REG - Hill & Smith Hldgs. - Half-year Results
03/08/2022 07:16
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RNS Number : 6779U Hill & Smith Holdings PLC 03 August 2022
Hill & Smith Holdings PLC
Half Year Results (unaudited) for the 6 months ended 30 June 2022
Hill & Smith Holdings PLC ("Hill & Smith" or "the Group"), the
international group creating sustainable infrastructure and safe transport
through innovation, announces its unaudited results for the six months ended
30 June 2022 ("the period").
Financial Results
Underlying(*) Change Statutory Change
30 June 30 June 2021((1)) Reported % Constant Currency % OCC (^) % 30 June 30 June 2021((1)) Reported %
2022 2022
Continuing Operations ((1))
Revenue £349.9m £313.6m +12% +9% +12% £349.9m £313.6m +12%
Operating profit £43.6m £37.7m +16% +10% +8% £34.8m £19.4m +79%
Operating margin 12.5% 12.0% +50 bps 9.9% 6.2% +370bps
Profit before tax £40.2m £34.4m +17% £31.4m £16.1m +95%
Earnings per share 38.7p 34.2p +13% 29.3p 10.7p +174%
Total Group ((1))
Earnings per share 43.2p 38.5p +12% 32.7p 15.0p +118%
Dividend per share 13.0p 12.0p +8% 13.0p 12.0p +8%
((1) ) Continuing operations exclude France Galva, which has been accounted
for as a discontinued operation as explained in note 9 to the financial
statements. The prior year comparatives have been restated accordingly.
Total Group includes both continuing and discontinued operations.
Key Highlights:
· Good H1 performance
o +9% revenue and +10% operating profit constant currency growth
o Highlights the resilience of our chosen long term end markets and the
benefits of our autonomous operating model
o Pricing actions taken to recover input cost inflation; confidence in our
ability to manage full year
o Proforma(>) Group (including France Galva) revenue and operating profit
of £397.2m and £48.4m respectively, in line with announcement made on 18
July 2022
· Progress on portfolio management
o Proposed disposal of our lower growth, lower margin French galvanizing and
lighting column business
o Completed exit of Swedish rental business and low margin road traffic
control product portfolio in US
· Board expectations for full year remain unchanged prior to adjustment
for favourable FX rates
· Strong balance sheet supports future growth
· Interim dividend of 13.0p declared, +8% increase
Alan Giddins, Executive Chair, said:
"The Group has had a good first half. We have also continued to make
progress on exiting some of our lower growth portfolio businesses. Looking
forward, our aim is to accelerate progress and growth. While we are mindful of
current macroeconomic uncertainty, the Group is exposed to strong structural
growth markets and, with a proven track record of resilience, is well
positioned to deliver against our strategic goals."
For further information, please contact:
Hill & Smith Holdings PLC
Alan Giddins, Executive
Chair
Tel: +44 (0)121 704 7434
Hannah Nichols, Chief Financial Officer
MHP Communications
Andrew Jaques/Rachel Farrington/Catherine Chapman Tel: +44
(0)20 3128 8100
* All underlying measures exclude certain non-underlying items, which are as
detailed in note 6 to the Financial Statements and described in the Financial
Review. References to an underlying profit measure throughout this
announcement are made on this basis. Non-underlying items are presented
separately in the Consolidated Income Statement where, in the Directors'
judgement, the quantum, nature or volatility of such items gives further
information to obtain a proper understanding of the underlying performance of
the business. Underlying measures are deemed alternative performance measures
("APMs") under the European Securities and Markets Authority guidelines and a
reconciliation to the closest IFRS equivalent measure is detailed in note 5 to
the financial statements. They are presented on a consistent basis over time
to assist in comparison of performance.
> Proforma Group represents the total of (i) revenue and underlying
operating profit from continuing operations and (ii) France Galva's revenue
and underlying operating profit as set out in note 9 to the financial
statements, for ease of comparison to previously reported results.
^ Where we make reference to organic constant currency (OCC) movements, these
exclude the impact of currency translation effects and acquisitions, disposals
and closures of subsidiary businesses. In respect of acquisitions, the
amounts referred to represent the amounts for the period in the current year
that the business was not held in the prior year. In respect of disposals and
closures of subsidiary businesses, the amounts referred to represent the
amounts for the period in the prior year that the business was not held in the
current year. Constant currency amounts are prepared using exchange rates
which prevailed in the current year.
Notes to Editors
Hill & Smith Holdings PLC creates sustainable infrastructure and safe
transport through innovation. The Group employs c.4,400 people worldwide with
the majority employed by its autonomous, agile, customer focussed operating
businesses based in the UK, USA, Australia, India, France and Sweden. The
Group office is in the UK and it is quoted on the London Stock Exchange (LSE:
HILS.L).
The Group's operating businesses are organised into three main business
divisions:
Galvanizing Services: dramatically increasing the sustainability and
maintenance free life of steel products including structural steel work,
lighting, bridges, agricultural and other products for the industrial and
infrastructure markets.
Engineered Solutions (formerly known as Utilities): supplying engineered steel
and composite solutions with low embodied energy for a wide range of
infrastructure markets including energy generation and distribution, marine,
rail and housing. The division also supplies engineered pipe supports for the
water, power and liquid natural gas markets and seismic protection solutions.
Roads & Security: supplying products and services to support road and
highway infrastructure including temporary and permanent road safety barriers,
renewable energy lighting and power solutions, Intelligent Traffic Solutions,
street lighting columns and bridge parapets. The security portfolio includes
hostile vehicle mitigation solutions, high security fencing and automated gate
solutions.
Business Review
Introduction
The Group achieved a good first half trading performance from continuing
operations, delivering 9% revenue and 10% profit growth on a constant currency
basis against robust 2021 comparators. The performance highlights the
resilience of our chosen long-term end markets and the benefits of our agile,
decentralised operating model, with growth driven by both pricing actions and
robust activity levels in our core infrastructure markets. Trading in the
second quarter was particularly strong and provides good momentum as we move
into the second half.
The Group has experienced heightened inflationary headwinds in the first half
and has responded proactively to mitigate these. Our strong market positions
have supported this and we continue to be confident of recovering input cost
inflation through pricing and efficiency gains for the full year.
Our Galvanizing Services division was the standout performer with strong
organic revenue and profit growth, reflecting successful actions taken to
offset input cost inflation and a strategic focus on higher margin customers.
Our Engineered Solutions division (formerly known as Utilities) performed
strongly, with buoyant levels of demand across the product portfolio. While
margins were impacted by product mix in US composites, as previously guided,
the division delivered good levels of organic revenue and profit growth in the
period.
In the Roads & Security division, revenue and profit for the period were
below the prior year. This was primarily due to the timing of US roads
projects compared to last year, with overall demand for tested roadside safety
products in the US remaining strong. In the UK, as expected, we saw a lower
level of utilisation in the UK temporary safety barrier fleet, which was
offset by a robust performance in the wider UK roads and security portfolio.
We expect to see good progress in second half profit, supported by the
commencement of UK strategic road upgrade projects and the deployment of
security barriers for major events including the Commonwealth Games in
Birmingham.
During the period, our operating companies continued to appropriately manage
supply chain challenges and took pricing actions to offset input cost
inflation. While raw material availability somewhat improved during H1,
labour availability continues to be a challenge in certain businesses. Actions
being taken to address this include enhancing employee compensation and
benefits, investing in talent development and training including
apprenticeship schemes.
The Group continues to maintain a strong balance sheet, which positions us
well for the future as we look to continue the evolution of the portfolio and
accelerate the pace of change, through the development and funding of both
organic and inorganic growth opportunities.
Strategic progress update
Our strategic decision making is guided by our purpose of "creating
sustainable infrastructure and safe transport through innovation". Our
purpose, alongside consideration of long-term macro and market drivers,
determines our choice of markets and applications.
Our organic growth activities are focused on high value, fast growing,
critical niche opportunities. Our decentralised autonomous operating model
drives high levels of accountability, agility and customer intimacy and allows
us to focus in on these small, niche opportunities in a way that a more
centralised, volume driven organisation could not.
Alongside the strong financial performance, we have continued to make progress
on the key elements of our strategy in the first half of 2022. Looking
forward, our aim is to make further progress and accelerate the pace of
change.
We have made reasonable progress in rebuilding our M&A pipeline. This is
something we expect to accelerate further over the next six to 12 months, with
the Corporate Development team and Group Presidents working closely with our
operating company management teams to unlock attractive acquisition
opportunities. Any acquisition will be tightly evaluated to ensure it fits
with our core strategic goals.
At the end of April 2022, we successfully completed the disposal of the rental
division of our loss-making Swedish road business, and we are assessing
options for the remaining parts of that business. In May 2022, our US Roads
business exited its low margin traffic control product business, to enable it
to focus on higher margin, higher growth opportunities.
In late July 2022, we announced the proposed disposal of France Galva, our
French galvanizing and steel lighting column operations. Since acquisition,
France Galva has been a profitable and cash generative part of the Group and
has maintained a strong market position in France. However, as we look
forward, forecast growth rates for France Galva do not meet the Group's
long-term growth ambitions and its operating margins are below the Group
average. Given our galvanizing operations serve local geographical markets,
the proposed disposal would have no impact on our higher growth, higher margin
galvanizing operations in the UK and US, both of which we remain committed to
in the long-term.
People development is key to the success of our decentralised model. In May
2022, we added a Head of Talent role, having commenced the Managing Directors'
development programme at our Managing Director forum in March 2022. The
Managing Directors identified growth mindset, ESG (Environmental Social and
Governance) and innovation as their key interest areas for development, and
during the period we ran our second innovation workshop to develop and share
best practice between our businesses.
The growth of our business is naturally aligned to the ESG agenda: our
products and services make infrastructure more sustainable and increase
transport safety. Our 2021 Annual Report outlined our ESG strategy and
commitments including our seven priority areas, related action plans and key
metrics, including our commitment to reach net zero for our Scope 1 and 2
emissions by 2040. In February 2022, we recruited a Head of Sustainability,
who is supporting the further development of plans alongside our ESG steering
group. Key ESG focus areas in the period included collection of data to
support the assessment of the Group's Scope 3 emissions which, once complete,
will enable us to determine our SBTi targets by August 2023. In addition, we
are supporting local teams on initiatives which underpin our carbon reduction
plan and are continuing to drive the talent agenda and improvements in health
and safety.
