19th Jun 2007 07:01
Halma PLC19 June 2007 HALMA p.l.c. PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2007 19 JUNE 2007 Record revenues and profits once again with good organic growth Halma, the leading safety, health and sensor technology group, today announces its preliminary results for the year to31 March 2007. Highlights include: - Growth in all three business sectors and across all global regions. - Revenues from continuing operations up 14% to £354.6 million (2006: £310.8 million), including 8% organic growth*. - Adjusted pre-tax profits** from continuing operations up 14% to £66.1 million (2006: £58.1 million), also including 8% organic growth*. - Strong margins and returns maintained, with Return on sales*** of 18.6% (2006: 18.7%) and ROTIC* of 14.0% (2006: 12.8%). - Good cash generation supporting a record dividend, increased by 5%; with modest (£7.7 million) net debt and substantial resources available for further investment in innovation and growth. - Five acquisitions completed in closely targeted sectors, all performing well. - Greater activity in Asia, reflecting Halma's strategy of accelerated business development in the region. * Organic growth rates and Return on total invested capital (ROTIC) are non-GAAP performance measures ** used by management in measuring the returns achieved from the Group's asset base. See note 7 for *** details. Adjusted to remove the amortisation of acquired intangible assets of £3.5 million (2006: £1.5 million). Return on sales is defined as adjusted** profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations. Commenting on the results, Andrew Williams, Chief Executive of Halma, said: "We have achieved record revenues and profits once again, demonstrating our ability to deliver organic growth which isthe primary measure of our success. Our proven ability to choose sustainable growth markets is being boosted withgreater ambition, customer focus, more innovation, new technologies and stronger management resources, all driven with aclear strategy for each part of our business. We are making good progress and we remain positive about our prospectsfor the year and the longer term." Geoff Unwin, Chairman of Halma, said: "Another good year with continuing investment in people, innovation, market development and acquisitions. This, togetherwith strong and effective leadership from our management team, gives us confidence for the future." For further information, please contact: Halma p.l.c. +44 (0)1494 721111Andrew Williams, Chief ExecutiveKevin Thompson, Finance Director Hogarth Partnership Limited +44 (0)20 7357 9477Rachel 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 2 July 2007 and will be available to thegeneral public on written request to the Company's registered office at Misbourne Court, Rectory Way, Amersham, BucksHP7 0DE. PHOTOGRAPHS High resolution photos of Halma senior management, including Chief Executive Andrew Williams, and images illustratingHalma business activities can be downloaded from its website: www.halma.com. Click on the 'News' link, then 'ImageLibrary'. Photo queries: David Waller +44 (0)20 8205 0038, e-mail: [email protected]. NOTE TO EDITORS Halma develops and markets products used worldwide to protect life and improve the quality of life. The Groupcomprises three business sectors: • Infrastructure Sensors• Health and Analysis• Industrial Safety The key characteristics of Halma's businesses are that they are based on advanced technology and offer strong growthpotential. Many Group businesses are a clear market leader in their specialist field and, in a number of cases, arethe dominant world supplier. HALMA p.l.c. Group Results for the 52 weeks to 31 March 2007 Financial highlights 52 weeks 52 weeks Change 31 March 2007 1 April 2006 Continuing operations:Revenue + 14% £354.6m £310.8m Adjusted profit before taxation (1) + 14% £66.1m £58.1mStatutory profit before taxation + 11% £62.6m £56.6m Adjusted earnings per share (2) + 14% 12.50p 11.01pStatutory earnings per share + 11% 11.86p 10.73pTotal dividends (paid and proposed) per share + 5% 7.18p 6.83p Return on sales (3) 18.6% 18.7%Return on total invested capital (4) 14.0% 12.8%Return on capital employed (4) 60.1% 56.9% Pro-forma information:1 Adjusted to remove the amortisation of acquired intangible assets of £3,458,000 (2006: £1,500,000).2 Adjusted to remove the amortisation of acquired intangible assets. See note 4 for details.3 Return on sales is defined as adjusted(1) profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations.4 Organic growth rates, return on total invested capital and return on capital employed are non-GAAP performance measures used by management in measuring the returns achieved from the Group's asset base. See note 7 for details. Chairman's statement Another good year with continuing investment in people, innovation, market development and acquisitions. The last financial year has again seen good progress for Halma. Revenue from continuing operations increased 14% to£354.6 million (£310.8 million in 2006) with underlying organic growth* of 8.1% despite adverse currency effects of 2.3%i.e. 10.4% at constant currency. Profit before tax and amortisation of acquired intangibles on continuing operationswas £66.1 million (2006: £58.1 million) an increase of 14%, organic growth* at constant currency was 10.1%. Thisorganic profit growth* compares with an equivalent figure of 14% in 2006 where we benefited from the rebound in theWater business, so in the year under review we faced slightly tougher comparables. Statutory profit before taxincreased by 11% to £62.6 million. The Board is recommending a final dividend of 4.33p per share, an increase of 5% forthe year and our 28th consecutive year of dividend increases of 5% or more. Our dividend cover has increased to 1.74times (2006: 1.61 times). Return on total invested capital* was 14.0% (2006: 12.8%). We have also made a number of acquisitions during the year: Mikropack, Baldwin Environmental and Labsphere in the Healthand Analysis sector and Tritech and System Technologies in the Industrial Safety sector. In total we invested £27million in acquisitions with a maximum potential of a further £5 million in deferred consideration. After the positiveaction taken in the previous year, no disposals were made during the period under review. At the end of the year ournet debt was £7.7 million. During the year we have seen a continuous flow of new products. We are also beginning to see results from ourinvestments in China. During the year seven additional companies within the Group established a local presence thereand during the coming year we expect several more to commence. Our investment in people continues apace with enthusiastic attendance at our management training programmes and it ispleasing to see the energy with which attendees return to their companies, refreshed, invigorated, having learnt much,but more importantly, with a network of colleagues who actively support each other on all aspects of our business suchas selling, innovation, technology and quality. All of these investments, together with our investments in strengthening our selling and distribution resources, feedand support our strategy for healthy organic growth, so it is encouraging to see that this focus continues to bearfruit. This also gives us even more confidence that we can deliver significant value for shareholders from acquisitionsthat fit our strategic framework and meet our strict acquisition criteria. Furthermore we have significant financialresource at our disposal to do more. In March, Andrew Walker stepped down from the Board and I should like to record our thanks for all his contributionduring his four-year tenure as a non-executive Director of the Group and wish him well for the future. On behalf of the Board, I should also like to thank all our employees for producing such a good performance. In summary, another good year with continuing investment in people, innovation, market development and acquisitions.This, together with strong and effective leadership from our management team, gives us confidence for the future. Geoff Unwin Chairman * See Financial highlights. Chief Executive's strategic review Record revenues and profits once again demonstrating our ability to deliver organic growth Record results with 8% organic profit growth* We have achieved record revenues and profits once again, demonstrating our ability to deliver organic growth which isthe primary measure of our success. For continuing operations, total revenues increased by 14%, including 8% organicgrowth*, with total profits before amortisation of acquired intangibles