12 March 2024
Hill & Smith
PLC
Full Year Results for the
year ended 31 December 2023
Record results with strong
progress and positive M&A momentum
Hill & Smith PLC ("Hill &
Smith" or "the Group"), the international provider of sustainable
infrastructure products and services, announces its preliminary
results for the year ended 31 December 2023.
Financial Results
|
Underlying*
|
Change
|
Statutory
|
|
31 December
2023
|
31 December 2022
(1)
|
Reported %
|
Constant Currency %
|
OCC
^
%
|
31 December
2023
|
31 December 2022
(1)
|
Change
%
|
Continuing Operations
(1)
|
|
|
|
|
|
|
|
|
Revenue
|
£829.8m
|
£732.1m
|
+13%
|
+14%
|
+5%
|
£829.8m
|
£732.1m
|
+13%
|
Operating profit
|
£122.5m
|
£97.1m
|
+26%
|
+26%
|
+12%
|
£103.8m
|
£78.5m
|
+32%
|
Operating margin
|
14.8%
|
13.3%
|
+150bps
|
|
|
12.5%
|
10.7%
|
+180bps
|
Profit before tax
|
£111.9m
|
£87.9m
|
+27%
|
|
|
£93.2m
|
£69.3m
|
+34%
|
Earnings per share
|
105.4p
|
85.4p
|
+23%
|
|
|
86.0p
|
66.7p
|
+29%
|
|
|
|
|
|
|
|
|
|
Total Group (1)
|
|
|
|
|
|
|
|
|
Earnings per share
|
105.4p
|
91.9p
|
+15%
|
|
|
86.0p
|
71.0p
|
+21%
|
Dividend per share
|
43.0p
|
35.0p
|
+23%
|
|
|
43.0p
|
35.0p
|
+23%
|
(1)
Continuing operations exclude France
Galva, which was divested in October 2022 and was accounted for as
a discontinued operation in the prior year comparatives.
Total Group includes both continuing and discontinued
operations.
Highlights:
· Record trading
performance
o Revenue
up 14% and underlying operating profit up 26% on a constant
currency basis
o Underlying operating margin increased by 150bps to 14.8%,
reflecting volume growth and improved portfolio mix
o Strong
momentum across US businesses with standout performance in
composites and electrical utility businesses
o US
representing 76% of 2023 underlying operating profit
o Resilient performance in our UK businesses given market
conditions
· Positive momentum on
M&A
o £48m
invested in growth and margin accretive acquisitions in
2023
o All
recent acquisitions trading in line or ahead of
expectations
o Further
£11.6m investment across two acquisitions, 2024 year to
date
o Strong M&A pipeline
· Strong cash generation and
enhanced ROIC
o Cash
conversion 115% (2022: 51%)
o ROIC
22.0% (2022: 19.2%)
o Covenant leverage at 0.4 times, providing significant
capacity for investment in organic and inorganic growth
· Final dividend proposed of
28.0p, up 27%, making a total dividend of 43.0p
· Well-positioned in
infrastructure markets with attractive structural growth drivers.
Expect to make further progress in 2024 and
beyond
Alan Giddins, Executive Chair,
said:
"This is a record set of results
for the Group, with significant progress against our strategic
goals. We expect this good momentum to continue into 2024. Over the
medium term, we see significant opportunities as a result of the
Group's exposure to infrastructure markets with strong structural
growth drivers, particularly in the US, and through our ability to
use selective M&A to acquire complementary technologies and
access both new customers and end
markets."
For
further information, please contact:
Hill & Smith PLC
Alan Giddins, Executive Chair
Tel: +44 (0)121 704
7434
Hannah Nichols, Chief Financial
Officer
MHP
Reg Hoare/Rachel
Farrington/Catherine
Chapman
Tel: +44 (0)7801 894577
Email: hillandsmith@mhpgroup.com
There will be an in-person
presentation for analysts and institutional investors this morning
at 10am, hosted at Numis, 45
Gresham St, London EC2V 7BF, as well as a webcast and conference
call with a facility for Q&A. To register for the
webcast, please use this
link. For conference call
dial in details, please contact hugo.harris@mhpgroup.com.
A copy of the presentation will be made available at
https://hsgroup.com/investors/reports-and-presentations/.
* All underlying measures
exclude certain non-underlying items, which are as detailed in
note 4 to the Financial Statements and described in the Financial
Review. References to an underlying profit measure throughout
this announcement are made on this basis. Non-underlying
items are presented separately in the Consolidated Income Statement
where, in the Directors' judgement, the quantum, nature or
volatility of such items gives further information to obtain a
proper understanding of the underlying performance of the
business. Underlying measures are deemed alternative
performance measures ("APMs") under the European Securities and
Markets Authority guidelines and a reconciliation to the closest
IFRS equivalent measure is detailed in note 3 to the financial
statements. They are presented on a consistent basis over
time to assist in comparison of performance.
^ Where we refer to organic constant currency (OCC)
movements, these exclude the impact of currency translation effects
and acquisitions, disposals and closures of subsidiary
businesses. In respect of acquisitions, the amounts referred
to represent the amounts for the period in the current year that
the business was not held in the prior year. In respect of
disposals and closures of subsidiary businesses, the amounts
referred to represent the amounts for the period in the prior year
that the business was not held in the current year. Constant
currency amounts are prepared using exchange rates which prevailed
in the current year.
Notes to
Editors
Hill & Smith PLC is a leading provider of sustainable
infrastructure products and services. The Group employs c.4,400
people worldwide with the majority employed by its autonomous,
agile, customer focussed operating businesses based in the UK, USA,
Australia and India. The Group office is in the UK and Hill
& Smith PLC is quoted on the London Stock Exchange (LSE:
HILS.L).
The Group's operating businesses are organised into three
main business divisions:
Galvanizing Services: increasing the sustainability and
maintenance free life of steel products including structural steel
work, lighting, bridges and other products for industrial and
infrastructure markets.
Engineered Solutions: supplying engineered steel and
composite solutions for a wide range of infrastructure markets
including power generation and distribution, marine, rail and
housing. The division also supplies engineered pipe supports
for the water, power and liquid natural gas markets and seismic
protection solutions.
Roads & Security: supplying products and services to
support road and highway infrastructure including temporary and
permanent road safety barriers, intelligent traffic solutions,
street lighting columns and bridge parapets. In addition, the
division includes two businesses which are market leaders in the
provision of off-grid solar lighting and power solutions. The
security portfolio includes hostile vehicle mitigation solutions,
high security fencing and automated gate
solutions.
2023 Review
We are pleased to report that the
Group delivered another record performance in 2023. This
impressive achievement reflects strong momentum in our US
businesses, which are focused on structurally growing
infrastructure markets, and a resilient performance in our UK
businesses, underpinned by the leading positions they hold in their
respective niche markets. The results are also testament to
the talent and commitment of our local teams and the effectiveness
of our agile, decentralised operating model.
Revenue increased by 14% and
underlying operating profit increased by 26% on a constant currency
basis. Group underlying operating margin increased by 150bps to
14.8%, reflecting the benefits of volume growth and evolving
portfolio mix. 2023 also benefitted from the strong
performance of our recent acquisitions, contributing c.£74m of
revenue and c.£13m of underlying operating profit in the year, at a
margin above the Group average.
The Engineered Solutions division
delivered an excellent performance with all businesses trading
well. In particular, the US composite business saw high
demand for its range of composite solutions and our business
supplying structural steel products into the US electrical
transmission and distribution market also performed
strongly.
In Galvanizing Services, our US
business delivered record revenue and operating profit, underpinned
by strong volume growth across a range of infrastructure end
markets. As expected, our UK business experienced more
challenging end markets, with lower volumes and operating profit
compared to 2022, which was a strong comparator period.
While Roads & Security
benefited from buoyant demand at National Signal, our US off-grid
solar lighting solutions business, and a robust performance in our
core UK roads businesses, underlying operating profit and margin
declined compared to 2022. This reflects the impact of
one-off operational improvement costs taken in our US Roads
business, as previously guided, together with non-recurring charges
relating to certain UK businesses, including our loss making car
park solutions business, which we exited at the end of
2023.
The Group continues to be highly
cash generative, with cash conversion in the year of 115%. Year end
net debt was 0.4 times EBITDA on a covenant basis. The strong
balance sheet and consistent cash generation provides the Group
with the opportunity to continue to invest in organic and inorganic
growth opportunities.
Strategic update
Progress against our financial framework
In March 2023, we set out a
recalibrated medium term financial framework with
annual performance targets:
· organic revenue growth: 5% -7%
· total revenue growth including acquisitions: 10%+
· underlying operating profit margin (by end 2024):
15%
· return on invested capital: 18%+
· underlying cash conversion: 80%+
· covenant leverage: 1 to 2 times
In 2023, the Group
delivered significant progress
against all elements of this framework with
strong revenue growth, operating margin expansion and high levels
of cash conversion.
Portfolio Management
Growth through value enhancing
acquisitions is a key element of the Group's strategy. We
have made good progress in delivering on our M&A strategy and
in building a strong pipeline of future
opportunities.
In 2023 we invested c.£48m in
three principal acquisitions, together with making a small bolt-on
acquisition to our US seismic protection solutions business.
Two of these acquisitions
accelerate our strategy in the exciting and fast growing US
composites market. In February 2023, we acquired Enduro Composites,
a designer and manufacturer of engineered composite solutions based
in Houston, Texas for £28.7m. Trading since acquisition has
been ahead of expectations. In November 2023, we acquired
United Fiberglass, a specialist in composite pipe, conduit, and
bridge drain infrastructure systems located in Springfield, Ohio
for £11.8m. The business has started 2024 with a record order
book. Both acquisitions expand our existing customer base and
product range, while also providing additional manufacturing
capability and purchasing synergies.
