REG - Hill & Smith Hldgs. - Preliminary Results
10/03/2022 07:01
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RNS Number : 2676E Hill & Smith Holdings PLC 10 March 2022
Hill & Smith Holdings PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021
Hill & Smith Holdings PLC ("Hill & Smith" or "the Group"), the
international group creating sustainable infrastructure and safe transport
through innovation, announces its preliminary results for the year ended 31
December 2021.
Financial results
Change
31 December 31 December Reported Organic Constant Currency (OCC)**
2021 2020 % %
Revenue £705.0m £660.5m +7 +10%
Underlying(*):
Operating profit £86.0m £69.9m +23 +29%
Operating margin 12.2% 10.6% +160bps +190bps
Profit before taxation £79.9m £62.6m +28
Earnings per share 77.9p 63.2p +23
Reported:
Operating profit £57.0m £42.8m +33
Operating margin 8.1% 6.5% +160bps
Profit before taxation £50.9m £35.5m +43
Basic earnings per share 43.0p 30.2p +42
Dividend per share 31.0p 26.7p +16
Net Debt £144.7m £146.2m
Key points:
· Record constant currency revenue and underlying operating profit:
o Strong recovery in all divisions with margin improvement and trading
significantly ahead of COVID-impacted 2020
o Performance ahead of 2019 levels: organic constant currency growth +4%
revenue and +3% underlying operating profit
o Successful management of supply chain headwinds and input cost inflation
· ESG strategy developed with seven priority areas and commitment to
Scope 1 and 2 carbon net zero by 2040
· Progress made on improving the quality of the portfolio, in line with
refreshed strategy
· Group remains highly cash generative, with a strong balance sheet to
support future organic and inorganic growth opportunities
· Medium term outlook remains positive; expect to make good progress in
2022 despite ongoing industry-wide supply chain and inflationary challenges
· FY21 dividend 31.0p, an increase of 16%
Paul Simmons, Chief Executive, said:
"In my first full year as CEO I am pleased with the financial and strategic
progress we have made. We set out an ambitious agenda a year ago and our
people and businesses have responded positively to this, for which I would
like to thank them. 2021 was not without its challenges, particularly supply
chain and inflationary pressures. The Group navigated these well which is
testament to the resilience of our autonomous operating model. Creating
sustainable infrastructure and safe transport is core to our purpose and over
the course of the year, we have developed an ESG strategy, setting out our
path to carbon net zero by 2040.
"In 2022 we expect to make good progress despite the ongoing headwinds and
geopolitical uncertainties. In the longer term I am excited about what the
future holds given our exposure to the positive macro trends of sustainable
infrastructure and safe transport."
For further information, please contact:
Hill & Smith Holdings PLC
Paul Simmons, Group Chief Executive Tel: +44 (0)121 704 7430
Hannah Nichols, Group Chief Financial Officer
MHP Communications
Andrew Jaques / Rachel Farrington / Catherine Chapman Tel: +44 (0)20 3128 8613
* All underlying measures exclude certain non-underlying items, which are as
detailed in note 4 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 3 to
the Financial Statements. They are presented on a consistent basis over time
to assist in comparison of performance.
** Where we make reference to organic constant currency 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, France, Sweden, India and Australia. It has a
head office in the UK and it is quoted on the London Stock Exchange (LSE:
HILS.L).
The Group's operating businesses are organised into three divisions:
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.
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.
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.
Chief Executive's Review
Review of 2021
2021 saw the Group deliver record constant currency revenue and underlying
operating profit despite the industry-wide headwinds that we faced. Our strong
performance is, once again, due to a combination of the talent and motivation
of our global team, our choice of long-term favourable markets and our agile
autonomous operating model. I would like to thank our employees and business
partners for their excellent contribution.
We have seen a good recovery in trading in 2021, with all three divisions
delivering strong revenue and profit growth compared to 2020 which was more
severely impacted by COVID-related disruption. I am also pleased to report
that the Group delivered 4% revenue and 3% profit growth on an organic
constant currency basis compared to 2019, our previous record year,
highlighting the resilience and continued progress of our business.
The trading highlight was in our Utilities division, which saw strong profit
growth and margin progression despite a robust comparator, supported by high
levels of demand for US engineered composite solutions and good progress in
our engineered supports (formerly "pipe supports") and UK utility
businesses. Our Galvanizing division continued to deliver superior operating
profit margins at 20%, an improvement on the prior year, despite a less
favourable country mix, driven by a strong recovery in the UK and France and
solid performance in the US. The Roads & Security division also
delivered a robust performance with margin improvement reflecting portfolio
management actions and an encouraging, albeit partial, recovery in demand in
our security sub-division.
During the year, our operating companies took swift and appropriate action to
manage supply chain headwinds. Actions taken included implementing price
increases to offset significant input cost inflation, securing supply of raw
materials and ensuring the continuity of operations against a backdrop of
labour shortages in certain businesses. As we enter 2022, we believe we are
well positioned to continue to manage these headwinds. The Group remains
highly cash generative and maintains a strong balance sheet, positioning us
well for the future as we focus on developing and funding both organic and
inorganic growth opportunities.
Alongside the strong financial performance, we have made good progress on the
key elements of our strategy particularly around talent and organisational
development, portfolio management and ESG.
In January 2021 we established our Executive Board and introduced the Group
President role, enabling us to scale the Group without compromising our
decentralised model, providing mentorship for our operating company leaders
and increased oversight. The Group Presidents are responsible for growing
their portfolio of operating companies both organically, in partnership with
the operating company Managing Directors, and inorganically, in partnership
with our Corporate Development team. In 2022 we have further strengthened our
Group President team and expect to add a US-based M&A Corporate
Development executive. Our intent is to maintain a small, but effective,
central function supporting the operating companies, bringing high quality
businesses into the Group via acquisition and ensuring good governance.
Our autonomous model places a disproportionate premium on talent with over 99%
of our people employed by our operating companies and therefore close to our
customers. During the year, we recruited a Chief People Officer to help us
further develop our current employees and attract additional highly talented
people into the Group. We also added a US-based Group Head of Health &
Safety role and in the first quarter of 2022 we appointed a Head of
Sustainability to help us deliver our ESG commitments, building on the work of
the ESG steering group.
We have rebuilt our M&A pipeline consistent with our purpose, and against
a more demanding set of financial criteria; the ability of acquired businesses
to deliver long-term organic profit growth with strong gross margins is key.
We also reviewed our current portfolio against those same criteria which
highlighted the need for targeted disposals. Our intent is to continually
improve the quality of our portfolio. A second element of our M&A approach
involves systematically reviewing new to Hill & Smith niche markets to
identify those aligned with our chosen market drivers and specific M&A
criteria. For niche markets that meet our criteria we initiate searches for
potential acquisition targets.
In line with our refreshed strategy, we have taken actions to enhance the
quality of the portfolio. In March we were delighted to acquire solar energy
experts, Prolectric Services Ltd ("Prolectric"). Prolectric has already made a
positive contribution to the Group and we continue to see excellent long
term growth prospects for the business. During 2021, we also disposed of our
loss-making security access cover business, and we closed our small,
loss-making UK variable message sign business. Following a strategic review of
our Swedish road business in the second half of the year, we are currently in
advanced negotiations to dispose of its rental division and are assessing the
options for the remaining parts of the business.
Innovation has an increasingly important role to play in the Group's longer
term organic profit growth ambitions. Higher value, more innovative products
drive higher gross margins, which in turn allow sensible reinvestment by our
operating companies. To teach and share best practice we successfully ran our
first innovation workshop in October 2021, with a second operating company
cohort planned for early 2022.
To support the delivery of long-term organic growth, we changed the operating
company Managing Directors' annual bonus scheme to reward organic profit
growth and introduced a new LTIP scheme which replaces a previous ESOS scheme
and enables them to share in the Group's long-term success.
Our ESG strategy and commitments
The growth of our business is naturally aligned to ESG: our products and
services make infrastructure more sustainable and increase transport safety.
In last year's annual report, I flagged that we would be developing an
environmental, social and governance (ESG) strategy in 2021. With this in
mind, we established an ESG steering group to work with our operating
companies to create common sense, actionable plans with measurable targets.
The ESG team includes myself, our Chief Financial Officer, our Company
Secretary and our Chief People Officer, alongside a number of Group employees
who are passionate about our ESG focus areas. I am pleased with the
progress that the team has made, however I recognise that we have more to do
to improve our sustainability performance and related disclosures, and we are
committed to making further progress in 2022 and beyond.
We have taken a materiality-based approach to ESG, using interviews with 38 of
our key stakeholders, alongside the relevant SASB materiality maps, to
identify our seven priority areas. For each of the priorities we have
developed a clear action plan and key metrics against which we can be held
accountable.
1. Greenhouse gas emissions and energy efficiency
Greenhouse gases are a major contributor to global warming, with CO(2)
emissions being the most significant for our Group. In recognition of the
Group's commitment to CO(2) reduction, earlier this year we signed up to the
Science Based Targets initiative (SBTi) to limit global warming to 1.5 degrees
Celsius.