also increasing by 14%, including 8% organic*.Impressively, these significant increases were achieved despite a 2% to 3% adverse currency impact during the year. Strong returns and cashflow supports record dividend and investment Return on sales* (2007: 18.6%; 2006: 18.7%), Return on capital employed* (2007: 60.1%; 2006: 56.9%) and Return on totalinvested capital* (2007: 14.0%; 2006: 12.8%) all remained strong or increased in accordance with our objective ofgenerating growth without diluting the quality of our returns. Cashflow was good and we ended the year with £7.7 million net debt having funded five acquisitions, significant organicgrowth and a further dividend increase of 5%. Acquisitions completed in targeted markets The Group completed five acquisitions during the year. Two of these acquisitions, Mikropack (April 2006) and BaldwinEnvironmental (September 2006) added new products to two of our leading Health and Analysis businesses and were mergedwith these existing businesses immediately on completion. Of greater significance were Tritech/System Technologies(November 2006) and Labsphere (February 2007) who are world leaders in subsea asset monitoring (Industrial Safety) andlight measurement (Health and Analysis) respectively. All five businesses have performed well since joining the Group.We have allocated more resources to our acquisition search activity as acquisitions continue to be an important elementof our long-term growth plans. Growth in all business sectors and all global regions Each of Halma's three business sectors achieved record revenues and profits. • Infrastructure Sensors grew strongly with profits up 16% from 17% revenue growth following the increased investment in sales and product development made last year. • Health and Analysis performed well generating a 7% increase in profits from revenue up 9%. This sector makes just under half of all the Group's sales into markets where the currency is US$ (or US$-related) and bore the brunt of adverse currency movements during the year. • Industrial Safety proved once again to be a strong and consistent performer with revenue growth of 15% driving profits up by 19%. Geographically, revenues and profits increased in each major territory. The UK and mainland Europe proved to beparticularly strong and our Industrial Safety businesses benefited from continuing high investment in the oil, gas andpetrochemical industries - especially in the Middle East. Many of our products are used to protect or improve the environment which offers us exciting opportunities for growth.In addition, we recognise that we can do more to minimise the impact that our business activities have on theenvironment and believe we can do this by increasing efficiencies thereby creating further value for shareholders. Greater activity in Asia Revenues to Asia Pacific and Australasia grew by 7% and continue to represent around 10% of Group sales. Over themedium term, this region offers growth rates in excess of the Group average and, as announced previously, we createdHalma "hubs" in Shanghai and Beijing in August 2006 to accelerate business development by our subsidiaries in theregion. This is a good example of how the Group can help our businesses to develop more quickly without compromising theirautonomy and freedom. We regularly review the opportunities for similar Group initiatives in other regions, markets orfunctional areas. Product and process innovation driving organic growth We maintained a healthy level of investment in Research & Development (R&D) (4.3% of revenues) and capital expenditure.These investments are critical factors in our ability to sustain growth through increasing innovation in products andprocesses. Over 70 new products were launched by Halma companies during the year, providing encouragement for our futuregrowth prospects. Some of these products resulted from collaboration amongst Group companies. Increasing investment in talented people Developing and growing businesses already performing at a high level is a challenging task and I would like to thankeach employee in every Halma company for their contribution to another successful year for the Group. We have worked hard in recent years to change our culture from being too inwardly focussed on managing returns. Thishas included major people changes with over 65% of our subsidiary managers having joined the Group in the past fouryears. Increased investment in training and development, including the flagship Halma Executive Development Programme (HEDP)launched 18 months ago, is translating into improved financial performance and greater strategic clarity throughout theGroup. By the end of 2007, over 80 of our senior managers will have benefited from the HEDP. This commitment to improving our people resources means that internal promotions are now a more realistic and frequentoption. Accordingly, it was pleasing for me to promote Mark Lavelle to the Executive Board in April 2007 following fivesuccessful years as Managing Director of Keeler, one of our Health and Analysis businesses. This coincided with achange of divisional responsibilities in the Executive Board to ensure we continue to provide fresh insights and newapproaches for our businesses. Halma's long-term growth record continues Since 1970, Halma has increased revenue every year bar two. Today we have very modest net debt of £7.7 million havingself-funded organic growth, acquisitions and paid dividends to shareholders over the years totalling £235 million,excluding the final dividend proposed for this year. So what has changed over the past two years to give us a new confidence that we can attain even higher levels ofsuccess? Simply that our proven ability to choose sustainable growth markets is being boosted with greater ambition,customer focus, more innovation, new technologies and stronger management resources all driven with a clear strategy foreach part of our business. These results demonstrate that we are making good progress and we remain positive about ourprospects for the year and the longer term. Andrew Williams Chief Executive * See Financial highlights. Financial review A strong performance with widespread growth Record revenue and profit We achieved our highest ever revenue from continuing operations at £354.6 million (2006: £310.8 million), an increase of14% over the prior year. Profit before tax and amortisation of acquired intangibles at £66.1 million (2006: £58.1million) on our continuing operations, excluding the disposals made in the prior year, was 14% higher and was also arecord. Adjusting for the extra profit which came with acquisitions gives organic growth* of 8.1% in revenue and 7.6% in termsof profit. There was a notable currency headwind through the year and without that organic revenue and profit growthwould have been 2.3% and 2.5% higher respectively. See below for more detail on currency impacts. Earnings per sharewere up 11% on a statutory basis and up 14% on our adjusted* basis. A year of good further progress. As noted above there were disposals last year but none this year and so the comparative figures are for continuingoperations only. We have made a minor reclassification within our sector figures, moving our Asset monitoring businessinto the Industrial Safety sector and details of the change are given in note 1. All sectors grew strongly Infrastructure Sensors and Industrial Safety sectors both grew revenue and profit by more than 15%. Thestrong performance of Infrastructure Sensors, our largest sector, was underpinned by the higher investmentmade last year. The Health & Analysis sector grew revenue by 9% and 7% in terms of profit*, above our targetof 5% growth and following on from very strong growth in the previous year. Return on sales* for each sectorremained firmly in the 18% to 21% range. Sector performances are discussed further below. Revenue to all destinations grew There was widespread geographic growth in revenue. The following table gives revenue from continuingoperations by destination. £ million Revenue % changeUnited States of America 98.9 5.1%United Kingdom 96.5 16.4%Mainland Europe 91.4 18.4%Asia Pacific and Australasia 35.5 6.6%Africa, Near and Middle East 22.3 51.5%Other 10.0 16.5% 354.6 14.1% In the US our Health and Analysis and Industrial Safety businesses showed solid growth with InfrastructureSensors not yet making as strong progress. In the UK, Africa, Near and Middle East, Infrastructure Sensorsperformed very well, as it did in Mainland Europe, with the majority of the European increase comingorganically. Industrial Safety grew strongly in the UK assisted by the addition of the Tritech