Summary of Halma p.l.c. Annual report and accounts 2006
Accounting Policies and Notes
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We make products which protect property and people at work
This is our smallest sector, contributing 22% of Group revenue (£67 million) and 22% of Group profit (£13 million). Following the sale of our high power Resistor business in February 2006, there are now three sub-sectors.
We make portable instruments and fixed systems which detect flammable and hazardous gases. We have a leading position in the UK market. We make our gas detectors in the UK.
We make 'one time use' pressure relief devices used to protect large vessels and pipe work in process industries. We are UK market leaders and number four in the world market. Our bursting discs are made in the UK and US.
We make specialised mechanical, electrical and electromechanical locks which ensure that critical processes operate safely and prevent accidents. We have significant market strength in petrochemical, oil and gas and significant geographic market share in Western Europe and Australasia. We manufacture interlocks in the UK, The Netherlands, France, Tunisia and Australia.
| KPI | Group target | 2006 | 2005 |
|---|---|---|---|
| Revenue growth1 | >5% | 17% | 1% |
| Profit growth2 | >5% | 28% | (6%) |
| Return on sales3 | ~18% | 19.0% | 17.4% |
| ROCE4 (Return on Capital Employed) |
>45% | 75% | 59% |
| R&D as a % of sales5 | ~4% | 3.1% | 3.3% |
KPIs are calculated on results from continuing operations.
Competition in the portable gas detectors sector is stepping up, particularly for fixed-life disposable products. Our response has been to differentiate our offering through technical innovation and high quality customer service. To maintain competitive position in gas detectors, we are strengthening management, focusing on reducing manufacturing costs and sharpening procurement. This strategy led to improved margins and gas detector profit 7% ahead in 2005/06.
Speeding up product development cycles to continually refresh product lines is a key 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 resources in China and India to help cut development timescales.
Our bursting disc competitors consolidated during 2005/06; we now compete with just six other manufacturers worldwide. On a global scale, we rank fourth. To realise our aim of raising global market share, we will extend our sales operations and continue to improve our operating efficiencies.
During the year, one of our French safety interlock businesses established a new manufacturing operation in Tunisia. This offers an interesting alternative to "traditional" low cost locations giving us a highly educated work force and no language or time zone issues. The early signs of this strategic move are positive.
The trend towards higher levels of health, safety and environmental awareness globally provides long-term growth prospects for our Industrial Safety businesses. While a lot of manufacturing industry is moving East, much of it is still driven by the relocation of Western companies who are "exporting" safety standards. 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 to be valued at £275 million per year. We also sell fixed gas detection systems into a global market worth approximately £250 million per year. Both markets are expanding annually at about 3%. Because gas detection equipment is safety-critical, it requires regular servicing and calibration. Service is a key component of our gas instrumentation offer and makes a substantial contribution to sales.
We have built a market-leading position in the UK for boiler combustion test instruments which optimise gas burning efficiency and minimise energy use. We recently won a tender valued at £1 million to supply these instruments to British Gas.
The world market for bursting disc pressure safety devices continues to grow slowly. We are seeing a gradual relocation of our customers’ manufacturing activities to low labour cost countries. Our response is to step up selling operations in Eastern Europe, India and China. We won significant new business in both Europe and the US due to our strategy of providing industry-leading technical support and fast deliveries. This contributed to bursting disc profit growth of 30% in 2005/06.
The acquisition of Netherlocks, based in The Netherlands, extended our presence in the growing petrochemical, oil and gas market. We believe this market offers attractive prospects for the next decade and beyond. Adoption of Western safety standards in China and Eastern Europe is a clear trend but sales of interlocks to 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 interlocking devices in the logistics industry. Our Salvo safety system, which prevents accidents to forklift truck operators, has been very well received by the market and has contributed over £1 million of revenue.
Following the sale of our Resistors business, we achieved organic growth in all sub-sectors and in all major geographic territories. Revenue growth was particularly strong in our traditional markets of the UK, mainland Europe and the USA. Revenue and profit growth included some benefit from acquisitions but also strong organic growth in our businesses serving the oil and gas markets. Return on sales improved and product margins increased. ROCE continued to be very strong. As planned a relatively lower percentage of sales was invested in R&D in this sector than in our other sectors as the markets served here tend to be more mature and conservative. However, good growth opportunities continue to exist.
Whilst we have had an excellent year, we will continue to pursue our geographic expansion and new product development plans energetically. Regulation and legislation and reducing the risk of accidents play an increasingly important role in the working environment. We are well placed to deliver growth in line with market growth rates, at least, for the coming year.
Australia
France
India
Italy
Malaysia
Netherlands
Singapore
Tunisia
UK
USA
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