TIDMHILS
RNS Number : 5856N
Hill & Smith Hldgs PLC
10 August 2017
Hill & Smith Holdings PLC
Half Year Results (unaudited) for the 6 months ended 30 June
2017
Record first half year revenue and profitability
Hill & Smith Holdings PLC, the international group with
leading positions in the manufacture and supply of infrastructure
products and galvanizing services to global markets, announces its
unaudited results for the six months ended 30 June 2017.
Financial results
Change
-------------------------------
30 June 30 June(***) Reported Constant(**)
2017 2016 % Currency
%
------------------------ ---------- ------------- --------------- --------------
Revenue GBP291.8m GBP259.3m +13 +6
Underlying(*) :
Operating profit GBP38.8m GBP32.0m +21 +13
Operating margin 13.3% 12.3% +100bps +80bps
Profit before taxation GBP37.4m GBP30.7m +22 +13
Earnings per share 36.2p 29.7p +22 +13
Reported:
Operating profit GBP35.4m GBP21.2m +67
Profit before taxation GBP33.5m GBP19.4m +73
Basic earnings per
share 32.3p 16.8p +92
Dividend per share 9.4p 8.5p +11
Net Debt GBP109.1m GBP99.5m
------------------------ ---------- ------------- --------------- --------------
Key points:
-- Record first half year revenue and underlying earnings performance
-- Higher returns driven by positive end markets and active portfolio management:
- Underlying operating margin 13.3%, up 100bps on prior year
- Return on invested capital increased to 20% (2016: 19%)
-- Underlying profit before taxation up 22% to GBP37.4m:
- Roads continues to benefit from the UK Smart Motorways
programme, USA and Australia improving profitability
- Increased Utilities margin driven by active portfolio management
- Infrastructure investment in the UK driving improved galvanizing performance
-- Interim dividend increased by 11% to 9.4p
Derek Muir, Chief Executive, said:
"Hill & Smith continues to deliver a strong performance,
again underpinned by our tried and tested strategy of international
diversity together with the leading positions our businesses hold
in their respective markets. Rising infrastructure investment,
together with our focus on active portfolio management to drive
shareholder value, resulted in record returns in the first
half.
"Overall, despite increased political and macroeconomic
uncertainties, our expectations for the year remain unchanged and
we continue to expect 2017 to be a year of good progress."
For further information, please contact:
Hill & Smith Holdings PLC Tel: +44 (0)121
704 7430
Derek Muir, Group Chief Executive
Mark Pegler, Group Finance Director
MHP Communications Tel: +44 (0)20
3128 8100
Andrew Leach/Ollie Hoare
* All underlying measures exclude certain non-underlying items,
which are as detailed in note 6 to the Financial Statements and
described in the Financial Review. References to an underlying
profit measure throughout this announcement are made on this basis
and, in the opinion of the Directors, aid the understanding of the
underlying business performance as they exclude items that are
either unlikely to recur in future periods or represent non-cash
items that distort the underlying performance of the business.
Underlying measures are presented on a consistent basis over time
to assist in comparison of performance.
** Where we make reference to constant currency amounts, these
are prepared using exchange rates which prevailed in the current
year rather than the actual exchange rates that applied in the
prior year. Where we make reference to organic measures we exclude
the impact of currency translation movements, acquisitions,
disposals and closures of subsidiary businesses.
*** The prior year comparatives have been re-presented as
explained in note 1 to the Financial Statements. Throughout this
Statement, wherever we make reference to amounts for the period
ended 30 June 2016 these are presented on the basis set out in note
1.
Notes to Editors
Hill & Smith Holdings PLC is an international group with
leading positions in the design, manufacture and supply of
infrastructure products and galvanizing services to global markets.
It serves its customers from facilities principally in the UK,
France, USA, Sweden, Norway, India and Australia.
The Group's operations are organised into three main business
segments:
Infrastructure Products - Roads, supplying products and services
such as permanent and temporary road safety barriers, hostile
vehicle mitigation products, street lighting columns, bridge
parapets, temporary car parks and variable road messaging
solutions.
Infrastructure Products - Utilities, supplying products and
services such as pipe supports for the power and liquid natural gas
markets, energy grid components, composite 'GRP' railway platforms
and flood prevention barriers, plastic drainage pipes, industrial
flooring, handrails, access covers and security fencing.
Galvanizing Services which provides zinc and other coatings for
a wide range of products including fencing, lighting columns,
structural steel work, bridges, agricultural and other products for
the infrastructure and construction markets.
Headquartered in the UK and quoted on the London Stock Exchange
(LSE: HILS.L), Hill & Smith Holdings PLC employs some 4,100
staff, principally in 7 countries.
Business Review
Introduction
Hill & Smith continues to deliver a strong performance. In
an uncertain political and macroeconomic environment, our focused
strategy of developing businesses with market leading positions in
growth infrastructure markets, combined with our active portfolio
management strategy, has again delivered good organic revenue and
profit growth and improved returns on the capital entrusted to
us.
Our strategy of international diversity, together with the
leading positions our businesses hold in their respective markets,
continues to underpin our performance. Our US and UK operations
grew on the back of continuing infrastructure investment in our
chosen end markets and together represented 87% of operating profit
in the first half. Organic growth has been supplemented by targeted
bolt-on acquisitions and decisive action to restructure or dispose
of underperforming assets to drive overall returns and shareholder
value.
Continuation of our strategy of active portfolio management
resulted in us completing one acquisition and one disposal during
the first half of 2017.
-- In March, we completed the acquisition of the trade and
assets of Kenway Corporation ('Kenway') for an aggregate cash
consideration of GBP5.7m. Kenway is a specialist in technologically
advanced composite design, manufacturing and field service work
across a broad range of industries including marine, power, pulp
and paper, transportation and renewable energy. Integrated into our
existing composite business, Kenway is trading in line with our
expectations.
-- In April, we completed the disposal of CA Traffic Limited, a
non-core traffic data collection business, to TagMaster AB for a
net consideration of GBP2.6m.
In December 2016, following a review of the returns available,
we announced a plan to close and exit our roads business in India.
The closure process will be completed in the third quarter of
2017.
Results
Revenue increased by 13% to GBP291.8m (2016: GBP259.3m), of
which translational currency benefits contributed GBP15.0m or 6%.
After adjusting for net additional revenue of GBP14.7m from
acquisitions/disposals and reduced revenue from the prior year
restructuring of the non-US Pipe Supports businesses of GBP9.5m,
organic revenue growth was GBP12.3m or 5%. Underlying operating
profit improved by 21% to GBP38.8m (2016: GBP32.0m), including a
positive currency translation of GBP2.3m. Acquisitions/disposals
contributed GBP1.6m and the benefit of the non-US Pipe Supports
restructuring actions a further GBP1.5m. The organic improvement in
underlying operating profit was 4%. Underlying operating margin
improved by 100bps to 13.3% (2016: 12.3%), while underlying profit
before taxation was 22% higher at GBP37.4m (2016: GBP30.7m).
Reported operating profit was GBP35.4m (2016: GBP21.2m), an
increase of 67% on the prior year. Reported profit before tax was
GBP33.5m (2016: GBP19.4m).
Dividend
The Board has declared an interim dividend of 9.4p per share
(2016: 8.5p), an 11% increase on the corresponding period last
year. The interim dividend will be paid on 4 January 2018 to
shareholders on the register on 1 December 2017.
Governance and the Board
As reported in the 2016 Annual Report, Bill Whiteley, Chairman,
retired at the conclusion of the Annual General Meeting in May
2017. Consequently, Jock Lennox was appointed Chairman of the
Board. A search to appoint an additional Non-executive Director to
the Board is ongoing.
Brexit
It remains too early to assess with any certainty the impact of
the decision by the United Kingdom to leave the European Union. In
the period since the referendum result in June 2016 we have not
experienced any material positive or negative impact. We are
confident that our strategy of international diversification along
with market leading positions in key infrastructure investment
markets will help limit any potential negative impact on the Group.
However, we remain vigilant and will react with our customary speed
as necessary.
Outlook
The Group benefits from the industrial and geographical spread
of its markets and businesses, which not only provide a resilient
base, but also opportunities for growth. Generating over 80% of
revenue and 87% of underlying operating profit from its UK and US
operations, the Group principally operates in niche infrastructure
markets where the overall outlook remains positive.
