20th Jun 2006 07:01
Halma PLC20 June 2006 HALMA p.l.c. PRELIMINARY RESULTS FOR THE YEAR TO 1 APRIL 2006 20 JUNE 2006 Record results with record investment in people, products and markets Halma, the leading safety, health and sensor technology group, today announcesits preliminary results for the year to 1 April 2006. Highlights include: • Record pre-tax profit* from continuing operations up 20.3% to £58.1m (2005: £48.3m); organic** profit growth of 14.9%. On a statutory basis profit from continuing operations was up 17.9% to £56.6m. • Organic** revenue growth of 10.8%; revenue from continuing operations up 15.7% at £310.8m (2005: £268.7m). • Three acquisitions and eight disposals completed during the year, reflecting Halma's strategy to position the Group for higher rates of growth; acquisitions of Texecom, Netherlocks Safety Systems and Radio-Tech all performing ahead of expectations and giving Halma access to important new technology and growth markets. • High margins maintained and significant shareholder value created as Halma delivers strong returns from its continuing businesses, with ROCE** of 56.9% and ROTIC** of 12.8%. • Good cash generation with significant financial resources available to achieve the Group's growth plans; no gearing at year end. • Continuation of progressive dividend policy with a recommended increase of 5%; high level of earnings growth helps to increase dividend cover to 1.6 times. • Over 60% of Group revenue now comes from electronics-based products. Halma has been reclassified into the Electronic and Electrical Equipment Sector of the FTSE. Notes: The comparative figures for the 52 weeks to 2 April 2005 have been restated toreflect the adoption of International Financial Reporting Standards. See note 2for details. * Adjusted to remove the amortisation of acquired intangible assets of £1.5m (2005: £0.3m). ** Organic growth rates, Return on Capital Employed (ROCE) 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. Commenting on the results, Andrew Williams, Chief Executive of Halma, said: "This is a record performance by a significant margin which was achieved againsta background of major strategic change, and is testament to the quality of thecontributions made by our employees. We have a clear and robust growth strategyand now have a stronger platform with enhanced growth potential. "We will continue to pursue geographic expansion and new product developmentenergetically. Continued investment to extend our presence in key developingmarkets and continuing development of senior management are key actions aimed atsustaining profitable revenue growth. "Our underlying growth prospects are positive and we are in a better position toexploit them following the rapid recovery of our Water business and theacquisitions and disposals completed during the year. We enter the new year ingood shape." Geoff Unwin, Chairman of Halma, said: "Behind these record results lies record investment - in people, innovation andnew markets as well as in acquisitions. This, together with our clarity ofdirection and increased momentum, 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 beviewed on its website: www.halma.com. A copy of the Annual Report and Accounts will be sent to shareholders on 3 July2006 and will be available to the general public on written request to theCompany's registered office at: Misbourne Court, Rectory Way, Amersham, BucksHP7 0DE. PHOTOGRAPHS High resolution photos of Halma senior management, including Chief ExecutiveAndrew Williams, and images illustrating Halma business activities can bedownloaded 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:[email protected]. NOTE TO EDITORS Halma develops and markets products used worldwide to protect life and improvethe quality of life. The Group comprises three business sectors: • Infrastructure Sensors• Health and Analysis• Industrial Safety The key characteristics of Halma's businesses are that they are based onadvanced technology and offer strong growth potential. Many Group businessesare a clear market leader in their specialist field and, in a number of cases,are the dominant world supplier. HALMA p.l.c. Group Results for the 52 weeks to 1 April 2006 Financial Highlights 52 weeks 52 weeks 2 April 2005 Change 1 April 2006 (restated)Continuing operations:Revenue + 16% £310.8m £268.7mAdjusted profit before taxation (1) + 20% £58.1m £48.3mStatutory profit before taxation + 18% £56.6m £48.0m Adjusted earnings per share (2) + 20% 11.01p 9.16pStatutory earnings per share + 18% 10.73p 9.10pTotal dividends (paid and proposed) per share + 5% 6.83p 6.50p Return on sales (3) 18.7% 18.0%Return on total invested capital (4) 12.8% 12.1%Return on capital employed (4) 56.9% 48.8% The comparative figures for the 52 weeks to 2 April 2005 have been restated toreflect the adoption of International Financial Reporting Standards. See note 2for details. Pro-forma information: 1 Adjusted to remove the amortisation of acquired intangible assets of £1,500,000 (2005: £343,000).2 Adjusted to remove the amortisation of acquired intangible assets. See note 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 Geoff Unwin, Chairman of Halma, said: During the last year, Halma has made significant progress "First of all, the headline numbers. The total Group including discontinuedoperations, which is what we were responsible for throughout the year, increasedrevenue by 12.8% to £337.3 million (2004/05: £299.1 million). Profit before taxand amortisation of acquired intangibles on this basis increased by 19.4% to£59.6 million (2004/05: £49.9 million*). Revenue and profit before tax andamortisation of acquired intangibles from continuing operations increased by15.7% to £310.8 million and 20.3% to £58.1 million respectively. Statutoryprofit before tax increased by 17.9% to £56.6 million. All these figures areclear records for the Group. These results reflect organic revenue growth** of10.8% and organic profit growth** of 14.9%. The Board is recommending a finaldividend of 4.12p per share, an increase of 5% for the year, in line with ourpolicy of progressively increasing the dividend but also increasing cover whichnow moves to 1.6 times (2004/05: 1.5 times). Return on total invested capital**improved to 12.8% (2004/05: 12.1%). "Over the last few years our focus has been on re-establishing organic growth; apoint emphasised and supported by shareholders at last year's Annual GeneralMeeting. In previous statements I highlighted some of the areas that may havebeen holding us back and some of our actions to address them, for example - moreand faster innovation, upgrading our sales capabilities, more investment intraining our people, sharpening and simplifying our devolved managementstructures, rethinking management incentives and so on. Well, the action we tookcertainly worked last year. The statistician in me would love to be able todetermine what benefit we got from what changes - intriguing, but impossible todo with precision. What I can say, is that we are not resting on one year'sresults and we continue to examine and debate each and every factor that may beimpeding us. "What is also very noticeable is the impact of our new CEO Andrew Williams. Ourstrategy is clearer than it has been since I arrived on the Board. Speed ofdecision making has improved dramatically (the same piece of paper rarely getspicked up off his desk twice) and this is spreading throughout the Group,although Andrew would be the first to modestly say "it's a team effort", andhe's right. "With this strategy as a template, the direction of cash allocation is muchclearer. In line with this, we have disposed of eight businesses during the yearand acquired three, so, in turn, our structures and focus are also far clearer.Our balance sheet remains strong - at the year end we had net cash of £4 milliondespite investing £36 million in acquisitions and receiving £15 million fromdisposals. Including £60 million of debt capacity, we have significant firepowerto acquire more companies in line with our strategic directions. We are alsoinvesting in more sales and production infrastructure in the new fast-growingeconomies - particularly China, the aim being to make it easier for ourindividual companies to make further, and in some cases first, steps there indeveloping more business. "I should like to thank all of our employees for their dedication to ourcustomers and their constant ability to come up with innovative ideas. Theincreased investment in people seems to be having a very significant paybackwith a healthy queue of excellent internal candidates now clamouring toparticipate in our customised management training. "So, behind these record results also lies record investment - in people,innovation and new markets as well as new acquisitions. This, together withclarity of direction and increased momentum gives us confidence for the future. "All in all, an excellent vintage." * Restated under IFRS see note 1.