Halma PLC
17 June 2003
HALMA p.l.c.
PRELIMINARY RESULTS FOR THE YEAR TO 29 MARCH 2003
17 JUNE 2003
Halma, the leading safety and environmental technology group, today announced
its preliminary results for the year to 29 March 2003.
Highlights include:
• Highest ever return on capital employed of 54%
• Sales held at £267 million with profit before taxation and goodwill
amortisation of £46.5 million (2002: £48.3 million)
• Record free cash flow of £36 million
• 10% increase in dividend for the year
• BEA, our largest acquisition to date, performing well
• R&D investment increased to 3.6% of sales, driving strong product pipeline
and more profitable product mix
Commenting on the results, Stephen O'Shea, Chief Executive of Halma, said:
'Our strategy of building high market shares in safety related markets has
proved effective and shows in the Group's resilience under the current difficult
market conditions. We continue to generate exceptional returns on capital
employed, at a record level this year, thereby creating wealth for shareholders.
We have again demonstrated the ability to find, complete and integrate related
acquisitions successfully. We are creating new products for existing customers
and also improving our effectiveness in export markets.
'Provided markets remain stable, even at current levels, we expect to achieve
sales and profit growth.'
For further information, please contact:
Stephen O'Shea, Chief Executive +44 (0)1494 721111
Kevin Thompson, Finance Director +44 (0)1494 721111
Hogarth Partnership Limited +44 (0)20 7357 9477
Rachel Hirst/Andrew Jaques
A copy of this announcement, together with other information about Halma, may be
viewed on its website: www.halma.com
A copy of the Annual Report and Accounts will be sent to shareholders on 30 June
2003 and will be available to the general public on written request to the
Company's registered office at: Misbourne Court, Rectory Way, Amersham, Bucks
HP7 0DE.
PHOTOGRAPHS
High resolution photos of Halma senior management, including Chief Executive
Stephen O'Shea, and images illustrating Halma business activities can be
downloaded from its website: www.halma.com. Click on the 'News' link, then
'Image Gallery'. Photo queries: David Waller +44 (0)20 8205 0038, e-mail:
dwaller@halmapr.com
NOTE TO EDITORS
Halma p.l.c. develops products used worldwide to enhance safety and to minimise
hazards. The Group comprises six business groups:
• Fire and Gas detection
• Water leak detection and UV treatment
• Elevator Electronics
• Bursting discs and sequential locking for Process Safety
• High power electrical Resistors
• Ophthalmic Optics and Specialist technology
The key characteristics of Halma's businesses are that they are based on
advanced technology and offer strong growth potential. Each business group is a
clear market leader in its specialist field and, in a number of cases, is the
dominant world supplier.
HALMA p.l.c.
Group Results for the 52 weeks to 29 March 2003
Financial Highlights
Change
Turnover 0% to £267.3 million
Overseas sales + 3% to £188.2 million
Profit before taxation* - 4% to £ 46.5 million
Dividend per share +10% to 5.812p
Net margin on sales * 17.4%
Return on capital employed ** 53.5%
* Before goodwill amortisation of £3,235,000
** Return on capital employed is defined as the profit before taxation*
expressed as a percentage of net tangible assets
Chief Executive's Review
Stephen O'Shea, Chief Executive of Halma, said:
'Results in the second half of the year moved ahead of the first half not only
in organic terms but also from the success of the acquisitions of BEA and
Radcom. We have produced good results even though improvements in markets did
not occur.
'Our operations made pre-tax pre-goodwill profit of £46.5 million (2001/02:
£48.3 million) on sales of £267 million (2001/02: £268 million) - see
Consolidated Profit and Loss Account. Our very strong operating cash generation,
110% of operating profit, funded a further dividend growth of 10% at the interim
and subject to shareholder approval, a final dividend growth also of 10%.
'This cash is generated by our remarkably high return on sales and return on
capital employed, which this year reached 54% (2001/02: 41%). This is the
highest level ever achieved in the Group. This is a testament to the quality of
management in our subsidiaries who have made more effective use of their
resources, controlled costs, developed new products and in a number of cases
improved their market shares.
'For the first time the USA became our largest market, representing 31% of the
Group's sales. However, movements in the value of the US dollar reduced the
sterling value of our American earnings. We made our greatest growth in mainland
Europe where sales grew by 10%. Sales increased to Africa and the Middle East,
and to the Far East and Australasia. There is a trend towards increased
manufacturing migration from Europe and the USA towards Far East and Eastern
Europe. Indeed an increasing proportion of components and sub-assemblies used in
the Group are sourced from these territories as we continue to keep our product
costs low.
'I am pleased but not surprised by the success of BEA. This was our largest
acquisition so far at £46 million net of cash but including earn-out payments
for results to the end of March 2003. In the 6 months we have owned it, net of
interest on the cash we used, BEA delivered £2.1 million to Group profits.
Operating profits at £2.9 million reached our target levels. The acquisition was
fully funded from cash accumulated from earnings in operating companies so that
even after a further small acquisition the Group was cash neutral at the end of
the year.
'In the year we invested record amounts in product development. This produces
growth opportunities and refreshes our offering to customers. Together with the
acquisitions we have a stronger set of products to start the new year.
'Despite challenging conditions in the markets we serve, three of our six
business groups - Fire and Gas, Elevator Electronics and Process Safety -
achieved an improved profit performance.
