Hill & Smith Holdings PLC

 

HALF YEAR RESULTS (UNAUDITED) FOR

6 MONTHS ENDED 30 JUNE 2013

 

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 2013.

 

Key points:

 

·    First half performance in line with the outlook announced in March

 

·    After a slow first quarter, momentum picked up in second quarter with good evidence of sustained recovery for the second half

 

·    Profitability from Roads business improved by 100% compared with same period last year

 

·    Utilities business unable to replicate the exceptional start to 2012 due to fewer large projects

 

·    Galvanizing delivered a robust performance, with improved profitability in the USA

 

·    Interim dividend increased by 3.4% to 6.0p per share

 

·    Net debt increased to £102.5m (31 December 2012: £86.8m) primarily as a result of the acquisition of Medway Galvanising in the UK and completion of the new galvanizing plant in Columbus, USA

 

Financial results

	30 June 2013	30 June 2012	Change
Revenue	£221.6m	£223.8m	- 1%
Underlying operating profit*	£20.2m	£22.7m	- 11%
Underlying profit before taxation*	£18.5m	£20.8m	- 11%
Profit before taxation	£15.7m	£18.9m	- 17%
Underlying earnings per share*	17.7p	19.7p	- 10%
Basic earnings per share	15.0p	18.0p	- 17%
Dividend per share	6.0p	5.8p	3%

 

*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.

 

Derek Muir, Chief Executive, said:

 

"After a slow first quarter, we are now seeing evidence of increased project momentum in Infrastructure Products and expect a stronger second half, albeit tempered by the reduced pipe supports order book for delivery in 2013. In Galvanizing, the US remains strong at similar levels to 2012 with continued benefits from operational efficiencies and production from the new plant in Columbus as from April 2013.  Whilst the French galvanizing market remains challenging, the UK is broadly in line with last year and will benefit from the acquisition of Medway Galvanising, which was completed on 30 April 2013.

 

"Overall, as previously indicated, we continue to expect agreater weighting towards the second half, although our full year performance is likely to be marginally below our previous expectations.  The board remains confident that, in the medium to long term, our international diversity and market strength will continue to provide the resilience of performance seen in previous years."

 

 

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/James Rudd

 

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, India and Australia.

 

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 8 countries.

 

 

Business Review

 

Introduction

Our performance for the first half of 2013 was in line with the outlook provided with the full year results in March and the Interim Management Statement issued on 15 May.

 

As expected, trading across the group started slowly in the first quarter, returning to more normalised levels during the second quarter.  Galvanizing delivered a robust performance, with a weaker result from France being offset by improved profitability in the USA.  Infrastructure Products performance reflected improved profitability from our Roads business compared to the same period last year, offset by the Utilities business' exceptional start to 2012 not being replicated due to fewer large projects.

 

The diversity and strength of our international businesses within their respective markets underpins our performance.  Profit from our US operations continued to be strong, representing 47% of underlying group operating profit (2012: 47%) and 68% of our total group underlying profit was generated from our operations outside of the UK (2012: 73%).

 

Results

Revenue fell by 1% to £221.6m (2012: £223.8m) after taking account of a favourable currency translation impact of £4.0m. Adjusting for revenue of £8.6m arising from acquisitions, underlying revenue fell by £14.8m, or 6% at constant currency. Underlying operating margin was 9.1% (2012: 10.1%) with an underlying operating profit of £20.2m (2012: £22.7m), including a favourable currency translation impact of £0.6m.  Acquisitions contributed £0.6m of underlying operating profit.

 

Underlying profit before taxation at £18.5m was 11% down on the previous year (2012: £20.8m).  Profit before taxation was £15.7m (2012: £18.9m).

 

Underlying earnings per share at 17.7p was down 10% compared to the previous year (2012: 19.7p).  Basic earnings per share was 15.0p (2012: 18.0p).

 

Following the acquisition of Medway Galvanising in the UK and completion of the new galvanizing production facility in Columbus, USA, net debt increased to £102.5m (31 December 2012: £86.8m), including an adverse currency translation impact of £2.9m.

 

Dividend

The board has declared an interim dividend of 6.0p per share (2012: 5.8p), representing a 3.4% increase on the corresponding period last year. The interim dividend is covered 3.0 times (2012: 3.4 times) by underlying earnings per share.  The interim dividend will be paid on 7 January 2014 to the shareholders on the register on 22 November 2013.

 

Outlook

After a slow first quarter, we are now seeing evidence of increased project momentum in Infrastructure Products and expect a stronger second half, albeit tempered by the reduced pipe supports order book for delivery in 2013. In Galvanizing, the US remains strong at similar levels to 2012 with continued benefits from operational efficiencies and production from the new plant in Columbus as from April 2013.  Whilst the French galvanizing market remains challenging, the UK is broadly in line with last year and will benefit from the acquisition of Medway Galvanising, which was completed on 30 April 2013.

 

Overall, as previously indicated, we continue to expect agreater weighting towards the second half, although our full year performance is likely to be marginally below our previous expectations.  The board remains confident that, in the medium to long term, our international diversity and market strength will continue to provide the resilience of performance seen in previous years.