Board update
On 18 July 2022, we announced that Paul Simmons had stepped down from his role
as Chief Executive Officer and as an Executive Director of the Board with
immediate effect. He will leave his employment with the Group after a period
of garden leave. Alan Giddins, the Company's Non-Executive Chair, has taken
over as interim Executive Chair until a permanent replacement CEO is
appointed. A process to find a permanent CEO is now underway.
During the period, we were also pleased to announce the appointment of Farrokh
Batliwala as a US based Non-executive, with effect from 1 April 2022. His
appointment reflects the Board's careful succession planning to recruit
Non-executive Directors with the necessary skills, experience and diversity to
support the Group's higher quality growth agenda.
Results from continuing operations
The Group has delivered a good set of results for the first half of 2022.
Revenue was £349.9m (2021: £313.6m), an increase of 12% on a reported basis.
Constant currency revenue growth was 9% and OCC revenue growth was 12%.
Underlying operating profit was £43.6m (2021: £37.7m), an increase of 16%
on a reported basis. Constant currency operating profit growth was 10% and
OCC growth was 8%. Operating margins improved to 12.5% (2021: 12.0%).
Underlying profit before taxation was £40.2m (2021: £34.4m). Reported
operating profit was £34.8m (2021: £19.4m) and reported profit before tax
was £31.4m (2021: £16.1m). Underlying earnings per share increased to 38.7p
(2021: 34.2p) and reported earnings per share was 29.3p (2021: 10.7p).
The principal reconciling items between underlying and reported operating
profit include the non-cash amortisation of acquisition intangibles of £2.9m
and charges associated with business disposals and closures of £5.3m. Note
6 of the financial statements provides further details on the Group's
non-underlying items.
Dividend
The Board has declared an interim dividend for FY 2022 of 13.0p per share
(2021: 12.0p). The interim dividend will be paid on 6 January 2023 to
shareholders on the register on 2 December 2022. Looking forward, we aim to
provide sustainable and progressive dividend growth, targeting a prudent
dividend cover of around 2.5 times underlying earnings.
Outlook
Based on the positive first half, the Board's expectations for the full year
remain unchanged, with current foreign exchange rates providing potential
outperformance. The Group operates in a range of resilient industrial and
infrastructure end markets and our teams continue to actively manage the
ongoing inflationary and supply chain headwinds.
In the medium to longer term, the outlook is supported by strong market growth
drivers for both sustainable infrastructure and safe transport. In the US,
all our businesses are well placed to benefit from the increased spend
approved under the Infrastructure Investment and Jobs Act (IIJA). In the UK,
the Government remains committed to the increased levels of funding for Road
Investment Strategy 2 and we expect this to support medium-term growth.
Operational Review
Galvanizing Services
£m Reported Constant currency % OCC
% %
Continuing Operations ((2)) 2022 2021
Revenue 84.5 70.2 +20 +17 +17
Underlying operating profit ((1)) 21.4 17.1 +25 +20 +20
Underlying operating margin % ((1)) 25.3% 24.4%
Statutory operating profit 20.8 16.6
((1) )Underlying measures are set out in note 5 to the Financial
Statements and exclude certain non-underlying items, which are detailed in
note 6 to the Financial Statements.
((2) )Continuing operations exclude France Galva, which has been reported as
a discontinued operation as explained in note 9 to the Financial Statements.
The prior year comparatives have been restated accordingly.
The Galvanizing Services division offers hot-dip galvanizing and powder
coating services with multi-plant facilities in the USA and the UK. Hot-dip
galvanizing is a proven steel corrosion protection solution which
significantly extends the service life of steel structures and products. The
division benefits from a wide sectoral spread of customers who operate in
resilient end markets including road infrastructure, commercial construction,
transportation, agriculture, and energy transmission and distribution.
The division delivered a standout performance, with revenue 17% higher and
underlying operating profit 20% higher than the same period last year on an
OCC basis. The division continued to deliver superior margins, with underlying
operating margin increasing to 25.3% (2021: 24.4%). The results reflect
successful pricing actions taken to offset input cost inflation and a
deliberate focus on higher margin customers. Volumes of steel galvanized in
the period were 2% behind a robust H1 2021 comparator, with good growth in the
US offset by lower UK volumes.
US
Predominantly located in the north east of the country, the US galvanizing
business delivered a strong performance, with 16% OCC revenue growth and
record H1 operating profit. The strong revenue and profit growth is
attributable to an increase in production volumes and the successful
implementation of price increases to offset cost inflationary pressures. As
a result, the business continued to maintain superior operating margins, with
customers valuing the excellent quality of service provided by our local
teams.
In the medium to longer term, the outlook for US galvanizing is positive, with
investment levels expected to grow ahead of GDP in a range of US galvanizing
end markets, supported by the IIJA. We have started to quote on some IIJA
related projects which indicates that we may start to see the benefits towards
the end of this year and into 2023. The Group continues to seek growth
opportunities in the attractive US galvanizing market.
UK
UK galvanizing delivered 17% organic revenue growth and record operating
profits in the period. This reflects swift pricing actions taken to address
input cost inflation, and the continuation of our strategy to focus on higher
margin, service focused customers. Volumes of steel galvanized were lower than
the same period last year, mainly due to the absence of certain lower margin
construction projects.
The outlook for the second half is encouraging, despite inflationary
headwinds, with robust demand for galvanizing services to support a range of
end markets including infrastructure, construction and transportation. The
medium to longer term outlook also remains positive.
Engineered Solutions
£m Reported Constant OCC
% Currency % %
Continuing Operations ((2)) 2022 2021
Revenue 136.5 107.7 +27 +21 +21
Underlying operating profit ((1)) 14.1 11.8 +19 +14 +14
Underlying operating margin % ((1)) 10.3% 11.0%
Statutory operating profit 13.8 11.5
((1) ) Underlying measures are set out in note 5 to the Financial Statements
and exclude certain non-underlying items, which are detailed in note 6 to the
Financial Statements.
((2) )Continuing operations exclude France Galva, which has been reported as
a discontinued operation as explained in note 9 to the Financial Statements.
The prior year comparatives have been restated for the resulting change in
allocation of corporate costs.
Our Engineered Solutions division (formerly known as Utilities) provides steel
and composite solutions with low embodied energy for a wide range of
infrastructure markets including energy generation and distribution, marine,
rail and housing. The division also supplies engineered supports for the
water, power and liquid natural gas markets, and seismic protection solutions
for commercial construction. While the division has been renamed in 2022,
there has been no change to the portfolio of operating companies that it
includes.
The division continued to perform strongly in the first half of 2022, with 21%
revenue growth and 14% profit growth on a constant currency basis. As
previously guided, operating margins were lower than the same period last year
at 10.3% (2021: 11.0%), mainly due to a less favourable product mix in our US
composites business.
US
The US-based businesses delivered 19% organic revenue growth and good profit
growth against strong prior year comparators. Our composite business
continued to see strong demand for its range of engineered solutions, albeit
operating margins were impacted by less favourable product mix and as a result
operating profits were slightly lower than prior year. The engineered
supports business saw healthy demand from the commercial construction market
for its catalogue hardware products which, combined with a significant uptick
in orders for industrial projects, resulted in record H1 revenue and operating
profit. Our electricity distribution substation business also delivered a
good performance with projects increasing as steel price challenges subside.
Prospects in the US are encouraging. Growth is expected to be driven by
increasing demand for sustainable infrastructure and solutions to protect
against extreme weather as well as investment to upgrade ageing electricity
infrastructure. The outlook is further supported by planned government
spending on infrastructure via the IIJA, and private investment from US
manufacturers and producers to onshore vital components.
UK
Revenue in our UK businesses grew 30% on an organic basis, with operating
margins also improving in the period, reflecting successful pricing actions
and buoyant demand. The industrial flooring business delivered a record
performance, with a particular focus on data and distribution centre
markets. The building product business also delivered a robust first half
and benefitted from high levels of demand, particularly from housebuilders.
Both businesses successfully managed inflationary and supply chain
challenges and enter the second half with a positive outlook despite the
macro-economic headwinds.
Roads & Security
£m Reported Constant Currency % OCC
% %
Continuing Operations ((2)) 2022 2021
Revenue 128.9 135.7 -5 -6 +2
Underlying operating profit ((1)) 8.1 8.8 -8 -12 -21
Underlying operating margin % ((1)) 6.3% 6.5%
Statutory operating profit/(loss) 0.2 (8.7)
((1) ) Underlying measures are set out in note 5 to the Financial Statements
and exclude certain non-underlying items, which are detailed in note 6 to the
Financial Statements.
((2) ) Continuing operations exclude the French lighting column business,
which has been reported as a discontinued operation as explained in note 9 to
the Financial Statements. The prior year comparatives have been restated
accordingly.
The Roads & Security division supplies products and services to support
the delivery of safe road and highway infrastructure, alongside a range of
security products to protect people, buildings and infrastructure from attack.
As expected, revenue and profit were below H1 2021 levels, with revenue 6%
lower and underlying operating profit 12% lower on a constant currency
basis. The reduction in profit is mainly due to the timing of US roads
projects and lower utilisation of the UK temporary safety barrier fleet,
partly offset by a strong performance in the wider UK roads portfolio.
Operating margins were also slightly lower than the same period last year at
6.3% (2021: 6.5%). We expect an improved performance in the second half across
all geographies as activity levels increase. In 2023 we expect to see a
further improvement supported by UK strategic road network activity and IIJA
projects in the US.
UK Roads
Revenue was 8% higher than the same period last year on an organic basis. In
January 2022, the UK Government issued its response to the Transport Committee
review on the roll-out and safety of smart motorways, which set out
recommendations including pausing the roll-out of further all lane running
schemes until sufficient safety data is available (expected end of 2024) and
the retrofit of additional emergency refuge areas. As expected, this
resulted in lower utilisation of our temporary safety barrier fleet in the
first half compared to 2021. Utilisation is expected to increase
significantly in the second half as central reservation upgrade projects
commence after redesign work, and prospects for 2023 barrier utilisation are
encouraging.