'Profits were increased in our Fire and Gas sector as the mix of products sold
was moved towards more profitable products, causing the return on sales to
improve. Apollo, our professional smoke detector business, increased sales to
almost all territories with particularly impressive sales growth into mainland
Europe. R&D has been continuing at a high pace with several new products
launched at the beginning of the new financial year. This will lead to a short-
term increase in marketing costs, but will allow us to grow market share by
providing our customers with a larger range of products and training them in
their use. This reinforces customer loyalty which is a strong feature of our
fire detection business.
'We have been growing sales of gas detectors in the USA and in mainland Europe
but experienced reduced volume of sales into the UK. We are concentrating on
products with a high ease of use, usually single button operation, that are
tough enough to survive the aggressive and hazardous environments where they are
used. We also launched new products in May 2003. These include a new range of
personal gas monitors for hostile environments. These are potentially life-
saving products. Our customers include water, electricity and gas utilities and
also telecoms, construction and chemical companies.
'Our two strengths in the Water sector are leak detection and water
sterilisation using ultraviolet (UV) light technology. Our leak detection and
flow management business is based in the UK and France and is affected by the
spending patterns of the water utilities. They have been deferring capital
expenditure and the UK water regulator has reduced the emphasis on cutting
leakage. Our efforts have therefore increasingly been directed towards the USA
where sales are growing, and to other countries where, because of shortages, the
wastage of large amounts of clean water through leaks is unacceptable. We are
offering technology that is new to some of these territories and we are
confident of long-term development even though the start up phase can be
relatively slow and resource intensive.
'At the end of the financial year we further strengthened our flow measurement
activities by the purchase of Radcom which added a strength in measuring flows
of dirty water and reporting results by using satellite communications.
'In UV sterilisation we take contaminated water and make it fit for use in a
variety of applications including for drinking, in swimming pools, as water used
for irrigation, and also to improve the quality and shelf-life of food and
drinks. Chlorination of water is not always effective in eliminating parasites
and chlorine by-products have been shown to damage both people and buildings. We
minimise or eliminate the use of this poisonous gas in many critical
applications thereby making a useful contribution to improving the environment.
There is growing recognition of the value of this technology and its use is
increasing particularly in the USA.
'We make a considerable number of products that protect people at work. In our
Process Safety sector we make pressure relief products and safety systems that
ensure machines are safe before people can gain access. We specialise in
situations where it is critical that an ordered process is carried out correctly
to safely manage the plant, protect the operations and to prevent accidents and
emissions.
'Growth in profits during the year has been partly driven by some recovery in
spending by the petro-chemical companies which includes safety spending with us.
We are also operating successfully in the USA where safety expectations are
rising towards the high levels demanded in Europe. Automotive applications have
had a good year as customers have moved, changed, upgraded or made new
production lines.
'We foresee opportunities to grow our emergency pressure relief operations. We
currently have a moderate market share. There are three larger US based
competitors, all of whom have a very large installed base, and a big and regular
demand for spares. We have a greater dependence on the chemical industry, our
largest customer, which has had a slow year for major new process plants. We
provide an extraordinarily high level of service and response and thereby are
capturing some of our competitors' spares business. We have also been developing
products specifically for the food industry, a niche that we can develop into a
strong market for us.
'As expected, heavy industry in the USA has been slow to improve, such that our
Resistors sector which is largely based in America, has continued to experience
difficult conditions in its biggest market. Accordingly we have moved resource
into exports. Sales have grown into the Near, Middle and Far East, and to Africa
and Australasia, but this has only partially offset the reductions in US sales.
The net effect is a £4 million sales reduction and £1 million profit reduction
compared to last year.
'Work is continuing on controlling our costs, further increasing exports and
managing our working capital. In this sector our assets employed have been
reduced by £2 million (22%) in the year and the cash generated used, in part, to
purchase BEA. The return on sales reduced from 13% to 11% in our resistors
sector, but as a result of good resource management the return on capital
employed remained at 36%. In many engineering businesses this return would be
considered high even in the best of times.
'Because of our range of technologies and broad customer base, we expect to
reverse the current trend in resistor sales. However, we will need better export
strength or an improvement in American markets to reach previous levels of
profit in this particular sector.
'Within our Optics and Specialist sector we include our ophthalmic diagnosis
companies, and a grouping of other subsidiaries along with the national and
international holding companies.
'Our optics business has held steady in sales and profits, with new products
launched last year making useful contributions. There is an increasing level of
cross-fertilisation between these companies. The quality of Research &
Development, for us mainly development, has been improving and producing a range
of new products. Increasingly our customers are becoming more and more careful
about cross-contamination of patients and recently we introduced a number of
unique precision aspheric lenses that can be sterilised regularly by high heat
levels.
'The specialist businesses in this sector have market shares that are lower than
elsewhere in the Group. They are more subject to pricing pressures and do not
have as much power with suppliers as our market leading companies. To improve
profitability we have made a number of changes in the management of several of
these companies.
'As you travel around the world, automatic doors in elevators and in airports,
shops and hotels help to maximise the comfortable and safe flow of people. Our
businesses lead the world and hold by far the largest market shares in sensors
for automatic doors. We have long held this position for elevator doors. In our
Elevator Electronics sector we also provide controls, displays and emergency
communications for elevators and other transit applications.
