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GROWTH THROUGH INNOVATION Halma plc Annual Report and Accounts 2012 Overview 01 Investment Proposition 02 Group at a Glance 04 Strategy and Business Model 06 Innovation in Healthcare and Analysis 08 Innovation in Infrastructure Sensors 10 Innovation in Industrial Safety Business review 12 Chairman’s Statement 14 Performance against Strategy 20 Strategic Review 25 Strategy in Action 30 Sector Reviews 30 Health and Analysis 38 Infrastructure Sensors 46 Industrial Safety 54 Financial Review 59 Risk Management and Internal Control 61 Principal Risks and Uncertainties 64 Corporate Responsibility Governance 68 Board of Directors and Executive Board 71 Chairman’s Introduction to Governance 72 Corporate Governance 76 Audit Committee Report 78 Nomination Committee Report 79 Remuneration Committee Report 80 Remuneration Report 87 Other Statutory Information 90 Directors’ Responsibilities Financial statements 91 Independent Auditor’s Report – Group 92 Consolidated Income Statement 92 Consolidated Statement of Comprehensive Income and Expenditure 93 Consolidated Balance Sheet 94 Consolidated Statement of Changes in Equity 95 Consolidated Cash Flow Statement 96 Accounting Policies 102 Notes to the Accounts 135 Independent Auditor’s Report – Company 136 Company Balance Sheet 137 Notes to the Company Accounts 142 Summary 2003 to 2012 144 Halma Directory 148 Shareholder Information and Advisers Overview Business review Governance Financial statements INVESTMENT PROS PO ITION Halma has an impressive record of creating sustained shareholder value through the economic cycle. We have consistently delivered record profits, high returns, strong cash flows, low levels of balance sheet gearing and have a 30+ year track record of growing dividend payments by 5% or more every year. Our ability to achieve record profits through the recent periods of economic turbulence is derived from our strategy of having a group of businesses building strong competitive advantage in specialised safety, health and environmental technology markets with resilient growth drivers. These growth drivers, such as increasing Health and Safety regulation, mean that demand for our products is resilient, in both developed and developing regions, through periods of significant macro-economic change. Organic growth generates the financial and business resources we need to fund acquisitions and keep increasing dividends. We generate organic growth momentum by increasing levels of investment in people development, new product development and establishing platforms for growth in developing markets. Here, the need for Safety, Health and Environmental regulation is increasingly recognised by governments and the wider population. Over the long term, we actively manage the mix of businesses in our Group to ensure we can sustain strong growth and returns. Whilst acquisitions accelerate entry into more attractive market niches, we merge businesses when market characteristics change and we exit markets which offer less attractive long-term growth and returns through carefully planned disposals. Halma’s resilient market qualities, organic growth momentum and active portfolio management position us strongly to create shareholder value and achieve high levels of performance in the future. Annual Report and Accounts 2012 Search GO Home Download centre Shareholder information Overview Business review Governance Financials statements GROWTH THROUGH INNOVATION Revenue £579.9m Management development 54% International expansion 24% Profi t before taxation £120.5m Values alignment 6 Return on sales 20.8% Dividend paid 9.74p CO2 emission 9% ROTIC 16.8% Group at a glance Strategy and business model Performance against strategy Performance against strategy Non-fi nancial KPIs Financial KPIs To view our online report visit: Chief Executive Strategy in action Sector reviews Financial review halmareports.com/annual-report-2012/ Strategic review Halma plc Annual Report and Accounts 2012 1 GROUP AT A GLANCE Group highlights 2012 £579.9m Revenue 2011 £518.4m 2010 £459.1m 2009 £455.9m 2008 £398.0m £579.9m 2007 £354.6m 2006 £337.3m Growth 2005 £299.1m 2004 £292.6m +12% 2003 £267.3m 2012 £120.5m Adjusted profit before taxation 2011 £104.6m 2010 £86.2m 2009 £79.1m 2008 £73.2m £120.5m 2007 £66.1m 2006 £59.6m Growth 2005 £50.4m 2004 £50.3m +15% 2003 £46.5m 2012 20.8% Return on sales 2011 20.2% 2010 18.8% 2009 17.3% 20.8% 2008 18.4% 2007 18.6% 2006 17.7% 2005 16.7% 2004 17.2% 2003 17.4% 2012 £36.7m Dividend paid and proposed 2011 £34.3m 2010 £32.0m 2009 £29.7m 9.74p 2008 £28.2m 2007 £26.8m 2006 £25.3m Growth 2005 £24.0m 2004 £22.8m +7% 2003 £21.3m Pro-forma information: C ontinuing operations 2012 2011 Change 1 Adjusted to remove the amortisation of acquired intangible Revenue £579.9m £518.4m +12% assets, acquisition transaction costs, movement on contingent consideration and profit on disposal of operations of £8.5m Adjusted Profit before Taxation1 £120.5m £104.6m +15% (2011: £6.3m). See note 1 to the Accounts. 