TIDMHILS
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 31 31
December 31 December Constant OCC December December
2022 2021(1) Reported % Currency % (^) % 2022 2021(1) Reported %
----------- -------------- ------------ ------------ ------- ----------- ----------- ------------
Continuing
Operations
(1)
----------- -------------- ------------ ------------ ------- ----------- ----------- ------------
Revenue GBP732.1m GBP625.2m +17% +12% +14% GBP732.1m GBP625.2m +17%
----------- -------------- ------------ ------------ ------- ----------- ----------- ------------
Operating
profit GBP97.1m GBP77.3m +26% +17% +14% GBP78.5m GBP48.9m +61%
----------- -------------- ------------ ------------ ------- ----------- ----------- ------------
Operating
margin 13.3% 12.4% +90bps 10.7% 7.8% +290bps
----------- -------------- ------------ ------------ ------- ----------- ----------- ------------
Profit
before tax GBP87.9m GBP71.2m +23% GBP69.3m GBP42.8m +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 GBP24.2m
o Widnes Galvanising, expanding our galvanizing footprint in the
UK, for GBP3.9m
o Acquisition of Enduro Composites in February 2023 for GBP28.7m
further accelerating our US composites growth strategy
o Acquisition of Korns Galvanizing in March 2023 for GBP9.4m,
supporting growth in attractive US galvanizing market
o Disposal of France Galva in October 2022 for GBP62.0m 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."
F or 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
GBP24.2m. 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 GBP3.9m, 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 GBP28.7m. 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 GBP9.4m, 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 GBP732.1m (2021: GBP625.2m), an increase of 17% on a
reported basis. Constant currency revenue growth was 12% and OCC
revenue growth was 14%. Underlying operating profit was GBP97.1m
(2021: GBP77.3m), 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 GBP87.9m (2021: GBP71.2m). Reported
operating profit was GBP78.5m (2021: GBP48.9m) and reported profit
before tax was GBP69.3m (2021: GBP42.8m) . 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 GBP6.0m and the impairment of acquired
intangibles associated with one of our security businesses of
GBP4.4m. 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 22.0 p 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
GBPm Reported Constant OCC
% currency %
%
--------------
Continuing Operations 2022 2021
(2)
----------------------- ------ ------
Revenue 180.7 141.8 +27 +20 +20
----------------------- ------ ------ --------- ---------- ----
Underlying operating
profit (1) 44.0 33.4 +32 +23 +23
----------------------- ------ ------ --------- ---------- ----
Underlying operating
margin % (1) 24.3% 23.6%
----------------------- ------ ------
Statutory operating
profit 42.7 30.9
----------------------- ------ ------
(1) Underlying measures are set out in note 3 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 4 to the Financial Statements.
(2) Continuing operations exclude France Galva, which has been
reported as a discontinued operation as explained in note 7 to the
Financial Statements. The prior year comparatives have been
restated accordingly.
The Galvanizing Services division offers hot-dip galvanizing and
powder coating services with multi-plant facilities in the USA and
the UK. Hot-dip galvanizing is a proven steel corrosion protection
solution which significantly extends the service life of steel
structures and products. The division benefits from a wide sectoral
spread of customers who operate in resilient end markets including
road infrastructure, commercial construction, transportation, and
energy transmission and distribution. The division represents 45%
of 2022 underlying operating profit.
The division delivered an impressive performance in 2022, with
revenue 20% higher and underlying operating profit 23% higher than
last year on an OCC basis. The division maintained superior
margins, with underlying operating margin increasing to 24.3%
(2021: 23.6%). The results reflect strong volume growth in the US,
successful pricing actions taken to offset input cost inflation and
a deliberate focus on higher margin customers.
US
Predominantly located in the northeast and midwest of the
country, the US galvanizing business delivered a strong
performance, with 23% OCC revenue growth and record operating
profit. The strong growth is attributable to an 11% increase in
production volumes, improved pricing to offset cost input
inflation, favourable product mix and an increased level of
value-add coating services. As a result, the business continued to
maintain superior operating margins, with customers valuing the
excellent quality of service provided by our local teams.
In March 2023, we were pleased to acquire Korns Galvanizing for
a consideration of GBP9.4m . L ocated in Johnstown, Pennsylvania,
Korns specialises in spin galvanizing and has a customer base
spread across a broad range of infrastructure related end markets.
Korns will be managed by our existing US galvanizing team and will
expand our production capacity in the key northeastern market, and
broaden the range of galvanizing services we can offer to our
existing customer base.
In the medium to longer term, the outlook for US galvanizing is
positive, with investment levels expected to grow ahead of GDP in a
range of US galvanizing end markets, supported by the IIJA and a
more general move to the onshoring of certain activities. We have
started to quote on some IIJA related projects and expect to see
incremental growth in the bridge and highway market in the second
half of 2023.
UK
UK galvanizing delivered 17% organic revenue growth and record
operating profit in 2022. This reflects a particularly strong first
half with swift pricing actions taken to address input cost
inflation and a focus on higher margin, service orientated
customers. The second half was more challenging as certain
customers, particularly in the agricultural sector, have begun to
feel the effects of rising energy costs. Total volumes of steel
galvanized were 9% lower than 2021.