'Active management of costs has been important, particularly because the major
US market has remained both dull and steady. By sourcing extrusions, electrical
sub-assemblies and mechanical parts in Eastern Europe we have made valuable
material cost savings. There is some consolidation of our smaller customers into
our larger ones which changes the pricing mix and offsets our productivity and
material cost gains.
'In October we purchased BEA. This company is the world market leader in sensors
for fixed automatic doors. It is headquartered in Liege, Belgium with a major
facility in Pittsburgh USA, an operation in China and offices in Japan and
elsewhere. I am very pleased with our managers and BEA's management in the
purchase and integration of this operation. My initial targets have been met.
BEA brings some new technologies and techniques into the Group and is being
effective in transferring their best practice to other companies in the Group.
They use a number of innovation techniques that are being reviewed for use
elsewhere in the Group.
'Our strategy of building high market shares in safety related markets has
proved effective and shows in the Group's resilience under the current difficult
market conditions. We continue to generate exceptional returns on capital
employed, at a record level this year, thereby creating wealth for shareholders.
We have again demonstrated the ability to find, complete and integrate related
acquisitions successfully. We are creating new products for existing customers
and also improving our effectiveness in export markets.
'Provided markets remain stable, even at current levels, we expect to achieve
sales and profit growth. We are not relying on markets to improve in order to
achieve high profits and high returns. We consider the future is in our own
hands. Significant new products are being launched at the start of 2003/04.
Initially launch costs are incurred but these are high value units so payback is
quite rapid.
'We are aiming to return to a sequence of record profits.'
Finance Director's Review
Kevin Thompson, Finance Director of Halma, said:
'The full year's turnover of £267 million was held at last year's figure. Profit
before taxation and goodwill amortisation was £46.5 million (2001/02: £48.3
million) - see Consolidated Profit and Loss Account. Turnover, profit before
taxation and return on sales were higher in the second half of the year than the
first, without including the benefit of acquisitions. The Group continues to
operate at a high rate of profitability with return on sales now exceeding 17%
for more than 10 consecutive years.
'Relative to Sterling, the weak US dollar and stronger Euro have had an impact
on these results. Approximately one-third of turnover and profits are made in US
dollars and translating these weaker US dollars into Sterling has reduced
turnover and profits by 2.4%, offset a little by the benefit of contributions in
stronger Euros.
'Looking ahead, I expect some continuation of the increase in insurance costs
which we have seen impact the Group in 2002/03, together with higher UK National
Insurance and pension costs. In total, I believe these costs will increase
overheads by £1.7 million in 2003/04, however a number of initiatives are
continuing which will reduce both overhead and material purchase costs and I
expect these to mitigate the increases at least in part. We are managing to
offset sales price pressures in some markets through improved product design and
even better procurement.
'Even by Halma standards, the cash flow performance this year was very good.
Free cash flow (the cash left over from our operating activities and interest
but after funding capital expenditure, working capital and tax) was £36 million,
exceeding the record achieved last year. Excluding currency effects and
acquisitions made in the year, stocks were reduced by £3.3 million (9%)
following a £5.1 million reduction last year, and working capital in total was
pushed down by £8.8 million (13%). We finished the year with net debt of less
than £0.1 million after spending £47 million on acquisitions.
'Operating cash flow for the year, being cash flow from operating activities
less capital expenditure, amounted to £50.9 million. This means that the cash
conversion rate (operating cash flow as a percentage of operating profit before
goodwill amortisation) was very strong at 110%.
'A consistently high return on capital employed has long been a feature of
Halma. During the year we converted our cash, which earns a relatively low
return, into businesses which earn a much higher return. I am very pleased to
report a return on capital employed of 54% this year, the twentieth consecutive
year over 40%, and the highest ever year-end figure.
'Following the 10% increase in the interim dividend, the Directors recommend an
increase of 10% in the final dividend per share. If approved, this dividend,
amounting to 3.527p per share, will be paid on 18 August 2003 to shareholders on
the register at the close of business on 18 July 2003, giving a total dividend
for the year of 5.812p. Our excellent cash generation will therefore finance a
distribution to shareholders of £21 million for the year.
'The effective tax rate on profit before goodwill amortisation has increased
from 31.5% to 32.9%, in part due to the increase in income earned in higher tax
jurisdictions and in particular that of the BEA companies. I expect an effective
tax rate closer to 32% in 2003/04, depending on the exact mix of profits earned
around the world.
'At 29 March 2003 the Group held currency loans amounting to US dollar 31
million and Euro 10 million. These loans are only for balance sheet hedging
purposes, covering the majority of our US dollar and Euro assets.
'We do not use complex tax planning schemes nor complex derivative financial
instruments. No speculative treasury transactions are undertaken.
'The triennial valuation of the Group pension schemes was carried out during the
year. This showed that the main Group scheme is 69% funded, compared with 97%
funding at the 1999 valuation. This reduction arises because of the fall in
equity markets and investment returns.
'We have increased both employer and employee contributions to the schemes
during the year in line with the actuary's recommendations. The charge against
profit in 2003/04 will be £1 million higher than this year but there is no need
for a further increase in the cash contributions. Under current assumptions the
deficit would be eliminated over a 15-year period.