business.Growth in the Asia Pacific region was more modest although sales to China grew by 26% from a low base. We areputting far greater resources into this region to capture the opportunity there. Importantly, revenue outsideof the US/UK/Mainland Europe grew by a further 20% as we expand our geographic coverage. A continued trend of strong margins and returns Resumption of strong growth In the year we again achieved very good organic growth and at the same time maintained high returns. Animportant part of our strategy is the delivery of excellent returns and the strong cash flow which comes fromthem. These high returns have been a feature of the Group over many years, but significantly this has onceagain been coupled with good organic growth in these past two years. ROCE* of 60.1% and ROTIC* of 14.0% Our returns are strong and stable. Return on capital employed (ROCE) was 60.1% (2006: 56.9%) showing the highvalue we generate from our tangible asset base. Return on total invested capital (ROTIC) increased to 14.0%(2006: 12.8%), this is a post-tax return on the total asset base including all historic goodwill but excludingthe pension deficit. See note 7 for the full calculation of ROCE and ROTIC. ROTIC has grown recently because we have grown earnings at a faster rate than the underlying capital base. Ineach year ROTIC has been well in excess of our Weighted average cost of capital (WACC) which has beencalculated as currently being 7.7%. A sustained high ROTIC well above our WACC is a central element of ourvalue creation strategy. High Return on sales* at 18.6% Once again we delivered a high Return on sales* figure at 18.6% (2006: 18.7%). We disposed of some businesseslast year which generated a slightly lower margin. The Group has operated with a Return on sales* range of16.2% to 19.8% for more than 20 years. These sustained high margins demonstrate the significant value placedon our products by our customers throughout the economic cycle Maintaining a strong financial position Good cash flow The Group generated strong cash flow once again with cash generated from operations of £70.3 million. Thefollowing table sets out the main components of our cash flows and these are discussed in the sections below. Change in net cash£million 2007 2006Cash generated from operations 70.3 70.2Acquisition of businesses (27.5) (36.2)Disposal of businesses - 14.6Development costs capitalised (3.9) (2.5)Net capital expenditure (7.3) (11.6)Dividends paid (25.9) (24.5)Taxation paid (19.5) (16.8)Issue of shares and purchase of treasury shares 3.6 0.6Net finance expense (0.8) (0.4)Exchange adjustments (0.2) (1.9) (11.2) (8.5)Net cash brought forward 3.5 12.0Net (debt)/cash carried forward (7.7) 3.5 The Group finances its operations from retained earnings and has access to third party borrowings when needed. Thereare no material funds outside the UK where repatriation is restricted. Our treasury policies seek to minimise financialrisks and ensure sufficient liquidity. No speculative transactions are undertaken. Foreign currency profits are nothedged but purchase and sale transactions are hedged into the functional currency of the relevant operating company andbalance sheet net currency assets are substantially hedged. More earnings enhancing acquisitions We continued to implement our strategy of acquiring successful businesses and helping them grow. In particular, weoffer businesses an autonomous environment within which to continue their record of success. We spent £27.5 million onacquisitions in the year of which £8.2 million related to the payment of deferred consideration on acquisitions made inprevious years. Acquisitions made in the year have met or exceeded our expectations. The largest acquisitions in the year were of Tritech/System Technologies and Labsphere. We acquired Tritech/SystemTechnologies, who design and manufacture underwater asset monitoring equipment, in November 2006. Their 2005 auditedaccounts showed annual revenue of £5.4 million and profit of £1.1 million on a combined basis, with further encouraginggrowth since that time. We paid an initial consideration of £10 million, with a further potential payment of up to £4.5million conditional on substantial future growth. Labsphere, a world leader in light testing and measurement products, was acquired in February 2007 for a cashconsideration of US$ 14.3 million (£7.2 million). There are no additional payments to make for this acquisition.Labsphere's unaudited accounts for 2006 show revenues of US$ 12.5 million (£6.3 million) and operating profit of US$ 2.4million (£1.2 million). In the year we also acquired Mikropack, which makes light sources and photonic accessories, for €2.3 million (£1.5million) and Baldwin Environmental for US$ 1.1 million (£0.6 million) with a potential further total of £1.9 millionpayable on the two acquisitions if performance targets are met. All of these acquisitions were immediately earnings enhancing and were generating a rate of return in excess of our WACCat the time of acquisition. We continue to invest considerable resources into identifying further acquisitions in ourchosen markets. Capital expenditure at typical levels We spent £10.9 million on property, plant and computer software in the year, a lower figure than the high expenditurelast year representing 134% of depreciation/amortisation - a more typical level for the Group. Two surplus propertiessold during the year increased disposal proceeds. In 2007/08 we expect to undertake two specific property developmentsat separate subsidiaries which should add to the underlying rate of capital investment and also produce a small gain ona property disposal. Further 5% dividend increase with cover raised The Board has recommended a further 5% increase in the final dividend up to 4.33p which together with the interimdividend (also 5% higher) will give a total dividend of 7.18p for the year, assuming the final dividend is approved.This will mean a total payout to the shareholders in dividends of £26.7 million in relation to the year ended 31 March2007. This continues our progressive dividend policy stretching back many years. It also furthers our objective ofincreasing dividend cover (based on profit from continuing operations before amortisation of acquired intangible assets)towards a figure of around 2.0 over time, by lifting the cover from 1.61 to 1.74 times. Tax rate The effective tax rate on profit from continuing operations (before amortisation of acquired intangible assets) is verysimilar to last year at 29.8% (2006: 30.1%). Future effective tax rates are more likely to be higher although notsignificantly so. Pension contributions increased, deficit reduced As indicated last year we have increased the rate of contributions into our defined benefit pension plans which wereclosed to new entrants in 2003. An additional £3 million was paid into the plans in the year and over the next couple ofyears we expect the annual cash contributions to continue to increase by a further £2 million, so that we can meet ourobjective of paying off the deficit, as measured on an IAS 19 basis, over a 10-year period. These extra contributionsare not insignificant but are not expected to impair our growth opportunities. The pension deficit on an IAS19 basisreported in the accounts has reduced from £46 million last year to £37 million at year end, before the related deferredtax asset. This decrease arises from an increase in the value of plan assets, helped by the additional contributions,offset by proportionately less of an increase in the present value of plan liabilities due to a higher discount ratebeing applied. Modest net debt of £7.7 million We finished the year with a modest level of gearing at £7.7 million (2006: £3.5 million net cash). This begins toutilise the £60 million five-year debt facility put in place last year with our well-established banking partners. TheBoard would be willing to utilise more of this facility if good acquisition and investment opportunities are identified. The Group continues to be able to borrow at competitive rates and therefore currently deems this to be the mosteffective method of funding our increasing investment. A currency headwind continues There was a currency headwind through the year, particularly in the second half. Approximately one-third of Grouprevenue is denominated in US Dollars and 15% in Euros with the US Dollar recently showing significant adverse movementrelative to Sterling. We translated our US Dollar revenue and profit to Sterling at an average rate of 1.78 in 2005/06but in 2006/07 this average was 1.89. As a guide, a 1% weakening of the US Dollar relative to