In March 2023, we acquired Korns
Galvanizing based in Johnstown, Pennsylvania for £9.4m,
strengthening our US galvanizing market presence. The business has
traded ahead of expectations following a well managed integration
process and we are starting to see the benefits of both
cross-selling to our existing customers and purchasing
synergies.
Our M&A momentum continues
into 2024 and we have made two highly complementary acquisitions in
the year to date. In January 2024, we acquired Capital
Steel Service for £5.0m. Located in Trenton, New Jersey, the
business supplies structural steel products and services into the
high growth electrical transmission and distribution market and
will be integrated into our existing electricity substation
business. In March 2024, we acquired FM Stainless, based in
Ellijay, Georgia, for £6.6m. The business manufactures
stainless steel pipe supports and fasteners, serving a range of
growth end markets including water and wastewater treatment and is
highly complementary to our existing engineered supports
business.
The Board takes a disciplined
approach to portfolio management with targeted divestments. In
April 2023 we completed the disposal of the final part of our loss
making Swedish roads business, and in October 2023 we divested the
trade and certain assets of Berry Systems, a small, loss making car
park solutions business. Both disposals will have a positive impact
on our Roads & Security margins in 2024.
Sustainability
The growth of our business is
naturally aligned to our sustainability agenda: our products and
services make infrastructure more sustainable and increase
transport safety.
Our Group sustainability strategy
encompasses seven priority areas including our commitment to reduce
greenhouse gas ('GHG') emissions. Our full scope 3 GHG emissions
have now been successfully baselined and received limited assurance
validation in June 2023. This enabled us to submit near and
long term targets to the Science Based Target initiative (SBTi) in
July 2023 and we are pleased to report that these were approved in
December 2023, with an overarching target to reach net zero GHG emissions across the value chain by
2050. This
sits alongside our commitment to reach net zero for our Scope 1 and
2 emissions by 2040. Our Head of
Sustainability continues to work with our local teams to drive
local energy saving initiatives and explore decarbonisation
technology options to underpin our GHG reduction plan.
We also continue to make progress across our other sustainability
priority areas. In health & safety our focus has been on
accident prevention, and we have enhanced the Group health and
safety organisational structure to bring regional support to our
core geographies. While there is more work to do,
these efforts have resulted in a 61% reduction in
the Lost Time Incident Rate to 0.43 (2022: 1.11).
Talent development and engagement
are critical to the success of our autonomous operating model and
are key focus areas for our sustainability strategy.
Within this, senior level succession has been a
particular focus, including the development of high potential
individuals within our operating companies, and manager and
supervisor training and development.
As an organisation we aim to
employ the best people for the job, and we know that we can only do
this by considering talented people from the whole community.
Our most recent employee survey highlighted that we have made
positive progress with diversity and inclusion. We have also made significant progress with our
apprenticeship programme in the UK, and now have 60 apprentices, a
9% increase compared to 2022.
Board updates
In May 2023, Alan Giddins formally
assumed the role of Executive Chair for an expected period of 12 to
18 months. In January 2024, the Group announced the appointment of Hooman Caman
Javvi, as Chief Operating Officer, reporting to Alan Giddins.
In this role Hooman has taken on a wider responsibility for the
Group's operations, talent development and medium-term strategy.
Annette Kelleher stepped down from
the Board as a Non-executive Director in May 2023 after a tenure of
nine years, and we thank her for her significant contribution
during this time. In January 2024 we were delighted to appoint
Carol Chesney as a Non-executive Director. Carol will take
over from Mark Reckitt as Chair of the Audit Committee following
the AGM in May 2024.
Results from continuing
operations
The Group has delivered a very
strong set of results for 2023. Revenue was £829.8m (2022:
£732.1m), an increase of 13% on a reported basis. OCC revenue
growth was 5%. Constant currency revenue growth was 14%,
reflecting a strong trading performance in National Signal and
Enduro, our two larger recent US acquisitions. Underlying
operating profit was £122.5m (2022: £97.1m), an increase of 26% on
a reported basis. OCC operating profit growth was 12% and
constant currency growth was 26%. Operating margins improved
to 14.8% (2022: 13.3%). Underlying profit before taxation was
£111.9m (2022: £87.9m). Reported operating profit was £103.8m
(2022: £78.5m) and reported profit before tax was £93.2m (2022:
£69.3m). Underlying earnings per share increased to 105.4p (2022:
85.4p) and reported earnings per share was 86.0p (2022:
66.7p).
The principal reconciling items
between underlying and reported operating profit are non-cash
charges including the amortisation of acquisition related
intangibles of £8.4m and losses on disposal of non-core operations
of £4.2m. Note 4 of the financial statements
provides further details on the Group's non-underlying
items.
Dividend
Given the strong trading
performance and confidence in the Group's prospects, the Board is
recommending a final dividend of 28.0p per share, making a total dividend
for the year of 43.0p per share (2022: 35.0p). The final dividend,
if approved, will be paid on 5 July
2024 to shareholders on the register on 31 May
2024.
Outlook
The Group is well-positioned in
infrastructure markets with attractive medium and long term growth
drivers and is weighted towards faster growing US end markets,
which accounted for 76% of Group underlying operating profit in
2023. These factors, alongside the strong trading
performance, the quality of our M&A pipeline and the benefits
of our agile operating model, provide the Board with confidence
that the Group will continue to make good progress in 2024,
including a recovery in Roads & Security, and with a modest
second half weighting, in line with historic trends.
Operational Review
|
Engineered Solutions
|
£m
|
Reported
%
|
Constant
currency
%
|
OCC
%
|
|
|
2023
|
2022
|
|
Revenue
|
367.0
|
289.9
|
+27
|
+27
|
+15
|
|
Underlying operating profit
(1)
|
64.4
|
35.0
|
+84
|
+84
|
+69
|
|
Underlying operating margin
% (1)
|
17.5%
|
12.1%
|
|
|
|
|
Statutory operating
profit
|
59.7
|
34.1
|
|
|
|
(1)
Underlying measures are set out in note 3 to the
Financial Statements and exclude certain non-underlying items,
which are detailed in note 4 to the Financial
Statements.
Our Engineered Solutions division
provides steel and composite solutions for a wide range of
infrastructure markets including energy generation and
distribution, marine, rail and housing. The division also
supplies engineered supports for the water, power and liquid
natural gas markets, and seismic protection solutions for
commercial construction.
The division delivered an
impressive performance in 2023, with 27% revenue and 84% underlying
operating profit growth on a constant currency basis. This
reflects buoyant demand seen across our higher margin US
businesses, with our composites and electrical transmission and
distribution businesses delivering particularly strong growth.
Underlying operating margins increased significantly to 17.5%
(2022: 12.1%), due to the improved portfolio mix and volume
growth.
US
The US businesses delivered 20%
OCC revenue growth and record underlying operating
profit.
Our composites group achieved
another record trading year supported by continued growth in demand
for its range of engineered composite solutions including utility
poles, waterfront protection, cooling towers and mass transit
infrastructure. The business delivered enhanced operating
margins in 2023 due to excellent commercial execution, operational
gearing and a favourable product mix.
The outlook for our US composites
group is very positive with our focus end markets expected to
benefit from unprecedented levels of government investment, ongoing
power grid modernisation and onshoring. The business is also
seeing increasing adoption of innovative composite solutions,
supported by legacy material availability, lower lifecycle cost and
improved sustainability considerations.
During the year, we made two
acquisitions in composites in the US, strengthening our presence in
this attractive niche market. In February 2023 we acquired
Enduro Composites for £28.7m. Located in Houston, Texas,
Enduro is a designer and manufacturer of engineered composite
solutions and has traded ahead of expectations since
acquisition. During 2023 we invested in expanding
Enduro's capacity to support future growth in demand. In
November 2023 we acquired United Fiberglass, located in
Springfield, Ohio, for a consideration of £11.8m. The
business focuses on composite pipe, conduit, and bridge drain
infrastructure systems and enters 2024 with a record order book.
Both businesses are being integrated into our existing US composite
group.
Our business supplying structural
steel components into the electricity substation market
achieved record revenue and operating profit in
2023. The business enters 2024 with a strong order book
supported by high project demand to expand and upgrade ageing power
infrastructure. Given the attractive market demand, we are
making strategic capital investments to increase our existing
capacity, and in January 2024 the business also acquired Capital
Steel Service for a headline consideration of £5.0m. Based in
Trenton, New Jersey, the company supplies structural steel products
and services into the electrical transmission and distribution
market across the US East Coast. The acquisition will
expand our geographical customer base,
generate significant cross selling opportunities and provide
additional manufacturing capability.
Our two US engineered supports
businesses also delivered record results underpinned by a number of
large infrastructure build projects for electric vehicle,
semiconductor and battery plants, wastewater treatment, power
generation and a buoyant HVAC market. Both businesses enter 2024
with record order books. In December 2023 we acquired the
business and selected assets of Conn-Fab Sales, Inc. for an initial
consideration of £0.3m which expands our market reach and
strengthens our position in the buoyant roof curb market. In March
2024 we acquired FM Stainless for an initial consideration of
£6.6m. The business is highly complementary to our existing
engineered supports business and will expand our geographical
customer base and manufacturing capacity.