 

Operational Review

Infrastructure Products

Overall revenues fell slightly to £158.0m (2012: £160.8m) which included a £2.2m benefit from exchange movements. Adjusting for acquisitions, revenues fell by £12.3m, or 8% at constant currency.

                                                                                                                                          

Underlying operating profit was £7.9m (2012: £10.6m), including a currency translation benefit of £0.2m, reflecting a reduced operating margin of 5.0% (2012: 6.6%).  Acquisitions accounted for £0.4m of underlying operating profit. 

 

Roads

Revenues of £56.5m were 4% below the prior year (2012: £58.9m), however underlying operating profit increased from £2.7m to £5.4m and operating margins increased to 9.6% (2012: 4.6%).

Trading in the UK has been in line with our expectations, with five Managed Motorway schemes under construction in the period resulting in more normalised levels of utilisation of Varioguard, our temporary vehicle restraint system, the largest project being on the M25 where 60 kilometres of Varioguard are currently in use.

 

In June 2013 the UK Government announced additions to the roads programme, with these schemes scheduled to start after 2015.  Schemes already announced in 2011/12 and 2013 are now on track to start in 2013/14.  As a result we anticipate high utilisation of our fleet in the final quarter of 2013 and throughout 2014 and are therefore making a further £4m investment to increase our rental fleet by 25 kilometres to cover the additional anticipated demand.

 

Techspan, our variable message sign business, delivered a £1m top-up order to the Highways Agency and won a £7.4m four-year framework agreement for the supply of ancillary equipment for electronic roadside infrastructure.  We also secured a large contract for Transport for Wales to provide journey time and data collection using both our EVO8 ANPR camera and our BlackCat classifier, further demonstrating the compatibility of our product range to collect and combine vital information for management of road networks.

 

We continue to strengthen our position as an international supplier of tested road safety products.  In the period we received approval in Australia for our temporary vehicle restraint system, Zoneguard, and an agreement has been signed with a long term partner for supply to the Australian market, the first shipment being planned for August.  In the USA we have made progress in identifying and appointing distributors for Zoneguard where full approval has been granted.  We are benefitting from the two-year USA Roads Bill put in place at the end of 2012 and the utilisation of our rental fleet therefore remains high throughout the summer months.

 

There has been an improved performance from ATA, our Scandinavian operation, with sales of Brifen Wire Rope safety barrier, noise barrier and rental products.  Brifen has also gained traction in India with orders for over 120km to be supplied in the second half for toll road projects, the manufacture of which will be carried out in the UK and in India.  This emerging market shows encouraging signs of product acceptance for our fully tested system and we have recently secured a global supply agreement from an Indian wire rope manufacturer.

 

Our lighting column business in the UK benefitted from supplying five PFIs, despite the UK local authority market remaining challenging.  Conditions in France were similarly difficult in the first quarter but volumes have since returned to more normalised levels.  The investment in a new automatic press in France will be completed in September and will deliver improved efficiencies and lower manufacturing costs.

 

Utilities

Revenues were in line with prior year at £101.5m (2012: £101.9m).  Underlying operating profit decreased to £2.5m from £7.9m, with a reduction in operating margins to 2.5% (2012: 7.8%).  Prior year acquisitions contributed £7.3m revenues and £0.4m of underlying operating profit.

 

Our USA based transmission structures and substation business performed well due to the continuing demand for upgrades and connection of renewable projects to the grid.  We entered 2013 with a strong order book, which has remained stable.  Our largest project was a $3m structure for a new substation for Associated Electric Cooperative at New Madrid, Missouri as part of the transmission grid upgrade.

 

With the focus on investment in renewable energy and improving the transmission grid together with a lower demand for power, decisions to build new power plants in the USA continue to be delayed.  Accordingly, our US pipe supports business has had a slow start to the year and this is set to continue until we see new enquiries for gas-fired power stations.  Our pipe supports business in the rest of the world entered 2013 with a strong order book buoyed by emerging market power demand.  However, as previously indicated, capacity constraints in Thailand forced some larger projects to be manufactured in the UK facility thus increasing costs and depressing margins.  Our Indian facility has now been accredited with ISO9001 which will allow for the supply of future projects in India at a lower cost base.  We expect the Indian factory to become profitable in the final quarter of 2013.

 

During the period we signed global supply agreements with METSO for the supply of supports for power plants and paper mills and with JGC for the supply of cryogenic supports.  Our order book for engineered pipe supports is currently £13.6m (Dec 2012: £16.0m).  The extent to which this benefits the second half performance for Bergen Pipe Supports will depend on customer project timing requirements.

 

Creative Pultrusions, our composites company in the USA, whilst lacking the large one-off ballistic panel order it enjoyed in the first quarter of 2012, was successful in supplying piling for coastal protection to the Statue of Liberty, New York and the Boardwalk at Long Beach, New Jersey as part of the rebuilding taking place in the aftermath of Superstorm Sandy.  For the second half, the business has secured coverboard projects amounting to $3.5m for the Hawaii and San Francisco metros, to be supplied in the final quarter of this year.

