Hill & Smith Holdings PLC

 

 

HALF YEAR RESULTS (UNAUDITED) FOR

6 MONTHS ENDED 30 JUNE 2012

 

Hill & Smith Holdings PLC, the international group with leading positions in the manufacture and supply of infrastructure products and galvanizing services to global markets, announces its half year unaudited results for the six months ended 30 June 2012.

 

Financial results

	30 June 2012	30 June 2011	Change
Revenue	£223.8m	£195.1m	15%
Underlying operating profit*	£22.7m	£18.2m	25%
Underlying profit before taxation*	£20.8m	£16.2m	28%
Profit before taxation	£18.9m	£4.6m	311%
Underlying earnings per share*	19.7p	15.0p	31%
Basic earnings per share	18.0p	1.7p	959%
Dividend per share	5.8p	5.4p	7%

 

 

 

  

*All underlying profit measures exclude certain non-operational items, which are as defined in note 6 of the financial statements. References to an underlying profit measure throughout this announcement are made on this basis.

 

Key points:

 

·    Group performance ahead of expectations

 

·    Strong organic growth from Infrastructure Products, particularly in Utilities, with underlying operating profit up 41%

 

·    Robust overall performance from Galvanizing Services, particularly in the USA, with underlying operating profit up 12%

 

·    Over 73% of operating profit now generated from international operations

 

·    Net debt decreased to £89.1m (31 December 2011: £103.8m) as a result of strong cash generation during the period

 

·    Underlying earnings per share up by 31%

 

·    Half year dividend increased by 7% to 5.8p per share

 

 

Derek Muir, Chief Executive, said:

 

"This has been a very encouraging six months for Hill & Smith, with our international spread, strong market positions and diverse portfolio of products and services serving us well in markets with mixed conditions.  The end result was a performance ahead of our previous expectations.

 

However, as previously reported there is reduced activity in the UK due to the Olympics, with new road projects not commencing until the final quarter of 2012. Furthermore we remain cautious about the level of economic uncertainty within Europe. Accordingly, whilst our first half performance has been encouraging, the outlook for the full year's performance remains unchanged."

 

 

For further information, please contact:

 

Hill & Smith Holdings PLC	Tel:   44 (0)121 704 7430
Derek Muir, Group Chief Executive
Mark Pegler, Group Finance Director
MHP Communications	Tel:   44 (0)20 3128 8100
John Olsen / Barnaby Fry / Vicky Watkins
Investec	Tel:   44 (0)20 7597 4198
Chris Treneman

 

Notes to Editors

 

Hill & Smith Holdings PLC is an international group with leading positions in the design, manufacture and supply of infrastructure products and galvanizing services to global markets.  It serves its customers from facilities principally in the UK, France, USA, Thailand, Sweden, China and India.

 

The Group's operations are organised into three main business segments:

 

Infrastructure Products - Utilities, supplying products and services such as pipe supports for the power and liquid natural gas markets, energy grid components, "GRP" railway platforms, plastic drainage pipes, industrial flooring, handrails, access covers and security fencing.

 

Infrastructure Products - Roads, supplying products and services such as permanent and temporary road safety barriers, street lighting columns, bridge parapets, gantries, temporary car parks, variable road messaging solutions and traffic data collection systems.

 

Galvanizing Services which provides zinc and other coatings for a wide range of products including fencing, lighting columns, structural steel work, bridges, agricultural and other products for the infrastructure and construction markets.

 

Headquartered in the UK and quoted on the London Stock Exchange (LSE: HILS.L), Hill & Smith Holdings PLC employs some 3,600 staff across 51 sites, principally in 7 countries.

 

 

 

 

Business Review                        

 

Introduction

 

The momentum of stronger trading experienced in the second half of 2011 has continued, resulting in the Group delivering a performance in the first half of 2012 ahead of previous expectations. 

 

The trading performance reflects strong organic growth within Infrastructure Products, particularly in the Utilities division, and a robust performance from Galvanizing Services.

 

The international diversity and strength of our businesses within their respective markets, especially in the USA, continue to underpin and enhance our performance.  Profits from the US operations represented 47% of underlying operating profits (2011: 30%) and in total, 73% of profits were generated from operations outside the UK (2011: 69%).

 

Results

 

Revenue increased 15% to £223.8m (2011: £195.1m) after taking account of an adverse currency translation impact of £1.4m.  Adjusting for revenue of £9.8m arising from acquisitions and £11.6m relating to disposals made in 2011, underlying revenue increased by £31.9m, or 16%.  Underlying operating margin improved to 10.1% (2011: 9.3%) with underlying operating profit increasing by 25% to £22.7m (2011: £18.2m), including an adverse currency translation impact of £0.2m.

 

Underlying profit before taxation at £20.8m was 28% ahead of the previous year (2011: £16.2m).  Profit before taxation improved to £18.9m (2011: £4.6m).

 

Underlying earnings per share at 19.7p increased by 31% compared to the previous year (2011: 15.0p).  Basic earnings per share was 18.0p (2011: 1.7p).

 

Net debt decreased substantially to £89.1m (31 December 2011:  £103.8m), as a result of strong cash generation during the period.

 

Dividend

 

The Board has declared an interim dividend of 5.8p per share (2011: 5.4p), representing a 7% increase on the corresponding period last year.  The dividend is covered 3.4 times (2011: 2.8 times) by underlying earnings per share.  The interim dividend will be paid on 7 January 2013 to the shareholders on the register on 23 November 2012.