The growth prospects for all our
US Engineered Solutions businesses continue to be very
encouraging. We expect market demand to be supported by
investment to modernise the ageing electric grid and solutions to
protect against extreme weather. The outlook is further
supported by multi-year planned government
spending on infrastructure via the Infrastructure Investment and
Jobs Act ('IIJA') and the CHIPS Act, and private investment from US
manufacturers and producers to onshore vital components.
UK and India
Our UK businesses delivered a
resilient performance with revenue 6% lower and underlying
operating profit at a similar level to 2022. The building
products business experienced lower volumes, reflecting a slowdown
in UK residential new build and repair, maintenance and improvement
sectors, however this was offset by higher selling prices which,
together with a focus on cost management, resulted in operating
profit ahead of prior year. The outlook for 2024 is likely to
remain challenging and the business is focused on gaining market
share and further operational efficiencies. The industrial
flooring business delivered a robust performance, with buoyant
project pipeline demand from data centre, battery plant and oil
& gas markets.
Our engineered supports business
in India delivered a record result, underpinned by strong
international LNG project demand and we have invested modestly in
capacity expansion to support the growth strategy. The
business enters 2024 with a strong order book and good medium term
growth prospects.
Galvanizing Services
|
|
£m
|
Reported
%
|
Constant
currency %
|
OCC
%
|
|
Continuing Operations (2)
|
2023
|
2022
|
|
Revenue
|
196.7
|
180.7
|
+9
|
+9
|
+5
|
|
Underlying operating profit
(1)
|
45.7
|
44.0
|
+4
|
+4
|
-
|
|
Underlying operating margin %
(1)
|
23.2%
|
24.3%
|
|
|
|
|
Statutory operating
profit
|
43.8
|
42.7
|
|
|
|
(1)
Underlying measures are set out in note 3 to the
Financial Statements and exclude certain non-underlying items,
which are detailed in note 4 to the Financial
Statements.
(2)
Continuing operations exclude France Galva, which
was reported as a discontinued operation in the prior
year.
The Galvanizing Services division
offers hot-dip galvanizing and powder coating services with
multi-plant facilities in the US and the UK. Hot-dip
galvanizing is a proven steel corrosion protection solution which
significantly extends the service life of steel structures and
products. The division benefits from a wide sectoral spread
of customers who operate in a range of end markets including road
and bridge and other infrastructure, construction, and
transportation.
The division delivered a robust
performance in 2023, with 9% revenue and 4% underlying operating
profit growth on a constant currency basis. The division
continues to deliver superior margins with underlying operating
margin at 23.2%, reflecting the value-add service provided to
customers. The results are attributable to strong volume
growth in the US, offset by a volume decline in the more
challenging UK market.
US
With plants strategically located
in the northeast and midwest of the country, the US galvanizing
business delivered a good performance, with 9% OCC revenue growth
and record underlying operating profit against a strong 2022
comparator. The growth is attributable to an 8% organic increase in
production volumes with focused pricing action taken to offset
higher labour and raw material costs. As a result, the
business continued to deliver superior operating margins, with
customers valuing the excellent service levels provided by our
local teams.
In support of our US galvanizing
growth strategy, we acquired Korns Galvanizing in March 2023 for a
headline consideration of £9.4m. Located in Johnstown,
Pennsylvania, Korns specialises in spin galvanizing and expands our
production capacity in the key northeastern market, broadening the
range of galvanizing services we can offer to our existing customer
base. Korns is now fully integrated into our existing
business and trading since acquisition has
been ahead of expectations.
In the medium to longer term, the
outlook for US galvanizing is positive. The business is well
placed to benefit from high levels of industrial expansion activity
in the US supported by the IIJA, investment in technology and a
more general move to the onshoring of certain activities. We
have started to see some IIJA related projects and expect to see
incremental demand from bridge and highway and renewable energy
projects in 2024.
UK
In UK galvanizing, revenue was
broadly flat on an organic basis, with a 15% decline in production
volumes offset by pricing actions taken to cover higher energy and
labour costs. The volume decline reflects an overall downturn
in the UK galvanizing market and the impact of certain key
customers delaying projects, with volumes stabilising in the second
half of the year. As a result, underlying operating profit
and underlying operating margin were lower than last year's record
performance. Widnes Galvanising, acquired
in September 2022, has been successfully integrated and delivered
results ahead of expectations in 2023.
Our market leading UK galvanizing
business benefits from serving a diversified customer base. While
we expect end markets to continue to be challenging in 2024, the
business is focusing on building volume in niche growth sectors
such as cable management which, coupled with an expected improved
demand from certain key accounts, is anticipated to support a
resilient trading performance. We have also taken proactive
steps to strengthen the senior management team to deliver our
expectations for the business.
Roads & Security
|
|
£m
|
Reported
%
|
Constant
currency %
|
OCC
%
|
|
Continuing Operations (2)
|
2023
|
2022
|
|
Revenue
|
266.1
|
261.5
|
+2
|
+2
|
-5
|
|
Underlying operating profit
(1)
|
12.4
|
18.1
|
-31
|
-31
|
-71
|
|
Underlying operating margin
% (1)
|
4.7%
|
6.9%
|
|
|
|
|
Statutory operating
profit
|
0.3
|
1.7
|
|
|
|
(1)
Underlying measures are set out in note 3 to the
Financial Statements and exclude certain non-underlying items,
which are detailed in note 4 to the Financial
Statements.
(2)
Continuing operations exclude the French lighting
column business, which was reported as a discontinued operation in
the prior year.
The Roads & Security division
supplies products and services to support the delivery of safe road
and highway infrastructure, alongside a range of security products
to protect people, buildings and infrastructure from attack.
In addition, the division includes two businesses which are market
leaders in the provision of off-grid solar
lighting and power solutions.
The division delivered a
disappointing performance with 2% revenue growth and a 31%
underlying operating profit decline on a constant currency basis.
The results reflect strong trading in National Signal, our US
off-grid solar lighting business, and resilient trading in our core
UK roads businesses, however this was offset by certain
non-recurring charges in the UK and one-off operational improvement
costs in our US roads business. As a
result, underlying operating margin was 4.7% and we expect a
gradual improvement in 2024.
UK
Revenue was 3% lower and
underlying operating profit was significantly lower than 2022 on an
organic basis. Our barrier rental business delivered good
profit growth, with an increased level of average fleet utilisation
and a focus on cost control. Our wider UK roads portfolio
experienced challenges, with inflationary and budgetary pressures
across central government and local authority customers.
While end markets continue to be challenging, with a possible slow
down of project activity in anticipation of the Road Investment
Strategy 3 period (2025-2030), our expectation is that the core UK
roads business will deliver a resilient performance in
2024.
Our UK off-grid solar business
experienced a slowdown in construction end markets during the year
and is turning its focus to the more resilient facilities
management sector. At the end of the year the business identified
an issue with the historical installation of certain products and
is taking appropriate remedial action. While some of these
installations occurred prior to our acquisition of the business, we
have absorbed the rectification costs into the Group's underlying
results.
During the year we also took
action to improve the quality of our UK roads portfolio and
divested the trade and certain assets of Berry Systems, a small,
loss making car park solutions business. An underlying charge
has been taken in relation to future losses expected on a small
number of legacy contracts where we retain economic
liability.
US
Our US Roads portfolio comprises
two businesses: National Signal, our off-grid solar lighting
solutions business acquired in October 2022, and our roadside
safety products business.
Trading in National Signal was
very strong, particularly in the first three quarters of 2023,
supported by a high order backlog and buoyant demand from rental
companies. While we have seen a slight softening in demand
coming into the first half of 2024, the medium term outlook for the
business remains very positive, underpinned by a drive toward sustainable solutions and an
expected boom in large scale infrastructure projects. The
business is expecting to move into a larger leased facility during
H1 2024, in line with its medium term growth strategy.
Revenue in the road traffic safety
product business was lower than 2022 and underlying operating
profit was significantly impacted by one-off operational
improvement costs, mainly associated with re-engineering the
trailer product line. The business is implementing a comprehensive
business improvement plan and we expect the business to make
progress in 2024. The medium term outlook for the business
remains positive, with demand supported by
the introduction of new safety standards and increased levels of
state and federal investment to upgrade US road
infrastructure.
Other International Roads
In April 2023 we completed the
disposal of the final part of our loss making Swedish roads
business. Our Australian roads business performed in line
with expectations.
UK Security
Our UK security businesses provide
a range of perimeter security solutions including hostile vehicle
mitigation to both UK and international markets. Revenue
declined by 6% and underlying operating profit was also below last
year. This reflects lower levels of utilisation in our UK
security barrier rental business compared to a record 2022 and
continuing challenges in our perimeter access security business. In
the second half of the year, we were pleased to renew the contract
for the UK security barrier with the UK Government. The outlook for
our security portfolio remains mixed, however we expect that our
quality product offering and a focus on more resilient end markets
such as data centres will support further
progress.
Financial Review
Capital allocation
The Group follows a disciplined
approach to capital allocation. As a priority, we allocate
capital to support organic growth, with a focus on higher return,
structurally growing infrastructure markets. We require our
operating companies to manage working capital efficiently,
considering their respective growth rates, and we invest in capital
projects and innovation to support future organic growth, with
around £15m of 2023 capex allocated to growth
investments.
Secondly, we allocate capital to
make high quality acquisitions, with a focus on businesses which
have a clear alignment with our purpose and have good long-term
growth potential. We follow a structured approach to
acquisitions based on a clear set of financial criteria and expect
acquisitions to achieve returns above our Group cost of capital
within a three-year timeframe. Based on our highly cash
generative model, we are targeting to reinvest around £50m - £70m
each year on value enhancing acquisitions. In 2023 we
invested £48.4m across four acquisitions. Our acquisition
pipeline is strong, and is focused on high quality, strategically
aligned opportunities.
