Summary of Halma p.l.c. Annual report and accounts 2006
Accounting Policies and Notes
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We make products which detect hazards to protect people and property in public and commercial buildings.
Infrastructure Sensors is our largest business contributing 42% of Group revenue (£132 million) and 40% (£24 million) of Group profit. There are four main sub-sectors:
We make fire and smoke detectors and audible/visual warning devices. We are the second largest manufacturer of point smoke detectors in the world. We make fire products in the UK and US with sales offices in the US, Europe, Africa, the Near East and Asia.
Through our acquisition of Texecom, we have established a strong presence in this strategically important and fast growing market. We are the market leaders in the UK and South Africa for security sensors used in public and commercial property. These products are made in the UK.
We are the world's largest manufacturer of sensors used on automatic doors in public and commercial buildings. These products are made in China, Europe and the US.
We are the world’s largest manufacturer of elevator/lift door safety sensors. We also make emergency communication devices, display modules and control panels for elevators. These products are made in the UK, Eastern Europe, New Zealand, the US, China and Singapore.
| KPI | Group target | 2006 | 2005 |
|---|---|---|---|
| Revenue growth1 | >5% | 12% | (2%) |
| Profit growth2 | >5% | 2% | (3%) |
| Return on sales3 | ~18% | 18.3% | 20.1% |
| ROCE4 (Return on Capital Employed) |
>45% | 60% | 70% |
| R&D as a % of sales5 | ~4% | 4.4% | 4.2% |
KPIs are calculated on results from continuing operations.
In this sector, our strategy is to be the leading supplier of sensors (and other critical components) and not an installer of complete fire, security, automatic door or elevator systems. Our strong focus on safety-critical sensor components enables us to sell to the major global players in the building infrastructure markets who supply complete, installed systems such as GE, Honeywell and Tyco in Fire, and OTIS, Mitsubishi and Kone in Elevator Safety. By concentrating all our efforts on a single system component, we can offer high performance products complying with all the major international and national regulations and standards.
Our Infrastructure Sensor products are used in both new build and refurbishment projects, so we work hard to ensure new sensor products are backwards-compatible with existing installations.
R&D investment and product innovation is central to maintaining competitive advantage in this sector. This is because constantly changing technical standards and regulations drive our infrastructure sensor markets. We make an active contribution to the development of international technical standards. In the past year we worked closely with trade bodies such as CENELEC and EURALARM which set standards in the EU for intruder alarms, and also with the British Security Industry Association and the British Standards Institute on the interpretation and implementation of EU standards.
To enhance public safety, governments worldwide set increasingly stringent standards for fire protection products. In the past year alone, our fire products companies have added 500 new technical approvals which allow us to sell our products worldwide.
Our security sensors sell into a global market, worth approximately £2 billion annually, which is growing at 6% to 7% per year. Since acquisition, Texecom has continued to grow faster than the market and we hold a dominant market share in the UK and South Africa.
A global fire detection market growth of 4% per year is expected to continue for the foreseeable future. Demand for fire detectors is particularly strong in China and India, where infrastructure investment is generating annual market growth 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 lagged behind the global market growth rate. Falling end-user fire detector prices coupled with shorter product life cycles have been characteristics of this market since we first entered it over 20 years ago. However, we believe that our investment in product development, manufacturing and the supply chain will continue to deliver organic growth and maintain our excellent margins.
During 2005/06 we saw continuing price competition in our elevator products and automatic door sensor markets. The Middle East, China and India are experiencing some of the highest rates of high-rise building development in the world. To strengthen our local presence, we recently established new elevator product sales offices in Dubai, Mumbai and Chongqing (our fourth regional office in China).
In our 2004/05 Operating review we identified growing demand for products which assist evacuation during fire emergencies. Our investment in advanced technology audible and visual devices which assist safe building evacuation produced double-digit sales growth for these products.
Revenue growth at 12% for this sector included the benefit of the Texecom acquisition made in the year. Despite this, profit growth at 2% was below our target largely because of the extra investment in overheads made this year to improve longer-term growth potential. This also has had the effect of reducing the return on sales although this remains at a high level because product margins were sustained. ROCE continues to be excellent.
Investment to increase our direct presence in key developing markets and changes to senior management are aimed at accelerating profitable revenue growth. In the coming year, we expect those actions taken in 2005/06 to start to deliver organic profit growth. Growth in this sector will also be boosted by a full year’s contribution from our new security business, Texecom. We will continue to explore collaboration opportunities across all Infrastructure Sensor businesses.
Belgium
China
Czech Republic
Germany
India
Japan
New Zealand
Singapore
South Africa
UK
USA
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