Sterling is expected toreduce revenue by approximately £1 million and profit by £0.2 million in a full year. The adverse movement in the SouthAfrican Rand relative to Sterling in the year also reduced profitability in our Infrastructure Sensors business whichhas a sizable operation in South Africa. As previously indicated there has been an adverse impact in translating ourresults into Sterling which we estimate as reducing revenue by 2.3% and profit by 2.5% and most of this impact hasfallen in the second half of the year. If current exchange rates prevail, our results will continue to be adverselyimpacted, particularly in the first half of the current financial year. The impact of currency movements on the Group's net tangible assets is largely offset by the currency hedging loans wehave in place. Amongst the operating sectors it is the Health & Analysis sector which has the biggest trading exposure to the US Dollarboth in terms of origin and destination of its business. The Health and Analysis businesses generate 45% of theirrevenue from the US compared with 21% for Infrastructure Sensors and 16% for Industrial Safety. This gives anindication of the relative impact of US Dollar movement and it is the profitability of the Health & Analysis sectorwhich was hardest hit by the fall in the US Dollar relative to Sterling in 2006/07. Active investment for the future Growing R&D and extending innovation We continue to invest heavily in Research & Development (R&D) and are active in promoting an innovative culture acrossthe Group. Expenditure on R&D in the year was 4.3% of revenue (2006: 4.3% of revenue) and amounted to £15.3 million,14% up on last year for continuing operations. We do not specifically capture the expenditure on all innovation as itpermeates every aspect of our activities but this is an increasing use of existing and new resources. In our threesectors, relative to our growing revenue, our spend on R&D this year is consistent with last year. The Health & Analysissector continues to invest the highest percentage at 5.3%. Under International Financial Reporting Standards (IFRS) we are required to capitalise certain development expenditureon the Consolidated balance sheet and also to amortise that asset over an appropriate period. In the year wecapitalised £3.9 million of such development expenditure and amortised £1.5 million, giving rise to an asset of £6.1million in the March 2007 balance sheet. The nature of R&D is that it involves risk and therefore we carefully monitorall costs carried on the balance sheet. The Consolidated income statement was charged with a cost 4% higher than lastyear. This increasing rate of investment in new, innovative products underpins our future growth. Developing in China We have taken a big step forward in China this year in terms of getting more high quality resource on the ground. TheAsia Pacific region contributes only 10% of our total revenue, with China as a small part of this. We see substantialopportunity for many of our products in this region and so the extra investment in China, around £0.5 million more in2006/07, is an important part of the growth process. Our task in 2007/08 and beyond is accelerating the payback on thisinvestment. Developing our strong control culture and our people We spread our risks in part by operating through a number of closely managed individual businesses. We have highquality local teams guiding each business within our overall reporting and control framework. There is significantexternal review of these operations and one element of that review process, our Internal Audit, has been furtherenhanced this year by more in-depth visits. Each business has a senior finance executive on site who plays an importantpart in the control and growth of the business. We continue to actively develop our people and we have now had 13 ofour senior finance staff graduate from the Halma Executive Development Programme (HEDP) and are finding them able tomake an even broader contribution to the progress of the business. Taking our environmental responsibilities seriously Our impact on the environment is low and we produce many products which themselves have a positive impact. Carbonemissions reduction seems to be important for the future and we are putting in place a variety of actions to bothmonitor and actively manage our carbon footprint. We are at the early stages of formulating reliable measures and KPIs,but are making good progress. We take a broader view that our impact on the environment is not just in relation tocarbon emissions but also water usage, packaging and waste generally, all areas where we have a good record. Not only should we be able to comply with regulations as they develop but also we are focussing our efforts in this areaon increasing profitability and genuinely improving our business. Improving further in these areas should delivergreater value for customers and shareholders. Kevin Thompson Finance Director * See Financial highlights. Business Review Group Overview Halma protects lives and improves quality of life for people worldwide through innovation in market leading productswhich make our customers safer, more competitive and more profitable. Business overview Halma is made up of three sectors each comprising autonomous operating companies which mainly manufacture innovativeelectronic and electrical products for niche markets with global dimensions. We are an international group withbusinesses in over 20 countries and major operations in Europe, the US, Asia and Africa. You will find a description ofsector strategies, trends in our markets and sector performance in the sector reviews below. These sectors are: • Infrastructure Sensors detecting hazards, and protecting people and property in buildings• Health and Analysis improving public and personal health; protecting the environment• Industrial Safety protecting property and people at work Strategy and business objectives Our strategy for driving growth and creating shareholder value centres on five key principles: • Operate in specialised global markets offering long-term growth underpinned by robust growth drivers; • Build businesses which lead specialised global markets through innovative products differentiated on performanceand quality rather than price alone; • Recruit and develop top quality boards to lead our businesses and nurture an entrepreneurial culture within aframework of rigorous financial discipline; • Acquire companies and intellectual assets that extend our existing activities, enhance our entrepreneurialculture, fit into our decentralised operating structure and meet our demanding financial performance expectations; • Achieve a high Return on capital employed to generate cash efficiently and to fund organic growth, closelytargeted acquisitions and sustained dividend growth. Organic growth is the key to our value creation strategy. The 'blended' long-term growth rate of our markets is around5% per year and our aim is to grow faster than our markets. Following a strong year in 2005/06, achieving 8% organicgrowth in 2006/07 was an excellent result and represents a second year of good progress following low organic growth inthe preceding years 2000 to 2005. R&D and innovation play an important role. Strategically, we aim to provide technical resources within each business asclose as possible to the customer. Whilst respecting the autonomy of subsidiary companies, we encourage collaborationbetween Halma companies and see this as a potential competitive advantage that has been under-utilised in the past.During 2006/07, the increased collaboration started to bear fruit with new products launched incorporating technologyand know-how from two or more Halma companies. These included fire products, which combined visual and audible alarmmodules together with our market leading smoke detectors. Our businesses build competitive advantage and strengthen barriers to entry in many ways including patents, productapprovals, technical innovation, product quality, customer service levels and branding. We look for these qualities inthe businesses we seek to acquire. We like regulated markets which require suppliers to achieve compliance withdemanding product standards but also look for other robust long-term growth drivers such as demographic change. How we operate We cultivate a highly decentralised operating culture which encourages our businesses to focus on establishing marketleadership in their selected niche within a global market. Each subsidiary is led by a management team who enjoygenuine autonomy and the freedom to grow in an entrepreneurial environment. These management teams