** See Financial Highlights. Chief Executive's strategic review Andrew Williams, Chief Executive of Halma, said: Record profit and revenues achieved against a background of major strategic change "We have had an outstanding year producing profit growth from continuingoperations* of 20% (18% on a statutory basis) and revenue growth of 16%. Organicgrowth* was 15% and 11%, for profit and revenue respectively. "This is a record performance by a significant margin and was achieved against abackground of major strategic change. This is a testament to the robustness ofour growth strategy and the quality of the contributions made by our employees. "We now report our results under three market-defined sectors: InfrastructureSensors, Health and Analysis and Industrial Safety. These replace the previoussix product-based divisions and more closely reflect the coherent nature of ouractivities and the way we operate, as well as making it easier for shareholdersto gain a better understanding of what we do. "Our return to organic growth was widespread across the Group and wasunderpinned by a tremendous performance in the Health and Analysis sector.Strong organic growth was boosted further by a rapid recovery by our Waterbusiness. Infrastructure Sensors started to show promising revenue growth in thesecond half, although continued investment in the sales and support structurefor the longer term suppressed short-term profits. All parts of our IndustrialSafety sector performed strongly with the buoyant oil and petrochemical marketcontributing to healthy revenue and profit growth. "I am very pleased with the record Return on Capital Employed (ROCE)* of 57%achieved during the year. Our success in achieving growth has not come at theexpense of diluting the quality of our returns. Another year of strong cashgeneration has funded organic growth, acquisitions and, for the 27th consecutiveyear, enabled a further increase in our dividend of 5%. Between self-generatedcash and a longer term debt facility of £60 million, we have sufficient capitalresources to support our growth plans for the coming year. "We completed three acquisitions, all of which are performing ahead ofexpectations. Netherlocks, acquired in July, increased our presence in the oiland petrochemical market and strengthened further our leadership in valve safetyinterlocks. Radio-Tech, acquired in August, brought important wirelesscommunications technology to our Water business and offers new opportunitieselsewhere in the Group. In November, we acquired Texecom giving us an entry intothe strategically important security sensor market. Texecom offers us attractivegrowth potential in its own right. It has common sales distribution channelswith Fire and similar technology platforms to our Door Safety activities,providing additional opportunities for the longer term. "The disposal of eight businesses demonstrated our commitment to activelyallocate capital and people resources. In February we sold our high powerResistors business for £14 million. While this business had generated good valuefor shareholders over many years, its recent performance relative to other Halmacompanies, and in absolute terms, fell short of expectations. The net result ofthe acquisitions and disposals made this year is that we are making more profit,we have allocated more resource to markets with higher growth potential and wehave 10% fewer companies. "We are expanding geographically. We have opened additional sales and technicalsupport offices in China, India, Malaysia, Spain, Ireland, US and, mostrecently, Dubai. In addition, we have established new manufacturing facilitiesin Eastern Europe and Tunisia. Although we have manufactured InfrastructureSensor products in China for over a decade, we are increasing our directpresence in this important long-term growth market at a faster pace. Forexample, we are creating new Halma "hubs" in Shanghai and Beijing to help ourcompanies get new activities established or develop their existing activitiesmore rapidly. We expect those companies which are successful to spin-out anddevelop as strong, independent operations in their own right. "Last year, I mentioned the need for us not only to maintain our high level ofinvestment in Research & Development (R& D), currently 4% of revenues, butimprove speed to market too. This year we launched over 100 new products. Thereare some early signs of improvement in speed to market in some parts of theGroup, although we can still do more. For example, high quality R&D resources inlower cost territories, such as India, can supplement our essential in-housetechnical capabilities to achieve shorter product development cycles. "Our highly decentralised operating structure makes us particularly dependent onthe quality of our local management teams. Following the significant peoplechanges made at operating company board level over the past two years, it ispleasing to see this action translate into improved results. To build furthermomentum, we have created a bespoke development programme for our seniormanagement at Henley Management College, a leading UK business school. Thisleadership development programme not only helps our management become even moresuccessful in their current role, but also gives us a stronger pool of talent todraw on as new opportunities arise. "I thank all the employees for their contribution during an exciting andsuccessful year. We can take great confidence in the exceptional results thathave been achieved during the year but recognise there is no room forcomplacency. Our goal is to achieve growth and create value for shareholdersevery year. "We have made tremendous progress in 2005/06 in terms of both achieving organicgrowth in the short term and improving our growth potential for the future. Ourunderlying growth prospects remain good and we enter the new year better placedto exploit them due to the rapid recovery in our Water business and newacquisitions. I look forward to the year ahead with confidence." * See Financial Highlights. Financial review Kevin Thompson, Finance Director of Halma, said:Organic growth* in revenue of 11% and profit of 15% "Revenue from continuing operations increased by £42 million (15.7%) to £310.8million of which £13.1 million (4.9%) came from acquisitions made this year andfrom the extra months' benefit of acquisitions made last year. Underlyingorganic revenue growth* was therefore 10.8%. Profit before tax from continuingoperations before amortisation of acquired intangibles grew by 20.3% to therecord figure of £58.1 million and after adjusting for acquisitions, organicprofit growth* was 14.9%. Statutory profit before tax was 17.9% higher at £56.6million. Currency translation contributed a modest 1% to revenue and profitgrowth. "We disposed of eight businesses in the year. The table below shows the resultsboth excluding and including those businesses: Continuing operations Including discontinued operations£ million 2006 2005 % change 2006 2005 % changeRevenue 310.8 268.7 15.7% 337.3 299.1 12.8%Profit before tax** 58.1 48.3 20.3% 59.6 49.9 19.4%Return on sales 18.7% 18.0% 17.7% 16.7% **Excludes amortisation of acquired intangibles and profit on disposal of operations. Comparatives have