TIDMHILS
RNS Number : 7174R
Hill & Smith Hldgs PLC
10 March 2021
Hill & Smith Holdings PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2020
Robust performance; strong cash generation; positive long term
prospects
Hill & Smith Holdings PLC ("Hill & Smith" or "the
Group"), the international group creating sustainable
infrastructure and safe transport solutions, announces its
preliminary results for the year ended 31 December 2020.
Financial results
Change
------------------------------
31 December 31 December Reported Organic**
2020 2019 % %
-------------------------- ------------ ------------ -------------- --------------
Revenue GBP660.5m GBP694.7m -5 -7
Underlying (*) :
Operating profit GBP69.9m GBP86.3m -19 -20
Operating margin 10.6% 12.4% -180bps -180bps
Profit before taxation GBP62.6m GBP79.4m -21 -22
Earnings per share 63.2p 80.7p -22 -23
Reported:
Operating profit GBP42.8m GBP69.2m -38
Operating margin 6.5% 10.0% -350bps
Profit before taxation GBP35.5m GBP61.8m -43
Basic earnings per share 30.2p 61.1p -51
Dividend per share 26.7p 10.6p
Net Debt GBP146.2m GBP215.3m
-------------------------- ------------ ------------ -------------- --------------
Key points:
-- Health, safety and wellbeing of all employees remain our top
priority and we have measures in place in all our sites to ensure
the safe working of all employees during the COVID-19 pandemic
-- Robust performance with good recovery in H2, approaching H2 2019 trading levels
o US businesses performed well throughout the year
o COVID-19 resulted in Q2 2020 closure of France, India and
certain UK operations with businesses reopening and trading
recovering strongly in H2
o Security businesses continue to face challenges due to
restrictions on public gatherings
-- Strong cash generation supported by cash preservation
actions, resulting in a GBP69.1m reduction in net debt
-- Repayment of all monies received under the UK Coronavirus Job Retention Scheme (GBP3.6m)
-- FY20 final dividend of 17.5p recommended, taking total dividend for the year to 26.7p
-- Long term outlook for infrastructure spend remains positive
Paul Simmons, Chief Executive, said:
"The robust 2020 trading performance clearly demonstrates the
strengths of the Group's business model including the quality of
our local teams and I would like to thank all of our employees for
their continued commitment. We are particularly pleased with the
strong recovery in the second half of 2020, with trading
approaching prior year levels. This provides a solid platform to
build from as we enhance our organic growth plans and realign our
portfolio to drive even better returns.
Our organic and acquisitive growth plans are underpinned by a
strong balance sheet as well as positive dynamics in our key end
markets given the long term requirement to upgrade infrastructure
in a sustainable way. We expect to see a good recovery in trading
in 2021."
For further information, please contact:
Hill & Smith Holdings PLC
Paul Simmons, Group Chief Executive Tel: +44 (0)121
Hannah Nichols, Group Chief Financial 704 7430
Officer
MHP Communications
Andrew Jaques / James Bavister / Catherine Tel: +44 (0)20
Chapman 3128 8100
* 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, with the exception of changes
to the presentation of net financing costs on defined benefit
pension obligations and costs incurred as part of significant
refinancing activities, which were presented as non-underlying
items in 2019 but included in the underlying results in 2020. This
change had no material impact on the results for either period
.
** 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. 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.
Notes to Editors
Hill & Smith Holdings PLC creates sustainable infrastructure
and safe transport through innovation. The Group employs c. 4400
people worldwide with the majority working within its autonomous,
agile, customer focussed operating businesses based in the UK, USA,
France, Sweden, India and Australia. It has a head office in the UK
and is quoted on the London Stock Exchange (LSE: HILS.L).
The Group's operating businesses are organised into three main
business segments:
Roads & Security: supplying products and services such as
permanent and temporary road safety barriers, street lighting
columns, Intelligent Traffic Solutions, variable road messaging
solutions, bridge parapets, renewable energy lighting & power
solutions, temporary car parks, high security fencing, hostile
vehicle mitigation and access covers.
Utilities: supplying products and services such as engineered
composite solutions with low embedded energy, assemblies for the
distribution of electricity, building products including fire
doors, pipe supports for the water, power and liquid natural gas
markets, industrial flooring and seismic protection solutions.
Galvanizing Services: dramatically increasing the sustainability
and maintenance free life of steel products including structural
steel work, lighting, bridges, agricultural and other products for
the industrial and infrastructure markets.
Chief Executive's Review
Review of 2020
2020 was a challenging year with the COVID-19 pandemic creating
unprecedented economic conditions for businesses globally. On
behalf of the Board, I would like to thank all of our employees for
their significant contribution and determination during these
testing times.
The health, safety and wellbeing of our employees remains our
key priority and we continue to follow local public health
guidelines across all Group operations with enhanced protocols in
place to ensure our facilities are COVID-19 secure. Actions taken
include introducing enhanced cleaning and hygiene procedures,
implementing social distancing and track and trace procedures,
provision of face masks and taking all reasonable steps to help
people work from home where appropriate to do so. In addition, we
are mindful of the mental wellbeing of our employees during this
difficult time and have offered appropriate support and
assistance.
Given the extent of disruption around the world as a result of
the COVID-19 pandemic, Hill & Smith delivered a robust
performance in 2020 with year end results ahead of the current
analyst forecast range. The 2020 trading performance and ongoing
recovery as we enter 2021 demonstrates the strengths of the Group's
business model, our choice of resilient end markets, the
international mix of businesses and the decentralised operating
model with high quality teams who were able to respond quickly to
local market conditions as they unfolded during the year.
The Group made a good start to the year, delivering organic
revenue and profit growth in the first quarter. Trading performance
from the middle of March was impacted by COVID-19 related business
closures in France, India and certain UK businesses and reduced
levels of demand elsewhere in the Group. All our businesses had
reopened by the middle of May and we experienced a strong recovery
in trading in the second half of the year. Despite the disruption
caused by the pandemic, the Group remained profitable throughout
the year and our US businesses, which represented 41% of Group
revenues, have proved particularly resilient, delivering similar
levels of revenue and profit to the prior year.
As previously announced, the only area of the Group which has
not seen a strong recovery is our Security sub-division, which
continues to face challenges due to COVID-19 related restrictions
on public gatherings and delayed customer projects.
During the year we took swift actions to manage costs and
conserve operational cashflows without limiting our longer term
growth prospects. Our businesses acted quickly to limit
discretionary spend and have continued to drive local efficiency
plans. Cash preservation measures included the withdrawal of the
final 2019 dividend and focused management of working capital
across the Group. We also carried out a detailed review of capital
expenditure to limit non-essential spend, while still maintaining
investment in organic growth opportunities.
Given the improved trading performance in the second half and
the solid levels of cash generation, the Board made the decision in
December 2020 to repay all monies received earlier in the year from
the UK Coronavirus Job Retention Scheme (GBP3.6m) and to settle UK
VAT liabilities deferred from the second quarter (GBP6.5m). We are
pleased to report that we end the year with a robust balance sheet
and net debt of GBP146.2m, 1.3x EBITDA on a covenant basis and a
reduction of GBP69.1m from the end of 2019. We continue to maintain
strong headroom against our committed borrowing facilities which
have medium to long maturities, the earliest expiring in December
2023. This provides the Group with a solid platform to take
advantage of future growth opportunities.
Acquisitions in high growth, high return markets remain a key
component of our future growth strategy and, after the year end, in
March 2021, we acquired Prolectric Services Ltd ("Prolectric") for
an initial cash consideration of GBP12.5m, on a debt and cash free
basis. Prolectric is a UK market leader in temporary solar lighting
and operates in a market with excellent long term growth potential,
driven by the transition from fossil fuels towards renewable
energies.
In November 2020, Derek Muir stepped down from the Board and his
role as Chief Executive, having announced his intention to retire
earlier in the year. Derek has been instrumental in shaping Hill
& Smith's strategy and has delivered significant returns to
shareholders during his 14 year tenure. I would like to thank Derek
for all his support during the well run handover process.
After the year end, in February 2021, we were pleased to
announce the appointment of Leigh-Ann Russell as a Non-executive
Director with effect from 1 April 2021. Leigh-Ann's appointment is
part of the Group's careful succession planning to recruit
Non-executive Directors with the necessary skills, experience and
diversity required to support the Group's future development.
Initial Observations
On joining Hill & Smith in September last year, my first
priority was to meet as many colleagues and visit as many Group
businesses as possible. Ideally these meetings would have been face
to face but, due to COVID-19 related restrictions, a number,
particularly with overseas sites, inevitably had to be conducted
virtually. From these, it is clear to me that our businesses employ
extremely committed people with excellent market and domain
knowledge, and that we operate in resilient end markets with strong
structural growth drivers.
I am a strong believer in our decentralised autonomous operating
model and the benefits it brings, including highly accountable
management, agility and customer intimacy, and the ability to
attract talented people who want to make a difference. This model
operates within a disciplined financial framework with strong
levels of cash generation and a robust balance sheet. This is all
underpinned by strong governance and an ambitious and supportive
Board.
In the coming year, we will refine our strategy to build on the
opportunities across the Group to further enhance our growth
potential. First and foremost, we will continue to focus on
accelerating organic growth by increasing the rate of innovation
and identifying new niche markets. Second, we will place greater
emphasis on higher margins and long term growth, and we have
already fine tuned our portfolio management criteria to that
effect. The US and UK will remain our key areas of geographic
focus, both for organic growth and targeted acquisitions.
We have recently taken steps to organise for growth and
scalability. At the beginning of 2021, we formed a new Executive
Board and have introduced Group Presidents who will be responsible
for accelerating growth within their market portfolio and
supporting the business overall. Talented people are fundamental to
the success of our decentralised model, and with this in mind we
have recruited a Chief People Officer who will be leading on career
and talent development across the Group. We intend to recalibrate
the incentive schemes for our people to align with our enhanced
growth ambitions.
As well as the way we operate internally, our success relies on
us focusing on markets with long term growth drivers, at both a
macro and market specific level. Those macro drivers include
climate change, health and safety regulation, population growth and
increasing urbanisation. Market specific drivers include enabling
technology, sustainable materials, decarbonisation, infrastructure
safety and Vision Zero, a programme to eliminate road deaths.
Combined, these feed into the need for infrastructure to be
upgraded in a sustainable way, and for governments to increase
regulation in the area of health and safety. All this is reflected
in our purpose of 'creating sustainable infrastructure and safe
transport through innovation'. I have already seen first hand some
of our products that are a benefit to society, from flood defence
products, fire resilient electricity transmission poles and solar
powered signs, to pedestrian protection bollards. In turn, this
purpose makes us very conscious of the impact of our production
processes on climate change, and of the opportunities and risks
that climate change introduces to our strategy.