are chaired by Halma's Divisional Chief Executives (DCEs) who understand the market needs and cancontribute broadly to the individual company's strategy in technical, operational and commercial areas. These DCEs meetwith the Group Chief Executive regularly to review progress against their operating division's strategic objectives. Through the regular interaction between the Group's Executive Board members, common challenges and opportunities forGroup businesses are identified which sometimes leads to a central initiative. Examples of initiatives underway aresales process improvement, innovation, people development and increasing activity in China via our Halma hubs inShanghai and Beijing. DCEs are responsible for finding, negotiating, completing and managing acquisitions in their own business sectors.Acquisition costs, including goodwill, are incorporated in the incentive plans of all Executive Board members. When new acquisitions join Halma they invariably retain their name and identity, and vendors often continue to work withus. Elsewhere entrepreneurs who typically find working in a large international organisation too constraining welcomeour autonomous culture and decentralised structure which allows them to develop further. Group outlook 2006/07 marked another year of good progress for the Group with record revenues and profits. Significant investmentcontinues in R&D, capital expenditure and strengthening channels to market. This combination of delivering strongresults whilst increasing investment provides a solid platform from which it is possible for the Group to sustainorganic growth above market rates. Good quality prospects for further acquisitions in our target markets exist and acquisitions will continue to play animportant role in the Group's long-term growth. We have clear growth strategies for our markets and we continue to work hard to improve the quality of our executionthrough active resource allocation and people development. We are well placed to deliver sustained growth and enter thenew year in good shape. Infrastructure Sensors sector review Sector overview Infrastructure Sensors, our largest business, contributes 44% of Group revenue (£155 million) and 41% (£28 million) ofGroup profit+. Our principal products are sensors for fire, security, automatic doors and elevator controls. + see note 1 to the Preliminary Announcement Sector strategy Our strategy in this sector is to become the leading supplier of safety-critical sensor components used innon-residential building monitoring and control systems. We focus on specialist components, not complete installedsystems. The global manufacturers of complete building infrastructure systems see us as a strategic partner orspecialist supplier of advanced technology components rather than a direct competitor. To support our Elevator safety sales growth, during the past year we organised our companies into three regionalbusinesses covering Asia, Europe and North America. Our strategy is to boost competitiveness by presenting customerswith a single, seamless source for our complete range of elevator safety products in each region. As part of a strategyof getting closer to elevator customers than our competitors, we opened new regional sales offices in Delhi, Houston,and Toronto adding to the new offices opened in Asia and the Middle East last year. Continuous manufacturing cost reduction remains a key strategic activity within this sector balanced by the need toremain close to our customers. Consequently, we will continue to invest significantly in our Czech and Chinesefactories. Market trends A significant trend in the Infrastructure Sensors market sector is rising demand for integrated fire, security,evacuation and access systems. To accommodate this need, we have developed a new technology platform which will belicensed to our fire alarm system partners so that our fire detectors can be specified in buildings with integrated fireand security monitoring. Worldwide demand for fire detectors remains strong. With a growth rate of 18%, China continues to offer the highestrevenue growth potential. Europe, where our fire product revenues grew by over 15%, reversed the downward trend of lastyear due to recovery in the German market. Downward pricing pressure continues in the fire detector market, particularly in the Middle East and Asia. Furtherinvestment in our sales channels, coupled with increased spending on R&D and the supply chain, delivered continuedgrowth in these markets and gross margins remained solid. Our ability to innovate and respond rapidly to frequent regulatory changes maintains competitive advantage. In additionto new technical standards, during the past year we accommodated new regulations covering: safe disposal and recycling of waste electrical products (WEEE Directive); restrictions on the use ofhazardous substances in electrical products (RoHs Directive); and enhanced electromagnetic compatibility standards (CPDDirective). Our Security sensors sell into a global market worth over £2 billion annually, which continues to grow at 6% per year.Following our acquisition of Texecom in November 2005, we established a strong presence in the UK and South Africanmarkets and are making good progress towards gaining the necessary product approvals to sell our products into China andthe US. These markets offer us significant growth potential and we will be using expertise in our other InfrastructureSensors businesses to develop our presence more rapidly. Our internal estimate is a 3% to 4% global growth rate for the automatic door safety market. We have high market sharesin Europe and the US where many of our competitors have chosen low prices as their main competitive strategy. Ourstrategy to maintain our margins and market share by reducing production costs and introducing new market leadingproducts tailored for each region, continued to be successful. We believe that the global market growth rate for new elevators (and elevator services) is in the region of 5% to 6%. Wecalculate the annual value of the elevator markets that we serve at £180 million. The Middle East, India and China offerthe highest growth rates for elevator safety sensors. Price competition is prevalent; severe in China, but moderate inEurope and the US. New European legislation called 'Safety Norm EN-81', designed to improve elevator safety and accessibility for peoplewith disabilities, boosted European demand for our products in the building modernisation market. Sector performance Our Fire detector businesses produced record revenues and profits. In 2006/07, organic revenue and profit growth wasmore than double market growth rates thereby increasing market share while improving profitability. More than 10significant new fire products were introduced and we obtained 450 new product approvals for global markets. Despite strong revenue growth, profit growth from security sensor products suffered from currency volatility as well ashigh investment in new markets and product development. Even with strong price competition in the automatic door sensor market, both revenues and profits grew significantly. Wemaintained our high market shares in Europe and the US and defended our good profit margins partly by cutting productioncosts through increased investment in our Chinese manufacturing capacity. However, we also benefited from launchinginnovative, market leading products, such as the 4Safe sensor which prevents people from being trapped or injured inautomatic, revolving or swing doors. New legislation boosted sales of 4Safe in Germany. Last year we began to increase our direct presence in key developing elevator markets and this year both revenue andprofit moved ahead. We countered a slight dip in margins in the past year with new, lower cost products and by cuttingproduction costs. Revenues from offices set up in Dubai and Mumbai have grown very successfully, whilst progress in newregional offices in China has been more varied. ROCE for the sector as a whole continues to be excellent. Sector outlook With our Fire detector and Automatic door sensor businesses achieving solid organic profit growth on increased revenues,a flow of new products aimed at diversification and market expansion is planned to drive growth. Continuedstrengthening of senior management and IT investment in our Security sensor and Elevator safety businesses is wellunderway to improve the potential for profit growth in these businesses in the future. Health and Analysis sector review Sector overview Health and Analysis contributed 34% (£120 million) of Group revenue and 36% (£24 million) of Group profit+. + see note 1 to