RNS Number : 2223S

Hill & Smith PLC

08 March 2023

Hill & Smith PLC

Full Year Results for the year ended 31 December 2022

Record profitability, from a higher growth portfolio

Hill & Smith PLC ("Hill & Smith" or "the Group"), the international group creating sustainable infrastructure and safe transport through innovation, announces its preliminary results for the year ended 31 December 2022.

Financial Results

	Underlying^*		Change			Statutory		Change
	31 December 2022	31 December 2021⁽¹⁾	Reported %	Constant Currency %	OCC ^{^} %	31 December 2022	31 December 2021⁽¹⁾	Reported %
Continuing Operations ⁽¹⁾
Revenue	£732.1m	£625.2m	17%	12%	14%	£732.1m	£625.2m	17%
Operating profit	£97.1m	£77.3m	26%	17%	14%	£78.5m	£48.9m	61%
Operating margin	13.3%	12.4%	90bps			10.7%	7.8%	290bps
Profit before tax	£87.9m	£71.2m	23%			£69.3m	£42.8m	62%
Earnings per share	85.4p	70.0p	22%			66.7p	35.8p	86%

Total Group ⁽¹⁾
Earnings per share	91.9p	77.9p	18%			71.0p	43.0p	65%
Dividend per share	35.0p	31.0p	13%			35.0p	31.0p	13%

⁽¹⁾ Continuing operations exclude France Galva, which has been accounted for as a discontinued operation as explained in note 7 to the financial statements. The prior year comparatives have been restated accordingly. Total Group includes both continuing and discontinued operations.

Key Highlights:

· Record trading performance

o 14% organic constant currency revenue and profit growth

o Growth significantly driven by US businesses which represented 64% of Group operating profit

o Operating margin increased by 90bps to 13.3%, reflecting strong operational performance, pricing actions and portfolio evolution

o Strong performance highlights the resilience of our chosen long term end markets and focus on higher growth businesses

· Significant progress on portfolio management

o Announcement of two value enhancing acquisitions in October 2022:

o National Signal, a high growth US off grid solar lighting business, for £24.2m

o Widnes Galvanising, expanding our galvanizing footprint in the UK, for £3.9m

o Acquisition of Enduro Composites in February 2023 for £28.7m further accelerating our US composites growth strategy

o Acquisition of Korns Galvanizing in March 2023 for £9.4m, supporting growth in attractive US galvanizing market

o Disposal of France Galva in October 2022 for £62.0m reduces our exposure to lower growth, lower margin French galvanizing market

· Refreshed financial framework reflecting Group's growth potential

· Improved cash generation in second half, with year-end covenant leverage at 0.7 times

· Final dividend of 22p proposed, a 16% increase on 2021, in line with the Group's sustainable and progressive dividend policy

· Well-positioned in structurally growing end markets and expect to make further progress in 2023, despite macro-economic uncertainties

Alan Giddins, Executive Chair, said:

"Hill & Smith delivered a year of significant progress, particularly in our US-focused businesses. We also took material steps forward in improving the quality of the portfolio during the year, resulting in underlying profitability being ahead of market expectations.

"Looking forward, the Group is exposed to a number of end markets which benefit from long term structural growth drivers. We expect to make further strategic progress in 2023 and are well positioned for the longer term."

For further information, please contact:

Hill & Smith PLC

Alan Giddins, Executive Chair Tel: 44 (0)121 704 7434

Hannah Nichols, Chief Financial Officer

MHP

Reg Hoare/Rachel Farrington/Catherine Chapman Tel: 44 (0)20 3128 8613

* All underlying measures exclude certain non-underlying items, which are as detailed in note 4 to the Financial Statements and described in the Financial Review. References to an underlying profit measure throughout this announcement are made on this basis. Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a proper understanding of the underlying performance of the business. Underlying measures are deemed alternative performance measures ("APMs") under the European Securities and Markets Authority guidelines and a reconciliation to the closest IFRS equivalent measure is detailed in note 3 to the financial statements. They are presented on a consistent basis over time to assist in comparison of performance.

^ Where we refer to organic constant currency (OCC) movements, these exclude the impact of currency translation effects and acquisitions, disposals and closures of subsidiary businesses. In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year. Constant currency amounts are prepared using exchange rates which prevailed in the current year.

Notes to Editors

Hill & Smith PLC creates sustainable infrastructure and safe transport through innovation. The Group employs c.4,000 people worldwide with the majority employed by its autonomous, agile, customer focussed operating businesses based in the UK, USA, Australia, India and Sweden. The Group office is in the UK and Hill & Smith PLC is quoted on the London Stock Exchange (LSE: HILS.L).

The Group's operating businesses are organised into three main business divisions:

Galvanizing Services: increasing the sustainability and maintenance free life of steel products including structural steel work, lighting, bridges and other products for industrial and infrastructure markets.

Engineered Solutions (formerly known as Utilities): supplying engineered steel and composite solutions with low embodied energy for a wide range of infrastructure markets including power generation and distribution, marine, rail and housing. The division also supplies engineered pipe supports for the water, power and liquid natural gas markets and seismic protection solutions.

Roads & Security: supplying products and services to support road and highway infrastructure including temporary and permanent road safety barriers, intelligent traffic solutions, street lighting columns and bridge parapets. In addition, the division includes two businesses which are market leaders in the provision of off-grid solar lighting and power solutions. The security portfolio includes hostile vehicle mitigation solutions, high security fencing and automated gate solutions.

Review of 2022

2022 was a successful year, with the Group achieving record revenue and operating profit. The strong performance demonstrates the resilience of our attractive, long term end markets and the benefits of our portfolio management actions which have placed a focus on higher growth, higher margin businesses. In particular, our US businesses represented 64% of Group operating profit, and this is expected to increase further following our recent acquisitions of National Signal, Enduro Composites and Korns Galvanizing. The results are also testament to our agile operating model and our talented local teams, who have successfully navigated the challenges presented by the external environment.

Organic growth remains a key focus, and we are pleased to report that the Group delivered 14% revenue and operating profit growth from continuing operations, on an OCC basis. In addition, we delivered strong operating margin progression with FY22 margin increasing by 90 basis points to 13.3%, which reflects an improved portfolio mix, operational gearing and our pricing power offsetting input cost inflation.

2022 saw the Galvanizing Services division deliver a standout trading performance, with strong volume growth in the US and both geographies benefiting from pricing actions and a strategic focus on higher margin customers. Our Engineered Solutions division (formerly known as Utilities) also delivered strong growth, underpinned by buoyant demand across the portfolio, particularly in our US-based businesses.

In the Roads & Security division, reported revenue and profit were similar to 2021 levels. As previously highlighted, the US roads business experienced certain operational challenges which we have taken action to address, and we expect an improved performance in 2023. In the UK, utilisation of our temporary safety barrier fleet was lower than 2021 due to further delays in strategic road network projects, however this was partly offset by a robust performance in the wider UK roads and security portfolio including good growth in our off grid solar lighting and power business.

The Group delivered much improved cash conversion in the second half of 93%, with year end net debt reducing to 0.7 times EBITDA on a covenant basis. Our strong balance sheet underpins the resilience of the Group and provides us with flexibility to continue to invest in growth. In November, we successfully completed the refinancing of our principal bank debt facility on competitive terms, providing us with certainty of funding to support the Group's growth ambitions.

Strategic update

Our strategic decision making is guided by our purpose of "creating sustainable infrastructure and safe transport through innovation". Our purpose, alongside consideration of long-term macro and market drivers, determines our choice of markets and applications.

Organic growth activities are focused on high value, fast growing, niche opportunities. Our decentralised autonomous operating model drives high levels of accountability, agility and customer intimacy, and allows us to focus on these opportunities in a way that a more centralised, volume-driven organisation could not.

Acquisitions and Disposals

Acquisitions form a key part of the Group's growth strategy. During the year we have made progress in building our M&A pipeline, with a continued focus on high quality businesses with attractive organic growth potential. In 2023, we will develop the pipeline further; the Corporate Development team and Group Presidents will work closely with our operating company management teams to unlock attractive acquisition opportunities. All potential acquisitions are tightly evaluated to ensure they fit with our purpose and core strategic goals. Once acquired, we implement a rigorous and detailed integration plan.

In line with our inorganic growth strategy, we acquired two value enhancing businesses during 2022. In October we were delighted to acquire National Signal, a high growth designer and manufacturer of off-grid solar lighting solutions in the US, for £24.2m. The business benefits from the ongoing transition from fossil fuels to a zero-carbon economy and is complementary to our 2021 acquisition of Prolectric, a UK market leader in off-grid solar energy solutions, and will further accelerate our strategy in this attractive growth market. In the same month, we announced our acquisition of Widnes Galvanising for £3.9m, which further expands the geographic footprint of our UK galvanizing business into the north west of the UK.

After the year end, in February 2023, we announced the acquisition of Enduro Composites, a designer, manufacturer and supplier of engineered composite solutions based in Houston, Texas for £28.7m. Enduro is highly complementary to our existing US composites business and will further accelerate our strategy in the exciting and growing composites market. In March 2023, we announced the acquisition of Korns Galvanizing based in Johnstown, Pennsylvania for £9.4m, strengthening our US galvanizing market presence.

During 2022 we completed a number of important and targeted divestments. In October, we completed the disposal of France Galva, our French galvanizing and steel lighting column operations. While France Galva was a profitable part of the Group, the forecast growth rates did not meet the Group's long-term growth ambitions and its operating margins were below the Group average. Given our galvanizing operations serve local geographical markets, the disposal has no impact on our higher growth, higher margin galvanizing operations in the UK and US, both of which we remain committed to in the long-term. In addition, our US Roads business exited its low margin plastic cones product line and we completed the disposal of two of the three divisions in our loss-making Swedish road business.

