REG - Hill & Smith PLC - Preliminary Results
08/03/2023 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230308:nRSH2223Sa&default-theme=true
RNS Number : 2223S Hill & Smith PLC 08 March 2023
Hill & Smith PLC
Full Year Results for the year ended 31 December 2022
Record profitability, from a higher growth portfolio
Hill & Smith 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
2022.
Financial Results
Underlying(*) Change Statutory Change
31 December 31 December 2021((1)) Reported % Constant Currency % OCC (^) % 31 December 31 December 2021((1)) Reported %
2022 2022
Continuing Operations ((1))
Revenue £732.1m £625.2m +17% +12% +14% £732.1m £625.2m +17%
Operating profit £97.1m £77.3m +26% +17% +14% £78.5m £48.9m +61%
Operating margin 13.3% 12.4% +90bps 10.7% 7.8% +290bps
Profit before tax £87.9m £71.2m +23% £69.3m £42.8m +62%
Earnings per share 85.4p 70.0p +22% 66.7p 35.8p +86%
Total Group ((1))
Earnings per share 91.9p 77.9p +18% 71.0p 43.0p +65%
Dividend per share 35.0p 31.0p +13% 35.0p 31.0p +13%
((1) ) Continuing operations exclude France Galva, which has been
accounted for as a discontinued operation as explained in note 7 to the
financial statements. The prior year comparatives have been restated
accordingly. Total Group includes both continuing and discontinued operations.
Key Highlights:
· Record trading performance
o 14% organic constant currency revenue and profit growth
o Growth significantly driven by US businesses which represented 64% of Group
operating profit
o Operating margin increased by 90bps to 13.3%, reflecting strong operational
performance, pricing actions and portfolio evolution
o Strong performance highlights the resilience of our chosen long term end
markets and focus on higher growth businesses
· Significant progress on portfolio management
o Announcement of two value enhancing acquisitions in October 2022:
o National Signal, a high growth US off grid solar lighting business, for
£24.2m
o Widnes Galvanising, expanding our galvanizing footprint in the UK, for
£3.9m
o Acquisition of Enduro Composites in February 2023 for £28.7m further
accelerating our US composites growth strategy
o Acquisition of Korns Galvanizing in March 2023 for £9.4m, supporting growth
in attractive US galvanizing market
o Disposal of France Galva in October 2022 for £62.0m reduces our exposure to
lower growth, lower margin French galvanizing market
· Refreshed financial framework reflecting Group's growth potential
· Improved cash generation in second half, with year-end covenant
leverage at 0.7 times
· Final dividend of 22p proposed, a 16% increase on 2021, in line with
the Group's sustainable and progressive dividend policy
· Well-positioned in structurally growing end markets and expect to make
further progress in 2023, despite macro-economic uncertainties
Alan Giddins, Executive Chair, said:
"Hill & Smith delivered a year of significant progress, particularly in
our US-focused businesses. We also took material steps forward in improving
the quality of the portfolio during the year, resulting in underlying
profitability being ahead of market expectations.
"Looking forward, the Group is exposed to a number of end markets which
benefit from long term structural growth drivers. We expect to make further
strategic progress in 2023 and are well positioned for the longer term."
For further information, please contact:
Hill & Smith PLC
Alan Giddins, Executive
Chair
Tel: +44 (0)121 704 7434
Hannah Nichols, Chief Financial Officer
MHP
Reg Hoare/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 refer 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 PLC creates sustainable infrastructure and safe transport
through innovation. The Group employs c.4,000 people worldwide with the
majority employed by its autonomous, agile, customer focussed operating
businesses based in the UK, USA, Australia, India and Sweden. The Group office
is in the UK and Hill & Smith PLC is quoted on the London Stock Exchange
(LSE: HILS.L).
The Group's operating businesses are organised into three main business
divisions:
Galvanizing Services: increasing the sustainability and maintenance free life
of steel products including structural steel work, lighting, bridges and other
products for 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 power 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,
intelligent traffic solutions, street lighting columns and bridge parapets. In
addition, the division includes two businesses which are market leaders in the
provision of off-grid solar lighting and power solutions. The security
portfolio includes hostile vehicle mitigation solutions, high security fencing
and automated gate solutions.
Review of 2022
2022 was a successful year, with the Group achieving record revenue and
operating profit. The strong performance demonstrates the resilience of our
attractive, long term end markets and the benefits of our portfolio management
actions which have placed a focus on higher growth, higher margin
businesses. In particular, our US businesses represented 64% of Group
operating profit, and this is expected to increase further following our
recent acquisitions of National Signal, Enduro Composites and Korns
Galvanizing. The results are also testament to our agile operating model and
our talented local teams, who have successfully navigated the challenges
presented by the external environment.
Organic growth remains a key focus, and we are pleased to report that the
Group delivered 14% revenue and operating profit growth from continuing
operations, on an OCC basis. In addition, we delivered strong operating
margin progression with FY22 margin increasing by 90 basis points to 13.3%,
which reflects an improved portfolio mix, operational gearing and our pricing
power offsetting input cost inflation.
2022 saw the Galvanizing Services division deliver a standout trading
performance, with strong volume growth in the US and both geographies
benefiting from pricing actions and a strategic focus on higher margin
customers. Our Engineered Solutions division (formerly known as Utilities)
also delivered strong growth, underpinned by buoyant demand across the
portfolio, particularly in our US-based businesses.
In the Roads & Security division, reported revenue and profit were similar
to 2021 levels. As previously highlighted, the US roads business experienced
certain operational challenges which we have taken action to address, and we
expect an improved performance in 2023. In the UK, utilisation of our
temporary safety barrier fleet was lower than 2021 due to further delays in
strategic road network projects, however this was partly offset by a robust
performance in the wider UK roads and security portfolio including good growth
in our off grid solar lighting and power business.
The Group delivered much improved cash conversion in the second half of 93%,
with year end net debt reducing to 0.7 times EBITDA on a covenant basis. Our
strong balance sheet underpins the resilience of the Group and provides us
with flexibility to continue to invest in growth. In November, we
successfully completed the refinancing of our principal bank debt facility on
competitive terms, providing us with certainty of funding to support the
Group's growth ambitions.
Strategic 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.
Organic growth activities are focused on high value, fast growing, niche
opportunities. Our decentralised autonomous operating model drives high
levels of accountability, agility and customer intimacy, and allows us to
focus on these opportunities in a way that a more centralised, volume-driven
organisation could not.
Acquisitions and Disposals
Acquisitions form a key part of the Group's growth strategy. During the year
we have made progress in building our M&A pipeline, with a continued focus
on high quality businesses with attractive organic growth potential. In
2023, we will develop the pipeline further; the Corporate Development team and
Group Presidents will work closely with our operating company management teams
to unlock attractive acquisition opportunities. All potential acquisitions
are tightly evaluated to ensure they fit with our purpose and core strategic
goals. Once acquired, we implement a rigorous and detailed integration plan.
In line with our inorganic growth strategy, we acquired two value enhancing
businesses during 2022. In October we were delighted to acquire National
Signal, a high growth designer and manufacturer of off-grid solar lighting
solutions in the US, for £24.2m. The business benefits from the ongoing
transition from fossil fuels to a zero-carbon economy and is complementary to
our 2021 acquisition of Prolectric, a UK market leader in off-grid solar
energy solutions, and will further accelerate our strategy in this attractive
growth market. In the same month, we announced our acquisition of Widnes
Galvanising for £3.9m, which further expands the geographic footprint of our
UK galvanizing business into the north west of the UK.
After the year end, in February 2023, we announced the acquisition of Enduro
Composites, a designer, manufacturer and supplier of engineered composite
solutions based in Houston, Texas for £28.7m. Enduro is highly
complementary to our existing US composites business and will further
accelerate our strategy in the exciting and growing composites market. In
March 2023, we announced the acquisition of Korns Galvanizing based in
Johnstown, Pennsylvania for £9.4m, strengthening our US galvanizing market
presence.
During 2022 we completed a number of important and targeted divestments. In
October, we completed the disposal of France Galva, our French galvanizing and
steel lighting column operations. While France Galva was a profitable part
of the Group, the forecast growth rates did not meet the Group's long-term
growth ambitions and its operating margins were below the Group average.