the Preliminary Announcement Sector strategy In Water management we aim to be the technology leaders and offer water utilities worldwide new solutions to their watersupply problems. Our Water UV treatment growth strategy is to unlock new regulated markets via further productvalidations, and to adapt existing product lines for new applications. We aim to grow our Fluid technology business by broadening our product range and our presence outside of our traditionalUS stronghold both via organic growth and acquisitions. Geographic expansion and innovative product development are our twin organic growth strategies for Photonics. TheMikropack and Labsphere acquisitions completed this year added complementary light generation and measurementtechnologies. We will seek further photonics acquisitions which we can grow rapidly using our well-established saleschannels. In Health optics, higher R&D investment is resulting in an increased rate of new product introduction. This will enableus to grow market share in developed countries whilst we build sales channels in the developing world for the longerterm. Market trends Confidential market research values the US market for UV water treatment plant at £120 million annually which ourinternal estimates suggest equates to the rest of the world's combined markets. Market growth is estimated to be over15%, driven by increasing health regulation and an expanding industrial customer base including semiconductors,aquaculture and leisure pools. Regulation plays an increasingly important role in developing regional water markets. The US Environmental ProtectionAgency recently issued guidance that will accelerate adoption of UV treatment for controlling water-borne diseases indrinking water. EU expansion is driving demand; new member states must adopt EU health and safety regulations. Using internal data, we estimate that the global market for water pipework monitoring and leak location equipment isworth over £45 million annually. We estimate the market has grown by 7% per year (compound) for the past four years andwe anticipate similar growth as a minimum for the next five years. In Fluid technology, there has been greater consolidation within the clinical diagnostic instrumentation market than inprevious years due to M&A activity. We are broadening our product offering into the medical and environmentalinstrumentation segments which are also growing fast. For example, China plans to invest £87 billion between 2006 and2010 on environmental protection projects. Photonics continues to offer us exciting organic and acquisition growth prospects. We are global leaders in theminiature spectrometer market niche which we estimated to be worth £70 million annually and growing at 15% per year. The use of photonic methods is increasing rapidly in a vast range of end markets. The advantages of optical sensors overtraditional methods can include lower cost, greater sensitivity, in-situ measurement capability (particularly inhazardous environments), immunity from electromagnetic interference, repeatability and stability. Over 60% of Halmacompanies use optical technologies. Growth drivers for our Health optics products include rising demand for eye care due to demographic changes in thedeveloped world plus increasing access to health services in developing countries. We estimate that the health opticsmarket is growing in developing countries by 5% annually and 2% to 3% worldwide. New ophthalmic products undergo lengthy clinical trials and rigorous medical product regulation which is a disincentiveto market entrants. Digital and video imaging technology for examining the eye continues to evolve and a disruptivetechnology could emerge to change the market dynamics in the medium term. We continue to monitor this closely and haveestablished relationships with some of the leading digital imaging companies where our products can be complementary totheir technology. Sector performance In our Water businesses we consolidated the strong recovery achieved in 2005/06. Although progress in the US marketremained patchy, revenues in European markets rose sharply. Fluid technology revenues increased although profits were flat due to increased investment in new products as well as insales and distribution. Revenues and profits from Photonics products grew to record levels. A new photonics sales and technical support officewas opened in Shanghai and European activities were strengthened by the Mikropack acquisition. In Health optics our strong brand positioning and a healthy stream of new and enhanced products delivered recordrevenues and profit. The increased rate of investment in R&D (now 5.3% of revenue) is an important element in maintaining the excellentoperating returns in this sector. Sector outlook New product innovation and technical collaboration are increasingly important organic growth drivers. Geographicexpansion into developed and developing regions offers further organic growth opportunities and we hope to benefit fromthe higher investment in 2006/07 in the coming year. Increased acquisition search resources are identifying opportunities which can strengthen our technology and marketpresence. This combination of organic and acquisitive growth prospects should lead to further progress during 2007/08. Industrial Safety sector review Sector overview Industrial Safety contributed 22% of Group revenue (£80 million) and 23% of Group profit+ (£16 million). Followingrecent acquisitions, we created a new Asset monitoring sub-sector. + see note 1 to the Preliminary Announcement Sector strategy We choose to operate in global industrial safety market niches which demand innovative, robust technologies to protectagainst critical safety hazards where the cost of the protecting product is relatively small compared with the cost ofan accident. Competitive advantage can be gained through technical innovation and superior customer service andtechnical support. Strong global competition in gas detectors means that we must have a dual strategy of constant cost reduction and aregular stream of new products. In the next year we plan to start manufacturing in China and are already using R&Dresources in India to accelerate the rate of product development. Our Bursting disc companies continue to develop their distribution network to improve market share. Capital investmentin plant, improved processes, product rationalisation and outsourcing of component supplies have cut production costsand increased competitiveness by reducing lead times. Our strong position in the global market for Safety interlocks dictates that we not only have to protect our positionthrough new products and market leading customer service but also find ways to broaden our market opportunity. Forexample we are adding safety interlock capability to adjacent product categories like the new eGard product whichmarries safety interlocking with machine control. In Asset monitoring we see a significant opportunity in satisfying the growing worldwide demand for remote monitoringof expensive or safety critical physical assets - particularly those in hazardous or remote locations. Market trends Our internal assessment of the global market for gas detection products is £500 million; we forecast an average annualgrowth rate of 3% to 4%. The demand for gas detection products remains robust in the developed industrial countries.The gradual adoption of Western safety standards in the fast-growing Asian economies will drive additional demand inthese markets. Our internal data suggest that the market for bursting discs is growing at 3% to 4%. Substantial continued investmentby our customers in lower cost labour markets, and the transfer of US and European safety standards is leading us toallocate more of our resources into developing regions such as Eastern Europe and Asia. In addition to increasing safety awareness and regulation, the safety interlock market continues to benefit from thetrend of increasing capital spending in the oil and gas sector driven by relatively high oil prices and global demand.High-profile accidents at petrochemical processing plants during the past 18 months have impacted on customer behaviourwith some oil companies now specifying safety interlocks earlier in the plant design phase. Customer feedback suggests that Chinese authorities are now encouraging Western companies with manufacturing plants inChina to adopt the same safety standards as in their home territory. Over the medium term, this will help to improveindustrial safety expectations throughout China and drive demand for our products. Rising global demand for closer monitoring of energy usage and