p, 5% up on last year. We have continued our progressive dividend policy, dividends having increased every year for more than 25 years. 'As the dividend increase is above the earnings increase, dividend cover has reduced a little. Our task is to deliver the earnings growth in the coming years so that we can raise that cover again. If approved, this final dividend will be paid on 24 August 2005 to shareholders on the register at the close of business on 22 July 2005. Treasury, tax and pensions continue on a prudent path 'Our operating companies hedge their trading transactions back into their local reporting currency. Our policy is to hedge our US Dollar and Euro net investment in overseas operations through currency denominated loans, but not to hedge the effects of currency movements on the translation of overseas earnings into Sterling. The philosophy behind our treasury activities is one of risk management and control; no speculative transactions are undertaken. 'As anticipated, the effective tax rate on profits* was in line with last year at 31.2%. Depending on the precise mix of profits earned in various tax jurisdictions, we expect the effective rate going forward to be broadly similar but perhaps a little higher. 'Pending the introduction of International Financial Reporting Standards (IFRS) next year, we have continued to adopt the transitional provisions of FRS 17 (Retirement Benefits). Under FRS 17, the net pension deficit has remained at £29 million net of the related deferred tax. The increase in the market value of scheme assets has been offset by higher calculated liabilities in part due to lower discount rates. New cash going into the main (defined benefit) pension scheme is being invested in fixed interest securities so that over time the profile of assets is more closely matched with the scheme's liabilities, the scheme having been closed to new members several years ago. Internal audit builds on a history of sound Group controls 'A critical feature of Halma is the entrepreneurial and autonomous nature of our operating companies. To underpin that approach we install high-quality finance executives in each business to monitor and assist development. 'Responsibility and accountability of local management has always been paramount but this has been further emphasised over the past year with strengthened local accounts sign-off and by widespread use of relevant financial warning signs across the Group. 'We have further enhanced our internal review procedures this year, continuing to use senior finance staff to review other operating businesses but adding more rigorous feedback and follow-up. Together with the independent reporting route to the Audit Committee introduced in 2003/04, I can now confirm that our internal audit function is fully established. IFRS preparations are well advanced 'For 2005/06 the Group is required to prepare its consolidated accounts in accordance with International Financial Reporting Standard (IFRS). Halma's Interim Report and Annual Report and Accounts for 2005/06 will therefore contain financial statements for 2005/06 and comparatives for 2004/05 prepared under IFRS. There will be some presentational differences, but in summary the impact on trading results is not expected to be material and net assets will be reduced mainly by the inclusion in the Balance Sheet of the pension deficit noted above. Cash flows and the underlying economics of the business remain unchanged. 'In a little more detail, the main effects of IFRS on Halma are as follows: since Research and Development is an important part of our business (we spend 4% of sales on R&D) we will recognise this asset by capitalising appropriate costs, although we anticipate expensing most of the cost as we go; share-based payments will add a new charge against our profits, starting off low but expected to increase as each new year falls under these rules and as we transition away from share options to our proposed performance share plan; goodwill on acquisitions will be frozen, goodwill amortisation no longer appearing in the Profit and Loss Account; pension costs are likely to be a little more volatile and as mentioned above, the pension deficit will come onto the Balance Sheet. The new rules on financial instruments will have a negligible effect on us. 