In Utilities, our UK and US activities are well placed to
continue to benefit from the significant investment going into the
replacement of ageing infrastructure and new infrastructure
projects. In Galvanizing, with wider market conditions remaining
favourable, overall we expect our businesses to consolidate their
strong market positions and to take advantage of opportunities as
they present themselves.
In the UK, the implementation of the Department of Transport's
Road Investment Strategy ('RIS') is in the third year of the
initial five year plan, which provides certainty of funding through
to 2020/21. We therefore have confidence that the Group's road
product portfolio will continue to benefit from the increased
investment in the UK road infrastructure.
Overall, despite increased political and macroeconomic
uncertainties, our expectations for the year remain unchanged and
2017 is again expected to be a year of good progress.
Operational Review
Infrastructure Products
GBPm
-------------- ---- ----------
Constant
+/- Currency
2017 2016 % %
---------------------- ------ ------ ---- ----------
Revenue 200.9 177.9 +13 +8
---------------------- ------ ------ ---- ----------
Underlying operating
profit 17.8 13.7 +30 +25
---------------------- ------ ------ ---- ----------
Underlying operating
margin % 8.9 7.7
---------------------- ------ ------
Reported operating
profit 15.0 3.5
---------------------- ------ ------
The division supplies engineered products to the roads and
utilities markets in geographies where there is sustained long term
investment in infrastructure. Revenues increased 13% to GBP200.9m
(2016: GBP177.9m) including an GBP8.4m positive impact from
exchange rate movements. Acquisitions/disposals contributed a net
GBP14.7m and there was GBP9.5m of lower revenue from the
restructured non-US Pipe Supports operations. Organic revenue
growth was GBP9.4m, or 5%. Underlying operating profit was GBP17.8m
(2016: GBP13.7m), an increase of GBP4.1m, with a positive currency
translation benefit of GBP0.5m. Acquisitions/disposals contributed
GBP1.6m and the non-US Pipe Supports restructuring an additional
GBP1.5m. Underlying operating margin improved to 8.9% (2016: 7.7%).
Reported operating profit was GBP15.0m (2016: GBP3.5m) and included
charges of GBP2.0m relating to restructuring actions taken during
the year.
Roads
GBPm +/- Constant
% Currency
%
------------ ---- ----------
2017 2016
---------------------- ----- ----- ---- ----------
Revenue 93.8 77.5 +21 +17
---------------------- ----- ----- ---- ----------
Underlying operating
profit 10.2 9.0 +13 +12
---------------------- ----- ----- ---- ----------
Underlying operating
margin % 10.9 11.6
---------------------- ----- -----
Reported operating
profit 8.5 8.1
---------------------- ----- -----
Our Roads segment designs, manufactures and installs temporary
and permanent safety products for the roads market. We principally
serve the UK market, with an international presence in selected
geographies that have a growing demand for innovative tested safety
products. Revenues increased by 21% to GBP93.8m (2016: GBP77.5m),
an organic increase of 9% after a currency benefit of GBP2.5m and
net contribution from acquisitions/disposals of GBP6.7m. Underlying
operating profit of GBP10.2m was GBP1.2m higher than the prior year
(2016: GBP9.0m) including GBP0.1m from positive currency
translations.
GBPm
-------------
2017 2016
----------------------- ------ -----
Reported operating
profit 8.5 8.1
Restructuring actions 1.6 -
Profit on disposal (0.6) -
of subsidiary
Acquisition costs and
amortisation 0.9 0.9
Other items (0.2) -
----------------------- ------ -----
Underlying operating
profit 10.2 9.0
----------------------- ------ -----
UK
In the UK, the implementation of the Government's RIS continues
to develop in line with our expectations and overall demand for our
rental temporary safety barrier has been good. Some delays are
being experienced in ongoing works on existing Smart Motorway
programmes, which will extend the requirement for our temporary
safety barrier on these projects beyond that originally envisaged.
A consequence of these delays will be the deferral of the
commencement of a number of the next tranche of projects from later
in 2017 into early 2018, and with a number of projects currently in
design phase this suggests that 2018 will see an acceleration in UK
road investment.
As expected, as the initial phase of Smart Motorways nears
completion, demand for our permanent safety barrier has been
stronger than the same period last year. Bridge parapet sales have
also been strong as local authorities and Network Rail upgrade
ageing bridge infrastructure to protect the rail and road network
from potential hostile and accidental vehicle damage. Exports of
Brifen, our wire rope safety barrier system, and Bristorm, our high
containment anti-terrorist perimeter barrier, were lower than the
prior year but recent order intake and enquiry levels indicate a
stronger second half of the year.
The increased threat of terrorism in the UK has intensified the
demand for deployment of our range of hostile vehicle mitigation
products, including temporary and permanent, steel and concrete
applications in key locations across the country. With a market
leading range of solutions, and the ability to respond swiftly, we
have completed projects to protect bridges in London, sports and
other high profile events. Discussions are also being held with
security agencies outside of the UK and we expect this market to
continue to grow.
Our Variable Message Sign ('VMS') business performed well in the
first half with strong sales of new Remotely Operable Temporary
Traffic Management ('ROTTM') signs which Highways England are
deploying to improve road worker safety where no hard shoulder
exists on Smart Motorways. The higher sales of ROTTM have more than
offset lower revenue from maintenance activities as a historic
ten-year 'supply and maintain' contract with Highways England
completed. In June we announced a proposal to commence the
rationalisation of the VMS business that will result in the closure
of two UK sites and consolidation into our existing facility in the
north east. The restructuring is expected to be completed in the
first half of 2018 at a cost of GBP1.4m.
On 27 April 2017, we completed the disposal of CA Traffic
Limited, a traffic data collection business, to TagMaster AB for a
net consideration of GBP2.6m. Non-core, and unable to deliver the
returns that we target from our businesses, in the year to 31
December 2016 CA Traffic Limited reported revenue of GBP3.9m and an
operating loss of GBP0.2m.
Operating with a lower cost base following the rationalisation
completed at the end of 2016, our lighting column business
continues to perform well. With its enhanced product offering
following the acquisition of Signature last year, the business is
capitalising on cross selling opportunities into the local
authority and contractor markets and the outlook remains
favourable.
Non-UK
Our Scandinavian business increased revenue compared to the same
period in the prior year but competition in the barrier market
reduced margins and profitability was similar to the prior year. We
continue to make steady progress in Norway, while in Sweden we have
invested further in our temporary rental safety barrier fleet,
where demand is strong around Stockholm as a major upgrade to the
road network commences.
In France, our lighting column business operates in a
competitive market and, although profitable, endured a first half
below our expectations. Order intake improved markedly towards the
end of the period suggesting a stronger second half.
Employing both a rental and a direct sale market approach,
pleasing progress continues to be made in promoting our temporary
safety barrier in both the USA and Australia. In the USA,
acceptance of our temporary steel barrier, Zoneguard, as an
alternative to concrete is now well established in a number of
States and continues to gain recognition elsewhere, including
Canada. In Australia, revenue was at similar levels to the prior
year despite the exceptional one-off order of 19.8km supplied in
the first half last year. Encouragingly, we have supplied an
increasing number of smaller projects as acceptance gains traction.
In the second quarter, we secured a supply contract for 16km of
Zoneguard and 8km of ancillary products which will be delivered
early in the second half of the year. Both the USA and Australia
improved profitability against the same period prior year,
establishing new benchmarks for each business.
In December 2016, following an assessment of the local market
and outlook, we announced a plan to close and exit our
manufacturing and sales facility in India. The closure process will
be completed in the third quarter of 2017.
Utilities
GBPm
-------------- ---- ----------
Constant
+/- Currency
2017 2016 % %
---------------------- ------ ------ ---- ----------
Revenue 107.1 100.4 +7 +1
---------------------- ------ ------ ---- ----------
Underlying operating
profit 7.6 4.7 +62 +49
---------------------- ------ ------ ---- ----------
Underlying operating
margin % 7.1 4.7
---------------------- ------ ------
Reported operating
profit 6.5 (4.6)
---------------------- ------ ------
Our Utilities segment provides industrial flooring, plastic
drainage pipes, security fencing, steel and composite products for
a wide range of infrastructure markets including energy creation
and distribution, rail, water and house building. The requirements
for new power generation in emerging economies and replacement of
ageing infrastructure in developed countries provide excellent
opportunities for the Group's utilities businesses. Revenues
increased by 7% to GBP107.1m (2016: GBP100.4m). Benefits from
currency translation of GBP5.9m and an GBP8.0m contribution from
recent acquisitions were partly offset by the prior year
restructuring and closure programme of our non-US Pipe Supports
business (GBP9.5m lower revenue year on year). Organically, revenue
was similar to the prior year. Underlying operating profit was
GBP7.6m
(2016: GBP4.7m) including a positive currency impact of GBP0.4m,
first time contribution from acquisitions of GBP0.6m and a GBP1.5m
benefit from the non-US Pipe Supports restructuring.