Given our galvanizing operations serve local geographical markets, the
disposal has 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. In addition, our US Roads business exited its low margin plastic
cones product line and we completed the disposal of two of the three divisions
in our loss-making Swedish road business.
Medium Term Financial Framework
Our disciplined financial framework is one of the key foundations of the
Group's long-term success. Given the significant actions taken during 2022
to enhance the quality of the portfolio, we have reviewed and recalibrated our
medium-term financial framework. Our refreshed annual performance targets
through the cycle are:
· organic revenue growth: 5% -7%
· total revenue growth including acquisitions: 10%+
· operating profit margin: 15%
· return on invested capital: 18%+
· cash conversion: 80%+
· covenant leverage: 1 to 2 times
This organic growth performance through the cycle, alongside value enhancing
acquisitions, will deliver superior EPS growth. Our clear focus on cash
generation and returns enables the cash generated to be re-invested in high
growth, high return opportunities. This is all delivered within a
disciplined capital allocation framework while maintaining a strong balance
sheet.
ESG
The growth of our business is naturally aligned to our ESG (Environmental
Social and Governance) agenda: our products and services make infrastructure
more sustainable and increase transport safety.
In 2021 we outlined our ESG strategy which identified our seven priority
areas, related action plans and key metrics. This included our commitment to
achieve net zero for our Scope 1 and 2 emissions by 2040 and commitment to the
Science Based Targets initiative (SBTi) to limit global warming to 1.5 degrees
Celsius.
In February 2022, we recruited a Head of Sustainability who has been leading
an extensive project to baseline our Scope 3 carbon emissions, and we are
pleased to report that we are on track to submit our SBTi targets ahead of the
required August 2023 deadline. Alongside this, our teams are continuing to
drive local energy saving initiatives and explore green technology options to
underpin our carbon reduction plan.
Keeping our employees safe while at work remains our number one priority and
in 2022 our operating companies developed local safety improvement plans,
alongside Group led initiatives, including the implementation of nine core
lifesaving rules and hazard identification training. While we still have
more work to do, we are pleased that the actions taken during the year
resulted in a 35% reduction in Lost Time Incidents, with LTIR reducing to 1.1,
ahead of our target of 1.5.
Talent development and engagement are critical to the success of our
autonomous operating model and a key focus area for our ESG strategy. With
this in mind, we expanded our talent management programme and introduced a new
approach to development for our Managing Directors, with growth mindset, ESG
and innovation identified as priority focus areas. We also ran our second
innovation forum and have further workshops planned for 2023 to foster
innovation and share best practice. Our annual engagement survey showed a
good improvement in employee engagement levels to 61% (2021: 55%). During the
year we appointed a Head of Talent to work with our operating company teams to
further improve engagement in 2023.
As an organisation we want to employ the best people for the job, and we know
that we can only do this by considering talented people from the whole
community. During the year, we were delighted to appoint our first two
female Managing Directors and to see an increase in female senior leaders to
20%. Our established apprenticeship scheme is also a key initiative for
attracting more diversity into our business, and in 2022 a third of new
apprentices were female.
Board updates
In July 2022 Paul Simmons stepped down from his role as Chief Executive
Officer. Alan Giddins, the Group's Chair, has taken over as interim
Executive Chair until the process to find a permanent CEO has been
completed.
During the year, we appointed Farrokh Batliwala as a US-based Non-executive
Director. Farrokh's 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 strong set of results for 2022. Revenue was
£732.1m (2021: £625.2m), an increase of 17% on a reported basis. Constant
currency revenue growth was 12% and OCC revenue growth was 14%. Underlying
operating profit was £97.1m (2021: £77.3m), an increase of 26% on a reported
basis. Constant currency operating profit growth was 17% and OCC growth was
14%. Operating margins improved to 13.3% (2021: 12.4%). Underlying profit
before taxation was £87.9m (2021: £71.2m). Reported operating profit was
£78.5m (2021: £48.9m) and reported profit before tax was £69.3m (2021:
£42.8m). Underlying earnings per share increased to 85.4p (2021: 70.0p) and
reported earnings per share was 66.7p (2021: 35.8p).
The principal reconciling items between underlying and reported operating
profit are non-cash charges including the amortisation of acquisition
intangibles of £6.0m and the impairment of acquired intangibles associated
with one of our security businesses of £4.4m. Note 4 of the financial
statements provides further details on the Group's non-underlying items.
Dividend
Based on the strong trading performance, the Board is recommending a final
dividend of 22.0p per share, making a total dividend for the year of 35.0p per
share (2021: 31.0p). The final dividend, if approved, will be paid on 7 July
2023 to shareholders on the register on 2 June 2023. Looking forward, we aim
to provide sustainable and progressive dividend growth, targeting a prudent
dividend cover of around 2.5 times underlying earnings.
Outlook
The Group is well-positioned in a range of infrastructure markets with
attractive, long term structural growth drivers. The geographic mix of the
portfolio has also evolved with a stronger weighting towards US end markets.
These factors, alongside the benefits of our agile, autonomous operating
model, provide the Board with confidence that Hill & Smith will continue
to make good progress in 2023, despite the macro-economic headwinds.
In the medium to longer term, the outlook is supported by strong market growth
drivers for both sustainable infrastructure and safe transport. In
particular, our US businesses are well placed to benefit from the increased
levels of infrastructure spend approved under the Infrastructure Investment
and Jobs Act (IIJA).
Operational Review
Galvanizing Services
£m Reported Constant currency % OCC
% %
Continuing Operations ((2)) 2022 2021
Revenue 180.7 141.8 +27 +20 +20
Underlying operating profit ((1)) 44.0 33.4 +32 +23 +23
Underlying operating margin % ((1)) 24.3% 23.6%
Statutory operating profit 42.7 30.9
((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.
((2) ) Continuing operations exclude France Galva, which has been
reported as a discontinued operation as explained in note 7 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, and energy transmission and distribution. The division
represents 45% of 2022 underlying operating profit.
The division delivered an impressive performance in 2022, with revenue 20%
higher and underlying operating profit 23% higher than last year on an OCC
basis. The division maintained superior margins, with underlying operating
margin increasing to 24.3% (2021: 23.6%). The results reflect strong volume
growth in the US, successful pricing actions taken to offset input cost
inflation and a deliberate focus on higher margin customers.
US
Predominantly located in the northeast and midwest of the country, the US
galvanizing business delivered a strong performance, with 23% OCC revenue
growth and record operating profit. The strong growth is attributable to an
11% increase in production volumes, improved pricing to offset cost input
inflation, favourable product mix and an increased level of value-add coating
services. 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 March 2023, we were pleased to acquire Korns Galvanizing for a
consideration of £9.4m. Located in Johnstown, Pennsylvania, Korns
specialises in spin galvanizing and has a customer base spread across a broad
range of infrastructure related end markets. Korns will be managed by our
existing US galvanizing team and will expand our production capacity in the
key northeastern market, and broaden the range of galvanizing services we can
offer to our existing customer base.
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 and a more general move to the onshoring of
certain activities. We have started to quote on some IIJA related projects
and expect to see incremental growth in the bridge and highway market in the
second half of 2023.
UK
UK galvanizing delivered 17% organic revenue growth and record operating
profit in 2022. This reflects a particularly strong first half with swift
pricing actions taken to address input cost inflation and a focus on higher
margin, service orientated customers. The second half was more challenging
as certain customers, particularly in the agricultural sector, have begun to
feel the effects of rising energy costs. Total volumes of steel galvanized
were 9% lower than 2021.
In October 2022, we were pleased to announce the acquisition of Widnes
Galvanising Limited for consideration of £3.9m. The acquisition expands the
geographic footprint of our UK galvanizing business into the northwest of the
UK and the integration of the business is going well.
While mindful of the wider UK macro-economic backdrop, the 2023 outlook for UK
galvanizing is cautiously positive. Our team are focused on balancing price
and cost management to ensure plant profitability is maximised and planned
investments in sales and marketing will further support the increased focus on
high margin market sectors.