'In late summer, ahead of our half year-end, we will publish a full quantification, reconciliation and explanation of the impacts on Halma of IFRS. We continue to focus on high returns for our shareholders 'This year has seen a fair amount of change, with some repositioning and a lot of investment - there has been associated cost. Our pursuit of positive change and improvement will continue. Our key objective is to continue creating wealth for our shareholders through investment in high performance businesses and the generation of strong cash flows.' * See Financial Highlights Operating Review Fire and Gas We are world leaders in sensors that detect life-threatening fire and gas hazards. Our products warn people of imminent danger and give them time to escape. Now sold in 80 countries, our fire detectors protect people and buildings from the risk of fire. Our gas detectors safeguard the lives of industrial workers by alerting them to the presence of toxic or explosive gases. We also make specialist products for conditioning gas samples. The principal sales channels for fire detectors are distributors and fire alarm installers; gas detector customers range from lone contractors to multinationals. During 2004/05 our Fire and Gas sector companies produced 25% of Group turnover and 33% of operating profit**. Our businesses in the Fire and Gas sector achieved record sales during 2004/05, with profits slightly ahead. The fire detector market is a very competitive environment mostly dominated by large multinationals. During 2004/05 there were many competitor acquisitions and consolidations. Despite such market pressures, we increased market share and remain the second largest maker of commercial grade fire detectors worldwide. We achieved double-digit fire detector sales growth in Eastern Europe and major increases in the Middle East, India and the Far East. This compensated for subdued sales in Central Europe. A key differentiator for our fire products companies is industry-leading customer service. To reinforce this competitive advantage, in 2004/05 we set up technical centres in Spain, the US, Ireland, India and China. Increasing regulatory product testing and approval is a major driver in the fire industry (and a powerful barrier to market entry). Our businesses invest considerable time in maintaining close relations with approval and regulatory authorities. To sell fire detectors on a worldwide basis, we hold 1500 product approvals. An important recent project has been product development to satisfy the new EU Construction Products Directive. This applies to all 25 member states from June 2005. Continuous product innovation is a key sales growth factor in this sector. Alongside new fire detector ranges, we launched new emergency evacuation products, including directional and programmable sounders, and devices to guide people out of smoke-filled buildings. Gas detector profits continued to rise, supported by new product launches in the portable and fixed systems markets. Gasman, a single gas detection instrument and market leader in terms of size, weight and performance, is a key new product. Last year's restructuring of our European gas detector sales operations delivered improved sales and profits. We strengthened our sales routes in the US, producing record revenues and an excellent platform for future growth. Pricing pressure, particularly in portable gas detectors, remained strong, but operational improvements ensured an increase in gross margins. The small-scale power generation market based on fuel cells is now commercialised and sales of gas conditioning products are growing. However, most business continues to be for prototyping projects. Within this market, our hydrogen humidification systems are being extended to handle high pressure fuel cells as developers attempt to produce more efficient, lower cost systems. This is a long-term growth opportunity. Water We own world-leading businesses in three water industry sectors: ultraviolet light (UV) water treatment, instruments for monitoring and controlling water distribution, and water quality analysis. These markets are global and we make substantial sales worldwide. Our principal customers are drinking water supply companies, municipal authorities, food manufacturers and the process industries. Based in the UK, the Netherlands, France and the US, during 2004/05 our Water sector companies produced 11% of Group turnover and 5% of operating profit**. While Water sector sales were maintained at a slightly reduced level, profits in this sector were substantially below the prior year. During 2004/05 we saw significant changes in the market for instruments to conserve water in distribution networks. Our water supply customers faced pressures to cut costs. This created demand for lower margin