We also aim to provide sustainable
and progressive dividend growth, with a target dividend cover of
2.5 times underlying earnings. We understand the importance
of providing consistent and growing returns to our shareholders as
part of our overall capital allocation framework, and the Group's
strong levels of cash generation allow us to invest in organic and
inorganic growth while paying a progressive dividend.
We use return on invested capital
(ROIC) to measure our overall capital efficiency, with a target of
achieving returns in excess of 18%, above the Group's cost of
capital, through the cycle. We are pleased to report that the
Group's ROIC in 2023 increased to 22.0% (2022: 19.2%), the
improvement reflecting the strong trading and our disciplined
approach to capital allocation which more than offset the impact of
acquisitions in the year.
Cash generation
The Group was highly cash
generative in 2023 with underlying cash conversion of 115%.
We expect the Group to continue to deliver strong cash conversion
in 2024, in line with our financial framework and consistent with
historical levels. The calculation of our underlying cash
conversion ratio can be found in note 3 to the financial
statements.
Operating cash flow before
movement in working capital was £151.4m (2022: £129.8m). The
working capital inflow in the year was £22.8m (2022: £42.6m
outflow), the inflow attributable to a tight focus on working
capital efficiency and the benefits of lower raw material
costs. Working capital as a percentage of annualised sales was
15.9%. Debtor days were in line with expectations at 58 days
(2022: 60 days).
Capital expenditure of £31.8m
(2022: £31.5m) represents a multiple of depreciation and
amortisation of 1.5 times (2022: 1.5 times). Growth
investments in the year included £4m to support capacity expansion
in our US composite business and £1.5m on an automated kettle line
for the recently acquired Korns Galvanizing in the US.
Net financing costs for the year
were £10.6m (2022: £9.2m). The net cost of pension fund
financing under IAS 19 was £0.3m (2022: £0.1m), and the
amortisation of costs relating to refinancing activities was £0.6m
(2022: £2.4m).
The Group generated £104.8m of
free cash flow in the year (2022: £30.4m), providing funds to
support our acquisition strategy and dividend
policy.
Net debt and financing
Net debt at the end of the year
amounted to £108.4m (31 December 2022: £119.7m). Outflows in
the year included £28.0m for the 2022 interim and final dividends
and £50.7m on 2023 acquisitions (including £2.3m of acquired lease
liabilities). Net debt at the year end includes lease
liabilities under IFRS 16 of £43.7m (2022: £39.3m).
The Group's principal financing
facilities comprise a £250m revolving credit facility, which
expires in November 2027 following the one year extension agreed
during the year, and $70m senior unsecured notes with maturities in
June 2026 and June 2029, together with a further £6.6m of on-demand
local overdraft arrangements. Throughout the year the Group
has operated well within these facilities and at 31 December 2023,
the Group had £247.2m of headroom (£240.6m committed, £6.6m on
demand). Approximately 55% of the Group's drawn debt at 31
December 2023 is subject to fixed interest rates, providing a hedge
against recent market movements.
The principal borrowing facilities
are subject to covenants that are measured biannually in June and
December, being net debt to EBITDA of a maximum of 3.0 times and
interest cover of a minimum of 4.0 times. The ratio of
covenant net debt to EBITDA at 31 December 2023 was 0.4 times (31
December 2022: 0.7 times) and interest cover was 17.3 times (31
December 2022: 21.6 times). The Board considers that the
ratio of covenant net debt to EBITDA is a key metric from a capital
management perspective and targets a ratio of 1.0 to 2.0
times.
Tax
The underlying effective tax rate
for the period for continuing operations was 24.6% (2022:
22.4%), the increase
reflecting the rise in the UK rate to 25% from April 2023 and the
increasing proportion of profits generated in our US operations.
The reported tax charge for the year was £24.4m (2022:
£16.0m) and
includes a £3.2m credit
(2022: £3.7m) in respect of non-underlying
items, principally relating to the amortisation of acquisition
intangibles. Cash tax paid in the period was £31.7m (2022: £15.5m), the increase
reflecting higher profitability, the phasing of payments in the US,
and our decision to carry forward taxable UK losses to be used in
future periods.
Exchange rates
The Group is exposed to movements
in exchange rates when translating the results of its overseas
operations into Sterling. Retranslating 2022 revenue and
underlying operating profit from continuing operations using
average exchange rates for 2023 would have reduced revenue by £1.1m
with no impact on underlying operating profit. A one cent
movement in the average US Dollar rate currently results in an
adjustment of approximately £4.0m to the Group's annual revenues
and £1.0m to annual underlying operating profit.
Non-underlying items
The total non-underlying items
charged to operating profit from continuing operations in the
Consolidated Income Statement amounted to £18.7m (2022:
£18.6m). The items were mainly non-cash related and included
the following:
· Amortisation of acquired intangible assets of
£8.4m
· Loss on disposal of businesses of £4.2m relating to the
disposals of the Swedish roads and UK car park solutions
operations
· Expenses related to acquisitions and disposals of £5.3m,
including £1.8m accrued deferred consideration relating to the
National Signal acquisition
· Net business restructuring costs of £0.2m relating to actions
taken in prior years
The non-cash element of these
charges was £12.5m. Further details are set out in note 4 of
the Financial Statements.
Pensions
The Group operates defined benefit
pension plans in the UK and the USA. The IAS 19 deficit of
these plans at 31 December 2023 was £4.1m, a reduction of £3.1m
from 31 December 2022 (£7.2m). The deficit of the UK scheme,
the largest employee benefit obligation in the Group, was lower
than the prior year end at £3.4m (31 December 2022: £6.5m) due to
the Group's deficit recovery payments.
The Group continues to be actively
engaged in dialogue with the UK scheme's Trustees with regards to
management, funding and investment strategies including buy-in
options.
Going concern
After making enquiries, the
Directors have reasonable expectations that the Company and its
subsidiaries have adequate resources to continue in operational
existence for the foreseeable future and for the period to 30 June
2025. Accordingly, they continue to adopt the going concern
principle.
When making this assessment, the
Group considers whether it will be able to maintain adequate
liquidity headroom above the level of its borrowing facilities and
to operate within the financial covenants on those
facilities. The Group has carefully modelled its cash flow
outlook for the period to June 2025, considering the ongoing
uncertainties in global economic conditions. In this "base
case" scenario, the forecasts indicate significant liquidity
headroom will be maintained above the Group's borrowing facilities
and financial covenants will be met throughout the period,
including the covenant tests at 30 June 2024, 31 December 2024 and
30 June 2025.
The Group has also carried out
"reverse stress tests" to assess the performance levels at which
either liquidity headroom would fall below zero or covenants would
be breached in the period to 30 June 2025. The Directors do
not consider the resulting performance levels to be plausible given
the Group's strong trading performance in the year and the
resilience of the end markets in which we operate.
Alan Giddins
Hannah
Nichols
Executive
Chair
Group Chief Financial Officer
Consolidated Income
Statement
|
Notes
|
2023
|
2022
|
|
Underlying
£m
|
Non-underlying*
£m
|
Total
£m
|
Underlying
£m
|
Non- underlying*
£m
|
Total
£m
|
|
Continuing
Operations
|
|
|
|
|
|
|
|
|
Revenue
|
2
|
829.8
|
-
|
829.8
|
732.1
|
-
|
732.1
|
|
Cost of
sales
|
|
(513.1)
|
-
|
(513.1)
|
(461.6)
|
-
|
(461.6)
|
|
Gross
profit
|
|
316.7
|
-
|
316.7
|
270.5
|
-
|
270.5
|
|
Distribution costs
|
|
(24.7)
|
-
|
(24.7)
|
(31.7)
|
-
|
(31.7)
|
|
Administrative expenses
|
|
(169.9)
|
(18.7)
|
(188.6)
|
(142.0)
|
(18.6)
|
(160.6)
|
|
Other
operating income
|
|
0.4
|
-
|
0.4
|
0.3
|
-
|
0.3
|
|
Operating
profit
|
2, 3
|
122.5
|
(18.7)
|
103.8
|
97.1
|
(18.6)
|
78.5
|
|
Financial
income
|
5
|
0.5
|
-
|
0.5
|
0.5
|
-
|
0.5
|
|
Financial
expense
|
5
|
(11.1)
|
-
|
(11.1)
|
(9.7)
|
-
|
(9.7)
|
|
Profit before
taxation
|
|
111.9
|
(18.7)
|
93.2
|
87.9
|
(18.6)
|
69.3
|
|
Taxation
|
6
|
(27.6)
|
3.2
|
(24.4)
|
(19.7)
|
3.7
|
(16.0)
|
|
Profit for the year from continuing
operations
|
84.3
|
(15.5)
|
68.8
|
68.2
|
(14.9)
|
53.3
|
|
Discontinued
Operations
|
|
|
|
|
|
|
|
Profit
from discontinued operations
|
|
-
|
-
|
-
|
5.2
|
(1.8)
|
3.4
|
|
Profit for the year
attributable to the owners of the parent
|
84.3
|
(15.5)
|
68.8
|
73.4
|
(16.7)
|
56.7
|
|
Basic earnings per
share
|
7
|
|
|
86.0p
|
|
|
71.0p
|
|
Basic earnings per share -
continuing
|
7
|
|
|
86.0p
|
|
|
66.7p
|
|
Diluted
earnings per share
|
7
|
|
|
85.0p
|
|
|
70.4p
|
|
Diluted
earnings per share - continuing
|
7
|
|
|
85.0p
|
|
|
66.2p
|
* The Group's definition of
non-underlying items is included in note 1 and further details on
non-underlying items are included in note 4.