'As with many companies, the cost of providing a defined benefit promise to
employees has increased significantly in the last few years. The effects of
increased longevity, loss of ACT relief and of course the fall in equity
valuations more recently have led us to close the defined benefit pension scheme
to new members and a defined contribution scheme has now been established.
'We have adopted the transitional provisions of FRS 17 (Retirement Benefits) for
the year ended 29 March 2003. There is no material difference between the charge
to the Group profit and loss account under FRS 17 compared to SSAP 24 (the
existing rules). Full adoption of FRS 17 will mean that the net deficit on the
Group's defined benefit pension schemes is shown as a liability on the
consolidated balance sheet. At 29 March 2003, the deficit, net of deferred tax,
was £31 million. This figure reflects the prudent assumptions required under FRS
17 and the significant decline in equity values over the period, and represents
a relatively small proportion of Halma's current market capitalisation.
'High quality finance executives operate within each business, monitoring and
assisting progress. In addition to self-certification, each business is subject
to regular, comprehensive financial review, carried out by our senior finance
staff. The output from these reviews supports the continued improvement in
simple, valuable systems and allows us to address any weaknesses found. I am
committed to maintaining the strong control in the Group and to increasing the
pace of improvement even further.
'During the year we carried out a review of our audit services and appointed
Deloitte & Touche as our auditors. I am pleased with the quality of service they
are able to provide to us.
'The BEA group of companies was acquired in October 2002. At the company level,
BEA's pre-tax return on its operating assets is in excess of 70%. Its
contribution to pre-tax profit in the year, net of the cost of financing the
acquisition, was £2.1 million and is of course strongly earnings enhancing.
Including deferred consideration earned up to March 2003 but not including the
cash we acquired, the purchase price is £46 million and the post-tax return on
investment for the period we have owned BEA is 8.3%. We bought BEA for its long-
term benefits but this figure still compares well with our cost of capital which
has been calculated as falling in the range of 7% to 8.5%. This was a strong
acquisition.
'We are entering the new year in good shape. Returns and cash flow remain strong
and we have minimal net debt. Good financial controls are embedded in the Group.
It is against this background that we will push to increase the pace of
improvement even further and continue to focus on the creation of value.'
Operating Review
Fire and Gas
We own two of the world's leading fire and gas detector brands - Apollo and
Crowcon. Countless millions of people depend on us to protect them, and their
properties, from the dangers of fire and gas. We are a world class manufacturer
of commercial fire detectors with an international reputation for technical
excellence and customer service. Our second key product group in this sector is
gas detectors that protect industrial workers from flammable and toxic gases.
The principal sales channels for fire products are distributors and system
installers; gas detectors are also sold via distributors and direct to end-
users, including customers in construction, utilities, chemicals and telecoms.
We have distributors in 89 countries; exports account for over 60% of sales in
this sector. In 2002/03, fire and gas contributed 26% of Group turnover and 32%
of operating profit.
We increased fire product sales in both the UK and export markets. The fastest
growing territory for fire products was Australia and we grew sales
significantly in Germany, despite the market shrinking by 13%. This progress was
achieved despite flat worldwide demand.
Our fire companies' ability to grow even during adverse market conditions is
mainly due to continuous investment in product innovation and customer service.
The anticipated resumption of growth in the fire products market, within the
next year, will allow our businesses to capitalise on their increasing market
share.
China and Russia both offer excellent opportunities for growth in fire safety
products. To consolidate our position in China we set up a technical office in
Shanghai to liaise with the national organisation which tests and approves fire
detectors.
In the developed world, the market for gas detection equipment is largely driven
by health and safety legislation. The US market, in particular, is still growing
at about 4% a year. We see strong growth potential in developing countries as
they continue to industrialise and adopt higher health and safety standards. We
have excellent growth prospects in this sector.
A new portable multi-gas detector, Tetra, was conceived, developed and launched
in under 12 months with full European and North American approvals. This will be
a major driver to export growth where its ease of service will be very
attractive to distributors. To combat an increasing focus on price in gas
detection markets, we have developed innovative products with enhanced features,
together with new basic specification products that exactly match the needs of
some markets, and extended aftermarket services.
We set new sales records for gas drying and humidifying products, as demand in
the US medical market for breath gas drying has grown strongly. Patient breath
monitoring, which is standard practice during anaesthesia, is now increasingly
used to monitor critical care patients. There are also good indications that our
single-use, disposable medical dryers are becoming the preferred method of
breath gas drying in US hospitals. A new range of oxygen humidification
products, with better performance and higher flow capacity, has generated
significant new sales for medical applications in Japan. Continuing medical
market growth is fuelled both by demographics and rising standards of care.
Water
Our businesses in this sector are world leaders in three important technologies:
instruments for monitoring and controlling water distribution, ultraviolet (UV)
light water treatment systems, and water analysis equipment. All of these
businesses sell to global markets; exports typically make up over 60% of sales.
These companies are based in the UK, The Netherlands, France and the US. The
principal customers for our advanced water technology products include water
supply companies, municipal authorities, and the manufacturing, food and process
industries. In the 2002/03 period, this sector generated 12% of Group turnover
and 12% of operating profit.
Profits from sales of water network instrumentation in France reached record
levels on the back of increased exports, despite tough trading conditions in the
home market. Instrumentation sales in the US also rose, where emergency drought
controls are still imposed in most US states. This has given momentum to
discussions with several major water utilities about high capital investment
leakage detection and control projects. However, we saw a sharp fall in UK sales
and profits as demand weakened, partly as a result of less regulatory pressure
to reduce leakage and postponement of capital projects by water utilities.