In the period we saw good demand across the wider UK roads portfolio including
permanent safety barriers, bridge parapets and road safe support structures,
with the growth offsetting the revenue shortfall in the rental barrier
fleet. In addition, Prolectric, our off-grid solar energy business,
delivered a strong performance and enters the second half with a good order
book supported by increasing demand for low carbon and energy cost saving
solutions.
US Roads
Revenue was 9% lower than H1 2021 on an OCC basis, which was largely driven by
timing of barrier sales compared to the same period last year. Margins were
also impacted by transition costs associated with the set-up of our new
fabrication and assembly facility in Texas. Demand for our range of roadside
safety products remains strong and we expect progress on margins in the second
half. During the period, we also invested £4.8m to further expand our
rental safety barrier fleet and we expect to make further investment in the
second half to meet increasing demand. In May 2022, the business exited from
its low margin plastic drums, cones and channelizers business, which will
enable greater focus on higher margin, higher growth opportunities.
The outlook for our US roads business remains encouraging, with demand for
tested roadside safety products supported by the introduction of new safety
standards and increased levels of state and federal investment to upgrade US
road infrastructure. The IIJA includes a five-year reauthorisation of the US
federal highway programme, and investment of c.$348 billion in highway and
bridge improvements through to 2026.
Other International Roads
In Australia, we continue to see good market demand for traffic safety
equipment. In Sweden, we completed the divestment of the rental division of
our loss-making road business in April 2022, and we are assessing options for
the remaining parts of that business.
Security
Our Security businesses are based in the UK and provide a range of perimeter
security solutions including hostile vehicle mitigation ('HVM') to both UK and
international markets. Revenue was 7% ahead of 2021 on an organic basis.
During the period we have seen an encouraging recovery in UK and international
markets for HVM solutions including public place protection, airports, rail
stations and ports. We expect a strong performance in UK security barrier
rental in the second half as our security solutions will be used to support
high-profile events including the Commonwealth Games in Birmingham.
Financial Review
Cash generation and financing
Operating cash flow before movement in working capital was £62.2m (2021:
£55.3m), an increase of £6.9m, demonstrating the ongoing effectiveness of
the Group's cash generative model.
The working capital outflow in the period was £41.5m (2021: £15.3m). The
outflow partly reflects normal seasonal trends with working capital absorption
to support good growth during the period, alongside an increase in inventory
valuations due to raw material cost increases. The Group continues to focus
on maximising working capital efficiency, with debtor days at 30 June 2022 at
58 days (30 June 2021: 56 days). Working capital as a percentage of
annualised sales was 19%, broadly in line with our guidance.
Capital expenditure of £17.1m (2021: £10.7m) represents a multiple of
depreciation and amortisation of 1.5 times (2021: 1.0 times). Significant
spend during the period included £4.8m on the expansion of our US road
temporary barrier rental fleet, which we see as an attractive medium term
market.
Net financing costs for the period were £3.4m (2021: £3.3m). The net cost
of pension fund financing under IAS 19 was £0.1m (2021: £0.2m), and the
amortisation of costs relating to refinancing activities in prior years was
£0.4m (2021: £0.4m).
Underlying cash conversion was low at 2%, which reflects the working capital
outflow in the period. Assuming typical trading patterns, we expect
improved cash conversion in the second half.
Net debt and facilities headroom
Net debt at the end of the period amounted to £165.5m (31 December 2021:
£144.7m), the increase being primarily due to seasonal and raw material cost
related working capital outflows during the period, and a £5.9m impact from
movements in exchange rates. Net debt at the period end includes lease
liabilities under IFRS 16 of £36.6m (2021: £35.9m).
The Group's principal financing facilities are a headline c.£280m
multi-currency revolving credit agreement, which expires in December 2023, and
$70m senior unsecured notes with maturities in June 2026 and June 2029,
together with a further £11.6m of on-demand local overdraft arrangements.
Throughout the period the Group has operated well within these facilities and
at 30 June 2022, the Group had £223.7m of headroom (£212.1m committed,
£11.6m on demand). We have started positive discussions with lenders in
respect of refinancing our revolving credit facility and expect the
refinancing process to be complete by the end of this year.
The principal borrowing facilities are subject to covenants that are measured
biannually in June and December, being net debt to EBITDA of a maximum of 3.0
times and interest cover of a minimum of 4.0 times. The ratio of covenant
net debt to EBITDA at 30 June 2022 was 1.1 times (31 December 2021: 1.0 times)
and interest cover was 26.3 times (31 December 2021: 25.4 times).
The Board considers that the ratio of covenant net debt to EBITDA is a key
metric from a capital management perspective and targets a ratio of 1.5 to 2.0
times. The Board would be prepared to see leverage above the target range
for short periods of time if strategically appropriate.
Return On Invested Capital
We use return on invested capital ('ROIC') to measure our overall capital
efficiency, with a target of achieving returns in excess of 17%, comfortably
above the Group's cost of capital, through the cycle. The Group's ROIC from
continuing operations for the period to 30 June 2022 was 17.5% (2021: 16.7%),
the increase reflecting the strong trading performance, our disciplined
approach to capital allocation and the steps we are taking to improve the
quality of the portfolio.
Tax
The underlying effective tax rate for the period for continuing operations was
23.0% (year ended 31 December 2021: 21.7%) and is the estimated effective rate
for the full year. The tax charge for the period for continuing operations was
£7.9m (2021: £7.6m) and includes a £1.3m credit (2021: £0.3m charge) in
respect of non-underlying items, principally relating to the amortisation of
acquisition intangibles. Cash tax paid in the period was £8.1m (2021:
£9.2m).
Exchange rates
The Group is exposed to movements in exchange rates when translating the
results of its overseas operations into Sterling. Retranslating 2021 half year
revenue and underlying operating profit from continuing operations using
average exchange rates for 2022 would have increased revenue by £8.7m and
underlying operating profit by £1.8m, mainly due to Sterling's depreciation
against the US Dollar. A one cent movement in the average US Dollar rate
currently results in an adjustment of approximately £2.5m to the Group's
annual revenues and £0.5m to annual underlying operating profit.
Non-underlying items
The total non-underlying items charged to operating profit from continuing
operations in the Consolidated Income Statement amounted to £8.8m (2021:
£18.3m). The items were mainly non-cash related and included the following:
· Amortisation of acquired intangible assets of £2.9m
· Further costs associated with the closure of the UK variable message
signs business of £1.3m
· Loss on disposal of Swedish rental business of £1.6m
· Loss on exit from low-margin US road traffic control product operation
of £2.4m
· Expenses related to acquisitions and disposals of £0.6m.
The non-cash element of these charges was £8.0m. Further details are set
out in note 6 of the Financial Statements.
Pensions
The Group operates defined benefit pension plans in the UK, France and the
USA. The IAS 19 deficit of these plans at 30 June 2022 was £8.2m, a reduction
of £4.1m from 31 December 2021 (£12.3m). The deficit of the UK scheme, the
largest employee benefit obligation in the Group, was lower than the prior
year end at £3.1m (31 December 2021: £7.7m) due to the Group's deficit
recovery payments and an increase of 190 basis points in the discount rate
during the period, in line with increases in bond yields, being partly offset
by lower asset returns. The deficit of the French scheme was £4.4m (2021:
£4.1m) and the US scheme deficit was £0.7m (2021: £0.5m).
The Group continues to be actively engaged in dialogue with the UK schemes'
Trustees with regards to management, funding and investment strategies. The
triennial valuation for the UK scheme as at April 2022 is expected to be
finalised towards the end of the year and will be explained in our 2022 Annual
Report.
Going concern
After making enquiries, the Directors have reasonable expectations that the
Company and its subsidiaries have adequate resources to continue in
operational existence for the foreseeable future and for a period of at least
12 months following the approval of these Financial Statements. Accordingly,
they continue to adopt the going concern principle.
When making this assessment, the Group considers whether it will be able to
maintain adequate liquidity headroom above the level of its borrowing
facilities and to operate within the financial covenants on those
facilities. The Group has carefully modelled its cash flow outlook for the
period to December 2023, considering the ongoing uncertainties in global
economic conditions. In this "base case" scenario, the forecasts indicate
significant liquidity headroom will be maintained above the Group's borrowing
facilities and financial covenants will be met throughout the period,
including the covenant tests at 31 December 2022, 30 June 2023 and 31 December
2023. In making this assessment, the Board noted that whilst the Company's
principal bank borrowing facilities mature in December 2023, shortly before
the end of the review period, the Group intends to renegotiate these
facilities before the end of 2022 and based on early discussions with lenders
and past experience, they have a reasonable expectation that such a
refinancing would be completed in that timeframe.
The Group has also carried out "reverse stress tests" to assess the
performance levels at which either liquidity headroom would fall below zero or
covenants would be breached in the period to 31 December 2023. The Directors
do not consider the resulting performance levels to be plausible given the
Group's strong trading performance in the first half and the resilience of the
end markets in which we operate.
Principal risks and uncertainties
The Group has a process for identifying, evaluating and managing the principal
risks and uncertainties that it faces, and the Directors have reviewed these
principal risks and uncertainties during the period. It is the Directors'
opinion that the principal risks set out on pages 60 to 64 of the Group's
Annual Report for the year ended 31 December 2021, remain applicable to the
current financial year.
Key considerations relating to review of principal risks and uncertainties
during the period are set out below:
Principal Risk Considerations
Reduction in Government spending plans We remain confident that infrastructure investment will continue to form part
of national spending plans both in the US and UK, despite the macro-economic
uncertainty. The US Infrastructure Investment and Jobs Act (IIJA) has
bipartisan support and all our US businesses are well placed to benefit from
the increased spend in 2023 and beyond. In the UK, the Government remains
committed to strategic road investment spend, driven by increasing road usage,
which represents a good opportunity for our UK roads businesses. As a
result, the Board believe there has been no change in this risk.