We will be further developing our environmental, social and
governance (ESG) strategy in 2021, including reviewing our
commitments to managing our water and energy consumption, improving
diversity and inclusion, and continuing to enhance our health and
safety performance. Reinforcing the culture of responsibility and
accountability across our Group and in each individual business is
an absolute priority for the Board, and for me personally.
I am delighted to have joined Hill & Smith as Chief
Executive, and I am excited about the future of the Group. With our
renewed purpose and refined focus, I believe that we are well
positioned for further growth.
Our Strategy
While many key elements of our strategy remain unchanged, we
have redefined our purpose to "creating sustainable infrastructure
and safe transport through innovation". Our purpose, in combination
with the consideration of long term macro growth and market
drivers, will determine our choice of markets and applications.
We continue to be attracted to fast growing niche opportunities
that provide significant value to our customers in their critical
applications, preferably in markets with high barriers to entry
such as regulation. Our products and services help transport become
safer and infrastructure become more sustainable, with both the
environment and our customers benefitting through the value that
our diverse offerings provide. Our decentralised model allows our
businesses to care about small, high growth, high margin
applications in a way that more centralised, volume driven
organisations cannot. We take a long term view in the assessment of
and investment in our current markets and potential
applications.
We look to capitalise on the extensive domain knowledge we hold
within our current markets, to minimise risk as we continue to
evolve our portfolio through organic developments, thoughtful
acquisitions, and targeted disposals. We will aim to improve the
quality of our portfolio with each iteration.
Our organisation consists of a small, highly capable central
function allowing us to over invest in the talent within our
operating companies. We only have around 20 people (out of c. 4,400
global employees) in our head office. We deliberately place most of
our talent close to our customers because we believe that this
increases market intimacy, agility, and delivers accountability.
Our decentralised model is also a powerful factor in the attraction
of high calibre people who want to make a difference. Within the
Group we have the potential to offer incredibly varied career paths
to our employees.
The decentralised model, which we have adopted for many years,
is scalable through the addition of the recently introduced Group
President roles. These end market focussed, senior leaders run
their own portfolio of operating companies, partnering with the
operating companies on organic growth and the Corporate Development
team to add high quality businesses to their portfolios.
Alongside our decentralised operating model our financial model
has been the foundation of our long term success. This model is
based on delivering greater than 3% organic revenue growth through
the cycle and achieving Group operating margins in the range of
12-15%. This leads to businesses which are highly cash generative,
with a target of 90% underlying cash conversion and we reinvest
this cash to grow our existing businesses and to fund carefully
considered acquisitions. We also maintain a strong and flexible
balance sheet with a conservative approach to borrowing and a
target net debt to underlying EBITDA ratio of 1.5 to 2.0 times.
This approach sustains growth over the longer term and enables us
to pursue a progressive dividend policy and deliver superior
returns to shareholders.
We aim to provide safe, high quality jobs for our employees
worldwide providing the potential for career development and
socio-economic mobility. We are committed, wherever possible, to
ensuring that we provide stable, inclusive employment for all
members of the community in successful and sustainable businesses.
We ensure that we meet all environmental regulations and work
towards carbon neutrality.
Our focus is on geographies where there are historically high
levels of investment in infrastructure for upgrades and
replacements. We currently operate from 76 sites in 6
countries.
The successful execution of our strategy drives exceptional
shareholder returns, provides high quality jobs for our employees,
benefits local communities and gives long term opportunities to our
supply chain partners.
2020 Headline Results
Change %
-------------------
2020 2019 Reported Organic
--------------------- ---------- ---------- --------- --------
Revenue GBP660.5m GBP694.7m -5 -7
--------------------- ---------- ---------- --------- --------
Underlying(1) :
Operating profit GBP69.9m GBP86.3m -19 -20
Operating margin 10.6% 12.4% -180bps -180bps
Profit before tax GBP62.6m GBP79.4m -21 -22
Earnings per share 63.2p 80.7p -22 -23
--------------------- ---------- ---------- --------- --------
Reported:
Operating profit GBP42.8m GBP69.2m -38
Operating margin 6.5% 10.0% -350bps
Profit before tax GBP35.5m GBP61.8m -43
Basic earnings per
share 30.2p 61.1p -51
--------------------- ---------- ---------- --------- --------
(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.
Revenue for the year of GBP660.5m (2019: GBP694.7m) was 7% lower
on an organic basis. Despite the challenges arising from the
COVID-19 pandemic, the Group remained profitable throughout the
year with a strong recovery in the second half. Underlying
operating profit for the year was GBP69.9m (2019: GBP86.3m), while
underlying operating margin reduced to 10.6% (2019: 12.4%) as a
result of operational leverage on lower revenues. Underlying profit
before taxation was 21% lower at GBP62.6m (2019: GBP79.4m).
Reported operating profit was GBP42.8m (2019: GBP69.2m) and
reported profit before tax was GBP35.5m (2019: GBP61.8m). The
principal reconciling items between underlying and reported
operating profit are the amortisation of acquisition intangibles of
GBP6.1m and the write down of goodwill relating to our French
galvanising business of GBP17.5m. Both of these are non-cash
items.
Dividend
In March 2020, the Board made the decision to cancel the 2019
final dividend as a prudent measure to preserve GBP18m of cash
given the COVID-19 related business closures and high levels of
uncertainty. Given the improving trading performance and more
positive outlook going into the third quarter, we announced the
resumption of dividend payments with the declaration of an interim
dividend for 2020 of 9.2p per share in August 2020. Based on the
strong trading performance and cash generation in the second half,
the Board is recommending a final dividend of 17.5p per share,
making a total dividend for the year of 26.7p per share. Underlying
dividend cover remains a conservative 2.4 times.
The Board understands the importance of dividends to our
shareholders and our approach remains on maintaining dividends that
are both sustainable and progressive. The final dividend, if
approved, will be paid on 9 July 2021 to those shareholders on the
register at the close of business on 4 June 2021.
Outlook
We expect to see a good recovery in trading in 2021, albeit we
remain mindful of the potential ongoing disruption of COVID-19,
higher raw material prices and foreign exchange fluctuations on our
financial performance for the full year.
In the medium to longer term, we are encouraged by the potential
for a significant infrastructure bill to be passed in the US under
the new Biden Administration. While details and spend levels are
still to be confirmed, we believe our US businesses are well placed
to take advantage of the opportunities arising from the increased
investment. In the UK, the Government's commitment to increased
levels of funding for Road Investment Strategy 2 (RIS 2) is also
encouraging, with major Smart Motorway schemes expected to commence
in the second half of 2021.
Brexit
The Group has limited cross border trade activity and to date we
have seen minimal disruption following the end of the transition
period on 31 December 2020, however we continue to closely monitor
and mitigate the related operational and financial risks. In the
longer term, we continue to believe that our strategy of
international diversification, along with our exposure to longer
term Government funded infrastructure investment programmes, will
help limit any potential negative impact on the Group resulting
from Brexit.
Operating Review
Roads & Security
GBPm
----------------------- ---- --------
2019 +/- Organic
2020 (restated)(2) % %
----------------------------- ------ --------------- ---- --------
Revenue 263.4 275.3 -4 -10
----------------------------- ------ --------------- ---- --------
Underlying operating profit
(1) 13.2 23.2 -43 -45
----------------------------- ------ --------------- ---- --------
Underlying operating margin
% (1) 5.0% 8.4%
----------------------------- ------ ---------------
Reported operating profit 5.6 8.6
----------------------------- ------ ---------------
(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) 2019 restated as explained in note 2 to the Financial
Statements.
The expanded Roads & Security division was formed on 1
January 2020. The division includes international companies which
design, manufacture and install temporary and permanent safety
products for the roads market, alongside UK based businesses which
provide a range of security products to protect people, buildings
and infrastructure from attack, including hostile vehicle
mitigation solutions, perimeter fencing and access covers.
The division had a strong first quarter, with revenue and
underlying operating profit both growing organically year on year,
however trading in the second quarter was impacted by COVID-19
related disruption. While trading recovered in the second half, we
continue to face significant challenges in our security businesses
due to global restrictions on public gatherings and customers
delaying security projects. As a result, revenue for the period
declined organically by 10% to GBP263.4m after a currency benefit
of GBP0.6m and contribution from acquisitions of GBP16.0m. The
division remained profitable throughout the year with underlying
operating profit of GBP13.2m (2019 (restated): GBP23.2m), however
the underlying operating margin fell to 5.0% (2019 (restated):
8.4%). The reduction is mainly attributable to the COVID-19 related
disruption to our Security businesses where, despite the additional
revenue from prior year acquisitions, underlying operating profits
were substantially lower than the prior period. The reduction in
reported operating profit of GBP3.0m was lower than the reduction
in underlying operating profit mainly due to non-underlying
restructuring and impairment charges of GBP8.9m in 2019 relating to
the Group's Scandinavian roads business.
UK Roads
In March 2020, the UK Government confirmed its commitment to
investment in UK road infrastructure with the announcement of
GBP27.4bn spend for Road Investment Strategy ("RIS2") for the five
years to 2025, an 80% increase compared with RIS1.The Department of
Transport also concluded their review of the safety concerns on
Britain's Smart Motorways in March 2020 and are committed to
continue construction, with enhancements, as part of the RIS2
programme. In February 2021, the parliamentary Transport Committee
launched a new inquiry into the benefits and safety of Smart
Motorways and we await the outcome of this. Our current expectation
is that new RIS2 Smart Motorways schemes will commence in H2
2021.
During the year, our temporary road safety barrier business was
able to operate with minimal disruption. As expected, steel
temporary barrier utilisation levels reduced in the second quarter
as RIS1 schemes started to come to an end and continued at a steady
level for the second half. We have seen growing demand for Rebloc
concrete barrier, which complements our Zoneguard steel barrier
offering and can be used on projects where space is restricted, and
during the period we invested GBP2m in expansion of the concrete
barrier fleet. We continue to expect the lower levels of steel
barrier utilisation to continue into the first half of 2021, with
new RIS2 Smart Motorways projects expected to start in H2 2021.
Our permanent safety barrier business also proved to be
resilient. During the year we won a number of RIS2 replacement
barrier schemes including some which were released early to take
advantage of the quieter roads. The outlook for 2021 is promising,
as we expect more new UK replacement barrier schemes to be released
and continued demand from our international markets.