GBPm
-------------
2017 2016
--------------------------- ----- ------
Reported operating profit 6.5 (4.6)
Restructuring actions 0.4 9.2
Acquisition costs and
amortisation 0.7 0.1
--------------------------- ----- ------
Underlying operating
profit 7.6 4.7
--------------------------- ----- ------
In the US, our power transmission substation business performed
well but fell short of the prior year's strong comparatives. Day to
day packaging and steel work through framework agreements with key
US utilities remains strong but an absence of larger contracts
reduced revenue and profitability below our expectations.
Investment in US electricity distribution looks set to continue so
we expect the larger projects to return in due course.
Our composite material business performed at similar levels to
the first half last year with a continued absence of large projects
a key feature, although a number of larger contracts are nearing
order stage and we expect an improved performance in the second
half. On 27 March 2017, we completed the acquisition of the trade
and assets of Kenway Corporation ('Kenway'), a specialist in
technologically advanced composite design, manufacturing and field
service work across a broad range of industries including marine,
power, pulp and paper, transportation and renewable energy. Cash
consideration of GBP5.7m was paid at acquisition with a further
GBP0.5m due in 2018. Kenway has been integrated into our Creative
Pultrusions business and furthers our strategy of enhancing our
product offering to end users within infrastructure markets.
In the UK, results from our utilities businesses continue to be
mixed. Our plastic pipe, industrial flooring and security access
covers businesses all anticipated increased spend from the water
industry Asset Management Period 6 ('AMP6'). Now in year three of
the five year investment cycle design, delays and therefore project
release dates continue to be issues despite numerous customer
commitments. Despite the AMP6 delays, the plastic pipe business
enjoyed strong demand for storm water attenuation tanks for flood
alleviation in the UK housing market. The industrial flooring
operation enjoyed a pick up in small day to day business as a
result of general UK infrastructure investment. A good first half
result was delivered by the security access covers business despite
delays to expected AMP6 orders.
Our security fencing business continued to perform well with a
wide range of installations protecting the UK rail network, power
generation and other critical infrastructure sites.
Demand for solar frames was lower than the same period last
year, as developers adapt their return model away from the reliance
on the now removed tax credits under the UK Renewable Obligation to
one of battery storage and timed release of the stored power into
the national grid. Once the technology is proven and sold to
investors we expect further orders to recommence.
Our building products business, supplying composite residential
doors, steel lintels and builders' metalwork, enjoyed good volumes
on the back of a continuing strong UK housing market and results
were ahead of the same period in the prior year.
In our US pipe supports business the requirement for engineered
pipe supports in the power sector has continued although activity
in the petrochemical sector is lower year on year. Our industrial
hangers business has benefitted from the consolidation of branches
serving the north east market and the new eastern region service
centre, located between New York and Philadelphia, is now fully
operational. We are seeing the benefits of a more focussed,
efficient operation and expect performance to continue to improve
in the second half of 2017.
In India we have successfully completed the expansion of our
pipe supports facility. The increased capacity enables us to
service our international customers, with global supply agreements
for the supply of pipe supports into major power projects in
geographies such as Japan, Indonesia and Egypt, as well as our
domestic customers in the Indian market. Our strategic partnership
with a Saudi Arabian manufacturer enables us to have local
manufactured content when supplying pipe supports projects in the
Middle East. We are encouraged by the market outlook in India and
the Far East, both of which remain strong with a large programme to
build both coal and gas fired powerstations together with LNG
terminals. The backlog for the second half is healthy and we look
forward to a strong performance in the first year of the newly
consolidated pipe supports business.
Galvanizing Services
GBPm
------------ ---- ----------
Constant
+/- Currency
2017 2016 % %
---------------------- ----- ----- ---- ----------
Revenue 90.9 81.4 +12 +3
---------------------- ----- ----- ---- ----------
Underlying operating
profit 21.0 18.3 +15 +5
---------------------- ----- ----- ---- ----------
Underlying operating
margin % 23.1 22.5
---------------------- ----- -----
Reported operating
profit 20.4 17.7
---------------------- ----- -----
The Galvanizing Services division offers corrosion protection
services to the steel fabrication industry with multi-plant
facilities in the UK, France and the USA. Revenue increased by 12%
to GBP90.9m (2016: GBP81.4m) including positive currency
translation of GBP6.6m. Organic revenue growth was 3%. Underlying
operating profit of GBP21.0m (2016: GBP18.3m) included a GBP1.8m
currency benefit. The organic improvement in profitability was
GBP0.9m. Underlying operating margin was a record 23.1% (2016:
22.5%).
GBPm
------------
2017 2016
--------------------------- ----- -----
Reported operating profit 20.4 17.7
Acquisition amortisation 0.6 0.6
Underlying operating
profit 21.0 18.3
--------------------------- ----- -----
USA
Located in the north east of the country, Voigt & Schweitzer
is the market leader with seven plants offering local services and
extensive support to fabricators and product manufacturers involved
in highways, construction, utilities and transportation.
As expected, and against strong comparatives, volumes were 16%
below the same period in 2016, principally due to a large LNG
project which ran through the first half and concluded in the third
quarter of 2016. Alternative energy demand was also materially
lower year on year, particularly with respect to solar frames as
the industry awaits a clear direction with regard to US energy
policy. Day to day infrastructure demand remains robust and at
similar levels to the prior year. Management focus on maintaining
operational efficiency along with the improved mix of products
galvanized resulted in strong profitability, albeit marginally
lower than the prior year.
France
France Galva has ten strategically located galvanizing plants
each serving a local market. We act as a key part of the
manufacturing supply chain in those markets and have delivered a
high level of service and quality to maintain our position as
market leaders.
Volumes were 2% lower than the same period prior year, a
credible result in a time of Presidential elections and the
inevitable disruption that it brings. Competition remains strong
but encouragingly there are signs of improving sentiment emerging
in the French and wider European markets, which may alleviate
current pricing pressures. Despite the marginally lower volume, the
business delivered improved margin and profitability.
UK
Our galvanizing businesses are located on ten sites, four of
which are strategically adjacent to our infrastructure products
manufacturing facilities.
Volumes in the UK were driven by ongoing infrastructure
investment and increased by 6% compared to the same period in the
prior year. Investment in our key galvanizing facilities over the
past few years has enabled us to broaden our service offering and
drive operational efficiency. As a consequence, the business again
delivered improved profitability and margin.
Financial Review
Cash generation and financing
Operating cash flow before movement in working capital was
GBP47.5m (2016: GBP31.6m), the improvement on last year reflecting
the record underlying first half profits. The working capital
outflow in the period was GBP16.6m (2016: GBP4.8m), which arose
from a combination of normal seasonal trading patterns, organic
growth in revenues and the impact of commodity price increases on
raw material inventories, particularly zinc where the impact was
approximately GBP5.0m. As a result, working capital as a percentage
of annualised sales increased to 16.1% (31 December 2016: 14.2%),
however debtor days fell to 57 days (31 December 2016: 61
days).
Capital expenditure of GBP9.3m (2016: GBP9.9m) represents a
multiple of depreciation and amortisation of 1.0 times
(2016: 1.1 times), in line with the Group's normal level of
spend. Significant purchases during the period included GBP1.9m of
Zoneguard temporary road safety barrier to support growth in our US
and Swedish markets.
Group net debt at 30 June 2017 was GBP109.1m, a reduction of
GBP2.9m since 31 December 2016 (GBP112.0m).