Engineered Solutions
£m Reported Constant OCC
% Currency % %
Continuing Operations ((2)) 2022 2021
Revenue 289.9 223.7 +30 +21 +21
Underlying operating profit ((1)) 35.0 26.0 +35 +24 +24
Underlying operating margin % ((1)) 12.1% 11.6%
Statutory operating profit 34.1 25.5
((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.
((2) ) Continuing operations exclude France Galva, which has been
reported as a discontinued operation as explained in note 7 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 deliver good results in 2022, with 21% revenue and
24% profit growth on an OCC basis. With a strong second half performance,
operating margins increased to 12.1% (2021: 11.6%), reflecting the quality of
our faster growing US businesses.
US
Our US businesses delivered 23% OCC revenue growth and strong profit growth
against robust prior year comparators. Operating profit generated by our US
businesses represented c.80% of the total profit for the division in 2022,
highlighting the increasing importance of the US to the Group's growth
strategy.
Our composites business was the largest company within the division in 2022
and continued to see strong demand for its range of composite engineered
solutions including utility poles, waterfront protection and mass transit
infrastructure. In February 2023 we were pleased to acquire Enduro
Composites for a cash consideration of £28.7m. Located in Texas, Enduro
Composites is a designer, manufacturer and supplier of engineered composite
solutions and is highly complementary to our existing northeastern and
midwestern US business, further accelerating our strategy in the exciting and
growing composites market.
Our electricity distribution substation business delivered impressive profit
growth and a record level of operating profit, with customer demand increasing
as steel price challenges subsided and pricing actions were taken to offset
inflation. The business enters 2023 with a record order book supported by
high project demand to upgrade electricity infrastructure.
Our engineered supports business also delivered record profits with
significant growth due to higher sales volumes in catalogue hardware, improved
pricing and a richer product mix of project specific engineered supports for
key markets including water treatment and electric vehicle production.
During the year, the business successfully navigated supply chain challenges,
which enabled market share gain, and is well positioned to make further
progress in 2023.
Prospects for future growth in all our US businesses are very encouraging.
We expect market demand to be supported by investment to modernise the
electricity grid and solutions to protect against extreme weather. The
outlook is further supported by multi-year 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 21% on an organic basis. The industrial
flooring business, in particular, delivered a record performance, reflecting
buoyant demand from data centre and oil & gas markets and successful
pricing actions. This business enters 2023 with a good order book and
healthy sales pipeline.
Our lower margin UK only based building product business delivered a
performance in line with 2021, having successfully managed inflationary
pressures and supply chain challenges. The year started strongly with high
levels of customer demand, however markets cooled in the second half with
wider concerns around interest rates and house prices. We expect end markets
to continue to be challenging in 2023, however the renewed focus on customer
service and delivery under a new management team should support sales growth
through market share gains.
Roads & Security
£m Reported Constant Currency % OCC
% %
Continuing Operations ((2)) 2022 2021
Revenue 261.5 259.7 +1 -1 +5
Underlying operating profit ((1)) 18.1 17.9 +1 -4 -17
Underlying operating margin % ((1)) 6.9% 6.9%
Statutory operating profit/(loss) 1.7 (7.5)
((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.
((2) ) Continuing operations exclude the French lighting column
business, which has been reported as a discontinued operation as explained in
note 7 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. In addition, the division now includes two businesses which are
market leaders in the provision of off-grid solar lighting and power
solutions.
Revenue and profit were broadly in line with 2021 levels, with revenue 1%
lower and underlying operating profit 4% lower on a constant currency basis.
Operating margins were also maintained at 6.9% (2021: 6.9%). The 2022 result
reflects an underperformance in our US roads business and as expected, lower
utilisation of the UK temporary safety barrier fleet, offset by a good
performance in the wider UK Roads & Security portfolio.
UK Roads
Revenue was 3% higher than 2021 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. The requirement to redesign projects
following this announcement, alongside UK Government uncertainty in H2,
resulted in scheme delays and lower average utilisation of our temporary
safety barrier during the year. Based on customer discussions, we expect the
lower level of project starts to continue into the first quarter of 2023,
however our expectation is that overall fleet utilisation will increase in
2023 as central reservation upgrade projects commence after redesign work.
In the year, we saw good demand across the wider UK roads portfolio,
particularly for road safe support structures, with the growth partly
offsetting the shortfall in the rental barrier fleet. In addition,
Prolectric, our off-grid solar energy business, delivered strong growth and
enters 2023 with a good order book supported by increasing demand for low
carbon and energy cost saving solutions.
US Roads
Revenue was 10% higher than 2021 on an OCC basis. Operating profit was lower
than last year, mainly due to operational and cost challenges as previously
outlined. Actions have now been taken to address the issues including
refreshing the senior management team. 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. Overall
market demand for roadside safety products remains strong and we expect the
business to make progress in 2023.
In October 2022, we were delighted to acquire National Signal for
consideration of £24.2m, with further consideration payable of up to £3.3m
conditional on achievement of financial performance targets in the three years
post acquisition. National Signal, located in Fullerton, California, is a
designer and manufacturer of off-grid solar lighting solutions and traffic
management products. The business benefits from the ongoing transition from
fossil fuels to a zero-carbon economy, as well as the need to reduce noise
pollution, driven by government legislation and customer demands. The
acquisition is complementary to Prolectric, our market leading UK off-grid
solar energy business and will further accelerate our growth strategy in this
attractive market. Trading since acquisition has been ahead of
expectations and the 2023 order book is at a record level.
The outlook for US roads 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 incremental investment of c.$110 billion in
highway and bridge improvements through to 2026. We expect US roads to be one
of the first beneficiaries of the IIJA spend.
Other International Roads
In Australia, we continue to see good market demand for traffic safety
equipment, supported by significant government investment in land transport
infrastructure across Australia through its Infrastructure Investment Program.
During the year we invested £5.5m in steel and concrete temporary barrier
fleet to support market demand. In Sweden, we completed the divestment of
the rental and infrastructure divisions of our loss-making road business
during the year and we are assessing options for the remaining part 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 6% ahead of 2021 on an OCC basis.
During the year we have seen an encouraging recovery in UK and international
markets for HVM solutions including public place protection, airports, rail
stations and ports. Our UK security barrier rental business performed well,
particularly in the second half, as our security solutions were deployed to
support the Commonwealth Games in Birmingham.
Our perimeter access security business, Parking Facilities, continued to
experience challenges during 2022 with increased competition in the market
and, having reassessed the value of remaining acquisition intangibles, we have
recognised a further impairment charge of £4.4m. A plan is in place to
improve customer service and delivery in 2023.
Financial Review
Capital allocation
The Group follows a disciplined approach to capital allocation. First, we
allocate capital to support organic growth, with a focus on higher return
niches and growth markets. We require our operating companies to manage
working capital efficiently, considering their respective growth rates, and we
invest in capital projects and innovation to support future organic growth,
with around £20.0m of 2022 capex allocated to growth investments.
Second, we allocate capital to make high quality acquisitions, with a focus on
businesses which have a clear alignment with our purpose and have long-term
growth potential. We follow 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. Based on our highly cash
generative model, we are targeting to reinvest around £50m - £70m each year
on value enhancing acquisitions. In 2022 we spent £25.6m on the
acquisitions of National Signal and Widnes Galvanizing. Our acquisition
pipeline is strong, and is focused on high quality, strategically aligned
opportunities.
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 progressive dividend.
We use return on invested capital (ROIC) to measure our overall capital
efficiency, with a target of achieving returns in excess of 18%, above the
Group's cost of capital, through the cycle. We are pleased to report that
the Group's ROIC from continuing operations in 2022 increased to 19.2% (2021:
17.1%), the improvement reflecting the strong trading, our disciplined
approach to capital investment, and the steps we have taken to improve the
overall quality of the portfolio.
Cash generation
As expected, we saw improved cash conversion in the second half at 93%,
compared to 2% in the first half, with overall cash conversion for the year at
51%. Assuming more typical trading patterns, we expect the Group to deliver
improved cash conversion in 2023, in line with our target level of 80%+ and
consistent with historic levels averaging 83% over the last ten years. The
calculation of our underlying cash conversion ratio can be found in note 3 to
the financial statements.