The variable message sign business experienced various headwinds
during the year including the delay of new RIS2 Smart Motorway
projects into the second half of 2021. Consequently, we are
currently taking a number of actions to restructure the business
and its cost base which, alongside a more cautious assessment of
its future outlook, led to asset impairment charges at 31 December
2020 of GBP2.8m.
Our remaining UK roads portfolio consists of street furniture
and lighting columns, bridge parapets, temporary car parks and
concrete arches. While all these businesses remained open to meet
essential customer demand, trading in the second quarter was
adversely impacted by customer delays and deferrals caused by
COVID-19 related disruption. These businesses saw a gradual
recovery in the second half with customer orders increasing as the
restrictions of the first lockdown eased. The businesses enter 2021
with an encouraging orderbook and are working hard to minimise the
impact of steel cost increases.
US Roads
Our US roads business was considered "essential" and remained
open throughout the year. As a result, the pandemic had minimal
impact on operations and the team were able to successfully service
customers who worked continuously throughout the year. Demand for
roadside safety products, including crash attenuators and temporary
safety barriers, was particularly strong and as a result revenue
and operating margins increased year on year. We continued to
invest in growth opportunities in US roads including GBP3.1m in the
expansion of our Zoneguard steel temporary safety barrier fleet and
GBP0.9m on the acquisition of Morgan Valley Manufacturing, Inc..
Based in Utah, US, the acquisition will enable the inhouse
fabrication of crash attenuators and support the US roads growth
strategy.
In September 2020, we were encouraged by the extension of the
Federal road funding bill (FAST Act) for an additional year. We
expect demand for our products to remain stable due to the stimulus
bill passed in December 2020, which will provide the additional
state funding required to ensure project continuity. In 2021, we
will also continue to invest in barrier fleet expansion, product
innovation and operational improvements to support future growth
opportunities.
Other International Roads
The restructuring of our roads business in Sweden progressed
well in the first half, with the new management team focusing on
cost reductions and improved pricing. The business faced challenges
in the second half as COVID-19 uncertainty increased in Sweden and
projects were postponed. While revenues were lower year on year,
operating losses were significantly reduced and the team will
continue to take action to right size and further improve the
business in 2021.
Our lighting column business in France performed well despite
the COVID-19 related closure of the factory from the end of March
to early May. While volumes were lower than prior year, the
business benefited from operational efficiencies and improvements
to the product range. In Australia, we saw an increase in sales of
temporary safety barrier compared to the low sales levels in the
previous year. Looking forward, we are encouraged by the ongoing
investment in Australia's road infrastructure and the growth
opportunities this may present.
Security
Our security businesses are based in the UK and provide a range
of perimeter security solutions including hostile vehicle
mitigation to both UK and international markets. During the year,
the business experienced a number of headwinds which had a
significant adverse impact on trading.
Our security fencing and access cover businesses closed when the
first COVID-19 lockdown was announced at the end of March 2020.
Both businesses re-opened in May, and while our security fencing
business has seen a gradual recovery in the second half, driven by
demand for data centre security, our access cover business has
experienced challenges due to customers delaying orders and
restricting site access.
Our business which sells security bollards and hostile vehicle
mitigation solutions remained operational throughout the year, but
was significantly impacted by project delays, postponements and
cancellations both in the UK and the Middle East, where the lower
oil price created further uncertainty. COVID-19 has also materially
impacted demand for the operation of the UK Security barrier fleet,
with the cancellation of public gatherings and high profile events,
however we were able to re-deploy our multiskilled team to support
other barrier activity.
Looking forward into 2021, we are continuing to see good demand
for perimeter security solutions in data centres and opportunities
arising from the pedestrianisation of shopping areas in UK city
centres. In the medium term we believe that the demand for our
products to protect people, buildings and infrastructure will
return.
Utilities
GBPm
----------------------- ---- --------
2019 +/- Organic
2020 (restated)(2) % %
---------------------- ------ --------------- ---- --------
Revenue 211.2 222.3 -5 -2
---------------------- ------ --------------- ---- --------
Underlying operating
profit (1) 20.9 21.3 -2 -4
---------------------- ------ --------------- ---- --------
Underlying operating
margin % (1) 9.9% 9.6%
---------------------- ------ ---------------
Reported operating
profit 20.1 20.0
---------------------- ------ ---------------
(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) 2019 restated as explained in note 2 to the Financial
Statements.
Our Utilities segment provides steel and composite products for
a wide range of infrastructure markets including energy generation
and distribution, marine, rail and housing. The division had a
strong start to the year with revenue and profit both growing
organically in the first quarter, however trading in the second
quarter was impacted by COVID-19 related business closures in the
UK and India. We have seen a good recovery in the second half,
particularly in our UK building products business. The US
businesses remained operational and performed well throughout the
year, with strong levels of demand in our composites and
electricity distribution businesses.
Revenue declined by 5% to GBP211.2m (2019 (restated):
GBP222.3m), including a currency translation headwind of GBP0.4m
and a GBP5.4m reduction from prior year disposals. The organic
revenue decline was 2%. Underlying operating profit was GBP20.9m
(2019 (restated): GBP21.3m), including a GBP0.4m benefit from prior
year disposals. Underlying operating margin was ahead of prior year
levels at 9.9% (2019 (restated): 9.6%), reflecting the strong
performance in our higher margin US businesses. Reported operating
profit was GBP20.1m (2019 (restated): GBP20.0m).
UK
The performance of our two UK utilities businesses was impacted
by COVID-19 related disruption in the second quarter, however both
businesses recovered well in the second half of the year.
Our building products business, supplying composite residential
doors, steel lintels and builders' metalwork, closed at the end of
March but reopened in a phased manner during April as customers
reopened and was at full capacity from June onwards. In the second
half, the business benefited from a strong recovery in demand and
lower raw material costs. The outlook for 2021 is encouraging with
housebuilders reporting strong demand and although the business is
currently experiencing challenges relating to global increases in
steel costs, we are managing availability issues and are well
placed to pass on increases to customers.
The industrial flooring business remained open throughout the
period to support essential projects, albeit at reduced activity
levels in the second quarter given the restricted access to
customer sites. The business made a good recovery in the second
half, with previous restructuring actions supporting margins and
good levels of demand, particularly from data centre and
distribution centre markets.
USA
Our US utilities businesses were deemed "essential" and remained
open throughout 2020, quickly adapting to run COVID secure
operations. Despite the pandemic, they have continued their
momentum from 2019 and delivered strong organic year on year
revenue and profit growth.
We are continuing to see a growing acceptance of composite
components and systems for use in niche infrastructure
applications, and our team worked hard during the year to develop
and market innovative designs that meet customer needs. In 2020,
demand was strong for our wide range of composite solutions
including waterfront protection, transmission access platforms,
rail car flooring, and heating, ventilation and air conditioning
(HVAC) cooling applications. With some significant projects coming
to an end in 2020, we expect 2021 performance to be flatter, albeit
with further opportunities in mass transit, utility poles and
waterfront protection projects being pursued.
The US electricity distribution substation business delivered
another impressive performance, growing strongly against
challenging prior year comparatives. During 2020 we continued to
see growth in projects for the upgrade of old infrastructure,
particularly centred around the north eastern corridor of the USA.
Despite some headwinds associated with steel price increases, the
outlook for 2021 is encouraging given continued upgrades and new
installations and we have taken steps to expand our fabrication
facility to support future growth.
Pipe Supports
In the US, the engineered pipe support and industrial hanger
business was considered "essential" and remained open throughout
the pandemic. While the business experienced a slowdown in demand
in the second quarter, recovery in the second half was strong,
supported by winning several major projects in water treatment,
clean energy and infrastructure. The focus on efficiencies and
providing superior quality and customer service resulted in
improved margins and year on year profit growth. During the year we
invested GBP1.6m in the expansion of our seismic restraint device
manufacturing capability and the business enters 2021 with a good
backlog and continues to focus on further growth opportunities.
In India, our industrial pipe business entered the year with a
strong order book, particularly for the cryogenic product range,
however a forced shutdown of operations in March 2020 materially
impacted the first half trading. Operations reopened in May and the
team worked hard to manufacture and deliver products to customers
while operating a COVID secure facility and managing local
restrictions. We enter 2021 with a good order book and are seeing a
growing demand to supply products and engineering services to
support key liquified natural gas developments across the globe.
This demonstrates the growing confidence of customers in our
expertise in this area and the role the Group has to play in
supporting the transition towards cleaner energy.
Galvanizing Services
GBPm
-------------- ---- --------
+/- Organic
2020 2019 % %
---------------------- ------ ------ ---- --------
Revenue 185.9 197.1 -6 -6
---------------------- ------ ------ ---- --------
Underlying operating
profit (1) 35.8 41.8 -14 -14
---------------------- ------ ------ ---- --------
Underlying operating
margin % (1) 19.3% 21.2%
---------------------- ------ ------
Reported operating
profit 17.1 40.6
---------------------- ------ ------
(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.
The Galvanizing Services division offers corrosion protection
services to the steel fabrication industry with multi-plant
facilities in the USA, France and the UK. Trading in the second
quarter was impacted by COVID-19, with the complete closure of our
French operations for a month and a slowdown in volumes across all
geographies due to customer closures. Trading gradually recovered
in the second half as customer activity returned. As a result,
volumes were 8% lower than prior year and revenue reduced by 6% to
GBP185.9m (2019: GBP197.1m) which included a currency translation
benefit of GBP0.5m. Organic revenue decline was 6%. Underlying
operating profit declined by 14% to GBP35.8m (2019: GBP41.8m).
Underlying operating margin was 19.3% (2019: 21.2%), with operating
margins supported by pricing, efficiency improvements and lower
zinc input costs. Reported operating profit was GBP17.1m (2019:
GBP40.6m) and included goodwill impairment charges of GBP17.5m
(2019: GBPnil) relating to the Group's French galvanizing
operations.
UK
Our galvanizing businesses are located on 10 sites, four of
which are strategically adjacent to our infrastructure products
manufacturing facilities.
Trading in March 2020 was impacted by COVID-19. Measures were
swiftly deployed to keep employees COVID safe while continuing to
offer a full service to customers to support critical projects.
Demand recovered in the second half, with strong demand in the
fourth quarter. Total volumes galvanized for the year were 7% lower
than 2019 levels.
While we enter 2021 with continued uncertainty around the
pandemic, the UK business benefits from a wide sectoral spread of
customers including those who operate in resilient markets such as
infrastructure, construction and agriculture. In addition, the team
are continuing their strategy of focusing on higher margin work
which should position the business well for the year ahead.