 

Operational Review

 

Infrastructure Products 

 

Overall revenues increased 30% to £160.8m (2011: £123.6m) with no material impact from exchange movements.  Adjusting for acquisitions, revenues increased by £27.5m, or 22%.  This, along with better margins at 6.6% (2011: 6.1%), resulted in underlying operating profit being 41% higher at £10.6m (2011: £7.5m).  Acquisitions accounted for £0.3m of underlying operating profit.

 

Utilities

 

Revenues were 42% ahead of the prior year at £101.9m (2011: £72.0m).  Underlying operating profit increased to £7.9m from £3.1m, with an improvement in operating margins to 7.8% (2011: 4.3%).  Prior year acquisitions contributed £5.0m revenues and £0.4m of underlying operating profit.

 

Utilities produced excellent organic growth, driven mainly by our US based businesses V&S Utilities and Creative Pultrusions, both of which have benefitted from a more buoyant US utilities market.

V&S Utilities manufacture substation structures which are in demand due to the long awaited upgrade to the USA power grid together with the requirements placed on the grid to connect through to the solar and wind renewable sectors.  There remains good visibility and strong order potential for our products.

Creative Pultrusions has, over the last two years, been successfully developing higher value products in glass reinforced plastic for niche markets.  Orders have been won for 80ft long mooring piles for harbours in San Francisco, New Jersey and Florida, a railway platform for New Jersey Transit, ballistic panels for the US Department of Defense and 85 railway platform extensions on the Wessex Line in the UK.

In the USA our Bergen Pipe Supports business has performed satisfactorily in the first half assisted by an order for pipe supports for the MOX nuclear weapons decommissioning plant currently under construction in the USA.  The requirement for new power plants in the USA continues to be subdued as decisions on which type of fuel to adopt remain in the balance.  In the South of the country however, we have seen increased activity in petrochemical plant upgrades.  The order intake for Asia remained strong with orders for power generation projects in India and Japan and for LNG projects in Australia and the Middle East. Our new plant in India has been completed and production has commenced to supply supports for the local power generation markets.  Bergen Pipe Supports now move into the second half of the year focused on the operational challenges of dealing with a record forward order book of £19.5m (2011: £17.5m) at the end of June 2012.

The UK water industry Asset Management Programme (AMP5) is now into its third year and our order book continues to grow for large diameter plastic pipework, storm water attenuation tanks and related access systems projects.  For the foreseeable future the requirement for storm water attenuation will remain strong, due to the increased risk of flooding together with increased demand for our tanks from the housing sector.  Orders for access systems, designed and supplied by our Industrial Flooring business, have been secured in the period for the Crossrail project and new waste to energy plants.

Demand has continued for our newly developed solar panel mounting system, with sales more than double those seen in the second half of 2011, in particular the completion of a 10MW project in Germany.  This product uses the additional capacity in our UK Roads business as the support post for the solar panel mounting system is very similar to the driven post used for road barriers.  Enquiry levels remain strong for the second half and the benefits of our quick-build, easy-to-install system are enabling us to increase market penetration.

Roads

 

Revenues of £58.9m were 14% ahead of the prior year (2011: £51.6m), including £4.8m arising from acquisitions.  However, underlying operating profit fell from £4.4m to £2.7m and operating margins fell to 4.6% (2011: 8.5%).  The fall in profit was principally due to higher than anticipated project costs for our new lightweight gantry contracts.

 

During the period, two Managed Motorway projects started as planned. This, combined with the good weather in the early part of the year, saw strong demand for our temporary vehicle restraint system (Varioguard) and road infrastructure products in the first four months.  The M1 and M25 projects have been completed and, as expected, we have now entered a period of reduced activity in the UK, due to the Olympics, with any new projects not planned to start until the final quarter of 2012.

 

On 8 May 2012 the UK Government roads minister announced a further six projects to be added to the UK roads programme, which is now looking encouraging for 2013 through to 2015.  Projects are either starting earlier or on plan and we have been working with the contractors and the Highways Agency to ensure they get the best value for the products and services we supply.

Our first major motorway gantry contract, for new lightweight gantries, is due for completion in September 2012.  The design, manufacture and installation costs for this project have exceeded initial expectations and led us to subcontract the fabrication work on our second gantry project, to ensure that the contract performance was not affected.  We have absorbed the additional costs to ensure that the issues do not impact on the project completion and we are confident that these issues will not reoccur.

Our lighting column operation in the UK has been selected as a preferred supplier on a further PFI contract enhancing the forward order book for the next four years.  In France we have strengthened our market position, benefitting from the demise of a major competitor which, coupled with investment in automation of operations and an in-house powder coating plant, has improved the trading performance in the first half.

Techspan, our variable message sign (VMS) business, has pre-qualified for the four-year tender for the supply of VMS's on the next phase of the Managed Motorways programme.  We have achieved market acceptance of our automatic number plate recognition (ANPR) camera due to its flexibility and are currently promoting this product overseas.

ATA, the Scandinavian roads business acquired by the Group in May 2011, had a slower than anticipated start to the construction season. Their traditional products remain strong, but it is taking time for our existing UK products to become fully established in the market.

International sales of bridge parapets improved towards the end of the period and shipments of our wire rope safety fence from the UK to our newly formed company in Australia, exceeded our expectations. There is already an established rental market for temporary barrier in Australia where we are currently obtaining approval for our temporary vehicle restraint system Zoneguard. This product is already approved and used in the USA, where we have encouraged traffic management companies to purchase their own fleets and fulfil their peak requirements from our rental pool, in order to increase our penetration of this conservative market.

