Summary of Halma p.l.c. Annual report and accounts 2007
Accounting Policies and Notes
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We make products which protect property and people at work
Industrial Safety contributed 22% of Group revenue (£80 million) and 23% of Group profit† (£16 million). Following recent acquisitions, we created a new Asset monitoring sub-sector.
We make portable instruments and fixed systems which detect flammable and hazardous gases. We make our gas detectors in the UK where we have a market leading position.
We make "one time use" pressure relief devices to protect large vessels and pipework in process industries. We are UK market leaders and, based on our own estimates, number four in the world market. Our bursting discs are made in the UK and the 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 petrochemicals, 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.
We make products which monitor the condition of physical assets above ground, below ground and underwater using innovative sensor and communications technologies. This sub-sector was created following the acquisitions of Radio- Tech in 2005 and, most recently Tritech/System Technologies in November 2006. Underwater applications include monitoring of oil pipelines and telecommunications cables as well as vessel and harbour security. Applications on dry land include systems for monitoring railway tracks and structures such as bridges. Our asset monitoring products are made in the UK.
† See note 1 to the accounts
| KPI | Group target | 2007 | 2006 (restated)* |
|---|---|---|---|
| Revenue growth1 | >5% | 15% | 20% |
| Profit growth2 | >5% | 19% | 34% |
| Return on sales3 | ~18% | 20.0% | 19.4% |
| ROCE4 (Return on capital employed) |
>45% | 75% | 76% |
| R&D as a % of revenue5 | ~4% | 2.9% | 3.2% |
* restated to reflect the reclassification of Radio-Tech Limited from the Health and Analysis sector.
KPIs are calculated on results from continuing operations.
We choose to operate in global industrial safety market niches which demand innovative, robust technologies to protect against critical safety hazards where the cost of the protecting product is relatively small compared with the cost of an accident. Competitive advantage can be gained through technical innovation and superior customer service and technical support.
Strong global competition in gas detectors means that we must have a dual strategy of constant cost reduction and a regular stream of new products. In the next year we plan to start manufacturing in China and are already using R&D resources in India to accelerate the rate of product development.
Our Bursting disc companies continue to develop their distribution network to improve market share. Capital investment in plant, improved processes, product rationalisation and outsourcing of component supplies have cut production costs and increased competitiveness by reducing lead times.
Our strong position in the global market for Safety interlocks dictates that we not only have to protect our position through new products and market leading customer service but also find ways to broaden our market opportunity. For example we are adding safety interlock capability to adjacent product categories like the new eGard product which marries safety interlocking with machine control.
In Asset monitoring we see a significant opportunity in satisfying the growing worldwide demand for remote monitoring of expensive or safety critical physical assets - particularly those in hazardous or remote locations.
Our internal assessment of the global market for gas detection products is £500 million; we forecast an average annual growth rate of 3% to 4%. The demand for gas detection products remains robust in the developed industrial countries. The gradual adoption of Western safety standards in the fast-growing Asian economies will drive additional demand in these markets.
Our internal data suggest that the market for bursting discs is growing at 3% to 4%. Substantial continued investment by our customers in lower cost labour markets, and the transfer of US and European safety standards is leading us to allocate more of our resources into developing regions such as Eastern Europe and Asia.
In addition to increasing safety awareness and regulation, the safety interlock market continues to benefit from the trend of increasing capital spending in the oil and gas sector driven by relatively high oil prices and global demand. High-profile accidents at petrochemical processing plants during the past 18 months have impacted on customer behaviour with some oil companies now specifying safety interlocks earlier in the plant design phase.
Customer feedback suggests that Chinese authorities are now encouraging Western companies with manufacturing plants in China to adopt the same safety standards as in their home territory. Over the medium term, this will help to improve industrial safety expectations throughout China and drive demand for our products.
Rising global demand for closer monitoring of energy usage and for capturing data relating to high value infrastructure assets, offers excellent growth prospects for our Asset monitoring businesses. Our recent acquisition, Tritech, serves an exciting niche in subsea sensors and communication products which help service companies install, inspect and monitor underwater assets. The trend towards deeper water activities in the oil and gas sector will support demand for our underwater acoustic surveillance sensors. Online research indicates that between 2001 and 2005 global deepwater capital investment was £16.5 billion and it is estimated to more than double to £44 billion during 2006 to 2010.
2006/07 was a very successful year with organic revenue and profit growth significantly above the market growth rates and a major acquisition completed.
Geographically, revenue growth was particularly good in the Middle East where we benefited from major oil and gas projects. Regions such as the UK were also strong where our new Sprint V flue analyser product was adopted by BG Group with a £1.4 million supply contract.
We succeeded in integrating our wireless communications technology used in asset monitoring with other sectors in the Group and can see other opportunities for technical collaboration in the future.
Relative to our other sectors we invest a slightly lower percentage of revenue in R&D. However, good growth opportunities continue to exist and the Return on sales and ROCE remain at a high level.
In the long term, increasing safety regulation, greater concern over the consequences of accidents from company boards and higher safety expectations by workers will continue to drive demand for our Industrial Safety products.
We will continue to seek bolt-on acquisitions which will enhance our products and distribution strength in higher growth markets.
We have solid positions in each of our chosen markets and by continuing to invest in new products, additional sales offices and our activities in lower cost territories such as Eastern Europe and Asia, we are well placed to continue our track record of healthy organic growth.
Australia
China
France
India
Italy
Malaysia
The Netherlands
Singapore
Tunisia
UK
USA
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