2016_Halma_ARA_160610_2

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Key Performance Indicators ACQUIRE ACQUIRE ACQUIRE GROW GROW GROW INNOVATE INNOVATE INNOVATE EMPOWER EMPOWER EMPOWER STRATEGIC FOCUS Through careful selection of our market niches and strategic investment in people development, international expansion and innovation we aim to achieve organic growth in excess of our blended market growth rate, broadly matching revenue and profit growth in the medium term. We buy companies with business and market characteristics similar to those of existing Halma operations. Acquired businesses have to be a good fit with our operating culture and strategy in addition to being value-enhancing financially. STRATEGIC FOCUS The measure of how successful we are in growing our business organically and by acquisition coupled with strong financial disciplines, including those related to tax and capital allocation, is captured in the Group’s adjusted earnings per share. Organic profit growth % (constant currency) 3% Performance ≥5% Target Acquisition profit growth % EPS growth % (adjusted earnings per share) 8% Performance ≥5% Target 10% Performance ≥10% Target 3* 3* 6* 7* 3 0* 9* 1* 6* 8 19 7 10 9 10 12 13 14 15 16 * Restated. See note 3 to the Accounts KPI DEFINITION Organic profit growth is calculated at constant currency and measures the change in profit achieved in the current year compared with the prior year from continuing Group operations. The effect of acquisitions and disposals made during the current or prior financial year has been eliminated. COMMENT Organic profit growth at constant currency was less than our target. Growth of 3.4% included strong performances in Environmental & Analysis, Infrastructure Safety and Medical sectors, with a decline in oil and gas markets adversely impacting Process Safety. 2017 TARGET The Board has established a long-term organic growth target of 5% p.a., slightly above the blended long-term average growth rate of our markets. REMUNERATION LINKAGE Growth in organic profit is a key element of the economic value added performance which forms the basis of the annual bonus plan, requiring consistent annual and longer-term growth, rewarding disciplined financial performance. READ MORE • Chief Executive’s Strategic Review p4 • Financial Review p42 • Principal Risks and Uncertainties p30 • Note 3 to the Accounts p122 12 13 14 15 16 * Restated. See KPI definition below KPI DEFINITION Acquisition profit growth measures the annualised profit (net of financing costs) from acquisitions made in the year, measured at the date of acquisition, expressed as a percentage of prior year profit. Previously, the KPI was based on the annualised profit contributions from the current year’s and prior year’s acquisitions. COMMENT Acquisition profit exceeded our target of 5% for the year following a record spend of £193m on four acquisitions. 2016 was an excellent year for acquisitions, financed through our strong cash flow and increased debt facilities. 2017 TARGET Acquisitions must meet our demanding criteria and we continue to have a strong pipeline of opportunities to meet our 5% growth target. REMUNERATION LINKAGE Growth in acquired profit is the second key element of the economic value added performance which forms the basis of the annual bonus plan, requiring consistent annual and longer-term growth, rewarding disciplined financial performance. READ MORE • Chief Executive’s Strategic Review p4 • Financial Review p42 • Principal Risks and Uncertainties p30 • Note 3 to the Accounts p122 12 13 14 15 16 KPI DEFINITION Adjusted earnings are calculated as earnings from continuing operations excluding the amortisation of acquired intangible assets; acquisition items; profit or loss on disposal of operations; the effects of closure to future benefit accrual of the defined benefit pension plans net of associated costs (2014 only); and associated tax thereon. COMMENT Performance was strong and met our target. Currency translation had a positive impact on the year’s result. 2017 TARGET We aim for the combination of organic and acquisition growth to exceed 10% per annum over the long term. The Directors consider that adjusted earnings represent a more consistent measure of underlying performance. REMUNERATION LINKAGE EPS provides a clear link to the aims of the business growth strategy. It is a key financial driver for our business and provides a clear line of sight for our executives. EPS is 50% of the performance condition attaching to the Executive Share Plan introduced in 2015. READ MORE • Note 2 to the Accounts p121 24 Halma plc Annual Report and Accounts 2016