Changes in global economic outlook and geopolitical environment The ongoing conflict in Ukraine continues to create significant global
uncertainty. The Group has no operations in this part of the world and no
direct and negligible indirect exposure to customers and suppliers in the
region. However, given the impact on global energy costs, coupled with
increased global macro-economic uncertainty, the Board consider this risk has
increased during the period. The Group operates in a range of economically
resilient industrial and infrastructure end markets which will support the
mitigation of this risk.
Supply chain failure While there has been some stabilisation in raw material prices and lead times
for key components, supply chain headwinds continue to be a challenge for the
Group. Accordingly, our local teams are continuing to take swift and
appropriate action to manage the risk and, as a result, the Board considers
that there has not been a significant change to the risk in the period.
Talent, development, diversity, recruitment and retention of key employees Labour availability continues to be a challenge for our operating companies,
with the level of vacancies increasing in H1 2022. As a result, the Board
considers that the risk has increased during the period. Our local teams
are actively working with our Group HR team to address the challenges, with
actions taken including enhancing employee compensation and benefits,
investing in talent development, and training including apprenticeship
schemes.
Violation of applicable laws and regulations Our exposure to breaching sanctions placed on Russia is low due to no current
direct Russian customers and suppliers alongside the robust processes we have
in place to monitor sanction compliance. Overall, the Board considers that
there has not been a significant change to the risk during the period, but it
remains a key area of focus given the current levels of geopolitical
uncertainty.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
· The condensed set of Financial Statements has been prepared in
accordance with IAS 34: Interim Financial Reporting as contained in UK-adopted
IFRS;
· The interim management report includes a fair review of the information
required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the condensed set of Financial Statements;
and a description of the principal risks and uncertainties for the remaining
six months of the year; and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period including any changes in the
related party transactions described in the last Annual Report that could do
so.
This report was approved by the Board of Directors on 2 August 2022 and is
available on the Company's website (www.hsholdings.com
(http://www.hsholdings.com) ).
Alan
Giddins
Hannah Nichols
Executive Chair
Group Chief Financial Officer
2 August 2022
Financial Statements
Condensed Consolidated Income Statement
Six months ended 30 June 2022
6 months ended 30 June 2022 6 months ended 30 June 2021 Year ended 31 December 2021
Notes Underlying £m Non-underlying(*) Total Underlying £m Non-underlying(*) Total Underlying £m Non-underlying(*) £m Total
£m £m £m £m £m
Continuing Operations
Revenue 4 349.9 - 349.9 313.6 - 313.6 625.2 - 625.2
Cost of sales (218.5) - (218.5) (195.5) - (195.5) (389.2) - (389.2)
Gross profit 131.4 - 131.4 118.1 - 118.1 236.0 - 236.0
Distribution costs (17.1) - (17.1) (16.6) - (16.6) (32.5) - (32.5)
Administrative expenses (71.2) (8.8) (80.0) (64.2) (18.3) (82.5) (126.9) (28.4) (155.3)
Other operating income 0.5 - 0.5 0.4 - 0.4 0.7 - 0.7
Operating profit 4, 5 43.6 (8.8) 34.8 37.7 (18.3) 19.4 77.3 (28.4) 48.9
Financial income 7 0.2 - 0.2 0.2 - 0.2 0.6 - 0.6
Financial expense 7 (3.6) - (3.6) (3.5) - (3.5) (6.7) - (6.7)
Profit before taxation 40.2 (8.8) 31.4 34.4 (18.3) 16.1 71.2 (28.4) 42.8
Taxation 8 (9.2) 1.3 (7.9) (7.3) (0.3) (7.6) (15.5) 1.1 (14.4)
Profit for the period from continuing operations 31.0 (7.5) 23.5 27.1 (18.6) 8.5 55.7 (27.3) 28.4
Discontinued Operations
Profit from discontinued operations 9 3.6 (0.9) 2.7 3.5 (0.1) 3.4 6.4 (0.6) 5.8
Profit for the year attributable to the owners of the parent 34.6 (8.4) 26.2 30.6 (18.7) 11.9 62.1 (27.9) 34.2
Basic earnings per share 10 32.7p 15.0p 43.0p
Basic earnings per share - continuing 29.3p 10.7p 35.8p
Diluted earnings per share 10 32.5p 14.9p 42.5p
Diluted earnings per share - continuing 29.1p 10.6p 35.4p
* The Group's definition of non-underlying items and further details of the
amounts included are set out in note 6.
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2022
6 months 6 months ended Year
ended 30 June ended
30 June 2021 31 December
2022 £m 2021
£m £m
Profit for the period 26.2 11.9 34.2
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations 29.1 (6.5) (2.3)
Exchange differences on foreign currency borrowings denominated as net (6.5) 1.5 0.6
investment hedges
Items that will not be reclassified subsequently to profit or loss
Actuarial gain on defined benefit pension schemes 2.7 1.0 3.5
Taxation on items that will not be reclassified to profit or loss (0.7) 0.6 -
Other comprehensive income/(expense) for the period 24.6 (3.4) 1.8
Total comprehensive income for the period attributable to owners of the parent 50.8 8.5 36.0
Condensed Consolidated Statement of Financial Position
Six months ended 30 June 2022
30 June 30 June 31 December
Notes 2022 2021 2021
£m £m £m
Non-current assets
Intangible assets 168.2 184.0 177.4
Property, plant and equipment 179.6 177.2 193.3
Right-of-use assets 35.1 34.7 38.2
Corporation tax receivable 8 1.6 1.6 1.6
Deferred tax assets 0.4 1.4 1.4
384.9 398.9 411.9
Current assets
Assets held for sale 9 94.0 - 3.6
Inventories 111.4 99.1 108.1
Trade and other receivables 152.7 150.4 130.2
Current tax assets - - 0.7
Cash and cash equivalents 13 18.4 19.2 18.8
376.5 268.7 261.4
Total assets 761.4 667.6 673.3
Current liabilities
Liabilities held for sale 9 (30.0) - (1.9)
Trade and other liabilities (131.4) (132.1) (132.7)
Current tax liabilities (5.2) (4.0) (4.3)
Provisions (4.6) (1.4) (4.0)
Lease liabilities 13 (8.0) (9.6) (8.8)
Loans and borrowings 13 (5.9) (6.3) (1.9)
(185.1) (153.4) (153.6)
Net current assets 191.4 115.3 107.8
Non-current liabilities
Other liabilities (0.2) (1.4) (1.5)
Provisions (2.2) (4.6) (2.4)
Deferred tax liabilities (13.7) (10.8) (12.8)
Retirement benefit obligations (3.8) (16.6) (12.3)
Lease liabilities 13 (27.7) (26.3) (30.1)
Loans and borrowings 13 (145.1) (131.6) (121.0)
(192.7) (191.3) (180.1)
Total liabilities (377.8) (344.7) (333.7)
Net assets 383.6 322.9 339.6
Equity
Share capital 20.0 19.9 20.0
Share premium 42.5 39.5 40.9
Other reserves 4.9 4.9 4.9
Translation reserve 38.1 12.2 15.5
Retained earnings 278.1 246.4 258.3
Total equity 383.6 322.9 339.6
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2022
Share Share Other Translation reserves Retained Total
Capital Premium reserves† £m Earnings equity
£m £m £m £m £m
At 1 January 2022 20.0 40.9 4.9 15.5 258.3 339.6
Comprehensive income
Profit for the period - - - - 26.2 26.2
Other comprehensive income for the period - - - 22.6 2.0 24.6
Transactions with owners recognised directly in equity
Dividends - - - - (9.6) (9.6)
Credit to equity of share-based payments - - - - 1.5 1.5
Satisfaction of long term incentive and deferred bonus awards - - - - (0.2) (0.2)
Own shares held in employee benefit trust - - - - (0.1) (0.1)
Shares issued - 1.6 - - - 1.6
At 30 June 2022 20.0 42.5 4.9 38.1 278.1 383.6
Six months ended 30 June 2021
Share Share Other Translation Retained Total
Capital Premium reserves† Reserves Earnings equity
£m £m £m £m £m £m
At 1 January 2021 19.9 38.4 4.9 17.2 240.1 320.5
Comprehensive income
Profit for the period - - - - 11.9 11.9
Other comprehensive expense for the period - - - (5.0) 1.6 (3.4)
Transactions with owners recognised directly in equity
Dividends - - - - (7.3) (7.3)
Credit to equity of share-based payments - - - - 0.6 0.6
Satisfaction of long term incentive and deferred bonus awards - - - - (0.2) (0.2)
Own shares held in employee benefit trust - - - - (0.5) (0.5)
Tax taken directly to the Consolidated Statement of Changes in Equity - - - - 0.2 0.2
Shares issued - 1.1 - - - 1.1
At 30 June 2021 19.9 39.5 4.9 12.2 246.4 322.9
Year ended 31 December 2021
Share Share Other Translation Retained Total
Capital Premium reserves† reserves Earnings equity
£m £m £m £m £m £m
At 1 January 2021 19.9 38.4 4.9 17.2 240.1 320.5
Comprehensive income
Profit for the period - - - - 34.2 34.2
Other comprehensive income for the period - - - (1.7) 3.5 1.8
Transactions with owners recognised directly in equity
Dividends - - - - (21.2) (21.2)
Credit to equity of share-based payments - - - - 2.5 2.5
Own shares held by employee benefit trust - - - - (1.5) (1.5)
Satisfaction of long term incentive and deferred bonus awards - - - - (0.3) (0.3)
Tax taken directly to the Consolidated Statement of Changes in Equity - - - - 1.0 1.0
Shares issued 0.1 2.5 - - - 2.6
At 31 December 2021 20.0 40.9 4.9 15.5 258.3 339.6
† Other reserves represent the premium on shares issued in exchange for
shares of subsidiaries acquired and £0.2m capital redemption reserve.
