Amity SRI Company Profile - Halma & Smith

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Key Products Halma is one of the world’s leading manufacturers of fire detectors, protecting people in large buildings such as schools, hospitals and offices. Over 3 million are sold annually in more than 100 countries. Halma gas detectors include portable products to protect entire industrial sites from gas leaks and flammable or toxic gases. A particular application is detectors used in confined spaces such as tunnels. Halma manufactures non-chemical water treatment systems based on UV technology for disinfecting drinking and waste water, swimming pools, and industrial water supplies, such as food processing and electronics manufacture. The company is a leading maker of leak detection instrumentation in underground water pipes, sold to utilities world-wide. The company’s medical specialism is ophthalmic instrumentation used by eye surgeons and optometrists to test vision and diagnose disease. Principal products include examination lenses, ophthalmoscopes, and pressure testing instrumentation. Halma has developed a specialist portfolio of businesses which contribute towards resource efficiency, monitoring changes in the environment, reducing energy, saving water, minimising waste and checking emissions and leaks. The company’s own footprint is relatively modest, and is subject to reduction targets in the areas of energy, waste and water. Approximately 22% of Group revenues are currently ISO14001 accredited, and this is being further developed. Despite strong growth the Group has managed to reduce carbon emissions by 9% over two years. Halma Positive Amity Score The company scores positively across seven of the nine Amity pillars, particularly healthcare and environmental performance & management. Ecclesiastical Investment Management has supported all recent governance proposals and does not view executive pay as problematic. Business Practices Community Governance Education Environmental Healthcare n/a STRONG STRONG Human Rights Labour Relations Urban Regeneration n/a DS Smith David S. Smith began life in 1940 as a manufacturer of packaging cartons, and was listed on the London Stock Exchange in 1986. The company remained a dedicated paper packaging producer until the late 1980s when it acquired two plastic packaging businesses. The company is now a leading manufacturer and supplier of corrugated packaging in Europe, and plastic packaging world-wide, employing over 10,000 people globally. Our interest in DS Smith is linked however to its recent transformation as the leading supplier of recycled packaging for consumer goods. Consequently virgin paper manufacturing is being wound down in favour of a focused business strategy manufacturing from recycled product; a business model for sustainable growth. Three Business Segments The company achieved revenues of £1.9bn across its three core divisions in the financial year 2011/12: UK Packaging, Continental European Corrugated Packaging and Plastic Packaging. DS Smith excites us because its entire business model is now centred on manufacturing from recycled waste, as the company states, this provides the raw material or ‘urban forest’ to grow a sustainable packaging business. The virtuous cycle allows both DS Smith and the end user to reduce waste and carbon emissions with lower associated energy costs throughout the supply chain. June 2013
Sustainability Assured In 2011/12 DS Smith recovered 1.8m tonnes of waste packaging from contracts with the likes of Tesco, Sainsbury M&S and Wm. Morrison. The company’s integrated model sees it collect and process waste direct from customers, which provides the raw material for its paper mills. In the UK, all raw fibre used in the manufacture of its corrugated case material (CCM) is sourced from waste product and this model is being replicated in continental Europe. Approximately 1.1 tonnes of waste are required to produce 1 tonne of new product, so there is very little waste. In plastic packaging, DS Smith has developed environmentally friendly liquids packaging, with the outer shell made from 100% recycled fibre and uses up to 70% less plastic than regular ‘blow-moulded’ jugs. The bottle is 100% recyclable and compostable. Investment Proposition DS Smith’s transition to a global leader in recycled products has seen strong underlying revenue growth and higher operating profit margins; the cost of capital employed has reduced to 5% of revenue, down from 8%. Operating profit margin was 7.2% - up 90 basis points in 2011/12. Operating profit increased from £75m in 2009 to £142m in 2012. An additional £13m in procurement savings were achieved. Return on average capital employed increased to an impressive 14.6%, at the top end of its 12-15% target range. The company exhibits strong cash flow and a robust balance sheet allowing for dividends to grow by 31% in 2011. Sustainability Performance DS Smith supports our focus on companies with business models tuned towards holistic sustainability propositions, and this approach is paying dividends in the company’s own environmental performance, given its diversion of product from landfill. Carbon emissions were reduced by 3% in absolute terms in 2012, and 16% relative to revenue. DS Smith has set a target to reduce emissions, waste to landfill and water consumption by 20% over 10 years from 2010 and this is broadly on track. Nearly half of the company’s own waste is recycled, with only 12% now directed to landfill and this is reducing year on year. DS Smith Positive Amity Score Source: FT: 5 year comparison DS Smith vs. FTSE250 The company scores positively across six of the nine Amity pillars, particularly environmental performance, labour practices (health & safety) and corporate governance. Business Practices Community Governance GOOD Education Environmental Healthcare n/a STRONG n/a Human Rights Labour Relations Urban Regeneration GOOD n/a Conclusion Halma and DS Smith represent two UK Mid-Cap stocks in the FTSE350 that we regard very positively. Both are long-established businesses with strong performance track records, but recently both have structured themselves to seize opportunities in the sustainability market-place. These businesses therefore represent not only strong corporate responsibility plays, but have business models strategically centred on sustainability itself. Both also represent compelling and interesting long-term investment stories. June 2013
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Amity SRI Company Profile - Halma & Smith

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