Consolidated Statement of
Comprehensive Income
|
Notes
|
2023
£m
|
2022
£m
|
|
Profit for the
year
|
68.8
|
56.7
|
|
Items that may be
reclassified subsequently to profit or loss
|
|
|
|
|
Exchange
differences on translation of overseas operations
|
|
(19.4)
|
27.4
|
|
Exchange
differences on foreign currency borrowings designated as net
investment hedges
|
|
4.2
|
(4.8)
|
|
Items that will not be
reclassified subsequently to profit or loss
|
|
|
|
|
Actuarial
loss on defined benefit pension schemes
|
|
(0.4)
|
(2.8)
|
|
Taxation
on items that will not be reclassified to profit or loss
|
6
|
0.1
|
0.7
|
|
Other comprehensive
(loss)/income for the year
|
(15.5)
|
20.5
|
|
Total comprehensive income
for the year attributable to owners of the parent
|
53.3
|
77.2
|
Consolidated Statement of
Financial Position
|
Notes
|
2023
£m
|
2022
£m
|
|
Non-current
assets
|
|
|
|
|
Intangible assets
|
|
205.7
|
182.6
|
|
Property,
plant and equipment
|
|
184.4
|
186.3
|
|
Right-of-use assets
|
|
41.8
|
38.7
|
|
Corporation tax receivable
|
|
1.6
|
1.6
|
|
Deferred
tax assets
|
6
|
0.4
|
0.1
|
|
|
433.9
|
409.3
|
|
Current
assets
|
|
|
|
|
Assets
held for sale
|
|
2.5
|
1.8
|
|
Inventories
|
|
106.1
|
113.8
|
|
Trade and
other receivables
|
|
137.3
|
144.3
|
|
Current
tax assets
|
|
0.8
|
0.3
|
|
Cash and
cash equivalents
|
10
|
34.4
|
24.8
|
|
|
281.1
|
285.0
|
|
Total
assets
|
2
|
715.0
|
694.3
|
|
Current
liabilities
|
|
|
|
|
Trade and
other liabilities
|
|
(119.6)
|
(120.8)
|
|
Current
tax liabilities
|
|
(3.9)
|
(8.6)
|
|
Provisions
|
|
(6.6)
|
(3.7)
|
|
Lease
liabilities
|
|
(8.0)
|
(8.7)
|
|
Loans and
borrowings
|
10
|
(1.4)
|
(0.3)
|
|
|
(139.5)
|
(142.1)
|
|
Net current
assets
|
141.6
|
142.9
|
|
Non-current
liabilities
|
|
|
|
|
Other
liabilities
|
|
(1.0)
|
(0.2)
|
|
Provisions
|
|
(2.6)
|
(2.7)
|
|
Deferred
tax liabilities
|
|
(9.9)
|
(11.6)
|
|
Retirement benefit obligations
|
|
(4.1)
|
(7.2)
|
|
Lease
liabilities
|
|
(35.7)
|
(30.6)
|
|
Loans and
borrowings
|
10
|
(97.7)
|
(104.9)
|
|
|
(151.0)
|
(157.2)
|
|
Total
liabilities
|
(290.5)
|
(299.3)
|
|
Net assets
|
|
424.5
|
395.0
|
|
Equity
|
|
|
|
|
Share
capital
|
|
20.0
|
20.0
|
|
Share
premium
|
|
44.6
|
42.8
|
|
Other
reserves
|
|
4.9
|
4.9
|
|
Translation reserve
|
|
22.9
|
38.1
|
|
Retained
earnings
|
|
332.1
|
289.2
|
|
Total
equity
|
424.5
|
395.0
|
Consolidated Statement of Changes in
Equity
|
|
Notes
|
Share
capital
£m
|
Share
premium
£m
|
Other
reserves†
£m
|
Translation reserve
£m
|
Retained earnings
£m
|
Total
equity
£m
|
|
At 1
January 2022
|
|
20.0
|
40.9
|
4.9
|
15.5
|
258.3
|
339.6
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
-
|
-
|
-
|
-
|
56.7
|
56.7
|
|
Other
comprehensive income for the year
|
|
-
|
-
|
-
|
22.6
|
(2.1)
|
20.5
|
|
Transactions with owners
recognised directly in equity
|
|
|
|
|
|
|
|
|
Dividends
|
8
|
-
|
-
|
-
|
-
|
(24.7)
|
(24.7)
|
|
Credit to
equity of share-based payments
|
|
-
|
-
|
-
|
-
|
2.4
|
2.4
|
|
Own
shares held by employee benefit trust
|
|
-
|
-
|
-
|
-
|
0.5
|
0.5
|
|
Satisfaction of long-term incentive and deferred bonus
awards
|
|
-
|
-
|
-
|
-
|
(0.9)
|
(0.9)
|
|
Tax taken
directly to the Consolidated Statement of Changes in
Equity
|
6
|
-
|
-
|
-
|
-
|
(1.0)
|
(1.0)
|
|
Shares
issued
|
|
-
|
1.9
|
-
|
-
|
-
|
1.9
|
|
At 31 December
2022
|
|
20.0
|
42.8
|
4.9
|
38.1
|
289.2
|
395.0
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
-
|
-
|
-
|
-
|
68.8
|
68.8
|
|
Other
comprehensive income for the year
|
|
-
|
-
|
-
|
(15.2)
|
(0.3)
|
(15.5)
|
|
Transactions with owners
recognised directly in equity
|
|
|
|
|
|
|
|
|
Dividends
|
8
|
-
|
-
|
-
|
-
|
(28.0)
|
(28.0)
|
|
Credit to
equity of share-based payments
|
|
-
|
-
|
-
|
-
|
3.7
|
3.7
|
|
Own
shares held by employee benefit trust
|
|
-
|
-
|
-
|
-
|
(1.6)
|
(1.6)
|
|
Satisfaction of long-term incentive and deferred bonus
awards
|
|
-
|
-
|
-
|
-
|
(1.0)
|
(1.0)
|
|
Tax taken
directly to the Consolidated Statement of Changes in
Equity
|
6
|
-
|
-
|
-
|
-
|
1.3
|
1.3
|
|
Shares
issued
|
|
-
|
1.8
|
-
|
-
|
-
|
1.8
|
|
At 31 December
2023
|
|
20.0
|
44.6
|
4.9
|
22.9
|
332.1
|
424.5
|
† Other
reserves represent the premium on shares issued in exchange for
shares of subsidiaries acquired and £0.2m (2022: £0.2m) capital
redemption reserve.
Consolidated Statement of Cash
Flows
|
Notes
|
2023
|
2022
|
|
£m
|
£m
|
£m
|
£m
|
|
Profit
before tax from continuing operations
|
|
93.2
|
69.3
|
|
Profit
before tax from discontinued operations
|
|
-
|
4.9
|
|
Add back
net financing costs
|
5
|
10.6
|
9.3
|
|
Operating
profit - Total Group
|
2, 3
|
|
103.8
|
|
83.5
|
|
Adjusted
for non-cash items:
|
|
|
|
|
|
|
Share-based payments
|
|
4.1
|
|
2.0
|
|
|
Loss on
disposal of subsidiaries
|
|
4.2
|
|
1.4
|
|
|
Loss on
disposal of non-current assets
|
|
0.2
|
|
0.3
|
|
|
Gain on
disposal of assets held for sale
|
|
(0.7)
|
|
-
|
|
|
Depreciation of owned assets
|
|
19.7
|
|
19.1
|
|
|
Amortisation of intangible assets
|
|
9.6
|
|
8.3
|
|
|
Right-of-use asset depreciation
|
|
9.3
|
|
8.8
|
|
|
Gain on
lease termination
|
|
(0.1)
|
|
-
|
|
|
Impairment of non-current assets
|
|
1.3
|
|
6.4
|
|
|
|
|
47.6
|
|
46.3
|
|
Operating
cash flow before movement in working capital
|
|
151.4
|
|
129.8
|
|
Decrease/(increase) in inventories
|
15.0
|
|
(21.0)
|
|
|
Decrease/(increase) in receivables
|
8.0
|
|
(19.1)
|
|
|
Decrease
in payables
|
(0.2)
|
|
(2.5)
|
|
|
Decrease
in provisions and employee benefits
|
(0.8)
|
|
(4.3)
|
|
|
Net
movement in working capital
|
|
22.0
|
|
(46.9)
|
|
Cash
generated by operations
|
173.4
|
82.9
|
|
Purchase
of assets for rental to customers
|
(2.3)
|
(10.6)
|
|
Income
taxes paid
|
(31.7)
|
(15.5)
|
|
Interest
paid
|
(8.9)
|
(6.4)
|
|
Interest
paid on lease liabilities
|
(1.3)
|
(0.8)
|
|
Net cash from operating
activities
|
|
|
129.2
|
|
49.6
|
|
Interest
received
|
|
0.5
|
|
0.5
|
|
|
Proceeds
on disposal of non-current assets
|
|
0.8
|
|
0.4
|
|
|
Proceeds
on disposal of assets held for sale
|
|
2.5
|
|
-
|
|
|
Purchase
of property, plant and equipment
|
|
(26.7)
|
|
(18.4)
|
|
|
Purchase
of intangible assets
|
|
(2.8)
|
|
(2.5)
|
|
|
Acquisitions of subsidiaries
|
9
|
(48.4)
|
|
(24.6)
|
|
|
Deferred
consideration in respect of prior year acquisition
|
|
(2.8)
|
|
-
|
|
|
Disposals
of subsidiaries
|
4
|
(0.2)
|
|
58.6
|
|
|
Net cash used in investing
activities
|
|
|
(77.1)
|
|
14.0
|
|
Issue of
new shares
|
|
1.8
|
|
1.9
|
|
|
Purchase
of shares for employee benefit trust
|
|
(2.6)
|
|
(0.4)
|
|
|
Dividends
paid
|
8
|
(28.0)
|
|
(24.7)
|
|
|
Costs
associated with refinancing
|
|
(0.5)
|
|
(2.1)
|
|
|
Repayment
of lease liabilities
|
|
(9.4)
|
|
(9.5)
|
|
|
New loans
and borrowings
|
|
73.9
|
|
160.8
|
|
|
Repayment
of loans and borrowings
|
|
(76.3)
|
|
(184.8)
|
|
|
Net cash used in financing
activities
|
|
(41.1)
|
|
(58.8)
|
|
Net increase in cash and
cash equivalents net of bank overdraft
|
11.0
|
4.8
|
|
Cash and
cash equivalents net of bank overdraft at the beginning of the
year
|
24.8
|
18.1
|
|
Effect of
exchange rate fluctuations
|
(1.4)
|
1.9
|
|
Cash and cash equivalents
net of bank overdraft at the end of the year
|
|
34.4
|
24.8
|
1.