USA
Predominantly located in the north east of the country, we are a
market leader with eight strategically located plants offering
local services and extensive support to fabricators and product
manufacturers involved in highways, construction, utilities and
transportation.
All our plants were considered "essential" and continued to
operate, with teams following local state guidelines to ensure
facilities were COVID secure. Trading was impacted by temporary
customer shutdowns and our top two customers, who manufacture
temporary bridges and trailers, were impacted by the COVID-19
slowdown and project delays. As a result, volumes were 7% lower
than prior year. The team worked hard to maintain average selling
prices, which together with further improvements in plant
efficiency and lower zinc input costs, supported operating
margins.
Our new facility in New York State became operational in January
2020. We were successful in winning new customers to create a good
baseload of activity and the plant was profitable for the full
year.
Looking forward, in the short term we remain generally cautious
due to the market uncertainty around raw material prices in the US.
In the medium to longer term, the outlook for US galvanizing is
positive with US infrastructure spend levels likely to remain
robust across a wide range of our customer market sectors. As a
result, we are actively assessing industrial locations, often in
need of regeneration, for further expansion.
France
France Galva has 10 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.
Trading was impacted from the middle of March due to the
COVID-19 related forced closure of all 10 plants across the
country. The plants were able to re-open in April and while volumes
have recovered gradually, overall volumes were 11% below last year.
Operating profits were also impacted by the plant closures and
slowdown in demand. Although the French economy is expected to
recover somewhat in 2021, the outlook for many of the markets
served by our galvanizing business remains challenging and it is
likely to take some time for activity to return to pre-pandemic
levels. As a consequence of this deterioration in the outlook, the
Group reassessed the value of the acquisition goodwill relating to
the French galvanizing business and concluded that an impairment
charge of GBP17.5m was required, further details of which are set
out in note 4 to the Financial Statements.
Financial review
Cash generation and financing
Despite the impact on trading of COVID-19, the Group continued
to be highly cash generative throughout the year, demonstrating the
resilience of its underlying business model and market choices and
also reflecting the measures taken to conserve operational cash
flows without impacting the Group's longer term growth
prospects.
Cash generated by operations was GBP118.3m (2019: GBP98.9m),
including an inflow from working capital movements (before changes
in provisions) of GBP18.2m (2019: outflow of GBP12.9m). The Group
delivered a substantial improvement in trade receivable collections
during the year, with debtor days falling to 54 at the year end
(2019: 61) resulting in a cash inflow from receivables of GBP21.6m
(2019: outflow of GBP0.4m). Alongside enhancements to our cash
collection processes, the improvement is partly a consequence of
fluctuations in customer mix. Whilst we have not seen any
significant changes in collection profiles in the early part of
2021, we remain mindful of the possible impacts that unwinding
COVID support measures could have as the year progresses. The
decrease in inventories was minimal at GBP1.0m (2019: increase of
GBP2.4m), while the outflow from movements in payables was GBP4.4m
(2019: GBP10.1m). Working capital cash flows for the year have not
benefitted directly from any UK Government COVID support measures,
the Group having settled VAT payables of GBP6.5m in December 2020
that had been deferred from Q2.
Capital expenditure in the year was GBP20.4m (2019: GBP47.9m),
representing a multiple of depreciation and amortisation (excluding
amortisation from acquisition intangibles and right of use asset
depreciation) of 0.9 times (2019: 2.3 times) as detailed in note 3
to the Financial Statements. While a period of lower capital
investment was anticipated in 2020 following significant strategic
spend in 2019, a rigorous review of capital expenditure was carried
out through the year to limit non-essential spend during the
COVID-19 pandemic while still maintaining investment in key organic
growth opportunities. Significant items of expenditure in 2020
included GBP3.2m in completion of the New York galvanizing plant,
GBP3.1m of new products for the UK temporary safety barrier rental
markets and GBP1.6m on expansion of the Group's pipe support
manufacturing facilities in the US.
Net financing costs were similar to the prior year at GBP7.3m
(2019: GBP7.4m), however the cash element of financing costs was
lower at GBP6.2m (2019: GBP6.9m). The Group has benefitted from
reduced levels of average net debt during the year, particularly in
the second half, with lower UK and US base rates largely offsetting
the higher borrowing cost on the Group's senior unsecured notes
issued in June 2019. The net cost of pension fund financing under
IAS 19 was GBP0.3m (2019: GBP0.5m) and the amortisation of costs
relating to refinancing activities was GBP0.8m (2019: GBPnil,
reflecting amortisation of GBP0.9m offset by a gain of GBP0.9m
following refinancing actions undertaken during that period).
The Group measures its overall cash generation performance based
on its underlying cash conversion ratio. In 2020 the Group
delivered an underlying cash conversion ratio of 139% (2019: 54%),
well in excess of our 90% target, with the significant improvement
over 2019 reflecting the strong working capital performance and our
focussed approach to capital investment. The calculation of our
underlying cash conversation ratio is set out in note 3 to the
Financial Statements.
Net debt and facilities
Group net debt at 31 December 2020 was GBP146.2m (2019:
GBP215.3m), representing a year on year reduction of GBP69.1m.
Since the onset of the pandemic the Group has taken several
measures to conserve operational cash flows, including curtailing
non-essential capital expenditure, tightly managing working capital
and reducing discretionary spend. The Group also withdrew the 2019
final dividend, which would have required a cash outlay of c.GBP18m
in July 2020. Net debt at the year end includes lease liabilities
under IFRS 16 of GBP32.4m (2019: GBP40.0m), the reduction being
primarily due to lease payments during the year.
The Group's principal financing facilities are a headline
GBP280m multi-currency revolving credit agreement, which expires in
December 2023, and $70m senior unsecured notes with maturities in
June 2026 and June 2029, together with a further GBP13.8m of
on-demand local overdraft arrangements. Throughout the year the
Group has operated well within these facilities.
Maturity profile of debt facilities
2020 2019
---------- ---------- ---------- ----------
On demand GBP13.8m On demand GBP13.7m
2021-2022 GBP0.8m 2020-2022 GBP1.2m
2023 GBP276.1m 2023 GBP276.7m
2026 GBP25.7m 2026 GBP26.5m
2029 GBP25.7m 2029 GBP26.5m
The amount drawn down under these facilities at 31 December 2020
was GBP139.0m, which together with cash of GBP22.0m, gave total
headroom of GBP225.1m.
The principal borrowing facilities are subject to covenants that
are measured biannually in June and December, being net debt to
underlying 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 underlying EBITDA at 31 December 2020 was 1.3
times (31 December 2019: 1.6 times) and interest cover was 17.0
times (31 December 2019: 15.7 times), providing the Group with
substantial headroom to enable it to invest in future organic and
acquisitive growth opportunities. Appropriate monitoring procedures
are in place to ensure continuing compliance with banking covenants
and, based on our current estimates, we expect to comply with the
covenants for the foreseeable future.
Treasury
All treasury activities are co-ordinated through a central
treasury function, the purpose of which is to manage the financial
risks of the Group and to secure short and long term funding at
minimum cost. The treasury function operates within a framework of
clearly defined Board approved policies and procedures, including
permissible funding and hedging instruments, exposure limits and a
system of authorities for the approval and execution of
transactions. It operates on a cost centre basis and is not
permitted to make use of financial instruments or other
derivatives, other than to hedge identified exposures of the Group.
Speculative use of such instruments or derivatives is not
permitted. Liquidity, interest rate, currency and other financial
risk exposures are monitored weekly.
Exchange rates
The Group is exposed to movements in exchange rates when
translating the results of its overseas operations into Sterling,
however the effects in 2020 were minimal as average rates were
similar to 2019, notably the US Dollar. Retranslating 2019 revenue
using 2020 average exchange rates would have increased revenue by
only GBP0.7m with no impact on underlying operating profit.
Whilst future movements are inherently difficult to predict,
based on current US Dollar rates we expect a headwind to the
results in 2021. Retranslating 2020 revenue and underlying
operating profit using average exchange rates for January 2021
(principally GBP1 = $1.36 and GBP1 = EUR1.12) would reduce revenue
by GBP14.4m (2%) and underlying operating profit by GBP3.2m (5%).
For the US Dollar, a 1 cent movement results in a GBP2.1m
adjustment to revenue and a GBP0.4m adjustment to underlying
operating profit, while the equivalent impacts for a 1 cent
movement in the Euro are GBP0.7m and GBP0.1m respectively.
Return on invested capital ('ROIC')
The Group's ROIC in 2020 was 12.6% (2019: 15.9%), below our
target of greater than 17% due to the impact on trading of
COVID-19. We expect ROIC to improve in 2021 as trading activity
continues to return to more normalised levels, supported by the
Group's strategy of investing in its higher return markets.
Non-underlying items
The total non-underlying items charged to operating profit in
the Consolidated Income Statement amounted to GBP27.1m (2019:
GBP17.1m) and were made up of the following:
-- An impairment charge of GBP17.5m in respect of goodwill
relating to France Galva SA, which the Group acquired in 2007.
Whilst the business continues to be a significant contributor to
the Group's results, in recent years its profitability has
gradually declined from that anticipated at acquisition and the
impact of the COVID-19 pandemic on the global and French economic
outlook has resulted in us further reducing our expectations for
its future outturn. Consequently, the impairment review performed
at 31 December 2020 concluded that France Galva SA's expected
future cash flows were not sufficient to support its carrying value
at that date, resulting in an impairment of the acquisition
goodwill.
-- An impairment charge of GBP2.8m in respect of assets in the
variable message signs business. Following a period of weak trading
and a more cautious assessment of the future outlook for that
business, the Group is currently taking several actions to
restructure the operations and the cost base, leading to a
reassessment of asset carrying values at 31 December 2020. This
reassessment resulted in impairment charges of GBP2.8m relating to
goodwill and intangible assets of GBP1.1m, tangible fixed assets of
GBP0.5m, inventories of GBP0.8m and right-of-use lease assets of
GBP0.4m.
-- Amortisation of acquired intangible fixed assets of GBP6.1m (2019: GBP6.2m).
-- Acquisition related expenses of GBP0.3m (2019: GBP1.8m)
including GBP0.2m (2019: net credit of GBP0.2m) relating to future
consideration payments to previous owners of acquired businesses,
the terms of which require those costs to be treated as a post
acquisition employment expense in accordance with IFRS 3
(Revised).
-- Past service pension costs of GBP0.4m. In November 2020 the
High Court handed down a further judgement relating to equalisation
of Guaranteed Minimum Pensions (GMPs) between male and female
members, following the initial judgement in October 2018. The
latest judgement requires businesses with defined benefit pension
schemes to equalise historical GMPs for members that have
transferred out of schemes. The Group has taken professional advice
as to the impact of this judgement and concluded that a cost of
GBP0.4m could be incurred.