We have developed a carbon reduction plan which includes clear steps that we
will take in the coming years to achieve net zero Scope 1 and 2 CO(2)
emissions. These steps include conversion of natural gas burners used in
galvanizing to an alternative technology and transition away from the use of
diesel vehicles. Alongside this, we have developed a detailed costed plan
which includes an assessment of the incremental capital, energy, carbon taxes
and other operating costs which will support decarbonisation. I am delighted
that the outcome of this process has provided the Group with the confidence to
commit to achieving a carbon net zero target by 2040. Our current expectations
are that the financial impact of achieving this will not have a material
effect on the growth prospects for the Group, with modest levels of
incremental capex required to achieve it. During 2022, we will continue to
develop the plan, including starting an assessment of our supply chain Scope 3
emissions which will enable us to determine our SBTi targets by August 2023.
2. Sustainable products
In line with our purpose, we are our committed to ensuring that our products
and services support a sustainable future. At the end of 2020, we reset our
portfolio management criteria to ensure that all decision making is guided by
our purpose of creating sustainable infrastructure and safe transport through
innovation.
In addition, during 2021, we have worked alongside representatives from our
operating companies and a third-party expert to complete an assessment of
three of our key products and services, to measure their sustainability and
value to society. In 2022 we will validate our use of the model before
rolling the methodology out to a broader range of our products. We will then
be able to develop an improvement plan and introduce key metrics.
3. Health and safety
The health, safety and wellbeing of our employees continues to be a key focus
across all operating companies. Health and safety is a key agenda item for the
Executive Board, which I chair, and our recently appointed Chief People
Officer is accountable for Group-wide health and safety improvement. In
addition, we have recruited a Group Head of Health and Safety, who has set a
clear strategy to support our operating companies with practical advice,
training and increasing awareness.
We have set short and medium-term targets to improve health and safety across
our organisation, using Lost Time Injury Rate (LTIR) as the key indicator to
track and monitor our progress. By 2025 we are targeting to reduce our LTIR
to 0.75, with a further reduction to 0.25 by 2030.
4. Talent development and engagement
Talented people are fundamental to the success of our autonomous operating
model. We need a highly engaged and capable workforce within our operating
companies, and this can only be achieved by attracting, developing,
supporting, and retaining the right people.
We are using employee engagement scores to measure our progress in this
area. I am pleased that the result of our recent survey showed that employee
engagement has improved to 55% compared to 48% in 2019, however there is more
work to do. Going forward, we will be measuring employee engagement
annually, with a target to improve to 66% engagement by 2025 and to 75% by
2030.
5. Diversity and inclusion
As an organisation we want to employ the best people for the job and help them
thrive. We know that we can only do this by considering talented people from
the whole community. Our Chief People Officer is working with our local HR
communities to develop a series of initiatives to further foster diversity and
inclusion across the Group.
To support this ambition, we have set Group targets for both gender and ethnic
diversity at a PLC Board, Executive Board and Senior Leader level. In 2022,
we expect further progress to be made at the Executive and Senior Leader
level.
6. Climate risks
During the year, we have made good progress in assessing the financial risks
and opportunities to our business due to climate change. As a result, we are
pleased to include in our Annual Report our first report in response to the
Task Force on Climate-related Financial Disclosures (TCFD). The assessment
suggests that, while physical climate change presents a relatively low risk to
our future business operations, it may present opportunities for the Group.
Given our focus on sustainable infrastructure, some of our operating companies
already provide products and solutions to address extreme weather conditions,
and we see this as an opportunity for future growth.
7. Ethical conduct
As a Group we are committed to conducting our business activities responsibly
and ethically, and in accordance with local laws and regulations. We support
this commitment by providing training and educational programmes for
employees, together with a Group Code of Business Conduct which underpins all
our activities.
Further details of our new sustainability plan, targets and TCFD disclosures
can be found in our Annual Report.
Board Updates
In the period, we announced the appointment of Leigh-Ann Russell as a
Non-executive Director, who joined the Board on 1 April 2021. In January 2022,
we were also pleased to announce the appointment of Farrokh Batliwala as a US
based Non-executive Director, with effect from 1 April 2022. Both appointments
reflect the Group'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.
2021 Headline Results
Change %
2021 2020 Reported OCC
Revenue £705.0m £660.5m +7 +10
Underlying((1)):
Operating profit £86.0m £69.9m +23 +29
Operating margin 12.2% 10.6% +160bps +190bps
Profit before tax £79.9m £62.6m +28
Earnings per share 77.9p 63.2p +23
Reported:
Operating profit £57.0m £42.8m +33
Operating margin 8.1% 6.5% +160bps
Profit before tax £50.9m £35.5m +43
Basic earnings per share 43.0p 30.2p +42
((1) )Underlying measures are set out in note 3 to the Financial Statements
and exclude certain non-underlying items, which are detailed in note 4 to the
Financial Statements.
The Group has seen a strong trading performance compared to 2020 which was
impacted by COVID-related business closures and reduced levels of demand from
the middle of March. Revenue for the period was £705.0m (2020: £660.5m), an
increase of 7% on a reported basis. Organic constant currency revenue growth
was 10%. Underlying operating profit was £86.0m (2020: £69.9m) and
underlying operating margin recovered strongly to 12.2% compared to 10.6% in
2020. Underlying profit before taxation was £79.9m (2020: £62.6m). Reported
operating profit was £57.0m (2020: £42.8m) and reported profit before tax
was £50.9m (2020: £35.5m).
Underlying earnings per share increased to 77.9p (2020: 63.2p). The diluted
underlying earnings per share was 77.1p (2020: 62.9p). Reported earnings per
share was 43.0p (2020: 30.2p). The weighted average number of shares in issue
was 79.6m (2020: 79.5m) with the diluted number of shares at 80.6m (2020:
79.9m) adjusted for the outstanding number of dilutive share options.
The principal reconciling items between underlying and reported operating
profit are non-cash charges including the impairment of goodwill and
intangibles relating to our security businesses of £16.0m and the
amortisation of acquisition intangibles of £6.1m, together with costs
associated with the closure of the UK variable message signs business of
£4.5m. Note 4 of the Financial Statements provides further details on the
Group's non-underlying items.
Dividend
Based on the strong trading performance and cash generation during the year,
the Board is recommending a final dividend of 19.0p per share, making a total
dividend for the year of 31.0p per share (2020: 26.7p). Looking forward, we
aim to provide sustainable and progressive dividend growth, targeting a
dividend cover of around 2.5 times underlying earnings. The final dividend, if
approved, will be paid on 8 July 2022 to shareholders on the register on 6
June 2022.
Outlook
We expect to make good progress in 2022, despite the ongoing supply chain and
inflationary headwinds which we continue to actively manage. At this stage the
consequences for the global economy of the tragic events in Ukraine are
uncertain. While 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, we are carefully monitoring the situation.
In the medium to longer term, the positive 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. 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.
Paul
Simmons
Group Chief Executive
Operating Review
Galvanizing Services
£m +/- OCC
% %
2021 2020
Revenue 198.3 185.9 +7 +11
Underlying operating profit ((1)) 39.5 35.8 +10 +18
Underlying operating margin % ((1)) 19.9% 19.3%
Reported operating profit 36.4 17.1
( )
((1)) Underlying measures are set out in note 3 to the Financial Statements
and exclude certain non-underlying items, which are detailed in note 4 to the
Financial Statements.
The Galvanizing Services division offers hot-dip galvanizing and powder
coating services with multi-plant facilities in the USA, France 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 good performance, particularly in the first half,
with a strong recovery in demand compared to H1 2020, which was impacted by
COVID-related disruption in the UK and the complete closure of our French
operations for six weeks from the end of March 2020. Demand returned to more
normalised levels in the second half of the year, despite the US still facing
challenges around customer project delays and labour shortages. As a result,
revenue increased by 11% on an organic constant currency basis to £198.3m,
with volumes 3% higher than 2020. Underlying operating profit increased
significantly to £39.5m (2020: £35.8m), representing 18% organic constant
currency growth compared to 2020. The division continued to deliver superior
margins, with underlying operating margin increasing to 19.9% (2020: 19.3%).
UK
The business experienced a strong recovery in demand, particularly in the
first half of 2021, due to the release of security, construction and housing
projects which had previously been deferred. UK galvanizing delivered 17%
organic constant currency revenue growth and record operating profits in the
year. This reflects our strategy of focusing on higher margin, lower volume
business and pricing actions taken to address input cost inflation. The
outlook for 2022 remains positive, despite inflationary and labour related
headwinds, with robust demand for galvanizing services to support sustainable
infrastructure.