Group Accounting
Policies
Hill & Smith PLC is a company
incorporated in the UK.
Basis of preparation
The consolidated financial
statements comprise the financial statements of the Company, Hill
& Smith PLC, and its subsidiaries as at 31 December 2023.
Subsidiaries are entities controlled by the Group. The Group
controls an entity when it is exposed to, or has rights to,
variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.
The acquisition date is the date on which control is transferred to
the acquirer. The financial statements of subsidiaries are included
in the Group Financial Statements from the date that control
commences until the date that control ceases.
In preparing the consolidated
financial statements, management has considered the impact of
climate change, taking into account the relevant disclosures in the
Strategic Report, including those made in accordance with the
recommendations of the Taskforce on Climate-related Financial
Disclosures. This included an assessment of assets with indefinite
and long lives and how they could be impacted by measures taken to
address global warming. Physical climate change presents a
relatively low risk to the Group's future business operations and
transition risks are also expected to have a relatively low impact
when considered together with the mitigating actions that the Group
intends to take. As such, no issues were identified that would
impact the carrying values of such assets or have any other impact
on the financial statements.
Measurement convention
The Group Financial Statements are
prepared on the historical cost basis except where the measurement
of balances at fair value is required as explained below.
The Group Financial Statements are presented in
Sterling and all values are stated in million (£m) rounded to one
decimal place, except where otherwise indicated.
Going concern and liquidity risk
In determining the appropriate
basis of preparation of its financial statements, the Directors are
required to assess whether the Group can continue in operational
existence for the foreseeable future. When making this assessment,
the Group considers whether it will be able to maintain adequate
liquidity headroom above the level of its borrowing facilities and
to operate within the financial covenants on those
facilities.
At 31 December 2023, the Group had
£307.3m of committed borrowing facilities, of which only £2.1m
matures before June 2026 at the earliest, and a further £6.6m of
on-demand facilities. During the year the Group extended the
maturity of its core £250m revolving credit facility by one year to
November 2027. The Group also holds $70m of Senior Unsecured Notes,
and other local committed borrowing facilities of £2.1m. The amount
drawn down under these committed facilities at 31 December 2023 was
£101.1m, which together with cash and cash equivalents of £34.4m
gave total headroom of £247.2m (£240.6m committed, £6.6m on
demand). The Group has not made any changes to its principal
borrowing facilities between 31 December 2023 and the date of
approval of these financial statements. The only significant
changes to liquidity headroom during that period were the
acquisitions of Capital Steel, which the Group completed in January
2024 for an initial consideration of £5.0m, and FM Stainless, which
the Group acquired in March 2024 for £6.6m. Substantial
headroom against borrowing facilities remains in place post these
acquisitions.
The principal borrowing facilities
are subject to covenants that are measured biannually in June and
December, being net debt to EBITDA of a maximum of 3.0x and
interest cover of a minimum of 4.0x, based on measures as defined
in the facilities agreements which are adjusted from the equivalent
IFRS amounts. The ratio of net debt to EBITDA at 31 December 2023
was 0.4 times and interest cover was 17.3 times.
The Group has carefully modelled
its cash flow outlook for the period to 30 June 2025.
The assessment included a review of both
divisional and Group financial forecasts, financial instruments and
hedging arrangements for the 18 months from the balance sheet date.
Major assumptions have been compared to external reference points
such as infrastructure spend forecasts across the Group's chosen
market sectors, government spending plans on road and other
infrastructure, zinc and steel prices, and economic growth
forecasts. 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 2024, 31 December 2024 and 30 June
2025.
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 27% compared with
current expectations throughout the 18 month period ending 30 June
2025. A reduction in headroom against borrowing facilities to nil
would occur if the Group experienced a sustained revenue reduction
of 31% compared with current expectations for the 18 month period
ending 30 June 2025. The Directors do not consider any of these
scenarios to be plausible given the generally positive outlook
across the infrastructure markets in which the Group
operates. The Directors also noted the Group's ability to
continue its operations throughout the COVID-19 pandemic, noting
that revenues fell by only 22% in the second quarter of 2020, the
worst-affected period. Furthermore, the Group has several
mitigating actions under its control including minimising capital
expenditure to critical requirements, reducing levels of
discretionary spend, rationalising its overhead base and curtailing
future dividend payments which, although not forecast to be
required, could be implemented in order to be able to meet the
covenant tests and to continue to operate within borrowing facility
limits.
After making these assessments,
the Directors have reasonable expectation that the Company and its
subsidiaries have adequate resources to continue in operational
existence for the foreseeable future and for a period of at least
12 months following the approval of these financial statements.
Accordingly, they continue to adopt the going concern basis in
preparing the Annual Report and Financial Statements.
New IFRS standards and interpretations adopted during
2023
The following amendments and
interpretations apply for the first time in 2023, and therefore
were adopted by the Group:
•
Amendments to IAS 8 - Definition of Accounting
Estimates
•
Amendments to IAS 1 - Disclosure of Accounting
Policies
•
Amendments to IAS 12 - Deferred Tax related to
Assets and Liabilities arising from a Single Transaction
•
Amendments to IAS 12 - International Tax Reform -
Pillar Two Model Rules
The amendments noted above have
not had a material impact on the financial statements.
The principal exchange rates used were as
follows:
|
|
2023
|
2022
|
|
Average
|
Closing
|
Average
|
Closing
|
|
Sterling
to US Dollar (£1 = USD)
|
1.24
|
1.27
|
1.24
|
1.20
|
|
Sterling
to Indian Rupee (£1 = INR)
|
102.68
|
106.08
|
97.01
|
99.41
|
|
Sterling
to Australian Dollar (£1 = AUD)
|
1.87
|
1.87
|
1.78
|
1.77
|
Non-underlying items
Non-underlying items are presented
separately in the Consolidated Income Statement where, in the
Directors' judgement, the quantum, nature or volatility of such
items gives further information to obtain a fuller understanding of
the underlying performance of the business. The following are
included by the Group in its assessment of non-underlying
items:
• Gains or losses arising on disposal, closure, restructuring
or reorganisation of businesses that do not meet the definition of
discontinued operations
• Amortisation of intangible fixed assets arising on
acquisitions, which can vary depending on the nature, size and
frequency of acquisitions in each financial period
• Expenses associated with acquisitions and disposals,
comprising professional fees incurred, any consideration which,
under IFRS 3 (Revised) is required to be treated as a
post-acquisition employment expense, and changes in contingent
consideration payable on acquisitions
• Impairment charges in respect of tangible or intangible fixed
assets, or right-of-use assets
• Changes in the fair value of derivative financial
instruments
• Significant past service items or curtailments and
settlements relating to defined benefit pension obligations
resulting from material changes in the terms of the
schemes.
The non-underlying tax charge or
credit comprises the tax effect of the above non-underlying
items.
Details in respect of the
non-underlying items recognised in the current and prior year are
set out in note 4.
2. Segmental
information
Business segment analysis
The Group has three reportable
segments which are Roads & Security, Engineered Solutions and
Galvanizing Services. The Group's internal management structure and
financial reporting systems differentiate between these segments,
and, in reporting, management have taken the view that they
comprise a reporting segment on the basis of the following economic
characteristics:
·
The Roads &
Security segment contains a group of businesses supplying
products designed to ensure the safety and security of roads and
other national infrastructure, many of which have been developed to
address national and international safety standards, to customers
involved in the construction of that infrastructure;
·
The Engineered
Solutions segment contains a group of businesses supplying
products characterised by a degree of engineering expertise, to
public and private customers involved in the construction of
facilities serving the utilities and other infrastructure markets;
and
·
The Galvanizing
Services segment contains a group of companies supplying
galvanizing and related materials coating services to companies in
a wide range of markets including construction, agriculture and
infrastructure.
Corporate costs are allocated to
reportable segments in proportion to the revenue of each of those
segments.