Medium Term Financial Framework

Our disciplined financial framework is one of the key foundations of the Group's long-term success. Given the significant actions taken during 2022 to enhance the quality of the portfolio, we have reviewed and recalibrated our medium-term financial framework. Our refreshed annual performance targets through the cycle are:

· organic revenue growth: 5% -7%

· total revenue growth including acquisitions: 10%

· operating profit margin: 15%

· return on invested capital: 18%

· cash conversion: 80%

· covenant leverage: 1 to 2 times

This organic growth performance through the cycle, alongside value enhancing acquisitions, will deliver superior EPS growth. Our clear focus on cash generation and returns enables the cash generated to be re-invested in high growth, high return opportunities. This is all delivered within a disciplined capital allocation framework while maintaining a strong balance sheet.

ESG

The growth of our business is naturally aligned to our ESG (Environmental Social and Governance) agenda: our products and services make infrastructure more sustainable and increase transport safety.

In 2021 we outlined our ESG strategy which identified our seven priority areas, related action plans and key metrics. This included our commitment to achieve net zero for our Scope 1 and 2 emissions by 2040 and commitment to the Science Based Targets initiative (SBTi) to limit global warming to 1.5 degrees Celsius.

In February 2022, we recruited a Head of Sustainability who has been leading an extensive project to baseline our Scope 3 carbon emissions, and we are pleased to report that we are on track to submit our SBTi targets ahead of the required August 2023 deadline. Alongside this, our teams are continuing to drive local energy saving initiatives and explore green technology options to underpin our carbon reduction plan.

Keeping our employees safe while at work remains our number one priority and in 2022 our operating companies developed local safety improvement plans, alongside Group led initiatives, including the implementation of nine core lifesaving rules and hazard identification training. While we still have more work to do, we are pleased that the actions taken during the year resulted in a 35% reduction in Lost Time Incidents, with LTIR reducing to 1.1, ahead of our target of 1.5.

Talent development and engagement are critical to the success of our autonomous operating model and a key focus area for our ESG strategy. With this in mind, we expanded our talent management programme and introduced a new approach to development for our Managing Directors, with growth mindset, ESG and innovation identified as priority focus areas. We also ran our second innovation forum and have further workshops planned for 2023 to foster innovation and share best practice. Our annual engagement survey showed a good improvement in employee engagement levels to 61% (2021: 55%). During the year we appointed a Head of Talent to work with our operating company teams to further improve engagement in 2023.

As an organisation we want to employ the best people for the job, and we know that we can only do this by considering talented people from the whole community. During the year, we were delighted to appoint our first two female Managing Directors and to see an increase in female senior leaders to 20%. Our established apprenticeship scheme is also a key initiative for attracting more diversity into our business, and in 2022 a third of new apprentices were female.

Board updates

In July 2022 Paul Simmons stepped down from his role as Chief Executive Officer. Alan Giddins, the Group's Chair, has taken over as interim Executive Chair until the process to find a permanent CEO has been completed.

During the year, we appointed Farrokh Batliwala as a US-based Non-executive Director. Farrokh's appointment reflects the Board's careful succession planning to recruit Non-executive Directors with the necessary skills, experience and diversity to support the Group's higher quality growth agenda.

Results from continuing operations

The Group has delivered a strong set of results for 2022. Revenue was £732.1m (2021: £625.2m), an increase of 17% on a reported basis. Constant currency revenue growth was 12% and OCC revenue growth was 14%. Underlying operating profit was £97.1m (2021: £77.3m), an increase of 26% on a reported basis. Constant currency operating profit growth was 17% and OCC growth was 14%. Operating margins improved to 13.3% (2021: 12.4%). Underlying profit before taxation was £87.9m (2021: £71.2m). Reported operating profit was £78.5m (2021: £48.9m) and reported profit before tax was £69.3m (2021: £42.8m). Underlying earnings per share increased to 85.4p (2021: 70.0p) and reported earnings per share was 66.7p (2021: 35.8p).

The principal reconciling items between underlying and reported operating profit are non-cash charges including the amortisation of acquisition intangibles of £6.0m and the impairment of acquired intangibles associated with one of our security businesses of £4.4m. Note 4 of the financial statements provides further details on the Group's non-underlying items.

Dividend

Based on the strong trading performance, the Board is recommending a final dividend of 22.0p per share, making a total dividend for the year of 35.0p per share (2021: 31.0p). The final dividend, if approved, will be paid on 7 July 2023 to shareholders on the register on 2 June 2023. Looking forward, we aim to provide sustainable and progressive dividend growth, targeting a prudent dividend cover of around 2.5 times underlying earnings.

Outlook

The Group is well-positioned in a range of infrastructure markets with attractive, long term structural growth drivers. The geographic mix of the portfolio has also evolved with a stronger weighting towards US end markets. These factors, alongside the benefits of our agile, autonomous operating model, provide the Board with confidence that Hill & Smith will continue to make good progress in 2023, despite the macro-economic headwinds.

In the medium to longer term, the outlook is supported by strong market growth drivers for both sustainable infrastructure and safe transport. In particular, our US businesses are well placed to benefit from the increased levels of infrastructure spend approved under the Infrastructure Investment and Jobs Act (IIJA).

Operational Review

Galvanizing Services

	£m		Reported %	Constant currency %	OCC %
Continuing Operations ⁽²⁾	2022	2021	Reported %	Constant currency %	OCC %
Revenue	180.7	141.8	27	20	20
Underlying operating profit ⁽¹⁾	44.0	33.4	32	23	23
Underlying operating margin % ⁽¹⁾	24.3%	23.6%
Statutory operating profit	42.7	30.9

⁽¹⁾ Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.

⁽²⁾ Continuing operations exclude France Galva, which has been reported as a discontinued operation as explained in note 7 to the Financial Statements. The prior year comparatives have been restated accordingly.

The Galvanizing Services division offers hot-dip galvanizing and powder coating services with multi-plant facilities in the USA and the UK. Hot-dip galvanizing is a proven steel corrosion protection solution which significantly extends the service life of steel structures and products. The division benefits from a wide sectoral spread of customers who operate in resilient end markets including road infrastructure, commercial construction, transportation, and energy transmission and distribution. The division represents 45% of 2022 underlying operating profit.

The division delivered an impressive performance in 2022, with revenue 20% higher and underlying operating profit 23% higher than last year on an OCC basis. The division maintained superior margins, with underlying operating margin increasing to 24.3% (2021: 23.6%). The results reflect strong volume growth in the US, successful pricing actions taken to offset input cost inflation and a deliberate focus on higher margin customers.

Predominantly located in the northeast and midwest of the country, the US galvanizing business delivered a strong performance, with 23% OCC revenue growth and record operating profit. The strong growth is attributable to an 11% increase in production volumes, improved pricing to offset cost input inflation, favourable product mix and an increased level of value-add coating services. As a result, the business continued to maintain superior operating margins, with customers valuing the excellent quality of service provided by our local teams.

In March 2023, we were pleased to acquire Korns Galvanizing for a consideration of £9.4m. Located in Johnstown, Pennsylvania, Korns specialises in spin galvanizing and has a customer base spread across a broad range of infrastructure related end markets. Korns will be managed by our existing US galvanizing team and will expand our production capacity in the key northeastern market, and broaden the range of galvanizing services we can offer to our existing customer base.

In the medium to longer term, the outlook for US galvanizing is positive, with investment levels expected to grow ahead of GDP in a range of US galvanizing end markets, supported by the IIJA and a more general move to the onshoring of certain activities. We have started to quote on some IIJA related projects and expect to see incremental growth in the bridge and highway market in the second half of 2023.

UK galvanizing delivered 17% organic revenue growth and record operating profit in 2022. This reflects a particularly strong first half with swift pricing actions taken to address input cost inflation and a focus on higher margin, service orientated customers. The second half was more challenging as certain customers, particularly in the agricultural sector, have begun to feel the effects of rising energy costs. Total volumes of steel galvanized were 9% lower than 2021.

In October 2022, we were pleased to announce the acquisition of Widnes Galvanising Limited for consideration of £3.9m. The acquisition expands the geographic footprint of our UK galvanizing business into the northwest of the UK and the integration of the business is going well.

While mindful of the wider UK macro-economic backdrop, the 2023 outlook for UK galvanizing is cautiously positive. Our team are focused on balancing price and cost management to ensure plant profitability is maximised and planned investments in sales and marketing will further support the increased focus on high margin market sectors.

Engineered Solutions

	£m		Reported %	Constant Currency %	OCC %
Continuing Operations ⁽²⁾	2022	2021	Reported %	Constant Currency %	OCC %
Revenue	289.9	223.7	30	21	21
Underlying operating profit ⁽¹⁾	35.0	26.0	35	24	24
Underlying operating margin % ⁽¹⁾	12.1%	11.6%
Statutory operating profit	34.1	25.5

⁽¹⁾ Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.

Our Engineered Solutions division (formerly known as Utilities) provides steel and composite solutions with low embodied energy for a wide range of infrastructure markets including energy generation and distribution, marine, rail and housing. The division also supplies engineered supports for the water, power and liquid natural gas markets, and seismic protection solutions for commercial construction. While the division has been renamed in 2022, there has been no change to the portfolio of operating companies that it includes.

The division continued to deliver good results in 2022, with 21% revenue and 24% profit growth on an OCC basis. With a strong second half performance, operating margins increased to 12.1% (2021: 11.6%), reflecting the quality of our faster growing US businesses.

Our US businesses delivered 23% OCC revenue growth and strong profit growth against robust prior year comparators. Operating profit generated by our US businesses represented c.80% of the total profit for the division in 2022, highlighting the increasing importance of the US to the Group's growth strategy.

Our composites business was the largest company within the division in 2022 and continued to see strong demand for its range of composite engineered solutions including utility poles, waterfront protection and mass transit infrastructure. In February 2023 we were pleased to acquire Enduro Composites for a cash consideration of £28.7m. Located in Texas, Enduro Composites is a designer, manufacturer and supplier of engineered composite solutions and is highly complementary to our existing northeastern and midwestern US business, further accelerating our strategy in the exciting and growing composites market.

Our electricity distribution substation business delivered impressive profit growth and a record level of operating profit, with customer demand increasing as steel price challenges subsided and pricing actions were taken to offset inflation. The business enters 2023 with a record order book supported by high project demand to upgrade electricity infrastructure.