The net cash impact of the above items was an outflow of GBP0.1m
in the year, a future cash outflow of GBP0.6m and a non-cash
element of GBP26.4m.
During the period the Group amended its accounting policy in
respect of non-underlying items, to exclude net financing costs on
defined benefit pension obligations and costs incurred as part of
significant refinancing activities. These items were presented as
non-underlying items in the prior year. The changes did not have a
material impact on the underlying result for either the current or
prior year and the comparatives have therefore not been restated.
Further details are set out in note 4 to the Financial
Statements.
Tax
The Group's reported tax charge for the year was GBP11.5m (2019:
GBP13.4m), including an underlying charge of GBP12.4m (2019:
GBP15.5m). The underlying effective tax rate for the Group was
19.8% (2019: 19.5%), which is lower than the weighted average mix
of tax rates in the jurisdictions in which the Group operates as a
result of the benefit of tax efficient financing arrangements and
the successful conclusion of tax uncertainties related to prior
years. Assuming no changes to headline corporate tax rates in the
UK or US, we expect the Group's underlying effective rate to
increase by 1-2 percentage points in 2021.
Cash tax paid was GBP16.5m (2019: GBP14.4m), higher than the
Group's current tax charge for the year of GBP10.3m (2019:
GBP15.1m) due to the change in the quarterly payment regime in the
UK meaning that tax payments are substantially made in the year to
which the tax relates. Previously such payments were spread over
the current and following financial years. The Group remains
committed to the timely and correct payment of taxes to authorities
in all jurisdictions in which we operate.
The Group's net deferred tax liability is GBP7.6m (2019:
GBP7.7m), which includes GBP8.4m (2019: GBP7.9m) of liabilities in
respect of brand names, customer relationships and other
contractual arrangements arising on acquisitions. These liabilities
do not represent future cash tax payments and will unwind as the
brand names, customer relationships and contractual arrangements
are amortised.
Earnings per share
The Board believes that underlying earnings per share ('UEPS')
gives the best reflection of performance in the year as it adjusts
for the impact of non-underlying items (as described in note 4).
UEPS for the period under review reduced to 63.2p (2019: 80.7p),
reflecting the impact of COVID-19 on trading, particularly in the
second quarter. The diluted UEPS was 62.9p (2019: 80.3p). Basic
earnings per share was 30.2p (2019: 61.1p). The weighted average
number of shares in issue was 79.5m (2019: 79.2m) with the diluted
number of shares at 79.9m (2019: 79.6m) adjusted for the
outstanding number of dilutive share options.
Pensions
The Group operates several defined contribution and defined
benefit pension plans both in the UK and overseas. The IAS19
deficit of the defined benefit plans as at 31 December 2020 was
GBP19.6m, a reduction of GBP0.3m compared to 31 December 2019
(GBP19.9m).
The Group's UK defined benefit pension scheme remains the
largest employee benefit obligation within the Group. In common
with many other UK companies, this scheme is mature having
significantly more pensioners and deferred pensioners than
participating members and is closed to new members. The IAS19
deficit of the scheme as at 31 December 2020 was GBP14.0m (2019:
GBP14.8m), the reduction being driven by investment outperformance
and deficit recovery payments during the year, which more than
offset the effect of an 80 basis point reduction in the discount
rate, in line with movements in bond yields. The Group remains
actively engaged in dialogue with the Scheme's Trustees regarding
management, funding and investment strategy, and a formal actuarial
valuation of the Scheme as at April 2019 was finalised early in
2020, resulting in the Group agreeing a deficit recovery plan that
requires an increase in cash contributions to GBP3.7m per annum
(previously GBP2.5m per annum) until September 2027. The next
triennial valuation will be as at April 2022.
Paul Simmons Hannah Nichols
Group Chief Executive Group Chief Financial Officer
10 March 2021
Consolidated Income Statement
2020 2019
======================= ======================================= ============================================
Underlying Non- underlying* Total Underlying Non- underlying* Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ============ ================ ======= ============ ===================== =======
Revenue 2 660.5 - 660.5 694.7 - 694.7
Cost of sales (415.9) - (415.9) (438.2) - (438.2)
======================= ====== ============ ================ ======= ============ ===================== =======
Gross profit 244.6 - 244.6 256.5 - 256.5
Distribution costs (34.1) - (34.1) (36.8) - (36.8)
Administrative expenses (142.2) (27.1) (169.3) (135.3) (17.1) (152.4)
Other operating income 1.6 - 1.6 1.9 - 1.9
Operating profit 2, 3 69.9 (27.1) 42.8 86.3 (17.1) 69.2
Financial income 5 0.6 - 0.6 0.5 0.9 1.4
Financial expense 5 (7.9) - (7.9) (7.4) (1.4) (8.8)
======================= ====== ============ ================ ======= ============ ===================== =======
Profit before taxation 62.6 (27.1) 35.5 79.4 (17.6) 61.8
Taxation 6 (12.4) 0.9 (11.5) (15.5) 2.1 (13.4)
======================= ====== ============ ================ ======= ============ ===================== =======
Profit for the year
attributable
to owners of the parent 50.2 (26.2) 24.0 63.9 (15.5) 48.4
=============================== ============ ================ ======= ============ ===================== =======
Basic earnings per
share 7
Diluted earnings per 30.2p 61.1p
share 7 30.0p 60.8p
======================= ====== ============ ================ ======= ============ ===================== =======
* 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
2020 2019
Notes GBPm GBPm
====================================================== ===== ======
Profit for the year 24.0 48.4
====================================================== ===== ======
Items that may be reclassified subsequently to
profit or loss
Exchange differences on translation of overseas
operations (2.5) (13.1)
Exchange differences on foreign currency borrowings
designated as net investment hedges - 2.9
Items that will not be reclassified subsequently
to profit or loss
Actuarial (loss) / gain on defined benefit pension
schemes (2.3) 1.0
Taxation on items that will not be reclassified
to profit or loss 6 0.8 (0.2)
===================================================== ===== ======
Other comprehensive expense for the year (4.0) (9.4)
====================================================== ===== ======
Total comprehensive income for the year attributable
to owners of the parent 20.0 39.0
====================================================== ===== ======
Consolidated Statement of Financial Position
2020 2019
Notes GBPm GBPm
===================================== ======= =======
Non-current assets
Intangible assets 188.5 212.8
Property, plant and equipment 183.6 190.0
Right-of-use assets 30.9 37.9
Deferred tax assets 1.4 1.0
================================ === ======= =======
404.4 441.7
===================================== ======= =======
Current assets
Inventories 96.3 100.7
Trade and other receivables 122.7 144.1
Current tax assets 1.3 -
Cash and short term deposits 10 22.0 26.0
================================ === ======= =======
242.3 270.8
===================================== ======= =======
Total assets 2 646.7 712.5
================================ === ======= =======
Current liabilities
Trade and other liabilities (116.7) (120.3)
Current tax liabilities (5.5) (10.7)
Provisions (3.3) (0.8)
Lease liabilities (8.6) (10.6)
Loans and borrowings 10 (8.6) (0.4)
================================ === ======= =======
(142.7) (142.8)
===================================== ======= =======
Net current assets 99.6 128.0
===================================== ======= =======
Non-current liabilities
Other liabilities (1.4) (1.3)
Provisions (2.5) (2.5)
Deferred tax liabilities (9.0) (8.7)
Retirement benefit obligations (19.6) (19.9)
Lease liabilities (23.8) (29.4)
Loans and borrowings 10 (127.2) (200.9)
================================ === ======= =======
(183.5) (262.7)
===================================== ======= =======
Total liabilities (326.2) (405.5)
===================================== ======= =======
Net assets 320.5 307.0
================================ === ======= =======
Equity
Share capital 19.9 19.9
Share premium 38.4 37.4
Other reserves 4.9 4.9
Translation reserve 17.2 19.7
Retained earnings 240.1 225.1
================================ === ======= =======
Total equity 320.5 307.0
===================================== ======= =======
Consolidated Statement of Changes in Equity
Share Share Other Translation Retained Total
capital premium reserves reserves earnings equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ====== ======== ======== ========= =========== ========= =======
At 1 January 2019 19.8 35.5 4.9 29.9 203.1 293.2
Adoption of IFRS 16 - - - - (2.7) (2.7)
======== ======== ========= =========== ========= =======
At 1 January 2019 (restated) 19.8 35.5 4.9 29.9 200.4 290.5
Comprehensive income
Profit for the year - - - - 48.4 48.4
Other comprehensive income for the
year - - - (10.2) 0.8 (9.4)
Transactions with owners recognised
directly in equity
Dividends 8 - - - - (25.1) (25.1)
Credit to equity of share-based
payments - - - - 0.9 0.9
Satisfaction of long term incentive
awards - - - - (1.4) (1.4)
Own shares held by employee benefit
trust - - - - 0.7 0.7
Tax taken directly to the Consolidated
Statement of Changes in Equity 6 - - - - 0.4 0.4
Shares issued 0.1 1.9 - - - 2.0
At 31 December 2019 19.9 37.4 4.9 19.7 225.1 307.0
Comprehensive income
Profit for the year - - - - 24.0 24.0
Other comprehensive income for the
year - - - (2.5) (1.5) (4.0)
Transactions with owners recognised
directly in equity
Dividends 8 - - - - (8.4) (8.4)
Credit to equity of share-based
payments - - - - 0.8 0.8
Tax taken directly to the Consolidated
Statement of Changes in Equity 6 - - - - 0.1 0.1
Shares issued 1.0 - - - 1.0
======================================== ====== ======== ======== ========= =========== ========= =========
At 31 December 2020 19.9 38.4 4.9 17.2 240.1 320.5
======================================== ====== ======== ======== ========= =========== ========= =========
Other reserves represent the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m (2019:
GBP0.2m) capital redemption reserve.
At 31 December 2019 a total of 23,759 shares were held in an
employee benefit trust for the purpose of settling awards granted
to employees under equity-settled share based payment plans. The
cost of these shares, amounting to GBP0.3m, was included within
retained earnings at that date. During 2020, 3,831 shares have been
issued in settlement of awards to employees, leaving 19,928 shares
held at 31 December 2020, at a cost of GBP0.3m included within
retained earnings .