The UK Water Industry's Asset Management Programme (AMP5), now in its fourth year, has seen the completion of interconnecting pipework for a number of sewage treatment plants.  Whilst revenues for AMP5 were lower in the first half they will be boosted in H2 by the £2m Lee Valley sewer outfall project.  Enquiries for large AMP5 flood alleviation tanks are increasing and we expect to receive orders in either Q4 or Q1 2014.  Demand for storm attenuation tanks for the housing market also looks encouraging for [the foreseeable future] as this sector continues to recover.

 

Access Design, which manufactures secondary steelwork and industrial flooring and handrails for AMP5, was downsized early in the year to reduce our exposure to the challenging and highly competitive contracting arena.  During the first half we continued the completion of a number of low margin contracts and a more selective approach has been taken to securing work in this market.  Accordingly, there will be a period of stabilisation for the business, during which it will continue to seek opportunities in the areas of waste to energy, Crossrail, and glass reinforced plastic (GRP) rail platforms.  The supply-only work for the flooring and handrails side of the business continues to flourish and investment in new equipment has been made to improve product efficiency and increase export opportunities.

 

Acquired in May 2012, Expamet Building Systems, based in Hartlepool, supplies expanded metal products through major builders' merchants and DIY retailers and was successfully integrated into Birtley Building Products, which is also based in the north east of the UK.  The combination of Birtley and Expamet has seen increased demand for its products as the level of new builds in the housing sector recovers and although the Expamet business has low margins, the enlarged business is currently on track for a record year. 

 

Our solar panel mounting system was supplied into large solar farm projects in the south of England and this market looks set to remain interesting for the foreseeable future.  This new market has also created opportunities for the supply of perimeter fencing as security for these sites.

 

Galvanizing Services

Revenue increased by 1% to £63.6m (2012: £63.0m), including favourable currency movements of £1.8m and a £1.3m contribution from the Medway acquisition made during the period.  Underlying operating profit increased by 2% to £12.3m (2012: £12.1m) including £0.4m currency benefit and £0.2m from the acquisition.  Overall volumes were 1% behind the same period in the prior year primarily due to weaker first quarter output in the USA and France.  Operating margins remained strong at 19.3% (2012: 19.2%) with zinc prices having remained relatively stable throughout the period.

 

USA

Volumes were down 4% compared with the excellent performance in the same period in 2012 primarily due to lower volumes of power transmission poles through one of our plants.  This changed the mix towards smaller higher margin projects and together with operational efficiencies from the new galvanizing plant in Columbus, Ohio, led to increased profitability in the period despite the lower volumes.

 

France

Volumes were down 6% compared with H1 2012. Despite a large one-off contract for galvanizing transmission and lighting poles, the business experienced a slow start to the year in which, at the end of the first quarter, volumes were 14% down on the same period in 2012.  The recovery in the second quarter, where volumes were 2.4% ahead of last year, was encouraging, but we expect volumes to be lower in H2 due to the completion of the aforementioned contract in June.

 

UK

Volumes improved by 6% compared with 2012 due to an improvement in the structural steel market from waste to energy projects and upgrades to existing power plants.

 

On 30 April 2013 the group acquired Medway Galvanising Company Limited, which operates a large plant in Kent, for an enterprise value of £6.4m, representing an EBITDA multiple of 4.4 times.  Medway has a strong tradition in service for galvanizing, powder coating and shot blasting.  This acquisition has enabled us to offer enhanced galvanizing service packages throughout the south east of England.  As part of the ongoing strategy to optimise our UK network, we closed and sold our east London site located near the Olympic Park in July for a cash consideration of £2.5m.

 

Financial Review

Cash generation and financing

Cash generated from operations during the period was £19.1m (2012: £30.8m), which was lower than normally experienced due to a £6.0m outflow (2012: £1.9m inflow) arising from higher working capital requirements as a result of trading patterns experienced in 2013.  Overall working capital as a percentage of annualised sales was 15.7% at 30 June 2013 (2012: 14.7%), the increase reflecting a marginal rise in debtor days to 62 days (30 June 2012: 58 days; 31 December 2012: 61 days).  There were no material impacts from movements in zinc and commodity prices during the period. 

 

Capital expenditure of £10.2m represents a multiple of depreciation and amortisation of 1.4 times (2012: 0.9 times) and includes £3m expended on completion of the group's new galvanizing facility in Columbus, Ohio.

 

Group net debt at 30 June 2013 was £102.5m, an increase of £15.7m since 31 December 2012 (£86.8m) including an adverse exchange impact of £2.9m resulting from the depreciation of Sterling against both the Euro and US Dollar during the period.