for capturing data relating to high value infrastructureassets, offers excellent growth prospects for our Asset monitoring businesses. Our recent acquisition, Tritech, servesan exciting niche in subsea sensors and communication products which help service companies install, inspect andmonitor underwater assets. The trend towards deeper water activities in the oil and gas sector will support demand forour underwater acoustic surveillance sensors. Online research indicates that between 2001 and 2005 global deepwatercapital investment was £16.5 billion and it is estimated to more than double to £44 billion during 2006 to 2010. Sector performance 2006/07 was a very successful year with organic revenue and profit growth significantly above the market growth ratesand a major acquisition completed. Geographically, revenue growth was particularly good in the Middle East where we benefited from major oil and gasprojects. Regions such as the UK were also strong where our new Sprint V flue analyser product was adopted by BG Groupwith a £1.4 million supply contract. We succeeded in integrating our wireless communications technology used in asset monitoring with other sectors in theGroup and can see other opportunities for technical collaboration in the future. Relative to our other sectors we invest a slightly lower percentage of revenue in R&D. However, good growthopportunities continue to exist and the Return on sales and ROCE remain at a high level. Sector outlook In the long term, increasing safety regulation, greater concern over the consequences of accidents from company boardsand higher safety expectations by workers will continue to drive demand for our Industrial Safety products. We will continue to seek bolt-on acquisitions which will enhance our products and distribution strength in highergrowth markets. We have solid positions in each of our chosen markets and by continuing to invest in new products, additional salesoffices and our activities in lower cost territories such as Eastern Europe and Asia, we are well placed to continueour track record of healthy organic growth. Preliminary Results for the 52 weeks to 31 March 2007Consolidated income statement 52 weeks to 31 March 2007 52 weeks to 1 April 2006 Before acquired intangibles Amortisationof Before Amortisation amortisation acquired acquired of acquired and goodwill intangibles intangibles intangibles Total written off and goodwill Total Notes amortisation £000 £000 £000 written off £000 £000 £000Continuing operationsRevenue 1 354,606 - 354,606 310,768 - 310,768 Operating profit 67,920 (3,458) 64,462 59,960 (1,500) 58,460Finance income 7,272 - 7,272 6,207 - 6,207Finance expense (9,101) - (9,101) (8,027) - (8,027)Profit before taxation 66,091 (3,458) 62,633 58,140 (1,500) 56,640Taxation 3 (19,687) 1,065 (18,622) (17,507) 473 (17,034)Profit for the year from 46,404 (2,393) 44,011 40,633 (1,027) 39,606continuing operationsDiscontinued operationsNet profit for the year from - - - 6,739 (5,470) 1,269discontinued operationsProfit for the year 46,404 (2,393) 44,011 47,372 (6,497) 40,875attributableto equity shareholdersEarnings per ordinary share 4From continuing operationsBasic 12.50p 11.86p 11.01p 10.73pDiluted 11.77p 10.69pFrom continuing anddiscontinued operationsBasic 11.86p 11.08pDiluted 11.77p 11.03pDividends in respect of the 5yearPaid and proposed (£000) 26,740 25,314Paid and proposed per share 7.18p 6.83p Consolidated balance sheet 31 March 1 April 2007 2006 £000 £000Non-current assetsGoodwill 129,521 122,038Other intangible assets 15,338 12,166Property, plant and equipment 49,580 50,054Deferred tax assets 11,178 13,803 205,617 198,061Current assetsInventories 39,134 36,660Trade and other receivables 81,650 77,523Cash and cash equivalents 22,051 35,826 142,835 150,009Total assets 348,452 348,070Current liabilitiesBorrowings 29,762 32,308Trade and other payables 62,590 66,035Tax liabilities 6,043 7,316 98,395 105,659Net current assets 44,440 44,350Non-current liabilitiesRetirement benefit obligations 37,260 46,019Trade and other payables 3,005 5,096Deferred tax liabilities 3,184 3,216 43,449 54,331Total liabilities 141,844 159,990Net assets 206,608 188,080 Capital and reservesCalled up share capital 37,312 36,933Share premium account 15,239 10,702Treasury shares (1,664) (379)Capital redemption reserve 185 185Translation reserve (4,272) 5,944Other reserves 3,654 1,592Retained earnings 156,154 133,103Shareholders' funds 206,608 188,080 Statement of recognised income and expense 52 weeks to 52 weeks to 31 March 2007 1 April 2006 £000 £000 Exchange differences on translation of foreign operations (10,216) 5,826Exchange differences recycled from reserves on disposal of operations - (26)Actuarial gains/(losses) on defined benefit pension plans 7,084 (10,355)Tax on items taken directly to reserves (2,122) 1,625Net loss recognised directly in reserves (5,254) (2,930)Profit for the year 44,011 40,875Total recognised income and expense for the year 38,757 37,945 Reconciliation of movements in shareholders' funds 52 weeks to 52 weeks to 31 March 2007 1 April 2006 £000 £000 Shareholders' funds brought forward 188,080 173,259Profit for the year 44,011 40,875Dividends paid (25,922) (24,468)Exchange differences on translation of foreign operations (10,216) 5,826Exchange differences recycled from reserves on disposal of operations - (26)Actuarial gains/(losses) on defined benefit pension plans 7,084 (10,355)Tax on items taken directly to reserves (2,122) 1,625Net proceeds of shares issued 4,916 644Treasury shares purchased (1,285) (379)Movement in other reserves 2,062 1,079Total movement in shareholders' funds 18,528 14,821Shareholders' funds carried forward 206,608 188,080 Consolidated cash flow statement Notes 52 weeks to 52 weeks to 31 March 2007 1 April 2006 £000 £000 6 50,754 53,362Net cash inflow from operating activities Cash flows from investing activitiesPurchase of property, plant and equipment (10,053) (11,878)Purchase of computer software (847) (717)Proceeds from sale of property, plant and equipment 3,609 1,032Development costs capitalised (3,893) (2,500)Interest received 1,035 1,026Acquisition of businesses (27,499) (36,178)Disposal of businesses - 14,641Net cash used in investing activities (37,648) (34,574) Financing activitiesDividends paid (25,922) (24,468)Proceeds from issue of share capital 4,916 644Purchase of treasury shares (1,272) -Interest paid (1,894) (1,455)Repayment of borrowings - (3,050)Net cash used in financing activities (24,172) (28,329) Decrease in cash and cash equivalents 6 (11,066) (9,541)Cash and cash equivalents brought forward 35,826 45,348Exchange adjustments (2,709) 19Cash and cash equivalents carried forward 22,051 35,826 Notes to the Preliminary Announcement 1 Segmental analysis Sector analysis Revenue Profit 2006 2006 2007 (restated)* 2007 (restated)* £000 £000 £000 £000 154,830 131,860 27,975 24,106Infrastructure SensorsHealth and Analysis 119,970 109,886 24,445 22,770Industrial Safety 79,940 69,415 15,998 13,482Inter-segmental sales (134) (393) - -Central companies - - (498) (398)Continuing operations 354,606 310,768 67,920 59,960Discontinued operations - 26,580 - 1,501Net finance expense - - (1,829) (1,820)Group revenue/profit before amortisation of acquired 354,606 337,348 66,091 59,641intangiblesAmortisation of acquired intangible assets - - (3,458) (1,529)Profit on disposal of operations before tax - - - 494Taxation - - (18,622) (17,731)Revenue/profit for the year 354,606 337,348 44,011 40,875 * The comparative figures for 2006 have been restated to reflect the reclassification of Radio-Tech Limitedfrom the Health and Analysis sector to the Industrial Safety sector. Geographical analysis Revenue by Revenue by origin destination 2007 2006 2007 2006 £000 £000 £000 £000 96,556 82,930 199,859 173,168United KingdomUnited States of America 98,882 94,043 110,894 104,295Mainland Europe 91,371 77,183 56,047 45,788Asia Pacific and Australasia 35,484 33,293 18,277 15,455Africa, Near and Middle East 22,279 14,709 - -Other countries 10,034 8,610 - -Inter-segmental sales - - (30,471) (27,938)Revenue from continuing operations 354,606 310,768 354,606 310,768Discontinued operations - 26,580 - 26,580Group revenue 354,606 337,348 354,606 337,348 Profit 2007 2006 £000 £000 United Kingdom 32,626 30,354United States of America 22,258 20,149Mainland Europe 10,860 7,632Asia Pacific and Australasia 2,176 1,825Operating profit from continuing operations before amortisation of acquiredintangibles 67,920 59,960Discontinued operations - 1,501Net finance expense (1,829) (1,820)Group profit before amortisation of acquired intangibles 66,091 59,641Amortisation of acquired intangible assets (3,458) (1,529)Profit on disposal of operations before tax - 494Taxation (18,622) (17,731)Profit for the year 44,011 40,875 2 Basis of Preparation The financial information included within the preliminary results for the year to 31 March 2007 have beenprepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EuropeanUnion and applied in accordance with the Companies Act 1985. This Preliminary Announcement does not constitute the Group's statutory accounts for the years ended 31 March2007 or 1 April 2006, but is derived from those accounts. Nor does it contain sufficient information tocomply with the disclosure requirements of IFRS. Statutory accounts for the year to 1 April 2006, which wereprepared in accordance with IFRS, have been delivered to the Registrar of Companies. Statutory accounts forthe year to 31 March 2007 which comply with IFRS will be delivered before the Company's Annual GeneralMeeting. The auditors have reported on these accounts; their reports were unqualified and did not containstatements under s237 (2) or (3) of the Companies Act 1985. This Preliminary Announcement was approved by the Board of Directors on 19 June 2007. 