been restated on an IFRS basis. See Financial Highlights. "In overview, revenue growth was strong in the year and gross margins held firm.Overheads were increased, in particular in the Infrastructure Sensors sector, toaccelerate future opportunity across the world. The net result of ouroperational activity, acquisitions and disposals was to grow the return on salesto 18.7% and increase profit on continuing operations before amortisation ofacquired intangibles and tax by £9.8 million. "During the year under review we increased revenues in all territories, with 73%of sales being made outside the UK. Indeed, sales outside of our traditionalprimary markets in the UK, mainland Europe and the USA grew by 20%. "Revenue from continuing operations increased to all of our geographicdestinations and is shown on the table below: Revenue from continuing operations by destination£ million Revenue % change United States of America 94.0 19.4%United Kingdom 82.9 18.0%Mainland Europe 77.2 6.2%Asia Pacific and Australasia 33.3 10.2%Africa, Near and Middle East 14.8 49.5%Other 8.6 23.6% 310.8 15.7% "The biggest absolute revenue growth came in our largest geographic sectors ofthe USA and UK where organic growth was strong. There was double-digit organicgrowth in Africa, Near and Middle East, in addition to the extra revenue in thatregion coming from the acquisition of our security sensor business, Texecom,which has a substantial branch network in South Africa. Mainland Europe showed alower rate of growth and although Asia Pacific and Australasia grew by more than10%, we see the opportunity for higher rates of growth here in the future. "All three of our sectors increased revenue by more than 10%, with theInfrastructure Sensors sector benefiting from the acquisition of Texecom. TheIndustrial Safety sector grew revenues by 16.8% and the Health and Analysissector increased by the highest rate at 20.0%, with the growth in these twosectors predominantly organic. All three sectors increased profits. "Revenue, profit and returns are discussed on a sector basis in the Sectorreviews below. "Adjusted earnings per share* (which we consider gives a more consistent measureof underlying performance) and statutory earnings per share on continuingoperations increased by 20% and 18% respectively, very good rates of growth. Areconciliation of adjusted earnings figures to statutory figures is given innote 4. Important acquisitions and disposals were completed in the year "We paid out cash of £36 million on acquisitions and received £15 million fordisposals in 2005/06, a net outflow of £21 million. The acquisition paymentsincluded £8 million in deferred consideration, mainly in relation to OceanOptics which we acquired in 2004/05 and which achieved its maximum targets.These acquisitions and disposals were an important part of reallocating Groupresources and positioning us for higher rates of growth. "The largest acquisition in the year was that of Texecom Limited (UK) inNovember 2005. We paid a total cash consideration of £26 million with the lastaudited accounts showing revenues of £19.2 million and earnings before interestand tax of £3.9 million. Prior to this we acquired Netherlocks Safety SystemsB.V. (The Netherlands) in July 2005 for €3 million (£2.1 million) and Radio-TechLimited (UK) in August 2005 for £2 million, these two businesses having acombined annual profit of £0.7 million on revenue of £3.2 million in their lastaudited accounts. There is no deferred consideration for Texecom but there isthe potential to pay a further £7.3 million of consideration for the other twobusinesses conditional on substantial profit growth. The performance of eachbusiness has exceeded our expectations with all achieving very good growth andall delivering a return well in excess of the Group weighted average cost ofcapital which is calculated as being 8%. "In April 2006, early in the new financial year, we purchased Mikropack GmbHAufbautechnik in der Sensorik (Mikropack) for €2.3 million (£1.5 million) withup to a further €2.3 million (£1.5 million) payable depending on performance.Mikropack manufactures light sources and photonic accessories and joins ourOcean Optics business. "Disposal of the eight businesses converted assets, which were performing belowacceptable Group levels, into cash. In aggregate the businesses sold contributedoperating profit of £1.5 million to total Group profit in 2005 /06 and £1.6million in the prior year. The largest element of the disposal proceeds camefrom the sale of our group of five high power Resistor businesses, sold for £14million in February 2006. The Consolidated income statement shows a profit fromdiscontinued operations of £1.3 million. This comprises a pre-tax gain ondisposal of £5.9 million, tax on disposal of £0.1 million, operating profit lesstax of £0.9 million and is after writing off goodwill of £5.4 millionattributable to these businesses. Growing investment in new products and business assets "Expenditure on Research & Development (R&D) in our continuing operationsincreased by 20% to £13.5 million, representing 4.3% of revenue - a littlehigher than the prior year. R&D expenditure as a percentage of revenue in eachof our three sectors was consistent with last year, with Health and Analysis thehighest at 4.9% of sales and Infrastructure Sensors at a similar rate. UnderIFRS we are required to capitalise certain development expenditure and includeit as an asset on the Consolidated balance sheet and also to amortiseexpenditure from prior years. In the year we capitalised £2.5 million of suchexpenditure and amortised £1.4 million, resulting in an asset of £3.8 million onthe closing balance sheet. All of these figures are at higher levels than in theprior year, demonstrating the increase in the amount of development work whichwe believe will have a future benefit. The net impact is that the Consolidatedincome statement was charged with an 11% higher cost than last year. "Expenditure on property, plant, equipment and computer software was 34% (£3.2million) higher than 2004/05 at £12.6 million. There was less expenditure onproperty this year but more investment in operating assets to improve theperformance of our businesses. The year's expenditure was 150% ofdepreciation/amortisation, a higher ratio than typical but indicative of ourcontinued intention to invest for future growth. Strong cash flow with significant financial resource available "Cash flow was once again very good. Cash generated from operations was £70million, including a small cash outflow (£0.7 million, 2005: £2.5 millioninflow) into working capital despite high rates of growth in the businessoverall. We started and finished the year ungeared. The following tablesummarises the change in net cash, the main elements of which are discussed inthis financial review. Change in net cash£ million 2006 2005Cash generated from operations 70.2 61.4Acquisition of businesses (36.2) (24.6)Disposal of businesses 14.6 (1.7)Development costs capitalised (2.5) (1.1)Net capital expenditure (11.6) (9.0)Dividends paid (24.5) (23.3)Taxation paid (16.8) (14.5)Issue of shares 0.6 2.5Net finance (expense)/income (0.4) 0.2Exchange adjustments (1.9) 0.6 (8.5) (9.5)Net cash brought forward 12.0 21.5Net cash carried forward 3.5 12.0 "During the year we started to purchase Halma shares to be held in Treasury tofund the new Performance Share Plan. In the coming year we would expect topurchase £1 million to £2 million of Halma shares for this purpose and this islikely to be an ongoing activity. We also expect to increase the amount of cashpaid into the Halma pension schemes each year following the anticipated outcomeof the main scheme valuation now in progress. The additional cash contributionsfor 2006/07 are expected to be in the order of £4 million. These additionaldemands on our cash will have some impact on our financial position but we donot believe they will significantly affect our investment or growth potential. "Whilst we were again ungeared at the year end we seek to maintain financialflexibility so that short and long-term funding