                                                                                                                                                          

Change in net debt

	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended  31 December 2012 £m
Change in net debt
Operating profit	17.8	21.0	39.2
Non-cash items	8.8	8.7	17.5
Operating cash flow before movement in working capital	26.6	29.7	56.7
Net movement in working capital	(6.0)	1.9	3.7
Change in provisions and employee benefits	(1.5)	(0.8)	(2.0)
Operating cash flow	19.1	30.8	58.4
Tax paid	(11.0)	(4.6)	(11.6)
Net financing costs paid	(1.7)	(2.6)	(4.3)
Capital expenditure	(10.2)	(6.3)	(18.3)
Proceeds on disposal of non-current assets	0.2	0.3	0.5
Free cash flow	(3.6)	17.6	24.7
Dividends paid (note 10)	(4.5)	(4.2)	(10.2)
Acquisitions	(6.4)	(0.5)	(0.5)
Issue of new shares	1.7	0.3	0.5
Net debt (increase)/decrease	(12.8)	13.2	14.5
Effect of exchange rate fluctuations	(2.9)	1.5	2.5
Net debt at the beginning of the period	(86.8)	(103.8)	(103.8)
Net debt at the end of the period	(102.5)	(89.1)	(86.8)

 

The net debt to EBITDA ratio under the group's principal banking facility increased to 1.8 times at 30 June 2013 (31 December 2012: 1.5 times), driven by the lower first half earnings and the impact of currency movements at the period end on the translation of net debt into Sterling.  Interest cover was 16.4 times (31 December 2012: 15.3 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 26.0% (2012: 26.0%) and is the estimated effective rate for the full year. The tax charge for the period was £4.1m (2012: £5.0m).  Tax paid of £11.0m was significantly higher than the £4.6m paid in the first half of 2012 as a result of increased profitability in the USA, which attracts a higher tax rate than the group average and the settlement of certain one-off deferred tax liabilities in France.

 

Finance costs

Net financing costs for the period were £2.1m (2012: £2.1m) with an underlying element of £1.7m (2012: £1.9m), the reduced underlying cost reflecting lower levels of average net debt compared with the first half of 2012. Underlying operating profit covered net underlying finance costs 11.9 times (2012: 11.9 times).  The non-underlying element of finance costs of £0.4m (2012: £0.2m) represents the net cost of pension fund financing, and is higher than prior year as a result of changes in the measurement of expected asset returns following amendments to IAS 19.

 

Pensions

Following the triennial valuation of the group's UK defined benefit pension arrangements at April 2012, the group has agreed deficit reduction plans in place that require cash contributions over and above the current service accrual amounting to £2.5m for the three years to April 2016, followed by payments of £2.3m for a further seven years.

 

Principal Risks & Uncertainties

The group has a process for identifying, evaluating and managing the principal risks and uncertainties it faces.  Details of these principal risks and uncertainties are contained on pages 10 and 11 of the group's annual report and accounts for the year ended 31 December 2012.  It is the directors' opinion that these are the risks and uncertainties that could impact the performance of the group and that they remain applicable to the current financial year.

 

Whilst for the six months ended 30 June 2013 there has been no significant change in the overall scope of the principal risks and uncertainties referred to above, the board has reviewed and implemented additional risk mitigation focused in the areas of supply chain management, appropriate margins for and settlement of large contracting projects, acquisition integration and retention of market share for infrastructure projects.  Cyber security has also been added to the principal risks and uncertainties.  The directors do not envisage that any of these additional measures will have a material impact upon the expected performance of the group for the remainder of 2013.

 

Going Concern

The group continues to meet 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 a £210m five year multi currency revolving credit agreement which expires in April 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 that the group maintains an adequate level of funding headroom and effectively mitigates foreign exchange and other financial risks.

 

After making due enquiry, 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.

 

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 interim management report includes a fair review of the information required by:

 

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

 

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

 

This report was approved by the board of directors on 6 August 2013 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

 

6 August 2013

 

 

 

 

Six months ended 30 June 2013

Condensed Consolidated Income Statement

 

		6 months ended 30 June 2013			6 months ended 30 June 2012			Year ended 31 December 2012
	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	221.6	-	221.6	223.8	-	223.8	440.7	-	440.7
Trading profit		20.2	-	20.2	22.7	-	22.7	44.0	(0.8)	43.2
Amortisation of acquisition intangibles	6	-	(1.2)	(1.2)	-	(1.3)	(1.3)	-	(2.4)	(2.4)
Business reorganisation costs	6	-	(0.9)	(0.9)	-	(0.2)	(0.2)	-	(0.8)	(0.8)
Acquisition costs	6	-	(0.3)	(0.3)	-	(0.2)	(0.2)	-	(0.8)	(0.8)
Operating profit	4,5	20.2	(2.4)	17.8	22.7	(1.7)	21.0	44.0	(4.8)	39.2
Financial income	7	0.3	-	0.3	0.3	1.5	1.8	0.8	3.1	3.9
Financial expense	7	(2.0)	(0.4)	(2.4)	(2.2)	(1.7)	(3.9)	(4.4)	(3.5)	(7.9)
Profit before taxation	8	18.5	(2.8)	15.7	20.8	(1.9)	18.9	40.4	(5.2)	35.2
Taxation		(4.8)	0.7	(4.1)	(5.6)	0.6	(5.0)	(10.5)	1.4	(9.1)
Profit for the period attributable to owners of the parent		13.7	(2.1)	11.6	15.2	(1.3)	13.9	29.9	(3.8)	26.1
Basic earnings per share	9	17.7p		15.0p	19.7p		18.0p	38.8p		33.9p
Diluted earnings per share	9	17.5p		14.8p	19.6p		17.9p	38.5p		33.6p
Dividend per share - Interim	10			6.0p			5.8p			5.8p

 

*The group's definition of non-underlying items is included in note 6 to the financial statements.