3 Taxation 2007 2006 £000 £000Current taxUK corporation tax at 30% (2006: 30%) 8,651 9,246Overseas taxation 9,154 8,271Adjustments in respect of prior years 69 133Total current tax charge 17,874 17,650 Deferred taxOrigination and reversal of timing differences 622 (558)Adjustments in respect of prior years 126 (58)Total deferred tax charge/(credit) 748 (616)Tax on profit from continuing operations 18,622 17,034Tax on profit from discontinued operations - 697Total tax charge recognised in the Consolidated income statement 18,622 17,731 Reconciliation of the effective tax rate:Profit before tax - continuing operations 62,633 56,640Profit before tax - discontinued operations - 1,966 62,633 58,606 Tax at the UK corporation tax rate of 30% (2006: 30%) 18,790 17,582Overseas tax rate differences 1,141 1,116Items not subject to tax (1,504) (1,042)Adjustments in respect of prior years 195 75 18,622 17,731 Effective tax rate 29.7% 30.3% 4 Earnings per ordinary share Basic earnings per ordinary share are calculated using the weighted average of 371,221,629 shares inissue during the year (net of shares purchased by the Company and held as treasury shares) (2006:369,053,181). Diluted earnings per ordinary share are calculated using the weighted average of374,036,077 shares (2006: 370,435,138) which includes dilutive potential ordinary shares of 2,814,448(2006: 1,381,957). Dilutive potential ordinary shares are calculated from those exercisable share optionswhere the exercise price is less than the average price of the Group's ordinary shares during the year. Earnings from continuing operations excludes the net profit from discontinued operations. Adjustedearnings is calculated as earnings from continuing operations excluding the amortisation of acquiredintangible assets after tax. The Directors consider that adjusted earnings represents a more consistentmeasure of underlying performance. A reconciliation of earnings and the effect on basic earnings pershare figures is as follows: Per ordinary share 2007 2006 2007 2006 £000 £000 pence pence Earnings from continuing and discontinued operations 44,011 40,875 11.86 11.08Remove earnings from discontinued operations - (1,269) - (0.35)Earnings from continuing operations 44,011 39,606 11.86 10.73Add back amortisation of acquired intangibles (after tax) 2,393 1,027 0.64 0.28Adjusted earnings 46,404 40,633 12.50 11.01 5 Ordinary dividends Per ordinary share 2007 2006 2007 2006 pence pence £000 £000Amounts recognised as distributions to shareholders in theyearFinal dividend for the year to 1 April 2006 (2 April 2005) 4.12 3.92 15,308 14,462Interim dividend for the year to 31 March 2007 (1 April 2006) 2.85 2.71 10,614 10,006 6.97 6.63 25,922 24,468Dividends declared in respect of the yearInterim dividend for the year to 31 March 2007 (1 April 2006) 2.85 2.71 10,614 10,006Proposed final dividend for the year to 31 March 2007 (1 April 4.33 4.12 16,126 15,3082006) 7.18 6.83 26,740 25,314 The proposed final dividend is subject to approval by shareholders at the annual general meeting and hasnot been included as a liability in these financial statements. If approved, the final dividend for 2006/07 will be paid on 22 August 2007 to shareholders on the register at the close of business on 20 July2007. 6 Notes to the consolidated cash flow statement 2007 2006 £000 £000Reconciliation of profit from operations to net cash inflow from operating activitiesProfit from continuing operations before taxation 64,462 58,460Profit from discontinued operations before taxation - 1,472Depreciation and amortisation of computer software 8,147 8,373Amortisation of capitalised development costs 1,528 1,441Amortisation of acquired intangible assets 3,458 1,529Share-based payment expense in excess of amounts paid 1,317 742Additional payments to pension scheme (4,233) (1,357)(Profit)/loss on sale of property, plant and equipment and computer software (314) 174Operating cash flows before movement in working capital 74,365 70,834(Increase)/decrease in inventories (1,648) 647Increase in receivables (3,673) (6,225)Increase in payables 1,215 4,921Cash generated from operations 70,259 70,177Taxation paid (19,505) (16,815)Net cash inflow from operating activities 50,754 53,362 2007 2006 £000 £000Reconciliation of net cash flow to movement in net cash/(debt)Decrease in cash and cash equivalents (11,066) (9,541)Cash outflow from borrowings - 3,050Exchange adjustments (163) (1,995) (11,229) (8,486)Net cash brought forward 3,518 12,004Net (debt)/cash carried forward (7,711) 3,518 At 1 April Exchange At 31 March 2006 Cash flow adjustments 2007 £000 £000 £000 £000Analysis of net cash/(debt)Cash and cash equivalents 35,826 (11,066) (2,709) 22,051Bank loans (32,308) - 2,546 (29,762) 3,518 (11,066) (163) (7,711) 7 Non-GAAP measures Return on capital employed 2007 2006 £000 £000 Operating profit from continuing operations before amortisation of acquired 67,920 59,960intangiblesOperating return 67,920 59,960Computer software costs within intangible assets 1,577 1,213Capitalised development costs within intangible assets 6,115 3,827Property, plant and equipment 49,580 50,054Inventories 39,134 36,660Trade and other receivables 81,650 77,523Trade and other payables (62,590) (66,035)Tax liabilities (6,043) (7,316)Non-current trade and other payables (3,005) (5,096)Add back retirement benefit accruals included within payables 3,071 4,763Add back accrued deferred purchase consideration 3,559 9,803Capital employed 113,048 105,396 Return on capital employed 60.1% 56.9% Return on total invested capitalProfit from continuing operations before amortisation of acquired intangibles after 46,404 40,633taxationReturn 46,404 40,633 Total shareholders' funds 206,608 188,080Add back retirement benefit accruals included within payables 3,071 4,763Add back retirement benefit obligations 37,260 46,019Less associated deferred tax assets (11,178) (13,803)Cumulative amortisation of acquired intangibles 5,348 1,890Goodwill on disposals 5,441 5,441Goodwill amortised prior to 3 April 2004 13,177 13,177Goodwill taken to reserves prior to 28 March 1998 70,931 70,931Total invested capital 330,658 316,498 Return on total invested capital 14.0% 12.8% Organic growth Organic growth measures the change in revenue and profit from continuing Group operations. The effect ofacquisitions made during the current or prior financial year has been equalised by subtracting from thecurrent year results a pro-rated contribution based on their revenue and profit at the date ofacquisition, and has been calculated as follows: Revenue Profit* before taxation 2007 2006 % 2007 2006 % £000 £000 growth £000 £000 growth Continuing operations 354,606 310,768 66,091 58,140Acquired revenue/profit (18,802) - (3,516) - 335,804 310,768 8.1% 62,575 58,140 7.6% * Before amortisation of acquiredintangible assets. Cautionary note This Preliminary Announcement contains certain forward-looking statements which have been made by theDirectors in good faith using information available up until the date they approved the Announcement.Forward-looking statements should be regarded with caution as by their nature such statements involverisk and uncertainties relating to events and circumstances that may occur in the future. Actual resultsmay differ from those expressed in such statements, depending on the outcome of these uncertain futureevents. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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