needs can be met and to allowopportunities to be taken as they arise. The Group is able to borrow atcompetitive rates and therefore consider this the most effective means offunding increased investment in the immediate future. During the year we secureda £60 million five-year debt facility from our well-established bankingpartners, improving our ability to fund our medium-term growth plans. Strong margins and returns with ROTIC increased to 12.8% "High margins and strong returns underpin the resilience and strength of Halma.We have benefited from the improvement in returns resulting from the sale oflower return businesses and this is demonstrated by the fact that return onsales for the total Group, including discontinued operations, would haveincreased from 16.7% to 17.7% in the year. Return on sales on continuingoperations* increased from 18.0% to 18.7% this year with Health and Analysisgrowing sharply from 16.1% to 21.0%, in part benefiting from the recovery in ourWater business but across the Group we achieved a widespread improvement. "We do not specifically target improvement in return on sales however we havefound that as our businesses grow, many of them generate higher returns andhigher margins due to significant operational leverage - we have high-marginbusinesses which benefit greatly from sales growth. "Return on Capital Employed (ROCE) is our measure of operating performance (seethe calculation in note 7) and it increased to 56.9% (2004/05: 48.8%), a highrate but not untypical for Halma. ROCE measures our stewardship of the assets weuse and the efficiency with which we run our businesses to generate the Group'sstrong cash flows. "Return on Total Invested Capital (ROTIC) increased to 12.8% (2004/05: 12.1%).The calculation basis is described in note 7 - it is a post-tax measure andincludes in the denominator all historic goodwill but excludes the pensiondeficit and also excludes the creditor relating to the pension obligations forcompanies sold. We feel that a basis where an increased pension deficit improvedROTIC would not be appropriate. The increased ROTIC arises because we have grownearnings faster than the underlying capital base and we continue to exceed ourweighted average cost of capital (WACC) by a large margin, sustaining thegeneration of significant value for shareholders. Together with TotalShareholder Return, ROTIC is the key measure of performance which we employ inour Performance Share Plan, aligning our senior executives with shareholders. 5% dividend increase and dividend cover raised "We have a progressive dividend policy; growing our dividend but with theobjective of increasing cover towards a figure of around 2 over time, a level wefeel is appropriate for our business. With the high level of earnings growththis year we have taken a good step towards this objective. The Board hasrecommended a 5% increase in the final dividend to 4.12p which together with theinterim dividend (which was also 5% higher than last year) will give a totaldividend of 6.83p per share, assuming the final dividend is approved. The totalcost of the final dividend is expected to be £15.2 million, giving a total costof £25.2 million for the dividends paid in respect of the year ended 1 April2006. We believe we have adequate distributable reserves for the foreseeablefuture after taking into account the impact of inclusion of the pension deficitdiscussed below. Dividend cover, based on continuing operations beforeamortisation of acquired intangibles, is 1.6 times (2004/05: 1.5 times). IFRS adopted with little impact on profits "During 2005/06 the Group adopted International Financial Reporting Standards(IFRS) in common with other listed companies in the European Union. This hasrequired restatement of the 2004/05 results reported previously under UK GAAP. "There was little overall impact on Halma's reported financial results from theadoption of IFRS. The Group's underlying business economics are unchanged.Profit before taxation and amortisation of acquired intangibles/ goodwill underIFRS was £0.1 million higher than under the accounting policies used in 2004/05. "The main IFRS changes on the Consolidated balance sheet are that dividends arenow only accrued when the dividend is approved and the net pension liability onthe Group's two defined benefit schemes, which are closed to new members, is nowincluded in the Consolidated balance sheet. Tax rate stays at 30% "The effective rate of tax on profit from continuing operations, beforeamortisation of acquired intangibles, is 30.1% (2004/05: 30.2%). This year's taxrate is expected to be representative of the tax rate in the near future,depending on the actual mix of profits made across the world. Foreign exchange movements were not significant this year "The Group has both translational and transactional currency exposures.Translational exposures arise on the consolidation of overseas company resultsinto Sterling. Transactional exposures arise where the currency of sale orpurchase differs from the functional currency in which each company prepares itslocal accounts and these exposures are the responsibility of local management.The largest translational exposures are to the US Dollar and to a lesser extentthe Euro. "Translational impacts on the 2005/06 results were modest and increased revenueand profit by approximately 1%. US Dollar results were translated into Sterlingat a rate of 1.78 (2004/05: 1.84) and Euros were translated at 1.47 (2004/05:1.47). Around one-third of Halma's revenue and profit is generated in US Dollarsand so a 1% weakening of the US Dollar relative to Sterling would reduce revenueand profit by approximately 0.33% which represents £1 million in terms ofrevenue and £0.2 million of profit. Sector reporting changed to improve clarity and collaboration "On 28 November 2005 we announced the change to reporting the Group's financialperformance under three new sectors, defined by markets rather than producttype. A restatement of the last three years' financial results under the newsector headings was given at that time together with growth drivers and marketcharacteristics by sector. "Each new sector, Infrastructure Sensors, Health and Analysis and IndustrialSafety, includes businesses with similar operating and market characteristics.This makes the Group more simple to understand, helps us further develop ourmarket driven strategies and enables more proactive collaboration across theGroup." * See Financial Highlights. Business review Infrastructure Sensors sector review Infrastructure Sensors is our largest business contributing 42% of Group revenue(£132 million) and 40% (£24 million) of Group profits. Sector strategy In this sector, our strategy is to be the leading supplier of sensors (and othercritical components) and not an installer of complete fire, security, automaticdoor or elevator systems. Our strong focus on safety-critical sensor componentsenables us to sell to the major global players in the building infrastructuremarkets who supply complete, installed systems such as GE, Honeywell and Tyco inFire, and OTIS, Mitsubishi and Kone in Elevator Safety. By concentrating all ourefforts on a single system component, we can offer high performance productscomplying with all the major international and national regulations andstandards. Our Infrastructure Sensor products are used in both new build and refurbishmentprojects so we work hard to ensure new sensor products are backwards-compatiblewith existing installations. R&D investment and product innovation is central to maintaining competitiveadvantage in this sector. This is because constantly changing technicalstandards and regulations drive our infrastructure sensor markets. We make anactive contribution to the development of international technical standards. Inthe past year we worked closely with trade bodies such as CENELEC and EURALARMwhich set standards in the EU for intruder alarms, and also with the BritishSecurity Industry Association and the British Standards Institute on theinterpretation and implementation of EU standards. To enhance public