Operating cash flow before movement in working capital was £129.8m (2021:
£112.8m). The working capital outflow in the year was £42.6m (2021:
£6.8m). The outflow partly reflects working capital absorption to support
good growth, alongside an increase in inventory due to cost inflation and a
tactical increase in stock holding in certain businesses to manage supply
chain challenges. The Group continues to focus on maximising working capital
efficiency, with working capital as a percentage of annualised sales at 18%.
Debtor days were in line with expectations at 60 days (2021: 57 days excluding
France Galva).
Capital expenditure of £31.5m (2021: £35.9m) represents a multiple of
depreciation and amortisation of 1.5 times (2021: 1.6 times). Significant
investment in the year included £5.5m on temporary barrier fleet to support
growing demand in the Australian roads market and £3.0m on temporary barrier
fleet for the US Roads market. We also invested £1.9m on rental assets for
Prolectric, our fast-growing UK off-grid solar lighting and power business and
£2.4m on purchasing a facility for our US composite business. 2022 spend
was below previous guidance because of lower investment in the US temporary
barrier fleet due to higher demand for barrier sales in the second half.
Net financing costs for the period from continuing operations were £9.2m
(2021: £6.1m), including a charge of £1.6m relating to costs associated with
the Group's refinancing of its core revolving credit facility during the year
(in accordance with IFRS 9). 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 was £0.8m (2021: £0.8m).
The Group generated £30.4m of free cash flow in the year (2021: £51.6m),
providing funds to support our acquisition strategy and dividend policy.
Net debt and financing
Net debt at the end of the period amounted to £119.7m (31 December 2021:
£144.7m). Outflows in the year included £24.7m for the 2021 interim and
final dividend and £25.6m for the acquisitions of National Signal and Widnes
Galvanizing. Net debt at the period end includes lease liabilities under
IFRS 16 of £39.3m (2021: £40.6m).
In November 2022, we were pleased to report the successful completion of the
refinancing of our principal bank debt facility on competitive terms. The
new syndicated revolving credit facility of £250m has an initial maturity of
four years with an option to extend for a further year at the first
anniversary, providing us with continued certainty of funding to support the
Group's growth opportunities. The Group's principal financing facilities
also comprise $70m senior unsecured notes with maturities in June 2026 and
June 2029, together with a further £11.5m of on-demand local overdraft
arrangements. Throughout the period the Group has operated well within these
facilities and at 31 December 2022, the Group had £237.9m of headroom
(£226.4m committed, £11.5m on demand).
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 2022 was 0.7 times (31 December 2021: 1.0
times) and interest cover was 21.6 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 1.0 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 underlying effective tax rate for the period for continuing operations was
22.4% (2021: 21.7%). The tax charge for the year for continuing operations
was £16.0m (2021: £14.4m) and includes a £3.7m credit (2021: £1.1m) in
respect of non-underlying items, principally relating to the amortisation of
acquisition intangibles. Cash tax paid in the period was £15.5m (2021:
£15.2m).
Exchange rates
The Group is exposed to movements in exchange rates when translating the
results of its overseas operations into Sterling. Retranslating 2021 revenue
and underlying operating profit from continuing operations using average
exchange rates for 2022 would have increased revenue by £29.5m and underlying
operating profit by £5.6m, 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 £0.6m 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 £18.6m (2021:
£28.4m). The items were mainly non-cash related and included the following:
· Impairment charges of £6.4m, including £4.4m in respect of acquired
intangible assets of Parking Facilities, one of the Group's security
businesses
· Amortisation of acquired intangible assets of £6.0m
· Further costs associated with the closure of the UK variable message
signs business of £1.5m
· Loss on disposal and restructuring of the divisions in our Swedish
business of £1.3m
· Costs relating to our exit from low-margin US road traffic control
product operation of £1.1m
· Expenses related to acquisitions and disposals of £2.3m
The non-cash element of these charges was £13.4m. Further details are set
out in note 4 of the Financial Statements.
Pensions
The Group operates defined benefit pension plans in the UK and the USA. The
IAS 19 deficit of these plans at 31 December 2022 was £7.2m, a reduction of
£5.1m from 31 December 2021 (£12.3m, which included £4.1m in respect of our
French pension scheme that was disposed of with the France Galva business
during the year). The deficit of the UK scheme, the largest employee benefit
obligation in the Group, was lower than the prior year end at £6.5m (31
December 2021: £7.7m) due to the Group's deficit recovery payments and an
increase of 310 basis points in the discount rate during the period, in line
with increases in bond yields, being partly offset by lower asset returns.
The triennial valuation for the UK scheme as at April 2022 was finalised at
the end of 2022 and confirmed that the current cash contribution level (£3.7m
per annum) was appropriate to deliver the deficit recovery plan. The Group
continues to be actively engaged in dialogue with the UK schemes' Trustees
with regards to management, funding and investment strategies including buy-in
options.
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
2024. 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 June 2024, 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 2023, 31 December 2023 and 30 June 2024.
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 2024. The Directors do
not consider the resulting performance levels to be plausible given the
Group's strong trading performance in the year and the resilience of the end
markets in which we operate.
Alan
Giddins
Hannah Nichols
Executive Chair
Group Chief Financial Officer
Consolidated Income Statement
Notes
2022 2021
Non- underlying* Non- underlying*
Underlying £m Total Underlying £m Total
£m £m £m £m
Continuing Operations
Revenue 2 732.1 - 732.1 625.2 - 625.2
Cost of sales (461.6) - (461.6) (389.2) - (389.2)
Gross profit 270.5 - 270.5 236.0 - 236.0
Distribution costs (31.7) - (31.7) (32.5) - (32.5)
Administrative expenses (142.0) (18.6) (160.6) (126.9) (28.4) (155.3)
Other operating income 0.3 - 0.3 0.7 - 0.7
Operating profit 2, 3 97.1 (18.6) 78.5 77.3 (28.4) 48.9
Financial income 5 0.5 - 0.5 0.6 - 0.6
Financial expense 5 (9.7) - (9.7) (6.7) - (6.7)
Profit before taxation 87.9 (18.6) 69.3 71.2 (28.4) 42.8
Taxation 6 (19.7) 3.7 (16.0) (15.5) 1.1 (14.4)
Profit for the year from continuing operations 68.2 (14.9) 53.3 55.7 (27.3) 28.4
Discontinued Operations
Profit from discontinued operations 7 5.2 (1.8) 3.4 6.4 (0.6) 5.8
Profit for the year attributable to the owners of the parent 73.4 (16.7) 56.7 62.1 (27.9) 34.2
Basic earnings per share 8 71.0p 43.0p
Basic earnings per share - continuing 8 66.7p 35.8p
Diluted earnings per share 8 70.4p 42.5p
Diluted earnings per share - continuing 8 66.2p 35.4p
* 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 2022 2021
£m £m
Profit for the year 56.7 34.2
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations 27.4 (2.3)
Exchange differences on foreign currency borrowings designated as net (4.8) 0.6
investment hedges
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension schemes (2.8) 3.5
Taxation on items that will not be reclassified to profit or loss 6 0.7 -
Other comprehensive income for the year 20.5 1.8
Total comprehensive income for the year attributable to owners of the parent 77.2 36.0
Consolidated Statement of Financial Position
2022 2021
Notes £m £m
Non-current assets
Intangible assets 182.6 177.4
Property, plant and equipment 186.3 193.3
Right-of-use assets 38.7 38.2
Corporation tax receivable 6 1.6 1.6
Deferred tax assets 0.1 1.4
409.3 411.9
Current assets
Assets held for sale 1.8 3.6
Inventories 113.8 108.1
Trade and other receivables 144.3 130.2
Current tax assets 0.3 0.7
Cash and cash equivalents 11 24.8 18.8
285.0 261.4
Total assets 2 694.3 673.3
Current liabilities
Liabilities held for sale - (1.9)
Trade and other liabilities (120.8) (132.7)
Current tax liabilities (8.6) (4.3)
Provisions (3.7) (4.0)
Lease liabilities (8.7) (8.8)
Loans and borrowings 11 (0.3) (1.9)
(142.1) (153.6)
Net current assets 142.9 107.8
Non-current liabilities
Other liabilities (0.2) (1.5)
Provisions (2.7) (2.4)
Deferred tax liabilities (11.6) (12.8)
Retirement benefit obligations (7.2) (12.3)
Lease liabilities (30.6) (30.1)
Loans and borrowings 11 (104.9) (121.0)
(157.2) (180.1)
Total liabilities (299.3) (333.7)
Net assets 395.0 339.6
Equity
Share capital 20.0 20.0
Share premium 42.8 40.9
Other reserves 4.9 4.9
Translation reserve 38.1 15.5
Retained earnings 289.2 258.3
Total equity 395.0 339.6
Consolidated Statement of Changes in Equity
Notes Share Share Other Translation reserve Retained earnings Total
capital premium reserves(†) £m £m equity
£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 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 9 - - - - (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
Comprehensive income
Profit for the year - - - - 56.7 56.7
Other comprehensive income for the year - - - 22.6 (2.1) 20.5
Transactions with owners recognised directly in equity
Dividends 9 - - - - (24.7) (24.7)
Credit to equity of share-based payments - - - - 2.4 2.4
Own shares held by employee benefit trust - - - - 0.5 0.5
Satisfaction of long-term incentive and deferred bonus awards - - - - (0.9) (0.9)
Tax taken directly to the Consolidated Statement of Changes in Equity 6 - - - - (1.0) (1.0)
Shares issued - 1.9 - - - 1.9
At 31 December 2022 20.0 42.8 4.9 38.1 289.2 395.0
Other reserves represent the premium on shares issued in exchange for shares
of subsidiaries acquired and £0.2m (2021: £0.2m) capital redemption reserve.