In October 2022, we were pleased to announce the acquisition of
Widnes Galvanising Limited for consideration of GBP3.9m. 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
GBPm Reported Constant OCC
% Currency %
%
--------------
Continuing Operations 2022 2021
(2)
----------------------- ------ ------
Revenue 289.9 223.7 +30 +21 +21
----------------------- ------ ------ --------- ---------- ----
Underlying operating
profit (1) 35.0 26.0 +35 +24 +24
----------------------- ------ ------ --------- ---------- ----
Underlying operating
margin % (1) 12.1% 11.6%
----------------------- ------ ------
Statutory operating
profit 34.1 25.5
----------------------- ------ ------
(1) Underlying measures are set out in note 3 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 4 to the Financial Statements.
(2) Continuing operations exclude France Galva, which has been
reported as a discontinued operation as explained in note 7 to the
Financial Statements. The prior year comparatives have been
restated for the resulting change in allocation of corporate
costs.
Our Engineered Solutions division (formerly known as Utilities)
provides steel and composite solutions with low embodied energy for
a wide range of infrastructure markets including energy generation
and distribution, marine, rail and housing. The division also
supplies engineered supports for the water, power and liquid
natural gas markets, and seismic protection solutions for
commercial construction. While the division has been renamed in
2022, there has been no change to the portfolio of operating
companies that it includes.
The division continued to deliver good results in 2022, with 21%
revenue and 24% profit growth on an OCC basis. With a strong second
half performance, operating margins increased to 12.1% (2021:
11.6%), reflecting the quality of our faster growing US
businesses.
US
Our US businesses delivered 23% OCC revenue growth and strong
profit growth against robust prior year comparators. Operating
profit generated by our US businesses represented c.80% of the
total profit for the division in 2022, highlighting the increasing
importance of the US to the Group's growth strategy.
Our composites business was the largest company within the
division in 2022 and continued to see strong demand for its range
of composite engineered solutions including utility poles,
waterfront protection and mass transit infrastructure. In February
2023 we were pleased to acquire Enduro Composites for a cash
consideration of GBP28.7m. Located in Texas, Enduro Composites is a
designer, manufacturer and supplier of engineered composite
solutions and is highly complementary to our existing northeastern
and midwestern US business, further accelerating our strategy in
the exciting and growing composites market.
Our electricity distribution substation business delivered
impressive profit growth and a record level of operating profit,
with customer demand increasing as steel price challenges subsided
and pricing actions were taken to offset inflation. The business
enters 2023 with a record order book supported by high project
demand to upgrade electricity infrastructure.
Our engineered supports business also delivered record profits
with significant growth due to higher sales volumes in catalogue
hardware, improved pricing and a richer product mix of project
specific engineered supports for key markets including water
treatment and electric vehicle production. During the year, the
business successfully navigated supply chain challenges, which
enabled market share gain, and is well positioned to make further
progress in 2023.
Prospects for future growth in all our US businesses are very
encouraging. We expect market demand to be supported by investment
to modernise the electricity grid and solutions to protect against
extreme weather. The outlook is further supported by multi-year
planned government spending on infrastructure via the IIJA, and
private investment from US manufacturers and producers to onshore
vital components.
UK
Revenue in our UK businesses grew 21% on an organic basis. The
industrial flooring business, in particular, delivered a record
performance, reflecting buoyant demand from data centre and oil
& gas markets and successful pricing actions. This business
enters 2023 with a good order book and healthy sales pipeline.
Our lower margin UK only based building product business
delivered a performance in line with 2021, having successfully
managed inflationary pressures and supply chain challenges. The
year started strongly with high levels of customer demand, however
markets cooled in the second half with wider concerns around
interest rates and house prices. We expect end markets to continue
to be challenging in 2023, however the renewed focus on customer
service and delivery under a new management team should support
sales growth through market share gains.
Roads & Security
GBPm Reported Constant OCC
% Currency %
%
--------------
Continuing Operations 2022 2021
(2)
----------------------- ------ ------
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 GBP24.2m, with further consideration payable
of up to GBP3.3m 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
GBP5.5m 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 GBP4.4m. 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 GBP20.0m 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 GBP50m -
GBP70m each year on value enhancing acquisitions. In 2022 we spent
GBP25.6m 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
GBP129.8m (2021: GBP112.8m). The working capital outflow in the
year was GBP42.6m (2021: GBP6.8m). 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 GBP31.5m (2021: GBP35.9m) represents a
multiple of depreciation and amortisation of 1.5 times (2021: 1.6
times). Significant investment in the year included GBP5.5m on
temporary barrier fleet to support growing demand in the Australian
roads market and GBP3.0m on temporary barrier fleet for the US
Roads market. We also invested GBP1.9m on rental assets for
Prolectric, our fast-growing UK off-grid solar lighting and power
business and GBP2.4m 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 GBP9.2m (2021: GBP6.1m), including a charge of GBP1.6m
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
GBP0.1m (2021: GBP0.2m), and the amortisation of costs relating to
refinancing activities was GBP0.8m (2021: GBP0.8m).