safety, governments worldwide set increasingly stringentstandards for fire protection products. In the past year alone, our fireproducts companies have added 500 new technical approvals which allow us to sellour products worldwide. Market trends Our security sensors sell into a global market, worth approximately £2 billionannually, which is growing at 6% to 7% per year. Since acquisition, Texecom hascontinued to grow faster than the market and we hold a dominant market share inthe UK and South Africa. A global fire detection market growth of 4% per year is expected to continue forthe foreseeable future. Demand for fire detectors is particularly strong inChina and India, where infrastructure investment is generating annual marketgrowth of 15%, and in the Middle East which is growing by 8% per year.Conversely, demand in developed markets such as Europe and the US has laggedbehind the global market growth rate. Falling end-user fire detector pricescoupled with shorter product life cycles have been characteristics of thismarket since we first entered it over 20 years ago. However, we believe that ourinvestment in product development, manufacturing and the supply chain willcontinue to deliver organic growth and maintain our excellent margins. During 2005/06 we saw continuing price competition in our elevator products andautomatic door sensor markets. The Middle East, China and India are experiencingsome of the highest rates of high-rise building development in the world. Tostrengthen our local presence, we recently established new elevator productsales offices in Dubai, Mumbai and Chongqing (our fourth regional office inChina). In our 2004/05 Operating review we identified growing demand for products whichassist evacuation during fire emergencies. Our investment in advanced technologyaudible and visual devices which assist safe building evacuation produceddouble-digit sales growth for these products. Sector performance Revenue growth at 12% for this sector included the benefit of the Texecomacquisition made in the year. Despite this, profit growth at 2% was below ourtarget largely because of the extra investment in overheads made this year toimprove longer-term growth potential. This also has had the effect of reducingthe return on sales although this remains at a high level because productmargins were sustained. ROCE continues to be excellent. Sector outlook Investment to increase our direct presence in key developing markets and changesto senior management are aimed at accelerating profitable revenue growth. In thecoming year, we expect those actions taken in 2005/06 to start to deliverorganic profit growth. Growth in this sector will also be boosted by a fullyear's contribution from our new security business, Texecom. We will continue toexplore collaboration opportunities across all Infrastructure Sensor businesses. Health and Analysis sector review Health and Analysis is our fastest growing business sector and contributed 36%(£112 million) of Group revenue and 38% (£23 million) of Group profit. Sector strategy After a year of restructuring, our Water business recovered ahead of schedule.The costly product rationalisation completed on our network monitoring and leakdetection product range and the changes to US management in our UV business,enabled double-digit organic revenue and profit growth to be delivered thisyear. Market conditions helped because UK water companies increased capitalinvestment as they started a new five-year AMP period (a five-yearly capitalinvestment cycle regulated by the Drinking Water Inspectorate). The acquisition of Radio-Tech brought new RF wireless communications technologyto our Water business and a broader asset monitoring and wireless connectivityopportunity to many other businesses across the Group. Our rate of innovation and that of our customers, in new products and processes,is a major driver of success in this sector. During the year we increased ourinvestment in R&D at 4.9% of revenue and launched over 60 new products. Relative to our other two sectors, Health and Analysis has a larger proportionof revenue and profit made in US Dollars, hence significant movement in thiscurrency can have an impact on Sterling results. Market trends We sell fluid technology products into the analytical, life science and medicalinstrumentation markets which continue to grow at high single-digit rates.Demand is driven by growing populations, improving conditions in developingcountries and biotech/pharmaceutical research. Typically, instrumentation forthese markets must meet stringent testing and regulatory requirements which makeit difficult for the instrumentation manufacturer to change key components oncethey are designed-in and certified. Our primary global market, life scienceinstrumentation, continued to grow in the high single-digit range. As we indicated in our 2004/05 Operating review, the United States PostalService awarded further contracts for biohazard detection equipment whichcreated additional demand for our components. Also predicted last year, the fuelcell market is moving slowly from prototyping towards low production volumes. Markets for our ophthalmic instruments are heavily regulated. New health opticsproducts require lengthy technical approvals, and instruments using newdiagnostic methods need clinical trials. These factors add cost and time to newproduct development, but are a strong disincentive to new competitors. There are very strong underlying drivers for moderate growth to continue in thehealth optics sector. An increasing number of older people in the developedworld inevitably promotes demand for eye care. Added to this, as GDP rises indeveloping countries, demand for healthcare rises too. We estimate the size of the global market for ultraviolet (UV) water treatmentsystems to be in the region of £350 million per year. Forecast growth rates varyfrom 5% to 15%, with highest growth predicted in the municipal sector. Demandfor UV drinking water treatment systems in the US was boosted in 2005/06 whenthe Environmental Protection Agency (the principal regulator) approved UVtechnology for controlling the cryptosporidium micro-organism in drinking water. UV water treatment is another market dominated by product certifications. During2005/06 we launched new products to satisfy the latest European DVGW and Onormapprovals and a product line complying with the new US National Water ResearchInstitute standards will be launched in 2006/07. The forecast recovery in our UVbusiness, following reorganisation in the US, delivered 20% sales growth. Theleisure industry is showing high growth and sales to semiconductor fabricatorswere the highest for several years. Our photonics business saw record revenue and profit with the latter 24% ahead.Our core photonics products, miniature spectrometers which measure light, aresold into a highly fragmented but rapidly growing global market valued atbetween £50 million and £150 million per year. The largest market for water leakage control products remains the UK due to itsageing water network, environmental and regulatory pressures on water companies,regional population growth and recent drought conditions. We expect thesefactors to drive UK demand for the foreseeable future. The US is our secondlargest leakage control market where we won further large contracts in 2005/06,notably for the cities of Albuquerque, New Mexico, and Birmingham, Alabama, andfor the island of Hawaii. There is little regulatory pressure on US watercompanies to reduce leakage and rising US demand for our products is driven bywater shortages and increasing energy costs. Sector performance The strong revenue and profit growth (20% and 56% respectively) continued thetrend of the previous year. This growth came in part from acquisitions butpredominantly from the recovery in our Water businesses and strong performancesacross the sector. These factors restored the return on sales to a moretypically high figure of 21%. ROCE and investment in new products were both atgood levels. Sector outlook The exceptional growth levels achieved