Overall the underlying performance of the Roads division has been satisfactory.

Galvanizing Services

 

Revenue increased by 5% to £63.0m (2011: £59.9m).  Underlying operating profit increased by 12% to £12.1m (2011: £10.8m).  Overall volumes were 8% ahead of the same period in the prior year with a strong performance in the USA, improvement in the UK and volumes overall in France being stable. Operating margins were 19.2% (2011: 18.0%) with zinc prices having remained relatively stable throughout the period.

 

USA

 

Volumes were up 21% compared with the same period in 2011 as a result of improved demand from the transmission towers, bridges and solar sectors, and a more positive trend in industrial production.  Volume levels were back to those experienced in 2008 and, with improved efficiencies and a lower cost base, profitability improved by 35% from 2011.  This positive trend has continued into July and we anticipate further benefits coming through in the second half of 2012.

 

Construction has started on our replacement plant in Columbus, Ohio which is on target for completion in early 2013.  This will provide an additional 40% capacity compared with that of the existing plant and will be the fifth plant constructed using our bespoke design.

France

 

Volumes remained stable at 2011 levels assisted by a 12 month contract for galvanizing transmission and lighting poles.  This additional volume improved the efficiency of plants located in the North of the country, whereas those in the West and South saw volumes decline.  Energy and social costs were higher in France, and we remain cautious for the remainder of 2012 due to the uncertain economic climate.

 

UK

 

Volumes improved by 6% compared with 2011.  The improvement was due to the mild winter, the increased volume of our own infrastructure products and the Beauly to Denny transmission tower project which was secured at the end of 2011. 

 

Financial Review

 

Cash generation and financing

 

Cash generated from operations during the period was £30.8m (2011: £12.6m), including a £1.9m inflow (2011: £9.5m outflow) arising from lower working capital.  Overall working capital as a percentage of annualised sales fell to 14.7% from 15.5% at 31 December 2011, mainly as a result of relatively stable zinc and steel prices and marginally improved debtor and creditor days.  The strong cash generation resulted in a reduction in net debt to £89.1m (31 December 2011: £103.8m).

Capital expenditure of £6.3m represents a multiple of depreciation and amortisation of 0.9 times (2011: 1.0 times).  Full year capital expenditure is expected to be second half biased with spend of c.£21m, some 1.3 times depreciation and amortisation, principally as a result of the planned $10m investment in expansion of the US Galvanizing business.

 

In May 2012 we acquired the trade, certain assets and the intellectual property rights of Expamet Holdings Limited (In Administration), a North East UK manufacturer of expanded metal products, for a consideration of £0.5m.  The acquisition complements our existing Birtley operation, also based in the North East, increasing its product range and market share.

 

Change in net debt

	30 June 2012 £m	30 June  2011 £m	31 December 2011 £m
Change in net debt
Operating profit	21.0	9.9	32.9
Non-cash items	8.7	13.8	22.8
Operating cash flow before movement in working capital	29.7	23.7	55.7
Net movement in working capital	1.9	(9.5)	(16.1)
Change in provisions and employee benefits	(0.8)	(1.6)	(4.3)
Operating cash flow	30.8	12.6	35.3
Tax paid	(4.6)	(2.6)	(7.5)
Net financing costs paid	(2.6)	(5.0)	(7.7)
Capital expenditure	(6.3)	(7.3)	(12.6)
Proceeds on disposal of non-current assets	0.3	-	0.1
Free cash flow	17.6	(2.3)	7.6
Dividends paid	(4.2)	(4.0)	(9.8)
Purchase of shares for the employee benefit trust	-	(0.8)	(0.8)
Disposals	-	-	6.2
Acquisitions	(0.5)	(35.2)	(36.2)
Issue of new shares	0.3	0.1	0.1
Net debt decrease/(increase)	13.2	(42.2)	(32.9)
Effect of exchange rate fluctuations	1.5	(1.1)	(0.3)
Net debt at the beginning of the period	(103.8)	(70.6)	(70.6)
Net debt at the end of the period	(89.1)	(113.9)	(103.8)

 

The net debt to EBITDA ratio under the Group's principal banking facility fell to 1.5 times at 30 June 2012 (31 December 2011: 1.8 times) driven by healthy first half cash generation and strong earnings performance over the previous rolling 12 months.  Interest cover was 15.3 times (31 December 2011: 13.9 times).  The facilities available to the Group continue to provide significant headroom against its expected funding requirements.

 

Tax

 

The underlying effective tax rate for the period was 27.0% (2011: 29.0%) and is the estimated effective rate for the full year.  The tax charge for the period was £5.0m (2011: £3.3m).  As anticipated, tax paid of £4.6m (2011: £2.6m) is more in line with the income statement charge.

 

Finance costs

 

Net financing costs for the period were £2.1m (2011: £5.3m) with an underlying element of £1.9m (2011: £2.0m), the lower cost reflecting the reduction in the Group's net debt since December 2011.  Underlying operating profit covered net underlying finance costs 11.9 times (2011: 9.1 times).

 

Pensions

 

The triennial valuation of the Group's UK defined benefit pension arrangements as at April 2012 is underway and negotiations with the Trustees have commenced.  It is too early to predict the outcome of these discussions but it is currently expected that the results will be presented in the Annual Report at December 2012.