The Group generated GBP30.4m of free cash flow in the year
(2021: GBP51.6m), providing funds to support our acquisition
strategy and dividend policy.
Net debt and financing
Net debt at the end of the period amounted to GBP119.7m (31
December 2021: GBP144.7m). Outflows in the year included GBP24.7m
for the 2021 interim and final dividend and GBP25.6m for the
acquisitions of National Signal and Widnes Galvanizing. Net debt at
the period end includes lease liabilities under IFRS 16 of GBP39.3m
(2021: GBP40.6m).
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 GBP250m 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 GBP11.5m 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 GBP237.9m of headroom (GBP226.4m committed, GBP11.5m 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 GBP 16.0m (2021: GBP14.4 m ) and
includes a GBP 3.7m credit (2021: GBP1.1 m ) in respect of
non-underlying items, principally relating to the amortisation of
acquisition intangibles. Cash tax paid in the period was GBP15.5m
(2021: GBP15.2m).
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 GBP29.5m and underlying operating profit
by GBP5.6m, 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 GBP2.5m to the Group's
annual revenues and GBP0.6m 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 GBP18.6m (2021: GBP28.4m). The items were mainly non-cash
related and included the following:
-- Impairment charges of GBP6.4m, including GBP4.4m in respect
of acquired intangible assets of Parking Facilities, one of the
Group's security businesses
-- Amortisation of acquired intangible assets of GBP6.0m
-- Further costs associated with the closure of the UK variable message signs business of GBP1.5m
-- Loss on disposal and restructuring of the divisions in our Swedish business of GBP1.3m
-- Costs relating to our exit from low-margin US road traffic
control product operation of GBP1.1m
-- Expenses related to acquisitions and disposals of GBP2.3m
The non-cash element of these charges was GBP13.4m. 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
GBP7.2m, a reduction of GBP5.1m from 31 December 2021 (GBP12.3m,
which included GBP4.1m 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
GBP6.5m (31 December 2021: GBP7.7m) 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 (GBP3.7m per annum) was appropriate to deliver
the deficit recovery plan. The Group continues to be actively
engaged in dialogue with the UK schemes' Trustees with regards to
management, funding and investment strategies including buy-in
options.
Going concern
After making enquiries, the Directors have reasonable
expectations that the Company and its subsidiaries have adequate
resources to continue in operational existence for the foreseeable
future and for the period to 30 June 2024. Accordingly, they
continue to adopt the going concern principle.
When making this assessment, the Group considers whether it will
be able to maintain adequate liquidity headroom above the level of
its borrowing facilities and to operate within the financial
covenants on those facilities. The Group has carefully modelled its
cash flow outlook for the period to June 2024, considering the
ongoing uncertainties in global economic conditions. In this "base
case" scenario, the forecasts indicate significant liquidity
headroom will be maintained above the Group's borrowing facilities
and financial covenants will be met throughout the period,
including the covenant tests at 30 June 2023, 31 December 2023 and
30 June 2024.
The Group has also carried out "reverse stress tests" to assess
the performance levels at which either liquidity headroom would
fall below zero or covenants would be breached in the period to 30
June 2024. The Directors do not consider the resulting performance
levels to be plausible given the Group's strong trading performance
in the year and the resilience of the end markets in which we
operate.
Alan Giddins Hannah Nichols
Executive Chair Group Chief Financial Officer
Consolidated Income Statement
Notes 2022 2021
=========================== =================================== =======================================
Non- Non-
Underlying underlying* Total Underlying underlying* Total
GBPm GBPm GBPm GBPm GBPm GBPm
=============== ==== ==== ============ ============ ======= ============ ================ =======
Continuing
Operations
Revenue 2 732.1 - 732.1 625.2 - 625.2
Cost of sales (461.6) - (461.6) (389.2) - (389.2)
=============== ========== ============ ============ ======= ============ ================ =======
Gross profit 270.5 - 270.5 236.0 - 236.0
Distribution
costs (31.7) - (31.7) (32.5) - (32.5)
Administrative
expenses (142.0) (18.6) (160.6) (126.9) (28.4) (155.3)
Other operating
income 0.3 - 0.3 0.7 - 0.7
=============== ========== ============ ============ ======= ============ ================ =======
Operating
profit 2, 3 97.1 (18.6) 78.5 77.3 (28.4) 48.9
Financial
income 5 0.5 - 0.5 0.6 - 0.6
Financial
expense 5 (9.7) - (9.7) (6.7) - (6.7)
=============== ========== ============ ============ ======= ============ ================ =======
Profit before
taxation 87.9 (18.6) 69.3 71.2 (28.4) 42.8
Taxation 6 (19.7) 3.7 (16.0) (15.5) 1.1 (14.4)
=============== ========== ============ ============ ======= ============ ================ =======
Profit for the year from
continuing operations 68.2 (14.9) 53.3 55.7 (27.3) 28.4
Discontinued Operations
Profit from
discontinued
operations 7 5.2 (1.8) 3.4 6.4 (0.6) 5.8
=============== ========== ============ ============ ======= ============ ================ =======
Profit for the year
attributable to the owners
of the parent 73.4 (16.7) 56.7 62.1 (27.9) 34.2
=========================== ============ ============ ======= ============ ================ =======
Basic earnings
per share 8 71.0p 43.0p
Basic earnings
per share -
continuing 8 66.7p 35.8p
Diluted
earnings per
share 8 70.4p 42.5p
Diluted
earnings per
share -
continuing 8 66.2p 35.4p
=============== ========== ============ ============ ======= ============ ================ =======
* The Group's definition of non-underlying items is included in
note 1 and further details on non-underlying items are included in
note 4.