USA
Predominantly located in the north east of the country, the US galvanizing
business delivered a solid performance with 3% organic constant currency
revenue growth and maintained strong margins, reflecting the benefits of
pricing actions, product mix and good demand for value added coating
services. During the year the business experienced lower production volumes
than 2020 due to customer project delays related to component shortages and
elevated steel costs. In addition, labour shortages also limited production
capacity in some plants. The outlook for 2022 is encouraging, with labour
availability improving and increased customer project activity.
In the medium to longer term, the outlook is positive, with investment levels
expected to grow ahead of GDP in a range of US galvanizing end markets,
supported by the Infrastructure Investment and Jobs Act. The Group continues
to seek both organic and inorganic growth opportunities in the attractive US
market.
France
French galvanizing services delivered a strong performance in 2021,
particularly in the first half, supported by buoyant levels of customer demand
compared to 2020, which was impacted by COVID-related closures in the first
half. As a result, revenue was 15% ahead of last year on an organic constant
currency basis. The outlook for 2022 is encouraging, with the team working
hard to manage energy cost inflation.
Utilities
£m +/- OCC
% %
2021 2020
Revenue 223.7 211.2 +6 +12
Underlying operating profit ((1)) 26.8 20.9 +28 +38
Underlying operating margin % ((1)) 12.0% 9.9%
Reported operating profit 26.3 20.1
((1)) Underlying measures are set out in note 3 to the Financial Statements
and exclude certain non-underlying items, which are detailed in note 4 to the
Financial Statements.
Our Utilities division 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.
The division delivered an impressive performance in 2021, with 12% revenue
growth and 38% profit growth on an organic constant currency basis against
robust 2020 comparators. Reported operating profit was £26.3m (2020:
£20.1m). The strong performance was underpinned by a record performance in
the US composite business and a good recovery in UK utilities and engineered
supports, which were disrupted by COVID last year. We are pleased with the
continued progress made on margins across the Utilities portfolio, with
underlying operating margin increasing to 12.0% (2020: 9.9%).
US
Revenue was 6% ahead of a strong 2020 comparator on an organic constant
currency basis. The composite business delivered a record performance, with
high demand for engineered composite solutions including fire resistant
utility poles for use in wildfire areas, waterfront protection and mass
transit infrastructure. During the year, the electricity distribution
substation business faced challenges due to rising steel prices and customers
delaying non-essential projects, however demand is starting to recover as
steel prices stabilise. Prospects for future growth in the US remain
encouraging, supported by market demand for innovative solutions to protect
against extreme weather and investment to upgrade ageing electricity
infrastructure.
UK
Our UK businesses experienced a strong recovery, with 20% revenue growth
compared to a COVID-impacted 2020. The building products business, supplying
steel lintels, builders' metal work and composite residential doors,
benefitted from buoyant market demand during the year. The industrial
flooring business delivered a good recovery, with a particular focus on data
and distribution centre markets. Both businesses successfully managed the
impact of high steel input costs with improved margins in the year and enter
2022 with a positive outlook.
Engineered Supports
Engineered Supports delivered a healthy recovery in 2021, with revenue 10%
ahead of 2020 on an organic constant currency basis. The US business
delivered a good performance, supported by a strong rebound in the commercial
construction market. The expansion of our seismic protection device
manufacturing capability completed in the second half and the prospects for
future growth are encouraging. Our engineered pipe support business in India
delivered a solid performance, with continued demand for products and
engineering services to support key liquified natural gas developments across
the globe.
Roads & Security
£m +/- OCC
% %
2021 2020
Revenue 283.0 263.4 +7 +8
Underlying operating profit ((1)) 19.7 13.2 +49 +43
Underlying operating margin % ((1)) 7.0% 5.0%
Reported operating (loss)/profit (5.7) 5.6
( )
((1)) Underlying measures are set out in note 3 to the Financial Statements
and exclude certain non-underlying items, which are detailed in note 4 to the
Financial Statements.
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.
The trading performance was ahead of last year with 8% organic constant
currency revenue growth and underlying operating profit increasing to £19.7m
(2020: £13.2m), a 43% increase on an organic constant currency basis.
Underlying operating margins improved to 7.0% (2020: 5.0%). The performance
reflects a solid recovery in the UK and good levels of demand in the US. In
the second half, we started to see a recovery in our UK security businesses as
COVID-related restrictions on public gatherings eased, which contributed to
the improved H2 2021 margin of 7.4%. The reported loss of £5.7m included a
goodwill and intangible asset impairment charge of £16.0m in respect of our
UK security businesses, £4.5m of closure costs relating to the variable
message sign business and a £0.4m loss on the disposal of the security access
cover business. Further details are set out in note 4 to the Financial
Statements.
UK Roads
Revenue was 8% ahead of 2020 on an organic constant currency basis. During
the year, we provided a range of certified products and services to support
the upgrade of the strategic road network under Road Investment Strategy 2
(RIS2) including rental of temporary safety barrier, permanent safety
barriers, bridge parapets and road safe support structures. In addition, the
division benefitted from buoyant levels of demand from local authorities for
products to enhance non-strategic and local road networks.
Investment in the roll-out of smart motorways represents £4.5bn of the
overall RIS2 committed spend of £27.4bn from 2020 to 2025. During the year
our UK business was awarded primary provider status for the provision of
temporary barrier within the Smart Motorway Alliance (SMA) and the first RIS2
smart motorway scheme commenced in June 2021. 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 (ERAs). While we await further scheme
details, the recommendations are broadly in line with our expectations, with
2022 demand for the rental fleet to be driven by the retrofit of ERAs, central
reservation upgrade schemes, including smart motorways, and upgrades to the
wider strategic network.
During the year we took steps to enhance the quality of the UK Roads
portfolio. In March 2021 we acquired Prolectric, a UK market leader in
off-grid solar energy solutions, for a net cash consideration of £11.8m.
Prolectric made a positive contribution to the Group in 2021 and we are
excited by the prospects for future growth. As previously announced, in
March 2021 we made the decision to close our small, loss-making variable
message sign business.
US Roads
US Roads delivered 6% revenue growth on an organic constant currency basis,
supported by strong demand for roadside safety products including tested
Zoneguard temporary safety barrier and SmartCushion crash attenuators.
During the year, margins were impacted by the steep increase in steel raw
materials and freight costs, however we expect margin improvement in 2022 as
the impact of pricing actions takes full effect and an increased focus on
rental and higher margin roadside safety products comes through.
In recent years we have seen a growing demand for our tested roadside safety
products, with the introduction of new safety standards and increased levels
of state and federal investment to upgrade US road infrastructure. During
the year we expanded our geographical footprint in support of our growth
strategy, with the creation of a new manufacturing and distribution facility
in Garland, Texas. In addition, in the second half of the year we invested
£12.2m in the expansion of our temporary barrier fleet, including £4.3m of
assets in the course of construction relating to further planned fleet
expansion in 2022.
In November 2021, we were encouraged by the approval of the Infrastructure
Investment and Jobs Act, which 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
Despite the efforts of the strengthened local team, the Swedish business
continued to underperform in 2021 due to challenging market conditions. As a
result, we undertook a further review of the business in the second half of
2021 and took the decision to dispose of its rental division, which we expect
to complete in the first half of 2022. We continue to assess the options for
the remaining parts of the business.
In contrast, the lighting column business in France delivered a robust
performance, underpinned by a solid order book, and our Australian road
business benefitted from the development of the traffic safety equipment
rental 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. 2021 revenue was 26% ahead of a COVID-impacted 2020
on an organic constant currency basis. During the year, demand for perimeter
security solutions in data centres remained strong and, as COVID restrictions
eased, we saw some recovery in the key markets for HVM solutions including
crowded place protection, stadiums, airports and shopping centres. In
addition, demand for UK security barrier rental returned in the second half
with the resumption of high-profile events including the COP26 Summit in
Glasgow. As a result, second half margins continued to show improvement and
full year underlying operating profits and margins were ahead of 2020.
In June 2021, we sold Technocover, our loss-making security access cover
business, for a consideration of £2.2m. The loss recognised on disposal was
£0.4m. In addition, given the challenging market outlook, the Group
reassessed the value of acquisition goodwill and intangibles relating to both
ATG Access and Parking Facilities, and concluded that a total impairment
charge of £16.0m was required across the two businesses. Further details
are set out in note 4 to the Financial Statements.
Financial review
Capital allocation priorities and ROIC
The Group follows a disciplined approach to capital allocation. Firstly, we
look to allocate capital to support organic growth, with the focus on higher
return niches and growth markets. We require our operating companies to
maintain an appropriate level of working capital that is reflective of growth
rates in their respective businesses. In addition, we invest in capital
projects, innovation and talent to support future organic growth, with around
£24.8m of FY2021 capex allocated to growth investments.
Secondly, we seek to allocate capital to make high quality acquisitions, with
a focus on clear alignment with our purpose, higher gross margins and long
term growth potential. We are following a structured approach to
acquisitions based on a clear set of financial criteria and we expect
acquisitions to achieve returns above our Group WACC within a three-year
timeframe. This disciplined approach has resulted in the creation of a
higher quality pipeline of opportunities during the year.