Change in net debt
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016 GBPm
GBPm GBPm
-------------------------------------- --------- --------- -------------
Change in net debt
Operating profit 35.4 21.2 51.8
Non-cash items 12.1 10.4 26.5
-------------------------------------- --------- --------- -------------
Operating cash flow before movement
in working capital 47.5 31.6 78.3
Net movement in working capital (16.6) (4.8) (0.1)
Change in provisions and employee
benefits (1.6) 7.2 -
-------------------------------------- --------- --------- -------------
Operating cash flow 29.3 34.0 78.2
Tax paid (9.0) (6.9) (15.7)
Net financing costs paid (1.3) (1.4) (2.8)
Capital expenditure (9.3) (9.9) (21.7)
Proceeds on disposal of non-current
assets 1.9 0.1 3.6
-------------------------------------- --------- --------- -------------
Free cash flow 11.6 15.9 41.6
Dividends paid (6.7) (5.5) (16.2)
Acquisitions (5.3) (14.2) (37.4)
Disposals 2.6 - -
Issue of new shares 0.1 0.7 0.8
Amortisation of costs associated
with revolving credit facilities (0.2) (0.2) (0.4)
Satisfaction of long term incentive
payments (1.5) (1.4) (2.0)
-------------------------------------- --------- --------- -------------
Net debt decrease/(increase) 0.6 (4.7) (13.6)
Effect of exchange rate fluctuations 2.3 (3.3) (6.9)
Net debt at the beginning of
the period (112.0) (91.5) (91.5)
-------------------------------------- --------- --------- -------------
Net debt at the end of the period (109.1) (99.5) (112.0)
-------------------------------------- --------- --------- -------------
The net debt to EBITDA ratio under the Group's principal banking
facility was 1.1 times at 30 June 2017 (31 December 2016: 1.2
times), with the increase in underlying operating profit
compensating for the outflow of working capital. Interest cover was
37.5 times (31 December 2016: 33.2 times).
Tax
The underlying effective tax rate for the period was 24.0% (year
ended 31 December 2016: 24.0%) and is the estimated effective rate
for the full year. The tax charge for the period was GBP8.1m (2016:
GBP6.2m), including a GBP0.9m credit in respect of non-underlying
charges, principally relating to business reorganisation costs and
amortisation of acquisition intangibles. Cash tax paid in the
period was GBP9.0m (2016: GBP6.9m), in line with the underlying
income statement tax charge of GBP9.0m (2016: GBP7.4m).
Finance costs
Net financing costs for the period were GBP1.9m (2016: GBP1.8m)
with an underlying element of GBP1.4m (2016: GBP1.3m). Underlying
operating profit covered net underlying finance costs 27.7 times
(2016: 24.6 times). The non-underlying element of finance costs of
GBP0.5m (2016: GBP0.5m) represents the net cost of pension fund
financing of GBP0.3m and GBP0.2m amortisation of refinancing fees
capitalised in prior years.
Non-underlying items
The total non-underlying items charged to operating profit in
the Consolidated Income Statement amounted to GBP3.4m (2016:
GBP10.8m) and comprise the following:
Income Statement Cash in Future
Charge the period cash Non-cash
GBPm GBPm GBPm GBPm
----------------------------- ----------------- ------------ ------- ---------
Business reorganisation
costs (2.0) (0.6) (1.4) -
Profit on disposal of
subsidiary 0.6 2.6 - (2.0)
Acquisition costs (0.2) (0.2) - -
Amortisation of acquisition
intangibles (2.0) - - (2.0)
Pension settlement gains 0.2 - - 0.2
----------------------------- ----------------- ------------ ------- ---------
(3.4) 1.8 (1.4) (3.8)
----------------------------- ----------------- ------------ ------- ---------
-- Business reorganisation costs of GBP2.0m relate to three
restructuring actions taken by the Group.
- In June 2017 the Group initiated a rationalisation of its
Variable Message Signs business that will result in the closure of
two of its operating sites and the consolidation of activities into
the remaining site in Hebburn, UK. The business has been operating
across three sites since the acquisitions of VMS and Tegrel in
2014/15 and expects to take advantage of cost savings and
efficiencies as a result. The anticipated cost of the
rationalisation is GBP1.4m.
- Following a strategic review of the US Pipe Supports business,
in March 2017 the Group completed a rationalisation of its branch
structure resulting in the closure of three of the seven existing
branches and the consolidation of their operations into one
strategically located service centre between New York and
Philadelphia to serve the eastern region. The cost of this
programme was GBP0.4m.
- In December 2016, having reassessed the prospects in the
market, the Group announced the closure of its roads business in
India. The prior year results included a charge of GBP1.9m in
respect of the closure. A further charge of GBP0.2m has been
recognised in 2017.
-- In April 2017 the Group sold its traffic data collection
business, CA Traffic Limited, to TagMaster AB for a consideration
of GBP2.7m (after costs). Net assets disposed were GBP2.1m
resulting in a profit on disposal of GBP0.6m.
-- Acquisition costs of GBP0.2m relate to the acquisition
completed during the period, further details of which are set out
below.
-- Amortisation of acquisition intangibles was GBP2.0m.
-- Pension settlement gains of GBP0.2m arose on the settlement
of outstanding defined benefit liabilities with certain pension
scheme members who took transfers of their pension entitlement
during the period.
Further details are set out in note 6 to the Financial
Statements.
Acquisition
In March 2017 we completed the acquisition of the trade and
assets of Kenway, a specialist in technologically advanced
composite design, manufacturing and field service work across a
broad range of industries including marine, power, pulp and paper,
transportation and renewable energy. Consideration for the
acquisition was GBP6.2m and intangible assets arising amounted to
GBP5.1m, comprising customer relationships of GBP0.8m, brand
valuation of GBP0.7m and residual goodwill of GBP3.6m.
Pensions
The Group operates defined benefit pension plans in the UK,
France and the USA. The IAS19 deficit of these plans at
30 June 2017 was GBP24.6m, a reduction of GBP2.7m from 31
December 2016 (GBP27.3m). The reduced deficit relates to the UK
scheme and was driven by a reduction in future inflation
assumptions and a positive asset performance, partly offset by a
5bps fall in the discount rate during the period. A number of the
UK scheme's members took transfer values of their pension
entitlement during the period resulting in a net settlement gain of
GBP0.2m, which has been reported as a non-underlying credit to the
income statement.
Following the triennial valuation of the Group's UK defined
benefit pension arrangements at April 2015, the Group has agreed
deficit reduction plans in place that require annual cash
contributions amounting to GBP2.3m for the period to April 2020.
Following the prior year merger of the previous two UK schemes, a
formal valuation of the new scheme as at April 2016 is in progress
and will be reported on in the Group's 2017 Annual Report. The
Group continues to be actively engaged in dialogue with the
schemes' Trustees with regard to management, funding and investment
strategies.
Principal Risks and Uncertainties
The Group has a process for identifying, evaluating and managing
the principal risks and uncertainties that it faces, and the
Directors have reconsidered these principal risks and uncertainties
during the period. It is the Directors' opinion that the principal
risks set out on pages 32 to 34 of the Group's Annual Report and
Accounts for the year ended 31 December 2016, remain applicable to
the current financial year.
Going Concern
The Group continues to meet its day to day working capital and
other funding requirements through a combination of long term
funding and short term overdraft borrowings. The Group's principal
financing facility is a GBP210m multi-currency revolving credit
agreement which expires in April 2021.
The Group actively manages its strategic, commercial and day to
day operational risks and through its Treasury function operates
Board approved financial policies, including hedging policies that
are designed to ensure that the Group maintains an adequate level
of funding headroom and effectively mitigates foreign exchange and
other financial risks.
After making due enquiry, the Directors have reasonable
expectation that the Company and its subsidiaries have adequate
resources to continue in operational existence for the foreseeable
future and therefore adopt the going concern principle.
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- The condensed set of Financial Statements has been prepared
in accordance with IAS 34: Interim Financial Reporting as adopted
by the EU;
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of Financial Statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period including any changes in the related party transactions
described in the last Annual Report that could do so.
This report was approved by the Board of Directors on 10 August
2017 and is available on the Company's website
(www.hsholdings.com).
