“We are having success but it is patchy, we need to do more – faster.”

Geoff Unwin, Chairman

The Group produced a profit before tax* of £50.4 million, another record profit for Halma – just.

The year was characterised by significant change within the Group – some of it visible, some less so. The most visible change was the appointment of Andrew Williams as CEO at the end of February 2005, having been appointed Deputy CEO in December 2004. Andrew succeeded Stephen O’Shea who reaches the normal retirement age for Halma this year, and on behalf of the Board I should like to record our gratitude to Stephen for all that he has contributed to the Group during his career with us. The succession process has gone extremely smoothly and Andrew is bringing a fresh impetus to our operations – I encourage those of you that can, to meet him at our AGM.

Last year I referred to a number of factors that the Board and senior management felt could possibly be holding back our performance. Some of them were issues that could be quickly addressed e.g. incentives, span of control; others were more long-term, such as resource allocation and the efficiency of our balance sheet. We are continuing to upgrade the quality of our management right across the Group and particularly at subsidiary board level.

All aspects of selling have received particular attention and we are disappointed not to see better progress on the revenue line. However, in common with many sectors, we face continuing pressure from price transparency via the internet and deflationary trends through lower manufacturing costs. Our response is the continual re-design and improvement of our products, allowing more outsourcing and ‘offshore’ production as we re-double our efforts on innovation. We are having success but it is patchy, we need to do more – faster.

In terms of our sectoral performance (more detail is given in the Chief Executive’s Review): Resistors continued to have a difficult year and the problems there are being tackled in new ways and with renewed vigour. Water too had a tough year. Other sectors held their own or better.

Our two new acquisitions Diba Industries, Inc. and Ocean Optics, Inc. performed extremely well, exceeding our expectations.

Profit before tax* was a record £50.4 million (previous year £50.3 million) and earnings per share* were slightly down at 9.42p (previous year 9.44p). On a statutory basis, profit before taxation and earnings per share were £44.9 million and 7.97p respectively. These results were produced despite adverse currency translation impacts and raw material movements of the order of £2.5 million. The return on the capital* that our managers control was a clear all time record for a full year at 62% – a staggering achievement, and return on total invested capital* (including all goodwill) was 13.1% – far exceeding our cost of capital. Net cash at the year end was £12 million. Turnover edged ahead by 2% to £299 million (previous year £293 million). Excluding discontinued operations, sales increased by 7%.

The Board recommend a final dividend of 3.92 pence per share giving an increase of 5% for the year.

On behalf of the Board, I should like to thank all our employees for their dedication in producing this record result, and also for their imagination in continually improving our products and service to our customers.

We have strong market positions and we are highly cash generative. We are accelerating our own rate of change – particularly on innovation.

Overall, despite little fundamental help from our markets, we remain cautiously optimistic for the year ahead.