Consolidated Statement of Comprehensive Income
Notes 2022 2021
GBPm GBPm
========================================================================================== ===== =====
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
2022 2021
Notes GBPm GBPm
==================================== ======= =======
Non-current assets
Intangible assets 182.6 177.4
Property, plant and equipment 186.3 193.3
Right-of-use assets 38.7 38.2
Corporation tax receivable 6 1.6 1.6
Deferred tax assets 0.1 1.4
================================ ======= =======
409.3 411.9
==================================== ======= =======
Current assets
Assets held for sale 1.8 3.6
Inventories 113.8 108.1
Trade and other receivables 144.3 130.2
Current tax assets 0.3 0.7
Cash and cash equivalents 11 24.8 18.8
================================ ======= =======
285.0 261.4
==================================== ======= =======
Total assets 2 694.3 673.3
================================ ======= =======
Current liabilities
Liabilities held for sale - (1.9)
Trade and other liabilities (120.8) (132.7)
Current tax liabilities (8.6) (4.3)
Provisions (3.7) (4.0)
Lease liabilities (8.7) (8.8)
Loans and borrowings 11 (0.3) (1.9)
================================ ======= =======
(142.1) (153.6)
==================================== ======= =======
Net current assets 142.9 107.8
==================================== ======= =======
Non-current liabilities
Other liabilities (0.2) (1.5)
Provisions (2.7) (2.4)
Deferred tax liabilities (11.6) (12.8)
Retirement benefit obligations (7.2) (12.3)
Lease liabilities (30.6) (30.1)
Loans and borrowings 11 (104.9) (121.0)
================================ ======= =======
(157.2) (180.1)
==================================== ======= =======
Total liabilities (299.3) (333.7)
==================================== ======= =======
Net assets 395.0 339.6
================================ ======= =======
Equity
Share capital 20.0 20.0
Share premium 42.8 40.9
Other reserves 4.9 4.9
Translation reserve 38.1 15.5
Retained earnings 289.2 258.3
================================ ======= =======
Total equity 395.0 339.6
==================================== ======= =======
Consolidated Statement of Changes in Equity
Notes Share Share Other Translation reserve Retained earnings Total
capital premium reserves GBPm GBPm equity
GBPm GBPm GBPm GBPm
========================== ====== ======== ======== ========= =================== ================= =======
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 GBP0.2m (2021:
GBP0.2m) capital redemption reserve.
Consolidated Statement of Cash Flows
2022 2021
=============================================================== ===================== =====================
Notes GBPm GBPm GBPm GBPm
======================================================================== =========== ======== ========== =========
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 (GBPm)
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 GBP309.0m of committed
borrowing facilities, of which only GBP0.3m matures before June
2026 at the earliest, and a further GBP11.5m of on-demand
facilities. The Group refinanced its revolving credit facility in
November 2022, entering into a new facility with a value of GBP250m
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 GBP0.6m. The amount drawn down
under these committed facilities at 31 December 2022 was GBP107.4m,
which together with cash and cash equivalents of GBP24.8m gave
total headroom of GBP237.9m (GBP226.4m committed, GBP11.5m 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 GBP28.7m, and Korns
Galvanizing, which the Group acquired on 6 March 2023 for
consideration of GBP9.4m. 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 (GBP1 = EUR) 1.17 1.13 1.16 1.19
Sterling to US Dollar (GBP1 = USD) 1.24 1.20 1.38 1.35
Sterling to Swedish Krona (GBP1 = SEK) 12.47 12.49 11.80 12.21
Sterling to Indian Rupee (GBP1 = INR) 97.01 99.41 101.71 100.21
Sterling to Australian Dollar (GBP1 = AUD) 1.78 1.77 1.83 1.86
=========================================== ========= ========= ========= =========
Non-underlying items
The Group's accounting policy for non- underlying items is as
follows:
Non-underlying items are presented separately in the
Consolidated Income Statement where, in the Directors' judgement,
the quantum, nature or volatility of such items gives further
information to obtain a fuller understanding of the underlying
performance of the business. The following are included by the
Group in its assessment of non-underlying items:
-- Gains or losses arising on disposal, closure, restructuring
or reorganisation of businesses that do not meet the definition of
discontinued operations.
-- Amortisation of intangible fixed assets arising on
acquisitions, which can vary depending on the nature, size and
frequency of acquisitions in each financial period.
-- Expenses associated with acquisitions and disposals,
comprising professional fees incurred, any consideration which,
under IFRS 3 (Revised) is required to be treated as a
post-acquisition employment expense, and changes in contingent
consideration payable on acquisitions.
-- Impairment charges in respect of tangible or intangible fixed
assets, or right-of-use assets.