J F Lennox D W Muir M Pegler
Chairman Group Chief Executive Group Finance Director
Managing Director - UK Utilities division
10 August 2017
Condensed Consolidated Income Statement
Six months ended 30 June 2017
Year ended
6 months ended 6 months ended 31 December
30 June 2017 30 June 2016(**) 2016
----------------------------------- ----------------------------------- ------------------------------------
Non- Non- Non-
Underlying underlying(*) Total Underlying underlying(*) Total Underlying underlying(*) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Revenue 4 291.8 - 291.8 259.3 - 259.3 540.1 - 540.1
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Trading profit 4 38.8 - 38.8 32.0 - 32.0 70.6 - 70.6
Amortisation
of acquisition
intangibles 6 - (2.0) (2.0) - (0.9) (0.9) - (2.6) (2.6)
Business
reorganisation
costs 6 - (2.0) (2.0) - (9.2) (9.2) - (10.5) (10.5)
Pension
settlement
gains 6 - 0.2 0.2 - - - - 0.2 0.2
Impairment of
intangible
assets 6 - - - - - - - (4.1) (4.1)
Acquisition
costs 6 - (0.2) (0.2) - (0.7) (0.7) - (1.8) (1.8)
Profit on
disposal
of subsidiary 6 - 0.6 0.6 - - - - - -
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Operating 4,
profit 6 38.8 (3.4) 35.4 32.0 (10.8) 21.2 70.6 (18.8) 51.8
Financial
income 7 0.3 - 0.3 0.1 - 0.1 0.4 - 0.4
Financial
expense 7 (1.7) (0.5) (2.2) (1.4) (0.5) (1.9) (3.0) (0.9) (3.9)
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Profit before
taxation 37.4 (3.9) 33.5 30.7 (11.3) 19.4 68.0 (19.7) 48.3
Taxation (9.0) 0.9 (8.1) (7.4) 1.2 (6.2) (16.3) 1.8 (14.5)
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Profit for the
period
attributable
to owners of
the parent 28.4 (3.0) 25.4 23.3 (10.1) 13.2 51.7 (17.9) 33.8
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Basic earnings
per share 9 36.2p 32.3p 29.7p 16.8p 65.9p 43.0p
Diluted
earnings
per share 9 35.7p 31.9p 29.4p 16.6p 65.1p 42.5p
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
Dividend per
share -
Interim 9 9.4p 8.5p 8.5p
---------------- ------ ----------- -------------- ------ ----------- -------------- ------ ----------- -------------- -------
* The Group's definition of non-underlying items is included in
note 6.
** Re-presented as explained in note 1.
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2017
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
--------------------------------------------- --------- --------- -------------
Profit for the period 25.4 13.2 33.8
---------------------------------------------- --------- --------- -------------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation
of overseas operations (5.8) 21.7 36.5
Exchange differences on foreign currency
borrowings denominated as net investment
hedges 2.8 (4.4) (9.5)
Transfers to the Income Statement on
cash flow hedges - 0.2 0.2
Taxation on items that may be reclassified - - -
to profit or loss
Items that will not be reclassified
subsequently to profit or loss
Actuarial gain/(loss) on defined benefit
pension schemes 1.8 (5.6) (14.1)
Taxation on items that will not be
reclassified to profit or loss (0.3) 1.0 2.1
---------------------------------------------- --------- --------- -------------
Other comprehensive (expense)/income
for the period (1.5) 12.9 15.2
---------------------------------------------- --------- --------- -------------
Total comprehensive income for the
period attributable to owners of the
parent 23.9 26.1 49.0
---------------------------------------------- --------- --------- -------------
Condensed Consolidated Statement of Financial Position
Six months ended 30 June 2017
30 June 30 June 31 December
2017 2016 2016
Notes GBPm GBPm GBPm
-------------------------------- ------ -------- -------- ------------
Non-current assets
Intangible assets 167.1 148.6 166.5
Property, plant and equipment 144.6 139.4 149.7
-------------------------------- ------ -------- -------- ------------
311.7 288.0 316.2
-------------------------------- ------ -------- -------- ------------
Current assets
Assets held for sale 1.1 - 1.1
Inventories 77.5 66.9 71.6
Trade and other receivables 128.1 119.4 112.9
Cash and cash equivalents 11 25.7 28.9 15.6
-------------------------------- ------ -------- -------- ------------
232.4 215.2 201.2
-------------------------------- ------ -------- -------- ------------
Total assets 544.1 503.2 517.4
-------------------------------- ------ -------- -------- ------------
Current liabilities
Trade and other liabilities (111.6) (105.9) (105.1)
Current tax liabilities (9.3) (9.9) (11.2)
Provisions for liabilities and
charges (1.6) (8.9) (2.6)
Interest bearing borrowings 11 (0.3) (0.3) (0.3)
-------------------------------- ------ -------- -------- ------------
(122.8) (125.0) (119.2)
-------------------------------- ------ -------- -------- ------------
Net current assets 109.6 90.2 82.0
-------------------------------- ------ -------- -------- ------------
Non-current liabilities
Other liabilities (0.6) (0.2) (0.4)
Provisions for liabilities and
charges (3.8) (3.0) (3.2)
Deferred tax liability (8.8) (8.1) (7.8)
Retirement benefit obligation (24.6) (19.7) (27.3)
Interest bearing borrowings 11 (134.5) (128.1) (127.3)
-------------------------------- ------ -------- -------- ------------
(172.3) (159.1) (166.0)
-------------------------------- ------ -------- -------- ------------
Total liabilities (295.1) (284.1) (285.2)
-------------------------------- ------ -------- -------- ------------
Net assets 249.0 219.1 232.2
-------------------------------- ------ -------- -------- ------------
Equity
Share capital 19.7 19.6 19.7
Share premium 33.6 33.5 33.5
Other reserves 4.8 4.6 4.8
Translation reserve 26.3 19.6 29.3
Hedge reserve - - -
Retained earnings 164.6 141.8 144.9
-------------------------------- ------ -------- -------- ------------
Total equity 249.0 219.1 232.2
-------------------------------- ------ -------- -------- ------------
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2017
Share Share Other Translation Hedge Retained Total
capital premium reserves reserves reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Opening balance 19.7 33.5 4.8 29.3 - 144.9 232.2
Comprehensive income
Profit for the period - - - - - 25.4 25.4
Other comprehensive
income for the period - - - (3.0) - 1.5 (1.5)
Transactions with
owners recognised
directly in equity
Dividends - - - - - (6.7) (6.7)
Credit to equity
of share-based payments - - - - - 1.0 1.0
Satisfaction of
long term incentive
payments - - - - - (2.5) (2.5)
Own shares held
by employee benefit
trust - - - - - 1.0 1.0
Shares issued - 0.1 - - - - 0.1
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Closing balance 19.7 33.6 4.8 26.3 - 164.6 249.0
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Six months ended 30 June 2016
Share Share Other Translation Hedge Retained Total
capital premium reserves reserves reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Opening balance 19.6 32.8 4.6 2.3 (0.2) 139.4 198.5
Comprehensive income
Profit for the period - - - - - 13.2 13.2
Other comprehensive
income for the period - - - 17.3 0.2 (4.6) 12.9
Transactions with
owners recognised
directly in equity
Dividends - - - - - (5.5) (5.5)
Credit to equity
of share-based payments - - - - - 0.7 0.7
Satisfaction of
long term incentive
payments - - - - - (1.4) (1.4)
Own shares held - - - - - - -
by employee benefit
trust
Shares issued - 0.7 - - - - 0.7
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Closing balance 19.6 33.5 4.6 19.6 - 141.8 219.1
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Year ended 31 December 2016
Share Share Other Translation Hedge Retained Total
capital premium reserves reserves reserves earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Opening balance 19.6 32.8 4.6 2.3 (0.2) 139.4 198.5
Comprehensive income
Profit for the year - - - - - 33.8 33.8
Other comprehensive
income for the period - - - 27.0 0.2 (12.0) 15.2
Transactions with
owners recognised
directly in equity
Dividends - - - - - (16.2) (16.2)
Credit to equity
of share-based payments - - - - - 1.1 1.1
Satisfaction of
long term incentive
payments - - - - - (1.4) (1.4)
Own shares held
by employee benefit
trust - - - - - (0.6) (0.6)
Transfers between
reserves - - 0.2 - - (0.2) -
Tax taken directly
to the Consolidated
Statement of Changes
in Equity - - - - - 1.0 1.0
Shares issued 0.1 0.7 - - - - 0.8
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Closing balance 19.7 33.5 4.8 29.3 - 144.9 232.2
-------------------------- --------- --------- ---------- ------------ ---------- ---------- --------
Other reserves represents the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m capital
redemption reserve.