Segmental Income Statement - continuing
operations
|
|
2023
|
2022
|
|
Revenue
£m
|
Reported operating
profit
£m
|
Underlying operating
profit*
£m
|
Revenue
£m
|
Reported operating
profit
£m
|
Underlying operating
profit*
£m
|
|
Roads
& Security
|
266.1
|
0.3
|
12.4
|
261.5
|
1.7
|
18.1
|
|
Engineered Solutions
|
367.0
|
59.7
|
64.4
|
289.9
|
34.1
|
35.0
|
|
Galvanizing Services
|
196.7
|
43.8
|
45.7
|
180.7
|
42.7
|
44.0
|
|
Group
|
829.8
|
103.8
|
122.5
|
732.1
|
78.5
|
97.1
|
|
Net
financing costs
|
|
(10.6)
|
(10.6)
|
|
(9.2)
|
(9.2)
|
|
Profit before
taxation
|
|
93.2
|
111.9
|
|
69.3
|
87.9
|
|
Taxation
|
|
(24.4)
|
(27.6)
|
|
(16.0)
|
(19.7)
|
|
Profit after
taxation
|
|
68.8
|
84.3
|
|
53.3
|
68.2
|
* 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 currently the Executive
Chair. 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 £5.2m (2022: £6.8m) of
products and services to Roads & Security and £2.5m (2022:
£2.0m) of products and services to Engineered Solutions. Engineered
Solutions sold £0.6m (2022: £1.9m) of products and services to
Roads & Security. These internal revenues, along with revenues
generated from within their own segments, have been eliminated on
consolidation.
In the following tables, revenue
from contracts with customers is disaggregated by primary
geographical market, major product/service lines and timing of
revenue recognition. Revenue by primary geographical market is
defined as the end location of the Group's product or service. The
table also includes a reconciliation of the disaggregated revenue
with the Group's reportable segments.
|
Continuing
operations
|
Roads &
Security
|
Engineered
Solutions
|
Galvanizing
|
Total
|
|
Primary geographical
markets
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
|
UK
|
155.0
|
163.5
|
80.6
|
87.2
|
83.9
|
81.8
|
319.5
|
332.5
|
|
Rest of
Europe
|
11.0
|
16.7
|
8.2
|
8.7
|
-
|
-
|
19.2
|
25.4
|
|
North
America
|
90.4
|
70.3
|
259.2
|
187.1
|
112.8
|
98.9
|
462.4
|
356.3
|
|
The
Middle East
|
1.9
|
4.9
|
12.5
|
2.4
|
-
|
-
|
14.4
|
7.3
|
|
Rest of
Asia
|
0.7
|
1.9
|
5.5
|
3.9
|
-
|
-
|
6.2
|
5.8
|
|
Rest of
the world
|
7.1
|
4.2
|
1.0
|
0.6
|
-
|
-
|
8.1
|
4.8
|
|
|
266.1
|
261.5
|
367.0
|
289.9
|
196.7
|
180.7
|
829.8
|
732.1
|
|
Major product/service
lines
|
|
|
|
|
|
|
|
|
|
Manufacture, supply and installation of products
|
241.2
|
240.3
|
367.0
|
289.9
|
-
|
-
|
608.2
|
530.2
|
|
Galvanizing services
|
-
|
-
|
-
|
-
|
196.7
|
180.7
|
196.7
|
180.7
|
|
Rental
income
|
24.9
|
21.2
|
-
|
-
|
-
|
-
|
24.9
|
21.2
|
|
|
266.1
|
261.5
|
367.0
|
289.9
|
196.7
|
180.7
|
829.8
|
732.1
|
|
Timing of revenue
recognition
|
|
|
|
|
|
|
|
|
|
Products
and services transferred at a point in time
|
208.1
|
210.2
|
172.7
|
153.8
|
196.7
|
180.7
|
577.5
|
544.7
|
|
Products
and services transferred over time
|
58.0
|
51.3
|
194.3
|
136.1
|
-
|
-
|
252.3
|
187.4
|
|
|
266.1
|
261.5
|
367.0
|
289.9
|
196.7
|
180.7
|
829.8
|
732.1
|
Total assets by geography
|
|
2023
£m
|
2022
£m
|
|
UK
|
262.8
|
280.3
|
|
Rest of
Europe
|
3.6
|
9.8
|
|
North
America
|
419.6
|
380.2
|
|
Asia
|
16.0
|
11.2
|
|
Rest of
the world
|
13.0
|
12.8
|
|
Total Group
|
715.0
|
694.3
|
3. Alternative Performance
Measures
The Group presents Alternative
Performance Measures ("APMs") in addition to its statutory results.
These are presented in accordance with the Guidelines on APMs
issued by the European Securities and Markets Authority. The
principal APMs are:
· Underlying profit before taxation
· Underlying operating profit
· Underlying operating margin
· Organic and constant currency measures of change in revenue
and underlying operating profit
· Underlying cash conversion ratio
· Capital expenditure to depreciation and amortisation
ratio
· Covenant net debt to EBITDA ratio
· 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.
APMs are presented on a consistent basis over time to assist in
comparison of performance.
Reconciliation of underlying to reported profit before tax
from continuing operations
|
|
2023
£m
|
2022
£m
|
|
Underlying profit before tax from continuing
operations
|
111.9
|
87.9
|
|
Non-underlying items included in operating profit (note
4)
|
(18.7)
|
(18.6)
|
|
Reported profit before tax
from continuing operations
|
93.2
|
69.3
|
Reconciliation of underlying to reported operating profit
from continuing operations by segment
|
|
Roads &
Security
|
Engineered
Solutions
|
Galvanizing
|
Total
|
|
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
|
Underlying operating profit from continuing
operations
|
12.4
|
18.1
|
64.4
|
35.0
|
45.7
|
44.0
|
122.5
|
97.1
|
|
Non-underlying items:
|
|
|
|
|
|
|
|
|
|
Amortisation of acquisition
related intangibles
|
(4.2)
|
(4.6)
|
(3.0)
|
(0.5)
|
(1.2)
|
(0.9)
|
(8.4)
|
(6.0)
|
|
Business reorganisation
costs
|
(0.2)
|
(2.9)
|
-
|
-
|
-
|
-
|
(0.2)
|
(2.9)
|
|
Impairment of assets
|
(0.6)
|
(6.4)
|
-
|
-
|
-
|
-
|
(0.6)
|
(6.4)
|
|
Expenses related to acquisitions
and disposals
|
(2.9)
|
(1.5)
|
(1.7)
|
(0.4)
|
(0.7)
|
(0.4)
|
(5.3)
|
(2.3)
|
|
Loss on disposal of
subsidiaries
|
(4.2)
|
(1.0)
|
-
|
-
|
-
|
-
|
(4.2)
|
(1.0)
|
|
Reported operating profit from continuing
operations
|
0.3
|
1.7
|
59.7
|
34.1
|
43.8
|
42.7
|
103.8
|
78.5
|
Calculation of underlying operating margin from continuing
operations
|
|
Roads &
Security
|
Engineered
Solutions
|
Galvanizing
|
Total
|
|
Continuing
operations
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
2023
£m
|
2022
£m
|
|
Underlying operating
profit
|
12.4
|
18.1
|
64.4
|
35.0
|
45.7
|
44.0
|
122.5
|
97.1
|
|
Revenue
|
266.1
|
261.5
|
367.0
|
289.9
|
196.7
|
180.7
|
829.8
|
732.1
|
|
Underlying operating margin (%)
|
4.7%
|
6.9%
|
17.5%
|
12.1%
|
23.2%
|
24.3%
|
14.8%
|
13.3%
|
Measures of organic and constant currency change in revenue
and underlying operating profit from continuing
operations
Organic constant currency measures
exclude the impact of currency translation movements, acquisitions,
disposals and closures of subsidiary businesses. In respect of
acquisitions, the amounts referred to represent the amounts for the
period in the current year that the business was not held in the
prior year. In respect of disposals and closures of subsidiary
businesses, the amounts referred to represent the amounts for the
period in the prior year that the business was not held in the
current year. Constant currency amounts
are prepared using exchange rates which prevailed in the current
year.