 

 

 

Six months ended 30 June 2013

Condensed Consolidated Statement of Comprehensive Income

 

		6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended 31 December 2012 £m
Profit for the period		11.6	13.9	26.1
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		10.7	(3.7)	(6.4)
Exchange differences on foreign currency borrowings denominated as net investment hedges		(3.8)	1.5	2.8
Effective portion of changes in fair value of cash flow hedges		0.1	(0.6)	(0.8)
Transfers to the income statement on cash flow hedges		0.2	0.1	0.3
Taxation on items that may be reclassified to profit or loss		(0.1)	0.1	0.1
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on defined benefit pension schemes		-	-	(0.9)
Taxation on items that will not be reclassified to profit or loss		-	-	(0.2)
Other comprehensive income for the period		7.1	(2.6)	(5.1)
Total comprehensive income for the period attributable to owners of the parent		18.7	11.3	21.0

 

 

 

As at 30 June 2013

Condensed Consolidated Balance Sheet

 

	Notes	30 June 2013 £m	30 June 2012 £m	31 December 2012 £m
Non-current assets
Intangible assets		132.7	127.6	124.8
Property, plant and equipment		113.4	102.3	106.8
		246.1	229.9	231.6
Current assets
Inventories		59.8	59.1	57.8
Trade and other receivables		104.5	95.9	88.7
Cash and cash equivalents	11	5.9	9.8	8.9
		170.2	164.8	155.4
Total assets		416.3	394.7	387.0
Current liabilities
Trade and other liabilities		(91.0)	(89.4)	(84.2)
Current tax liabilities		(8.1)	(12.4)	(13.7)
Provisions for liabilities and charges		(0.2)	(0.5)	(0.5)
Interest bearing borrowings	11	(1.3)	(3.0)	(2.0)
		(100.6)	(105.3)	(100.4)
Net current assets		69.6	59.5	55.0
Non-current liabilities
Other liabilities		(0.2)	(0.2)	(0.2)
Provisions for liabilities and charges		(2.8)	(3.4)	(2.8)
Deferred tax liability		(11.3)	(15.8)	(11.2)
Retirement benefit obligation		(15.7)	(15.9)	(16.3)
Interest bearing borrowings	11	(107.1)	(95.9)	(93.7)
		(137.1)	(131.2)	(124.2)
Total liabilities		(237.7)	(236.5)	(224.6)
Net assets		178.6	158.2	162.4
Equity
Share capital		19.4	19.3	19.3
Share premium		31.2	29.4	29.6
Other reserves		4.5	4.5	4.5
Translation reserve		9.0	3.5	2.1
Hedge reserve		(0.7)	(0.9)	(0.9)
Retained earnings		115.2	102.4	107.8
Total equity		178.6	158.2	162.4

 

 

 

Six months ended 30 June 2013

Condensed Consolidated Statement of Changes in Equity

 

	Share capital £m	Share  premium £m	Other reserves† £m	Translation  reserves £m	Hedge reserves £m	Retained  earnings £m	Total equity £m
Opening balance	19.3	29.6	4.5	2.1	(0.9)	107.8	162.4
Comprehensive income
Profit for the period	-	-	-	-	-	11.6	11.6
Other comprehensive income for the period	-	-	-	6.9	0.2	-	7.1
Transactions with owners recognised directly in equity
Dividends	-	-	-	-	-	(4.5)	(4.5)
Credit to equity of share-based payments	-	-	-	-	-	0.3	0.3
Shares issued	0.1	1.6	-	-	-	-	1.7
Closing balance	19.4	31.2	4.5	9.0	(0.7)	115.2	178.6

 

 

Six months ended 30 June 2012

	Share capital £m	Share  premium £m	Other reserves† £m	Translation  reserves £m	Hedge reserves £m	Retained  earnings £m	Total equity £m
Opening balance	19.2	29.2	4.5	5.7	(0.5)	92.5	150.6
Comprehensive income
Profit for the period	-	-	-	-	-	13.9	13.9
Other comprehensive income for the period	-	-	-	(2.2)	(0.4)	-	(2.6)
Transactions with owners recognised directly in equity
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

 

 