 

Principal Risks and Uncertainties

 

The Group has a process for identifying, evaluating and managing the principal risks it faces.  Details of these principal risks are contained on pages 18 and 19 of the Group's Annual Report and Accounts for the year ended 31 December 2011.  It is the Directors' opinion that these are the risks that could impact on the performance of the Group and that they are also applicable to the current financial year.

 

The Directors have continued with their strategy of increased geographical diversity and providing higher value added infrastructure products to niche markets to limit the potential impact of lower Government expenditure on major projects. 

 

Subject to the foregoing, for the six months ended 30 June 2012, there has been no significant change in the overall scope of the principal risks referred to above.  As in previous years such risks are being managed and their anticipated impact mitigated where possible.  The Directors do not therefore, envisage any significant effect of these changes upon the expected performance of the Group for the remainder of 2012, notwithstanding the continuing uncertainty in the general economic environment.

 

Going Concern

 

The Group meets its day-to-day working capital and other funding requirements through a combination of long term funding and short term overdraft borrowings.  The Group's principal financing facility is an amortising £210m multicurrency facility, which expires in 2016.

 

The Group actively manages its strategic, commercial and day-to-day operational risks and through its Treasury function operates Board approved financial policies, including hedging policies, that are designed to ensure the Group maintains an adequate level of funding headroom and effectively mitigates foreign exchange and other financial risks.

 

After making enquiries, the Directors have reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and therefore adopt the going concern principle.

 

Outlook

 

We have seen encouraging levels of demand in some of our markets producing a very good first half performance for the Group as a whole.  There is greater evidence of the momentum experienced over the last twelve months, particularly in the USA and Asia, continuing throughout 2012. However, as previously reported there is reduced activity in the UK due to the Olympics, with new road projects not commencing until the final quarter of 2012.  Furthermore, we remain cautious about the level of economic uncertainty within Europe.  Accordingly, whilst our first half performance has been encouraging, the outlook for the full year's performance remains unchanged.

 

We remain confident of further growth in the medium to long term, given the international diversity of our revenue stream and our excellent market positions.

 

Directors' Responsibility Statement

 

We confirm that to the best of our knowledge:

 

•     The condensed set of financial statements has been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU;

 

•     The Half Year management report includes a fair review of the information required by:

 

a)  DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

b)  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period including any changes in the related party transactions described in the last annual report that could do so.

 

This report was approved by the Board of Directors on 9 August 2012 and is available on the Company's website (www.hsholdings.com) under the "Latest News" or "Press Release" sections.

 

 

By order of the Board

 

 

 

W H Whiteley                D W Muir                                M Pegler

Chairman                      Group Chief Executive           Group Finance Director

                                                                                    

9 August 2012

 

 

 

 

Condensed Consolidated Income Statement

Six months ended 30 June 2012

 

		6 months ended 30 June 2012			6 months ended 30 June 2011			Year ended 31 December 2011
	Notes	Underlying  £m	Non- Underlying* £m	Total £m	Underlying   £m	Non- Underlying* £m	Total £m	Underlying   £m	Non- Underlying* £m	Total £m
Revenue	4,5	223.8	-	223.8	195.1	-	195.1	406.2	-	406.2
Trading profit		22.7	-	22.7	18.2	0.1	18.3	41.5	1.6	43.1
Amortisation of acquisition intangibles	6	-	(1.3)	(1.3)	-	(0.9)	(0.9)	-	(2.2)	(2.2)
Business reorganisation costs	6	-	(0.2)	(0.2)	-	(1.6)	(1.6)	-	(1.2)	(1.2)
Acquisition costs	6	-	(0.2)	(0.2)	-	(0.6)	(0.6)	-	(0.7)	(0.7)
Loss on disposal of subsidiary	6	-	-	-	-	(5.3)	(5.3)	-	(5.9)	(5.9)
Loss on sale of properties	6	-	-	-	-	-	-	-	(0.2)	(0.2)
Operating profit	4,5	22.7	(1.7)	21.0	18.2	(8.3)	9.9	41.5	(8.6)	32.9
Financial income	7	0.3	1.5	1.8	0.4	1.8	2.2	0.8	3.7	4.5
Financial expense	7	(2.2)	(1.7)	(3.9)	(2.4)	(5.1)	(7.5)	(4.9)	(7.1)	(12.0)
Profit before taxation	8	20.8	(1.9)	18.9	16.2	(11.6)	4.6	37.4	(12.0)	25.4
Taxation		(5.6)	0.6	(5.0)	(4.7)	1.4	(3.3)	(10.8)	1.5	(9.3)
Profit for the year attributable to owners of the parent		15.2	(1.3)	13.9	11.5	(10.2)	1.3	26.6	(10.5)	16.1
Basic earnings per share	9	19.7p		18.0p	15.0p		1.7p	34.5p		20.9p
Diluted earnings per share	9	19.6p		17.9p	14.7p		1.7p	34.2p		20.7p
Dividend per share - Interim	10			5.8p			5.4p

 

* The Group's definition of Non-Underlying items is included in note 6.