GROW INNOVATE ACQUIRE EMPOWER STRATEGIC FOCUS Through careful selection of our market niches and strategic investment in people development, international expansion and innovation we aim to achieve organic growth in excess of our blended market growth rate, broadly matching revenue and profit growth in the medium term. Organic revenue growth % (constant currency) 6% Performance 5* 2* 6* 5* 6 ≥5% Target GROW INNOVATE ACQUIRE EMPOWER STRATEGIC FOCUS We choose to operate in markets which are capable of delivering high returns. The ability to maintain these returns is a result of maintaining strong market and product positions sustained by continuing product and process innovation. Return on Sales % ROTIC % (Return on Total Invested Capital) 20.6% Performance 20.8 20.8* 20.7 21.2 20.6 ≥18% Target GROW INNOVATE ACQUIRE EMPOWER 15.6% Performance 17.6 16.6* 16.7 16.3 15.6 ≥12% Target STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 12 13 14 15 16 * Restated. See note 3 to the Accounts KPI DEFINITION Organic revenue growth is calculated at constant currency and measures the change in revenue achieved in the current year compared with the prior year from continuing Group operations. The effect of acquisitions and disposals made during the current or prior financial year has been eliminated. COMMENT Organic growth at constant currency in revenue exceeded our target with growth in three sectors and all major geographic regions. 2017 TARGET The Board has established a long-term minimum organic growth target of 5% p.a., slightly above the blended long-term average growth rate of our markets. REMUNERATION LINKAGE Organic growth in revenue contributes to the economic value added performance which forms the basis of the annual bonus plan, requiring consistent annual and longer-term growth, rewarding disciplined financial performance. READ MORE • Chief Executive’s Strategic Review p4 • Financial Review p42 • Principal Risks and Uncertainties p30 • Note 3 to the Accounts p122 12 13 14 15 16 * After restatement KPI DEFINITION Return on Sales is defined as adjusted profit before taxation from continuing operations expressed as a percentage of revenue from continuing operations. COMMENT Return on Sales was well above target. Environmental & Analysis increased Return on Sales above 18%. Infrastructure Safety and Medical sustained a strong performance. Process Safety demonstrated its resilience despite tough market conditions. 2017 TARGET We aim to achieve a Return on Sales within the 18% to 22% range while continuing to deliver profit growth. REMUNERATION LINKAGE Return on Sales is a measure of the value our customers place on our products and of our operational efficiency. High profitability supports the generation of high economic value. READ MORE • Chief Executive’s Strategic Review p4 • Financial Review p42 12 13 14 15 16 * After restatement KPI DEFINITION ROTIC is defined as the post-tax return from continuing operations before amortisation of acquired intangible assets; acquisition items; profit or loss on disposal of operations; and the effects of closure to future benefit accrual of the defined benefit pension plans net of associated costs (2014 only) as a percentage of average shareholders’ funds. COMMENT Consistently high returns are in excess of our long-term Weighted Average Cost of Capital (WACC) of 8.1% (2015: 7.6%). In the year this KPI was adversely affected by the strength of the US Dollar increasing the Sterling value of goodwill and intangible assets on the Consolidated Balance Sheet. 2017 TARGET A range of 12% to 17% is considered representative of the Board’s expectations over the long term to ensure a good balance between growth and returns. REMUNERATION LINKAGE ROTIC performance, averaged over three financial years, is 50% of the performance condition attaching to the Company’s Performance Share Plan and the 2015 Executive Share Plan. READ MORE • Chief Executive’s Strategic Review p4 • Financial Review p42 • Note 3 to the Accounts p122 Halma plc Annual Report and Accounts 2016 25
Page 1 and 2: Halma plc Annual Report and Account
Page 3 and 4: Highlights Another record year of r
Page 5 and 6: Infrastructure Safety Products whic
Page 7 and 8: Revenue from outside the USA, UK an
Page 9 and 10: Our decentralised organisational st
Page 11 and 12: INCREASING HEALTH AND SAFETY REGULA
Page 13 and 14: INCREASING DEMAND FOR LIFE-CRITICAL
Page 15 and 16: Acquisition focus Insight Our marke
Page 17 and 18: Insight Trapped key interlocking is
Page 19 and 20: Insight Regulations around the worl
Page 21 and 22: Insight People are living longer th
Page 23 and 24: Insight Many processes rely on prec
Page 25: Resources and relationships Committ