Consolidated Statement of Cashflows
2020 2019
=========================================== ========================== =====================
Notes GBPm GBPm GBPm GBPm
============================================ ================== ====== =========== ========
Profit before tax 35.5 61.8
Add back net financing costs 7.3 7.4
=========================================== ========================== =====================
Operating profit 2 42.8 69.2
Adjusted for non-cash items:
Share-based payments 0.8 1.2
Loss on disposal of subsidiary - 0.7
Gain on disposal of non-current
assets (1.9) (0.1)
Gain on disposal of assets held
for sale - (0.5)
Depreciation of owned assets 21.9 19.9
Amortisation of intangible assets 7.5 7.4
Right-of-use asset depreciation 10.4 10.2
Gain on lease termination (0.1) -
Impairment of non-current assets 19.5 7.0
=========================================== ================== ===========
58.1 45.8
============================================ ================== ====== =========== ========
Operating cash flow before movement
in working capital 100.9 115.0
Decrease / (increase) in inventories
Decrease / (increase) in receivables 1.0 (2.4)
Decrease in payables 21.6 (0.4)
Decrease in provisions and employee
benefits (4.4) (10.1)
(0.8) (3.2)
============================================ ================== ===========
Net movement in working capital 17.4 (16.1)
============================================ ================== ====== =========== ========
Cash generated by operations 118.3 98.9
Purchase of assets for rental to customers (3.1) (16.3)
Income taxes paid (16.5) (14.4)
Interest paid (6.0) (6.4)
Interest paid on lease liabilities (0.8) (0.9)
============================================ ========================== =====================
Net cash from operating activities 91.9 60.9
Interest received 0.6 0.5
Proceeds on disposal of non-current
assets 6.5 1.0
Proceeds on disposal of assets
held for sale - 1.3
Purchase of property, plant and
equipment (15.5) (29.7)
Purchase of intangible assets (1.8) (1.9)
Acquisitions of businesses 9 (0.9) (43.9)
Deferred consideration in respect
of prior year acquisitions - (0.7)
Disposal of subsidiary - 2.0
=========================================== ================== ===========
Net cash used in investing activities (11.1) (71.4)
Issue of new shares 1.0 2.0
Purchase of shares for employee
benefit trust - (0.7)
Dividends paid 8 (8.4) (25.1)
Costs associated with refinancing - (2.1)
Repayment of lease liabilities (11.1) (10.5)
New loans and borrowings - 119.9
Repayment of loans and borrowings (74.4) (83.2)
=========================================== ================== ===========
Net cash (used in) / from financing
activities (92.9) 0.3
============================================ ================== ====== =========== ========
Net decrease in cash and cash equivalents (12.1) (10.2)
Cash and cash equivalents at the beginning
of the year 26.0 36.9
Effect of exchange rate fluctuations - (0.7)
============================================ ========================== =====================
Cash and cash equivalents at the
end of the year 13.9 26.0
=========================================== ========================== =====================
Notes to the Consolidated Financial Statements
1. Basis of preparation
Hill & Smith Holdings PLC is a company incorporated in the
UK.
Basis of Consolidation
The consolidated financial statements comprise the financial
statements of the Company, Hill & Smith Holdings PLC, and its
subsidiaries as at 31 December 2020. 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.
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's Financial Statements
are presented in Sterling and all values are stated in million
(GBPm) rounded to one decimal place, except where otherwise
indicated.
Impact of COVID-19 on the consolidated financial statements
As outlined in the Operating and Financial Review, the COVID-19
pandemic has materially affected the Group's trading performance in
2020 with the temporary closure of some of its operations and
reduced activity levels from the middle of March 2020. Revenue in
the second quarter was 22% below the same period last year. All our
businesses had reopened by the middle of May and despite the
challenges arising from the COVID-19 pandemic, the Group remained
profitable throughout the year with a strong recovery in the second
half. The Group does not consider it possible to reliably determine
the level of trading impact arising specifically from COVID-19, as
opposed to other market factors, and has therefore not attempted to
make any such disclosure in these consolidated financial
statements.
Given the improved trading performance in the second half and
the solid levels of cash generation, the Board made the decision in
December 2020 to repay all monies received earlier in the year from
the UK Coronavirus Job Retention Scheme (GBP3.6m) and to settle UK
VAT liabilities deferred from the second quarter (GBP6.5m).
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 2020, the Group had GBP328.3m of committed
borrowing facilities, of which only GBP1.2m matures before December
2023 at the earliest, and a further GBP13.8m of on-demand
facilities. The amount drawn down under these facilities at 31
December 2020 was GBP139.0m, which together with cash of GBP22.0m,
gave total headroom of GBP225.1m. The Group has not made any
changes to its principal borrowing facilities between 31 December
2020 and the date of approval of these financial statements, and
there have been no significant changes to liquidity headroom during
that period. 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 2020 was 1.3 times and
interest cover was 17.0 times.
The Group has carefully modelled its cash flow outlook for the
period to 31 March 2022, taking account of the current
uncertainties created by COVID-19 and its impact on 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 2021 and 31
December 2021.
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 30% compared with current expectations
throughout the period from May to December 2021, while a reduction
in headroom against borrowing facilities to nil would occur if the
Group generated no revenue between May 2021 and March 2022. The
Directors do not consider either of these scenarios to be plausible
given the ability of the Group 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), its
ability to return to more normalised activity levels during the
second half of 2020 and early part of 2021, and the positive future
outlook across the infrastructure markets in which it operates. The
Group also 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 2020
In 2020 the following amendments had been endorsed by the EU,
became effective and therefore were adopted by the Group:
-- Amendments to IFRS 3: Definition of a Business
-- Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform
-- Amendments to IAS 1 and IAS 8: Definition of Material
-- Conceptual Framework for Financial Reporting issued on 29 March 2018
The amendments noted above have not had a material impact on the
financial statements.
New IFRS standards and interpretations to be adopted in the
future
The following standards and interpretations, which are not yet
effective and have not been early adopted by the Group, will, where
relevant, be adopted in future accounting periods:
To be adopted for year-ending 31 December 2021:
-- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 -
Interest Rate Benchmark Reform Phase 2
To be adopted for year-ending 31 December 2022:
-- 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
To be adopted for year-ending 31 December 2023:
-- Amendments to IAS 1 - Classification of liabilities as current or non-current
The above changes are not expected to have a material impact on
the Group.
The principal exchange rates used were as follows:
2020 2019
=============================== ==================== ====================
Average Closing Average Closing
=============================== ========= ========= ========= =========
Sterling to Euro (GBP1 = EUR) 1.13 1.11 1.14 1.18
Sterling to US Dollar (GBP1
= USD) 1.28 1.36 1.28 1.32
Sterling to Swedish Krona
(GBP1 = SEK) 11.80 11.15 12.07 12.29
Sterling to Indian Rupee (GBP1
= INR) 95.10 99.73 89.89 94.30
Sterling to Australian Dollar
(GBP1 = AUD) 1.86 1.76 1.84 1.88
=============================== ========= ========= ========= =========
Non-underlying items
During the year, the Group amended its accounting policy in
respect of non-underlying items to exclude net financing costs on
defined benefit pension obligations and costs incurred as part of
significant refinancing activities. Such items were included in
non-underlying in the prior year. The changes did not have a
material impact on the underlying result for either the current or
prior year and the comparatives have not been restated. The Group's
revised 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, comprising
professional fees incurred and any consideration which, under IFRS
3 (Revised) is required to be treated as a post-acquisition
employment expense.
-- 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
Following the acquisitions of ATG Access Limited and Parking
Facilities Limited in 2019, both of which have a broad portfolio of
security and perimeter protection products, in December 2019 the
Board considered the other companies in the Group that also have
security products in their portfolio and determined that their
operations, markets and strategies were closely aligned with those
of the existing businesses in the Group's Roads segment.
Consequently, the Group formed a new Roads & Security division
at the end of 2019. This includes the businesses previously
reported in the Roads segment, the acquisitions noted above and the
businesses of Barkers Engineering Limited and Technocover Limited,
which were previously part of the Utilities segment but whose
product portfolios contain a range of security access and perimeter
protection solutions.
As a result, the Group has reassessed its reportable segments
under IFRS 8 Operating Segments and has determined that these are
now Roads & Security, Utilities, and Galvanizing Services. As
was the case prior to the change, several operating segments that
have similar economic characteristics have been aggregated into
these reporting segments. 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 Utilities 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 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.
The revised segmental structure was effective from 1 January
2020, from which date information was reported to the Chief
Operating Decision Maker, who is the Chief Executive, under the new
segments. As required by IFRS 8, comparative information has been
restated as indicated by "restated" throughout these Consolidated
Financial Statements. The revision does not result in any change to
the consolidated Group results.
Segmental Income Statement
2020 2019 (restated)
======================= ================================= =================================
Reported Underlying Reported Underlying
operating operating operating operating
Revenue profit profit* Revenue profit profit*
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ========= ========== ========== ========= ========== ==========
Roads & Security 263.4 5.6 13.2 275.3 8.6 23.2
Utilities 211.2 20.1 20.9 222.3 20.0 21.3
Galvanizing Services 185.9 17.1 35.8 197.1 40.6 41.8
======================= ========= ========== ========== ========= ========== ==========
Total Group 660.5 42.8 69.9 694.7 69.2 86.3
======================= ========= =========
Net financing costs (7.3) (7.3) (7.4) (6.9)
======================= ========= ========== ========== ========= ========== ==========
Profit before taxation 35.5 62.6 61.8 79.4
Taxation (11.5) (12.4) (13.4) (15.5)
======================= ========= ========== ========== ========= ========== ==========
Profit after taxation 24.0 50.2 48.4 63.9
======================= ========= ========== ========== ========= ========== ==========
* 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 GBP5.2m (2019 (restated): GBP5.6m) of products and
services to Roads & Security and GBP1.7m (2019 (restated):
GBP1.6m) of products and services to Utilities. Utilities sold
GBP2.2m (2019 (restated): GBP2.6m) of products and services to
Roads & Security. Roads & Security sold GBP0.2m (2019
(restated): GBP0.1m) of products and services to Utilities. 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.