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2022
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Notes £m £m £m
Profit before tax from continuing operations 31.4 16.1 42.8
Profit before tax from discontinued operations 3.9 4.7 8.1
Add back net financing costs 3.4 3.3 6.1
Operating profit 38.7 24.1 57.0
Adjusted for non-cash items:
Share-based payments 1.5 0.6 2.8
Loss on disposal of subsidiary 0.7 0.8 0.4
Loss/(gain) on disposal of non-current assets 0.1 (0.4) (1.1)
Depreciation of owned assets 10.3 10.5 20.9
Amortisation of intangible assets 4.0 3.7 7.5
Right-of-use asset depreciation 4.4 5.2 10.3
Gain on lease termination - - (0.1)
Release of accrued contingent consideration - - (0.9)
Impairment of non-current assets 2.5 10.8 16.0
23.5 31.2 55.8
Operating cash flow before movement in working capital 62.2 55.3 112.8
Increase in inventories (20.1) (3.3) (13.6)
Increase in receivables (38.1) (29.5) (7.9)
Increase in payables 16.7 17.5 14.7
Decrease in provisions and employee benefits (0.5) (1.6) (2.9)
Net movement in working capital and provisions (42.0) (16.9) (9.7)
Cash generated by operations 20.2 38.4 103.1
Purchase of assets for rental to customers (7.1) (1.6) (16.7)
Income taxes paid (8.1) (9.2) (15.2)
Interest paid (2.5) (2.4) (4.7)
Interest paid on lease liabilities (0.4) (0.4) (0.8)
Net cash from operating activities 2.1 24.8 65.7
Interest received 0.3 0.3 0.6
Proceeds on disposal of non-current assets 0.1 0.7 3.7
Purchase of property, plant and equipment (8.7) (8.7) (17.8)
Purchase of intangible assets (1.3) (0.4) (1.4)
Acquisitions of subsidiaries - (11.8) (11.8)
Disposals of subsidiaries 6 1.5 1.2 1.6
Net cash used in investing activities (8.1) (18.7) (25.1)
Issue of new shares 1.6 1.1 2.6
Purchase of shares for employee benefit trust (0.3) (0.7) (1.8)
Dividends paid 11 (9.6) (7.3) (21.2)
Repayments of lease liabilities (4.9) (5.0) (10.3)
New loans and borrowings 33.4 28.0 55.3
Repayments of loans and borrowings (16.8) (22.5) (61.0)
Net cash from/(used in) financing activities 3.4 (6.4) (36.4)
Net (decrease)/increase in cash and cash equivalents net of bank overdraft (2.6) (0.3) 4.2
Cash and cash equivalents net of bank overdraft at the beginning of the period 18.1 13.9 13.9
Effect of exchange rate fluctuations 1.5 (0.3) -
Cash and cash equivalents net of bank overdraft at the end of the period 13 17.0 13.3 18.1
Notes to the Financial Statements
1. Basis of preparation
Hill & Smith Holdings PLC is incorporated in the UK. The Condensed
Consolidated Interim Financial Statements of the Company have been prepared on
the basis of the UK-adopted International Financial Reporting Standards
('IFRSs') and in accordance with IAS 34: Interim Financial Reporting,
comprising the Company, its subsidiaries and its interests in jointly
controlled entities (together referred to as the 'Group').
As required by the Disclosure and Transparency Rules of the Financial Services
Authority, the Condensed Consolidated Interim Financial Statements have been
prepared applying the accounting policies and presentation that were applied
in the preparation of the Company's published Consolidated Financial
Statements for the year ended 31 December 2021 (these statements do not
include all of the information required for full Annual Financial Statements
and should be read in conjunction with the full Annual Report for the year
ended 31 December 2021).
Continuing operations exclude France Galva, which has been accounted for as a
discontinued operation as explained in note 9. Where applicable, prior year
comparatives have been restated accordingly. Total Group includes both
continuing and discontinued operations.
New IFRS standards, interpretations and amendments adopted during 2022
The following amendments and interpretations apply for the first time in 2022,
but do not have an impact on the Condensed Consolidated Interim Financial
Statements of the Group.
· Amendments to IFRS 3 - Reference to Conceptual Framework
· Amendments to IAS 16 - Proceeds before intended use
· Amendments to IAS 37 - Onerous contracts - costs of fulfilling a
contract
The comparative figures for the financial year ended 31 December 2021 are not
the Company's statutory accounts for that financial year. Those accounts have
been reported on by the Company's auditor and delivered to the Registrar of
Companies. The report of the auditor (i) was unqualified, (ii) did not include
a reference to any matters to which the auditor drew attention by way of
emphasis without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act 2006.
These Condensed Consolidated Interim Financial Statements have not been
audited or reviewed by an auditor pursuant to the Auditing Practices Board's
Guidance on Financial Information.
The Condensed Consolidated Interim Financial Statements are prepared on the
going concern basis, as explained in the Financial Review.
2. Financial risks, estimates, assumptions and judgements
The preparation of the Condensed Consolidated Interim Financial Statements
requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and the reported amounts of assets and
liabilities, income and expense. Actual results may differ from estimates.
In preparing these Condensed Consolidated Interim Financial Statements, the
significant judgements made by management in applying the Group's accounting
policies and the key sources of estimation uncertainty were the same as those
that applied to the Consolidated Financial Statements as at and for the year
ended 31 December 2021, relating to actuarial assumptions on pension
obligations, impairment of goodwill and other indefinite life intangible
assets, and liabilities for uncertain tax positions.
3. Exchange rates
The principal exchange rates used were as follows:
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
Average Closing Average Closing Average Closing
Sterling to Euro (£1 = EUR) 1.19 1.16 1.15 1.17 1.16 1.19
Sterling to US Dollar (£1 = USD) 1.30 1.21 1.39 1.38 1.38 1.35
Sterling to Swedish Krona (£1 = SEK) 12.44 12.45 11.67 11.81 11.80 12.21
Sterling to Indian Rupee (£1 = INR) 98.94 95.97 101.87 102.75 101.71 100.21
Sterling to Australian Dollar (£1 = AUD) 1.81 1.77 1.80 1.84 1.83 1.86
4. Segmental information
The Group has three reportable segments which are Roads & Security,
Engineered Solutions (formerly known as Utilities), and Galvanizing Services.
Several operating segments that have similar economic characteristics have
been aggregated into these reporting segments. The Group's internal management
structure and financial reporting systems differentiate between these
segments, and, in reporting, management have taken the view that they comprise
a reporting segment on the basis of the following economic characteristics:
· The Roads & Security segment contains a group of businesses
supplying products designed to ensure the safety and security of roads and
other national infrastructure, many of which have been developed to address
national and international safety standards, to customers involved in the
construction of that infrastructure;
· The Engineered Solutions segment contains a group of businesses
supplying steel and composite solutions characterised by a degree of
engineering expertise, to public and private customers in a wide range of
infrastructure markets including energy generation and distribution, marine,
rail and housing; and
· The Galvanizing Services segment contains a group of companies
supplying galvanizing and related materials coating services to companies in a
wide range of markets including construction, agriculture and infrastructure.
Corporate costs are allocated to reportable segments in proportion to the
revenue of each of those segments.
Segmental Income Statement - continuing operations
6 months ended 30 June 2022 6 months ended 30 June 2021
Reported Underlying Reported Underlying
Revenue operating profit operating profit* Revenue operating profit/(loss) operating profit*
£m £m £m £m £m £m
Roads & Security 128.9 0.2 8.1 135.7 (8.7) 8.8
Engineered Solutions 136.5 13.8 14.1 107.7 11.5 11.8
Galvanizing Services 84.5 20.8 21.4 70.2 16.6 17.1
Group - continuing 349.9 34.8 43.6 313.6 19.4 37.7
Net financing costs (3.4) (3.4) (3.3) (3.3)
Profit before taxation - continuing 31.4 40.2 16.1 34.4
Taxation (7.9) (9.2) (7.6) (7.3)
Profit after taxation - continuing 23.5 31.0 8.5 27.1
Year ended 31 December 2021
Reported Underlying
Revenue operating profit/(loss) operating profit*
£m £m £m
Roads & Security 259.7 (7.5) 17.9
Engineered Solutions 223.7 25.5 26.0
Galvanizing Services 141.8 30.9 33.4
Group - continuing 625.2 48.9 77.3
Net financing costs (6.1) (6.1)
Profit before taxation - continuing 42.8 71.2
Taxation (14.4) (15.5)
Profit after taxation - continuing 28.4 55.7
(*)Underlying operating profit is an alternative performance measure which is
stated before non-underlying items as defined in note 6 and is the measure of
segment profit used by the Chief Operating Decision Maker, who is the Chief
Executive. The reported operating profit columns are included as additional
information.
Transactions between operating segments are on an arm's length basis similar
to transactions with third parties. Galvanizing Services sold £1.0m of
products and services to Engineered Solutions (six months ended 30 June 2021:
£0.8m, year ended 31 December 2021: £1.6m) and £4.1m of products and
services to Roads & Security (six months ended 30 June 2021: £3.1m, year
ended 31 December 2021: £6.5m). Engineered Solutions sold £1.0m of products
and services to Roads & Security (six months ended 30 June 2021: £1.5m,
year ended 31 December 2021: £3.0m). Roads & Security sold £0.1m of
products and services to Engineered Solutions (six months ended 30 June 2021:
£0.1m, year ended 31 December 2021: £nil). These internal revenues, along
with revenues generated within each segment, have been eliminated on
consolidation.
In the following tables, revenue from contracts with customers is
disaggregated by primary geographical market, major product/service lines and
timing of revenue recognition. Revenue by primary geographical market is
defined as the end location of the Group's product or service. The table also
includes a reconciliation of the disaggregated revenue with the Group's
reportable segments.