Overall, sales of water conservation instruments fell in 2002/03 but we are
continuously introducing new products to exploit changing market opportunities.
We acquired Radcom (Technologies) Limited in February and its growing strength
in wastewater flow monitoring technology is a perfect complement to our world-
leading instruments for drinking water monitoring. The process of making Radcom
products available through the Group's unrivalled worldwide sales distribution
channels is already well underway. This should impact positively on profits in
2003/04.
Sales of water analysis products were boosted by strong export demand. Improved
distribution channels in the US for swimming pool testing kits produced an
encouraging upward sales trend that should continue. Reflecting the shifting
pattern of investment in the UK water industry towards wastewater, sales to the
effluent and sewage treatment markets grew by 19%. An important new water
analyser was launched recently which promises to set new performance benchmarks.
This product should establish a strong position in the wastewater testing
market.
Growing concern about toxic by-products produced by chemical treatment of
drinking water is boosting sales of our non-chemical treatment systems based on
ultraviolet light. Contamination of drinking water by a waterborne parasite
called Cryptosporidium is an increasing problem in the US and Europe. This
favours our technology because ultraviolet light is much more effective at
deactivating this bug than traditional chlorination.
New research suggests that chlorine treatment in swimming pools is a major
contributor to childhood asthma. Sales of UV water treatment equipment into the
large public swimming pools market is already well established in Europe.
However, the use of UV for pool water is largely undeveloped in the US and is a
potentially valuable growth opportunity. We are the first UV manufacturer to win
a crucial US technical approval and sales, in partnership with an established US
pool equipment supplier, exceeded expectations.
Elevator Electronics
Our primary products in this sector are safety devices that protect people from
harm by making the use of elevators and automatic doors safe and efficient. The
key products here are electronic sensors for elevators and automatic doors, plus
voice communication and information display panels. These businesses are based
in Belgium, the UK, New Zealand, the US and Singapore. We also have
manufacturing facilities in China.
This market divides into two sub-sectors: new-build, where customers are a small
number of multinational and regional manufacturers, and refurbishment, where
large numbers of building contractors purchase locally. Our businesses in this
sector typically have high export sales. The major development in 2002/03 was
the acquisition of BEA, the world leader in sensors for automatic doors. This
year, this sector generated 18% of Group turnover and 18% of operating profit.
Sales and profit from this sector rose sharply in 2002/03 due to an excellent
performance by BEA following its acquisition in October 2002. Our existing
elevator businesses maintained sales at a consistent level.
Several markets showed strong growth, notably Japan and China where investment
in new buildings and infrastructure is continuing at a high level. A new Chinese
sales office was set up to market automatic door controls.
In the past year we saw a sharp rise in sales and profit from elevator display
panels, which we make in Singapore. New LCD screen products were launched that
can deliver real-time information, such as broadcast TV pictures, to the in-
elevator displays. Formerly, sales to the local South-East Asian zone dominated,
but successful exploitation of the Group's worldwide sales channels boosted
exports by 25% in 2002/03.
Global market conditions for elevator products have been difficult, especially
in the US, and we took aggressive action to maintain margins. A key element of
our strategy has been tight manufacturing cost control. This has been achieved,
in particular, by outsourcing more manufacturing to the Czech Republic and
China.
In the US, implementation of disability legislation plus a trend to cut railway
staff, especially platform workers, is creating rising demand for our emergency
telephone systems. A good example is the New York City subway, where our vandal-
proof platform telephones are replacing manned ticket booths. We also saw strong
growth in exports to Europe of our US-made emergency telecoms equipment.
The major growth from automatic door sensors came from the US and Japan where
new products based on both microwave and infrared sensor technology contributed
to increased sales. As part of a programme to improve customer safety, a major
US retailer has committed to fit our sensor packages at up to 10,000 entrances
to its stores.
Process Safety
A long-term commitment to developing market-leading applications knowledge and
customer service has delivered unrivalled world leadership in specialist areas
of industrial health and safety technology. Halma companies are the global brand
leaders in trapped key interlocks. These products create a life-saving interface
between industrial workers and the dangerous machinery they work with. We are
also a global supplier of bursting discs, ranking third largest in Europe and
fourth in the US. These high precision pressure control devices protect people,
production plant and the environment. They prevent devastating explosions and
toxic releases during chemical processing and transit. Our process safety
businesses operate from the UK, France and the US, contributing 13% of Group
sales and 15% of operating profit in 2002/ 03, up from 13% in 2001/02.
The strengthening of workers' rights and introduction of more rigorous public
health and safety legislation continues worldwide. This legislative pressure
creates increasing demand over time for our safety products, particularly in
this sector, but also in our fire, gas and elevator businesses. Many European
and American companies are transferring their home market safety standards to
their satellite operations in the developing world. This has created growth
markets for industrial safety products in the Far East.
Our response to these global trends has been to develop increasingly
sophisticated products, with higher added value, for Western markets, and to
commit more resources to marketing to the developing world. For example, we are
currently working with Siemens AG to develop new products that ensure safety for
operators of automated production machinery. These new access control devices
have embedded electronics enabling them to be integrated with the most advanced
factory automation technology. Profits from this sector rose while sales fell
slightly.