Roads & Security Utilities Galvanizing Total
================================== ================== ================== ============= ============
2019 2019
2020 (restated) 2020 (restated) 2020 2019 2020 2019
Primary geographical markets GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ===== =========== ===== =========== ====== ===== ===== =====
UK 140.7 145.6 59.6 77.3 59.2 62.2 259.5 285.1
Rest of Europe 53.9 63.0 6.0 5.6 50.9 54.6 110.8 123.2
North America 58.0 54.2 138.2 131.4 75.8 80.3 272.0 265.9
The Middle East 5.2 8.2 1.4 0.9 - - 6.6 9.1
Rest of Asia 0.8 1.4 5.4 5.4 - - 6.2 6.8
Rest of the world 4.8 2.9 0.6 1.7 - - 5.4 4.6
================================== ===== =========== ===== =========== ====== ===== ===== =====
263.4 275.3 211.2 222.3 185.9 197.1 660.5 694.7
================================== ===== =========== ===== =========== ====== ===== ===== =====
Major product/service lines
Manufacture, supply and
installation of products 240.4 251.4 211.2 222.3 - - 451.6 473.7
Galvanizing services - - - - 185.9 197.1 185.9 197.1
Rental income 23.0 23.9 - - - - 23.0 23.9
================================== ===== =========== ===== =========== ====== ===== ===== =====
263.4 275.3 211.2 222.3 185.9 197.1 660.5 694.7
================================== ===== =========== ===== =========== ====== ===== ===== =====
Timing of revenue recognition
Products and services transferred
at a point in time 201.6 208.0 107.9 124.0 185.9 197.1 495.4 529.1
Products and services transferred
over time 61.8 67.3 103.3 98.3 - - 165.1 165.6
================================== ===== =========== ===== =========== ====== ===== ===== =====
263.4 275.3 211.2 222.3 185.9 197.1 660.5 694.7
================================== ===== =========== ===== =========== ====== ===== ===== =====
The Group has no material unsatisfied or partially satisfied
performance obligations at the balance sheet date that have an
expected duration of more than one year and therefore has taken the
practical expedient under IFRS 15 not to disclose such details.
Total assets by geography
2020 2019
GBPm GBPm
================ ===== =====
UK 288.2 321.5
Rest of Europe 96.0 118.1
North America 245.7 258.0
Asia 12.7 11.5
Rest of World 4.1 3.4
================ ===== =====
Total Group 646.7 712.5
================ ===== =====
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; and
-- Underlying earnings per share. A reconciliation of statutory
earnings per share to underlying earnings per share is provided in
note 7.
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. Other
than for the change in presentation of certain financing items as
detailed in note 1, APMs are presented on a consistent basis over
time to assist in comparison of performance.
Reconciliation of underlying to reported profit before tax
2020 2019
GBPm GBPm
=========================================== ====== ======
Underlying profit before tax 62.6 79.4
============================================ ====== ======
Non-underlying items included in operating
profit (note 4) (27.1) (17.1)
Non-underlying items included in financial
income and expense (note 4) - (0.5)
Reported profit before tax 35.5 61.8
============================================ ====== ======
Reconciliation of underlying to reported operating profit
Roads & Security Utilities Galvanizing Total
================== ================== ============= =============
2019 2019
2020 (restated) 2020 (restated) 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================= ===== =========== ===== =========== ====== ===== ====== =====
Underlying operating profit 13.2 23.2 20.9 21.3 35.8 41.8 69.9 86.3
================================= ===== =========== ===== =========== ====== ===== ====== =====
Non-underlying items:
Amortisation of intangible
fixed assets (4.3) (4.2) (0.7) (0.8) (1.1) (1.2) (6.1) (6.2)
Business reorganisation
costs - (1.9) - - - - - (1.9)
Gain on disposal of assets
held for sale - 0.5 - - - - - 0.5
Impairment of assets (2.8) (7.0) - - (17.5) - (20.3) (7.0)
Acquisition related expenses (0.3) (2.0) - 0.2 - (0.3) (1.8)
Pension past service expense (0.2) - (0.1) - (0.1) - (0.4) -
Loss on disposal of subsidiary - - - (0.7) - - - (0.7)
Reported operating profit 5.6 8.6 20.1 20.0 17.1 40.6 42.8 69.2
================================= ===== =========== ===== =========== ====== ===== ====== =====
Calculation of underlying operating profit margin
Roads & Security Utilities Galvanizing Total
================== ================== ============= ============
2019 2019
2020 (restated) 2020 (restated) 2020 2019 2020 2019
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================== ===== =========== ===== =========== ====== ===== ===== =====
Underlying operating
profit 13.2 23.2 20.9 21.3 35.8 41.8 69.9 86.3
Revenue 263.4 275.3 211.2 222.3 185.9 197.1 660.5 694.7
====================== ===== =========== ===== =========== ====== ===== ===== =====
Underlying operating
profit margin (%) 5.0% 8.4% 9.9% 9.6% 19.3% 21.2% 10.6% 12.4%
====================== ===== =========== ===== =========== ====== ===== ===== =====
Organic measure of change in revenue and underlying operating
profit
Organic 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.
Roads & Security Utilities 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
============================ ======= ========== ======= ========== ======= ========== ======== ===========
2019 (restated) 275.3 23.2 222.3 21.3 197.1 41.8 694.7 86.3
Impact of exchange rate
movements
from 2019 to 2020 0.6 - (0.4) - 0.5 - 0.7 -
============================ ======= ========== ======= ========== ======= ========== ======== ===========
2019 translated at 2020
exchange rates (A) 275.9 23.2 221.9 21.3 197.6 41.8 695.4 86.3
Acquisitions and disposals 16.0 0.5 (5.4) 0.4 - - 10.6 0.9
Organic decline (B) (28.5) (10.5) (5.3) (0.8) (11.7) (6.0) (45.5) (17.3)
============================ ======= ========== ======= ========== ======= ========== ======== ===========
2020 263.4 13.2 211.2 20.9 185.9 35.8 660.5 69.9
Organic decline % (B
divided by A) -10% -45% -2% -4% -6% -14% -7% -20%
============================ ======= ========== ======= ========== ======= ========== ======== ===========
Calculation of underlying cash conversion ratio
2020 2019
GBPm GBPm
================================================== ====== ======
Underlying operating profit 69.9 86.3
=================================================== ====== ======
Calculation of adjusted operating cash
flow:
Cash generated by operations 118.3 98.9
Less: Purchase of assets for rental to
customers (3.1) (16.3)
Less: Purchase of property, plant and
equipment (15.5) (29.7)
Less: Purchase of intangible assets (1.8) (1.9)
Less: Repayments of lease liabilities (11.1) (10.5)
Add: Proceeds on disposal of non-current
assets and assets held for sale 6.5 2.3
Add back: Defined benefit pension scheme
deficit payments 3.6 2.5
Add back: Cash flows relating to non-underlying
items 0.6 1.2
=================================================== ====== ======
Adjusted operating cash flow 97.5 46.5
=================================================== ====== ======
Underlying cash conversion (%) 139% 54%
=================================================== ====== ======
Calculation of capital expenditure to depreciation and
amortisation ratio
2020 2019
GBPm GBPm
============================================== ===== =====
Calculation of capital expenditure:
Purchase of assets for rental to customers 3.1 16.3
Purchase of property, plant and equipment 15.5 29.7
Purchase of intangible assets 1.8 1.9
=============================================== ===== =====
20.4 47.9
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 21.9 19.9
Amortisation of development costs 1.2 1.1
Amortisation of other intangible assets 0.2 0.1
=============================================== ===== =====
23.3 21.1
Capital expenditure to depreciation and
amortisation ratio 0.9x 2.3x
=============================================== ===== =====
4. Non-underlying items
Included in operating profit
2020 2019
GBPm GBPm
============================================= ====== ======
Amortisation of acquisition intangibles (6.1) (6.2)
Business reorganisation costs (a) - (1.9)
Impairment of assets (b) (20.3) (7.0)
Acquisition related expenses (c) (0.3) (1.8)
Profit on disposal of property asset held
for sale - 0.5
Pension past service expense (d) (0.4) -
Loss on disposal of Group's plastic drainage
pipe business, Weholite Limited - (0.7)
============================================== ====== ======
(27.1) (17.1)
============================================= ====== ======
Notes:
a) In 2019, business reorganisation costs of GBP1.9m related to
actions taken in Scandinavia following the disappointing
performance in 2019. In Sweden we closed underperforming depots and
restructured the management team, while in Norway we closed the
business and exited that geography.
b) In 2020, an impairment charge of GBP17.5m in respect of
goodwill relating to France Galva SA, which the Group acquired in
2007. Whilst the business continues to be a significant contributor
to the Group's results, in recent years its profitability has
gradually declined from that anticipated at acquisition and the
impact of the COVID-19 pandemic on the global and French economic
outlook has resulted in us further reducing our expectations for
its future outturn. Consequently, the impairment review performed
at 31 December 2020 concluded that France Galva SA's expected
future cash flows were not sufficient to support its carrying value
at that date, resulting in an impairment of the acquisition
goodwill. In addition, an impairment charge of GBP2.8m in respect
of assets in the variable message signs business. Following a
period of weak trading and a more cautious assessment of the future
outlook for that business, the Group is currently taking several
actions to restructure the operations and the cost base, leading to
a reassessment of asset carrying values at 31 December 2020. This
reassessment resulted in a write down of the asset base to the
expected recoverable amount, comprising of goodwill and intangible
assets of GBP1.1m, tangible fixed assets of GBP0.5m, inventories of
GBP0.8m and right-of-use lease assets of GBP0.4m.
In 2019, an impairment charge of GBP7.0m reflected a full
impairment of the goodwill and intangible assets of GBP6.8m, and
GBP0.2m impairment in the right-of-use lease assets relating to the
Group's acquisitions in Sweden, which comprised the acquisition of
ATA Bygg-Och Markprodukter AB in 2011 and the smaller acquisitions
of FMK Traffikprodukter AB and Signalvakter Syd, in 2016 and 2018
respectively, all of which were integrated into a single business
unit.
c) Acquisition related expenses of GBP0.3m (2019: GBP1.8m),
which include GBP0.2m (2019: credit of GBP0.2m) relating to future
consideration payments to previous owners of the acquired
businesses, the terms of which require those costs to be treated as
a post-acquisition employment expense in accordance with IFRS 3
(Revised).
d) In October 2018, the High Court handed down a judgement
requiring businesses with defined benefit pension schemes to
equalise historical Guaranteed Minimum Pensions (GMPs) between male
and female members. The Group's results in 2018 included a
non-underlying charge of GBP1.0m in respect of the likely cost to
be incurred in equalising GMPs arising in prior years. During 2020,
there has been a further hearing in relation to members who have
transferred out of schemes, which concluded that schemes do need to
revisit historical transfers for GMP equalisation. The Group took
professional advice as to the impact of this judgement and has
recognised a further cost of GBP0.4m during the year.
Included in financial income and expense
There are no non-underlying items included in financial income
or expense in the current year.
In 2019, non-underlying items included in financial income
represented a gain on refinancing of GBP0.9m under IFRS 9, and
included in financial expense represented the net financing cost on
pension obligations of GBP0.5m and a GBP0.9m charge in respect of
amortisation of costs associated with refinancing.