Year ended 31 December 2012

	Share capital £m	Share  premium £m	Other reserves† £m	Translation  reserves £m	Hedge reserves £m	Retained  earnings £m	Total equity £m
Opening balance	19.2	29.2	4.5	5.7	(0.5)	92.5	150.6
Comprehensive income
Profit for the year	-	-	-	-	-	26.1	26.1
Other comprehensive income for the period	-	-	-	(3.6)	(0.4)	(1.1)	(5.1)
Transactions with owners recognised directly in equity
Dividends	-	-	-	-	-	(10.2)	(10.2)
Credit to equity of share-based payments	-	-	-	-	-	0.3	0.3
Tax taken directly to the consolidated statement of changes in equity	-	-	-	-	-	0.2	0.2
Shares issued	0.1	0.4	-	-	-	-	0.5
Closing balance	19.3	29.6	4.5	2.1	(0.9)	107.8	162.4

 

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

 

 

 

Six months ended 30 June 2013

Condensed Consolidated Statement of Cash Flows

 

	Notes	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended 31 December 2012 £m
	Notes	£m	£m	£m
Profit before tax		15.7	18.9	35.2
Add back net financing costs		2.1	2.1	4.0
Operating profit	4, 5	17.8	21.0	39.2
Adjusted for non-cash items:
Share-based payments		0.3	0.2	0.3
Movement in fair value of forward currency contracts		-	-	0.4
(Gain)/loss on disposal of non-current assets		(0.1)	-	0.1
Depreciation		6.9	6.6	12.8
Amortisation of intangible assets		1.7	1.9	3.6
Impairment of non-current assets		-	-	0.3
		8.8	8.7	17.5
Operating cash flow before movement in working capital		26.6	29.7	56.7
Decrease/(increase) in inventories		0.1	(3.0)	(0.6)
(Increase)/decrease in receivables		(12.3)	(5.8)	0.6
Increase in payables		6.2	10.7	3.7
Decrease in provisions and employee benefits		(1.5)	(0.8)	(2.0)
Net movement in working capital		(7.5)	1.1	1.7
Cash generated by operations		19.1	30.8	58.4
Income taxes paid		(11.0)	(4.6)	(11.6)
Interest paid		(2.0)	(2.9)	(5.1)
Net cash from operating activities		6.1	23.3	41.7
Interest received		0.3	0.3	0.8
Proceeds on disposal of non-current assets		0.2	0.3	0.5
Purchase of property, plant and equipment		(9.8)	(6.1)	(17.5)
Purchase of intangible assets		(0.4)	(0.2)	(0.8)
Acquisitions of subsidiaries		(6.2)	(0.5)	(0.5)
Net cash used in investing activities		(15.9)	(6.2)	(17.5)
Issue of new shares		1.7	0.3	0.5
Dividends paid	10	(4.5)	(4.2)	(10.2)
New loans and borrowings		22.2	0.9	19.1
Repayment of loans and borrowings		(12.4)	(14.8)	(33.4)
Repayment of obligations under finance leases		(1.0)	(1.9)	(3.6)
Net cash raised/(used) in financing activities		6.0	(19.7)	(27.6)
Net decrease in cash		(3.8)	(2.6)	(3.4)
Cash at the beginning of the period		8.9	12.7	12.7
Effect of exchange rate fluctuations		0.8	(0.3)	(0.4)
Cash at the end of the period	11	5.9	9.8	8.9

 

 

 

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 6 August 2013 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 2012 (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 2012), except for the following which became effective and were adopted by the group:

 

-     Amendments to IAS 1 - Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012)

-     Amendments to IFRS 7 - Offsetting Financial Assets and Financial Liabilities (effective for annual periods beginning on or after 1 January 2013)

-     Amendments to IAS 19 - Employee Benefits (effective for annual periods beginning on or after 1 January 2013)

-     IFRS 13 - Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013).

 

The amendment to IAS 19 makes significant changes to the recognition and measurement of the defined benefit pension expense and termination benefits and disclosures relating to all employee benefits.  The amendment has resulted in an increase of approximately £0.2m in the net financing cost recognised in respect of defined benefit pension schemes, which the group continues to treat as a non-underlying item and has no cash impact.  The adoption of the other 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 2012 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 (i) was 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 2012.

 

3. Exchange rates

The principal exchange rates used were as follows:

	6 months ended 30 June 2013		6 months ended 30 June 2012		Year ended 31 December 2012
	Average	Closing	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.17	1.17	1.22	1.24	1.23	1.23
Sterling to US Dollar (£1 = USD)	1.54	1.52	1.58	1.57	1.59	1.62
Sterling to Thai Bhat (£1 = THB)	46.07	46.18	49.09	49.52	49.25	49.46
Sterling to Swedish Krona (£1 = SEK)	10.03	10.24	10.80	10.83	10.73	10.52

 

 

 

 

4. Segmental information

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

 

The acquisition detailed in note 13 falls into the Galvanizing Services segment.