Increased exports from the UK and from France more than offset flat demand for
interlocking systems in the UK market. Sales and profit grew significantly in
the US, despite an unfavourable economic environment. We exploited strong demand
for improved safety on vast industrial dust filters called precipitators in the
US, and in the automotive sector.
The principal drivers for bursting disc sales are capital investment and extra
capacity utilisation within the chemical and pharmaceutical industries. New
products aimed at the special needs of pharmaceutical production and explosion
prevention in bulk powder storage made significant contributions to sales. We
currently have a relatively small share of this global market, so there is high
growth potential. Growth in this area came from increased exports.
Our strategy to grow market share focuses on fast deliveries, product offerings
that allow customers to carry less stock, and innovative products that deliver
superior performance.
Resistors
The combined sales and product portfolios of our high power resistor businesses
position us as world leader in this specialised electrical power technology. We
satisfy over 50% of North American demand. The global market splits three ways:
electricity distribution, electric motor control and rail transport. Sales are
either to major electrical engineering OEMs or to large projects; success comes
from our applications experience and the ability to solve customers' problems
with unique engineering solutions. Our resistor makers specialise in niche
applications in their local markets and bid cooperatively for large
international projects. Based in the US, Canada, Australia and the UK, the
resistor businesses contributed 10% of Group sales and 7% of operating profit in
2002/03.
Overall sales and profits from this sector declined in 2002/03, driven by a
downturn in our markets. The sales decline was due to lower exports with
domestic sales remaining flat. Profit performance was better than many of our
peers based on rigorous cost control.
The main business driver affecting this product group is capital investment in
the industrial and rail infrastructure in our target markets. These are cyclical
markets where customers are relatively price-insensitive in busy times and
prepared to pay a premium for superior quality and service. Our operations
thrive in these conditions, producing strong profit growth, but can also defend
market share in tough markets when pricing becomes fiercely competitive.
Our strategy to increase global market share is to create greater competitive
advantage through applications experience, manufacturing flexibility and product
innovation. Although heavy resistors are a well-established technology, and we
are the world leader, there are many opportunities to sell into new application
areas and to grow market share.
Expansion into new markets was a notable feature of 2002/03. While exports were
down overall, we saw a sharp rise in sales to South East Asia where basic
infrastructure investment is a driver. In the UK, we won a contract from Ford to
supply resistors as an automotive component for the first time. The automotive
sector will increase in importance to us as electric vehicles become
commonplace.
Our entry into the US market for resistors to control elevator movement also
generated significant new sales and we won new business from manufacturers of
fitness treadmills. Other successes included a large US transit resistor
contract with train maker Bombardier, assignment of preferred supplier status
for the French TGV rail system and the winning of the aftermarket business for
Komatsu mining trucks.
A prototype ground fault location system installed on commuter rail cars in
Toronto has been successful. A fault can now be located in ten minutes in
contrast to 8-10 hours previously. This has eliminated the previous need to take
the car out of service. As a result, the customer now plans to fit out the whole
fleet. A new US test facility lets us self-inspect new products to the
requirements of Underwriters Laboratories, the principal US technical approvals
organisation. This will help us to better meet customer needs and create
technical barriers against competitors.
Optics and Specialist
Our main focus in the Optics and Specialist sector is the manufacture of
ophthalmic instruments and lenses. These products are used by optometrists and
surgeons to assess eyesight and diagnose disease, and for laser eye surgery. The
market for ophthalmic products is global, exports account for over half of sales
and we are world leaders in our niche markets. We also have specialist
businesses that manufacture analytical products and cash management systems. Our
optics and specialist businesses are based in the US and UK. In 2002/03 this
sector contributed 21% of turnover and 17% of Group operating profit.
We saw good performances by our optical businesses. However, overall results
from this sector were mixed as sales and profit from the specialist companies
fell back. The specialist businesses generally sell into single markets and lack
global presence. As a result, they are less able to offset the impact of
unfavourable local economic conditions.
Our optics companies pushed profits ahead of the previous year. These results
were achieved through tight manufacturing cost control, a new regional US sales
operation for ophthalmic instruments, and a successful export campaign for US-
made lenses. Profits from lens sales set a new record. The global market for
ophthalmic products has, however, been difficult and demand in the important US
market has been flat.
Following last year's launch of the Pulsair Tonometer, an optometrist's
instrument for measuring pressure inside the eye, sales have been very
encouraging, especially in the US where our market share increased. In response
to rising concern about the potential for disease transfer via medical
instruments, we have introduced new diagnostic and treatment lenses that can be
cleaned in very high temperature hospital sterilisers. This new range has been
developed to exploit both US and international markets.
In 2002/03 we encouraged more businesses to capitalise on the market strength
and distribution networks of sister companies in other countries. This has been
put into practice by our two principal optics companies. They have formed a much
closer relationship to cooperatively exploit sales opportunities in the UK and
US. Joint R&D has already produced some product innovations and more development
projects are in progress. The two businesses now share marketing resources and
they exhibit jointly at international trade fairs.