Our engineered supports business also delivered record profits with significant growth due to higher sales volumes in catalogue hardware, improved pricing and a richer product mix of project specific engineered supports for key markets including water treatment and electric vehicle production. During the year, the business successfully navigated supply chain challenges, which enabled market share gain, and is well positioned to make further progress in 2023.

Prospects for future growth in all our US businesses are very encouraging. We expect market demand to be supported by investment to modernise the electricity grid and solutions to protect against extreme weather. The outlook is further supported by multi-year planned government spending on infrastructure via the IIJA, and private investment from US manufacturers and producers to onshore vital components.

Revenue in our UK businesses grew 21% on an organic basis. The industrial flooring business, in particular, delivered a record performance, reflecting buoyant demand from data centre and oil & gas markets and successful pricing actions. This business enters 2023 with a good order book and healthy sales pipeline.

Our lower margin UK only based building product business delivered a performance in line with 2021, having successfully managed inflationary pressures and supply chain challenges. The year started strongly with high levels of customer demand, however markets cooled in the second half with wider concerns around interest rates and house prices. We expect end markets to continue to be challenging in 2023, however the renewed focus on customer service and delivery under a new management team should support sales growth through market share gains.

Roads & Security

	£m		Reported %	Constant Currency %	OCC %
Continuing Operations ⁽²⁾	2022	2021	Reported %	Constant Currency %	OCC %
Revenue	261.5	259.7	1	-1	5
Underlying operating profit ⁽¹⁾	18.1	17.9	1	-4	-17
Underlying operating margin % ⁽¹⁾	6.9%	6.9%
Statutory operating profit/(loss)	1.7	(7.5)

⁽¹⁾ Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.

⁽²⁾ Continuing operations exclude the French lighting column business, which has been reported as a discontinued operation as explained in note 7 to the Financial Statements. The prior year comparatives have been restated accordingly.

The Roads & Security division supplies products and services to support the delivery of safe road and highway infrastructure, alongside a range of security products to protect people, buildings and infrastructure from attack. In addition, the division now includes two businesses which are market leaders in the provision of off-grid solar lighting and power solutions.

Revenue and profit were broadly in line with 2021 levels, with revenue 1% lower and underlying operating profit 4% lower on a constant currency basis. Operating margins were also maintained at 6.9% (2021: 6.9%). The 2022 result reflects an underperformance in our US roads business and as expected, lower utilisation of the UK temporary safety barrier fleet, offset by a good performance in the wider UK Roads & Security portfolio.

UK Roads

Revenue was 3% higher than 2021 on an organic basis. In January 2022, the UK Government issued its response to the Transport Committee review on the roll-out and safety of smart motorways, which set out recommendations including pausing the roll-out of further all lane running schemes until sufficient safety data is available (expected end of 2024) and the retrofit of additional emergency refuge areas. The requirement to redesign projects following this announcement, alongside UK Government uncertainty in H2, resulted in scheme delays and lower average utilisation of our temporary safety barrier during the year. Based on customer discussions, we expect the lower level of project starts to continue into the first quarter of 2023, however our expectation is that overall fleet utilisation will increase in 2023 as central reservation upgrade projects commence after redesign work.

In the year, we saw good demand across the wider UK roads portfolio, particularly for road safe support structures, with the growth partly offsetting the shortfall in the rental barrier fleet. In addition, Prolectric, our off-grid solar energy business, delivered strong growth and enters 2023 with a good order book supported by increasing demand for low carbon and energy cost saving solutions.

US Roads

Revenue was 10% higher than 2021 on an OCC basis. Operating profit was lower than last year, mainly due to operational and cost challenges as previously outlined. Actions have now been taken to address the issues including refreshing the senior management team. In May 2022, the business exited from its low margin plastic drums, cones and channelizers business, which will enable greater focus on higher margin, higher growth opportunities. Overall market demand for roadside safety products remains strong and we expect the business to make progress in 2023.

In October 2022, we were delighted to acquire National Signal for consideration of £24.2m, with further consideration payable of up to £3.3m conditional on achievement of financial performance targets in the three years post acquisition. National Signal, located in Fullerton, California, is a designer and manufacturer of off-grid solar lighting solutions and traffic management products. The business benefits from the ongoing transition from fossil fuels to a zero-carbon economy, as well as the need to reduce noise pollution, driven by government legislation and customer demands. The acquisition is complementary to Prolectric, our market leading UK off-grid solar energy business and will further accelerate our growth strategy in this attractive market. Trading since acquisition has been ahead of expectations and the 2023 order book is at a record level.

The outlook for US roads remains encouraging, with demand for tested roadside safety products supported by the introduction of new safety standards and increased levels of state and federal investment to upgrade US road infrastructure. The IIJA includes a five-year reauthorisation of the US federal highway programme, and incremental investment of c.$110 billion in highway and bridge improvements through to 2026. We expect US roads to be one of the first beneficiaries of the IIJA spend.

Other International Roads

In Australia, we continue to see good market demand for traffic safety equipment, supported by significant government investment in land transport infrastructure across Australia through its Infrastructure Investment Program. During the year we invested £5.5m in steel and concrete temporary barrier fleet to support market demand. In Sweden, we completed the divestment of the rental and infrastructure divisions of our loss-making road business during the year and we are assessing options for the remaining part of that business.

Security

Our Security businesses are based in the UK and provide a range of perimeter security solutions including hostile vehicle mitigation ('HVM') to both UK and international markets. Revenue was 6% ahead of 2021 on an OCC basis. During the year we have seen an encouraging recovery in UK and international markets for HVM solutions including public place protection, airports, rail stations and ports. Our UK security barrier rental business performed well, particularly in the second half, as our security solutions were deployed to support the Commonwealth Games in Birmingham.

Our perimeter access security business, Parking Facilities, continued to experience challenges during 2022 with increased competition in the market and, having reassessed the value of remaining acquisition intangibles, we have recognised a further impairment charge of £4.4m. A plan is in place to improve customer service and delivery in 2023.

Financial Review

Capital allocation

The Group follows a disciplined approach to capital allocation. First, we allocate capital to support organic growth, with a focus on higher return niches and growth markets. We require our operating companies to manage working capital efficiently, considering their respective growth rates, and we invest in capital projects and innovation to support future organic growth, with around £20.0m of 2022 capex allocated to growth investments.

Second, we allocate capital to make high quality acquisitions, with a focus on businesses which have a clear alignment with our purpose and have long-term growth potential. We follow a structured approach to acquisitions based on a clear set of financial criteria, and we expect acquisitions to achieve returns above our Group WACC within a three-year timeframe. Based on our highly cash generative model, we are targeting to reinvest around £50m - £70m each year on value enhancing acquisitions. In 2022 we spent £25.6m on the acquisitions of National Signal and Widnes Galvanizing. Our acquisition pipeline is strong, and is focused on high quality, strategically aligned opportunities.

We also aim to provide sustainable and progressive dividend growth, with a target dividend cover of 2.5 times underlying earnings. We understand the importance of providing consistent and growing returns to our shareholders as part of our overall capital allocation framework, and the Group's strong levels of cash generation allow us to invest in organic and inorganic growth while paying a progressive dividend.

We use return on invested capital (ROIC) to measure our overall capital efficiency, with a target of achieving returns in excess of 18%, above the Group's cost of capital, through the cycle. We are pleased to report that the Group's ROIC from continuing operations in 2022 increased to 19.2% (2021: 17.1%), the improvement reflecting the strong trading, our disciplined approach to capital investment, and the steps we have taken to improve the overall quality of the portfolio.

Cash generation

As expected, we saw improved cash conversion in the second half at 93%, compared to 2% in the first half, with overall cash conversion for the year at 51%. Assuming more typical trading patterns, we expect the Group to deliver improved cash conversion in 2023, in line with our target level of 80% and consistent with historic levels averaging 83% over the last ten years. The calculation of our underlying cash conversion ratio can be found in note 3 to the financial statements.

Operating cash flow before movement in working capital was £129.8m (2021: £112.8m). The working capital outflow in the year was £42.6m (2021: £6.8m). The outflow partly reflects working capital absorption to support good growth, alongside an increase in inventory due to cost inflation and a tactical increase in stock holding in certain businesses to manage supply chain challenges. The Group continues to focus on maximising working capital efficiency, with working capital as a percentage of annualised sales at 18%. Debtor days were in line with expectations at 60 days (2021: 57 days excluding France Galva).

Capital expenditure of £31.5m (2021: £35.9m) represents a multiple of depreciation and amortisation of 1.5 times (2021: 1.6 times). Significant investment in the year included £5.5m on temporary barrier fleet to support growing demand in the Australian roads market and £3.0m on temporary barrier fleet for the US Roads market. We also invested £1.9m on rental assets for Prolectric, our fast-growing UK off-grid solar lighting and power business and £2.4m on purchasing a facility for our US composite business. 2022 spend was below previous guidance because of lower investment in the US temporary barrier fleet due to higher demand for barrier sales in the second half.

Net financing costs for the period from continuing operations were £9.2m (2021: £6.1m), including a charge of £1.6m relating to costs associated with the Group's refinancing of its core revolving credit facility during the year (in accordance with IFRS 9). The net cost of pension fund financing under IAS 19 was £0.1m (2021: £0.2m), and the amortisation of costs relating to refinancing activities was £0.8m (2021: £0.8m).

The Group generated £30.4m of free cash flow in the year (2021: £51.6m), providing funds to support our acquisition strategy and dividend policy.

Net debt and financing

Net debt at the end of the period amounted to £119.7m (31 December 2021: £144.7m). Outflows in the year included £24.7m for the 2021 interim and final dividend and £25.6m for the acquisitions of National Signal and Widnes Galvanizing. Net debt at the period end includes lease liabilities under IFRS 16 of £39.3m (2021: £40.6m).

In November 2022, we were pleased to report the successful completion of the refinancing of our principal bank debt facility on competitive terms. The new syndicated revolving credit facility of £250m has an initial maturity of four years with an option to extend for a further year at the first anniversary, providing us with continued certainty of funding to support the Group's growth opportunities. The Group's principal financing facilities also comprise $70m senior unsecured notes with maturities in June 2026 and June 2029, together with a further £11.5m of on-demand local overdraft arrangements. Throughout the period the Group has operated well within these facilities and at 31 December 2022, the Group had £237.9m of headroom (£226.4m committed, £11.5m on demand).