 

Income Statement

	6 months ended 30 June 2013			6 months ended 30 June 2012
	Revenue £m	Result £m	Underlying result* £m	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	101.5	0.7	2.5	101.9	6.8	7.9
Infrastructure Products - Roads	56.5	5.2	5.4	58.9	2.4	2.7
Infrastructure Products - Total	158.0	5.9	7.9	160.8	9.2	10.6
Galvanizing Services	63.6	11.9	12.3	63.0	11.8	12.1
Total group	221.6	17.8	20.2	223.8	21.0	22.7
Net financing costs		(2.1)	(1.7)		(2.1)	(1.9)
Profit before taxation		15.7	18.5		18.9	20.8

 

 

	Year ended 31 December 2012
	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	205.7	10.2	13.4
Infrastructure Products - Roads	114.1	4.3	5.3
Infrastructure Products - Total	319.8	14.5	18.7
Galvanizing Services	120.9	24.7	25.3
Total group	440.7	39.2	44.0
Net financing costs		(4.0)	(3.6)
Profit before taxation		35.2	40.4

*Underlying result is stated before Non-Underlying items as defined in note 6 to the financial statements, 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 £2.3m revenues to Infrastructure Products - Roads (six months ended 30 June 2012: £2.4m, the year ended 31 December 2012: £4.1m) and £0.8m revenues to Infrastructure Products - Utilities (six months ended 30 June 2012: £0.9m, the year ended 31 December 2012: £1.8m). Infrastructure Products - Utilities provided £0.3m revenues to Infrastructure Products - Roads (six months ended 30 June 2012: £0.6m, the year ended 31 December 2012: £1.9m). 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 2013 £m	6 months ended 30 June 2012 £m	Year ended 31 December 2012 £m
UK	99.1	95.3	197.6
Rest of Europe	51.3	56.7	101.5
USA	57.4	59.7	114.4
Asia and the Middle East	12.4	8.0	19.6
Rest of World	1.4	4.1	7.6
Total	221.6	223.8	440.7

 

 

5. Operating Profit

	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended  31 December 2012 £m
Revenue	221.6	223.8	440.7
Cost of sales	(146.2)	(148.1)	(297.5)
Gross profit	75.4	75.7	143.2
Distribution costs	(10.5)	(10.4)	(20.3)
Administrative expenses	(47.7)	(44.8)	(84.7)
Profit/(loss) on disposal of non-current assets	0.1	-	(0.1)
Other operating income	0.5	0.5	1.1
Operating profit	17.8	21.0	39.2

 

 

 

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 2013

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

 

-     Business reorganisation costs of £0.9m, principally relating to redundancies and other costs associated with site closures and rationalisation.

-     Acquisition costs of £0.3m relating to the acquisition made during the period (see note 13).

-     Amortisation of acquired intangible fixed assets of £1.2m.

 

Non-underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.4m.

 

Year ended 31 December 2012

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

 

-     Business reorganisation costs of £0.8m, principally relating to redundancies and other costs associated with site closures and rationalisation.

-     Amortisation of acquired intangible fixed assets of £2.4m.

-     Acquisition related expenses of £0.8m in respect of the acquisitions made by the group.

-     A loss of £0.4m in respect of the group's UK defined benefit pension obligations relating to changes in the terms of the UK Scheme.

-     Losses of £0.4m in respect of the fair value of forward foreign currency contracts.

 

Non-underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.4m.

 

 

7. Net financing costs

	6 months ended 30 June 2013 £m £m	6 months ended 30 June 2012 £m	Year ended  31 December 2012 £m
Interest on bank deposits	0.3	0.3	0.8
Change in fair value of financial assets and liabilities	-	-	-
Expected return on pension scheme assets	-	1.5	3.1
Total other income	-	1.5	3.1
Financial income	0.3	1.8	3.9
Interest on bank loans and overdrafts	1.9	2.1	4.2
Interest on finance leases and hire purchase contracts	0.1	0.1	0.2
Total interest expense	2.0	2.2	4.4
Expected interest cost on pension scheme obligations	-	1.7	3.5
Net interest cost on pension scheme deficit	0.4	-	-
Financial expense	2.4	3.9	7.9
Net financing costs	2.1	2.1	4.0

 

Following the adoption of the amendments to IAS 19 during the period (see note 1), the net interest cost in respect of defined benefit pension obligations is shown separately for the six months to 30 June 2013.  The comparatives have not been restated.

 

8. Taxation

Tax has been provided on the underlying profit at the estimated effective rate of 26.0% (2012: 26.0%) for existing operations for the full year.

 

9. Earnings per share

The weighted average number of ordinary shares in issue during the period was 77.4m, diluted for the effect of outstanding share options 78.4m (six months ended 30 June 2012: 77.0m and 77.7m diluted, the year ended 31 December 2012: 77.0m and 77.8m 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 2013		6 months ended 30 June 2012		Year ended 31 December 2012
	Pence per share	£m	Pence per share	£m	Pence per share	£m
Basic earnings	15.0	11.6	18.0	13.9	33.9	26.1
Non-underlying items*	2.7	2.1	1.7	1.3	4.9	3.8
Underlying earnings	17.7	13.7	19.7	15.2	38.8	29.9
Diluted earnings	14.8	11.6	17.9	13.9	33.6	26.1
Non-underlying items*	2.7	2.1	1.7	1.3	4.9	3.8
Underlying diluted earnings	17.5	13.7	19.6	15.2	38.5	29.9

 

*  Non-underlying items as detailed in note 6.