-- Changes in the fair value of derivative financial instruments.
-- Significant past service items or curtailments and
settlements relating to defined benefit pension obligations
resulting from material changes in the terms of the schemes.
The non-underlying tax charge or credit comprises the tax effect
of the above non-underlying items.
Details in respect of the non-underlying items recognised in the
current and prior year are set out in note 4 to the Financial
Statements.
2. Segmental information
Business segment analysis
The Group has three reportable segments which are Roads &
Security, Engineered Solutions and Galvanizing Services. The
Group's internal management structure and financial reporting
systems differentiate between these segments, and, in reporting,
management have taken the view that they comprise a reporting
segment on the basis of the following economic characteristics:
-- The Roads & Security segment contains a group of
businesses supplying products designed to ensure the safety and
security of roads and other national infrastructure, many of which
have been developed to address national and international safety
standards, to customers involved in the construction of that
infrastructure;
-- The Engineered Solutions segment contains a group of
businesses supplying products characterised by a degree of
engineering expertise, to public and private customers involved in
the construction of facilities serving the utilities and other
infrastructure markets; and
-- The Galvanizing Services segment contains a group of
companies supplying galvanizing and related materials coating
services to companies in a wide range of markets including
construction, agriculture and infrastructure.
Corporate costs are allocated to reportable segments in
proportion to the revenue of each of those segments.
Segmental Income Statement - continuing operations
2022 2021
======================= ================================= =================================
Reported Underlying Reported Underlying
operating operating operating operating
Revenue profit profit* Revenue profit profit*
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ========= ========== ========== ========= ========== ==========
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 GBP6.8m (2021: GBP6.5m) of products and services to
Roads & Security and GBP2.0m (2021: GBP1.6m) of products and
services to Engineered Solutions. Engineered Solutions sold GBP1.9m
(2021: GBP3.0m) of products and services to Roads & Security.
These internal revenues, along with revenues generated from within
their own segments, have been eliminated on consolidation.
In the following tables, revenue from contracts with customers
is disaggregated by primary geographical market, major
product/service lines and timing of revenue recognition. Revenue by
primary geographical market is defined as the end location of the
Group's product or service. The table also includes a
reconciliation of the disaggregated revenue with the Group's
reportable segments.
Continuing operations Roads & Security Engineered Solutions Galvanizing Total
============================================= ================== ====================== ============= ============
Primary geographical markets 2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================================= ======== ======== ========== ========== ====== ===== ===== =====
UK 163.5 165.2 87.2 72.0 81.8 69.6 332.5 306.8
Rest of Europe 16.7 29.5 8.7 6.0 - - 25.4 35.5
North America 70.3 56.8 187.1 137.3 98.9 72.2 356.3 266.3
The Middle East 4.9 3.2 2.4 0.6 - - 7.3 3.8
Rest of Asia 1.9 0.6 3.9 7.1 - - 5.8 7.7
Rest of the world 4.2 4.4 0.6 0.7 - - 4.8 5.1
============================================= ======== ======== ========== ========== ====== ===== ===== =====
261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
============================================= ======== ======== ========== ========== ====== ===== ===== =====
Major product/service lines
Manufacture, supply and installation of
products 240.3 237.4 289.9 223.7 - - 530.2 461.1
Galvanizing services - - - - 180.7 141.8 180.7 141.8
Rental income 21.2 22.3 - - - - 21.2 22.3
============================================= ======== ======== ========== ========== ====== ===== ===== =====
261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
============================================= ======== ======== ========== ========== ====== ===== ===== =====
Timing of revenue recognition
Products and services transferred at a point
in time 210.2 200.0 153.8 120.2 180.7 141.8 549.7 462.0
Products and services transferred over time 51.3 59.7 136.1 103.5 - - 182.4 163.2
============================================= ======== ======== ========== ========== ====== ===== ===== =====
261.5 259.7 289.9 223.7 180.7 141.8 732.1 625.2
============================================= ======== ======== ========== ========== ====== ===== ===== =====
Total assets by geography
2022 2021
GBPm GBPm
=================== ===== =====
UK 280.3 290.8
Rest of Europe 9.8 90.7
North America 380.2 273.2
Asia 11.2 13.6
Rest of the world 12.8 5.0
=================== ===== =====
Total Group 694.3 673.3
=================== ===== =====
3. Alternative Performance Measures
The Group presents Alternative Performance Measures ("APMs") in
addition to its statutory results. These are presented in
accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority. The principal APMs are:
-- Underlying profit before taxation;
-- Underlying operating profit;
-- Underlying operating profit margin;
-- Organic measure of change in revenue and underlying operating profit;
-- Underlying cash conversion ratio;
-- Capital expenditure to depreciation and amortisation ratio;
-- Covenant net debt to EBITDA ratio; and
-- Underlying earnings per share. A reconciliation of statutory
earnings per share to underlying earnings per share is provided in
note 8.
All underlying measures exclude certain non-underlying items,
which are detailed in note 4. References to an underlying profit
measure are made on this basis and, in the opinion of the
Directors, aid the understanding of the underlying business
performance as they exclude items whose quantum, nature or
volatility gives further information to obtain a fuller
understanding of the underlying performance of the business. APMs
are presented on a consistent basis over time to assist in
comparison of performance.