instruments to monitor and control water networks in a preventative way, in addition to diagnostic leak location instruments. In response, we restructured the product ranges and organisation of several companies in this sector. As part of this process we upgraded a number of products in the field which led to some stock write-offs. This involved substantial costs but has produced a much stronger base for growth. An important contract for leak detection equipment in the city of El Paso, Texas, was smaller in scale than the very successful Las Vegas contract in the previous year. However, it represented useful progress in a market where we continue to make a significant investment in anticipation of future returns. Acquisition of data logging and data transmission businesses in recent years has led to a 50% increase in sales of these instruments in 2004/05 and allowed us to penetrate the fast-growing market for monitoring wastewater and flow. Sales of UV equipment outside of the US market returned to growth. However, delays in closing US contracts led to a decline in total UV equipment sales. We won an important contract, phase II of the Houston CrossFlow drinking water project. A reorganisation of the US sales operation has started to deliver major improvements, with the 2005/06 order book substantially ahead. Outbreaks of water-borne disease create demand for our disinfection technology. Following an outbreak of giardiasis in the Norwegian city of Bergen's drinking water supply, we won a significant order. UV sales to the swimming pool sector, where our companies are dominant, continued strongly, benefiting from increased awareness of health risks from chlorination by-products. Continued investment in product approvals has created an excellent foundation for securing future drinking water projects. We believe we are the first company with medium pressure UV technology that complies with the new European testing criteria. UV sales to South East Asia continued to grow because our equipment provides significant performance advantages and lower capital costs than competing systems. Further capital investment expanded our UV lamp manufacturing capacity to meet growing demand. Sales and profits at our water testing business reached record levels. We launched an innovative new product, called Cool Pool Tester. This transfers advanced photometric water analysis technology developed for professional laboratory users into the domestic swimming pool market. Elevator and Door Safety Our businesses in this sector are world leaders in products that protect people using elevators and automatic doors from harm. We make infrared and microwave based sensors that control the operation of elevator doors and automatic pedestrian and industrial doors. They safeguard users, improve accessibility for the disabled and optimise traffic flow. We also make voice communication and display products for elevators. These businesses are based in Belgium, the UK, New Zealand, the US, Singapore and China. The elevator and automatic door markets separate into new construction and building refurbishment, with our sales equally split between the two. Customers in the new-build sector are generally multinational elevator and door manufacturers. Refurbishment customers tend to be local contractors. During 2004/05, this sector produced 21% of Group turnover and 23% of operating profit**. Although overall sales and profit in this sector fell slightly, we generated significant sales growth in the core elevator and door product groups, particularly in Asia and Europe. An underlying sector-wide advance in sales and profit was offset by unfavourable currency movements and a disappointing performance by our emergency telecoms business. With less than 10% of sales in this sector in the UK, its headline performance is vulnerable to Sterling exchange rates. We maintained our market share in automatic door control sensors despite lower door control sales in the US (due to a large refurbishment contract in 2003/04). Record profits were achieved, aided by rising sales in China and also in Japan where we now have three sales offices. We won worthwhile new business from the New York City Transit Authority for station platforms emergency communications systems, most of which will be shipped in 2005/06. However, voice communication equipment sales fell significantly. To turn this around, we have merged this telecoms business with our US elevator safety products company to benefit from its strong sales management skills and well developed sales