 

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2012

 

	6 months ended 30 June 2012 £m	6 months ended 30 June 2011 £m	Year ended 31 December 2011 £m
Profit for the year	13.9	1.3	16.1
Exchange differences on translation of overseas operations	(3.7)	0.5	(0.5)
Exchange differences on foreign currency borrowings denominated as net investment hedges	1.5	(0.5)	(0.4)
Effective portion of changes in fair value of cash flow hedges	(0.6)	0.1	(0.2)
Transfers to the income statement on cash flow hedges	0.1	0.7	0.8
Actuarial loss on defined benefit pension schemes	-	-	(8.4)
Taxation on items taken directly to other comprehensive income	0.1	(0.1)	1.6
Other comprehensive income for the period	(2.6)	0.7	(7.1)
Total comprehensive income for the period attributable to the equity holders of the parent	11.3	2.0	9.0

 

 

 

 

Condensed Consolidated Balance Sheet

As at 30 June 2012

 

	Notes	30 June 2012 £m	30 June 2011 £m	31 December 2011 £m
Non-current assets
Intangible assets		127.6	132.3	130.9
Property, plant and equipment		102.3	106.4	104.9
		229.9	238.7	235.8
Current assets
Assets held for sale		-	11.1	-
Inventories		59.1	58.1	56.2
Trade and other receivables		95.9	87.8	90.8
Cash and cash equivalents	11	9.8	10.1	12.7
		164.8	167.1	159.7
Total assets		394.7	405.8	395.5
Current liabilities
Liabilities held for sale		-	(5.2)	-
Trade and other liabilities		(89.4)	(82.8)	(79.5)
Current tax liabilities		(12.4)	(9.1)	(11.3)
Provisions for liabilities and charges		(0.5)	(0.5)	(0.5)
Interest bearing borrowings	11	(3.0)	(5.1)	(4.1)
		(105.3)	(102.7)	(95.4)
Net current assets		59.5	64.4	64.3
Non-current liabilities
Other liabilities		(0.2)	(0.2)	(0.2)
Provisions for liabilities and charges		(3.4)	(4.0)	(3.5)
Deferred tax liability		(15.8)	(19.8)	(17.0)
Retirement benefit obligation		(15.9)	(10.6)	(16.4)
Interest bearing borrowings	11	(95.9)	(118.9)	(112.4)
		(131.2)	(153.5)	(149.5)
Total liabilities		(236.5)	(256.2)	(244.9)
Net assets		158.2	149.6	150.6
Equity
Share capital		19.3	19.2	19.2
Share premium		29.4	29.2	29.2
Other reserves		4.5	4.5	4.5
Translation reserve		3.5	6.6	5.7
Hedge reserve		(0.9)	(0.2)	(0.5)
Retained earnings		102.4	90.3	92.5
Total equity		158.2	149.6	150.6

 

 

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2012

 

	Share capital £m	Share premium £m	Other reserves† £m	Translation reserves £m	Hedge  reserve £m	Retained earnings £m	Total equity £m
Opening balance	19.2	29.2	4.5	5.7	(0.5)	92.5	150.6
Profit for the year	-	-	-	-	-	13.9	13.9
Other comprehensive income for the period	-	-	-	(2.2)	(0.4)	-	(2.6)
Dividends	-	-	-	-	-	(4.2)	(4.2)
Credit to equity of share-based payments	-	-	-	-	-	0.2	0.2
Shares issued	0.1	0.2	-	-	-	-	0.3
Closing balance	19.3	29.4	4.5	3.5	(0.9)	102.4	158.2

 

 

Six months ended 30 June 2011

	Share capital £m	Share premium £m	Other reserves† £m	Translation reserves £m	Hedge  reserve £m	Retained earnings £m	Total equity £m
Opening balance	19.2	29.1	4.5	6.6	(0.9)	93.6	152.1
Profit for the year	-	-	-	-	-	1.3	1.3
Other comprehensive income for the period	-	-	-	-	0.7	-	0.7
Dividends	-	-	-	-	-	(4.0)	(4.0)
Credit to equity of share-based payments	-	-	-	-	-	0.2	0.2
Satisfaction of long term incentive plan	-	-	-	-	-	(0.8)	(0.8)
Shares issued	-	0.1	-	-	-	-	0.1
Closing balance	19.2	29.2	4.5	6.6	(0.2)	90.3	149.6

 

 

Year ended 31 December 2011

	Share capital £m	Share premium £m	Other reserves† £m	Translation reserves £m	Hedge  reserve £m	Retained earnings £m	Total equity £m
Opening balance	19.2	29.1	4.5	6.6	(0.9)	93.6	152.1
Profit for the year	-	-	-	-	-	16.1	16.1
Other comprehensive income for the period	-	-	-	(0.9)	0.4	(6.6)	(7.1)
Dividends	-	-	-	-	-	(9.8)	(9.8)
Credit to equity of share-based payments	-	-	-	-	-	0.2	0.2
Tax taken directly to the consolidated statement of changes in equity	-	-	-	-	-	(0.2)	(0.2)
Satisfaction of long term incentive plan	-	-	-	-	-	(0.8)	(0.8)
Shares issued	-	0.1	-	-	-	-	0.1
Closing balance	19.2	29.2	4.5	5.7	(0.5)	92.5	150.6

 

† Other reserves represents the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m capital redemption reserve.