The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt to EBITDA of a maximum of 3.0 times and interest cover of a minimum of 4.0 times. The ratio of covenant net debt to EBITDA at 31 December 2022 was 0.7 times (31 December 2021: 1.0 times) and interest cover was 21.6 times (31 December 2021: 25.4 times).

The Board considers that the ratio of covenant net debt to EBITDA is a key metric from a capital management perspective and targets a ratio of 1.0 to 2.0 times. The Board would be prepared to see leverage above the target range for short periods of time if strategically appropriate.

Tax

The underlying effective tax rate for the period for continuing operations was 22.4% (2021: 21.7%). The tax charge for the year for continuing operations was £16.0m (2021: £14.4m) and includes a £3.7m credit (2021: £1.1m) in respect of non-underlying items, principally relating to the amortisation of acquisition intangibles. Cash tax paid in the period was £15.5m (2021: £15.2m).

Exchange rates

The Group is exposed to movements in exchange rates when translating the results of its overseas operations into Sterling. Retranslating 2021 revenue and underlying operating profit from continuing operations using average exchange rates for 2022 would have increased revenue by £29.5m and underlying operating profit by £5.6m, mainly due to Sterling's depreciation against the US Dollar. A one cent movement in the average US Dollar rate currently results in an adjustment of approximately £2.5m to the Group's annual revenues and £0.6m to annual underlying operating profit.

Non-underlying items

The total non-underlying items charged to operating profit from continuing operations in the Consolidated Income Statement amounted to £18.6m (2021: £28.4m). The items were mainly non-cash related and included the following:

· Impairment charges of £6.4m, including £4.4m in respect of acquired intangible assets of Parking Facilities, one of the Group's security businesses

· Amortisation of acquired intangible assets of £6.0m

· Further costs associated with the closure of the UK variable message signs business of £1.5m

· Loss on disposal and restructuring of the divisions in our Swedish business of £1.3m

· Costs relating to our exit from low-margin US road traffic control product operation of £1.1m

· Expenses related to acquisitions and disposals of £2.3m

The non-cash element of these charges was £13.4m. Further details are set out in note 4 of the Financial Statements.

Pensions

The Group operates defined benefit pension plans in the UK and the USA. The IAS 19 deficit of these plans at 31 December 2022 was £7.2m, a reduction of £5.1m from 31 December 2021 (£12.3m, which included £4.1m in respect of our French pension scheme that was disposed of with the France Galva business during the year). The deficit of the UK scheme, the largest employee benefit obligation in the Group, was lower than the prior year end at £6.5m (31 December 2021: £7.7m) due to the Group's deficit recovery payments and an increase of 310 basis points in the discount rate during the period, in line with increases in bond yields, being partly offset by lower asset returns.

The triennial valuation for the UK scheme as at April 2022 was finalised at the end of 2022 and confirmed that the current cash contribution level (£3.7m per annum) was appropriate to deliver the deficit recovery plan. The Group continues to be actively engaged in dialogue with the UK schemes' Trustees with regards to management, funding and investment strategies including buy-in options.

Going concern

After making enquiries, the Directors have reasonable expectations that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and for the period to 30 June 2024. Accordingly, they continue to adopt the going concern principle.

When making this assessment, the Group considers whether it will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants on those facilities. The Group has carefully modelled its cash flow outlook for the period to June 2024, considering the ongoing uncertainties in global economic conditions. In this "base case" scenario, the forecasts indicate significant liquidity headroom will be maintained above the Group's borrowing facilities and financial covenants will be met throughout the period, including the covenant tests at 30 June 2023, 31 December 2023 and 30 June 2024.

The Group has also carried out "reverse stress tests" to assess the performance levels at which either liquidity headroom would fall below zero or covenants would be breached in the period to 30 June 2024. The Directors do not consider the resulting performance levels to be plausible given the Group's strong trading performance in the year and the resilience of the end markets in which we operate.

Alan Giddins Hannah Nichols

Executive Chair Group Chief Financial Officer

Consolidated Income Statement

Notes					2022						2021
					Underlying £m		Non- underlying* £m		Total £m		Underlying £m		Non- underlying* £m		Total £m
Continuing Operations
Revenue		2			732.1		-		732.1		625.2		-		625.2
Cost of sales					(461.6)		-		(461.6)		(389.2)		-		(389.2)
Gross profit					270.5		-		270.5		236.0		-		236.0
Distribution costs					(31.7)		-		(31.7)		(32.5)		-		(32.5)
Administrative expenses					(142.0)		(18.6)		(160.6)		(126.9)		(28.4)		(155.3)
Other operating income					0.3		-		0.3		0.7		-		0.7
Operating profit		2, 3		97.1		(18.6)		78.5		77.3		(28.4)		48.9
Financial income		5			0.5		-		0.5		0.6		-		0.6
Financial expense		5			(9.7)		-		(9.7)		(6.7)		-		(6.7)
Profit before taxation					87.9		(18.6)		69.3		71.2		(28.4)		42.8
Taxation		6			(19.7)		3.7		(16.0)		(15.5)		1.1		(14.4)
Profit for the year from continuing operations					68.2		(14.9)		53.3		55.7		(27.3)		28.4
Discontinued Operations
Profit from discontinued operations			7		5.2		(1.8)		3.4		6.4		(0.6)		5.8
Profit for the year attributable to the owners of the parent					73.4		(16.7)		56.7		62.1		(27.9)		34.2
Basic earnings per share	8								71.0p						43.0p
Basic earnings per share - continuing	8								66.7p						35.8p
Diluted earnings per share	8								70.4p						42.5p
Diluted earnings per share - continuing	8								66.2p						35.4p

* The Group's definition of non-underlying items is included in note 1 and further details on non-underlying items are included in note 4.

Consolidated Statement of Comprehensive Income

Notes		2022 £m	2021 £m
Profit for the year		56.7	34.2
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		27.4	(2.3)
Exchange differences on foreign currency borrowings designated as net investment hedges		(4.8)	0.6
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension schemes		(2.8)	3.5
Taxation on items that will not be reclassified to profit or loss	6	0.7	-
Other comprehensive income for the year		20.5	1.8
Total comprehensive income for the year attributable to owners of the parent		77.2	36.0

Consolidated Statement of Financial Position

Notes		2022 £m	2021 £m
Non-current assets
Intangible assets		182.6	177.4
Property, plant and equipment		186.3	193.3
Right-of-use assets		38.7	38.2
Corporation tax receivable	6	1.6	1.6
Deferred tax assets		0.1	1.4
		409.3	411.9
Current assets
Assets held for sale		1.8	3.6
Inventories		113.8	108.1
Trade and other receivables		144.3	130.2
Current tax assets		0.3	0.7
Cash and cash equivalents	11	24.8	18.8
		285.0	261.4
Total assets	2	694.3	673.3
Current liabilities
Liabilities held for sale		-	(1.9)
Trade and other liabilities		(120.8)	(132.7)
Current tax liabilities		(8.6)	(4.3)
Provisions		(3.7)	(4.0)
Lease liabilities		(8.7)	(8.8)
Loans and borrowings	11	(0.3)	(1.9)
		(142.1)	(153.6)
Net current assets		142.9	107.8
Non-current liabilities
Other liabilities		(0.2)	(1.5)
Provisions		(2.7)	(2.4)
Deferred tax liabilities		(11.6)	(12.8)
Retirement benefit obligations		(7.2)	(12.3)
Lease liabilities		(30.6)	(30.1)
Loans and borrowings	11	(104.9)	(121.0)
		(157.2)	(180.1)
Total liabilities		(299.3)	(333.7)
Net assets		395.0	339.6
Equity
Share capital		20.0	20.0
Share premium		42.8	40.9
Other reserves		4.9	4.9
Translation reserve		38.1	15.5
Retained earnings		289.2	258.3
Total equity		395.0	339.6

Consolidated Statement of Changes in Equity

	Notes	Share capital £m	Share premium £m	Other reserves^† £m	Translation reserve £m	Retained earnings £m	Total equity £m
At 1 January 2021		19.9	38.4	4.9	17.2	240.1	320.5
Comprehensive income
Profit for the year		-	-	-	-	34.2	34.2
Other comprehensive income for the year		-	-	-	(1.7)	3.5	1.8
Transactions with owners recognised directly in equity
Dividends	9	-	-	-	-	(21.2)	(21.2)
Credit to equity of share-based payments		-	-	-	-	2.5	2.5
Own shares held by employee benefit trust		-	-	-	-	(1.5)	(1.5)
Satisfaction of long-term incentive and deferred bonus awards		-	-	-	-	(0.3)	(0.3)
Tax taken directly to the Consolidated Statement of Changes in Equity	6	-	-	-	-	1.0	1.0
Shares issued		0.1	2.5	-	-	-	2.6
At 31 December 2021		20.0	40.9	4.9	15.5	258.3		339.6
Comprehensive income
Profit for the year		-	-	-	-	56.7		56.7
Other comprehensive income for the year		-	-	-	22.6	(2.1)		20.5
Transactions with owners recognised directly in equity
Dividends	9	-	-	-	-	(24.7)		(24.7)
Credit to equity of share-based payments		-	-	-	-	2.4		2.4
Own shares held by employee benefit trust		-	-	-	-	0.5		0.5
Satisfaction of long-term incentive and deferred bonus awards		-	-	-	-	(0.9)		(0.9)
Tax taken directly to the Consolidated Statement of Changes in Equity	6	-	-	-	-	(1.0)		(1.0)
Shares issued		-	1.9	-	-	-		1.9
At 31 December 2022		20.0	42.8	4.9	38.1	289.2		395.0

Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2021: £0.2m) capital redemption reserve.