We also aim to provide sustainable and progressive dividend growth, with a
target dividend cover of 2.5 times underlying earnings. We understand the
importance of providing consistent and growing returns to our shareholders as
part of our overall capital allocation framework, and the Group's strong
levels of cash generation allow us to invest in organic and inorganic growth
while paying a dividend.
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 in
2021 was close to our target at 16.8% (2020: 12.6%), the improvement
reflecting the recovery in trading, our disciplined approach to capital
investment, and the steps we are taking to improve the overall quality of the
portfolio.
Cash generation and financing
The Group continued to be highly cash generative, with cash generated by
operations of £103.1m (2020: £118.3m). This included a working capital
outflow in the period of £6.8m, reflecting the increased trading activity in
the year. The Group continues to focus on maximising working capital
efficiency, with debtor days at 31 December 2021 at 55 days (31 December 2020:
54 days).
Capital expenditure in the year was £35.9m (2020: £20.4m), as expected,
representing a multiple of depreciation and amortisation (excluding
amortisation from acquisition intangibles and right of use asset depreciation)
of 1.6 times (2020: 0.9 times) as detailed in note 3 to the Financial
Statements. During the year, we allocated capital to support future growth
opportunities, with £12.2m spend on the expansion of our US temporary barrier
fleet, including £4.3m of assets in the course of construction relating to
2022 fleet expansion. In addition, we spent £2.8m on the expansion of our
manufacturing and distribution facilities across our US operating companies
and a further £3.6m on the expansion of our off grid solar lighting and power
rental fleet in the UK. The Group invested £1.2m on capitalised development
spend during the year, and while we expect this to increase in 2022, we are
still in the early stages of our innovation initiative.
Net financing costs for the period were £6.1m (2020: £7.3m). The cash
element of financing costs was lower than the prior year at £5.1m (2020:
£6.2m), reflecting lower levels of average net debt during the period due to
the strong cash generation. The net cost of pension fund financing under IAS
19 was £0.2m (2020: £0.3m) and the amortisation of costs relating to
refinancing activities was £0.8m (2020: £0.8m).
The Group generated £51.6m (2020: £82.5m) of free cash flow in the year,
providing us with funds to support our acquisition strategy and dividend
policy. Underlying cash conversion was 78% (2020: 139%), reflecting the
capital investment in growth opportunities during the year. Excluding
strategic investment in rental fleet, the underlying cash conversion was 97%.
The calculation of our underlying cash conversation ratio is set out in note
3 to the Financial Statements.
Net debt and facilities headroom
Net debt at the end of the year amounted to £144.7m (31 December 2020:
£146.2m). Cash outflows during the year included £21.2m for the 2020
interim and final dividends and £11.8m on the Prolectric acquisition. Net
debt at the year end includes lease liabilities under IFRS 16 of £40.6m
(2020: £32.4m), the increase being primarily due to the expansion of our US
roads facility in Texas and the renewal of the lease on our UK temporary
barrier distribution centre.
The Group's principal financing facilities are a headline £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 £13.4m of on-demand local overdraft arrangements.
Throughout the year the Group has operated well within these facilities and
at 31 December 2021, the Group had £234.4m of headroom (£221.2m committed,
£13.2m on demand). In 2022 we will take steps to assess and extend the
maturity profile of the revolving credit element of the Group's financing
facilities.
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 31 December 2021 was 1.0 times (31 December 2020: 1.3
times) and interest cover was 25.4 times (31 December 2020: 17.0 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.
Tax
The tax charge for the period was £16.7m (2020: £11.5m) and included a
£1.1m credit (2020: £0.9m) in respect of non-underlying items, principally
relating to the amortisation of acquisition intangibles. Cash tax paid in
the year was £15.2m (2020: £16.5m). The Group remains committed to the
timely and correct payment of taxes to authorities in all jurisdictions in
which we operate.
The underlying effective tax rate for the Group was 22.3% (2020: 19.8%), which
is lower than the weighted average mix of tax rates in the jurisdictions in
which the Group operates due to the successful conclusion of tax uncertainties
related to prior years. Assuming no changes to headline corporate tax rates
in the UK or US, we expect the Group's underlying effective rate to be around
23% in 2022. The reported effective tax rate was 32.8% (2020: 32.4%).
The Group's net deferred tax liability is £11.4m (2020: £7.6m), which
includes £9.3m (2020: £8.4m) of liabilities in respect of brand names,
customer relationships and other contractual arrangements arising on
acquisitions. These liabilities do not represent future cash tax payments
and will unwind as the brand names, customer relationships and contractual
arrangements are amortised.
Exchange rates
The Group is exposed to movements in exchange rates when translating the
results of its overseas operations into Sterling. Retranslating 2020
revenue and underlying operating profit using average exchange rates for 2021
would have reduced revenue by £22.0m and underlying operating profit by
£4.0m, mainly due to Sterling's appreciation against the US Dollar. A one
cent movement in the average US Dollar rate currently results in an adjustment
of approximately £1.9m to the Group's annual revenues and £0.4m to annual
underlying operating profit, while the equivalent impacts for a one cent
movement in the Euro are £0.7m and £0.1m respectively.
Non-underlying items
The total non-underlying items charged to operating profit in the Consolidated
Income Statement amounted to £29.0m (2020: £27.1m) and comprised the
following:
* Impairment charges of £16.0m in respect of goodwill and intangibles relating
to two of our security businesses, ATG Access and Parking Facilities
* Amortisation of acquired intangible assets of £6.1m
* Costs associated with the closure of the UK variable message signs business of
£4.5m
* A loss on disposal of Technocover Ltd, our small UK security access cover
business of £0.4m
* Expenses related to acquisitions and disposals of £2.0m.
The non-cash element of these charges was £23.2m. Further details are set
out in note 4 to 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 31 December 2021 was £12.3m, a
reduction of £7.3m from 31 December 2020 (£19.6m). The deficit of the UK
scheme, the largest employee benefit obligation in the Group, was lower than
the prior year end at £7.7m (31 December 2020: £14.0m) due to the Group's
deficit recovery payments and an increase of 60 basis points in the discount
rate during the period, in line with increases in bond yields, being partly
offset by slightly lower asset returns. The deficit of the French scheme was
£4.1m (2020: £4.9m) and the US scheme deficit was £0.5m (2020: £0.7m).
The Group continues to be actively engaged in dialogue with the UK schemes'
Trustees with regards to management, funding and investment strategies. The
next triennial valuation for the UK scheme will be as at April 2022.
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 the period to 30 June
2023. 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 30
June 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 30 June 2022, 31 December 2022 and 30 June 2023. 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 30 June 2023. The Directors do not consider the
resulting performance levels to be plausible given the Group's strong trading
performance in 2021 and the positive outlook across the infrastructure markets
in which it operates.
Paul
Simmons
Hannah Nichols
Group Chief Executive Group
Chief Financial Officer
Consolidated Income Statement
Notes
2021 2020
Non- underlying* Non- underlying*
Underlying £m Total Underlying £m Total
£m £m £m £m
Revenue 2 705.0 - 705.0 660.5 - 660.5
Cost of sales (442.7) - (442.7) (415.9) - (415.9)
Gross profit 262.3 - 262.3 244.6 - 244.6
Distribution costs (36.5) - (36.5) (34.1) - (34.1)
Administrative expenses (140.5) (29.0) (169.5) (142.2) (27.1) (169.3)
Other operating income 0.7 - 0.7 1.6 - 1.6
Operating profit 86.0 (29.0) 57.0 69.9 (27.1) 42.8
2,3
Financial income 5 0.6 - 0.6 0.6 - 0.6
Financial expense 5 (6.7) - (6.7) (7.9) - (7.9)
Profit before taxation 79.9 (29.0) 50.9 62.6 (27.1) 35.5
Taxation 6 (17.8) 1.1 (16.7) (12.4) 0.9 (11.5)
Profit for the year attributable to owners of the parent 62.1 (27.9) 34.2 50.2 (26.2) 24.0
Basic earnings per share 7 43.0p 30.2p
Diluted earnings per share 42.5p 30.0p
7
* The Group's definition of non-underlying items is included in note 1 and
further details on non-underlying items are included in note 4.