Roads & Security Engineered Solutions Galvanizing Total
Primary geographical markets 6 months ended 6 months 6 months ended 6 months 6 months ended 6 months 6 months ended 6 months
30 June 2022 £m ended 30 June 2022 £m ended 30 June 2022 £m ended 30 June 2022 £m ended
30 June 2021 £m 30 June 2021 £m 30 June 2021 £m 30 June 2021 £m
UK 84.1 80.3 44.8 34.4 41.4 35.5 170.3 150.2
Rest of Europe 8.7 16.3 4.7 2.5 - - 13.4 18.8
North America 30.8 32.7 84.7 66.3 43.1 34.7 158.6 133.7
The Middle East 2.2 2.0 0.4 0.3 - - 2.6 2.3
Rest of Asia 1.4 0.9 1.7 3.3 - - 3.1 4.2
Rest of the world 1.7 3.5 0.2 0.9 - - 1.9 4.4
128.9 135.7 136.5 107.7 84.5 70.2 349.9 313.6
Major product/service lines
Manufacture, supply and installation of products 117.0 125.8 136.5 107.7 - - 253.5 233.5
Galvanizing services - - - - 84.5 70.2 84.5 70.2
Rental income 11.9 9.9 - - - - 11.9 9.9
128.9 135.7 136.5 107.7 84.5 70.2 349.9 313.6
Timing of revenue recognition
Products and services transferred at a point in time 102.6 104.7 81.3 56.4 84.5 70.2 268.4 231.3
Products and services transferred over time 26.3 31.0 55.2 51.3 - - 81.5 82.3
128.9 135.7 136.5 107.7 84.5 70.2 349.9 313.6
Year ended 31 December 2021
Roads & Security Galvanizing Total
£m Engineered Solutions £m £m
£m
Primary geographical markets
UK 165.2 72.0 69.6 306.8
Rest of Europe 29.5 6.0 - 35.5
North America 56.8 137.3 72.2 266.3
The Middle East 3.2 0.6 - 3.8
Rest of Asia 0.6 7.1 - 7.7
Rest of the world 4.4 0.7 - 5.1
259.7 223.7 141.8 625.2
Major product/service lines
Manufacture, supply and installation of products 237.4 223.7 - 461.1
Galvanizing services - - 141.8 141.8
Rental income 22.3 - - 22.3
259.7 223.7 141.8 625.2
Timing of revenue recognition
Products and services transferred at a point in time 200.0 120.2 141.8 462.0
Products and services transferred over time 59.7 103.5 - 163.2
259.7 223.7 141.8 625.2
5. Alternative Performance Measures
The Group presents Alternative Performance Measures ("APMs") in addition to
its statutory results. These are presented in accordance with the Guidelines
on APMs issued by the European Securities and Markets Authority. The principal
APMs are:
· Underlying profit before tax;
· Underlying operating profit;
· Underlying operating profit margin;
· Measures of organic and constant currency change in revenue and
underlying operating profit;
· Underlying cash conversion ratio;
· Capital expenditure to depreciation and amortisation ratio;
· Covenant net debt to EBITDA ratio; and
· Underlying earnings per share. A reconciliation of statutory earnings
per share to underlying earnings per share is provided in note 10.
All underlying measures exclude certain non-underlying items, which are
detailed in note 6. References to an underlying profit measure are made on
this basis and, in the opinion of the Directors, aid the understanding of the
underlying business performance as they exclude items whose quantum, nature or
volatility gives further information to obtain a fuller understanding of the
underlying performance of the business. APMs are presented on a consistent
basis over time to assist in comparison of performance.
Reconciliation of underlying to reported profit before tax from continuing
operations
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Underlying profit before tax from continuing operations 40.2 34.4 71.2
Non-underlying items:
Amortisation of acquisition intangibles (2.9) (2.9) (5.9)
Business reorganisation costs (1.6) (2.9) (4.5)
Expenses related to acquisitions and disposals (1.1) (0.5) (1.6)
Loss on disposal of subsidiaries (0.7) (0.8) (0.4)
Impairment of assets (2.5) (11.2) (16.0)
Reported profit before tax from continuing operations 31.4 16.1 42.8
Reconciliation of underlying to reported operating profit from continuing
operations by segment
Roads & Security Engineered Solutions Galvanizing Total
6 months ended 6 months 6 months ended 6 months 6 months ended 6 months 6 months ended 6 months
30 June 2022 ended 30 June 2022 ended 30 June 2022 ended 30 June 2022 ended
£m 30 June 2021 £m 30 June 2021 £m 30 June 2021 £m 30 June 2021
£m £m £m £m
Underlying operating profit from continuing operations 8.1 8.8 14.1 11.8 21.4 17.1 43.6 37.7
Non-underlying items:
Amortisation of acquisition intangibles (2.2) (2.1) (0.3) (0.3) (0.4) (0.5) (2.9) (2.9)
Business reorganisation costs (1.6) (2.9) - - - - (1.6) (2.9)
Expenses related to acquisitions and disposals (0.9) (0.5) - - (0.2) - (1.1) (0.5)
Loss on disposal of subsidiaries (0.7) (0.8) - - - - (0.7) (0.8)
Impairment of assets (2.5) (11.2) - - - - (2.5) (11.2)
Reported operating profit/(loss) from continuing operations 0.2 (8.7) 13.8 11.5 20.8 16.6 34.8 19.4
Year ended 31 December 2021
Roads & Security Galvanizing Total
£m Engineered Solutions £m £m
£m
Underlying operating profit from continuing operations 17.9 26.0 33.4 77.3
Non-underlying items:
Amortisation of acquisition intangibles (4.5) (0.5) (0.9) (5.9)
Business reorganisation costs (4.5) - - (4.5)
Impairment of assets (16.0) - - (16.0)
Expenses related to acquisitions and disposals - - (1.6) (1.6)
Loss on disposal of subsidiaries (0.4) - - (0.4)
Reported operating profit from continuing operations (7.5) 25.5 30.9 48.9
Calculation of underlying operating profit margin from continuing operations
Roads & Security Engineered Solutions Galvanizing Total
Continuing operations 6 months ended 6 months ended 6 months ended 6 months ended 6 months ended 6 months ended 6 months ended 6 months ended
30 June 2022 30 June 2021 30 June 2022 30 June 2021 30 June 2022 30 June 2021 30 June 2022 30 June 2021
£m £m £m £m £m £m £m £m
Underlying operating profit 8.1 8.8 14.1 11.8 21.4 17.1 43.6 37.7
Revenue 128.9 135.7 136.5 107.7 84.5 70.2 349.9 313.6
Underlying operating profit margin (%) 6.3% 6.5% 10.3% 11.0% 25.3% 24.4% 12.5% 12.0%
Year ended 31 December 2021
Roads & Security Galvanizing Total
£m Engineered Solutions £m £m
£m
Underlying operating profit 17.9 26.0 33.4 77.3
Revenue 259.7 223.7 141.8 625.2
Underlying operating profit margin (%) 6.9% 11.6% 23.6% 12.4%
Measures of organic and constant currency change in revenue and underlying
operating profit from continuing operations
Roads & Security Engineered Solutions Galvanizing Total
Continuing operations Revenue Underlying operating profit £m Revenue Underlying operating profit £m Revenue Underlying operating profit £m Revenue Underlying operating profit £m
£m £m £m £m
2021 135.7 8.8 107.7 11.8 70.2 17.1 313.6 37.7
Impact of exchange rate 1.7 0.4 4.8 0.6 2.2 0.8 8.7 1.8
movements from 2021 to 2022
2021 translated at 2022 exchange rates (A) 137.4 9.2 112.5 12.4 72.4 17.9 322.3 39.5
Acquisitions and disposals (11.1) 0.8 - - - - (11.1) 0.8
Organic growth/(decline) (B) 2.6 (1.9) 24.0 1.7 12.1 3.5 38.7 3.3
2022 (C) 128.9 8.1 136.5 14.1 84.5 21.4 349.9 43.6
Organic change % (B divided by A) 1.9% (20.7%) 21.3% 13.7% 16.7% 19.6% 12.0% 8.4%
Constant currency change % ((C-A) divided by A) (6.2%) (12.0%) 21.3% 13.7% 16.7% 19.6% 8.6% 10.4%
Calculation of underlying cash conversion ratio
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Underlying operating profit:
Continuing operations 43.6 37.7 77.3
Discontinued operations 4.8 4.8 8.7
48.4 42.5 86.0
Calculation of adjusted operating cash flow:
Cash generated by operations 20.2 38.4 103.1
Less: Purchase of assets for rental to customers (7.1) (1.6) (16.7)
Less: Purchase of property, plant and equipment (8.7) (8.7) (17.8)
Less: Purchase of intangible assets (1.3) (0.4) (1.4)
Less: Repayments of lease liabilities (4.9) (5.0) (10.3)
Add: Proceeds on disposal of non-current assets and assets held for sale 0.1 0.7 3.7
Add back: Defined benefit pension scheme deficit payments 1.9 1.9 3.7
Add back: Cash flows relating to non-underlying items 0.9 0.6 2.7
Adjusted operating cash flow 1.1 25.9 67.0
Underlying cash conversion (%) 2% 61% 78%
Calculation of capital expenditure to depreciation and amortisation ratio
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Calculation of capital expenditure:
Purchase of assets for rental to customers 7.1 1.6 16.7
Purchase of property, plant and equipment 8.7 8.7 17.8
Purchase of intangible assets 1.3 0.4 1.4
17.1 10.7 35.9
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 10.3 10.5 20.9
Amortisation of development costs 0.5 0.5 1.1
Amortisation of other intangible assets 0.5 0.2 0.3
11.3 11.2 22.3
Capital expenditure to depreciation and amortisation ratio 1.5x 1.0x 1.6x
Calculation of net debt to EBITDA ratio
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Reported net debt 165.5 154.6 144.7
Lease liabilities (36.6) (35.9) (40.6)
Amounts related to refinancing under IFRS 9 2.1 2.9 2.5
Covenant net debt (A) 131.0 121.6 106.6
Underlying operating profit 48.4 42.5 86.0
Depreciation of property, plant and equipment 10.3 10.5 20.9
Right-of-use asset depreciation 4.4 5.2 10.3
Amortisation of development costs 0.5 0.5 1.1
Amortisation of other intangible assets 0.5 0.2 0.3
Underlying EBITDA 64.1 58.9 118.6
Adjusted for:
Lease payments (5.3) (5.4) (11.1)
Share-based payments expense 1.5 0.6 2.8
Annualised EBITDA of subsidiaries disposed/acquired (1.2) 1.3 0.4
Prior period H2 EBITDA 57.4 54.5 n/a
Covenant EBITDA (B) 116.5 109.9 110.7
Covenant net debt to EBITDA (A divided by B) 1.1 1.1 1.0
6. Non-underlying items
Non-underlying items are disclosed separately in the Consolidated Income
Statement where, in the Directors' judgement, the quantum, nature or
volatility of such items gives further information to obtain a fuller
understanding of the underlying performance of the business. The following are
included by the Group in its assessment of non-underlying items:
· Gains or losses arising on disposal, closure, restructuring or
reorganisation of businesses.