in 2005/06 included the benefit of arapid recovery in our Water business. We expect the Health and Analysis sectorto make further progress in the coming year albeit without this one-off extraboost to profits. Industrial Safety sector review This is our smallest sector, contributing 22% of Group revenue (£67 million) and22% of Group profit (£13 million). Sector strategy Competition in the portable gas detectors sector is stepping up, particularlyfor fixed-life disposable products. Our response has been to differentiate ouroffering through technical innovation and high quality customer service. Tomaintain competitive position in gas detectors, we are strengthening management,focusing on reducing manufacturing costs and sharpening procurement. Thisstrategy led to improved margins and gas detector profit 7% ahead in 2005/06. Speeding up product development cycles to continually refresh product lines is akey strategic objective to drive gas detector growth during the next five years.Our R&D function has been extended and we are also using development resourcesin China and India to help cut development timescales. Our bursting disc competitors consolidated during 2005/06; we now compete withjust six other manufacturers worldwide. On a global scale, we rank fourth. Torealise our aim of raising global market share, we will extend our salesoperations and continue to improve our operating efficiencies. During the year, one of our French safety interlock businesses established a newmanufacturing operation in Tunisia. This offers an interesting alternative to"traditional" low cost locations giving us a highly educated work force and nolanguage or time zone issues. The early signs of this strategic move arepositive. Market trends The trend towards higher levels of health, safety and environmental awarenessglobally provides long-term growth prospects for our Industrial Safetybusinesses. While a lot of manufacturing industry is moving East, much of it isstill driven by the relocation of Western companies who are "exporting" safetystandards. Overall, we believe the long-term growth rate of the market to be 3%to 4% per year. The global market for portable personal protection gas detectors is estimated tobe valued at £275 million per year. We also sell fixed gas detection systemsinto a global market worth approximately £250 million per year. Both markets areexpanding annually at about 3%. Because gas detection equipment is safety-critical, it requires regular servicing and calibration. Service is a keycomponent of our gas instrumentation offer and makes a substantial contributionto sales. We have built a market-leading position in the UK for boiler combustion testinstruments which optimise gas burning efficiency and minimise energy use. Werecently won a tender valued at £1 million to supply these instruments toBritish Gas. The world market for bursting disc pressure safety devicescontinues to grow slowly. We are seeing a gradual relocation of our customers'manufacturing activities to low labour cost countries. Our response is to stepup selling operations in Eastern Europe, India and China. We won significant newbusiness in both Europe and the US due to our strategy of providing industry-leading technical support and fast deliveries. This contributed to bursting discprofit growth of 30% in 2005/06. The acquisition of Netherlocks, based in The Netherlands, extended our presencein the growing petrochemical, oil and gas market. We believe this market offersattractive prospects for the next decade and beyond. Adoption of Western safetystandards in China and Eastern Europe is a clear trend but sales of interlocksto these territories will build more slowly than for petrochemical, oil and gas. Over the past two years we have been creating a new market for interlockingdevices in the logistics industry. Our Salvo safety system, which preventsaccidents to forklift truck operators, has been very well received by the marketand has contributed over £1 million of revenue. Sector performance Following the sale of our Resistors business, we achieved organic growth in allsub-sectors and in all major geographic territories. Revenue growth wasparticularly strong in our traditional markets of the UK, mainland Europe andthe USA. Revenue and profit growth included some benefit from acquisitions butalso strong organic growth in our businesses serving the oil and gas markets.Return on sales improved and product margins increased. ROCE continued to bevery strong. As planned a relatively lower percentage of sales was invested inR&D in this sector than in our other sectors as the markets served here tend tobe more mature and conservative. However, good growth opportunities continue toexist. Sector outlook Whilst we have had an excellent year, we will continue to pursue our geographicexpansion and new product development plans energetically. Regulation andlegislation and reducing the risk of accidents play an increasingly importantrole in the working environment. We are well placed to deliver growth in linewith market growth rates, at least, for the coming year. Group outlook As well as achieving excellent short-term progress during 2005/06 bysubstantially raising organic growth, we established firm foundations for thelong-term growth of our business. We will pursue geographic expansion and new product development energetically.Continued investment to extend our presence in key developing markets andcontinuing development of senior management are key actions aimed at sustainingprofitable revenue growth. Key growth drivers, like regulation, legislation and attitudes to the risk ofaccidents, will continue to play an important role in creating favourable marketconditions. Growth in the coming year will be aided by a full year'scontribution from our new acquisitions and we will continue to explorecollaboration opportunities between our businesses. Our underlying growth prospects are positive and we are in a better position toexploit them following the rapid recovery of our Water business and theacquisitions and disposals completed during the year. We enter the new year ingood shape. Preliminary Results for the 52 weeks to 1 April 2006 Consolidated income statement £000 52 weeks to 1 April 2006 52 weeks to 2 April 2005 Before Amortisation Before Amortisation acquired of acquired acquired of acquired intangibles intangibles intangibles intangibles amortisation and goodwill amortisation and goodwill and goodwill written off Total and goodwill written off Total written off (restated) (restated) written off (restated) Continuing operationsRevenue (note 1) 310,768 - 310,768 268,719 - 268,719 Operating profit 59,960 (1,500) 58,460 49,358 (343) 49,015Finance income 6,207 - 6,207 5,663 - 5,663Finance expense (8,027) - (8,027) (6,715) - (6,715) Profit before taxation 58,140 (1,500) 56,640 48,306 (343) 47,963Taxation (note 3) (17,507) 473 (17,034) (14,585) 120 (14,465) Profit for the year fromcontinuing operations 40,633 (1,027) 39,606 33,721 (223) 33,498Discontinued operations(note 8)Net profit for the year from discontinued operations 6,739 (5,470) 1,269 1,065 (12) 1,053 Profit for the yearattributable to equity shareholders 47,372 (6,497) 40,875 34,786 (235) 34,551 Earnings per ordinary share (note 4)From continuing operationsBasic 11.01p 10.73p 9.16p 9.10pDiluted 10.69p 9.09pFrom continuing anddiscontinued operationsBasic 11.08p 9.38pDiluted 11.03p 9.37pDividends in respect of the year (note 5)Paid and proposed (£000) 25,216 23,972 Paid and proposed per share 6.83p 6.50p The comparative figures for the 52 weeks to 2 April 2005 have been restated for the adoption of International Financial Reporting Standards. Consolidated balance sheet £000 2 April 1 April 2005 2006 (restated)Non-current assetsGoodwill 122,038 99,276Other intangible assets 12,166 4,817Property, plant and equipment 50,054 47,784Deferred tax assets 13,803 12,253 198,061 164,130Current AssetsInventories 36,660 35,502Trade and other receivables 77,523 69,816Cash and cash equivalents 35,826 45,348 150,009 150,666 Total assets 348,070 314,796Current liabilitiesBorrowings 