2 Adjusted to remove the amortisation of acquired intangible Statutory Profit before Taxation £112.0m £98.3m +14% assets, acquisition transaction costs, movement on contingent Adjusted Earnings per Share2 24.46p 20.49p +19% consideration, profit on disposal of operations and the associated tax. See note 2 to the Accounts. Statutory Earnings per Share 23.01p 19.23p +20% 3 Total dividend paid and proposed per share. Total Dividend per Share3 9.74p 9.10p +7% 4 R eturn on Sales is defined as adjusted1 profit before taxation 4 from continuing operations expressed as a percentage of Return on Sales 20.8% 20.2% revenue from continuing operations. Return on Total Invested Capital5 16.8% 15.5% 5 O rganic growth rates, Return on Total Invested Capital and Return on Capital Employed are non-GAAP performance 5 Return on Capital Employed 74.7% 71.9% measures used by management in measuring the returns achieved from the Group’s asset base. See note 3 to the Accounts. 2 Halma plc Annual Report and Accounts 2012 Overview Business review Governance Financial statements Sector overview Health and Analysis 44% of revenue Revenue £254m Profit1 £58m Infrastructure Sensors 35%of revenue Revenue £204m Profit1 £39m Industrial Safety 21% of revenue Revenue £122m Profit1 £29m Global overview Revenue by destination USA £162m 28% Mainland Europe £154m 27% United Kingdom £126m 21% Asia Pacific and Australia £87m 15% Other countries £51m 9% 1 See note 1 to the Accounts. Halma plc Annual Report and Accounts 2012 3 S TRATEGY AND BUSINESS MODEL Values alignment >p19 Acquisitions >p15 ACQUIRE EM POWER Cash generation >p18 Development programmes >p18 Business model Strategy Strategic priorities What is Halma’s growth objective? How do we grow? Where do we invest? We aim to double Group revenue and profit We operate in relatively non-cyclical, We are making the following key strategic every five years. specialised global niche markets. Our investments across the Group to sustain technology and application know-how growth above market rates: Historically we have achieved this through provide the opportunity to generate a mix of acquisitions and organic growth. growth, sustainable high returns and strong – Acquisitions Return on Sales in excess of 18% and competitive advantage. Our chosen markets – Innovation (products and process) Return on Capital Employed over 45% have significant barriers to entry. Demand – People development ensure that cash generation is strong for our products is underpinned by long- – International expansion (especially Asia) enough to sustain growth and increase term, resilient growth drivers. dividends without the need for high levels of external funding. We place our operational resources close to our customers through locally managed autonomous businesses. We reinvest cash into acquiring high performance businesses in, or close to, our existing markets. 4 Halma plc Annual Report and Accounts 2012 Overview Business review Governance Financial statements ROTIC >p17 Return on sales >p16 Organic revenue growth >p14 High rate of innovation >p15 Values alignment >p19 Acquisitions >p15 INNOVATE GROW Cash generation >p18 Development programmes >p18 CO2 emissions >p19 Organic profit growth >p14 International expansion >p16 ROCE >p17 Growth drivers Values Organisational structure What drives long-term growth How do we maintain a consistent How does our structure help deliver in our chosen markets? culture across the Group? competitive advantage? Demand in each of our markets is Our values help to ensure a consistent Halma’s 3 sectors are composed driven by one or more of the following set of standards and behaviours throughout of 40 autonomous operating companies, long-term growth drivers: the Group. This is particularly important each with their own board of directors. given the Group’s decentralised structure. These are grouped into operating divisions, – Increasing demand for healthcare Our core values are Achievement, each chaired by a Halma Divisional Chief – Increasing demand for energy and water Innovation, Empowerment and Customer Executive (DCE), responsible for its own – Increasing urbanisation of population Satisfaction. Our employees are required growth. DCEs understand the market needs – Increasing health and safety regulation to act fairly in their dealings with fellow of their companies and contribute broadly to employees, customers, suppliers and their strategies. Through regular interaction business partners; these principles are between Executive Board members, included within our Code of Conduct which

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