channels. Recent European legislation mandates that elevators must be fitted with emergency voice communication systems. This has created a valuable new market; we estimate that 90,000 new elevators are commissioned every year in the EU. We have developed a new elevator telephone system which enables building operators to comply fully with the new regulations. We have also opened a new sales office in Italy where an estimated 90% of elevators do not meet EU standards. The more prominent risk in this sector relative to others is the unpredictable impact of the proposed Chinese currency revaluation. A significant proportion of our elevator and door products are made in China and a revaluation of the Yuan may increase production costs and squeeze margins. Given continued global economic development, market prospects for elevator and automatic door safety products are positive in the long term. The key drivers are urbanisation, population growth and accessibility for the disabled. These factors create demand for high rise buildings, requiring elevator controls, and also large buildings with automatic doors. Demand for our products is continually rising due to concern in most countries about public safety. Process Safety Our Process Safety businesses help customers protect their human and capital assets. We create safe workplaces where employees are safeguarded from injury and plant is protected from damage. We are world leaders in access control products called trapped-key interlocks. These separate people from hazards, such as moving machinery, and prevent dangerous operation of industrial equipment. Our second Process Safety specialism is bursting discs. These products minimise explosion risks, for example in chemical plants, protecting workers and capital investment, and preventing environmental pollution. Customers for Process Safety products range from one-man businesses to multinational corporations; the markets are global. Based in the UK, the US, Mainland Europe and Australia, our Process Safety companies generated 12% of Group turnover and 13% of operating profit** in 2004/05. Overall sectoral performance was in line with the prior year. Bursting disc sales moved significantly ahead, benefiting from last year's reorganisation and investment. Interlock sales in the US and France were disappointing although in the UK and the rest of Europe they grew modestly. Our growth strategy in this sector centres on increasing sales of our established technologies into the new markets of the developing world, where increased safety awareness and health and safety legislation is following industrial expansion. We aim to maintain our position of niche market leadership in the mature industrial markets through innovative new products and new applications. The oil and gas business is an important market where our products safeguard exploration, production and refining operations worldwide. We are the world leader in valve interlock control systems and satisfy a significant percentage of total world demand. With steady global economic development, demand for oil and gas will continue to rise, with production set to double by 2020. Gas flaring, where gas from oil wells is simply burned, will be outlawed worldwide by 2008 and new infrastructure projects should underwrite long-term market growth. In the general industrial market, sales and profit growth will be achieved by product innovation and penetration of new markets. The Chinese process safety market is growing, but not as fast as more developed parts of Eastern Europe. Our Salvo safety system is an example of product innovation and entry into a completely new market. This product ensures that a vehicle cannot leave a loading bay until it is safe to do so, preventing potentially fatal accidents to fork-lift operators. Salvo has generated substantial sales in its first year, in a market sector with significant potential. With double digit profit growth our bursting disc businesses had an excellent year. Further growth will come from extending sales into high growth markets in Eastern Europe and Asia. A slowdown or reverse in global economic development, or slow adoption of health and safety legislation in Eastern Europe and Asia, could delay progress in this sector, as could a downturn in key markets. However, we believe that prospects for steady growth in this sector still exist. With continued global economic development, and rapid industrial development in the enlarged EU and China, the longer term market drivers remain. Resistors Our high power resistors