32,308 33,344Trade and other payables 66,035 54,228Tax liabilities 7,316 5,137 105,659 92,709 Net current assets 44,350 57,957Non-current liabilitiesRetirement benefit obligations 46,019 40,845Trade and other payables 5,096 5,768Deferred tax liabilities 3,216 2,215 54,331 48,828 Total liabilities 159,990 141,537Net assets 188,080 173,259 Shareholders' equityCalled up share capital 36,933 36,880Share premium account 10,702 10,111Treasury shares (379) -Capital redemption reserve 185 185Translation reserve 5,944 144Other reserves 1,592 513Retained earnings 133,103 125,426Total shareholders' equity 188,080 173,259 The comparative figures as at 2 April 2005 have been restated for the adoption of International Financial Reporting Standards. Statement of recognised income and expense £000 52 weeks 52 weeks to to 2 April 1 April 2005 2006 (restated)Exchange differences on translation of foreign operations 5,826 144Exchange differences recycled from reserves on disposal of (26) -operationsActuarial losses on defined benefit pension schemes (10,355) (48)Tax on items taken directly to equity 1,625 (4)Net (loss)/income recognised directly in equity (2,930) 92Profit for the year 40,875 34,551Total recognised income and expense for the year 37,945 34,643 Reconciliation of movements in shareholders' equity £000 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated)Shareholders' equity brought forward 173,259 159,027 Profit for the year 40,875 34,551Dividends paid (24,468) (23,320)Exchange differences on translation of foreign operations 5,826 144Exchange differences recycled from reserves on disposal of (26) -operationsActuarial losses on defined benefit pension schemes (10,355) (48)Tax on items taken directly to equity 1,625 (4)Net proceeds of shares issued 644 2,546Treasury shares purchased (379) -Movement in other reserves 1,079 363Total movement in shareholders' equity 14,821 14,232Shareholders' equity carried forward 188,080 173,259 Consolidated cash flow statement £000 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated)Net cash inflow from operating activities (note 6) 53,362 46,944 Cash flows from investing activitiesPurchase of property, plant and equipment (11,878) (8,896)Purchase of computer software (717) (523)Proceeds from sale of property, plant and equipment 1,032 418Development costs capitalised (2,500) (1,122)Interest received 1,026 1,086Acquisition of businesses (36,178) (23,536)Disposal of businesses 14,641 (1,681)Net cash used in investing activities (34,574) (34,254) Financing activitiesDividends paid (24,468) (23,320)Proceeds from issue of share capital 644 2,546Interest paid (1,455) (889)(Repayment)/drawdown of borrowings (3,050) 5,764Net cash used in financing activities (28,329) (15,899) Decrease in cash and cash equivalents (note 6) (9,541) (3,209) Cash and cash equivalents brought forward 45,348 48,482Exchange adjustments 19 75Cash and cash equivalents carried forward 35,826 45,348 The comparative figures for the 52 weeks to 2 April 2005 have been restated for the adoption of International Financial Reporting Standards. Notes to the Preliminary Announcement 1 Segmental analysis £000 Sector analysis Revenue Profit 52 weeks 52 weeks 52 weeks to to 52 weeks to 1 April 2 April 2 April 2006 2005 1 April 2005 (restated) 2006 (restated) Infrastructure Sensors 131,860 118,200 24,106 23,739 Health and Analysis 111,653 93,149 23,395 15,002 Industrial Safety 67,648 57,923 12,857 10,089 Inter-segmental sales (393) (553) - - Central companies - - (398) 528 Continuing operations 310,768 268,719 59,960 49,358 Discontinued operations (note 8) 26,580 30,400 1,501 1,606 Net finance expense - - (1,820) (1,052) Group revenue/profit before amortisation of acquired 337,348 299,119 59,641 49,912 intangibles Amortisation of acquired intangibles - - (1,529) (361) Profit on disposal of operations before tax (note 8) - - 494 - Taxation - - (17,731) (15,000) Revenue/profit for the year 337,348 299,119 40,875 34,551 £000 Geographical analysis Revenue by destination Revenue by origin 52 weeks 52 weeks to 52 weeks to to 52 weeks to 1 April 2 April 2 April 2006 2005 1 April 2005 (restated) 2006 (restated) United Kingdom 82,930 70,260 173,168 149,790 United States of America 94,043 78,758 104,295 85,245 Mainland Europe 77,183 72,702 45,788 43,112 Asia Pacific and Australasia 33,293 30,198 15,455 14,536 Africa, Near and Middle East 14,709 9,838 - - Other countries 8,610 6,963 - - Inter-segmental sales - - (27,938) (23,964) Revenue from continuing operations 310,768 268,719 310,768 268,719 Discontinued operations (note 8) 26,580 30,400 26,580 30,400 Group revenue 337,348 299,119 337,348 299,119 Profit 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated) United Kingdom 30,354 25,758 United States of America 20,149 13,674 Mainland Europe 7,632 7,258 Asia Pacific and Australasia 1,825 2,668 Profit from continuing operations 59,960 49,358 Discontinued operations (note 8) 1,501 1,606 Net finance expense (1,820) (1,052) Group profit before amortisation of acquired intangibles 59,641 49,912 Amortisation of acquired intangibles (1,529) (361) Profit on disposal of operations before tax (note 8) 494 - Taxation (17,731) (15,000) Profit for the year 40,875 34,551 2 Basis of Preparation The preliminary results for the year to 1 April 2006 have been prepared inaccordance with International Financial Reporting Standards (IFRS) asadopted by the European Union and applied in accordance with the Companies Act1985. This is the first year in which the Group has prepared its financialstatements under IFRS and the comparative information for the year to 2April 2005, which was originally prepared under UK Generally Accepted AccountingPractice (UK GAAP), has been restated to comply with IFRS. An explanationof the transition to IFRS and the reconciliations from the previouslypublished UK GAAP financial statements to IFRS were contained in a press releaseissued by the Group on 2 September 2005. This Preliminary Announcement does not constitute the Group's statutory accountsfor the years ended 1 April 2006 or 2 April 2005, but is derived from thoseaccounts. Nor does it contain sufficient information to comply with thedisclosure requirements of IFRS. Statutory accounts for the year to 2 April2005, which were prepared in accordance with UK GAAP, have been delivered to theRegistrar of Companies. Statutory accounts for 2005/06 which comply with IFRSwill be delivered before the Company's Annual General Meeting. The auditorshave reported on these accounts; their reports were unqualified and did notcontain statements under s237 (2) or (3) of the Companies Act 1985. This Preliminary Announcement was approved by the Board of Directors on 20 June 2006. 3 Taxation £000 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated) Current tax UK corporation tax at 30% (2005: 30%) 9,246 7,615 Overseas taxation 8,271 6,436 Adjustments in respect of prior years 133 (28) Total current tax 17,650 14,023 Deferred tax Origination and reversal of timing differences (558) 423 Adjustments in respect of prior years (58) 19 Total deferred tax (credit)/charge (616) 442 Tax on profit from continuing operations 17,034 14,465 Tax on profit from discontinued operations 697 535 Total tax charge recognised in the Consolidated income 17,731 15,000 statement Reconciliation of the effective tax rate: Profit before tax - continuing operations 56,640 47,963 Profit before tax - discontinued operations 1,966 1,588 58,606 49,551 Tax at the UK corporation tax rate of 30% (2005: 30%) 17,582 14,865 Overseas tax rate differences 1,116 840 Expenses not deductible for tax purposes (1,042) (696) Adjustments in respect of prior years 75 (9) 17,731 15,000 Effective tax rate 30.3% 30.3% 4 Earnings per ordinary share Basic earnings per ordinary share are calculated using the weighted average of369,053,181 shares in issue during the year (net of shares purchased by theCompany and held as treasury shares) (2005: 368,181,035). Diluted earnings perordinary share are calculated using the weighted average of 370,435,138 shares(2005: 368,697,347) which