 

 

10. Dividends

Dividends paid in the period were the prior year's interim dividend of £4.5m (2012: £4.2m). The final dividend for 2012 of £7.1m (2012: £6.0m) was paid on 5 July 2013. 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 £4.7m, 6.0p per share (2012: £4.5m, 5.8p per share).

 

 

11. Analysis of net debt

	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended  31 December 2012 £m
Cash and cash equivalents	5.9	9.8	8.9
Interest bearing loans and borrowings due within one year	(1.3)	(3.0)	(2.0)
Interest bearing loans and borrowings due after more than one year	(107.1)	(95.9)	(93.7)
Net debt	(102.5)	(89.1)	(86.8)

 

	6 months ended 30 June 2013 £m	6 months ended 30 June 2012 £m	Year ended  31 December 2012 £m
Change in net debt
Operating profit	17.8	21.0	39.2
Non-cash items	8.8	8.7	17.5
Operating cash flow before movement in working capital	26.6	29.7	56.7
Net movement in working capital	(6.0)	1.9	3.7
Change in provisions and employee benefits	(1.5)	(0.8)	(2.0)
Operating cash flow	19.1	30.8	58.4
Tax paid	(11.0)	(4.6)	(11.6)
Net financing costs paid	(1.7)	(2.6)	(4.3)
Capital expenditure	(10.2)	(6.3)	(18.3)
Proceeds on disposal of non-current assets	0.2	0.3	0.5
Free cash flow	(3.6)	17.6	24.7
Dividends paid (note 10)	(4.5)	(4.2)	(10.2)
Acquisitions	(6.4)	(0.5)	(0.5)
Issue of new shares	1.7	0.3	0.5
Net debt (increase)/decrease	(12.8)	13.2	14.5
Effect of exchange rate fluctuations	(2.9)	1.5	2.5
Net debt at the beginning of the period	(86.8)	(103.8)	(103.8)
Net debt at the end of the period	(102.5)	(89.1)	(86.8)

 

 

12. Financial instruments

The table below sets out the group's accounting classification of its financial assets and liabilities and their fair values as at 30 June.  The fair values of all financial assets and liabilities are not materially different to the carrying values.

 

	Held for trading £m	Amortised cost £m	Total carrying value £m	Fair value £m
Cash and cash equivalents	-	5.9	5.9	5.9
Interest bearings loans due within one year	-	(1.3)	(1.3)	(1.3)
Interest bearing loans due after more than one year	-	(107.1)	(107.1)	(107.1)
Derivative liabilities	(0.7)	-	(0.7)	(0.7)
Other assets	-	98.4	98.4	98.4
Other liabilities	-	(81.0)	(81.0)	(81.0)
Total at 30 June 2013	(0.7)	(85.1)	(85.8)	(85.8)

 

 

 

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method.  The different levels have been defined as follows:

 

-     Level 1 : unadjusted quoted prices in active markets for identical assets or liabilities.

 

-     Level 2 : inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either as a direct price or indirectly derived from prices.

 

-     Level 3 : inputs for the asset or liability that are not based on observable market data.

 

	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Derivative financial assets	-	-	-	-
Derivative financial liabilities	-	(0.7)	-	(0.7)
At 30 June 2013	-	(0.7)	-	(0.7)

 

 

 

At 30 June 2013 the group did not have any liabilities classified at Level 1 or Level 3 in the fair value hierarchy.  There have been no transfers in any direction in the period.

 

The group determines Level 2 fair values for its financial instruments based on broker quotes, tested for reasonableness by discounting expected future cash flows using market interest rates for a similar instrument at the measurement date.

 

 

13. Acquisitions

On 30 April 2013 the group acquired the issued share capital of Medway Galvanising Company Limited. Details of this acquisition are as follows:

	Carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets
Brands	-	0.8	0.8
Property, plant and equipment	2.7	(1.2)	1.5
Inventories	0.5	(0.1)	0.4
Current assets	1.5	-	1.5
Cash and cash equivalents	0.2	-	0.2
Total assets	4.9	(0.5)	4.4
Current interest bearing liabilities	(0.2)	-	(0.2)
Current liabilities	(0.9)	(0.1)	(1.0)
Deferred tax	(0.1)	0.1	-
Total liabilities	(1.2)	-	(1.2)
Net assets	3.7	(0.5)	3.2
Cash consideration in the period			6.4
Goodwill			3.2
Cash flow effect
Cash consideration			6.4
Cash and cash equivalents received in the business			(0.2)
Net cash consideration shown in the consolidated statement of cash flows			6.2
Post acquisition profit for the period included in the group's consolidated income statement			0.2

 

 

 

Brands 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. The goodwill arising on the acquisition primarily represents the assembled workforce, market share and geographical advantages afforded to the group.

 

Post acquisition the business acquired has contributed £1.3m revenue and £0.2m underlying operating profit, which are included in the group's condensed consolidated income statement. If the acquisition had been made on 1 January 2013 the group's results for the year would have shown revenue of £224.2m and underlying operating profit of £20.3m.