· Amortisation of intangible fixed assets arising on acquisitions,
which can vary depending on the nature, size and frequency of acquisitions in
each financial period.
· Expenses associated with acquisitions and disposals, comprising
professional fees incurred and any consideration which, under IFRS 3 (Revised)
is required to be treated as a post-acquisition employment expense, and
changes in contingent consideration payable on acquisitions.
· Impairment charges in respect of tangible or intangible fixed assets,
or right-of-use assets.
· Changes in the fair value of derivative financial instruments.
· Significant past service items or curtailments and settlements
relating to defined benefit pension obligations resulting from material
changes in the terms of the schemes.
The non-underlying tax charge or credit comprises the tax effect of the above
non-underlying items.
Details in respect of the non-underlying items recognised in the current
period and prior year are set out below.
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Loss on disposal of subsidiaries (a) (0.7) (0.8) (0.4)
Business reorganisation costs (b) (1.6) (2.9) (4.5)
Impairment of assets (c) (2.5) (11.2) (16.0)
Amortisation of acquisition intangibles (3.0) (3.0) (6.1)
Expenses related to acquisitions and disposals (1.9) (0.5) (2.0)
Total non-underlying items (9.7) (18.4) (29.0)
Total non-underlying items - continuing operations (8.8) (18.3) (28.4)
Total non-underlying items - discontinued operations (0.9) (0.1) (0.6)
Notes:
a) In April 2022, the Group completed the disposal of the rental division
of its Swedish roads operations, at a loss of £0.7m. Details of the
disposal are set out below:
Disposal of Swedish rental division £m
Property, plant and equipment 2.0
Right-of-use assets 2.1
Lease liabilities (2.0)
Current liabilities (0.2)
Net assets disposed 1.9
Consideration received 1.5
Cumulative exchange differences (0.3)
Loss on disposal 0.7
The Group also incurred costs of disposal of £0.5m, which are included within
'expenses related to acquisitions and disposals' in the table above.
Following the disposal, asset impairments of £0.2m and reorganisation costs
of £0.2m were incurred in relation to the remaining business. The total of
non-underlying net charges relating to the Swedish disposal is therefore
£1.6m.
In 2021, the loss on disposal of £0.4m related to the sale of Technocover
Limited, the Group's small access covers business.
b) In May 2022, the Group took the decision to exit the low-margin plastic
products operations that formed part of our US roads business. Net charges
on closure totalled £2.4m, comprising business reorganisation costs of £0.1m
reflecting the anticipated net cash costs of exit, which is expected to be
completed by the end of the year, and asset impairment charges of £2.3m.
In addition, following the closure of the Group's variable message sign (VMS)
business that was announced in March 2021, the Group has incurred a further
£1.3m of costs in 2022 in relation to the completion of legacy contracts.
The costs of £4.5m in 2021 also related to the VMS closure.
c) Impairment charges of £2.5m in 2022 relate to the portfolio management
actions explained above. In 2021, the impairment charge of £16.0m comprised
goodwill and acquired intangible asset impairments in respect of ATG Access
(£10.8m) and Parking Facilities (£5.2m), two of the Group's security
businesses.
7. Net financing costs from continuing operations
Continuing operations 6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Interest on bank deposits 0.2 0.2 0.6
Financial income 0.2 0.2 0.6
Interest on loans and borrowings (2.7) (2.5) (4.9)
Interest on lease liabilities (0.4) (0.4) (0.8)
Financial expenses related to refinancing (0.4) (0.4) (0.8)
Interest cost on net pension scheme deficit (0.1) (0.2) (0.2)
Financial expense (3.6) (3.5) (6.7)
Net financing costs (3.4) (3.3) (6.1)
8. Taxation
Tax has been provided on the underlying profit from continuing operations at
the estimated effective rate of 23.0% (2021: 21.7%) for existing operations
for the full year.
In October 2017, the European Commission opened a state aid investigation into
the Group Financing Exemption in the UK Controlled Foreign Company ('CFC')
legislation, announcing in April 2019 that it believed in certain
circumstances the CFC regime constituted State Aid. In 2021 the Group received
a charging notice from HMRC requiring it to pay £1.6m in respect of state aid
that HMRC considers had been unlawfully received in previous years, which was
paid in full in February 2021.
Applications to annul the Commission's decision had been made in prior years
by the UK Government, the Group and other affected taxpayers. The EU General
Court delivered its decision on these applications in June 2022, finding in
favour of the Commission. Those affected, including the Group, have the
option to appeal this decision to the Court of Justice of the EU.
Having taken expert advice, we have concluded that there are strong grounds
for appeal and that such an appeal would be likely to be successful. As a
result, we continue to recognise a tax receivable of £1.6m within non-current
assets, reflecting the Group's view that the amount paid will ultimately be
recovered.
9. Discontinued operations and assets held for sale
On 25 July 2022 the Group announced the proposed disposal of France Galva SA
('France Galva'), our French galvanizing and lighting column operations, and
on that date entered into a put option with the prospective purchasers. If
the proposed disposal proceeds, completion is expected to occur in the fourth
quarter of 2022. As negotiations with the prospective purchasers were at an
advanced stage at 30 June 2022, France Galva has been classified as a disposal
group held for sale at that date as required by IFRS 5 Non-current assets held
for sale and discontinued operations. Accordingly, France Galva's results
have been reported within discontinued operations.
Discontinued Operations
France Galva's financial performance in the current and prior periods is
presented below:
6 months ended 30 June 2022 6 months ended 30 June 2021 Year ended 31 December 2021
Underlying £m Non-underlying(*) Total Underlying £m Non-underlying(*) Total Underlying £m Non-underlying(*) Total
£m £m £m £m £m £m
Revenue 47.3 - 47.3 40.6 - 40.6 79.8 - 79.8
Cost of sales (32.8) - (32.8) (26.7) - (26.7) (53.5) - (53.5)
Gross profit 14.5 - 14.5 13.9 - 13.9 26.3 - 26.3
Distribution costs (2.4) - (2.4) (2.1) - (2.1) (4.0) - (4.0)
Administrative expenses (7.3) (0.9) (8.2) (7.0) (0.1) (7.1) (13.6) (0.6) (14.2)
Operating profit 4.8 (0.9) 3.9 4.8 (0.1) 4.7 8.7 (0.6) 8.1
Financing costs - - - - - - - - -
Profit before taxation 4.8 (0.9) 3.9 4.8 (0.1) 4.7 8.7 (0.6) 8.1
Taxation (1.2) - (1.2) (1.3) - (1.3) (2.3) - (2.3)
Profit from discontinued operations 3.6 (0.9) 2.7 3.5 (0.1) 3.4 6.4 (0.6) 5.8
* The Group's definition of non-underlying items and further details of the
amounts included are set out in note 6.
Assets and liabilities held for sale
The carrying values of the assets and liabilities of France Galva as at 30
June 2022 were as follows:
France Galva 30 June
2022
£m
Assets classified as held for sale
Intangible assets 13.3
Property, plant and equipment 26.7
Right-of-use assets 0.9
Deferred tax assets 1.3
Inventories 23.1
Trade and other receivables 22.4
Cash and short term deposits 4.0
Assets classified as held for sale 91.7
Liabilities classified as held for sale
Lease liabilities (0.9)
Loans and borrowings (0.3)
Trade and other payables (23.0)
Current tax payable (0.5)
Retirement benefit obligations (4.4)
Provisions (0.9)
Liabilities classified as held for sale (30.0)
Assets held for sale at 30 June 2022 also include a property with a book value
of £2.1m and intangible assets with a book value of £0.2m relating to the
Group's exit from its low margin US traffic control products business, further
details of which are set out in note 6.
Assets and liabilities held for sale at 31 December 2021 related to the
Group's Swedish rental operations, which were disposed of in April 2022 as
explained in note 6.
Cash flows from discontinued operations
Cash flows from discontinued operations included in the consolidated cash flow
statement are as follows:
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Net cash flow from operating activities 1.1 5.1 8.9
Net cash flow from investing activities (0.8) (0.1) (2.7)
Net cash flow from financing activities (0.3) (0.3) (0.7)
- 4.7 5.5
10. Earnings per share
The weighted average number of ordinary shares in issue during the period was
79.9m, diluted for the effect of outstanding share options 80.4m (six months
ended 30 June 2021: 79.6m and 80.3m diluted; the year ended 31 December 2021:
79.6m and 80.6m diluted). Underlying earnings per share are shown below as the
Directors consider that this measurement of earnings gives valuable
information on the underlying performance of the Group:
6 months ended 30 June 2022 6 months ended 30 June 2021 Year ended 31 December 2021
Pence Pence Pence
per share £m per share £m per share £m
Basic earnings
- continuing 29.3 23.5 10.7 8.5 35.8 28.4
- discontinued 3.4 2.7 4.3 3.4 7.2 5.8
Total basic earnings 32.7 26.2 15.0 11.9 43.0 34.2
Non-underlying items*
- continuing 9.4 7.5 23.5 18.6 34.3 27.3
- discontinued 1.1 0.9 - 0.1 0.6 0.6
Total non-underlying items 10.5 8.4 23.5 18.7 34.9 27.9
Underlying earnings
- continuing 38.7 31.0 34.2 27.1 70.1 55.7
- discontinued 4.5 3.6 4.3 3.5 7.8 6.4
Total underlying earnings 43.2 34.6 38.5 30.6 77.9 62.1
Diluted earnings
- continuing 29.1 23.5 10.6 8.5 35.4 28.4
- discontinued 3.4 2.7 4.3 3.4 7.1 5.8
Total diluted earnings 32.5 26.2 14.9 11.9 42.5 34.2
Non-underlying items*
- continuing 9.4 7.5 23.2 18.6 33.9 27.3
- discontinued 1.1 0.9 0.1 0.1 0.7 0.6
Total non-underlying items 10.5 8.4 23.3 18.7 34.6 27.9
Underlying diluted earnings
- continuing 38.5 31.0 33.8 27.1 69.3 55.7
- discontinued 4.5 3.6 4.4 3.5 7.8 6.4
Total underlying diluted earnings 43.0 34.6 38.2 30.6 77.1 62.1
* Non-underlying items as detailed in note 6.