includes dilutive potential ordinary shares of1,381,957 (2005: 516,312). Dilutive potential ordinary shares are calculatedfrom those exercisable share options where the exercise price is less than theaverage price of the Group's ordinary shares during the year. Earnings from continuing operations excludes the net profit from discontinuedoperations. Adjusted earnings is calculated as earnings from continuingoperations excluding the amortisation of acquired intangible assets after tax. The Directors consider that adjusted earnings represents a more consistentmeasure of underlying performance. A reconciliation of earnings and the effecton basic earnings per share figures is as follows: 52 weeks 52 weeks to 52 weeks to to 52 weeks to 1 April 2 April 2 April 2006 2005 1 April 2005 £000 (restated) 2006 (restated) £000 pence pence Earnings from continuing and discontinued operations 40,875 34,551 11.08 9.38 Remove earnings from discontinued operations (1,269) (1,053) (0.35) (0.28) Earnings from continuing operations 39,606 33,498 10.73 9.10 Add back amortisation of acquired intangibles (after tax) 1,027 223 0.28 0.06 Adjusted earnings 40,633 33,721 11.01 9.16 5 Ordinary dividends 52 weeks 52 weeks to 52 weeks to to 52 weeks to 1 April 2 April 2 April 2006 2005 1 April 2005 pence (restated) 2006 (restated) pence £000 £000 Amounts recognised as distributions to shareholders in the year Final dividend for the year to 2 April 2005 (3 April 2004) 3.92 3.75 14,462 13,810 Interim dividend for the year to 1 April 2006 (2 April 2005) 2.71 2.58 10,006 9,510 6.63 6.33 24,468 23,320 Dividends in respect of the year Interim dividend for the year to 1 April 2006 (2 April 2005) 2.71 2.58 10,006 9,510 Proposed final dividend for the year to 1 April 2006 4.12 3.92 15,210 14,462 (2 April 2005) 6.83 6.50 25,216 23,972 The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. If approved, the final dividend for 2005/06 will be paid on 23August 2006 to shareholders on the register at the close of business on 21 July2006. 6 Notes to the cash flow statement £000 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated) Reconciliation of profit from operations to net cash inflow from operating activities Profit from continuing operations before taxation 58,460 49,015 Profit from discontinued operations before taxation 1,472 1,588 Depreciation and amortisation of computer software 8,373 7,901 Amortisation of capitalised development costs 1,441 1,054 Amortisation of acquired intangible assets 1,529 361 Share-based payment expense in excess of amounts paid 742 192 Additional payments to pension scheme (1,357) (1,139) Loss/(profit) on sale of property, plant and equipment 174 (21) Operating cash flows before movement in working capital 70,834 58,951 Decrease/(increase) in inventories 647 (1,000) (Increase)/decrease in receivables (6,225) 780 Increase in payables 4,921 2,707 Cash generated from operations 70,177 61,438 Taxation paid (16,815) (14,494) Net cash inflow from operating activities 53,362 46,944 Reconciliation of net cash flow to movement in net cash Decrease in cash and cash equivalents (9,541) (3,209) Loans acquired - (1,125) Cash outflow/(inflow) from borrowings 3,050 (5,764) Exchange adjustments (1,995) 554 (8,486) (9,544) Net cash brought forward 12,004 21,548 Net cash carried forward 3,518 12,004 At 2 April Exchange At 1 April 2005 Cash flow adjustments 2006 Analysis of net cash Cash and cash equivalents 45,348 (9,541) 19 35,826 Overdrafts (240) 241 (1) - 45,108 (9,300) 18 35,826 Bank loans (33,104) 2,809 (2,013) (32,308) 12,004 (6,491) (1,995) 3,518 7 Non-GAAP measures £000 Return on capital employed 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated) Operating profit from continuing operations before amortisation 59,960 49,358 of acquired intangibles Operating profit from discontinued operations in prior period before - 1,606 amortisation of acquired intangibles Operating return 59,960 50,964 Capitalised software costs within intangible assets 1,213 1,112 Capitalised development costs within intangible assets 3,827 2,739 Property, plant and equipment 50,054 47,784 Inventories 36,660 35,502 Trade and other receivables 77,523 69,816 Trade and other payables (66,035) (54,228) Tax liabilities (7,316) (5,137) Non-current trade and other payables (5,096) (5,768) Add back retirement benefit accruals included within 4,763 558 payables Add back accrued deferred purchase consideration 9,803 12,039 Capital employed 105,396 104,417 Return on capital employed 56.9% 48.8% Return on total invested capital Profit from continuing operations before amortisation of acquired intangibles after taxation 40,633 33,721 Profit from discontinued operations in prior period before - 1,065 amortisation of acquired intangibles after taxation Return 40,633 34,786 Total shareholders' equity 188,080 173,259 Add back retirement benefit accruals included within 4,763 558 payables Add back retirement benefit obligations 46,019 40,845 Less associated deferred tax assets (13,803) (12,253) Cumulative amortisation of acquired intangibles 1,890 361 Goodwill on disposals 5,441 - Goodwill amortised prior to 3 April 2004 13,177 13,177 Goodwill taken to reserves prior to 28 March 1998 70,931 70,931 Total invested capital 316,498 286,878 Return on total invested capital 12.8% 12.1% Organic growth Organic growth measures the change in the revenue and profit from continuingGroup operations. The effect of acquisitions made during the current or priorfinancial year has been equalised by subtracting from the current year figures apro-rated contribution based on their revenue and profit at the date ofacquisition. Revenue Profit* before taxation 2006 2005 % 2006 2005 % £000 £000 growth £000 £000 growth Continuing operations 310,768 268,719 58,140 48,306 Acquired revenue/profit (13,085) - (2,638) - 297,683 268,719 10.8% 55,502 48,306 14.9% * before amortisation of acquired intangibles 8 Discontinued operations During 2005/06 the Group sold the following non-core businesses: Company Date of disposal Principal activity Country of incorporation SEAC Limited September 2005 Industrial Safety United Kingdom Secomak Limited December 2005 Industrial Safety United Kingdom Marathon Sensors Inc. December 2005 Health and Analysis USA Cressall Resistors Limited February 2006 Industrial Safety United Kingdom IPC Resistors Company February 2006 Industrial Safety Canada IPC Power Resistors Inc. February 2006 Industrial Safety USA Mosebach Manufacturing Company February 2006 Industrial Safety USA Post Glover Resistors Inc. February 2006 Industrial Safety USA The results of these discontinued operations, which have been included in the Consolidated income statement, were as follows: £000 52 weeks to 52 weeks to 2 April 1 April 2005 2006 (restated) Revenue 26,580 30,400 Operating expenses (25,079) (28,794) Operating profit before amortisation of acquired 1,501 1,606 intangibles Amortisation of acquired intangible assets (29) (18) Taxation (552) (535) Profit after taxation 920 1,053 Profit on disposal of operations 5,909 - Foreign exchange differences recycled from reserves 26 - Associated goodwill and acquired intangible assets (5,441) - Profit on disposal of operations before taxation 494 - Tax on profit on disposal of operations (145) - Profit on disposal of operations after taxation 349 - Net profit from discontinued operations 1,269 1,053 The net cash inflow in the year on disposal of operations was £14,641,000. Cautionary note This Preliminary Announcement contains certain forward-looking statements whichhave been made by the Directors in good faith using information available upuntil the date they approved the Announcement. Forward-looking statementsshould be regarded with caution as by their nature such statements involve riskand uncertainties relating to events and circumstances that may occur in thefuture. Actual results may differ from those expressed in such statements,depending on the outcome of these uncertain future events. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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