Halma plc Annual Report and Accounts 2017 Global Local strength agility Our financial strength comes With autonomous businesses from building an international, positioned at the heart of key diversified portfolio of businesses markets, we have the expertise, in long-term growth markets. innovation and agility to respond Our expertise in understanding to changing dynamics and unlock these markets ensures that we opportunity in changing market invest our energy where there environments. will be sustainable returns. Halma plc Annual Report and Accounts 2017 Our purpose and strategy Our business is protecting life and improving quality of life for people worldwide. Our companies have a core focus on safety, health and the environment and our products provide innovative solutions for many of the key problems facing the world today. Our strategy is to acquire and grow businesses in relatively non-cyclical, specialised global niche markets. The technology and application know-how in each company delivers strong competitive advantage to sustain growth and high returns. Strategic Report Governance Financial Statements 1 Highlights 68 Chairman’s Introduction 114 Independent Auditor’s Report 2 Business at a Glance 70 Board of Directors 120 Consolidated Income Statement 4 Our Business Model and Strategy 72 Executive Board 121 Consolidated Statement 6 Chief Executive’s Strategic Review 74 Leadership of Comprehensive Income 11 Market Review 78 Effectiveness and Expenditure 16 Key Performance Indicators 80 Nomination Committee Report 122 Consolidated Balance Sheet 20 Risk Management and 82 Accountability 123 Consolidated Statement of Internal Controls 83 Audit Committee Report Changes in Equity 22 Principal Risks and Uncertainties 88 Remuneration Committee Report 125 Consolidated Cash Flow Statement 30 Process Safety 90 Remuneration Policy 126 Accounting Policies 36 Infrastructure Safety 98 Annual Remuneration Report 136 Notes to the Accounts 42 Medical 108 Other Statutory Information 181 Company Balance Sheet 48 Environmental & Analysis 113 Directors’ Responsibilities 182 Company Statement 52 Our People of Changes in Equity 56 Sustainability 183 Notes to the Company Accounts 60 Financial Review 198 Summary 2008 to 2017 200 Halma Directory 206 Shareholder Information Halma plc Annual Report and Accounts 2017 Highlights Report Strategic Revenue (£m) Adjusted profit before taxation (£m) £961.7m +19% £194.0m +17% Governance 1,000 200 961.7 194.0 800 150 807.8 166.0 153.6 726.1 600 676.5 140.2 128.5 619.2 100 400 50 Financial Statements Financial 200 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Dividend paid and proposed Return on sales (%) +7% 13.71p per share 20.2% (£m) 25 60 50 20 21.2 51.9 20.8 20.7 20.6 20.2 48.5 40 45.2 15 42.2 39.4 30 10 20 5 10 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Continuing operations 2017 2016 Change Revenue £961.7m £807.8m +19% Adjusted Profit before Taxation1 £194.0m £166.0m +17% Pro-forma information: Adjusted Earnings per Share2 40.21p 1 Adjusted to remove the amortisation and 34.26p +17% impairment of acquired intangible assets, acquisition items, restructuring costs and Statutory Profit before Taxation profit or loss on disposal of operations, totalling £157.7m £136.3m +16% £36.3m (2016: £29.7m). See note 1 to the Accounts. 2 Adjusted to remove the amortisation and Statutory Earnings per Share 34.25p 28.76p +19% impairment of acquired intangible assets, acquisition items, restructuring costs, profit or loss on disposal of operations and the associated Total Dividend per Share3 13.71p 12.81p +7% taxation thereon. See note 2 to the Accounts. 3 Total dividend paid and proposed per share. Return on Sales4 20.2% 20.6% 4 Return on Sales is defined as adjusted1 profit before taxation from continuing operations expressed as a percentage of revenue from Return on Total Invested Capital5 15.3% 15.6% continuing operations. 5 Organic growth rates and Return on Total Invested Capital (ROTIC) are non-GAAP Net Debt £196.4m £246.7m performance measures used by management. See note 3 to the Accounts. 