Consolidated Statement of Cash Flows
2022 2021
Notes
£m £m £m £m
Profit before tax from continuing operations 69.3 42.8
Profit before tax from discontinued operations 7 4.9 8.1
Add back net financing costs 5, 7 9.3 6.1
Operating profit - Total Group 2, 3, 7 83.5 57.0
Adjusted for non-cash items:
Share-based payments 2.0 2.8
Loss on disposal of subsidiaries 1.4 0.4
Loss/(gain) on disposal of non-current assets 0.3 (1.1)
Depreciation of owned assets 19.1 20.9
Amortisation of intangible assets 8.3 7.5
Right-of-use asset depreciation 8.8 10.3
Gain on lease termination - (0.1)
Release of accrued contingent consideration - (0.9)
Impairment of non-current assets 6.4 16.0
46.3 55.8
Operating cash flow before movement in working capital 129.8 112.8
Increase in inventories (21.0) (13.6)
Increase in receivables (19.1) (7.9)
(Decrease)/increase in payables (2.5) 14.7
Decrease in provisions and employee benefits (4.3) (2.9)
Net movement in working capital (46.9) (9.7)
Cash generated by operations 82.9 103.1
Purchase of assets for rental to customers (10.6) (16.7)
Income taxes paid (15.5) (15.2)
Interest paid (6.4) (4.7)
Interest paid on lease liabilities (0.8) (0.8)
Net cash from operating activities 49.6 65.7
Interest received 0.5 0.6
Proceeds on disposal of non-current assets 0.4 3.7
Purchase of property, plant and equipment (18.4) (17.8)
Purchase of intangible assets (2.5) (1.4)
Acquisitions of subsidiaries 10 (24.6) (11.8)
Disposals of subsidiaries 4 58.6 1.6
Net cash used in investing activities 14.0 (25.1)
Issue of new shares 1.9 2.6
Purchase of shares for employee benefit trust (0.4) (1.8)
Dividends paid 9 (24.7) (21.2)
Costs associated with refinancing during the year (2.1) -
Repayment of lease liabilities (9.5) (10.3)
New loans and borrowings 160.8 55.3
Repayment of loans and borrowings (184.8) (61.0)
Net cash used in financing activities (58.8) (36.4)
Net increase in cash and cash equivalents net of bank overdraft 4.8 4.2
Cash and cash equivalents net of bank overdraft at the beginning of the year 18.1 13.9
Effect of exchange rate fluctuations 1.9 -
Cash and cash equivalents net of bank overdraft at the end of the year 24.8 18.1
1. Group Accounting Policies
Hill & Smith PLC (formerly 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 PLC, and its subsidiaries as at 31 December 2022.
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 statements 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 Operational and Financial 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 as
explained below. 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.
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 2022, the Group had £309.0m of committed borrowing facilities,
of which only £0.3m matures before June 2026 at the earliest, and a further
£11.5m of on-demand facilities. The Group refinanced its revolving credit
facility in November 2022, entering into a new facility with a value of £250m
that is committed until November 2026, with an option to extend the maturity
by a further year at the one-year anniversary. The Group also holds $70m of
Senior Unsecured Notes, and other local committed borrowing facilities of
£0.6m. The amount drawn down under these committed facilities at 31 December
2022 was £107.4m, which together with cash and cash equivalents of £24.8m
gave total headroom of £237.9m (£226.4m committed, £11.5m on demand). The
Group has not made any changes to its principal borrowing facilities between
31 December 2022 and the date of approval of these financial statements. The
only significant changes to liquidity headroom during that period were the
acquisitions of Enduro Composites, which the Group completed on 17 February
2023 for an initial consideration of £28.7m, and Korns Galvanizing, which the
Group acquired on 6 March 2023 for consideration of £9.4m. Substantial
headroom against borrowing facilities remains in place post these
acquisitions.
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. The
ratio of net debt to EBITDA at 31 December 2022 was 0.7 times and interest
cover was 21.6 times.
The Group has carefully modelled its cash flow outlook for the period to 30
June 2024, taking account of the current 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 2023, 31 December 2023 and 30 June 2024.
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 26% compared with current expectations
throughout the period from May 2023 through June 2024. A reduction in headroom
against borrowing facilities to nil would occur if the Group experienced a
sustained revenue reduction of 88% compared with current expectations between
May 2023 and June 2024. The Directors do not consider any of these scenarios
to be plausible given the generally positive outlook across the infrastructure
markets in which the Group operates. The Directors also noted the Group's
ability to continue its operations throughout the COVID-19 pandemic, noting
that revenues fell by only 22% in the second quarter of 2020, the
worst-affected period. Furthermore, the Group 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 a period of at least
12 months following the approval of these financial statements. Accordingly,
they continue to adopt the going concern basis in preparing the Annual Report
and Financial Statements.
New IFRS standards and interpretations adopted during 2022
The following amendments and interpretations apply for the first time in 2022,
and therefore were adopted by 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 amendments noted above have not had a material impact on the financial
statements.
The principal exchange rates used were as follows:
2022 2021
Average Closing Average Closing
Sterling to Euro (£1 = EUR) 1.17 1.13 1.16 1.19
Sterling to US Dollar (£1 = USD) 1.24 1.20 1.38 1.35
Sterling to Swedish Krona (£1 = SEK) 12.47 12.49 11.80 12.21
Sterling to Indian Rupee (£1 = INR) 97.01 99.41 101.71 100.21
Sterling to Australian Dollar (£1 = AUD) 1.78 1.77 1.83 1.86
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 to the Financial Statements.
2. Segmental information
Business segment analysis
The Group has three reportable segments which are Roads & Security,
Engineered Solutions 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 Engineered Solutions 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 and other infrastructure 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 - continuing operations
2022 2021
Reported operating Underlying operating profit* Reported operating Underlying operating profit*
profit £m profit £m
Revenue £m Revenue £m
£m £m
Roads & Security 261.5 1.7 18.1 259.7 (7.5) 17.9
Engineered Solutions 289.9 34.1 35.0 223.7 25.5 26.0
Galvanizing Services 180.7 42.7 44.0 141.8 30.9 33.4
Group 732.1 78.5 97.1 625.2 48.9 77.3
Net financing costs (9.2) (9.2) (6.1) (6.1)
Profit before taxation 69.3 87.9 42.8 71.2
Taxation (16.0) (19.7) (14.4) (15.5)
Profit after taxation 53.3 68.2 28.4 55.7
* 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 £6.8m (2021:
£6.5m) of products and services to Roads & Security and £2.0m (2021:
£1.6m) of products and services to Engineered Solutions. Engineered Solutions
sold £1.9m (2021: £3.0m) of products and services to Roads & Security.
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.