11. Dividends
Dividends paid in the period were the prior year's interim dividend of £9.6m
(2021: £7.3m). Dividends declared after the Balance Sheet date are not
recognised as a liability, in accordance with IAS 10. The Directors have
proposed an interim dividend for the current year of £10.4m, 13.0p per share
(2021: £9.6m, 12.0p per share), which will be paid on 6 January 2023 to
shareholders on the register on 2 December 2022.
12. Intangible assets
Impairment of goodwill and indefinite life intangible assets
IAS 36 Impairment of Assets requires the Group to test goodwill and other
indefinite life intangible assets for impairment annually, or at other
reporting period ends where there is an indication of impairment. In
determining which Cash Generating Units (CGUs) to test at 30 June 2022, the
Group identified those where the trading performance or outlook in the first
six months of the year had fallen substantially below previous expectations.
On this basis, an impairment test was carried out on the Parking Facilities
CGU. Notwithstanding a positive performance in the first half of 2022, given
that the ATG Access CGU was impaired by £10.8m in the year ending 31 December
2021 and was carried at its recoverable amount at that date, the Group
concluded that it would also be appropriate to test ATG Access at 30 June
2022.
Consistent with past practice and as disclosed in the Group's 2021 Annual
Report, impairment tests on the carrying values of goodwill are performed by
comparing the carrying value allocated to each CGU against its value in use.
Value in use is calculated as the net present value of that unit's discounted
future cash flows. Short-term cash flows are based on latest management
forecasts for the second half of 2022 and strategic plans for the following
four years, which are prepared taking into account a range of factors
including past experience, the forecast future trading environment and
macroeconomic conditions in the Group's key markets. The cash flows beyond the
strategic plan period use growth rates which reflect the long-term historical
growth in GDP of the economies in which each CGU is located, which vary
between 1.6% and 2.5%. The Board believes the use of long-term historical
growth rates is currently the most reliable indicator of future growth rates,
given the ongoing volatility and uncertainty in any forward-looking growth
projections at the reporting date. Discount rates are derived from a market
participant's cost of capital, risk adjusted for individual CGU's
circumstances.
Based on the methodology outlined above, the impairment reviews for ATG Access
and Parking Facilities at 30 June 2022 concluded that no impairment charges
were required to be recorded in the period. The Group then applied
sensitivities to assess whether any reasonably possible changes in assumptions
could cause an impairment of the goodwill in each tested CGU.
ATG Access
As disclosed in the Group's 2021 Annual Report, ATG's future performance is
largely dependent on the pace of post-pandemic recovery in UK and global
security products markets, which itself is inherently dependent on public and
customer behaviour. It is plausible that the pace of recovery could be more
gradual than that assumed in the impairment tests that have been carried out,
in which case a further material impairment could arise. Revenue growth, gross
margins, long-term cash flow growth and the discount rate are the key
assumptions on which the goodwill impairment review is most sensitive. The
following table provides information on the impact on calculated headroom of
various scenarios for each of those key assumptions (independently in each
case):
Sensitivity Headroom/
Input Scenario applied (impairment)
% £m
Compound annual revenue growth 2022-2026 Base case 7.3 -
H&S sensitivity 1 * 4.7 (4.5)
H&S sensitivity 2 * 2.0 (8.5)
Gross profit margin Base case 25.8 -
H&S sensitivity 1 ** 24.7 (1.5)
H&S sensitivity 2 ** 23.6 (3.8)
Annual cash flow growth 2026 onwards Base case 2.0 -
H&S sensitised 0.0 (2.1)
Pre-tax discount rate Base case 13.7 -
H&S sensitised 15.7 (2.1)
* The base case assumes compound annual revenue growth between 2022 and 2026
of 7.3%. H&S Sensitivity 2 illustrates the impact of compound revenue
growth at 2% (consistent with long-term UK growth rates). H&S Sensitivity
1 shows the midpoint between the two.
** The base case assumes a gradual increase in gross profit margin from 23.6%
through to 25.8% in 2026. H&S Sensitivity 2 assumes no growth in gross
profit margin from 2022 outlook. H&S Sensitivity 1 shows the midpoint
between the two.
Parking Facilities
Similar to ATG and as disclosed in the Group's 2021 Annual Report, Parking
Facilities' future performance is dependent on the pace of post-pandemic
recovery in the UK security market, as well as the evolution of other
competitive pressures that exist in the market. Revenue growth, gross margins,
long-term cash flow growth and the discount rate are the key assumptions on
which the goodwill impairment review is most sensitive. The following table
provides information on the impact on calculated headroom of various scenarios
for each of those key assumptions (independently in each case):
Sensitivity Headroom/ (impairment)
Input Scenario applied £m
%
Compound annual revenue growth 2022-2026 Base case 3.3 -
H&S sensitivity 1 * 2.0 (2.0)
H&S sensitivity 2 * 0.0 (4.4)
Gross profit margin Base case 30.6 -
H&S sensitivity 1 ** 29.6 (3.3)
H&S sensitivity 2 ** 28.6 (4.5)
Annual cash flow growth 2026 onwards Base case 2.0 -
H&S sensitised 0.0 (1.6)
Pre-tax discount rate Base case 13.7 -
H&S sensitised 15.7 (1.9)
* The base case assumes compound annual revenue growth between 2022 and 2026
of 3.3%. H&S Sensitivities illustrate the impact of compound revenue
growth at 2% (consistent with long-term UK growth rates) and 0% (i.e.,
revenues do not grow from 2022).
** The base case assumes a gross profit margin of 30.6% every year from 2022
through 2026. The H&S sensitivity scenarios show a 100-basis point and
200-basis point reduction respectively in gross profit margin in the period
2022 through 2026.
13. Analysis of net debt
6 months ended 6 months ended Year ended
30 June 2022 30 June 2021 31 December 2021
£m £m £m
Cash and cash equivalents in the Condensed Consolidated Statement of Financial
Position
Cash and cash equivalents 18.4 19.2 18.8
Cash and cash equivalents classified as assets held for sale (note 9) 4.0 - -
Bank overdrafts (5.4) (5.9) (0.7)
Cash and cash equivalents net of bank overdraft 17.0 13.3 18.1
Interest bearing loans and other borrowings
Amounts due within one year (0.5) (0.4) (1.2)
Amounts due after more than one year (145.1) (131.6) (121.0)
Loans and borrowings classified as liabilities held for sale (note 9) (0.3) - -
Lease liabilities classified as liabilities held for sale (note 9) (0.9) - (1.7)
Lease liabilities due within one year (8.0) (9.6) (8.8)
Lease liabilities due after more than one year (27.7) (26.3) (30.1)
Net debt (165.5) (154.6) (144.7)
6 months ended 6 months ended Year ended 31 December 2021
30 June 2022 30 June 2021 £m
£m £m
Change in net debt
Operating profit from continuing operations 34.8 19.4 48.9
Operating profit from discontinued operations (note 9) 3.9 4.7 8.1
Non-cash items 23.5 31.2 55.8
Operating cash flow before movement in working capital 62.2 55.3 112.8
Net movement in working capital (41.5) (15.3) (6.8)
Change in provisions and employee benefits (0.5) (1.6) (2.9)
Operating cash flow 20.2 38.4 103.1
Tax paid (8.1) (9.2) (15.2)
Net financing costs paid (2.2) (2.1) (4.1)
Capital expenditure (17.1) (10.7) (35.9)
Proceeds on disposal of non-current assets and assets held for sale 0.1 0.7 3.7
Free cash flow (7.1) 17.1 51.6
Dividends paid (note 11) (9.6) (7.3) (21.2)
Acquisitions - (13.6) (13.6)
Disposals 1.5 1.3 1.6
Expense associated with refinancing activities (0.4) (0.4) (0.8)
Purchase of shares for employee benefit trust (0.3) (0.7) (1.8)
Issue of new shares 1.6 1.1 2.6
New leases and lease remeasurements (2.2) (7.2) (17.1)
Leases disposed of (note 6) 2.0 - -
Interest on lease liabilities (0.4) (0.4) (0.8)
Net debt (increase)/decrease (14.9) (10.1) 0.5
Effect of exchange rate fluctuations (5.9) 1.7 1.0
Net debt at the beginning of the period (144.7) (146.2) (146.2)
Net debt at the end of the period (165.5) (154.6) (144.7)
14. Financial instruments
The table below sets out the Group's accounting classification of its
financial assets and liabilities and their fair values as at 30 June 2022. The
fair values of all financial assets and liabilities are not materially
different to the carrying values.
Designated at Amortised Total carrying
fair value cost value Fair value
£m £m £m £m
Cash and cash equivalents net of bank overdraft - 13.0 13.0 13.0
Cash and cash equivalents classified as held for sale (note 9) - 4.0 4.0 4.0
Loans and borrowings due within one year - (0.5) (0.5) (0.5)
Loans and borrowings due after more than one year - (145.1) (145.1) (145.1)
Loans and borrowings classified as liabilities held for sale (note 9) - (0.3) (0.3) (0.3)
Lease liabilities due within one year - (8.0) (8.0) (8.0)
Lease liabilities due after more than one year - (27.7) (27.7) (27.7)
Lease liabilities classified as liabilities held for sale (note 9) - (0.9) (0.9) (0.9)
Other financial assets - 143.4 143.4 143.4
Financial assets classified as held for sale (note 9) - 22.4 22.4 22.4
Other financial liabilities - (113.9) (113.9) (113.9)
Financial Liabilities classified as held for sale - (21.7) (21.7) (21.7)
Total at 30 June 2022 - (135.3) (135.3) (135.3)
Fair value hierarchy
There were no financial instruments carried at fair value at 30 June 2022, 30
June 2021 or 31 December 2021.
15. Events after the reporting period
On 25 July 2022 the Group announced the proposed disposal of France Galva SA,
our French galvanizing and lighting column operations. Further details are set
out in note 9. There were no other significant subsequent events.
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