Consolidated Statement of Cash Flows

Notes		2022		2021
Notes		£m	£m	£m	£m
Profit before tax from continuing operations		69.3		42.8
Profit before tax from discontinued operations	7	4.9		8.1
Add back net financing costs	5, 7	9.3		6.1
Operating profit - Total Group	2, 3, 7		83.5		57.0
Adjusted for non-cash items:
Share-based payments		2.0		2.8
Loss on disposal of subsidiaries		1.4		0.4
Loss/(gain) on disposal of non-current assets		0.3		(1.1)
Depreciation of owned assets		19.1		20.9
Amortisation of intangible assets		8.3		7.5
Right-of-use asset depreciation		8.8		10.3
Gain on lease termination		-		(0.1)
Release of accrued contingent consideration		-		(0.9)
Impairment of non-current assets		6.4		16.0
			46.3		55.8
Operating cash flow before movement in working capital			129.8		112.8
Increase in inventories		(21.0)		(13.6)
Increase in receivables		(19.1)		(7.9)
(Decrease)/increase in payables		(2.5)		14.7
Decrease in provisions and employee benefits		(4.3)		(2.9)
Net movement in working capital			(46.9)		(9.7)
Cash generated by operations		82.9		103.1
Purchase of assets for rental to customers		(10.6)		(16.7)
Income taxes paid		(15.5)		(15.2)
Interest paid		(6.4)		(4.7)
Interest paid on lease liabilities		(0.8)		(0.8)
Net cash from operating activities			49.6		65.7
Interest received		0.5		0.6
Proceeds on disposal of non-current assets		0.4		3.7
Purchase of property, plant and equipment		(18.4)		(17.8)
Purchase of intangible assets		(2.5)		(1.4)
Acquisitions of subsidiaries	10	(24.6)		(11.8)
Disposals of subsidiaries	4	58.6		1.6
Net cash used in investing activities			14.0		(25.1)
Issue of new shares		1.9		2.6
Purchase of shares for employee benefit trust		(0.4)		(1.8)
Dividends paid	9	(24.7)		(21.2)
Costs associated with refinancing during the year		(2.1)		-
Repayment of lease liabilities		(9.5)		(10.3)
New loans and borrowings		160.8		55.3
Repayment of loans and borrowings		(184.8)		(61.0)
Net cash used in financing activities			(58.8)		(36.4)
Net increase in cash and cash equivalents net of bank overdraft		4.8		4.2
Cash and cash equivalents net of bank overdraft at the beginning of the year		18.1		13.9
Effect of exchange rate fluctuations		1.9		-
Cash and cash equivalents net of bank overdraft at the end of the year		24.8		18.1

1. Group Accounting Policies

Hill & Smith PLC (formerly Hill & Smith Holdings PLC) is a company incorporated in the UK.

Basis of preparation

The consolidated financial statements comprise the financial statements of the Company, Hill & Smith PLC, and its subsidiaries as at 31 December 2022. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the Group financial statements from the date that control commences until the date that control ceases.

In preparing the consolidated financial statements, management has considered the impact of climate change, taking into account the relevant disclosures in the Strategic Report, including those made in accordance with the recommendations of the Taskforce on Climate-related Financial Disclosures. This included an assessment of assets with indefinite and long lives and how they could be impacted by measures taken to address global warming. As outlined in the Operational and Financial Review, physical climate change presents a relatively low risk to the Group's future business operations. As such, no issues were identified that would impact the carrying values of such assets or have any other impact on the financial statements.

Measurement convention

The Group financial statements are prepared on the historical cost basis except where the measurement of balances at fair value is required as explained below. The Group financial statements are presented in Sterling and all values are stated in million (£m) rounded to one decimal place, except where otherwise indicated.

Going concern and liquidity risk

In determining the appropriate basis of preparation of its financial statements, the Directors are required to assess whether the Group can continue in operational existence for the foreseeable future. When making this assessment, the Group considers whether it will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants on those facilities.

At 31 December 2022, the Group had £309.0m of committed borrowing facilities, of which only £0.3m matures before June 2026 at the earliest, and a further £11.5m of on-demand facilities. The Group refinanced its revolving credit facility in November 2022, entering into a new facility with a value of £250m that is committed until November 2026, with an option to extend the maturity by a further year at the one-year anniversary. The Group also holds $70m of Senior Unsecured Notes, and other local committed borrowing facilities of £0.6m. The amount drawn down under these committed facilities at 31 December 2022 was £107.4m, which together with cash and cash equivalents of £24.8m gave total headroom of £237.9m (£226.4m committed, £11.5m on demand). The Group has not made any changes to its principal borrowing facilities between 31 December 2022 and the date of approval of these financial statements. The only significant changes to liquidity headroom during that period were the acquisitions of Enduro Composites, which the Group completed on 17 February 2023 for an initial consideration of £28.7m, and Korns Galvanizing, which the Group acquired on 6 March 2023 for consideration of £9.4m. Substantial headroom against borrowing facilities remains in place post these acquisitions.

The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt to EBITDA of a maximum of 3.0x and interest cover of a minimum of 4.0x, based on measures as defined in the facilities agreements which are adjusted from the equivalent IFRS amounts. The ratio of net debt to EBITDA at 31 December 2022 was 0.7 times and interest cover was 21.6 times.

The Group has carefully modelled its cash flow outlook for the period to 30 June 2024, taking account of the current global economic conditions. In this 'base case' scenario, the forecasts indicate significant liquidity headroom will be maintained above the Group's borrowing facilities and financial covenants will be met throughout the period, including the covenant tests at 30 June 2023, 31 December 2023 and 30 June 2024.

The Group has carried out stress tests against the base case to determine the performance levels that would result in a breach of covenants or a reduction of headroom against its borrowing facilities to nil. For a breach of covenants to occur during the relevant period, the Group would need to experience a sustained revenue reduction of 26% compared with current expectations throughout the period from May 2023 through June 2024. A reduction in headroom against borrowing facilities to nil would occur if the Group experienced a sustained revenue reduction of 88% compared with current expectations between May 2023 and June 2024. The Directors do not consider any of these scenarios to be plausible given the generally positive outlook across the infrastructure markets in which the Group operates. The Directors also noted the Group's ability to continue its operations throughout the COVID-19 pandemic, noting that revenues fell by only 22% in the second quarter of 2020, the worst-affected period. Furthermore, the Group has several mitigating actions under its control including minimising capital expenditure to critical requirements, reducing levels of discretionary spend, rationalising its overhead base and curtailing future dividend payments which, although not forecast to be required, could be implemented in order to be able to meet the covenant tests and to continue to operate within borrowing facility limits.

After making these assessments, the Directors have reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and for a period of at least 12 months following the approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

New IFRS standards and interpretations adopted during 2022

The following amendments and interpretations apply for the first time in 2022, and therefore were adopted by the Group:

· Amendments to IFRS 3 - Reference to Conceptual Framework

· Amendments to IAS 16 - Proceeds before intended use

· Amendments to IAS 37 - Onerous Contracts - costs of fulfilling a contract

The amendments noted above have not had a material impact on the financial statements.

The principal exchange rates used were as follows:

	2022		2021
	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.17	1.13	1.16	1.19
Sterling to US Dollar (£1 = USD)	1.24	1.20	1.38	1.35
Sterling to Swedish Krona (£1 = SEK)	12.47	12.49	11.80	12.21
Sterling to Indian Rupee (£1 = INR)	97.01	99.41	101.71	100.21
Sterling to Australian Dollar (£1 = AUD)	1.78	1.77	1.83	1.86

Non-underlying items

The Group's accounting policy for non-underlying items is as follows:

Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a fuller understanding of the underlying performance of the business. The following are included by the Group in its assessment of non-underlying items:

· Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations.

· Amortisation of intangible fixed assets arising on acquisitions, which can vary depending on the nature, size and frequency of acquisitions in each financial period.

· Expenses associated with acquisitions and disposals, comprising professional fees incurred, any consideration which, under IFRS 3 (Revised) is required to be treated as a post-acquisition employment expense, and changes in contingent consideration payable on acquisitions.

· Impairment charges in respect of tangible or intangible fixed assets, or right-of-use assets.

· Changes in the fair value of derivative financial instruments.

· Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material changes in the terms of the schemes.

The non-underlying tax charge or credit comprises the tax effect of the above non-underlying items.

Details in respect of the non-underlying items recognised in the current and prior year are set out in note 4 to the Financial Statements.

2. Segmental information

Business segment analysis

The Group has three reportable segments which are Roads & Security, Engineered Solutions and Galvanizing Services. The Group's internal management structure and financial reporting systems differentiate between these segments, and, in reporting, management have taken the view that they comprise a reporting segment on the basis of the following economic characteristics:

· The Roads & Security segment contains a group of businesses supplying products designed to ensure the safety and security of roads and other national infrastructure, many of which have been developed to address national and international safety standards, to customers involved in the construction of that infrastructure;

· The Engineered Solutions segment contains a group of businesses supplying products characterised by a degree of engineering expertise, to public and private customers involved in the construction of facilities serving the utilities and other infrastructure markets; and

· The Galvanizing Services segment contains a group of companies supplying galvanizing and related materials coating services to companies in a wide range of markets including construction, agriculture and infrastructure.

Corporate costs are allocated to reportable segments in proportion to the revenue of each of those segments.

Segmental Income Statement - continuing operations

	2022			2021
	Revenue £m	Reported operating profit £m	Underlying operating profit* £m	Revenue £m	Reported operating profit £m	Underlying operating profit* £m
Roads & Security	261.5	1.7	18.1	259.7	(7.5)	17.9
Engineered Solutions	289.9	34.1	35.0	223.7	25.5	26.0
Galvanizing Services	180.7	42.7	44.0	141.8	30.9	33.4
Group	732.1	78.5	97.1	625.2	48.9	77.3
Net financing costs		(9.2)	(9.2)		(6.1)	(6.1)
Profit before taxation		69.3	87.9		42.8	71.2
Taxation		(16.0)	(19.7)		(14.4)	(15.5)
Profit after taxation		53.3	68.2		28.4	55.7

* Underlying operating profit is stated before non-underlying items as defined in note 1 and is the measure of segment profit used by the Chief Operating Decision Maker, who is the Chief Executive. The reported operating profit columns are included as additional information.