Continuing operations Roads & Security Engineered Solutions Galvanizing Total
Primary geographical markets 2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m
UK 163.5 165.2 87.2 72.0 81.8 69.6 332.5 306.8
Rest of Europe 16.7 29.5 8.7 6.0 - - 25.4 35.5
North America 70.3 56.8 187.1 137.3 98.9 72.2 356.3 266.3
The Middle East 4.9 3.2 2.4 0.6 - - 7.3 3.8
Rest of Asia 1.9 0.6 3.9 7.1 - - 5.8 7.7
Rest of the world 4.2 4.4 0.6 0.7 - - 4.8 5.1
261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
Major product/service lines
Manufacture, supply and installation of products 240.3 237.4 289.9 223.7 - - 530.2 461.1
Galvanizing services - - - - 180.7 141.8 180.7 141.8
Rental income 21.2 22.3 - - - - 21.2 22.3
261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
Timing of revenue recognition
Products and services transferred at a point in time 210.2 200.0 153.8 120.2 180.7 141.8 549.7 462.0
Products and services transferred over time 51.3 59.7 136.1 103.5 - - 182.4 163.2
261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
Total assets by geography
2022 2021
£m £m
UK 280.3 290.8
Rest of Europe 9.8 90.7
North America 380.2 273.2
Asia 11.2 13.6
Rest of the world 12.8 5.0
Total Group 694.3 673.3
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 8.
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 from continuing
operations
2022 2021
£m £m
Underlying profit before tax from continuing operations 87.9 71.2
Non-underlying items included in operating profit (note 4) (18.6) (28.4)
Reported profit before tax from continuing operations 69.3 42.8
Reconciliation of underlying to reported operating profit from continuing
operations by segment
Roads & Security Engineered Solutions Galvanizing Total
2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m
Underlying operating profit from continuing operations 18.1 17.9 35.0 26.0 44.0 33.4 97.1 77.3
Non-underlying items:
Amortisation of acquisition intangibles (4.6) (4.5) (0.5) (0.5) (0.9) (0.9) (6.0) (5.9)
Business reorganisation costs (2.9) (4.5) - - - - (2.9) (4.5)
Impairment of assets (6.4) (16.0) - - - - (6.4) (16.0)
Expenses related to acquisitions and disposals (1.5) - (0.4) - (0.4) (1.6) (2.3) (1.6)
Loss on disposal of subsidiaries (1.0) (0.4) - - - - (1.0) (0.4)
Reported operating profit from continuing operations 1.7 (7.5) 34.1 25.5 42.7 30.9 78.5 48.9
Calculation of underlying operating profit margin from continuing operations
Roads & Security Engineered Solutions Galvanizing Total
2022 2021 2022 2021 2022 2021 2022 2021
£m £m £m £m £m £m £m £m
Underlying operating profit 18.1 17.9 35.0 26.0 44.0 33.4 97.1 77.3
Revenue 261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
Underlying operating profit margin (%) 6.9% 6.9% 12.1% 11.6% 24.3% 23.6% 13.3% 12.4%
Measures of organic and constant currency change in revenue and underlying
operating profit from continuing operations
Organic constant currency 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. Constant currency amounts are
prepared using exchange rates which prevailed in the current year.
Roads & Security Engineered Solutions 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
2021 259.7 17.9 223.7 26.0 141.8 33.4 625.2 77.3
Impact of exchange rate movements from 2021 to 2022 5.4 1.0 15.9 2.2 8.2 2.4 29.5 5.6
2021 translated at 2022 exchange rates (A) 265.1 18.9 239.6 28.2 150.0 35.8 654.7 82.9
Acquisitions, disposals and closures (17.6) 2.5 - - 0.8 - (16.8) 2.5
Organic growth/(decline) (B) 14.0 (3.3) 50.3 6.8 29.9 8.2 94.2 11.7
2022 (C) 261.5 18.1 289.9 35.0 180.7 44.0 732.1 97.1
Organic growth % (B divided by A) 5.3% (17.5%) 21.0% 24.1% 19.9% 22.9% 14.4% 14.1%
Constant currency change % ((C-A) divided by A) (1.4%) (4.2%) 21.0% 24.1% 20.5% 22.9% 11.8% 17.1%
Calculation of underlying cash conversion ratio
2022 2021
£m £m
Underlying operating profit:
Continuing operations 97.1 77.3
Discontinued operations 6.8 8.7
103.9 86.0
Calculation of adjusted operating cash flow:
Cash generated by operations 82.9 103.1
Less: Purchase of assets for rental to customers (10.6) (16.7)
Less: Purchase of property, plant and equipment (18.4) (17.8)
Less: Purchase of intangible assets (2.5) (1.4)
Less: Repayments of lease liabilities (9.5) (10.3)
Add: Proceeds on disposal of non-current assets 0.4 3.7
Add back: Defined benefit pension scheme deficit payments 3.7 3.7
Add back: Cash flows relating to non-underlying items 6.5 2.7
Adjusted operating cash flow 52.5 67.0
Underlying cash conversion (%) 51% 78%
Calculation of capital expenditure to depreciation and amortisation ratio
2022 2021
£m £m
Calculation of capital expenditure:
Purchase of assets for rental to customers 10.6 16.7
Purchase of property, plant and equipment 18.4 17.8
Purchase of intangible assets 2.5 1.4
31.5 35.9
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 19.1 20.9
Amortisation of development costs 1.1 1.1
Amortisation of other intangible assets 1.0 0.3
21.2 22.3
Capital expenditure to depreciation and amortisation ratio 1.5x 1.6x
Calculation of covenant net debt to EBITDA ratio
2022 2021
£m £m
Reported net debt (note 11) 119.7 144.7
Lease liabilities (39.3) (40.6)
Amounts related to refinancing under IFRS 9 2.2 2.5
Covenant net debt (A) 82.6 106.6
Underlying operating profit 103.9 86.0
Depreciation of owned assets 19.1 20.9
Right-of-use asset depreciation 8.8 10.3
Amortisation of development costs 1.1 1.1
Amortisation of other intangible assets 1.0 0.3
Underlying EBITDA 133.9 118.6
Adjusted for:
Lease payments (10.3) (11.1)
Share-based payments expense 2.0 2.8
Annualised EBITDA of subsidiaries acquired/disposed (3.7) 0.4
Covenant EBITDA (B) 121.9 110.7
Covenant net debt to EBITDA (A divided by B) 0.7 1.0
4. Non-underlying items
Included in operating profit
2022 2021
£m £m
Loss on disposal of subsidiaries (a) (1.4) (0.4)
Business reorganisation costs (b) (2.9) (4.5)
Impairment of assets (c) (6.4) (16.0)
Amortisation of acquisition intangibles (6.2) (6.1)
Expenses related to acquisitions and disposals (3.5) (2.0)
Total non-underlying items (20.4) (29.0)
Total non-underlying items - continuing operations (18.6) (28.4)
Total non-underlying items - discontinued operations (1.8) (0.6)
Notes:
a) In 2022, the Group completed the disposal of the majority of its
Swedish roads business. In April we disposed of the rental division and in
November we sold the infrastructure contracts division, at a combined loss of
£1.0m. Details are set out below:
Disposal of Swedish rental and infrastructure contracts divisions £m
Property, plant and equipment 2.0
Right-of-use assets 2.1
Inventories 1.1
Current assets 0.2
Current liabilities (0.2)
Lease liabilities (2.0)
Net assets disposed 3.2
Consideration received 2.5
Cumulative exchange differences (0.3)
Loss on disposal 1.0
The Group also incurred costs of disposal of £0.5m, which are included within
'expenses related to acquisitions and disposals' in the table above.
Alongside the disposals, asset impairments of £0.2m and reorganisation costs
of £0.3m were incurred in relation to the remaining business. The total of
non-underlying net charges relating to the Swedish business is therefore
£2.0m.
In October 2022, the Group completed the disposal of France Galva, its French
galvanizing and lighting column business, at a loss of £0.4m. Details of
the disposal are set out below:
Disposal of France Galva £m
Property, plant and equipment 28.4
Intangibles 13.2
Right-of-use assets 0.9
Inventories 24.0
Current assets 17.6
Cash and cash equivalents 5.9
Deferred tax 1.4
Lease liabilities (0.8)
Current liabilities (20.2)
Loans & borrowings (0.3)
Provisions (0.9)
Retirement benefit obligation (4.6)
Net assets disposed 64.6
Consideration received 62.0
Cumulative exchange differences 2.2
Loss on disposal 0.4
The Group also incurred costs of disposal of £1.2m, which are included within
'expenses related to acquisitions and disposals' in the table above.