 

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2012       

 

	Notes	6 months ended 30 June 2012		6 months ended 30 June 2011		Year ended 31 December 2011
		£m	£m	£m	£m	£m	£m
Profit before tax			18.9		4.6		25.4
Add back net financing costs			2.1		5.3		7.5
Operating profit	4, 5		21.0		9.9		32.9
Adjusted for non-cash items:
Share-based payments		0.2		0.2		0.2
Loss on disposal of subsidiaries	6	-		5.3		5.9
Movement in fair value of forward currency contracts		-		(0.1)		(0.4)
Loss on disposal of non-current assets		-		0.3		0.3
Depreciation		6.6		6.6		13.3
Amortisation of intangible assets		1.9		1.5		3.5
			8.7		13.8		22.8
Operating cash flow before movement in working capital			29.7		23.7		55.7
Increase in inventories		(3.0)		(8.4)		(7.0)
Increase in receivables		(5.8)		(10.3)		(15.0)
Increase in payables		10.7		9.2		5.9
Decrease in provisions and employee benefits		(0.8)		(1.6)		(4.3)
Net movement in working capital			1.1		(11.1)		(20.4)
Cash generated by operations			30.8		12.6		35.3
Income taxes paid			(4.6)		(2.6)		(7.5)
Interest paid			(2.9)		(2.3)		(5.2)
Net cash from operating activities			23.3		7.7		22.6
Interest received		0.3		0.5		0.8
Proceeds on disposal of non-current assets		0.3		-		0.1
Purchase of property, plant and equipment		(6.1)		(7.2)		(11.9)
Purchase of intangible assets		(0.2)		(0.1)		(0.7)
Disposal of subsidiaries		-		-		5.1
Deferred consideration received in respect of disposals		-		-		1.1
Acquisitions of subsidiaries		(0.5)		(35.2)		(36.2)
Net cash used in investing activities			(6.2)		(42.0)		(41.7)
Issue of new shares		0.3		0.1		0.1
Purchase of shares for the employee benefit trust		-		(0.8)		(0.8)
Dividends paid	10	(4.2)		(4.0)		(9.8)
New loans raised		0.9		118.0		156.7
Costs associated with refinancing revolving credit facility		-		(2.9)		(3.0)
Repayment of loans		(14.8)		(91.1)		(134.6)
Repayment of obligations under finance leases		(1.9)		(1.9)		(3.8)
Net cash used in financing activities			(19.7)		17.4		4.8
Net decrease in cash			(2.6)		(16.9)		(14.3)
Cash at the beginning of the year			12.7		27.0		27.0
Effect of exchange rate fluctuations			(0.3)		-		-
Cash at the end of the period	11		9.8		10.1		12.7

 

 

 

 

Notes to the Condensed Consolidated Interim Financial Statements

 

1. Basis of preparation

Hill & Smith Holdings PLC is incorporated in the UK.  The Condensed Consolidated Interim Financial Statements of the Company have been prepared on the basis of International Financial Reporting Standards, as adopted by the EU ('Adopted IFRSs') that are effective at 8 August 2012 and in accordance with IAS34: Interim Financial Reporting, comprising the Company, its subsidiaries and its interests in jointly controlled entities (together referred to as the 'Group').

 

As required by the Disclosure and Transparency Rules of the Financial Services Authority, the Condensed Consolidated Interim Financial Statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published Consolidated Financial Statements for the year ended 31 December 2011 (these statements do not include all of the information required for full annual financial statements and should be read in conjunction with the full annual report for the year ended 31 December 2011), except for the following which became effective and were adopted by the Group:

 

·      Amendments to IFRS7 - Disclosures - Transfers of financial assets (effective for annual periods beginning on or after 1 July 2011)

 

The adoption of these standards and interpretations has not had a significant impact on the results for the period.

 

The comparative figures for the financial year ended 31 December 2011 are not the Company's statutory accounts for that financial year.  Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies.  The report of the auditors was (i) unqualified, (ii) did not include a reference 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.

 

These Condensed Consolidated Interim Financial Statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board's Guidance on Financial Information.

 

The financial statements are prepared on the going concern basis.  This is considered appropriate given that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future.

 

2. Financial risks, estimates, assumptions and judgements

The preparation of the Condensed Consolidated Interim Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from estimates.

 

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2011.

 

3. Exchange rates

The principal exchange rates used were as follows:

 

	6 months ended 30 June 2012		6 months ended 30 June 2011		Year ended 31 December 2011
	Average	Closing	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.22	1.24	1.15	1.11	1.15	1.20
Sterling to US Dollar (£1 = USD)	1.58	1.57	1.62	1.61	1.60	1.55
Sterling to Thai Bhat (£1 = THB)	49.09	49.52	49.47	49.30	48.87	48.79
Sterling to Swedish Krona (£1 = SEK)	10.80	10.83	10.28	10.13	10.41	10.66

 

4. Segmental information

The Group has four reportable segments which are Infrastructure Products - Roads, Infrastructure Products - Utilities, Galvanizing Services and Building and Construction Products.  Several operating segments that have similar economic characteristics have been aggregated into these reporting segments.

 

For the six months ended 30 June 2012, the Group has expanded its reportable segments to better reflect the way in which the Group's operations are focused.  Previously the Infrastructure Products segment was reported as one.  In 2012 this segment has been subdivided into Roads and Utilities to reflect the inherently different characteristics in each of these market sectors in which the Group operates.  The Group sets its strategies and targets to take account of these differing market features and the Chief Operating Decision Maker receives financial information reported on this basis.

 

Following the disposal of Ash & Lacy Building Systems Limited in July 2011, there are no businesses remaining in the Building and Construction Products segment.

 

The comparatives in this note have been restated accordingly.

 

The acquisition detailed in note 12 falls into the Infrastructure Products - Utilities segment.