Transactions between operating segments are on an arm's length basis similar to transactions with third parties. Galvanizing Services sold £6.8m (2021: £6.5m) of products and services to Roads & Security and £2.0m (2021: £1.6m) of products and services to Engineered Solutions. Engineered Solutions sold £1.9m (2021: £3.0m) of products and services to Roads & Security. These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.

In the following tables, revenue from contracts with customers is disaggregated by primary geographical market, major product/service lines and timing of revenue recognition. Revenue by primary geographical market is defined as the end location of the Group's product or service. The table also includes a reconciliation of the disaggregated revenue with the Group's reportable segments.

Continuing operations	Roads & Security		Engineered Solutions		Galvanizing		Total
Primary geographical markets	2022 £m	2021 £m	2022 £m	2021 £m	2022 £m	2021 £m	2022 £m	2021 £m
UK	163.5	165.2	87.2	72.0	81.8	69.6	332.5	306.8
Rest of Europe	16.7	29.5	8.7	6.0	-	-	25.4	35.5
North America	70.3	56.8	187.1	137.3	98.9	72.2	356.3	266.3
The Middle East	4.9	3.2	2.4	0.6	-	-	7.3	3.8
Rest of Asia	1.9	0.6	3.9	7.1	-	-	5.8	7.7
Rest of the world	4.2	4.4	0.6	0.7	-	-	4.8	5.1
	261.5	259.7	289.9	223.7	180.7	141.8	732.1	625.2
Major product/service lines
Manufacture, supply and installation of products	240.3	237.4	289.9	223.7	-	-	530.2	461.1
Galvanizing services	-	-	-	-	180.7	141.8	180.7	141.8
Rental income	21.2	22.3	-	-	-	-	21.2	22.3
	261.5	259.7	289.9	223.7	180.7	141.8	732.1	625.2
Timing of revenue recognition
Products and services transferred at a point in time	210.2	200.0	153.8	120.2	180.7	141.8	549.7	462.0
Products and services transferred over time	51.3	59.7	136.1	103.5	-	-	182.4	163.2
	261.5	259.7	289.9	223.7	180.7	141.8	732.1	625.2

Total assets by geography

	2022 £m	2021 £m
UK	280.3	290.8
Rest of Europe	9.8	90.7
North America	380.2	273.2
Asia	11.2	13.6
Rest of the world	12.8	5.0
Total Group	694.3	673.3

3. Alternative Performance Measures

The Group presents Alternative Performance Measures ("APMs") in addition to its statutory results. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority. The principal APMs are:

· Underlying profit before taxation;

· Underlying operating profit;

· Underlying operating profit margin;

· Organic measure of change in revenue and underlying operating profit;

· Underlying cash conversion ratio;

· Capital expenditure to depreciation and amortisation ratio;

· Covenant net debt to EBITDA ratio; and

· Underlying earnings per share. A reconciliation of statutory earnings per share to underlying earnings per share is provided in note 8.

All underlying measures exclude certain non-underlying items, which are detailed in note 4. References to an underlying profit measure are made on this basis and, in the opinion of the Directors, aid the understanding of the underlying business performance as they exclude items whose quantum, nature or volatility gives further information to obtain a fuller understanding of the underlying performance of the business. APMs are presented on a consistent basis over time to assist in comparison of performance.

Reconciliation of underlying to reported profit before tax from continuing operations

	2022 £m	2021 £m
Underlying profit before tax from continuing operations	87.9	71.2
Non-underlying items included in operating profit (note 4)	(18.6)	(28.4)
Reported profit before tax from continuing operations	69.3	42.8

Reconciliation of underlying to reported operating profit from continuing operations by segment

	Roads & Security		Engineered Solutions		Galvanizing		Total
	2022 £m	2021 £m	2022 £m	2021 £m	2022 £m	2021 £m	2022 £m	2021 £m
Underlying operating profit from continuing operations	18.1	17.9	35.0	26.0	44.0	33.4	97.1	77.3
Non-underlying items:
Amortisation of acquisition intangibles	(4.6)	(4.5)	(0.5)	(0.5)	(0.9)	(0.9)	(6.0)	(5.9)
Business reorganisation costs	(2.9)	(4.5)	-	-	-	-	(2.9)	(4.5)
Impairment of assets	(6.4)	(16.0)	-	-	-	-	(6.4)	(16.0)
Expenses related to acquisitions and disposals	(1.5)	-	(0.4)	-	(0.4)	(1.6)	(2.3)	(1.6)
Loss on disposal of subsidiaries	(1.0)	(0.4)	-	-	-	-	(1.0)	(0.4)
Reported operating profit from continuing operations	1.7	(7.5)	34.1	25.5	42.7	30.9	78.5	48.9

Calculation of underlying operating profit margin from continuing operations

	Roads & Security		Engineered Solutions		Galvanizing		Total
	2022 £m	2021 £m	2022 £m	2021 £m	2022 £m	2021 £m	2022 £m	2021 £m
Underlying operating profit	18.1	17.9	35.0	26.0	44.0	33.4	97.1	77.3
Revenue	261.5	259.7	289.9	223.7	180.7	141.8	732.1	625.2
Underlying operating profit margin (%)	6.9%	6.9%	12.1%	11.6%	24.3%	23.6%	13.3%	12.4%

Measures of organic and constant currency change in revenue and underlying operating profit from continuing operations

Organic constant currency measures exclude the impact of currency translation movements, acquisitions, disposals and closures of subsidiary businesses. In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year. Constant currency amounts are prepared using exchange rates which prevailed in the current year.

	Roads & Security		Engineered Solutions		Galvanizing		Total
	Revenue £m	Underlying operating profit £m	Revenue £m	Underlying operating profit £m	Revenue £m	Underlying operating profit £m	Revenue £m	Underlying operating profit £m
2021	259.7	17.9	223.7	26.0	141.8	33.4	625.2	77.3
Impact of exchange rate movements from 2021 to 2022	5.4	1.0	15.9	2.2	8.2	2.4	29.5	5.6
2021 translated at 2022 exchange rates (A)	265.1	18.9	239.6	28.2	150.0	35.8	654.7	82.9
Acquisitions, disposals and closures	(17.6)	2.5	-	-	0.8	-	(16.8)	2.5
Organic growth/(decline) (B)	14.0	(3.3)	50.3	6.8	29.9	8.2	94.2	11.7
2022 (C)	261.5	18.1	289.9	35.0	180.7	44.0	732.1	97.1
Organic growth % (B divided by A)	5.3%	(17.5%)	21.0%	24.1%	19.9%	22.9%	14.4%	14.1%
Constant currency change % ((C-A) divided by A)	(1.4%)	(4.2%)	21.0%	24.1%	20.5%	22.9%	11.8%	17.1%

Calculation of underlying cash conversion ratio

	2022 £m	2021 £m
Underlying operating profit:
Continuing operations	97.1	77.3
Discontinued operations	6.8	8.7
	103.9	86.0
Calculation of adjusted operating cash flow:
Cash generated by operations	82.9	103.1
Less: Purchase of assets for rental to customers	(10.6)	(16.7)
Less: Purchase of property, plant and equipment	(18.4)	(17.8)
Less: Purchase of intangible assets	(2.5)	(1.4)
Less: Repayments of lease liabilities	(9.5)	(10.3)
Add: Proceeds on disposal of non-current assets	0.4	3.7
Add back: Defined benefit pension scheme deficit payments	3.7	3.7
Add back: Cash flows relating to non-underlying items	6.5	2.7
Adjusted operating cash flow	52.5	67.0
Underlying cash conversion (%)	51%	78%

Calculation of capital expenditure to depreciation and amortisation ratio

	2022 £m	2021 £m
Calculation of capital expenditure:
Purchase of assets for rental to customers	10.6	16.7
Purchase of property, plant and equipment	18.4	17.8
Purchase of intangible assets	2.5	1.4
	31.5	35.9
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment	19.1	20.9
Amortisation of development costs	1.1	1.1
Amortisation of other intangible assets	1.0	0.3
	21.2	22.3
Capital expenditure to depreciation and amortisation ratio	1.5x	1.6x

Calculation of covenant net debt to EBITDA ratio

	2022 £m	2021 £m
Reported net debt (note 11)	119.7	144.7
Lease liabilities	(39.3)	(40.6)
Amounts related to refinancing under IFRS 9	2.2	2.5
Covenant net debt (A)	82.6	106.6
Underlying operating profit	103.9	86.0
Depreciation of owned assets	19.1	20.9
Right-of-use asset depreciation	8.8	10.3
Amortisation of development costs	1.1	1.1
Amortisation of other intangible assets	1.0	0.3
Underlying EBITDA	133.9	118.6
Adjusted for:
Lease payments	(10.3)	(11.1)
Share-based payments expense	2.0	2.8
Annualised EBITDA of subsidiaries acquired/disposed	(3.7)	0.4
Covenant EBITDA (B)	121.9	110.7
Covenant net debt to EBITDA (A divided by B)	0.7	1.0

4. Non-underlying items

Included in operating profit

	2022 £m	2021 £m
Loss on disposal of subsidiaries (a)	(1.4)	(0.4)
Business reorganisation costs (b)	(2.9)	(4.5)
Impairment of assets (c)	(6.4)	(16.0)
Amortisation of acquisition intangibles	(6.2)	(6.1)
Expenses related to acquisitions and disposals	(3.5)	(2.0)
Total non-underlying items	(20.4)	(29.0)

Total non-underlying items - continuing operations	(18.6)	(28.4)
Total non-underlying items - discontinued operations	(1.8)	(0.6)

Notes:

a) In 2022, the Group completed the disposal of the majority of its Swedish roads business. In April we disposed of the rental division and in November we sold the infrastructure contracts division, at a combined loss of £1.0m. Details are set out below:

Disposal of Swedish rental and infrastructure contracts divisions	£m
Property, plant and equipment	2.0
Right-of-use assets	2.1
Inventories	1.1
Current assets	0.2
Current liabilities	(0.2)
Lease liabilities	(2.0)
Net assets disposed	3.2
Consideration received	2.5
Cumulative exchange differences	(0.3)
Loss on disposal	1.0

The Group also incurred costs of disposal of £0.5m, which are included within 'expenses related to acquisitions and disposals' in the table above. Alongside the disposals, asset impairments of £0.2m and reorganisation costs of £0.3m were incurred in relation to the remaining business. The total of non-underlying net charges relating to the Swedish business is therefore £2.0m.