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2017
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2016
2017 2016 GBPm
Notes GBPm GBPm
------------------------------------- ------ --------- --------- -------------
Profit before tax 33.5 19.4 48.3
Add back net financing costs 1.9 1.8 3.5
------------------------------------- ------ --------- --------- -------------
Operating profit 35.4 21.2 51.8
Adjusted for non-cash items:
Share-based payments 1.0 0.7 1.6
Loss/(gain) on disposal
of non-current assets 0.1 0.1 (0.2)
Profit on disposal of subsidiary (0.6) - -
Depreciation 9.1 8.2 17.3
Amortisation of intangible
assets 2.5 1.4 3.7
Impairment of non-current
assets - - 4.1
------------------------------------- ------ --------- --------- -------------
12.1 10.4 26.5
------------------------------------- ------ --------- --------- -------------
Operating cash flow before
movement in working capital 47.5 31.6 78.3
Increase in inventories (7.4) (4.0) (4.3)
Increase in receivables (16.7) (14.3) (0.6)
Increase in payables 7.5 13.5 4.8
(Decrease)/increase in provisions
and employee benefits (1.6) 7.2 -
------------------------------------- ------ --------- --------- -------------
Net movement in working
capital and provisions (18.2) 2.4 (0.1)
------------------------------------- ------ --------- --------- -------------
Cash generated by operations 29.3 34.0 78.2
Income taxes paid (9.0) (6.9) (15.7)
Interest paid (1.6) (1.5) (3.2)
------------------------------------- ------ --------- --------- -------------
Net cash from operating
activities 18.7 25.6 59.3
Interest received 0.3 0.1 0.4
Proceeds on disposal of
non-current assets 1.9 0.1 3.6
Purchase of property, plant
and equipment (8.6) (9.2) (19.9)
Purchase of intangible assets (0.7) (0.7) (1.8)
Acquisitions of subsidiaries (5.7) (14.2) (36.9)
Disposal of subsidiary 2.6 - -
Deferred consideration in
respect of prior year acquisitions 0.4 - (0.5)
------------------------------------- ------ --------- --------- -------------
Net cash used in investing
activities (9.8) (23.9) (55.1)
Issue of new shares 0.1 0.7 0.8
Satisfaction of long term
incentive payments (1.5) (1.4) (2.0)
Dividends paid 10 (6.7) (5.5) (16.2)
Costs associated with refinancing - (1.0) (1.0)
New loans and borrowings 18.7 31.3 46.1
Repayment of loans and borrowings (9.0) (11.6) (31.7)
------------------------------------- ------ --------- --------- -------------
Net cash raised from/(used
in) financing activities 1.6 12.5 (4.0)
------------------------------------- ------ --------- --------- -------------
Net increase in cash 10.5 14.2 0.2
Cash at the beginning of
the period 15.6 12.9 12.9
Effect of exchange rate
fluctuations (0.4) 1.8 2.5
------------------------------------- ------ --------- --------- -------------
Cash at the end of the period 11 25.7 28.9 15.6
------------------------------------- ------ --------- --------- -------------
1. Basis of preparation
Hill & Smith Holdings PLC is incorporated in the UK. The
Condensed Consolidated Interim Financial Statements of the Company
have been prepared on the basis of International Financial
Reporting Standards, as adopted by the EU ('Adopted IFRSs') that
are effective at 10 August 2017 and in accordance with IAS34:
Interim Financial Reporting, comprising the Company, its
subsidiaries and its interests in jointly controlled entities
(together referred to as the 'Group').
As required by the Disclosure and Transparency Rules of the
Financial Services Authority, the Condensed Consolidated Interim
Financial Statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published Consolidated Financial Statements for the
year ended 31 December 2016 (these statements do not include all of
the information required for full Annual Financial Statements and
should be read in conjunction with the full Annual Report for the
year ended 31 December 2016). In 2017 the following amendments had
been endorsed by the EU, became effective and therefore were
adopted by the Group:
- Amendments to IAS 12 - Recognition of Deferred Tax Assets for Unrealised Losses
- Disclosure Initiative - Amendments to IAS 7
The following standards and interpretations, which were not
effective as at 30 June 2017 and have not been early adopted by the
Group, will be adopted in future accounting periods:
- IFRS 9 'Financial Instruments' (effective 1 January 2018)
- IFRS 15 'Revenue from Contracts with Customers' (effective 1 January 2018)
- IFRS 16 'Leases' (effective 1 January 2019)
The comparative figures for the financial year ended 31 December
2016 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor (i) was unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
These Condensed Consolidated Interim Financial Statements have
not been audited or reviewed by an auditor pursuant to the Auditing
Practices Board's Guidance on Financial Information.
The Financial Statements are prepared on the going concern
basis. This is considered appropriate given that the Company and
its subsidiaries have adequate resources to continue in operational
existence for the foreseeable future.
Re-presentation of prior period comparatives
In March 2016, the Group announced the proposed restructuring of
its non-US Pipe Supports operations. In the Group's half year
results to 30 June 2016 the post-announcement trading results of
the non-US Pipe Supports operations (revenue of GBP5.3m and an
operating loss of GBP1.0m) were disclosed separately as
non-underlying items given their quantum relative to the overall
result for that period. As reported in the financial statements for
the period ending 31 December 2016, the post-announcement trading
results of the non-US Pipe Supports operations (revenue of GBP10.6m
and an operating loss of GBP0.6m) were included in the Group's
underlying trading results for the year.
Accordingly, to maintain consistent disclosure with the 31
December 2016 financial statements, the trading results of the
non-US Pipe Supports operations for the period ending 30 June 2017
have been included in the Group's underlying trading results for
the period. In order to ensure comparability of presentation
between the period ending 30 June 2017 and 30 June 2016, the income
statement for the period ending 30 June 2016 has been re-presented
to disclose the post-announcement trading results of the non-US
Pipe Supports operations within the Group's underlying trading
results for that period.
2. Financial risks, estimates, assumptions and judgements
The preparation of the Condensed Consolidated Interim Financial
Statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense.
Actual results may differ from estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements as at and for the year ended 31
December 2016.
3. Exchange rates
The principal exchange rates used were as follows:
6 months 6 months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
------------------- ------------------- -------------------
Average Closing Average Closing Average Closing
------------------------ -------- --------- -------- --------- -------- ---------
Sterling to Euro (GBP1
= EUR) 1.16 1.14 1.28 1.21 1.22 1.17
Sterling to US Dollar
(GBP1 = USD) 1.27 1.30 1.43 1.34 1.35 1.23
Sterling to Swedish
Krona (GBP1 = SEK) 11.17 10.96 11.94 11.38 11.57 11.14
------------------------ -------- --------- -------- --------- -------- ---------
4. Segmental information
The Group has three reportable segments which are Infrastructure
Products - Roads, Infrastructure Products - Utilities and
Galvanizing Services. Several operating segments that have similar
economic characteristics have been aggregated into these reporting
segments.
Income Statement
6 months ended 6 months ended
30 June 2017 30 June 2016(**)
------------------------- ----------------------------------- -----------------------------------
Underlying Underlying
Revenue* Result result* Revenue* Result result*
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ----------- --------- ----------- ----------- --------- -----------
Infrastructure Products
- Utilities 107.1 6.5 7.6 100.4 (4.6) 4.7
Infrastructure Products
- Roads 93.8 8.5 10.2 77.5 8.1 9.0
------------------------- ----------- --------- ----------- ----------- --------- -----------
Infrastructure Products
- Total 200.9 15.0 17.8 177.9 3.5 13.7
Galvanizing Services 90.9 20.4 21.0 81.4 17.7 18.3
------------------------- ----------- --------- ----------- ----------- --------- -----------
Total Group 291.8 35.4 38.8 259.3 21.2 32.0
------------------------- ----------- -----------
Net financing costs (1.9) (1.4) (1.8) (1.3)
------------------------- ----------- --------- ----------- ----------- --------- -----------
Profit before taxation 33.5 37.4 19.4 30.7
Taxation (8.1) (9.0) (6.2) (7.4)
------------------------- ----------- --------- ----------- ----------- --------- -----------
Profit after taxation 25.4 28.4 13.2 23.3
------------------------- ----------- --------- ----------- ----------- --------- -----------
** Re-presented as explained in note 1.
Year ended 31
December 2016
------------------------------------- -----------------------------------
Underlying
Revenue* Result result*
GBPm GBPm GBPm
------------------------------------- ----------- --------- -----------
Infrastructure Products - Utilities 207.6 4.0 13.0
Infrastructure Products - Roads 168.1 10.9 19.6
------------------------------------- ----------- --------- -----------
Infrastructure Products - Total 375.7 14.9 32.6
Galvanizing Services 164.4 36.9 38.0
------------------------------------- ----------- --------- -----------
Total Group 540.1 51.8 70.6
------------------------------------- -----------
Net financing costs (3.5) (2.6)
------------------------------------- ----------- --------- -----------
Profit before taxation 48.3 68.0
Taxation (14.5) (16.3)
------------------------------------- ----------- --------- -----------
Profit after taxation 33.8 51.7
------------------------------------- ----------- --------- -----------
* Underlying result is stated before Non-underlying items as
defined in note 6, and is the measure of segment profit used by the
Chief Operating Decision Maker, who is the Chief Executive. The
Result columns are included as additional information.