 

 

 

Income Statement

	6 months ended 30 June 2012			6 months ended 30 June 2011 (restated)
	Revenue £m	Result £m	Underlying result* £m	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	101.9	6.8	7.9	72.0	1.9	3.1
Infrastructure Products - Roads	58.9	2.4	2.7	51.6	4.0	4.4
Infrastructure Products - Total	160.8	9.2	10.6	123.6	5.9	7.5
Galvanizing Services	63.0	11.8	12.1	59.9	10.3	10.8
Building and Construction Products	-	-	-	11.6	(6.3)	(0.1)
Total Group	223.8	21.0	22.7	195.1	9.9	18.2
Net financing costs		(2.1)	(1.9)		(5.3)	(2.0)
Profit before taxation		18.9	20.8		4.6	16.2

 

 

	Year ended 31 December 2011 (restated)
	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	167.0	10.0	11.5
Infrastructure Products - Roads	109.1	8.0	8.4
Infrastructure Products - Total	276.1	18.0	19.9
Galvanizing Services	118.5	21.0	21.6
Building and Construction Products	11.6	(6.1)	-
Total Group	406.2	32.9	41.5
Net financing costs		(7.5)	(4.1)
Profit before taxation		25.4	37.4
Taxation		(9.3)	(10.8)
Profit after taxation		16.1	26.6

 

 

* Underlying result is stated before Non-Underlying items as defined in note 6 and is the measure of segment profit used by the Chief Operating Decision Maker, who is the Chief Executive.  The Result columns are included as additional information.

 

Galvanizing Services provided £2.4m revenues to Infrastructure Products - Roads (six months ended 30 June 2011: £2.5m, the year ended 31 December 2011: £4.7m) and £0.9m revenues to Infrastructure Products - Utilities (six months ended 30 June 2011: £0.8m, the year ended 31 December 2011: £1.6m).  Infrastructure Products - Utilities provided £0.6m revenues to Infrastructure Products - Roads (six months ended 30 June 2011: £1.3m, the year ended 31 December 2011: £1.8m).  These internal revenues, along within revenues generated within each segment, have been eliminated on consolidation.

 

The Group presents the analysis of continuing operations revenue by geographical market, irrespective of origin:

 

	6 months ended 30 June 2012 £m	6 months ended 30 June 2011 £m	Year ended  31 December 2011 £m
UK	95.3	95.4	184.9
Rest of Europe	56.7	48.8	102.3
USA	59.7	40.2	92.2
Asia and the Middle East	8.0	7.2	21.1
Rest of World	4.1	3.5	5.7
Total	223.8	195.1	406.2

 

5. Operating Profit

	6 months ended 30 June 2012 £m	6 months ended 30 June 2011 £m	Year ended  31 December 2011 £m
Revenue	223.8	195.1	406.2
Cost of sales	(148.1)	(131.7)	(269.3)
Gross profit	75.7	63.4	136.9
Distribution costs	(12.0)	(10.8)	(18.9)
Administrative expenses	(43.2)	(37.9)	(79.7)
Loss on sale of non-current assets	-	(0.3)	(0.3)
Loss on disposal of subsidiaries	-	(5.3)	(5.9)
Other operating profit	0.5	0.8	0.8
Operating profit	21.0	9.9	32.9

 

 

6. Non-Underlying items

Non-underlying items are disclosed separately in the consolidated income statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group. 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

·      Expenses associated with acquisitions

·      Impairment charges in respect of tangible or intangible fixed 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

·      Net financing costs or returns on defined benefit pension obligations

·      Costs incurred as part of significant refinancing activities.

 

The tax effect of the above is also included.

 

Details in respect of the Non-underlying items recognised in the current and prior year are set out below.

 

Six months ended 30 June 2012

Non-underlying items included in operating profit comprise the following:

 

·      Business reorganisation costs of £0.2m, principally relating to redundancies and other associated costs.

·      Acquisition costs of £0.2m relating to the acquisition made during the period (see note 12).

·      Amortisation of acquired intangible fixed assets of £1.3m.

 

Non-underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.2m.

 

Year ended 31 December 2011

Non-underlying items included in operating profit comprise the following:

 

·      Business reorganisation costs of £1.2m, principally relating to redundancies and other costs associated with site closures. 

·      Amortisation of acquired intangible fixed assets of £2.2m.

·      Acquisition related expenses of £0.7m in respect of the two acquisitions made by the Group during the year.

·      Losses on sale of properties of £0.2m.

·      A gain of £1.6m in respect of the Group's UK defined benefit pension obligations following amendments to the inflation assumptions and changes in the terms of the UK Executive Scheme.  In addition, a loss of £0.4m was recognised in respect of the Group's French defined benefit pension obligations following changes in local legislation.

·      Gains of £0.4m in respect of the fair value of forward foreign currency contracts.

·      A loss of £5.9m on the disposal of Ash & Lacy Building Systems Limited, a non-core business, on 22 July 2011, the details of which are included in the following table:

 

	£m
Intangible assets	5.1
Property, plant and equipment	1.0
Inventories	3.4
Current assets	6.0
Current liabilities	(5.2)
Deferred tax	0.1
Net assets	10.4
Consideration:
Consideration receivable	5.1
Less costs to sell and provisions for indemnities	(0.6)
Loss on disposal	5.9

 

Non-Underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.2m, gains in the fair value of financial instruments of £0.1m and costs of £3.3m associated with the Group's refinancing of its revolving credit facility.