In October 2022, the Group completed the disposal of France Galva, its French galvanizing and lighting column business, at a loss of £0.4m. Details of the disposal are set out below:

Disposal of France Galva	£m
Property, plant and equipment	28.4
Intangibles	13.2
Right-of-use assets	0.9
Inventories	24.0
Current assets	17.6
Cash and cash equivalents	5.9
Deferred tax	1.4
Lease liabilities	(0.8)
Current liabilities	(20.2)
Loans & borrowings	(0.3)
Provisions	(0.9)
Retirement benefit obligation	(4.6)
Net assets disposed	64.6
Consideration received	62.0
Cumulative exchange differences	2.2
Loss on disposal	0.4

The Group also incurred costs of disposal of £1.2m, which are included within 'expenses related to acquisitions and disposals' in the table above.

In 2021, the loss on disposal of £0.4m related to the sale of Technocover Limited, the Group's small access covers business.

b) In May 2022, the Group took the decision to exit the low-margin plastic products operations that formed part of our US roads business. Net charges on closure totalled £2.9m, comprising business reorganisation costs of £1.1m and asset impairment charges of £1.8m.

In addition, following the closure of the Group's variable message sign (VMS) business that was announced in March 2021, the Group has incurred a further £1.5m of costs in 2022 in relation to the completion of legacy contracts. The business reorganisation costs of £4.5m in 2021 also related to the VMS closure.

c) Impairment charges of £6.4m in 2022 comprise the portfolio management actions explained above (totalling £2.0m) and a charge of £4.4m (2021: £5.2m) in respect of acquisition intangible assets relating to Parking Facilities, one of the Group's UK security businesses. Parking Facilities manufactures and sells a range of perimeter access security products, predominantly to specialist security installers in the UK. The COVID pandemic resulted in a weak trading period in 2020 as several customer contracts were cancelled or postponed and whilst the business saw a marginal improvement in revenue and profitability in 2021, ongoing constraints on customer budgets continued to weigh on demand. In 2022, customer activity continued to be weak and supply chain challenges, input cost inflation and operational issues led to a deterioration in margins. The Board's reassessment of the future outlook for Parking Facilities, which also took into account the impact on gross margins of developments in the competitive landscape, concluded that there was limited prospect of the business returning to the levels of profitability previously anticipated and therefore that the expected future cash flows were not sufficient to support the carrying value. The resulting impairment charge of £4.4m comprises £4.0m in respect of acquired customer lists and £0.4m in respect of acquired brand names, meaning those assets have been fully impaired as at 31 December 2022. In 2021, impairment charges also included £10.8m in respect of acquisition goodwill and intangible assets relating to ATG Access, another of the Group's UK security businesses.

Included in taxation

The tax effect of the above items is a credit to the income statement of £3.7m (2021: £1.1m).

5. Net financing costs - continuing operations

	2022 £m	2021 £m
Interest on bank deposits	0.5	0.6
Financial income	0.5	0.6
Interest on loans and borrowings	(6.4)	(4.9)
Interest on lease liabilities	(0.8)	(0.8)
Financial expenses related to refinancing activities	(2.4)	(0.8)
Interest cost on net pension scheme deficit	(0.1)	(0.2)
Financial expense	(9.7)	(6.7)
Net financing costs	(9.2)	(6.1)

6. Taxation

	2022 £m	2021 £m

Current tax
UK corporation tax	4.1	4.1
Overseas tax at prevailing local rates	14.2	11.1
Adjustments in respect of prior years	1.8	(1.8)
	20.1	13.4
Deferred tax
UK deferred tax	0.3	0.1
Overseas tax at prevailing local rates	0.3	0.2
Adjustments in respect of prior years	(3.2)	0.6
Effects of changes in tax rates and laws	-	2.4
	(2.6)	3.3
Tax on profit in the Consolidated Income Statement	17.5	16.7
Deferred tax
Relating to defined benefit pension schemes	(0.7)	-
Tax on items taken directly to other comprehensive income	(0.7)	-
Current tax Relating to share-based payments Deferred tax Relating to share-based payments	(0.2) 1.2	(0.2) (0.8)
Tax taken directly to the Consolidated Statement of Changes in Equity	1.0	(1.0)

The tax charge in the Consolidated Income Statement for the period is higher (2021: higher) than the standard rate of corporation tax in the UK. The differences are explained below:

	2022 £m	2021 £m
Profit before taxation from continuing operations	69.3	42.8
Profit before taxation from discontinued operations	4.9	8.1
Profit before taxation - total Group	74.2	50.9
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 19.0% (2021: 19.0%)	14.1	9.7
Expenses not deductible/income not chargeable for tax purposes	1.2	0.9
Non-deductible goodwill impairment	-	2.4
Benefits from international financing arrangements - current and prior years	(0.3)	(0.5)
Local tax incentives	(0.4)	(0.6)
Overseas profits taxed at higher rates	3.6	3.3
Recognition of losses	-	(0.1)
Overseas losses not relieved	0.7	0.5
Impacts of rate and law changes	-	2.3
Adjustments in respect of prior years	(1.4)	(1.2)
Tax charge	17.5	16.7
Tax charge attributable to continuing operations	16.0	14.4
Tax charge attributable to discontinued operations	1.5	2.3
	17.5	16.7

In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK Controlled Foreign Company ('CFC') legislation, announcing in April 2019 that it believed in certain circumstances the CFC regime constituted State Aid. In 2021 the Group received a charging notice from HMRC requiring it to pay £1.6m in respect of state aid that HMRC considers had been unlawfully received in previous years, which was paid in full in February 2021.

Applications to annul the Commission's decision had been made in prior years by the UK Government, the Group and other affected taxpayers. The EU General Court delivered its decision on these applications in June 2022, finding in favour of the Commission. Many of those affected, including the Group, have appealed this decision to the Court of Justice of the EU. Having taken expert advice, we have concluded that our appeal is likely to be successful. As a result, we continue to recognise a tax receivable of £1.6m within non-current assets, reflecting the Group's view that the amount paid will ultimately be recovered.

7. Discontinued operations

On 25 July 2022 the Group announced the proposed disposal of France Galva SA ('France Galva'), our French galvanizing and lighting column operations, and on that date entered into a put option with the prospective purchasers. On 5 September 2022, the shareholders of the Group approved the plan to sell. The sale of France Galva completed on 4 October 2022 for £62.0m, resulting in a loss on disposal of £0.4m (note 4).

France Galva has been classified as a disposal group as required by IFRS 5 Non-current assets held for sale and discontinued operations. As the disposal resulted in the Group's withdrawal from all operations in France and noting that the business accounted for approximately 10% of Group revenues prior to disposal, France Galva's results have been reported within discontinued operations in accordance with IFRS 5.

	2022**			2021
	Underlying £m	Non-underlying* £m	Total £m	Underlying £m	Non-underlying* £m	Total £m
Revenue	68.7	-	68.7	79.8	-	79.8
Cost of Sales	(47.6)	-	(47.6)	(53.5)	-	(53.5)
Gross Profit	21.1	-	21.1	26.3	-	26.3
Distribution costs	(3.6)	-	(3.6)	(4.0)	-	(4.0)
Administrative expenses	(10.7)	(1.8)	(12.5)	(13.6)	(0.6)	(14.2)
Operating profit	6.8	(1.8)	5.0	8.7	(0.6)	8.1
Financing costs	(0.1)	-	(0.1)	-	-	-
Profit before taxation	6.7	(1.8)	4.9	8.7	(0.6)	8.1
Taxation	(1.5)	-	(1.5)	(2.3)	-	(2.3)
Profit from discontinued operations	5.2	(1.8)	3.4	6.4	(0.6)	5.8

* The Group's definition of non-underlying items is included in note 1 and further details on non-underlying items are included in note 4.

** Represents nine months of activity prior to the sale on 4 October 2022.

The net cash flows generated from the sale of France Galva are as follows:

	2022
	£m
Cash received from sale	62.0
Cash and cash equivalents disposed	(5.9)
Net cash inflow on disposal	56.1

The net cash flows generated/(incurred) by France Galva included in the consolidated cash flow statement are as follows:

	2022	2021
	£m	£m
Net cash flow from operating activities	3.4	8.9
Net cash flow from investing activities	(2.8)	(2.7)
Net cash flow from financing activities	(0.4)	(0.7)
	0.2	5.5

8. Earnings per share

The weighted average number of ordinary shares in issue during the year was 79.9m (2021: 79.6m), diluted for the effects of the outstanding dilutive share options 80.5m (2021: 80.6m). Diluted earnings per share takes account of the dilutive effect of all outstanding share options, calculated using the treasury share method. Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

	2022		2021
	Pence per share	£m	Pence per share	£m
Basic earnings
- continuing	66.7	53.3	35.8	28.4
- discontinued	4.3	3.4	7.2	5.8
Total basic earnings	71.0	56.7	43.0	34.2
Non-underlying items*
- continuing	18.7	14.9	34.2	27.3
- discontinued	2.2	1.8	0.7	0.6
Total non-underlying items	20.9	16.7	34.9	27.9
Underlying earnings
- continuing	85.4	68.2	70.0	55.7
- discontinued	6.5	5.2	7.9	6.4
Total underlying earnings	91.9	73.4	77.9	62.1
Diluted earnings
- continuing	66.2	53.3	35.4	28.4
- discontinued	4.2	3.4	7.1	5.8
Total diluted earnings	70.4	56.7	42.5	34.2
Non-underlying items*
- continuing	18.5	14.9	33.9	27.3
- discontinued	2.2	1.8	0.7	0.6
Total non-underlying items	20.7	16.7	34.6	27.9
Underlying diluted earnings
- continuing	84.7	68.2	69.3	55.7
- discontinued	6.4	5.2	7.8	6.4
Total underlying diluted earnings	91.1	73.4	77.1	62.1

* Non-underlying items as detailed in note 4.

