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MARKET COMMENT
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Carburton Street, London -- Anybody reading today's annual results from Halma (LSE: HLMA) should be impressed. When a company refers to such important measures as return on capital and free cash flow within its opening remarks, you know the company is truly being run for its shareholders. No public relations gloss here. Indeed, given Halma's recent performance, the company's figures speak for themselves. Sales improved 15% to £268m in the year ending March 2001, while pre-tax profits increased 14% to £49.7m. Stripping out acquisitions, organic growth was 8%. For the record, Halma's reported return on capital was 48.3% and free cash flow was £33m. Whilst the organic growth rate may not be spectacular, today's results continue a very long tradition of robust profit growth. Expansion is underpinned by Halma's dominance in many areas of health and safety. Products such as fire detectors, water treatment systems, lift door sensors and high power resistors all help to generate 18.5% group operating margins. Fill-in acquisitions, all funded from internal cash flow, and new product developments also help to bolster Halma's growth. Furthermore, past worries surrounding Halma's US exposure now appear to have been unfounded. Although a third of group sales originate from the States, Halma has revealed that it had been unaffected by the country's deteriorating economy. Demand for Halma's products is increasingly driven by general demand for higher levels of safety, rather than growth in consumer or corporate spending. Having risen 9.5p (7%) to 154.5p, Halma shares stand on a price to earnings (P/E) ratio of 16.2 based on today's earnings figure. Given the organic growth rate, it's not an unreasonable valuation. If you're on the look out for a stable company that offers market-dominating products, whilst possessing an above average financial record as long as your arm, Halma fits the bill perfectly. More: Halma discussion board | Halma's final results in full | The Qualiport reviews Halma