Reconciliation of underlying to reported profit before tax from
continuing operations
2022 2021
GBPm GBPm
=========================================================== ====== ======
Underlying profit before tax from continuing operations 87.9 71.2
============================================================ ====== ======
Non-underlying items included in operating profit (note 4) (18.6) (28.4)
============================================================ ====== ======
Reported profit before tax from continuing operations 69.3 42.8
============================================================ ====== ======
Reconciliation of underlying to reported operating profit from
continuing operations by segment
Roads & Security Engineered Solutions Galvanizing Total
================== ====================== ============= =============
2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================================ ======== ======== ========== ========== ====== ===== ===== ======
Underlying operating profit from continuing
operations 18.1 17.9 35.0 26.0 44.0 33.4 97.1 77.3
============================================ ======== ======== ========== ========== ====== ===== ===== ======
Non-underlying items:
Amortisation of acquisition intangibles (4.6) (4.5) (0.5) (0.5) (0.9) (0.9) (6.0) (5.9)
Business reorganisation costs (2.9) (4.5) - - - - (2.9) (4.5)
Impairment of assets (6.4) (16.0) - - - - (6.4) (16.0)
Expenses related to acquisitions and
disposals (1.5) - (0.4) - (0.4) (1.6) (2.3) (1.6)
Loss on disposal of subsidiaries (1.0) (0.4) - - - - (1.0) (0.4)
============================================ ======== ======== ========== ========== ====== ===== ===== ======
Reported operating profit from continuing
operations 1.7 (7.5) 34.1 25.5 42.7 30.9 78.5 48.9
============================================ ======== ======== ========== ========== ====== ===== ===== ======
Calculation of underlying operating profit margin from
continuing operations
Roads & Security Engineered Solutions Galvanizing Total
================== ====================== ============= ============
2022 2021 2022 2021 2022 2021 2022 2021
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ======== ======== ========== ========== ====== ===== ===== =====
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
====================== ====================== ======================= =======================
Underlying Underlying Underlying Underlying
operating operating operating operating
Revenue profit Revenue profit Revenue profit Revenue profit
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== ======= ============= ======= ============= ======= ============== ======= ==============
2021 259.7 17.9 223.7 26.0 141.8 33.4 625.2 77.3
Impact of exchange
rate movements
from 2021 to 2022 5.4 1.0 15.9 2.2 8.2 2.4 29.5 5.6
==================== ======= ============= ======= ============= ======= ============== ======= ==============
2021 translated at
2022 exchange rates
(A) 265.1 18.9 239.6 28.2 150.0 35.8 654.7 82.9
Acquisitions,
disposals and
closures (17.6) 2.5 - - 0.8 - (16.8) 2.5
Organic
growth/(decline)
(B) 14.0 (3.3) 50.3 6.8 29.9 8.2 94.2 11.7
==================== ======= ============= ======= ============= ======= ============== ======= ==============
2022 (C) 261.5 18.1 289.9 35.0 180.7 44.0 732.1 97.1
Organic growth % (B
divided by A) 5.3% (17.5%) 21.0% 24.1% 19.9% 22.9% 14.4% 14.1%
==================== ======= ============= ======= ============= ======= ============== ======= ==============
Constant currency
change % ((C-A)
divided by A) (1.4%) (4.2%) 21.0% 24.1% 20.5% 22.9% 11.8% 17.1%
==================== ======= ============= ======= ============= ======= ============== ======= ==============
Calculation of underlying cash conversion ratio
2022 2021
GBPm GBPm
============================================================ ====== ======
Underlying operating profit:
Continuing operations 97.1 77.3
Discontinued operations 6.8 8.7
============================================================= ====== ======
103.9 86.0
Calculation of adjusted operating cash flow:
Cash generated by operations 82.9 103.1
Less: Purchase of assets for rental to customers (10.6) (16.7)
Less: Purchase of property, plant and equipment (18.4) (17.8)
Less: Purchase of intangible assets (2.5) (1.4)
Less: Repayments of lease liabilities (9.5) (10.3)
Add: Proceeds on disposal of non-current assets 0.4 3.7
Add back: Defined benefit pension scheme deficit payments 3.7 3.7
Add back: Cash flows relating to non-underlying items 6.5 2.7
============================================================= ====== ======
Adjusted operating cash flow 52.5 67.0
============================================================= ====== ======
Underlying cash conversion (%) 51% 78%
============================================================= ====== ======
Calculation of capital expenditure to depreciation and
amortisation ratio
2022 2021
GBPm GBPm
=========================================================== ===== =====
Calculation of capital expenditure:
Purchase of assets for rental to customers 10.6 16.7
Purchase of property, plant and equipment 18.4 17.8
Purchase of intangible assets 2.5 1.4
============================================================ ===== =====
31.5 35.9
=========================================================== ===== =====
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 19.1 20.9
Amortisation of development costs 1.1 1.1
Amortisation of other intangible assets 1.0 0.3
============================================================ ===== =====
21.2 22.3
=========================================================== ===== =====
Capital expenditure to depreciation and amortisation ratio 1.5x 1.6x
============================================================ ===== =====
Calculation of covenant net debt to EBITDA ratio
2022 2021
GBPm GBPm
======================================================= ====== ======
Reported net debt (note 11) 119.7 144.7
Lease liabilities (39.3) (40.6)
Amounts related to refinancing under IFRS 9 2.2 2.5
======================================================== ====== ======