1 Strategic Report Halma plc Annual Report and Accounts 2017 Business at a Glance Our sectors Revenue and profit growth with high returns in all sectors. Contribution Financial highlights to sector total Primary growth drivers Products which protect — population growth Process people and assets at work. Specialised interlocks £167m 17% — increasing health, safety and that control critical Revenue of revenue environmental regulation Safety processes safely. Instruments that detect — demand for life critical resources flammable and hazardous £40m 19% gases. Explosion protection Operating profit and pressure relief of operating profit systems, and corrosion monitoring products. Read more p30 Products and services that — population growth Infrastructure improve the safety and mobility of people and protect £315m 33% — urbanisation commercially and publicly Revenue of revenue Safety owned infrastructure. — increasing health, safety and Fire detection systems, smoke environmental regulation detectors, specialist fire £65m 30% suppression systems, people Operating profit and vehicle flow solutions, of operating profit security systems and elevator safety products. Read more p36 Products which enhance the — population growth Medical quality of life for patients and improve the quality of care £261m 27% — ageing and increased delivered by providers. Devices Revenue of revenue life expectancy that assess eye health, assist with eye surgery and primary — demand for healthcare, care applications. Critical £67m 31% particularly in fluidic components used by developing economies Operating profit medical diagnostic OEMs of operating profit and laboratories. Sensor technologies used in hospitals to track assets and support Read more p42 patient and staff safety. Products and technologies for — population growth Environmental analysis in environmental safety and life sciences £219m 23% — increasing environmental markets. Market-leading Revenue of revenue regulation & Analysis opto-electronic technology and sensors. Flow — demand for life critical resources measurement instruments £42m 20% and gas conditioning products. Operating profit Products for environmental of operating profit data recording, water quality testing and water distribution network monitoring, and UV Read more p48 water treatment. 2 Halma plc Annual Report and Accounts 2017 Strategic Report Strategic Governance Contribution Financial highlights to sector total Primary growth drivers Products which protect — population growth Revenue by destination Process people and assets at work. Specialised interlocks £167m 17% — increasing health, safety and 5 that control critical Revenue of revenue environmental regulation 4 Safety processes safely. Instruments that detect — demand for life critical resources flammable and hazardous Financial Statements Financial £40m 19% 3 gases. Explosion protection Operating profit of operating profit and pressure relief 1 systems, and corrosion monitoring products. 2 Read more p30 1 USA 36% 2 Mainland Europe 22% 3 United Kingdom 16% 4 Asia Pacific 16% Products and services that — population growth 5 Other 10% Infrastructure improve the safety and mobility of people and protect £315m 33% — urbanisation commercially and publicly Revenue of revenue Safety owned infrastructure. — increasing health, safety and Fire detection systems, smoke environmental regulation detectors, specialist fire £65m 30% suppression systems, people Operating profit and vehicle flow solutions, of operating profit security systems and elevator safety products. Read more p36 Products which enhance the — population growth Employees by location Medical quality of life for patients and improve the quality of care £261m 27% — ageing and increased 4 delivered by providers. Devices Revenue of revenue life expectancy 5 that assess eye health, assist 3 with eye surgery and primary — demand for healthcare, care applications. Critical £67m 31% particularly in fluidic components used by developing economies Operating profit of operating profit medical diagnostic OEMs 2 and laboratories. Sensor 1 technologies used in hospitals to track assets and support Read more p42 1 United Kingdom 37% patient and staff safety. 2 USA 31% 3 Asia Pacific 17% 4 Mainland Europe 14% Products and technologies for — population growth 5 Other 1% Environmental analysis in environmental safety and life sciences £219m 23% — increasing environmental markets. Market-leading Revenue of revenue regulation & Analysis opto-electronic technology and sensors. Flow — demand for life critical resources measurement instruments £42m 20% and gas conditioning products. Operating profit Products for environmental of operating profit data recording, water quality testing and water distribution network monitoring, and UV Read more p48 water treatment. 3 Strategic Report Halma plc Annual Report and Accounts 2017 Our Business Model and Strategy Inputs How we increase value We have a portfolio of market-leading companies within our Financial £ four sectors: Process Safety, Infrastructure Safety, Medical, Our operations are inherently cash and Environmental & Analysis. generative and the Group has access to competitively priced finance, which We place our operational resources close to our customers through provides good liquidity and support autonomous locally managed businesses. We have central resources for the growth ambitions of Halma. to increase innovation, international expansion and leadership talent. Each