Preliminary Results for the 52 weeks to 29 March 2003
Consolidated Profit and Loss Account £000
52 weeks to 29 March 2003
Before 2002
goodwill Goodwill 52 weeks
amortisation amortisation Total Total
Turnover
Continuing operations 252,159 - 252,159 267,597
Acquisitions 15,134 - 15,134 -
_______ _______ _______ _______
267,293 - 267,293 267,597
======= ======= ======= =======
Operating profit before goodwill
amortisation
Continuing operations 43,159 (2,282) 40,877 45,721
Acquisitions 2,941 (953) 1,988 -
_______ _______ _______ _______
Operating profit 46,100 (3,235) 42,865 45,721
Interest 408 - 408 237
_______ _______ _______ _______
Profit on ordinary activities
before taxation 46,508 (3,235) 43,273 45,958
Taxation (note 2) (15,279) 365 (14,914) (14,801)
_______ _______ _______ _______
Profit for the financial year 31,229 (2,870) 28,359 31,157
_______ _______ _______ _______
Ordinary dividends (note 3) (21,246) (19,323)
_______ _______
Profit transferred to reserves 7,113 11,834
======= =======
Earnings per ordinary share before
goodwill amortisation (note 4) 8.55p 9.10p
Earnings per ordinary share (note 4) 7.76p 8.58p
Diluted earnings per ordinary share 7.75p 8.54p
Operating profit for the 52 weeks to 30 March 2002 is after charging goodwill
amortisation of £2,297,000.
Consolidated Balance Sheet £000
29 March 2003 30 March 2002
Fixed assets
Intangible assets 76,592 40,042
Tangible assets 49,883 43,860
_______ _______
126,475 83,902
Current assets
Stocks 35,186 35,212
Debtors 73,076 67,993
Short-term deposits 14,309 34,386
Cash 13,265 11,271
_______ _______
135,836 148,862
_______ _______
Creditors: amounts falling due within one year
Borrowings 27,667 15,047
Creditors 46,090 36,946
Current taxation 5,286 6,844
Dividends payable 12,892 11,712
_______ _______
91,935 70,549
_______ _______
Net current assets 43,901 78,313
_______ _______
Total assets less current liabilities 170,376 162,215
Creditors: amounts falling due after one year 1,665 491
Provisions for liabilities and charges 5,265 4,167
_______ _______
163,446 157,557
======= =======
Capital and reserves
Called up share capital 36,549 36,473
Share premium account 6,375 5,631
Other reserves 185 185
Profit and loss account 120,337 115,268
_______ _______
Equity shareholders' funds 163,446 157,557
======= =======
Statement of Total Recognised Gains and Losses £000
52 weeks to 52 weeks to
29 March 2003 30 March 2002
Profit for the financial year 28,359 31,157
Other recognised gains and losses
Exchange adjustments (2,408) (102)
Related corporation tax 364 (26)
_______ _______
(2,044) (128)
_______ _______
Recognised gains and losses relating to the year 26,315 31,029
======= =======
Movements in Equity Shareholders' Funds £000
52 weeks to 52 weeks to
29 March 2003 30 March 2002
Profit for the financial year 28,359 31,157
Dividends (21,246) (19,323)
_______ _______
Profit transferred to reserves 7,113 11,834
Total other recognised gains and losses (2,044) (128)
Net proceeds of shares issued 820 4,382
_______ _______
Increase in equity shareholders' funds 5,889 16,088
_______ _______
Equity shareholders' funds brought forward 157,557 141,469
_______ _______
Equity shareholders' funds carried forward 163,446 157,557
======= =======
Consolidated Cash Flow Statement £000
52 weeks to 52 weeks to
29 March 2003 30 March 2002
Cash flow from operating activities (note 5) 60,309 55,860
Return on investments and servicing of finance
Interest received 1,280 770
Interest paid (622) (522)
_______ _______
658 248
Taxation
Current taxation paid (15,498) (17,023)
Capital expenditure
Purchase of tangible fixed assets (11,257) (8,120)
Sale of tangible fixed assets 1,872 1,667
_______ _______
(9,385) (6,453)
Acquisitions and disposals
Acquisition of businesses (49,857) (2,571)
Cash and overdrafts acquired 2,655 -
_______ _______
(47,202) (2,571)
Equity dividends paid (20,066) (17,673)
_______ _______
(31,184) 12,388
Management of liquid resources
Decrease/(increase) in short-term deposits 20,064 (20,912)
Financing
Issue of ordinary share capital 820 4,382
Increase in loans 13,399 8,253
_______ _______
14,219 12,635
_______ _______
Increase in cash (note 5) 3,099 4,111
======= =======
Segmental Analysis £000
Geographical analysis
By destination By origin
52 weeks to 52 weeks to 52 weeks to 52 weeks to
29 March 2003 30 March 2002 29 March 2003 30 March 2002
Turnover
United Kingdom 79,132 84,338 162,194 168,483
United States of America 82,060 83,208 84,724 85,610
Europe excluding UK 61,145 55,755 30,823 20,949
Far East and Australasia 26,289 23,758 10,199 8,319
Africa, Near and Middle East 10,064 9,339 - -
Other 8,603 11,199 2,840 3,584
Inter-segmental sales - - (23,487) (19,348)
_______ _______ _______ _______
267,293 267,597 267,293 267,597
_______ _______ _______ _______
Profit before taxation
United Kingdom 24,768 29,327
United States of America 14,366 13,841
Other countries 6,966 4,850
_______ _______
46,100 48,018
Goodwill amortisation (3,235) (2,297)
Interest 408 237
_______ _______
Profit on ordinary activities before taxation 43,273 45,958
_______ _______
Sector analysis 52 weeks to 52 weeks to
29 March 2003 30 March 2002
Turnover
Fire and Gas 70,026 70,414
Water 33,090 34,051
Elevator Electronics 46,308 33,097
Process Safety 35,241 36,704
Resistors 27,493 31,461
Optics and Specialist 55,996 62,462
Inter-segmental sales (861) (592)
_______ _______
267,293 267,597
_______ _______
Profit before taxation
Fire and Gas 15,028 14,792
Water 5,517 7,728
Elevator Electronics 8,126 5,642
Process Safety 6,753 6,247
Resistors 3,067 4,033
Optics and Specialist including holding companies 7,609 9,576
_______ _______
46,100 48,018
Goodwill amortisation (3,235) (2,297)
Interest 408 237
_______ _______
Profit on ordinary activities before taxation 43,273 45,958
_______ _______
Notes on the Preliminary Announcement
1 Basis of preparation
Based on audited accounts the financial information set out above does not
constitute the Company's statutory accounts for the years ended 29 March
2003 or 30 March 2002, but is derived from those accounts. Statutory
accounts for 2002 have been delivered to the Registrar of Companies and
those for 2003 will be delivered before the Company's Annual General
Meeting. The auditors have reported on those accounts; their reports were
unqualified and did not contain statements under s237(2) or (3) Companies
Act 1985.