Page 29 and 30: INNOVATE GROW ACQUIRE EMPOWER STRAT
Page 31 and 32: process and one which is subject to
Page 33 and 34: Mitigation Increased risk No change
Page 35 and 36: Mitigation Increased risk No change
Page 37 and 38: a considerable impact on the oil an
Page 39 and 40: towards the use of more sensors, no
Page 41 and 42: A third of American adults suffer f
Page 43 and 44: Today 1.8 billion people drink faec
Page 45 and 46: Adjusted profit bridge £m 160 155
Page 47 and 48: fell from 21% to 20% this year, and
Page 49 and 50: The Group accounts for post-retirem
Page 51 and 52: ENVIRONMENTAL MANAGEMENT SYSTEM (EM
Page 53 and 54: In return, we offer: • The opport
Page 55 and 56: Our intention is to create effectiv
Page 57 and 58: PEOPLE AND CULTURE I reported in la
Page 59 and 60: CAROLE CRAN NON-EXECUTIVE DIRECTOR
Page 61 and 62: Corporate Governance Report Leaders
Page 63 and 64: Board governance structure Board Pr
Page 65 and 66: October 2015 • Group strategic pe
Page 67 and 68: The Board and Committee evaluations
Page 69 and 70: Jane Aikman is in her final term, h
Page 71 and 72: Audit Committee COMMITTEE CHAIRMAN
Page 73 and 74: POLICY ON AUDITOR INDEPENDENCE AND
Page 75 and 76: Remuneration Committee COMMITTEE CH
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REMUNERATION POLICY The remuneratio
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Opportunity Maximum opportunity: 15
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EXECUTIVE DIRECTOR SERVICE CONTRACT
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NON-EXECUTIVE DIRECTORS Unless othe
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SINGLE FIGURE OF TOTAL REMUNERATION
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The three-year period over which th
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PERCENTAGE CHANGE IN CEO REMUNERATI
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Date of grant As at 28 March 2015 G
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Other Statutory Information ACTIVIT
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The Companies Act 2006 also require
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Directors’ Responsibilities The D
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Risk Impairment of the carrying val
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AN OVERVIEW OF THE SCOPE OF OUR AUD
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Respective responsibilities of dire
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Consolidated Statement of Comprehen
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Consolidated Statement of Changes i
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Consolidated Cash Flow Statement Co
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Accounting Policies continued KEY A
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Critical accounting judgements Good
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Segmental reporting An operating se
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Accounting Policies continued Cash
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Cash and cash equivalents Cash and
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Notes to the Accounts continued 1 S
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Notes to the Accounts continued 1 S
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Notes to the Accounts continued 3 N
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Notes to the Accounts continued 6 P
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Notes to the Accounts continued 9 T
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Notes to the Accounts continued 11
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26 FINANCIAL INSTRUMENTS continued
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26 FINANCIAL INSTRUMENTS continued
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Company Statement of Changes in Equ
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Notes to the Company Accounts conti
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C12 RESERVES The Capital redemption
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C14 EXPLANATION OF TRANSITION TO FR
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2009/10 £000 2010/11 £000 2011/12
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Principal locations Telephone E-mai
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Principal locations Telephone E-mai
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DIVIDEND REINVESTMENT PLAN The Comp
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