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 £2.9m, comprising business reorganisation costs
of £1.1m and asset impairment charges of £1.8m.
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
£1.5m of costs in 2022 in relation to the completion of legacy contracts.
The business reorganisation costs of £4.5m in 2021 also related to the VMS
closure.
c) Impairment charges of £6.4m in 2022 comprise the portfolio
management actions explained above (totalling £2.0m) and a charge of £4.4m
(2021: £5.2m) in respect of acquisition intangible assets relating to Parking
Facilities, one of the Group's UK security businesses. Parking Facilities
manufactures and sells a range of perimeter access security products,
predominantly to specialist security installers in the UK. The COVID
pandemic resulted in a weak trading period in 2020 as several customer
contracts were cancelled or postponed and whilst the business saw a marginal
improvement in revenue and profitability in 2021, ongoing constraints on
customer budgets continued to weigh on demand. In 2022, customer activity
continued to be weak and supply chain challenges, input cost inflation and
operational issues led to a deterioration in margins. The Board's
reassessment of the future outlook for Parking Facilities, which also took
into account the impact on gross margins of developments in the competitive
landscape, concluded that there was limited prospect of the business returning
to the levels of profitability previously anticipated and therefore that the
expected future cash flows were not sufficient to support the carrying
value. The resulting impairment charge of £4.4m comprises £4.0m in respect
of acquired customer lists and £0.4m in respect of acquired brand names,
meaning those assets have been fully impaired as at 31 December 2022. In
2021, impairment charges also included £10.8m in respect of acquisition
goodwill and intangible assets relating to ATG Access, another of the Group's
UK security businesses.
Included in taxation
The tax effect of the above items is a credit to the income statement of
£3.7m (2021: £1.1m).
5. Net financing costs - continuing operations
2022 2021
£m £m
Interest on bank deposits 0.5 0.6
Financial income 0.5 0.6
Interest on loans and borrowings (6.4) (4.9)
Interest on lease liabilities (0.8) (0.8)
Financial expenses related to refinancing activities (2.4) (0.8)
Interest cost on net pension scheme deficit (0.1) (0.2)
Financial expense (9.7) (6.7)
Net financing costs (9.2) (6.1)
6. Taxation
2022 2021
£m £m
Current tax
UK corporation tax 4.1 4.1
Overseas tax at prevailing local rates 14.2 11.1
Adjustments in respect of prior years 1.8 (1.8)
20.1 13.4
Deferred tax
UK deferred tax 0.3 0.1
Overseas tax at prevailing local rates 0.3 0.2
Adjustments in respect of prior years (3.2) 0.6
Effects of changes in tax rates and laws - 2.4
(2.6) 3.3
Tax on profit in the Consolidated Income Statement 17.5 16.7
Deferred tax
Relating to defined benefit pension schemes (0.7) -
Tax on items taken directly to other comprehensive income (0.7) -
Current tax
Relating to share-based payments
Deferred tax (0.2) (0.2)
Relating to share-based payments
1.2 (0.8)
Tax taken directly to the Consolidated Statement of Changes in Equity 1.0 (1.0)
The tax charge in the Consolidated Income Statement for the period is higher
(2021: higher) than the standard rate of corporation tax in the UK. The
differences are explained below:
2022 2021
£m £m
Profit before taxation from continuing operations 69.3 42.8
Profit before taxation from discontinued operations 4.9 8.1
Profit before taxation - total Group 74.2 50.9
Profit before taxation multiplied by the effective rate of corporation tax in 14.1 9.7
the UK of 19.0% (2021: 19.0%)
Expenses not deductible/income not chargeable for tax purposes 1.2 0.9
Non-deductible goodwill impairment - 2.4
Benefits from international financing arrangements - current and prior years (0.3) (0.5)
Local tax incentives (0.4) (0.6)
Overseas profits taxed at higher rates 3.6 3.3
Recognition of losses - (0.1)
Overseas losses not relieved 0.7 0.5
Impacts of rate and law changes - 2.3
Adjustments in respect of prior years (1.4) (1.2)
Tax charge 17.5 16.7
Tax charge attributable to continuing operations 16.0 14.4
Tax charge attributable to discontinued operations 1.5 2.3
17.5 16.7
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. Many of those affected, including the Group, have
appealed this decision to the Court of Justice of the EU. Having taken
expert advice, we have concluded that our appeal is 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.
7. Discontinued operations
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. On 5
September 2022, the shareholders of the Group approved the plan to sell. The
sale of France Galva completed on 4 October 2022 for £62.0m, resulting in a
loss on disposal of £0.4m (note 4).
France Galva has been classified as a disposal group as required by IFRS 5
Non-current assets held for sale and discontinued operations. As the
disposal resulted in the Group's withdrawal from all operations in France and
noting that the business accounted for approximately 10% of Group revenues
prior to disposal, France Galva's results have been reported within
discontinued operations in accordance with IFRS 5.
2022** 2021
Non-underlying* Total Non-underlying* Total
£m £m £m £m
Underlying Underlying
£m £m
Revenue 68.7 - 68.7 79.8 - 79.8
Cost of Sales (47.6) - (47.6) (53.5) - (53.5)
Gross Profit 21.1 - 21.1 26.3 - 26.3
Distribution costs (3.6) - (3.6) (4.0) - (4.0)
Administrative expenses (10.7) (1.8) (12.5) (13.6) (0.6) (14.2)
Operating profit 6.8 (1.8) 5.0 8.7 (0.6) 8.1
Financing costs (0.1) - (0.1) - - -
Profit before taxation 6.7 (1.8) 4.9 8.7 (0.6) 8.1
Taxation (1.5) - (1.5) (2.3) - (2.3)
Profit from discontinued operations 5.2 (1.8) 3.4 6.4 (0.6) 5.8
* 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.
** Represents nine months of activity prior to the sale on 4 October 2022.
The net cash flows generated from the sale of France Galva are as follows:
2022
£m
Cash received from sale 62.0
Cash and cash equivalents disposed (5.9)
Net cash inflow on disposal 56.1
The net cash flows generated/(incurred) by France Galva included in the
consolidated cash flow statement are as follows:
2022 2021
£m
£m
Net cash flow from operating activities 3.4 8.9
Net cash flow from investing activities (2.8) (2.7)
Net cash flow from financing activities (0.4) (0.7)
0.2 5.5
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was
79.9m (2021: 79.6m), diluted for the effects of the outstanding dilutive share
options 80.5m (2021: 80.6m). 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.
2022 2021
Pence Pence
per share £m per share £m
Basic earnings
- continuing 66.7 53.3 35.8 28.4
- discontinued 4.3 3.4 7.2 5.8
Total basic earnings 71.0 56.7 43.0 34.2
Non-underlying items*
- continuing 18.7 14.9 34.2 27.3
- discontinued 2.2 1.8 0.7 0.6
Total non-underlying items 20.9 16.7 34.9 27.9
Underlying earnings
- continuing 85.4 68.2 70.0 55.7
- discontinued 6.5 5.2 7.9 6.4
Total underlying earnings 91.9 73.4 77.9 62.1
Diluted earnings
- continuing 66.2 53.3 35.4 28.4
- discontinued 4.2 3.4 7.1 5.8
Total diluted earnings 70.4 56.7 42.5 34.2
Non-underlying items*
- continuing 18.5 14.9 33.9 27.3
- discontinued 2.2 1.8 0.7 0.6
Total non-underlying items 20.7 16.7 34.6 27.9
Underlying diluted earnings
- continuing 84.7 68.2 69.3 55.7
- discontinued 6.4 5.2 7.8 6.4
Total underlying diluted earnings 91.1 73.4 77.1 62.1
* Non-underlying items as detailed in note 4.