are used to dissipate excess electrical energy, control the speed of large electric motors, protect electrical power distribution systems from damage and for electrical safety. The combined engineering and marketing resources of our five businesses in this sector make us the world leader in power resistors. Our customers in this sector are mainly in power generation, the process industries and transit systems manufacture. Large contracts, won via competitive tendering, account for a higher than average proportion of sales. Based in the US, Canada, Australia and the UK, our Resistor businesses contributed 9% of Group sales and 3% of operating profit** in 2004/05. While overall sales edged 7% ahead in this sector, profits fell back. This was partly due to a steep rise in stainless steel raw materials costs. We were able to increase prices, but part of the steel price rise had to be absorbed and margins suffered. Together with the impact of unfavourable exchange rate movements, these factors hindered any underlying profit progress. Our long-term goal of reducing dependency on the US market by increasing the proportion of US export sales is succeeding. Resistor exports rose by 40% in 2004/05 and non-US sales now contribute 51% of sectoral sales. A major growth target is the development of new markets and products to safeguard workers and protect capital equipment from damage caused by electrical earth faults. Recognition of the danger posed by earth faults is growing among heavy electrical users and our products are the most efficient method of mitigating this hazard. A positive trend is the adoption of this technology in hospitals and data centres. Sales into this market rose 15% in 2004/05 and we sold earth fault protection systems into South East Asia for the first time. During 2004/05 sales of transit resistors, which are used to control braking on locomotives and trams, generated poor margins. We took action to cut overheads and increase manufacturing efficiency by consolidating all transit resistor production at a single US location. However, a combination of competitive pricing and margin volatility due to unpredictable raw material costs has made this niche market relatively unattractive. We may consider withdrawing from transit resistor production during 2005. A market targeted for growth two years ago, braking resistors on the huge trucks used to transport ore in open-cast mines, is now generating significant sales. We are now the established leader in the replacement aftermarket and we are working with several truck makers to become the original equipment supplier too. We plan to maintain sales growth in 2005/06, focussing on the launch of innovative dynamic braking and electronic ground fault relay products. We will also aim to grow sales of filter resistors which are used by power companies to control the quality of their electrical supplies. Our primary geographical growth target is Asia, particularly China where we have established a local partnership. While returns and prospects for Resistors are still good by peer standards, the sector is under particular scrutiny as part of our normal strategic reviews. Optics and Specialist We are world leaders in two areas of optical technology. We make ophthalmic instruments and special lenses for the medical market. These test eyesight, diagnose ocular disease and enable eye surgery. Our second optical specialism is electro-optical instruments (spectrometers) mainly used for colour measurement and material analysis. We sell our optical products into global markets and exports are a high proportion of sales. Our other main focus in this sector is on high precision, miniature fluid control products used in analytical instrumentation. These fluid technology products are sold primarily to high tech instrument manufacturers. Based in the US and the UK our Optics and Specialist companies contributed 22% of Group turnover and 23% of operating profit**. The Optics and Specialist businesses produced excellent results, establishing new sales and profit records. Overall sectoral profit growth was reduced by increased corporate management charges which are included as part of this sector and a lower level of performance from certain Specialist businesses. Our ophthalmic optics companies benefited from market expansion due to global population growth and produced strong results. Export sales grew significantly; future export growth is targeted on Asia. Ophthalmic lens sales produced record profits, aided by a very successful new product launch. Demand for