Covenant net debt (A) 82.6 106.6
======================================================== ====== ======
Underlying operating profit 103.9 86.0
Depreciation of owned assets 19.1 20.9
Right-of-use asset depreciation 8.8 10.3
Amortisation of development costs 1.1 1.1
Amortisation of other intangible assets 1.0 0.3
======================================================== ====== ======
Underlying EBITDA 133.9 118.6
Adjusted for:
Lease payments (10.3) (11.1)
Share-based payments expense 2.0 2.8
Annualised EBITDA of subsidiaries acquired/disposed (3.7) 0.4
======================================================== ====== ======
Covenant EBITDA (B) 121.9 110.7
======================================================== ====== ======
Covenant net debt to EBITDA (A divided by B) 0.7 1.0
======================================================== ====== ======
4. Non-underlying items
Included in operating profit
2022 2021
GBPm GBPm
===================================================== ====== ======
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 GBP1.0m. Details are set out
below:
Disposal of Swedish rental and infrastructure GBPm
contracts divisions
=============================================== =====
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 GBP0.5m, which are
included within 'expenses related to acquisitions and disposals' in
the table above. Alongside the disposals, asset impairments of
GBP0.2m and reorganisation costs of GBP0.3m were incurred in
relation to the remaining business. The total of non-underlying net
charges relating to the Swedish business is therefore GBP2.0m.
In October 2022, the Group completed the disposal of France
Galva, its French galvanizing and lighting column business, at a
loss of GBP0.4m. Details of the disposal are set out below:
Disposal of France Galva GBPm
================================= ======
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 GBP1.2m, which are
included within 'expenses related to acquisitions and disposals' in
the table above.
In 2021, the loss on disposal of GBP0.4m 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 GBP2.9m, comprising
business reorganisation costs of GBP1.1m and asset impairment
charges of GBP1.8m.
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 GBP1.5m of costs in 2022 in relation
to the completion of legacy contracts. The business reorganisation
costs of GBP4.5m in 2021 also related to the VMS closure.
c) Impairment charges of GBP6.4m in 2022 comprise the portfolio
management actions explained above (totalling GBP2.0m) and a charge
of GBP4.4m (2021: GBP5.2m) 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 GBP4.4m comprises GBP4.0m in respect of
acquired customer lists and GBP0.4m in respect of acquired brand
names, meaning those assets have been fully impaired as at 31
December 2022. In 2021, impairment charges also included GBP10.8m
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 GBP3.7m (2021: GBP1.1m).
5. Net financing costs - continuing operations
2022 2021
GBPm GBPm
Interest on bank deposits 0.5 0.6
===================================================== ====== ======
Financial income 0.5 0.6
===================================================== ====== ======
Interest on loans and borrowings (6.4) (4.9)
Interest on lease liabilities (0.8) (0.8)
Financial expenses related to refinancing activities (2.4) (0.8)
Interest cost on net pension scheme deficit (0.1) (0.2)
===================================================== ====== ======
Financial expense (9.7) (6.7)
===================================================== ====== ======
Net financing costs (9.2) (6.1)
===================================================== ====== ======
6. Taxation
2022 2021
GBPm GBPm
====================================================================== ======= =======
Current tax
UK corporation tax 4.1 4.1
Overseas tax at prevailing local rates 14.2 11.1
Adjustments in respect of prior years 1.8 (1.8)
====================================================================== ======= =======
20.1 13.4
Deferred tax
UK deferred tax 0.3 0.1
Overseas tax at prevailing local rates 0.3 0.2
Adjustments in respect of prior years (3.2) 0.6
Effects of changes in tax rates and laws - 2.4
====================================================================== ======= =======
(2.6) 3.3
====================================================================== ======= =======
Tax on profit in the Consolidated Income Statement 17.5 16.7
====================================================================== ======= =======
Deferred tax
Relating to defined benefit pension schemes (0.7) -
Tax on items taken directly to other comprehensive income (0.7) -
====================================================================== ======= =======
Current tax
Relating to share-based payments
Deferred tax (0.2) (0.2)
Relating to share-based payments
1.2 (0.8)
====================================================================== ======= =======
Tax taken directly to the Consolidated Statement of Changes in Equity 1.0 (1.0)
====================================================================== ======= =======
The tax charge in the Consolidated Income Statement for the
period is higher (2021: higher) than the standard rate of
corporation tax in the UK. The differences are explained below:
2022 2021
GBPm GBPm
=============================================================================================== ===== =====
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 GBP1.6m 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 GBP1.6m 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 GBP62.0m, resulting in
a loss on disposal of GBP0.4m (note 4).
France Galva has been classified as a disposal group as required
by IFRS 5 Non-current assets held for sale and discontinued
operations. As the disposal resulted in the Group's withdrawal from
all operations in France and noting that the business accounted for
approximately 10% of Group revenues prior to disposal, France
Galva's results have been reported within discontinued operations
in accordance with IFRS 5.