9. Dividends
Dividends paid during the year
2022 2021
Pence Pence
per share £m per share £m
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
Interim dividend paid in relation to year-ended 31 December 2021 12.0 9.6 - -
Final dividend paid in relation to year-ended 31 December 2021 19.0 15.1 - -
Total 31.0 24.7 26.7 21.2
Dividends declared in respect of the year
2022 2021
Pence Pence
per share £m per share £m
Interim dividend declared in relation to year-ended 31 December 2021 - - 12.0 9.6
Final dividend declared in relation to year-ended 31 December 2021 - - 19.0 15.1
Interim dividend declared in relation to year-ended 31 December 2022 13.0 10.4 - -
Final dividend proposed in relation to year-ended 31 December 2022 22.0 17.6 - -
Total 35.0 28.0 31.0 24.7
The final dividend for 2022 was proposed after the year end date and was not
recognised as a liability at 31 December 2022, in accordance with IAS 10.
10. Acquisitions
National Signal Inc
On 4 October 2022 the Group acquired the business and assets of National
Signal Inc ("National Signal") from its shareholders for an initial cash
consideration of £21.5m, plus a further £2.7m relating to post completion
working capital adjustments payable early in 2023. Further cash consideration
of up to £3.3m is payable, conditional on National Signal's achievement of
financial performance targets in the three years post-acquisition. National
Signal, located in Fullerton, California, is a designer, manufacturer and
supplier of off-grid solar lighting solutions in the USA, and is therefore
complementary to the Group's 2021 acquisition of Prolectric Services, further
accelerating the Group's strategy in this fast-growing market. Details of the
acquisition are set out below:
Pre-acquisition Provisional policy alignment Total
carrying amount and fair value £m
£m adjustments
£m
Intangible Assets
Brands - 1.2 1.2
Customer lists - 8.9 8.9
Property, plant and equipment 1.5 (0.2) 1.3
Right-of-use assets - 1.0 1.0
Inventories 3.7 (0.4) 3.3
Current assets 5.8 (0.3) 5.5
Total assets 11.0 10.2 21.2
Lease Liabilities - (1.0) (1.0)
Current liabilities (2.0) (0.5) (2.5)
Provisions - (0.7) (0.7)
Total liabilities (2.0) (2.2) (4.2)
Net assets 9.0 8.0 17.0
Consideration
Total consideration 24.2
Goodwill 7.2
Cash flow effect
Consideration in the year 21.5
Cash acquired with the business -
Net cash consideration shown in the Consolidated Statement of Cash Flows 21.5
Brands and customer lists 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 £5.5m of trade receivables, which have a gross value of
£5.7m.
As part of the acquisition agreement, additional consideration has been
agreed. The amount of additional consideration is dependent on National
Signal's gross profit for the three years to 31 December 2025. Below the
'triggers' (as defined in the Asset Purchase Agreement), no additional
consideration is due. If the 'triggers' are achieved, additional consideration
of £3.3m becomes payable.
Post-acquisition the acquired business has contributed £8.3m 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 2022, the Group's
results for the year from continuing operations would have shown revenue of
£754.6m, underlying operating profit of £102.0m and reported operating
profit of £83.4m.
Widnes Galvanising Limited
On 30 September 2022 the Group acquired 100% of the share capital of Widnes
Galvanising Limited ("Widnes") for an initial cash consideration of £3.5m,
plus £0.2m relating to post completion working capital adjustments and a
further £0.2m deferred until 2024. The acquisition of Widnes further expands
the geographic footprint of the Group's UK galvanizing business into the north
west of the UK and is aligned to the Group's growth strategy. Details of the
acquisition are set out below:
Pre-acquisition Provisional policy alignment Total
carrying amount and fair value £m
£m adjustments
£m
Intangible Assets
Customer lists - 0.9 0.9
Property, plant and equipment 0.5 - 0.5
Inventories 0.3 - 0.3
Current assets 0.9 - 0.9
Cash 0.4 - 0.4
Total assets 2.1 0.9 3.0
Current liabilities (0.4) - (0.4)
Deferred tax - (0.1) (0.1)
Provisions - (0.7) (0.7)
Total liabilities (0.4) (0.8) (1.2)
Net assets 1.7 0.1 1.8
Consideration
Total consideration 3.9
Goodwill 2.1
Cash flow effect
Consideration in the year 3.5
Cash acquired with the business (0.4)
Net cash consideration shown in the Consolidated Statement of Cash Flows 3.1
Customer lists have been recognised as specific intangible assets as a result
of the acquisition. The residual goodwill arising, which has been allocated to
the Galvanizing 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. The fair value of the current assets acquired includes
£0.8m of trade receivables, which have a gross value of £0.8m.
Post-acquisition the acquired business has contributed £0.8m revenue and
£nil operating profit, which are included in the Group's Consolidated Income
Statement. If the acquisition had been made on 1 January 2022, the Group's
results for the year from continuing operations would have shown revenue of
£734.6m, underlying operating profit of £97.6m and reported operating profit
of £79.0m.
11. Cash and borrowings
2022 2021
£m £m
Cash and cash equivalents in the Consolidated Statement of Financial Position 24.8 18.8
Cash and cash equivalents
Bank overdraft - (0.7)
Cash and cash equivalents net of bank overdraft 24.8 18.1
Interest bearing loans and other borrowings
Amounts due within one year (0.3) (1.2)
Amounts due after more than one year (104.9) (121.0)
Lease liabilities classified as liabilities held for sale - (1.7)
Lease liabilities due within one year (8.7) (8.8)
Lease liabilities due after more than one year (30.6) (30.1)
Net debt (119.7) (144.7)
Change in net debt
Operating profit:
- from continuing operations 78.5 48.9
- from discontinued operations 5.0 8.1
Total Group operating profit 83.5 57.0
Non-cash items 46.3 55.8
Operating cash flow before movement in working capital 129.8 112.8
Net movement in working capital (42.6) (6.8)
Changes in provisions and employee benefits (4.3) (2.9)
Operating cash flow 82.9 103.1
Tax paid (15.5) (15.2)
Net financing costs paid (5.9) (4.1)
Capital expenditure (31.5) (35.9)
Proceeds on disposal of non-current assets 0.4 3.7
Free cash flow 30.4 51.6
Dividends paid (24.7) (21.2)
Acquisitions of subsidiaries (25.6) (13.6)
Disposals of subsidiaries 58.6 1.6
Amortisation of costs associated with refinancing activities (2.4) (0.8)
Purchase of shares for employee benefit trust (0.4) (1.8)
Issue of new shares 1.9 2.6
Lease additions, terminations and remeasurements (9.0) (17.1)
Leases disposed of 2.8 -
Loans and borrowings disposed of 0.3 -
Interest on lease liabilities (0.8) (0.8)
Net debt decrease 31.1 0.5
Effect of exchange rate fluctuations (6.1) 1.0
Net debt at the beginning of the year (144.7) (146.2)
Net debt at the end of the year (119.7) (144.7)
Notes
1. The financial information previously set out does not constitute the
Company's statutory accounts for the years ended 31 December 2022 or 2021 but
is derived from those accounts. Statutory accounts for 2021 have been
delivered to the registrar of companies, and those for 2022 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 16 April
2023 and will be displayed on the Company's website at www.hsgroup.com
(http://www.hsgroup.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 Cranmore Park
Conference, Event & Exhibition Centre, Cranmore Avenue, Shirley, West
Midlands, B90 4LF on Thursday 25 May 2023.
ii. The proposed final dividend for 2022 will be paid on 7 July 2023
to shareholders on the register on 2 June 2023 (ex-dividend date 1 June 2023).
iii. The last date for receipt of Dividend Reinvestment Plan elections
is 16 June 2023.
iv. Interim results announcement for the period to 30 June 2023 due 9
August 2023.
v. Payment of the 2023 interim dividend due 5 January 2024.
4. This preliminary announcement of results for the year ended 31 December
2022 was approved by the Directors on 8 March 2023.
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR XDLLBXXLEBBDRecent news on Hill & Smith
See all newsREG - Hill & Smith PLC - Total Voting Rights
AnnouncementREG - Hill & Smith PLC - Transaction in Own Shares
AnnouncementREG - Hill & Smith PLC - Transaction in Own Shares
AnnouncementREG - Hill & Smith PLC - Transaction in Own Shares
AnnouncementREG - Hill & Smith PLC - Transaction in Own Shares
Announcement