"strong and active management delivers record profits"

Stephen O'Shea, Chief Executive

The Group performance has been strong despite market conditions remaining difficult. We achieved record profits* of £50.3 million on a lower level of operating assets, despite a net £1 million profit hit from currency movements. Widespread improvement in sales performance across the Group's businesses and regions produced 9% sales growth. These results reflect our active management approach through which we achieve growth through focused acquisitions, efficiency improvements and the organic development of our existing businesses. I am pleased that excellent efforts from our management teams produced a return on capital employed* of 52%, outstanding for any engineering and manufacturing company.

In the year we sold three non-core businesses from our Optics and Specialist sector that were not compatible with our targets for growth and financial returns. Since the year end we have made two important acquisitions for a total initial sum of £22 million, significantly strengthening this sector. Looking forward we expect to gain useful benefits from our acquisition and disposal activities. Two further businesses were also consolidated to achieve the benefits of greater integration. We remain strongly cash generative, creating net cash of £22 million during the year. We funded our acquisitions from profits and also paid a record sum in dividends to our shareholders.

Our growth has come primarily from new products, the new customers they attract and new applications for long-term repeat ordering customers. We spent a record amount on research and development which now accounts for 4% of sales and launched many new products. Our cost base has been well managed so that we maintained our 17% return on sales* for yet another year. The Group is in a strong position to benefit from improvements in our end markets although we saw no upturn in the 2003/04 financial year and are not reliant on a market recovery for our future growth.

There has been a seamless transition with our Chairman, Geoff Unwin, stepping up from his previous role as Deputy Chairman in July 2003 and with the appointment of a new non-executive Director, Stephen Pettit, in September 2003. The management team has been further strengthened with the recruitment of two additional senior managers, Nigel Trodd and Andy Richardson, whom we welcome into the Group. We said goodbye to David Barber, the founder and architect of the Halma culture who served the Group over an outstanding tenure of 31 years. We owe much to him and all of us wish him well in his retirement.

I am encouraged by the number of countries where we have built up stronger positions. Territorial sales were grown to the UK, Europe, USA, Middle and Far East and Other Countries. The US Dollar weakened considerably during the year so that although sales in the USA grew by 12% in local currency, this translated to a 2% increase in Sterling terms. We make over a quarter of our profits from our US based companies. They increased US Dollar profits although in Sterling terms this converts to a small decline of 5%, £0.7 million. We were helped in the early part of the year by the strength of the Euro.

Sales from our European companies grew by 42% to £43.7 million. We owned BEA, the world market leading supplier of automatic door sensors, for the whole of the year (compared to a 6 month contribution last year). This very successful acquisition continues to deliver impressive results by producing excellent products and growing its customer base across the world. We have rolled out one of BEA's innovation techniques across the whole of the Group, demonstrating our commitment to transferring best practice.

Just over half our sales and profits are made by the UK companies. Continuing operations earned profits of £26.6 million, reflecting organic growth of £1.9 million, and increased sales by £10.6 million. Profits from our companies outside of the UK and USA, helped by £2.7 million from BEA, rose by £3.2 million.

Our Elevator and Door Safety sector performed particularly well demonstrating both organic and acquisition growth. Its profits are now £12.1 million, 24% of the Group's total. The Far East and Asia are increasingly important territories and we extended our premises in Beijing and our manufacturing facilities in Shanghai and Beijing, as well as growing in Singapore. Important product innovations include new emergency communication equipment, demand for which is likely to grow following new European legislation in this area.

We are increasing the focus on higher technology products and more technically advanced customers. Evidence of this can be seen in both the disposals made this year and in the acquisitions of Diba and Ocean Optics since the year end, both of which significantly broaden our capabilities in our Optics and Specialist sector. Diba products extend our product range offered to instrument makers in the growing field of life sciences. Ocean Optics make spectrometers that help analyse substances via their reaction to light. They are closely related to our water purity measuring photometers and other optical diagnostic equipment. Our trading in this sector produced increased profits. However within the sector we report our Head Office companies and the improved trading was more than offset by the costs of increasing senior management and lower income from subsidiaries who reduced their capital employed whilst growing profits. The net effect was a reduction in profits of £0.4 million to £7.1 million.

The Fire and Gas sector increased both sales and profits with new fire detectors and personal gas warning monitors. They earned £1.6 million of organic profit growth. This sector increased its already effective use of assets, producing a return on capital employed of 85%, exceeding even the Group's strong ratios.

As expected, our Resistors sector continued to suffer a depressed market, particularly in US heavy industry. There are some indications of improvement in one of our customer areas, mass transit systems. The sector has been managed vigorously in terms of both cost and working capital reductions though we have yet to reverse the decline in profits.

Our Process Safety sector did not quite match last year's sales and profits. The UK market proved difficult although there are now improving conditions in the petrochemical sector, which look likely to continue. New applications and specially developed products are particularly important in this sector. New products introduced late in the year that improve safety at delivery bays and provide enhanced emergency pressure relief, are examples of increasing innovation in this otherwise stable sector.

Our Water sector increased both sales and profits this year. We believe we are now offering customers the best UV sterilisation systems for drinking water on the market. Sales of water leak detection and control equipment are growing in the USA and there are prospects of capital spending by UK water utilities beginning to rise. We see this as a long-term growth sector.

Our focus on innovation and investment in research and development is bringing forward increasing numbers of new products and accelerating the acquisition of new customers. The free cash generated by our businesses and through disposals has been invested in maintaining this momentum and building our range of products through judicious acquisitions. We will benefit significantly once our markets improve but we are not dependant on this. We have the talent and the resources we need to build on our progress through our own efforts. The evidence for this is the record sales and profits earned this year and the confidence we have in continuing our rapid rate of dividend increase. I look forward to the coming year.