Consolidated Statement of Comprehensive Income
Notes 2021 2020
£m £m
Profit for the year 34.2 24.0
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations (2.3) (2.5)
Exchange differences on foreign currency borrowings designated as net 0.6 -
investment hedges
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit pension schemes 3.5 (2.3)
Taxation on items that will not be reclassified to profit or loss 6 - 0.8
Other comprehensive income/(expense) for the year 1.8 (4.0)
Total comprehensive income for the year attributable to owners of the parent 36.0 20.0
Consolidated Statement of Financial Position
2021 2020
Notes £m £m
Non-current assets
Intangible assets 177.4 188.5
Property, plant and equipment 193.3 183.6
Right-of-use assets 38.2 30.9
Corporation tax receivable 1.6 -
Deferred tax assets 1.4 1.4
411.9 404.4
Current assets
Assets held for sale 3.6 -
Inventories 108.1 96.3
Trade and other receivables 130.2 122.7
Current tax assets 0.7 1.3
Cash and cash equivalents 10 18.8 22.0
261.4 242.3
Total assets 673.3 646.7
2
Current liabilities
Liabilities held for sale (1.9) -
Trade and other liabilities (132.7) (116.7)
Current tax liabilities (4.3) (5.5)
Provisions (4.0) (3.3)
Lease liabilities (8.8) (8.6)
Loans and borrowings 10 (1.9) (8.6)
(153.6) (142.7)
Net current assets 107.8 99.6
Non-current liabilities
Other liabilities (1.5) (1.4)
Provisions (2.4) (2.5)
Deferred tax liabilities (12.8) (9.0)
Retirement benefit obligations (12.3) (19.6)
Lease liabilities (30.1) (23.8)
Loans and borrowings 10 (121.0) (127.2)
(180.1) (183.5)
Total liabilities (333.7) (326.2)
Net assets 339.6 320.5
Equity
Share capital 20.0 19.9
Share premium 40.9 38.4
Other reserves 4.9 4.9
Translation reserve 15.5 17.2
Retained earnings 258.3 240.1
Total equity 339.6 320.5
Consolidated Statement of Changes in Equity
Notes Share Share Other reserves(†) Translation reserve Retained earnings Total
capital premium £m £m £m equity
£m £m £m
At 1 January 2020 19.9 37.4 4.9 19.7 225.1 307.0
Comprehensive income
Profit for the year - - - - 24.0 24.0
Other comprehensive expense for the year - - - (2.5) (1.5) (4.0)
Transactions with owners recognised directly in equity
Dividends 8 - - - - (8.4) (8.4)
Credit to equity of share-based payments - - - - 0.8 0.8
Tax taken directly to the Consolidated Statement of Changes in Equity 6 - - - - 0.1 0.1
Shares issued - 1.0 - - - 1.0
At 31 December 2020 19.9 38.4 4.9 17.2 240.1 320.5
Comprehensive income
Profit for the year - - - - 34.2 34.2
Other comprehensive income for the year - - - (1.7) 3.5 1.8
Transactions with owners recognised directly in equity
Dividends 8 - - - - (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 6 - - - - 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 (2020: £0.2m) capital redemption
reserve.
At 31 December 2020 a total of 19,928 shares were held in an employee benefit
trust for the purpose of settling awards granted to employees under
equity-settled share based payment plans. The cost of these shares, amounting
to £0.3m, was included within retained earnings at that date. During 2021,
7,665 shares have been issued in settlement of awards to employees and a
further 98,821 shares have been purchased at a cost of £1.8m, leaving 111,084
shares held at 31 December 2021, at a cost of £1.8m included within retained
earnings.
Consolidated Statement of Cash Flows
2021 2020
Notes
£m £m £m £m
Profit before tax 50.9 35.5
Add back net financing costs 6.1 7.3
Operating profit 2 57.0 42.8
Adjusted for non-cash items:
Share-based payments 2.8 0.8
Loss on disposal of subsidiary 0.4 -
Gain on disposal of non-current assets (1.1) (1.9)
Depreciation of owned assets 20.9 21.9
Amortisation of intangible assets 7.5 7.5
Right-of-use asset depreciation 10.3 10.4
Gain on lease termination (0.1) (0.1)
Release of accrued contingent consideration (0.9) -
Impairment of non-current assets 16.0 19.5
55.8 58.1
Operating cash flow before movement in working capital 112.8 100.9
(Increase)/decrease in inventories (Increase)/decrease in receivables (13.6) 1.0
Increase/(decrease) in payables (7.9) 21.6
Decrease in provisions and employee benefits 14.7 (4.4)
(2.9) (0.8)
Net movement in working capital (9.7) 17.4
Cash generated by operations 103.1 118.3
Purchase of assets for rental to customers (16.7) (3.1)
Income taxes paid (15.2) (16.5)
Interest paid (4.7) (6.0)
Interest paid on lease liabilities (0.8) (0.8)
Net cash from operating activities 65.7 91.9
Interest received 0.6 0.6
Proceeds on disposal of non-current assets 3.7 6.5
Purchase of property, plant and equipment (17.8) (15.5)
Purchase of intangible assets (1.4) (1.8)
Acquisition of subsidiary 9 (11.8) (0.9)
Disposal of subsidiary 1.6 -
Net cash used in investing activities (25.1) (11.1)
Issue of new shares 2.6 1.0
Purchase of shares for employee benefit trust (1.8) -
Dividends paid 8 (21.2) (8.4)
Repayment of lease liabilities (10.3) (11.1)
New loans and borrowings 55.3 -
Repayment of loans and borrowings (61.0) (74.4)
Net cash used in financing activities (36.4) (92.9)
Net increase/(decrease) in cash and cash equivalents net of bank overdraft 4.2 (12.1)
Cash and cash equivalents net of bank overdraft at the beginning of the year 13.9 26.0
Effect of exchange rate fluctuations - -
Cash and cash equivalents net of bank overdraft at the end of the year 18.1 13.9
1. Group Accounting Policies
Hill & Smith Holdings PLC is a company incorporated in the UK.
Basis of preparation
The consolidated financial statements comprise the financial statements of the
Company, Hill & Smith Holdings PLC, and its subsidiaries as at 31 December
2021. Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. The acquisition date is the date on which
control is transferred to the acquirer. The financial statement of
subsidiaries are included in the
Group Financial Statements from the date that control commences until
the date that control ceases.
In preparing the consolidated financial statements, management has considered
the impact of climate change, taking into account the relevant disclosures in
the Strategic Report, including those made in accordance with the
recommendations of the Taskforce on Climate-related Financial Disclosures.
This included an assessment of assets with indefinite and long lives and how
they could be impacted by measures taken to address global warming. As
outlined in the Chief Executive's Review, physical climate change presents a
relatively low risk to the Group's future business operations. As such, no
issues were identified that would impact the carrying values of such assets or
have any other impact on the financial statements.
Measurement convention
The Group Financial Statements are prepared on the historical cost basis
except where the measurement of balances at fair value is required. The Group
Financial Statements are presented in Sterling and all values are stated in
million (£m) rounded to one decimal place, except where otherwise indicated.
Impact of COVID on the consolidated financial statements
As outlined in the Operating and Financial Review, the Group has seen a strong
recovery in 2021 across all operating divisions compared with 2020, which was
materially affected by temporary business closures and reduced activity levels
as a result of the COVID pandemic. As such, whilst the impact of COVID on the
consolidated financial statements is significantly lower than in prior year,
the Group does not consider it possible to reliably determine the level of any
trading impact arising specifically from COVID in 2021, as opposed to other
market factors, and has therefore not attempted to make any such disclosure in
these consolidated financial statements.
Going concern and liquidity risk
In determining the appropriate basis of preparation of its financial
statements, the Directors are required to assess whether the Group can
continue in operational existence for the foreseeable future. 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.
At 31 December 2021, the Group had £327.6m of committed borrowing facilities,
of which only £1.8m matures before December 2023 at the earliest, and a
further £13.4m of on-demand facilities. The amount drawn down under these
facilities at 31 December 2021 was £125.4m, which together with cash and cash
equivalents £18.8m gave total headroom of £234.4m (£221.2m committed,
£13.2m on demand). The Group has not made any changes to its principal
borrowing facilities between 31 December 2021 and the date of this
announcement, and there have been no significant changes to liquidity headroom
during that period. 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 3.0x and interest cover of a minimum of 4.0x, based on
measures as defined in the facilities agreements which are adjusted from the
equivalent IFRS amounts as explained in note 3. The ratio of net debt to
EBITDA at 31 December 2021 was 1.0 times and interest cover was 25.4 times.
The Group has carefully modelled its cash flow outlook for the period to 30
June 2023, taking account of the current uncertainties created by COVID and
its impact on 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 30 June 2022, 31 December 2022 and
30 June 2023.
The Group has carried out stress tests against the base case to determine the
performance levels that would result in a breach of covenants or a reduction
of headroom against its borrowing facilities to nil. For a breach of covenants
to occur during the relevant period, the Group would need to experience a
sustained revenue reduction of 24% compared with current expectations
throughout the period from May 2022 through June 2023. A reduction in headroom
against borrowing facilities to nil would occur if the Group experienced a
sustained revenue reduction of 50% compared with current expectations between
May 2022 and June 2023. The Directors do not consider either of these
scenarios to be plausible given the ability of the Group to continue its
operations throughout the COVID pandemic (noting that revenues fell by only
22% in the second quarter of 2020, the worst-affected period). The Group also
has several mitigating actions under its control including minimising capital
expenditure to critical requirements, reducing levels of discretionary spend,
rationalising its overhead base and curtailing future dividend payments which,
although not forecast to be required, could be implemented in order to be able
to meet the covenant tests and to continue to operate within borrowing
facility limits.