Galvanizing Services provided GBP3.3m revenues to Infrastructure
Products - Roads (six months ended 30 June 2016: GBP2.4m, the year
ended 31 December 2016: GBP4.7m) and GBP1.0m revenues to
Infrastructure Products - Utilities (six months ended 30 June 2016:
GBP0.6m, the year ended 31 December 2016: GBP1.4m). Infrastructure
Products - Utilities provided GBP3.4m revenues to Infrastructure
Products - Roads (six months ended 30 June 2016: GBP2.0m, the year
ended 31 December 2016: GBP5.4m). These internal revenues, along
within revenues generated within each segment, have been eliminated
on consolidation.
The Group presents the analysis of revenue by geographical
market, irrespective of origin:
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
-------------------------- --------- --------- -------------
UK 149.5 123.7 264.5
Rest of Europe 51.3 44.3 89.1
North America 81.1 74.5 156.9
Asia and the Middle East 6.1 12.4 19.6
Rest of World 3.8 4.4 10.0
-------------------------- --------- --------- -------------
Total reported revenue 291.8 259.3 540.1
-------------------------- --------- --------- -------------
5. Operating profit
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------- --------- --------- -------------
Revenue 291.8 259.3 540.1
Cost of sales (185.4) (161.3) (340.6)
------------------------- --------- --------- -------------
Gross profit 106.4 98.0 199.5
Distribution costs (14.9) (12.3) (28.7)
Administrative expenses (56.6) (65.1) (120.2)
Other operating income 0.5 0.6 1.2
------------------------- --------- --------- -------------
Operating profit 35.4 21.2 51.8
------------------------- --------- --------- -------------
6. Non-underlying items
Non-underlying items are disclosed separately in the
Consolidated Income Statement where the quantum, nature or
volatility of such items would otherwise distort the underlying
trading performance of the Group. The following are included by the
Group in its assessment of non-underlying items:
- Gains or losses arising on disposal, closure, restructuring or
reorganisation of businesses that do not meet the definition of
discontinued operations.
- Amortisation of intangible fixed assets arising on acquisitions.
- Expenses associated with acquisitions.
- Impairment charges in respect of tangible or intangible fixed assets.
- Changes in the fair value of derivative financial instruments.
- Significant past service items or curtailments and settlements
relating to defined benefit pension obligations resulting from
material changes in the terms of the schemes.
- Net financing costs or returns on defined benefit pension obligations.
- Costs incurred as part of significant refinancing activities.
The tax effect of the above is also included.
Details in respect of the non-underlying items recognised in the
current period and prior year are set out below.
Six months ended 30 June 2017
Non-underlying items included in operating profit comprise the
following:
- Business reorganisation costs of GBP2.0m relate to three
restructuring actions taken by the Group:
-- In June 2017, the Group initiated a rationalisation of its
Variable Message Signs business that will result in the closure of
two of its operating sites and the consolidation of activities into
the remaining site in Hebburn, UK. The business has been operating
across three sites since the acquisitions of VMS and Tegrel in
2014/15 and expects to take advantage of cost savings and
efficiencies as a result of the rationalisation. The anticipated
cost of the exercise is GBP1.4m.
-- Following a strategic review of the US Pipe Supports
business, in March 2017 the Group completed a rationalisation of
its branch structure resulting in the closure of three of the seven
existing branches and the consolidation of their operations into
one strategically located service centre between New York and
Philadelphia to serve the eastern region. The cost of this
programme was GBP0.4m.
-- In December 2016 the Group announced the closure of its roads
business in India having reassessed the prospects in that market.
The prior year results included a charge of GBP1.9m in respect of
the closure. A further charge of GBP0.2m has been recognised in
2017 representing additional closure costs that have been
incurred.
- Acquisition expenses of GBP0.2m relate to the acquisition completed during the period.
- Amortisation of acquired intangible fixed assets of GBP2.0m.
- A gain of GBP0.2m arose on the settlement of outstanding
defined benefit liabilities with certain pension scheme members who
took transfers of their pension entitlement during the period.
In April 2017 the Group sold its traffic data collection
business, CA Traffic Limited, to TagMaster AB for net consideration
of GBP2.7m. Net assets disposed were GBP2.1m resulting in a profit
on disposal of GBP0.6m. The detail of the disposal is set out
below:
Total
GBPm
-------------------------------------------------- ------
Capitalised development costs 0.6
Inventories 1.4
Current assets 0.9
Cash and cash equivalents 0.1
Current liabilities (0.8)
Deferred tax (0.1)
-------------------------------------------------- ------
Net assets 2.1
Consideration 2.9
Less costs of disposal (0.2)
-------------------------------------------------- ------
Gain on disposal 0.6
-------------------------------------------------- ------
Cash flow effect
Consideration less costs of disposal 2.7
Cash and cash equivalents disposed of (0.1)
-------------------------------------------------- ------
Net cash consideration shown in the Consolidated
Statement of Cash Flows 2.6
-------------------------------------------------- ------
Non-underlying items included in financial expense represent the
net financing cost on pension obligations of GBP0.3m and a GBP0.2m
charge in respect of amortisation of costs associated with
refinancing.
Year ended 31 December 2016
Non-underlying items included in operating profit comprised the
following:
- Business reorganisation costs of GBP10.5m relating to the
closure or reorganisation of three of the Group's businesses as set
out below.
-- On 9 March 2016 the Group announced its intention to exit its
non-US Pipe Supports business, involving cessation of manufacturing
in the UK and Thailand, the closure of its sales office in China
and the transfer of work to its facility in India. The cost of
closure was GBP7.8m.
-- Following the acquisition of Signature Limited on 3 August
2016, the Group completed a reorganisation of the business as part
of its integration with Mallatite Limited, the Group's existing
lighting column operation. The cost of the reorganisation and
restructuring plan was GBP0.8m and included a reduction in the
number of operating sites of the integrated business from five to
three.
-- In December 2016 the Group committed to the closure of Hill
& Smith Infrastructure Products India Pvt. Limited, our Roads
business in India. The provision made for the cost of closure was
GBP1.9m.
- An impairment charge of GBP4.1m in respect of the goodwill
relating to CA Traffic Limited. The business was subsequently sold
in the current period.
- Amortisation of acquired intangible fixed assets of GBP2.6m (2015: GBP1.6m).
- Acquisition expenses of GBP1.8m (2015: GBP1.0m) principally
relating to acquisitions made by the Group during 2016.
- A gain of GBP0.2m relating to the settlement of certain
defined benefit pension obligations during the year.
Non-underlying items included in financial expense represent the
net financing cost on pension obligations of GBP0.5m and a GBP0.4m
charge in respect of amortisation of costs associated with
refinancing.
7. Net financing costs
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
------------------------------------------- --------- --------- -------------
Interest on bank deposits 0.3 0.1 0.4
------------------------------------------- --------- --------- -------------
Financial income 0.3 0.1 0.4
------------------------------------------- --------- --------- -------------
Interest on bank loans and overdrafts 1.7 1.4 3.0
Interest on finance leases and hire - - -
purchase contracts
------------------------------------------- --------- --------- -------------
Total interest expense 1.7 1.4 3.0
Financial expenses related to refinancing 0.2 0.2 0.4
Interest cost on net pension scheme
deficit 0.3 0.3 0.5
------------------------------------------- --------- --------- -------------
Financial expense 2.2 1.9 3.9
------------------------------------------- --------- --------- -------------
Net financing costs 1.9 1.8 3.5
------------------------------------------- --------- --------- -------------
8. Taxation
Tax has been provided on the underlying profit at the estimated
effective rate of 24.0% (2016: 24.0%) for existing operations for
the full year.