9. Dividends

Dividends paid during the year

	2022		2021
	Pence per share	£m	Pence per share	£m
Interim dividend paid in relation to year-ended 31 December 2020	-	-	9.2	7.3
Final dividend paid in relation to year-ended 31 December 2020	-	-	17.5	13.9
Interim dividend paid in relation to year-ended 31 December 2021	12.0	9.6	-	-
Final dividend paid in relation to year-ended 31 December 2021	19.0	15.1	-	-
Total	31.0	24.7	26.7	21.2

Dividends declared in respect of the year

	2022		2021
	Pence per share	£m	Pence per share	£m
Interim dividend declared in relation to year-ended 31 December 2021	-	-	12.0	9.6
Final dividend declared in relation to year-ended 31 December 2021	-	-	19.0	15.1
Interim dividend declared in relation to year-ended 31 December 2022	13.0	10.4	-	-
Final dividend proposed in relation to year-ended 31 December 2022	22.0	17.6	-	-
Total	35.0	28.0	31.0	24.7

The final dividend for 2022 was proposed after the year end date and was not recognised as a liability at 31 December 2022, in accordance with IAS 10.

10. Acquisitions

National Signal Inc

On 4 October 2022 the Group acquired the business and assets of National Signal Inc ("National Signal") from its shareholders for an initial cash consideration of £21.5m, plus a further £2.7m relating to post completion working capital adjustments payable early in 2023. Further cash consideration of up to £3.3m is payable, conditional on National Signal's achievement of financial performance targets in the three years post-acquisition. National Signal, located in Fullerton, California, is a designer, manufacturer and supplier of off-grid solar lighting solutions in the USA, and is therefore complementary to the Group's 2021 acquisition of Prolectric Services, further accelerating the Group's strategy in this fast-growing market. Details of the acquisition are set out below:

	Pre-acquisition carrying amount £m	Provisional policy alignment and fair value adjustments £m	Total £m
Intangible Assets
Brands	-	1.2	1.2
Customer lists	-	8.9	8.9
Property, plant and equipment	1.5	(0.2)	1.3
Right-of-use assets	-	1.0	1.0
Inventories	3.7	(0.4)	3.3
Current assets	5.8	(0.3)	5.5
Total assets	11.0	10.2	21.2
Lease Liabilities	-	(1.0)	(1.0)
Current liabilities	(2.0)	(0.5)	(2.5)
Provisions	-	(0.7)	(0.7)
Total liabilities	(2.0)	(2.2)	(4.2)
Net assets	9.0	8.0	17.0
Consideration
Total consideration			24.2
Goodwill			7.2
Cash flow effect
Consideration in the year			21.5
Cash acquired with the business			-
Net cash consideration shown in the Consolidated Statement of Cash Flows			21.5

Brands and customer lists have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which has been allocated to the Roads & Security segment, primarily represents the highly skilled workforce, future technological advantages and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been made to align the accounting policies of the acquired business with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. In respect of leases, the Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the terms of the leases relative to market terms. The fair value of the current assets acquired includes £5.5m of trade receivables, which have a gross value of £5.7m.

As part of the acquisition agreement, additional consideration has been agreed. The amount of additional consideration is dependent on National Signal's gross profit for the three years to 31 December 2025. Below the 'triggers' (as defined in the Asset Purchase Agreement), no additional consideration is due. If the 'triggers' are achieved, additional consideration of £3.3m becomes payable.

Post-acquisition the acquired business has contributed £8.3m revenue and £1.4m operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2022, the Group's results for the year from continuing operations would have shown revenue of £754.6m, underlying operating profit of £102.0m and reported operating profit of £83.4m.

Widnes Galvanising Limited

On 30 September 2022 the Group acquired 100% of the share capital of Widnes Galvanising Limited ("Widnes") for an initial cash consideration of £3.5m, plus £0.2m relating to post completion working capital adjustments and a further £0.2m deferred until 2024. The acquisition of Widnes further expands the geographic footprint of the Group's UK galvanizing business into the north west of the UK and is aligned to the Group's growth strategy. Details of the acquisition are set out below:

	Pre-acquisition carrying amount £m	Provisional policy alignment and fair value adjustments £m	Total £m
Intangible Assets
Customer lists	-	0.9	0.9
Property, plant and equipment	0.5	-	0.5
Inventories	0.3	-	0.3
Current assets	0.9	-	0.9
Cash	0.4	-	0.4
Total assets	2.1	0.9	3.0
Current liabilities	(0.4)	-	(0.4)
Deferred tax	-	(0.1)	(0.1)
Provisions	-	(0.7)	(0.7)
Total liabilities	(0.4)	(0.8)	(1.2)
Net assets	1.7	0.1	1.8
Consideration
Total consideration			3.9
Goodwill			2.1
Cash flow effect
Consideration in the year			3.5
Cash acquired with the business			(0.4)
Net cash consideration shown in the Consolidated Statement of Cash Flows			3.1

Customer lists have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which has been allocated to the Galvanizing segment, primarily represents the highly skilled workforce, future technological advantages and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been made to align the accounting policies of the acquired business with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. The fair value of the current assets acquired includes £0.8m of trade receivables, which have a gross value of £0.8m.

Post-acquisition the acquired business has contributed £0.8m revenue and £nil operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2022, the Group's results for the year from continuing operations would have shown revenue of £734.6m, underlying operating profit of £97.6m and reported operating profit of £79.0m.

11. Cash and borrowings

	2022 £m	2021 £m
Cash and cash equivalents in the Consolidated Statement of Financial Position Cash and cash equivalents	24.8	18.8
Bank overdraft	-	(0.7)
Cash and cash equivalents net of bank overdraft	24.8	18.1
Interest bearing loans and other borrowings
Amounts due within one year	(0.3)	(1.2)
Amounts due after more than one year	(104.9)	(121.0)
Lease liabilities classified as liabilities held for sale	-	(1.7)
Lease liabilities due within one year	(8.7)	(8.8)
Lease liabilities due after more than one year	(30.6)	(30.1)
Net debt	(119.7)	(144.7)
Change in net debt Operating profit:
- from continuing operations	78.5	48.9
- from discontinued operations	5.0	8.1
Total Group operating profit	83.5	57.0
Non-cash items	46.3	55.8
Operating cash flow before movement in working capital	129.8	112.8
Net movement in working capital	(42.6)	(6.8)
Changes in provisions and employee benefits	(4.3)	(2.9)
Operating cash flow	82.9	103.1
Tax paid	(15.5)	(15.2)
Net financing costs paid	(5.9)	(4.1)
Capital expenditure	(31.5)	(35.9)
Proceeds on disposal of non-current assets	0.4	3.7
Free cash flow	30.4	51.6
Dividends paid	(24.7)	(21.2)
Acquisitions of subsidiaries	(25.6)	(13.6)
Disposals of subsidiaries	58.6	1.6
Amortisation of costs associated with refinancing activities	(2.4)	(0.8)
Purchase of shares for employee benefit trust	(0.4)	(1.8)
Issue of new shares	1.9	2.6
Lease additions, terminations and remeasurements	(9.0)	(17.1)
Leases disposed of	2.8	-
Loans and borrowings disposed of	0.3	-
Interest on lease liabilities	(0.8)	(0.8)
Net debt decrease	31.1	0.5
Effect of exchange rate fluctuations	(6.1)	1.0
Net debt at the beginning of the year	(144.7)	(146.2)
Net debt at the end of the year	(119.7)	(144.7)

Notes

1. The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 2021 but is derived from those accounts. Statutory accounts for 2021 have been delivered to the registrar of companies, and those for 2022 will be delivered in due course. The auditors have reported on those accounts; their report was:

i. unqualified;

ii. did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

iii. did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

2. The Annual Report will be posted to shareholders on or around 16 April 2023 and will be displayed on the Company's website at www.hsgroup.com. Copies of the Annual Report will also be available from the registered office at Westhaven House, Arleston Way, Solihull, B90 4LH.

3. Events Calendar:

i. The Annual General Meeting will be held at Cranmore Park Conference, Event & Exhibition Centre, Cranmore Avenue, Shirley, West Midlands, B90 4LF on Thursday 25 May 2023.

ii. The proposed final dividend for 2022 will be paid on 7 July 2023 to shareholders on the register on 2 June 2023 (ex-dividend date 1 June 2023).

iii. The last date for receipt of Dividend Reinvestment Plan elections is 16 June 2023.

iv. Interim results announcement for the period to 30 June 2023 due 9 August 2023.

v. Payment of the 2023 interim dividend due 5 January 2024.

4. This preliminary announcement of results for the year ended 31 December 2022 was approved by the Directors on 8 March 2023.

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profits forecast.

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END

FR XDLLBXXLEBBD

Financial Results

31 December

2022

31 December 2021(1)

Reported %

Constant Currency %

OCC ^ %

31 December

2022

31 December 2021(1)

Reported %

Continuing Operations (1)

Revenue

£732.1m

£625.2m

17%

12%

14%

£732.1m

£625.2m

17%

Operating profit

£97.1m

£77.3m

26%

17%

14%

£78.5m

£48.9m

61%

Operating margin

13.3%

12.4%

90bps

10.7%

7.8%

290bps

Profit before tax

£87.9m

£71.2m

23%

£69.3m

£42.8m

62%

Earnings per share

85.4p

70.0p

22%

66.7p

35.8p

86%

Total Group (1)

Earnings per share

91.9p

77.9p

18%

71.0p

43.0p

65%

Dividend per share

35.0p

31.0p

13%

35.0p

31.0p

13%

Key Highlights:

Alan Giddins, Executive Chair, said:

Hill & Smith PLC

MHP

31 December 2021⁽¹⁾

OCC ^{^} %

31 December 2021⁽¹⁾

Continuing Operations ⁽¹⁾

Total Group ⁽¹⁾