2022** 2021
==================================== ===================================== =====================================
Non-underlying* Total Non-underlying* Total
GBPm GBPm GBPm GBPm
Underlying Underlying
GBPm GBPm
==================================== ============ =============== ====== ============ =============== ======
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
=================================== ======
GBPm
=================================== ======
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
======================================== ====== =======
GBPm
GBPm
======================================== ====== =======
Net cash flow from operating activities 3.4 8.9
Net cash flow from investing activities (2.8) (2.7)
Net cash flow from financing activities (0.4) (0.7)
======================================== ====== =======
0.2 5.5
======================================== ====== =======
8. Earnings per share
The weighted average number of ordinary shares in issue during
the year was 79.9m (2021: 79.6m), diluted for the effects of the
outstanding dilutive share options 80.5m (2021: 80.6m). Diluted
earnings per share takes account of the dilutive effect of all
outstanding share options, calculated using the treasury share
method. Underlying earnings per share have been shown because the
Directors consider that this provides valuable additional
information about the underlying performance of the Group.
2022 2021
================================== ==================== ====================
Pence Pence
per share GBPm per share GBPm
================================== ============ ====== ============ ======
Basic earnings
- continuing 66.7 53.3 35.8 28.4
- discontinued 4.3 3.4 7.2 5.8
================================== ============ ====== ============ ======
Total basic earnings 71.0 56.7 43.0 34.2
================================== ============ ====== ============ ======
Non-underlying items*
- continuing 18.7 14.9 34.2 27.3
- discontinued 2.2 1.8 0.7 0.6
================================== ============ ====== ============ ======
Total non-underlying items 20.9 16.7 34.9 27.9
================================== ============ ====== ============ ======
Underlying earnings
- continuing 85.4 68.2 70.0 55.7
- discontinued 6.5 5.2 7.9 6.4
================================== ============ ====== ============ ======
Total underlying earnings 91.9 73.4 77.9 62.1
================================== ============ ====== ============ ======
Diluted earnings
- continuing 66.2 53.3 35.4 28.4
- discontinued 4.2 3.4 7.1 5.8
================================== ============ ====== ============ ======
Total diluted earnings 70.4 56.7 42.5 34.2
================================== ============ ====== ============ ======
Non-underlying items*
- continuing 18.5 14.9 33.9 27.3
- discontinued 2.2 1.8 0.7 0.6
================================== ============ ====== ============ ======
Total non-underlying items 20.7 16.7 34.6 27.9
================================== ============ ====== ============ ======
Underlying diluted earnings
- continuing 84.7 68.2 69.3 55.7
- discontinued 6.4 5.2 7.8 6.4
================================== ============ ====== ============ ======
Total underlying diluted earnings 91.1 73.4 77.1 62.1
================================== ============ ====== ============ ======
* Non-underlying items as detailed in note 4.
9. Dividends
Dividends paid during the year
2022 2021
================================================================= ==================== ====================
Pence Pence
per share GBPm per share GBPm
================================================================= ============ ====== ============ ======
Interim dividend paid in relation to year-ended 31 December 2020 - - 9.2 7.3
Final dividend paid in relation to year-ended 31 December 2020 - - 17.5 13.9
Interim dividend paid in relation to year-ended 31 December 2021 12.0 9.6 - -
Final dividend paid in relation to year-ended 31 December 2021 19.0 15.1 - -
Total 31.0 24.7 26.7 21.2
================================================================= ============ ====== ============ ======
Dividends declared in respect of the year
2022 2021
===================================================================== ==================== ====================
Pence Pence
per share GBPm per share GBPm
===================================================================== ============ ====== ============ ======
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 GBP21.5m, plus a further GBP2.7m
relating to post completion working capital adjustments payable
early in 2023. Further cash consideration of up to GBP3.3m 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:
Provisional policy alignment
Pre-acquisition and fair value
carrying amount adjustments Total
GBPm GBPm GBPm
=============================================================== ================ ============================ =====
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 GBP5.5m of trade
receivables, which have a gross value of GBP5.7m.
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 GBP3.3m
becomes payable.
Post-acquisition the acquired business has contributed GBP8.3m
revenue and GBP1.4m 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 GBP754.6m,
underlying operating profit of GBP102.0m and reported operating
profit of GBP83.4m.
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 GBP3.5m, plus GBP0.2m relating to post
completion working capital adjustments and a further GBP0.2m
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:
Provisional policy alignment
Pre-acquisition and fair value
carrying amount adjustments Total
GBPm GBPm GBPm
=============================================================== ================ ============================ =====
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 GBP0.8m of trade receivables,
which have a gross value of GBP0.8m.
Post-acquisition the acquired business has contributed GBP0.8m
revenue and GBPnil 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 GBP734.6m,
underlying operating profit of GBP97.6m and reported operating
profit of GBP79.0m.
11. Cash and borrowings
2022 2021
GBPm GBPm
=============================================================================== ======= =======
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
(END) Dow Jones Newswires
March 08, 2023 02:00 ET (07:00 GMT)
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