5. Net financing costs
2020 2019
Underlying Non- underlying Total Underlying Non- underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------------------- ------ ------------ ------------------- ------
Interest on bank deposits 0.6 - 0.6 0.5 - 0.5
Financial gain relating to
refinancing - - - - 0.9 0.9
=============================== ============ ==================== ====== ============ =================== ======
Financial income 0.6 - 0.6 0.5 0.9 1.4
=============================== ============ ==================== ====== ============ =================== ======
Interest on loans and
borrowings 6.0 - 6.0 6.5 - 6.5
Interest on lease liabilities 0.8 - 0.8 0.9 - 0.9
Financial expenses related
to refinancing 0.8 - 0.8 - 0.9 0.9
Interest cost on net pension
scheme deficit 0.3 - 0.3 - 0.5 0.5
=============================== ============ ==================== ====== ============ =================== ======
Financial expense 7.9 - 7.9 7.4 1.4 8.8
=============================== ============ ==================== ====== ============ =================== ======
Net financing costs 7.3 - 7.3 6.9 0.5 7.4
=============================== ============ ==================== ====== ============ =================== ======
6. Taxation
2020 2019
GBPm GBPm
=================================================== ======= =======
Current tax
UK corporation tax 2.0 6.3
Overseas tax at prevailing local rates 10.1 10.8
Adjustments in respect of prior years (1.8) (2.0)
=================================================== ======= =======
10.3 15.1
=================================================== ======= =======
Deferred tax
UK deferred tax (0.5) 0.3
Overseas tax at prevailing local rates 1.1 (2.2)
Adjustments in respect of prior year (0.2) 0.2
Effects of changes in tax rates and laws 0.8 -
=================================================== ======= =======
1.2 (1.7)
=================================================== ======= =======
Tax on profit in the Consolidated Income Statement 11.5 13.4
=================================================== ======= =======
Deferred tax
Relating to defined benefit pension schemes (0.8) 0.2
=================================================== ======= =======
Tax on items taken directly to Other Comprehensive
Income (0.8) 0.2
=================================================== ======= =======
Current tax
Relating to share-based payments
Deferred tax (0.1) (0.5)
Relating to share-based payments
- 0.1
=================================================== ======= =======
Tax taken directly to the Consolidated Statement
of Changes in Equity (0.1) (0.4)
=================================================== ======= =======
The tax charge in the Consolidated Income Statement for the
period is higher (2019: higher) than the standard rate of
corporation tax in the UK. The differences are explained below:
2020 2019
GBPm GBPm
======================================================== ===== =====
Profit before taxation 35.5 61.8
======================================================== ===== =====
Profit before taxation multiplied by the effective
rate of corporation tax in the UK of 19.0% (2019:
19.0%) 6.7 11.7
Expenses not deductible/income not chargeable for
tax purposes 0.6 0.8
Non-deductible goodwill impairment 4.9 1.2
Non-taxable loss on disposal of UK subsidiary - 0.1
Benefits from international financing arrangements
- current and prior years (1.2) (0.6)
Local tax incentives (0.1) (0.2)
Overseas profits taxed at higher rates 1.8 2.7
Recognition of losses (0.6) -
Overseas losses not relieved 0.6 0.3
Impacts of rate and law changes 0.8 -
Release of liability for unremitted earnings in France - (0.8)
Adjustments in respect of prior periods (2.0) (1.8)
======================================================== ===== =====
Tax charge 11.5 13.4
======================================================== ===== =====
7. Earnings per share
The weighted average number of ordinary shares in issue during
the year was 79.5m (2019: 79.2m), diluted for the effects of the
outstanding dilutive share options 79.9m (2019: 79.6m). 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.
2020 2019
============================ ==================== ====================
Pence Pence
per share GBPm per share GBPm
============================ ============ ====== ============ ======
Basic earnings 30.2 24.0 61.1 48.4
Non-underlying items * 33.0 26.2 19.6 15.5
============================ ============ ====== ============ ======
Underlying earnings 63.2 50.2 80.7 63.9
============================ ============ ====== ============ ======
Diluted earnings 30.0 24.0 60.8 48.4
Non-underlying items * 32.9 26.2 19.5 15.5
============================ ============ ====== ============ ======
Underlying diluted earnings 62.9 50.2 80.3 63.9
============================ ============ ====== ============ ======
* Non-underlying items as detailed in note 4.
8. Dividends
Dividends paid during the year
2020 2019
============================================== ==================== ====================
Pence Pence
per share GBPm per share GBPm
============================================== ============ ====== ============ ======
Interim dividend paid in relation to
year-ended 31 December 2018 - - 10.0 7.9
Final dividend paid in relation to year-ended
31 December 2018 - - 21.8 17.2
Interim dividend paid in relation to
year-ended 31 December 2019 10.6 8.4 - -
Total 10.6 8.4 31.8 25.1
============================================== ============ ====== ============ ======
Dividends declared in respect of the year
2020 2019
====================================== ==================== ====================
Pence Pence
per share GBPm per share GBPm
====================================== ============ ====== ============ ======
Interim dividend declared in relation
to year-ended 31 December 2019 - - 10.6 8.4
Final dividend proposed in relation - - - -
to year-ended 31 December 2019 *
Interim dividend declared in relation
to year-ended 31 December 2020 9.2 7.3 - -
Final dividend proposed in relation
to year-ended 31 December 2020 17.5 13.9 - -
Total 26.7 21.2 10.6 8.4
====================================== ============ ====== ============ ======
The final dividend for the year was proposed after the year end
date and was not recognised as a liability at 31 December 2020, in
accordance with IAS 10.
* The proposed final dividend for 2019 of 23.0p per share was
withdrawn and will not be paid.
9. Acquisitions in 2020
Morgan Valley
On 28 September 2020 the Group acquired the trade and assets of
Morgan Valley Manufacturing, Inc. and Morgan Valley Metals, LLC
("Morgan Valley"). Based in Utah, US, the acquisition will enable
the inhouse fabrication of crash attenuators and support the US
roads growth strategy. Details of the acquisition are set out
below:
Provisional
policy alignment
and
Pre-acquisition fair value
carrying amount adjustments Total
GBPm GBPm GBPm
============================================ ================ ================= =====
Property, plant and equipment 0.4 0.4 0.8
Inventories 0.2 - 0.2
Current assets 0.2 - 0.2
Total assets 0.8 0.4 1.2
============================================ ================ ================= =====
Current liabilities (0.3) 0.1 (0.2)
Total liabilities (0.3) 0.1 (0.2)
============================================ ================ ================= =====
Net assets 0.5 0.5 1.0
============================================ ================ =================
Consideration
Consideration in the year 1.0
Goodwill -
============================================ ================ ================= =====
Cash flow effect
Consideration 1.0
Deferred consideration (0.1)
============================================ ================ ================= =====
Consideration being net cash consideration
shown in the Consolidated Statement of
Cash Flows 0.9
============================================ ================ ================= =====
Post acquisition the acquired business has contributed GBP0.9m
revenue and GBP0.2m underlying operating profit, which are included
in the Group's Consolidated Income Statement. If the acquisition
had been made on 1 January 2020, the Group's results for the year
would have shown revenue of GBP661.8m and underlying operating
profit of GBP70.0m.
10. Cash and borrowings
2020 2019
GBPm GBPm
========================================================= ======= =======
Cash and cash equivalents in the Consolidated Statement
of Financial Position
Cash and short term deposits 22.0 26.0
Bank overdrafts (8.1) -
========================================================= ======= =======
Cash and cash equivalents 13.9 26.0
Interest bearing loans and other borrowings
Amounts due within one year (0.5) (0.4)
Amounts due after more than one year (127.2) (200.9)
Lease liabilities due within one year (8.6) (10.6)
Lease liabilities due after more than one year (23.8) (29.4)
========================================================= ======= =======
Net debt (146.2) (215.3)
========================================================= ======= =======
Change in net debt
Operating profit 42.8 69.2
Non-cash items 58.1 45.8
========================================================= ======= =======
Operating cash flow before movement in working capital 100.9 115.0
Net movement in working capital 18.2 (12.9)
Changes in provisions and employee benefits (0.8) (3.2)
========================================================= ======= =======
Operating cash flow 118.3 98.9
Tax paid (16.5) (14.4)
Net financing costs paid (5.4) (5.9)
Capital expenditure (20.4) (47.9)
Proceeds on disposal of non-current assets and assets
held for sale 6.5 2.3
========================================================= ======= =======
Free cash flow 82.5 33.0
Dividends paid (note 8) (8.4) (25.1)
Acquisitions (note 9) (0.9) (48.9)
Disposals - 2.4
Amortisation of costs associated with refinancing
activities (note 5) (0.8) -
Purchase of shares for employee benefit trust - (0.7)
Issue of new shares 1.0 2.0
New leases and lease remeasurements (3.2) (11.1)
Interest on lease liabilities (0.8) (0.9)
========================================================= ======= =======
Net debt decrease / (increase) 69.4 (49.3)
Effect of exchange rate fluctuations (0.3) 2.9
========================================================= ======= =======
Net debt at the beginning of the year (215.3) (132.9)
Adoption of IFRS 16 in 2019 - (36.0)
========================================================= ======= =======
Net debt at the beginning of the year (215.3) (168.9)
========================================================= ======= =======
Net debt at the end of the year (146.2) (215.3)
========================================================= ======= =======
11. Subsequent events
After the year end, in March 2021, we acquired Prolectric
Services Ltd ("Prolectric") for an initial cash consideration of
GBP12.5m, on a debt and cash free basis. Prolectric is a UK market
leader in temporary solar lighting and operates in a market with
excellent long term growth potential, driven by the transition from
fossil fuels towards renewable energies.
Notes
1. The financial information previously set out does not
constitute the Company's statutory accounts for the years ended 31
December 2020 or 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the registrar of
companies, and those for 2020 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 2021 and will be displayed on the Company's website at
www.hsholdings.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 virtually on Thursday 25 May 2021.
ii. The proposed final dividend for 2020 will be paid on 9 July
2021 to shareholders on the register on 4 June 2021 (ex-dividend
date 3 June 2021).
iii. The last date for receipt of Dividend Reinvestment Plan elections is 18 June 2021.
iv. Interim results announcement for the period to 30 June 2021 due 11 August 2021.
v. Payment of the 2021 interim dividend due 7 January 2022.
4. This preliminary announcement of results for the year ended
31 December 2020 was approved by the Directors on 9 March 2021.
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
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