After making these assessments, the Directors have reasonable expectation that
the Company and its subsidiaries have adequate resources to continue in
operational existence for the foreseeable future and for the period to 30 June
2023. Accordingly, they continue to adopt the going concern basis in preparing
the Annual Report and Financial Statements.
New IFRS standards and interpretations adopted during 2021
The following amendments and interpretations apply for the first time in 2021,
and therefore were adopted by the Group:
• Covid-19-Related Rent Concessions beyond 30 June 2021 - Amendments
to IFRS 16
• Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9,
IAS 39, IFRS 7, IFRS 4 and IFRS 16
• Attributing Benefit to Periods of Service - IAS 19 Interpretation
The amendments noted above have not had a material impact on the financial
statements.
New IFRS standards and interpretations to be adopted in the future
The following standards and interpretations, which are not yet effective and
have not been early adopted by the Group, will, where relevant, be adopted in
future accounting periods:
To be adopted for year-ending 31 December 2022:
• 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
To be adopted for year-ending 31 December 2023:
• Amendments to IAS 1 - Classification of liabilities as current or
non-current
• Amendments to IAS 8 - Definition of Accounting Estimates
• Amendments to IAS 1 - Disclosure of Accounting Policies
• Amendments to IAS 12 - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
The above changes are not expected to have a material impact on the Group.
The principal exchange rates used were as follows:
2021 2020
Average Closing Average Closing
Sterling to Euro (£1 = EUR) 1.16 1.19 1.13 1.11
Sterling to US Dollar (£1 = USD) 1.38 1.35 1.28 1.36
Sterling to Swedish Krona (£1 = SEK) 11.80 12.21 11.80 11.15
Sterling to Indian Rupee (£1 = INR) 101.71 100.21 95.10 99.73
Sterling to Australian Dollar (£1 = AUD) 1.83 1.86 1.86 1.76
Non-underlying items
The Group's accounting policy for non-underlying items is as follows:
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 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 that do not meet the definition of discontinued
operations.
• 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, 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 and
prior year are set out in note 4.
2. Segmental information
Business segment analysis
The Group has three reportable segments which are Roads & Security,
Utilities and Galvanizing Services. 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 Utilities segment contains a group of businesses supplying
products characterised by a degree of engineering expertise, to public and
private customers involved in the construction of facilities serving the
utilities markets; 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
2021 2020
Reported operating Underlying operating profit* Reported operating Underlying operating profit*
profit £m profit £m
Revenue £m Revenue £m
£m £m
Roads & Security 283.0 (5.7) 19.7 263.4 5.6 13.2
Utilities 223.7 26.3 26.8 211.2 20.1 20.9
Galvanizing Services 198.3 36.4 39.5 185.9 17.1 35.8
Total Group 705.0 57.0 86.0 660.5 42.8 69.9
Net financing costs (6.1) (6.1) (7.3) (7.3)
Profit before taxation 50.9 79.9 35.5 62.6
Taxation (16.7) (17.8) (11.5) (12.4)
Profit after taxation 34.2 62.1 24.0 50.2
*
Underlying operating profit is stated before non-underlying items as defined in note
1 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 £6.5m (2020: £5.2m) of products and services
to Roads & Security and £1.6m (2020: £1.7m) of products and
services to Utilities. Utilities sold £3.0m (2020: £2.2m) of products
and services to Roads & Security. Roads &
Security sold £nil (2020: £0.2m) of products and
services to Utilities. These internal revenues, along with revenues
generated from within their own segments, 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 Utilities Galvanizing Total
Primary geographical markets 2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m
UK 165.2 140.7 72.0 59.6 69.6 59.2 306.8 259.5
Rest of Europe 52.8 53.9 6.0 6.0 56.5 50.9 115.3 110.8
North America 56.8 58.0 137.3 138.2 72.2 75.8 266.3 272.0
The Middle East 3.2 5.2 0.6 1.4 - - 3.8 6.6
Rest of Asia 0.6 0.8 7.1 5.4 - - 7.7 6.2
Rest of the world 4.4 4.8 0.7 0.6 - - 5.1 5.4
283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
Major product/service lines
Manufacture, supply and installation of products 260.7 240.4 223.7 211.2 - - 484.4 451.6
Galvanizing services - - - - 198.3 185.9 198.3 185.9
Rental income 22.3 23.0 - - - - 22.3 23.0
283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
Timing of revenue recognition
Products and services transferred at a point in time 223.2 201.6 120.2 107.9 198.3 185.9 541.7 495.4
Products and services transferred over time 59.8 61.8 103.5 103.3 - - 163.3 165.1
283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
Total assets by geography
2021 2020
£m £m
UK 290.8 288.2
Rest of Europe 90.7 96.0
North America 273.2 245.7
Asia 13.6 12.7
Rest of the world 5.0 4.1
Total Group 673.3 646.7
3. 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 taxation;
· Underlying operating profit;
· Underlying operating profit margin;
· Organic measure of 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 7.
All underlying measures exclude certain non-underlying items, which are
detailed in note 4. 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
2021 2020
£m £m
Underlying profit before tax 79.9 62.6
Non-underlying items included in operating profit (note 4) (29.0) (27.1)
Reported profit before tax 50.9 35.5
Reconciliation of underlying to reported operating profit
Roads & Security Utilities Galvanizing Total
2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m
Underlying operating profit 19.7 13.2 26.8 20.9 39.5 35.8 86.0 69.9
Non-underlying items:
Amortisation of acquisition intangibles (4.5) (4.3) (0.5) (0.7) (1.1) (1.1) (6.1) (6.1)
Business reorganisation costs (4.5) - - - - - (4.5) -
Impairment of assets (16.0) (2.8) - - - (17.5) (16.0) (20.3)
Expenses related to acquisitions and disposals - (0.3) - - (2.0) - (2.0) (0.3)
Pension past service expense - (0.2) - (0.1) - (0.1) - (0.4)
Loss on disposal of Technocover (0.4) - - - - - (0.4) -
Reported operating profit (5.7) 5.6 26.3 20.1 36.4 17.1 57.0 42.8
Calculation of underlying operating profit margin
Roads & Security Utilities Galvanizing Total
2021 2020 2021 2020 2021 2020 2021 2020
£m £m £m £m £m £m £m £m
Underlying operating profit 19.7 13.2 26.8 20.9 39.5 35.8 86.0 69.9
Revenue 283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
Underlying operating profit margin (%) 7.0% 5.0% 12.0% 9.9% 19.9% 19.3% 12.2% 10.6%
Organic measure of change in revenue and underlying operating profit
Organic measures exclude the impact of currency translation movements,
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.
Roads & Security Utilities Galvanizing Total
Revenue Underlying operating profit Revenue Underlying operating profit Revenue Underlying operating profit Revenue Underlying operating profit
£m £m £m £m £m £m £m £m
2020 263.4 13.2 211.2 20.9 185.9 35.8 660.5 69.9
Impact of exchange rate movements (4.6) (0.3) (10.6) (1.5) (6.8) (2.2) (22.0) (4.0)
2020 translated at 2021 exchange rates (A) 258.8 12.9 200.6 19.4 179.1 33.6 638.5 65.9
Acquisitions and disposals 2.7 1.2 - - - - 2.7 1.2
Organic growth (B) 21.5 5.6 23.1 7.4 19.2 5.9 63.8 18.9
2021 283.0 19.7 223.7 26.8 198.3 39.5 705.0 86.0
Organic growth % (B divided by A) 8.3% 43.4% 11.5% 38.1% 10.7% 17.6% 10.0% 28.7%
Calculation of underlying cash conversion ratio
2021 2020
£m £m
Underlying operating profit 86.0 69.9
Calculation of adjusted operating cash flow:
Cash generated by operations 103.1 118.3
Less: Purchase of assets for rental to customers (16.7) (3.1)
Less: Purchase of property, plant and equipment (17.8) (15.5)
Less: Purchase of intangible assets (1.4) (1.8)
Less: Repayments of lease liabilities (10.3) (11.1)
Add: Proceeds on disposal of non-current assets 3.7 6.5
Add back: Defined benefit pension scheme deficit payments 3.7 3.6
Add back: Cash flows relating to non-underlying items 2.7 0.6
Adjusted operating cash flow 67.0 97.5
Underlying cash conversion (%) 78% 139%
Calculation of capital expenditure to depreciation and amortisation ratio
2021 2020
£m £m
Calculation of capital expenditure:
Purchase of assets for rental to customers 16.7 3.1
Purchase of property, plant and equipment 17.8 15.5
Purchase of intangible assets 1.4 1.8
35.9 20.4
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 20.9 21.9
Amortisation of development costs 1.1 1.2
Amortisation of other intangible assets 0.3 0.2
22.3 23.3
Capital expenditure to depreciation and amortisation ratio 1.6x 0.9x
Calculation of covenant net debt to EBITDA ratio
2021 2020
£m £m
Reported net debt (note 10) 144.7 146.2
Lease liabilities (40.6) (32.4)
Amounts related to refinancing under IFRS 9 2.5 3.4
Covenant net debt (A) 106.6 117.2
Underlying operating profit 86.0 69.9
Depreciation of owned assets 20.9 21.9
Right-of-use asset depreciation 10.3 10.4
Amortisation of development costs 1.1 1.2
Amortisation of other intangible assets 0.3 0.2
Underlying EBITDA 118.6 103.6
Adjusted for:
Lease payments (11.1) (11.9)
Share-based payments expense 2.8 0.8
Annualised EBITDA of subsidiaries acquired/disposed 0.4 -
Covenant EBITDA (B) 110.7 92.5
Covenant net debt to EBITDA (A divided by B) 1.0x 1.3x
4. Non-underlying items
Included in operating profit
2021 2020
£m £m
Amortisation of acquisition intangibles (6.1) (6.1)
Business reorganisation costs (a) (4.5) -
Impairment of assets (b) (16.0) (20.3)
Expenses related to acquisitions and disposals (c) (2.0) (0.3)
Loss on disposal of the Group's access cover business, Technocover Limited (d) (0.4) -
Pension past service expense (e) - (0.4)
(29.0) (27.1)
Notes:
a) Business reorganisation costs of £4.5m represent the costs of
closing the UK variable message sign business, following the strategic
decision taken by the Group in March 2021. £1.3m of this charge represents
cash costs during the year, with a provision of £3.2m for costs expected to
be incurred in 2022, principally in respect of remaining contractual and
property-related obligations. Non-cash impairment charges of £2.8m relating
to the assets of the business were recognised in 2020 and are included within
'impairment of assets' in the table above.