2 Taxation £000
52 weeks to 52 weeks to
29 March 2003 30 March 2002
Current tax
UK corporation tax at 30% (2002: 30%) 7,114 9,199
Overseas taxation 6,829 4,871
Adjustments in respect of prior years 203 (268)
_______ _______
Total current tax 14,146 13,802
_______ _______
Deferred tax
Origination and reversal of timing differences 738 1,039
Adjustments in respect of prior years 30 (40)
_______ _______
Total deferred tax charge 768 999
_______ _______
14,914 14,801
_______ _______
Reconciliation of effective Before goodwill amortisation After goodwill amortisation
tax rate on profit on ordinary 52 weeks to 52 weeks to 52 weeks to 52 weeks to
activities 29 March 2003 30 March 2002 29 March 2003 30 March 2002
% % % %
UK corporation tax rate 30.0 30.0 30.0 30.0
Higher tax rates on overseas 3.3 2.5 3.6 2.6
profits
Adjustments in respect of prior 0.5 (0.7) 0.5 (0.7)
years
Other timing differences (0.9) (0.3) 0.4 0.3
_______ _______ _______ _______
Effective tax rate 32.9 31.5 34.5 32.2
_______ _______ _______ _______
3 Ordinary dividends
52 weeks to 52 weeks to 52 weeks to 52 weeks to
29 March 2003 30 March 2002 29 March 2003 30 March 2002
p p £000 £000
Interim paid 2.285 2.077 8,352 7,564
Final proposed 3.527 3.206 12,892 11,712
Balance of final dividend - - 2 47
_______ _______ _______ _______
5.812 5.283 21,246 19,323
_______ _______ _______ _______
If approved at the Annual General Meeting, the final dividend for 2003 will
be paid on 18 August 2003 to shareholders on the register at the close of
business on 18 July 2003.
4 Earnings per ordinary share
Earnings per ordinary share are calculated by dividing the profit for the
financial year, after goodwill amortisation and tax, of £28,359,000 (2002:
£31,157,000) by the weighted average of 365,411,453 shares in issue during
the year (2002: 363,099,764).
The earnings per ordinary share before goodwill amortisation as presented
on the profit and loss account, represents a more consistent measure of
underlying performance. A reconciliation of earnings and the effect on per
share figures is presented below:
Per ordinary share
52 weeks to 52 weeks to 52 weeks to 52 weeks to
29 March 2003 30 March 2002 29 March 2003 30 March 2002
£000 £000 p p
Earnings 28,359 31,157 7.76 8.58
Add back: goodwill
amortisation (after tax) 2,870 1,902 0.79 0.52
_______ _______ _______ _______
Earnings before goodwill
amortisation 31,229 33,059 8.55 9.10
_______ _______ _______ _______
5 Notes on cash flow statement £000
52 weeks to 52 weeks to
29 March 2003 30 March 2002
Reconciliation of operating profit to net cash inflow from operating
activities
Operating profit 42,865 45,721
Depreciation 7,554 7,371
Goodwill amortisation 3,235 2,297
(Profit)/loss on sale of tangible fixed assets (155) 48
Increase in SSAP 24 pension prepayment (916) (126)
Property sale receivable (1,100) -
Decrease in stocks 3,288 5,097
Decrease in debtors 122 1,825
Increase/(decrease) in creditors 5,416 (6,373)
_______ _______
Net cash inflow from operating activities 60,309 55,860
_______ _______
Reconciliation of net cash flow to movement in net (debt)/cash
Increase in cash 3,099 4,111
(Decrease)/increase in liquid resources (20,064) 20,912
Loan notes issued (1,083) -
Cash inflow from loans (13,399) (8,253)
Exchange adjustments 744 114
_______ _______
(30,703) 16,884
Net cash brought forward 30,610 13,726
_______ _______
Net (debt)/cash carried forward (93) 30,610
_______ _______
This information is provided by RNS
The company news service from the London Stock Exchange