9. Earnings per share
The weighted average number of ordinary shares in issue during
the period was 78.6m, diluted for the effect of outstanding share
options 79.5m (six months ended 30 June 2016: 78.5m and 79.2m
diluted, the year ended 31 December 2016: 78.5m and 79.3m
diluted).
Underlying earnings per share are shown below as the Directors
consider that this measurement of earnings gives valuable
information on the underlying performance of the Group:
6 months 6 months Year ended
ended ended 31 December
30 June 2017 30 June 2016(**) 2016
---------------- -------------------- ----------------
Pence Pence Pence
per GBPm per GBPm per GBPm
share share share
----------------------------- ------- ------- --------- --------- ------- -------
Basic earnings 32.3 25.4 16.8 13.2 43.0 33.8
Non-underlying items(*) 3.9 3.0 12.9 10.1 22.9 17.9
----------------------------- ------- ------- --------- --------- ------- -------
Underlying earnings 36.2 28.4 29.7 23.3 65.9 51.7
----------------------------- ------- ------- --------- --------- ------- -------
Diluted earnings 31.9 25.4 16.6 13.2 42.5 33.8
Non-underlying items(*) 3.8 3.0 12.8 10.1 22.6 17.9
----------------------------- ------- ------- --------- --------- ------- -------
Underlying diluted earnings 35.7 28.4 29.4 23.3 65.1 51.7
----------------------------- ------- ------- --------- --------- ------- -------
(*) Non-underlying items as detailed in note 6.
(**) Re-presented as explained in note 1.
10. Dividends
Dividends paid in the period were the prior year's interim
dividend of GBP6.7m (2015: GBP5.5m). The final dividend for 2016 of
GBP14.1m (2016: GBP10.7m) was paid on 2 July 2017. Dividends
declared after the Balance Sheet date are not recognised as a
liability, in accordance with IAS10. The Directors have proposed an
interim dividend for the current year of GBP7.4m, 9.4p per share
(2016: GBP6.7m, 8.5p per share), which will be paid on 4 January
2018 to shareholders on the register on 1 December 2017.
11. Analysis of net debt
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
--------------------------------------- --------- --------- -------------
Cash and cash equivalents 25.7 28.9 15.6
Interest bearing loans and borrowings
due within one year (0.3) (0.3) (0.3)
Interest bearing loans and borrowings
due after more than one year (134.5) (128.1) (127.3)
--------------------------------------- --------- --------- -------------
Net debt (109.1) (99.5) (112.0)
--------------------------------------- --------- --------- -------------
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
-------------------------------------- --------- --------- -------------
Change in net debt
Operating profit 35.4 21.2 51.8
Non-cash items 12.1 10.4 26.5
-------------------------------------- --------- --------- -------------
Operating cash flow before movement
in working capital 47.5 31.6 78.3
Net movement in working capital (16.6) (4.8) (0.1)
Change in provisions and employee
benefits (1.6) 7.2 -
-------------------------------------- --------- --------- -------------
Operating cash flow 29.3 34.0 78.2
Tax paid (9.0) (6.9) (15.7)
Net financing costs paid (1.3) (1.4) (2.8)
Capital expenditure (9.3) (9.9) (21.7)
Proceeds on disposal of non-current
assets 1.9 0.1 3.6
-------------------------------------- --------- --------- -------------
Free cash flow 11.6 15.9 41.6
Dividends paid (note 10) (6.7) (5.5) (16.2)
Acquisitions (5.3) (14.2) (37.4)
Disposals 2.6 - -
Amortisation of costs associated
with refinancing revolving credit
facilities (0.2) (0.2) (0.4)
Issue of new shares 0.1 0.7 0.8
Satisfaction of long term incentive
payments (1.5) (1.4) (2.0)
-------------------------------------- --------- --------- -------------
Net debt decrease/(increase) 0.6 (4.7) (13.6)
Effect of exchange rate fluctuations 2.3 (3.3) (6.9)
Net debt at the beginning of the
period (112.0) (91.5) (91.5)
-------------------------------------- --------- --------- -------------
Net debt at the end of the period (109.1) (99.5) (112.0)
-------------------------------------- --------- --------- -------------
12. Financial instruments
The table below sets out the Group's accounting classification
of its financial assets and liabilities and their fair values as
at
30 June. The fair values of all financial assets and liabilities
are not materially different to the carrying values.
Designated
at Total
fair Amortised carrying Fair
value cost value value
GBPm GBPm GBPm GBPm
----------------------------------- ----------- ---------- ---------- --------
Cash and cash equivalents - 25.7 25.7 25.7
Interest bearing loans due within
one year - (0.3) (0.3) (0.3)
Interest bearing loans due after
more than one year - (134.5) (134.5) (134.5)
Derivative assets - - - -
Derivative liabilities (0.2) - (0.2) (0.2)
Other assets - 117.3 117.3 117.3
Other liabilities - (98.9) (98.9) (98.9)
----------------------------------- ----------- ---------- ---------- --------
Total at 30 June 2017 (0.2) (90.7) (90.9) (90.9)
----------------------------------- ----------- ---------- ---------- --------
Fair value hierarchy
The table below analyses financial instruments carried at fair
value, by valuation method. The different levels have been defined
as follows:
- Level 1 : unadjusted quoted prices in active markets for identical assets or liabilities.
- Level 2 : inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either as a
direct price or indirectly derived from prices.
- Level 3 : inputs for the asset or liability that are not based on observable market data.
Level Level Level Total
1 2 3 GBPm
GBPm GBPm GBPm
---------------------------------- ------- ------ ------ ------
Derivative financial assets - - - -
Derivative financial liabilities - (0.2) - (0.2)
---------------------------------- ------- ------ ------ ------
At 30 June 2017 - (0.2) - (0.2)
---------------------------------- ------- ------ ------ ------
At 30 June 2017 the Group did not have any liabilities
classified at Level 1 or Level 3 in the fair value hierarchy. There
have been no transfers in any direction in the period.
The Group determines Level 2 fair values for its financial
instruments based on broker quotes, tested for reasonableness by
discounting expected future cash flows using market interest rates
for a similar instrument at the measurement date.
13. Acquisitions
On 27 March 2017 the Group acquired the trade and assets of
Kenway Corporation ('Kenway') to expand the Group's presence in the
US composite market. Kenway is a specialist in technologically
advanced composite design, manufacturing and field service work
across a broad range of industries including marine, power, pulp
and paper, transportation and renewable energy. Details of this
acquisition are as follows:
Policy
alignment
and
Pre acquisition fair
carrying value
amount adjustments Total
Kenway Corporation GBPm GBPm GBPm
------------------------------------- ---------------- ------------- ------
Intangible assets - 1.5 1.5
Property, plant and equipment 0.5 - 0.5
Inventories 1.0 (0.6) 0.4
Current assets 0.7 - 0.7
Cash and cash equivalents - - -
------------------------------------- ---------------- ------------- ------
Total assets 2.2 0.9 3.1
------------------------------------- ---------------- ------------- ------
Current liabilities (0.2) - (0.2)
Deferred tax - (0.3) (0.3)
------------------------------------- ---------------- ------------- ------
Total liabilities (0.2) (0.3) (0.5)
------------------------------------- ---------------- ------------- ------
Net assets 2.0 0.6 2.6
------------------------------------- ---------------- ------------- ------
Consideration
Consideration in the period 6.2
------------------------------------- ---------------- ------------- ------
Goodwill 3.6
------------------------------------- ---------------- ------------- ------
Cash flow effect
Consideration 6.2
Deferred consideration (0.5)
Cash and cash equivalents received -
in the business
------------------------------------- ---------------- ------------- ------
Net cash consideration shown in
the Consolidated Statement of Cash
Flows 5.7
------------------------------------- ---------------- ------------- ------
Brands and customer relationships have been recognised as
specific intangible assets as a result of the acquisition. The
residual goodwill arising primarily represents the assembled
workforce, market share and geographical advantages afforded to the
Group. Fair value adjustments have been made to better 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. There is no difference between the gross
value and fair value of acquired receivables.
Post acquisition the acquired business has contributed GBP1.3m
revenue and GBP0.1m underlying operating profit, which are included
in the Group's Consolidated Income Statement. If the acquisition
had been made on 1 January 2017, the Group's results for the period
would have shown underlying revenue of GBP292.6m and underlying
operating profit of GBP38.8m.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DKLFBDVFFBBB
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