b) In 2021, goodwill and intangible asset impairment charges of
£10.8m in respect of ATG Access Limited ('ATG') and £5.2m in respect of
Parking Facilities Limited ('Parking Facilities'), two of the Group's UK
Security businesses, have been recognised.
ATG operates in niche security markets, manufacturing and distributing hostile
vehicle mitigation and related products that protect both public and private
developments such as transport hubs, commercial buildings and infrastructure
sites from the threat of attack. The COVID pandemic has had two significant
impacts on ATG's markets: firstly, the restrictions on public gatherings
across the world and secondly, a constraint on customer budgets resulting in
them de-prioritising significant security projects. Following a challenging
trading period in 2020, results in 2021 remained well below previous
expectations leading the Board to reassess the business's future prospects.
This reassessment concluded that the pace of ATG's recovery is likely to be
slower than had previously been anticipated, mainly due to an expectation of
prolonged inactivity in several of its key sectors and also reflecting
increased competition in the market. Consequently, the impairment review
concluded that ATG's expected future cash flows were not sufficient to support
its carrying value, resulting in an impairment of the acquisition goodwill.
Parking Facilities manufactures and sells a range of perimeter access security
products, predominantly to specialist security installers in the UK. Similar
to ATG, the COVID pandemic resulted in a weak trading period in 2020 as
several customer contracts were cancelled or postponed. Whilst the business
saw a marginal improvement in revenue and profitability in 2021, ongoing
constraints on customer budgets continue to weigh on demand. The Board's
reassessment of the future outlook for Parking Facilities, which also took
into account the impact on gross margins of recent changes in the competitive
landscape, concluded that there was a limited prospect of the business
returning to the levels of profitability anticipated at the time of its
acquisition and therefore that the expected future cash flows were not
sufficient to support the carrying value. The resulting impairment charge of
£5.2m comprises £1.6m in respect of goodwill, £3.3m in respect of acquired
customer lists and £0.3m in respect of acquired brand names.
In 2020, an impairment charge of £17.5m was made in respect of goodwill
relating to France Galva SA following a reassessment of the outlook for the
business. A further £2.8m impairment charge was made in relation to the
closure of the variable message signs business as explained in a) above.
c) Expenses related to acquisitions and disposals of £2.0m (2020:
£0.3m) comprise professional fees and other similar costs in respect of
acquisitions and disposals that the Group either concluded or considered
during the year, including £0.4m relating to the acquisition of Prolectric
Services Limited ('Prolectric') in March 2021 and £0.4m relating to the
disposal of Technocover Limited in June 2021. The net cost also includes a
credit of £0.9m in respect of contingent consideration relating to the
Prolectric acquisition. The agreement for the acquisition included contingent
consideration, dependent on Prolectric's adjusted operating profit for the
12-month period to 31 March 2022. As at the acquisition date, the fair value
of the contingent consideration was estimated to be £0.9m, calculated on a
probability-weighted basis. At 31 December 2021, despite a positive
contribution from Prolectric since acquisition the Group has reassessed the
fair value of the contingent consideration to be £nil.
d) On 15 June 2021 the Group completed the disposal of Technocover
Limited, our small, loss-making security access covers business, at a loss of
£0.4m. Details of the disposal are set out below.
Disposal of Technocover £m
Property, plant and equipment 1.7
Right-of-use assets 0.1
Inventories 0.5
Trade debtors 1.9
Cash 0.6
Lease liabilities (0.1)
Trade creditors and accruals (2.1)
Net assets disposed 2.6
Consideration
Consideration received 2.2
Loss on disposal (0.4)
Cash flow effect
Consideration received 2.2
Cash disposed of (0.6)
Net cash consideration shown in the Consolidated Statement of Cash Flows 1.6
e) In October 2018, the High Court handed down a judgement
requiring businesses with defined benefit pension schemes to equalise
historical Guaranteed Minimum Pensions ('GMPs') between male and female
members. The Group's results in 2018 included a non-underlying charge of
£1.0m in respect of the likely cost to be incurred in equalising GMPs arising
in prior years. In 2020 there was a further hearing in relation to members who
have transferred out of schemes, which concluded that schemes do need to
revisit historical transfers for GMP equalisation. The Group took professional
advice as to the impact of this judgement and recognised a further cost of
£0.4m in 2020.
Included in taxation
The tax effect of the above items is a credit to the income statement of
£1.1m (2020: £0.9m).
5. Net financing costs
2021 2020
£m £m
Interest on bank deposits 0.6 0.6
Financial income 0.6 0.6
Interest on loans and borrowings (4.9) (6.0)
Interest on lease liabilities (0.8) (0.8)
Financial expenses related to refinancing (0.8) (0.8)
Interest cost on net pension scheme deficit (0.2) (0.3)
Financial expense (6.7) (7.9)
Net financing costs (6.1) (7.3)
6. Taxation
2021 2020
£m £m
Current tax
UK corporation tax 4.1 2.0
Overseas tax at prevailing local rates 11.1 10.1
Adjustments in respect of prior years (1.8) (1.8)
13.4 10.3
Deferred tax
UK deferred tax 0.1 (0.5)
Overseas tax at prevailing local rates 0.2 1.1
Adjustments in respect of prior years 0.6 (0.2)
Effects of changes in tax rates and laws 2.4 0.8
3.3 1.2
Tax on profit in the Consolidated Income Statement 16.7 11.5
Deferred tax
Relating to defined benefit pension schemes - (0.8)
Tax on items taken directly to other comprehensive income - (0.8)
Current tax
Relating to share-based payments (0.2) (0.1)
Deferred tax
Relating to share-based payments (0.8) -
Tax taken directly to the Consolidated Statement of Changes in Equity (1.0) (0.1)
The tax charge in the Consolidated Income Statement for the period is higher
(2020: higher) than the standard rate of corporation tax in the UK. The
differences are explained below:
2021 2020
£m £m
Profit before taxation 50.9 35.5
Profit before taxation multiplied by the effective rate of corporation tax in 9.7 6.7
the UK of 19.0% (2020: 19.0%)
Expenses not deductible/income not chargeable for tax purposes 0.9 0.6
Non-deductible goodwill impairment 2.4 4.9
Benefits from international financing arrangements - current and prior years (0.5) (1.2)
Local tax incentives (0.6) (0.1)
Overseas profits taxed at higher rates 3.3 1.8
Recognition of losses (0.1) (0.6)
Overseas losses not relieved 0.5 0.6
Impacts of rate and law changes 2.3 0.8
Adjustments in respect of prior years (1.2) (2.0)
Tax charge 16.7 11.5
In October 2017, the European Commission opened a state aid investigation into
the Group Financing Exemption in the UK Controlled Foreign Company ('CFC')
legislation. On 2 April 2019, the Commission announced that it believed that
in certain circumstances the UK's CFC regime constituted state aid. In common
with other UK-based international companies, the Group may be affected by the
outcome of this case. In January 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. The amount was paid
in full in February 2021. Based on the current status of the case in both the
UK and EU jurisdictions, we have concluded that it is appropriate to recognise
this amount as a tax receivable at 31 December 2021.