 

 

7. Net financing costs

	6 months ended 30 June 2012 £m	6 months ended 30 June  2011 £m	Year ended 31 December 2011 £m
Interest on bank deposits	0.3	0.4	0.8
Change in fair value of financial assets and liabilities	-	-	0.1
Expected return on pension scheme assets	1.5	1.8	3.6
Total other income	1.5	1.8	3.7
Financial income	1.8	2.2	4.5
Interest on bank loans and overdrafts	2.1	2.2	4.5
Interest on finance leases and hire purchase contracts	0.1	0.2	0.4
Interest on other loans	-	-	-
Total interest expense	2.2	2.4	4.9
Financial expenses related to refinancing	-	3.2	3.3
Expected interest cost on pension scheme obligations	1.7	1.9	3.8
Financial expense	3.9	7.5	12.0
Net financing costs	2.1	5.3	7.5

 

8. Taxation

Tax has been provided on the underlying profit at the estimated effective rate of 27.0% (2011: 29.0%) for existing operations for the full year.

 

9. Earnings per share

The weighted average number of ordinary shares in issue during the period was 77.0m, diluted for the effect of outstanding share options 77.7m (six months ended 30 June 2011: 76.9m and 77.8m diluted, the year ended 31 December 2011: 76.9m and 77.7m diluted).

 

Underlying earnings per share are shown below as the Directors consider that this measurement of earnings gives valuable information on the underlying performance of the Group:

 

	6 months ended 30 June 2012		6 months ended 30 June 2011		Year ended 31 December 2011
	Pence per share	£m	Pence per share	£m	Pence per share	£m
Basic earnings	18.0	13.9	1.7	1.3	20.9	16.1
Non-Underlying items*	1.7	1.3	13.3	10.2	13.6	10.5
Underlying earnings	19.7	15.2	15.0	11.5	34.5	26.6
Diluted earnings	17.9	13.9	1.7	1.3	20.7	16.1
Non-Underlying items*	1.7	1.3	13.0	10.2	13.5	10.5
Underlying diluted earnings	19.6	15.2	14.7	11.5	34.2	26.6

 

*  Non-Underlying items as detailed in note 6.

 

10. Dividends

Dividends paid in the period were the prior year's interim dividend of £4.2m (2011: £4.0m). The final dividend for 2011 of £6.0m (2011: £5.8m) was paid on 6 July 2012. Dividends declared after the balance sheet date are not recognised as a liability, in accordance with IAS10. The Directors have proposed an interim dividend for the current year of £4.5m, 5.8p per share (2011: £4.2m, 5.4p per share).

 

 

11. Analysis of net debt

	30 June 2012 £m	30 June  2011 £m	31 December 2011 £m
Cash and cash equivalents	9.8	10.1	12.7
Interest bearing loans and borrowings due within one year	(3.0)	(5.1)	(4.1)
Interest bearing loans and borrowings due after one year	(95.9)	(118.9)	(112.4)
Net debt	(89.1)	(113.9)	(103.8)

 

 

	30 June 2012 £m	30 June  2011 £m	31 December 2011 £m
Change in net debt
Operating profit	21.0	9.9	32.9
Non-cash items	8.7	13.8	22.8
Operating cash flow before movement in working capital	29.7	23.7	55.7
Net movement in working capital	1.9	(9.5)	(16.1)
Change in provisions and employee benefits	(0.8)	(1.6)	(4.3)
Operating cash flow	30.8	12.6	35.3
Tax paid	(4.6)	(2.6)	(7.5)
Net financing costs paid	(2.6)	(5.0)	(7.7)
Capital expenditure	(6.3)	(7.3)	(12.6)
Proceeds on disposal of non-current assets	0.3	-	0.1
Free cash flow	17.6	(2.3)	7.6
Dividends paid (note 10)	(4.2)	(4.0)	(9.8)
Purchase of shares for the employee benefit trust	-	(0.8)	(0.8)
Disposals	-	-	6.2
Acquisitions	(0.5)	(35.2)	(36.2)
Issue of new shares	0.3	0.1	0.1
Net debt decrease/(increase)	13.2	(42.2)	(32.9)
Effect of exchange rate fluctuations	1.5	(1.1)	(0.3)
Net debt at the beginning of the period	(103.8)	(70.6)	(70.6)
Net debt at the end of the period	(89.1)	(113.9)	(103.8)

 

 

 

12. Acquisitions

On 23 May 2012 the Group acquired the trade and certain of the assets and liabilities of Expamet Holdings Limited and subsidiaries (In Administration).  Details of this acquisition are as follows:

 

Expamet Holdings Limited (In Administration)	Carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets	-	0.1	0.1
Property, plant and equipment	0.4	-	0.4
Inventories	0.6	-	0.6
Total assets	1.0	0.1	1.1
Current liabilities	(0.6)	-	(0.6)
Net assets	0.4	0.1	0.5
Consideration
Consideration in the year			0.5
Goodwill			-
Cash flow effect
Consideration paid			0.5
Net cash consideration shown in the consolidated statement of cash flows			0.5

 

Customer relationships have been recognised as a specific intangible asset as a result of the acquisition.  Policy alignment and fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the provisional application of fair values on acquisition.  Post acquisition the business acquired has contributed £1.7m revenue and £nil underlying operating profit, which are included in the Group's Condensed Consolidated Income Statement. 

 

 

ENDS