ophthalmic instruments was boosted by a new cordless, battery-powered indirect ophthalmoscope. A unique product, it continues to sell very well in the US, its target market. Close relationships with leading ophthalmologists help us develop new products that compliment medical advances. Our fluid technology companies maintained growth in core markets and in new applications, delivering record sales. The primary market, life science instrumentation, continues to grow in the high single digit range. We expect this growth pattern to continue, driven by increased testing and discovery requirements due to increases in population, and both pharmaceutical and biotech research. During 2004/05 the United States Postal Service completed installation of biological hazard detection equipment containing our components, creating an ongoing spares business. The acquisition of Diba Industries in May 2004 strengthened our presence in this market. The company continues to perform to expectations and recently won an important contract to supply a world-leading manufacturer of blood analysis instruments, with deliveries starting in 2005/06. Since its acquisition in June 2004, spectrometer manufacturer Ocean Optics has achieved record sales and profits, exceeding expectations at the time of acquisition. Strong growth continued in all export markets, including Europe and Japan. This company has maintained its market position of 'disruptive innovator', extending the analytical capability of its core product line. During 2004/05 we launched an unrivalled optical colour changing system for theatrical and entertainment industry lighting based on patented thin film coating technology. Significant sales were achieved into research laboratories of products based on an advanced analytical technique which uses lasers to vaporise samples for analysis. The product line is now being developed for volume production to open up this market in 2005/06. Our spectrometers will be built into a forthcoming NASA space project designed to search for signs of life on the planet Mars. ** before interest, tax and goodwill amortisation - see Segmental Analysis Preliminary Results for the 52 weeks to 2 April 2005 Consolidated Profit and Loss Account £000 52 weeks to 2 April 2005 53 weeks to 3 April 2004 Before Before goodwill Goodwill goodwill Goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items Total items items Total Turnover Continuing operations 277,505 - 277,505 279,611 - 279,611 Acquisitions 21,614 - 21,614 - - - _______ _______ _______ _______ _______ _______ Ongoing operations 299,119 - 299,119 279,611 - 279,611 Discontinued operations - - - 13,029 - 13,029 _______ _______ _______ _______ _______ _______ 299,119 - 299,119 292,640 - 292,640 ======= ======= ======= ======= ======= ======= Operating profit Continuing operations 45,774 (4,280) 41,494 50,422 (4,209) 46,213 Acquisitions 4,570 (1,211) 3,359 - - - _______ _______ _______ _______ _______ _______ Ongoing operations 50,344 (5,491) 44,853 50,422 (4,209) 46,213 Discontinued operations - - - (370) (11) (381) 50,344 (5,491) 44,853 50,052 (4,220) 45,832 Exceptional items Loss on sale of businesses - - - - (3,394) (3,394) Associated goodwill - - - - (5,755) (5,755) Loss on disposal of discontinued operations - - - - (9,149) (9,149) _______ _______ _______ _______ _______ _______ Profit on ordinary activities before interest and taxation 50,344 (5,491) 44,853 50,052 (13,369) 36,683 Interest 45 - 45 232 - 232 _______ _______ _______ _______ _______ _______ Profit on ordinary activities before taxation 50,389 (5,491) 44,898 50,284 (13,369) 36,915 Taxation (note 2) (15,699) 159 (15,540) (15,727) 1,134 (14,593) _______ _______ _______ _______ _______ _______ Profit for the financial year 34,690 (5,332) 29,358 34,557 (12,235) 22,322 _______ _______ _______ _______ _______ _______ Ordinary dividends (note 3) (24,015) (22,725) _______ _______ Profit/(loss) transferred to/(from) reserves 5,343 (403) ======= ======= Earnings per ordinary share before goodwill amortisation and exceptional items (note 4) 9.42p 9.44p Earnings per ordinary share (note 4) 7.97p 6.09p Diluted earnings per ordinary share 7.96p 6.09p Consolidated Balance Sheet £000 2 April 2005 3 April 2004 Fixed assets Intangible assets 94,848 71,425 Tangible assets 48,896 47,139 _______ _______ 143,744 118,564 _______ _______ Current assets Stocks 35,502 31,208 Debtors 69,062 67,080 Short-term deposits 35,581 33,898 Cash at bank and in hand 9,767 14,584 _______ _______ 149,912 146,770 _______ _______ Creditors: amounts falling