7. Earnings per share
The weighted average number of ordinary shares in issue during the year was
79.6m (2020: 79.5m), diluted for the effects of the outstanding dilutive share
options 80.6m (2020: 79.9m). Diluted earnings per share takes account of the
dilutive effect of all outstanding share options, calculated using the
treasury share method. Underlying earnings per share have been shown because
the Directors consider that this provides valuable additional information
about the underlying performance of the Group.
2021 2020
Pence Pence
per share £m per share £m
Basic earnings 43.0 34.2 30.2 24.0
Non-underlying items* 34.9 27.9 33.0 26.2
Underlying earnings 77.9 62.1 63.2 50.2
42.5 34.2 30.0 24.0
Diluted earnings
Non-underlying items* 34.6 27.9 32.9 26.2
Underlying diluted earnings 77.1 62.1 62.9 50.2
* Non-underlying items as detailed
in note 4.
8. Dividends
Dividends paid during the year
2021 2020
Pence Pence
per share £m per share £m
Interim dividend paid in relation to year-ended 31 December 2019* - - 10.6 8.4
Interim dividend paid in relation to year-ended 31 December 2020 9.2 7.3 - -
Final dividend paid in relation to year-ended 31 December 2020 17.5 13.9 - -
Total 26.7 21.2 10.6 8.4
* A final dividend for 2019 of 23.0p per share was proposed but was withdrawn
and not paid.
Dividends declared in respect of the year
2021 2020
Pence Pence
per share £m per share £m
Interim dividend declared in relation to year-ended 31 December 2020 - - 9.2 7.3
Final dividend declared in relation to year-ended 31 December 2020 - - 17.5 13.9
Interim dividend declared in relation to year-ended 31 December 2021 12.0 9.6 - -
Final dividend proposed in relation to year-ended 31 December 2021 19.0 15.1 - -
Total 31.0 24.7 26.7 21.2
9. Acquisition of Prolectric Services Limited
On 1 March 2021 the Group acquired 100% of the share capital of Prolectric
Services Limited ("Prolectric") and its dormant subsidiaries for an initial
consideration of £12.0m. Further consideration of up to £5.7m is payable
depending on Prolectric's achievement of financial performance targets in the
12-month period to 31 March 2022. Prolectric, located in Clevedon, North
Somerset, is a UK market leader in off-grid solar energy solutions, aligning
closely with the Group's purpose of creating sustainable infrastructure and
providing new technology that the Group can leverage in its existing markets.
Details of the acquisition are set out below:
Pre-acquisition Policy alignment Total
carrying amount and fair value £m
£m adjustments
£m
Intangible Assets
Brands - 0.7 0.7
Customer lists - 3.0 3.0
Contracts, licences and other assets 0.1 1.5 1.6
Property, plant and equipment 2.6 (1.5) 1.1
Right-of-use assets - 2.4 2.4
Inventories 0.4 - 0.4
Current assets 1.9 - 1.9
Cash 0.2 - 0.2
Total assets 5.2 6.1 11.3
Lease Liabilities - (1.8) (1.8)
Current liabilities (1.0) - (1.0)
Current interest bearing liabilities (1.2) 1.2 -
Deferred tax (0.1) (1.0) (1.1)
Total liabilities (2.3) (1.6) (3.9)
Net assets 2.9 4.5 7.4
Consideration
Consideration in the year 12.0
Fair value of contingent consideration due within one year 0.9
Goodwill 5.5
Cash flow effect
Consideration in the year 12.0
Cash acquired within the business (0.2)
Net cash consideration shown in the Consolidated Statement of Cash Flows 11.8
Brands, customer lists, contracts, licences and other assets have been
recognised as specific intangible assets as a result of the acquisition. The
residual goodwill arising, which has been allocated to the Roads &
Security segment, primarily represents the highly skilled workforce, future
technological advantages and potential for geographical expansion afforded to
the Group. Policy alignment and fair value adjustments have been made to align
the accounting policies of the acquired business with the Group's accounting
policies and to reflect the fair value of assets and liabilities acquired. In
respect of leases, the Group measured the acquired lease liabilities using the
present value of the remaining lease payments at the date of acquisition. The
right-of-use assets were measured at an amount equal to the lease liabilities
and adjusted to reflect the terms of the leases relative to market terms. The
fair value of the current assets acquired includes £1.3m of trade
receivables, which have a gross value of £1.3m.
As part of the acquisition agreement, contingent consideration has been
agreed. The amount of contingent consideration is dependent on Prolectric's
adjusted operating profit for the 12-month period to 31 March 2022. Below the
'trigger' (as defined in the Share Purchase Agreement), no additional
consideration is due. If the 'trigger' is achieved, additional consideration
of £2.2m becomes payable. Above this level, there are several targets between
which the additional consideration increases linearly. Should Prolectric
achieve the 'cap' (as defined in the Share Purchase Agreement), a maximum
additional consideration of £5.7m will become payable. As at the acquisition
date, the fair value of the contingent consideration was estimated to be
£0.9m, calculated on a probability-weighted basis. As explained in note 4,
despite a positive contribution from Prolectric since acquisition, the Group
has reassessed the fair value of the contingent consideration at 31 December
2021 and determined it to be £nil, resulting in a non-underlying credit to
the Consolidated Income Statement of £0.9m.
Post-acquisition the acquired business has contributed £7.0m revenue and
£1.4m operating profit, which are included in the Group's Consolidated Income
Statement. If the acquisition had been made on 1 January 2021, the Group's
results for the year would have shown revenue of £706.2m, underlying
operating profit of £86.3m and reported operating profit of £57.3m.
10. Cash and borrowings
2021 2020
£m £m
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and cash equivalents 18.8 22.0
Bank overdraft (0.7) (8.1)
Cash and cash equivalents net of bank overdraft 18.1 13.9
Interest bearing loans and other borrowings
Amounts due within one year (1.2) (0.5)
Amounts due after more than one year (121.0) (127.2)
Lease liabilities classified as liabilities held for sale (1.7) -
Lease liabilities due within one year (8.8) (8.6)
Lease liabilities due after more than one year (30.1) (23.8)
Net debt (144.7) (146.2)
Change in net debt
Operating profit 57.0 42.8
Non-cash items 55.8 58.1
Operating cash flow before movement in working capital 112.8 100.9
Net movement in working capital (6.8) 18.2
Changes in provisions and employee benefits (2.9) (0.8)
Operating cash flow 103.1 118.3
Tax paid (15.2) (16.5)
Net financing costs paid (4.1) (5.4)
Capital expenditure (35.9) (20.4)
Proceeds on disposal of non-current assets 3.7 6.5
Free cash flow 51.6 82.5
Dividends paid (21.2) (8.4)
Acquisition of subsidiary (13.6) (0.9)
Disposal of subsidiary 1.6 -
Amortisation of costs associated with refinancing activities (0.8) (0.8)
Purchase of shares for employee benefit trust (1.8) -
Issue of new shares 2.6 1.0
New leases and lease remeasurements (17.1) (3.2)
Interest on lease liabilities (0.8) (0.8)
Net debt decrease 0.5 69.4
Effect of exchange rate fluctuations 1.0 (0.3)
Net debt at the beginning of the year (146.2) (215.3)
Net debt at the end of the year (144.7) (146.2)
Notes
1. The financial information previously set out does not constitute the
Company's statutory accounts for the years ended 31 December 2021 or 2020 but
is derived from those accounts. Statutory accounts for 2020 have been
delivered to the registrar of companies, and those for 2021 will be delivered
in due course. The auditors have reported on those accounts; their report was:
i. unqualified;
ii. did not include references to any matters to which the auditors
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.
2. The Annual Report will be posted to shareholders on or around 19 April
2021 and will be displayed on the Company's website at www.hsholdings.com
(http://www.hsholdings.com/) . Copies of the Annual Report will also be
available from the registered office at Westhaven House, Arleston Way,
Solihull, B90 4LH.
3. Events Calendar:
i. The Annual General Meeting will be held at The Village Hotel, The
Green Business Park, Shirley, Solihull, B90 4GW at 11:00am on Tuesday 24 May
2022.
ii. The proposed final dividend for 2021 will be paid on 8 July 2022
to shareholders on the register on 6 June 2022 (ex-dividend date 1 June 2022).
iii. The last date for receipt of Dividend Reinvestment Plan elections
is 17 June 2022.
iv. Interim results announcement for the period to 30 June 2022 due 3
August 2022.
v. Payment of the 2022 interim dividend due 6 January 2023.
4. This preliminary announcement of results for the year ended 31 December
2021 was approved by the Directors on 9 March 2022.
Cautionary Statement
This announcement contains forward looking statements which are made in good
faith based on the information available at the time of its approval. It is
believed that the expectations reflected in these statements are reasonable
but they may be affected by a number of risks and uncertainties that are
inherent in any forward looking statement which could cause actual results to
differ materially from those currently anticipated. Nothing in this document
should be regarded as a profits forecast.
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