due within one year Borrowings 33,344 26,934 Creditors 53,399 44,394 Current taxation 5,137 5,563 Dividends payable 14,457 13,762 _______ _______ 106,337 90,653 _______ _______ Net current assets 43,575 56,117 _______ _______ Total assets less current liabilities 187,319 174,681 Creditors: amounts falling due after one year 5,535 1,254 Provisions for liabilities and charges 6,186 6,067 _______ _______ 175,598 167,360 ======= ======= Capital and reserves Called up share capital 36,880 36,677 Share premium account 10,111 7,768 Capital redemption reserve 185 185 Profit and loss account 128,422 122,730 _______ _______ Equity shareholders' funds 175,598 167,360 ======= ======= Statement of Total Recognised Gains and Losses £000 52 weeks to 53 weeks to 2 April 2005 3 April 2004 Profit for the financial year 29,358 22,322 Other recognised gains and losses Exchange adjustments 349 (2,799) _______ _______ Recognised gains and losses relating to the year 29,707 19,523 ======= ======= Movements in Equity Shareholders' Funds £000 52 weeks to 53 weeks to 2 April 2005 3 April 2004 Profit for the financial year 29,358 22,322 Dividends (24,015) (22,725) _______ _______ Profit/(loss) transferred to/(from) reserves 5,343 (403) Total other recognised gains and losses 349 (2,799) Net proceeds of shares issued 2,546 1,521 Goodwill transferred to the Consolidated Profit and Loss Account in respect of businesses sold - 5,595 _______ _______ Increase in equity shareholders' funds 8,238 3,914 _______ _______ Equity shareholders' funds brought forward 167,360 163,446 _______ _______ Equity shareholders' funds carried forward 175,598 167,360 ======= ======= Consolidated Cash Flow Statement £000 52 weeks to 53 weeks to 2 April 2005 3 April 2004 Cash flow from operating activities (note 5) 60,316 59,782 Return on investments and servicing of finance Interest received 1,086 952 Interest paid (889) (731) _______ _______ 197 221 Taxation Current taxation paid (14,494) (14,093) Capital expenditure Purchase of tangible fixed assets (9,419) (9,686) Sale of tangible fixed assets 418 1,004 _______ _______ (9,001) (8,682) Acquisitions and disposals Acquisition of businesses (25,026) (2,947) Cash acquired 1,490 - Disposal of businesses (1,681) 4,567 _______ _______ (25,217) 1,620 Equity dividends paid (23,320) (21,855) _______ _______ (11,519) 16,993 Management of liquid resources Increase in short-term deposits (1,663) (19,662) Financing Issue of ordinary share capital 2,546 1,521 Increase in loans 5,764 2,683 _______ _______ 8,310 4,204 _______ _______ (Decrease)/increase in cash (note 5) (4,872) 1,535 ======= ======= Segmental Analysis £000 Geographical analysis By destination By origin 52 weeks to 53 weeks to 52 weeks to 53 weeks to 2 April 2005 3 April 2004 2 April 2005 3 April 2004 Turnover United Kingdom 80,374 77,534 159,756 159,462 United States of America 90,477 84,047 102,564 87,958 Europe excluding UK 74,772 70,730 43,112 43,690 Far East and Australasia 31,648 28,054 14,536 14,133 Africa, Near and Middle East 10,392 9,944 - - Other 11,456 9,302 3,688 2,853 Inter-segmental sales - - (24,537) (28,485) _______ _______ _______ _______ Turnover from ongoing operations 299,119 279,611 299,119 279,611 Discontinued operations - 13,029 - 13,029 _______ _______ _______ _______ Group turnover 299,119 292,640 299,119 292,640 _______ _______ _______ _______ Profit before taxation United Kingdom 26,425 26,601 United States of America 13,414 13,617 Europe excluding UK 7,039 7,111 Other countries 3,466 3,093 _______ _______ Ongoing operations 50,344 50,422 Discontinued operations - (370) _______ _______ Segmental profit 50,344 50,052 Goodwill amortisation and exceptional items (5,491) (13,369) Interest 45 232 _______ _______ Profit on ordinary activities before taxation 44,898 36,915 _______ _______ Sector analysis 52 weeks to 53 weeks to 2 April 2005 3 April 2004 Turnover Fire and Gas 75,539 74,998 Water 32,466 34,485 Elevator and Door Safety 62,529 65,070 Process Safety 36,214 36,030 Resistors 27,699 27,195 Optics and Specialist 65,442 42,824 Inter-segmental sales (770) (991) _______ _______ Turnover from ongoing operations 299,119 279,611 Discontinued operations - 13,029 _______ _______ Group turnover 299,119 292,640 _______ _______ Profit before taxation Fire and Gas 16,713 16,621 Water 2,616 5,767 Elevator and Door Safety 11,510 12,102 Process Safety 6,503 6,579 Resistors 1,419 2,218 Optics and Specialist including holding companies 11,583 7,135 _______ _______ Ongoing operations 50,344 50,422 Discontinued operations - (370) _______ _______ Segmental profit 50,344 50,052 Goodwill amortisation and exceptional items (5,491) (13,369) Interest 45 232 _______ _______ Profit on ordinary activities before taxation 44,898 36,915 _______ _______ Notes on the Preliminary Announcement 1 Basis of preparation Based on audited accounts the financial information set out above does not constitute the Company's statutory accounts for the years ended 2 April 2005 or 3 April 2004, but is derived from those accounts. Statutory accounts for 2003/04 have been delivered to the Registrar of Companies and those for 2004/05 will be delivered before the Company's Annual General Meeting. The auditors have reported on these accounts; their reports were unqualified and did not contain statements under s237(2) or (3) Companies Act 1985. 2 Taxation £000 52 weeks to 53 weeks to 2 April 2005 3 April 2004 Current tax UK corporation tax at 30% (2004: 30%) 7,615 7,573 Overseas taxation 6,971 7,434 Adjustments in respect of prior years (28) (383) _______ _______ Total current tax 14,558 14,624 _______ _______ Deferred tax Origination and reversal of timing differences 963 (49) Adjustments in respect of prior years 19 18 _______ _______ Total deferred tax charge/(credit) 982 (31) _______ _______ 15,540 14,593 _______ _______ Reconciliation of effective tax Before goodwill amortisation After goodwill amortisation rate on ordinary activities: and exceptional items and exceptional items 52 weeks to 53 weeks to 52 weeks to 53 weeks to 2 April 2005 3 April 2004 2 April 2005 3 April 2004 % % % % UK corporation tax rate 30.0 30.0 30.0 30.0 Higher tax rates on overseas profits 2.2 2.7 2.5 3.6 Adjustments in respect of prior (0.1) (0.8) (0.1) (1.0) years Other timing differences (2.4) (2.0) - 7.0 _______ _______ _______ _______ Current tax 29.7 29.9 32.4 39.6 Deferred tax 1.5 1.4 2.2 (0.1) _______ _______ _______ _______ Effective tax rate 31.2 31.3 34.6 39.5 _______ _______ _______ _______ 3 Ordinary dividends 52 weeks to 53 weeks to 52 weeks to 53 weeks to 2 April 2005 3 April 2004 2 April 2005 3 April 2004 p p £000 £000 Interim paid 2.58 2.44 9,510 8,945 Final proposed 3.92 3.75 14,457 13,762 Balance of final dividend - - 48 18 _______ _______ _______ _______ 6.50 6.19 24,015 22,725 _______ _______ _______ _______ If approved at the Annual General Meeting, the final dividend for 2004/05 will be paid on 24 August 2005 to shareholders on the register at the close of business on 22 July 2005. 4 Earnings per ordinary share Earnings per ordinary share on a statutory basis are calculated by dividing the profit for the financial year of £29,358,000 (2004: £22,322,000) by the weighted average of 368,181,035 shares in issue during the year (2004: 366,237,803). The earnings per ordinary share before goodwill amortisation and exceptional items as presented on the Consolidated Profit and Loss Account, represents a more consistent measure of underlying performance. A reconciliation of earnings and the effect on per share figures is presented below: Per ordinary share 52 weeks to 53 weeks to 52 weeks to 53 weeks to 2 April 2005 3 April 2004 2 April 2005 3 April 2004 £000 £000 p p Earnings 29,358 22,322 7.97 6.09 Add back: goodwill amortisation (after tax) 5,332 3,880 1.45 1.07 exceptional items (after tax) - 8,355 - 2.28 _______ _______ _______ _______ Earnings before goodwill amortisation and exceptional items 34,690 34,557 9.42 9.44 _______ _______ _______ _______ 5 Notes on cash flow statement £000 52 weeks to 53 weeks to 2 April 2005 3 April 2004 Reconciliation of operating profit to net cash inflow from operating activities Operating profit 44,853 45,832 Depreciation 7,901 7,879 Goodwill amortisation 5,491 4,220 (Profit)/loss on sale of tangible fixed assets (21) 109 Decrease in SSAP 24 pension prepayment 70 112 Property sale receivable - 1,100 (Increase)/decrease in stocks (1,000) 744 Decrease/(increase) in debtors 1,355 (1,404) Increase in creditors 1,667 1,190 _______ _______ Net cash inflow from operating activities 60,316 59,782 _______ _______ Reconciliation of net cash flow to movement in net cash/(debt) (Decrease)/increase in cash (4,872) 1,535 Increase in liquid resources 1,663 19,662 Cash inflow from loans (5,764) (2,683) Loans acquired (1,125) - Exchange adjustments 554 3,127 _______ _______ (9,544) 21,641 Net cash/(debt) brought forward 21,548 (93) _______ _______ Net cash carried forward 12,004 21,548 _______ _______ This information is provided by RNS The company news service from the London Stock Exchange

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