|
|
Roads &
Security
|
Engineered
Solutions
|
Galvanizing
|
Total
|
|
Continuing
operations
|
Revenue
£m
|
Underlying operating
profit
£m
|
Revenue
£m
|
Underlying operating
profit
£m
|
Revenue
£m
|
Underlying operating
profit
£m
|
Revenue
£m
|
Underlying operating
profit
£m
|
|
2022
|
261.5
|
18.1
|
289.9
|
35.0
|
180.7
|
44.0
|
732.1
|
97.1
|
|
Impact of exchange rate movements
from 2022 to 2023
|
(0.7)
|
-
|
(0.4)
|
-
|
-
|
-
|
(1.1)
|
-
|
|
2022 translated at 2023 exchange rates (A)
|
260.8
|
18.1
|
289.5
|
35.0
|
180.7
|
44.0
|
731.0
|
97.1
|
|
Acquisitions, disposals and
closures
|
17.2
|
7.2
|
35.1
|
5.1
|
7.8
|
1.5
|
60.1
|
13.8
|
|
Organic growth/(decline)
(B)
|
(11.9)
|
(12.9)
|
42.4
|
24.3
|
8.2
|
0.2
|
38.7
|
11.6
|
|
2023 (C)
|
266.1
|
12.4
|
367.0
|
64.4
|
196.7
|
45.7
|
829.8
|
122.5
|
|
Organic growth % (B divided by A)
|
-4.6%
|
-71.3%
|
14.6%
|
69.4%
|
4.5%
|
0.5%
|
5.3%
|
11.9%
|
|
Constant currency change % ((C-A) divided by
A)
|
2.0%
|
-31.5%
|
26.8%
|
84.0%
|
8.9%
|
3.9%
|
13.5%
|
26.2%
|
Calculation of underlying cash conversion
ratio
|
|
|
2023
£m
|
2022
£m
|
|
Underlying operating profit:
|
|
|
|
|
Continuing operations
|
|
122.5
|
97.1
|
|
Discontinued operations
|
|
-
|
6.8
|
|
|
|
122.5
|
103.9
|
|
Calculation of adjusted operating cash flow:
|
|
|
|
|
Cash
generated by operations
|
|
173.4
|
82.9
|
|
Less:
Purchase of assets for rental to customers
|
|
(2.3)
|
(10.6)
|
|
Less:
Purchase of property, plant and equipment
|
|
(26.7)
|
(18.4)
|
|
Less:
Purchase of intangible assets
|
|
(2.8)
|
(2.5)
|
|
Less:
Repayments of lease liabilities
|
|
(9.4)
|
(9.5)
|
|
Add:
Proceeds on disposal of non-current assets and assets held for
sale
|
|
3.3
|
0.4
|
|
Add back:
Defined benefit pension scheme deficit payments
|
|
3.7
|
3.7
|
|
Add back:
Cash flows relating to non-underlying items
|
|
1.9
|
6.5
|
|
Adjusted operating cash
flow
|
|
141.1
|
52.5
|
|
Underlying cash conversion
(%)
|
|
115%
|
51%
|
Calculation of capital expenditure to depreciation and
amortisation ratio
|
|
|
2023
£m
|
2022
£m
|
|
Calculation of capital expenditure:
|
|
|
|
|
Purchase
of assets for rental to customers
|
|
2.3
|
10.6
|
|
Purchase
of property, plant and equipment
|
|
26.7
|
18.4
|
|
Purchase
of intangible assets
|
|
2.8
|
2.5
|
|
|
|
31.8
|
31.5
|
|
Calculation of depreciation and amortisation:
|
|
|
|
|
Depreciation of property, plant and equipment
|
|
19.7
|
19.1
|
|
Amortisation of development costs
|
|
1.0
|
1.1
|
|
Amortisation of other intangible assets
|
|
0.2
|
1.0
|
|
|
|
20.9
|
21.2
|
|
Capital expenditure to
depreciation and amortisation ratio
|
|
1.5x
|
1.5x
|
Calculation of covenant net debt to EBITDA
ratio
|
|
|
2023
£m
|
2022
£m
|
|
Reported
net debt
|
|
108.4
|
119.7
|
|
Lease
liabilities
|
|
(43.7)
|
(39.3)
|
|
Amounts
related to refinancing under IFRS 9
|
|
2.0
|
2.2
|
|
Covenant net debt
(A)
|
|
66.7
|
82.6
|
|
Underlying operating profit
|
|
122.5
|
103.9
|
|
Depreciation of owned assets
|
|
19.7
|
19.1
|
|
Right-of-use asset depreciation
|
|
9.3
|
8.8
|
|
Amortisation of development costs
|
|
1.0
|
1.1
|
|
Amortisation of other intangible assets
|
|
0.2
|
1.0
|
|
Underlying EBITDA
|
|
152.7
|
133.9
|
|
Adjusted
for:
|
|
|
|
|
Lease payments
|
|
(10.4)
|
(10.3)
|
|
Share-based payments expense
|
|
4.1
|
2.0
|
|
Annualised EBITDA of subsidiaries acquired/disposed
|
|
3.5
|
(3.7)
|
|
Covenant EBITDA
(B)
|
|
149.9
|
121.9
|
|
Covenant net debt to EBITDA
(A divided by B)
|
|
0.4
|
0.7
|
4. Non-underlying
items
Included in operating profit
|
|
|
2023
£m
|
2022
£m
|
|
Loss on
disposal of subsidiaries (a)
|
|
(4.2)
|
(1.4)
|
|
Business
reorganisation costs (b)
|
|
(0.2)
|
(2.9)
|
|
Impairment of assets (c)
|
|
(0.6)
|
(6.4)
|
|
Amortisation of acquisition related intangibles
|
|
(8.4)
|
(6.2)
|
|
Expenses
related to acquisitions and disposals
|
|
(5.3)
|
(3.5)
|
|
Total non-underlying
items
|
|
(18.7)
|
(20.4)
|
|
|
|
|
|
|
Total
non-underlying items - continuing operations
|
|
(18.7)
|
(18.6)
|
|
Total
non-underlying items - discontinued operations
|
|
-
|
(1.8)
|
Notes:
a)
In April 2023, the Group completed the disposal of the remaining
part of its Swedish roads business, and in October 2023, we sold
the business and assets of Berry Systems, a small UK car park
solutions operation. Aggregated details of these disposals
are set out below:
|
Disposal of Swedish roads
and Berry Systems businesses
|
£m
|
|
Property,
plant and equipment
|
0.1
|
|
Intangible assets
|
0.7
|
|
Right-of-use assets
|
0.3
|
|
Inventories
|
1.9
|
|
Current
assets
|
2.9
|
|
Current
liabilities
|
(1.2)
|
|
Lease
liabilities
|
(0.3)
|
|
Net assets
disposed
|
4.4
|
|
Consideration received
|
0.5
|
|
Cumulative exchange differences
|
(0.3)
|
|
Loss on
disposal
|
4.2
|
The Group also incurred legal fees
and other project completion costs relating to the disposals of
£1.0m, which are included within 'expenses related to acquisitions
and disposals' in the table above.
In 2022, the loss on disposal of
£1.4m related to the sales of France Galva, the Group's French
galvanizing and lighting column operation, and the first part of
the Swedish roads business.
b)
In May 2022, the Group exited the low-margin
plastic products operations that formed part of our US roads
business, recognising a charge of £2.9m in 2022 comprising business
reorganisation costs of £1.1m and asset
impairment charges of £1.8m. In March 2023 we sold the
property that was vacated on closure, which was reported as an
asset held for sale at 31 December 2022, recognising a profit of
£0.7m. In addition, following the closure of the Group's
variable message sign (VMS) business in 2021, the Group has
incurred a further £1.5m of costs in 2023 in relation to vacant
leasehold properties and the completion of legacy contracts,
comprising restructuring costs of £0.9m and a right-of-use asset
impairment of £0.6m.
Business restructuring costs of
£2.9m in 2022 comprised £2.6m relating to the actions described
above and a further £0.3m relating to restructuring in the Swedish
road business.
c)
The impairment charge of £0.6m in 2023 relates to the VMS closure
as explained above. Impairment charges of £6.4m in 2022
comprised a charge of £4.4m in respect of acquisition intangible
assets relating to Parking Facilities, one of the Group's UK
security businesses, and £2.0m relating to the portfolio management
actions in our US and Swedish roads businesses.
Included in taxation
The tax effect of the above items
is a credit to the income statement of £3.2m (2022:
£3.7m).
5. Net financing costs -
continuing operations
|
|
2023
£m
|
2022
£m
|
|
Interest
on bank deposits
|
0.5
|
0.5
|
|
Financial
income
|
0.5
|
0.5
|
|
Interest
on loans and borrowings
|
(8.9)
|
(6.4)
|
|
Interest
on lease liabilities
|
(1.3)
|
(0.8)
|
|
Financial
expenses related to refinancing activities
|
(0.6)
|
(2.4)
|
|
Interest
cost on net pension scheme deficit
|
(0.3)
|
(0.1)
|
|
Financial
expense
|
(11.1)
|
(9.7)
|
|
Net financing
costs
|
(10.6)
|
(9.2)
|
6. Taxation
|
|
2023
£m
|
2022
£m
|
|
Current
tax
|
|
|
|
UK
corporation tax
|
4.1
|
4.1
|
|
Overseas
tax at prevailing local rates
|
20.7
|
14.2
|
|
Adjustments in respect of prior years
|
1.3
|
1.8
|
|
|
26.1
|
20.1
|
|
Deferred
tax
|
|
|
|
UK
deferred tax
|
1.1
|
0.3
|
|
Overseas
tax at prevailing local rates
|
(0.4)
|
0.3
|
|
Adjustments in respect of prior years
|
(2.4)
|
(3.2)
|
|
|
(1.7)
|
(2.6)
|
|
Tax on profit in the
Consolidated Income Statement
|
24.4
|
17.5
|
|
Deferred
tax
|
|
|
|
Relating
to defined benefit pension schemes
|
(0.1)
|
(0.7)
|
|
Tax on items taken directly
to other comprehensive income
|
(0.1)
|
(0.7)
|
|
Current
tax
Relating
to share-based payments
Deferred
tax
Relating
to share-based
payments
|
-
(1.3)
|
(0.2)
1.2
|
|
Tax taken directly to the
Consolidated Statement of Changes in Equity
|
(1.3)
|
1.0
|
The tax charge in the Consolidated
Income Statement for the period is higher (2022: higher) than the
standard rate of corporation tax in the UK. The differences are
explained below:
|
|
2023
£m
|
2022
£m
|
|
Profit
before taxation from continuing operations
|
93.2
|
69.3
|
|
Profit
before taxation from discontinued operations
|
-
|
4.9
|
|
Profit before taxation -
total Group
|
93.2
|
74.2
|
|
Profit
before taxation multiplied by the effective rate of corporation tax
in the UK of 23.5% (2022: 19.0%)
|
21.9
|
14.1
|
|
Expenses
not deductible/income not chargeable for tax purposes
|
2.3
|
1.2
|
|
Benefits
from international financing arrangements - current and prior
years
|
(0.1)
|
(0.3)
|
|
Local tax
incentives
|
(0.1)
|
(0.4)
|
|
Overseas
profits taxed at higher rates
|
1.5
|
3.6
|
|
Overseas
losses not relieved
|
-
|
0.7
|
|
Adjustments in respect of prior years
|
(1.1)
|
(1.4)
|
|
Tax charge
|
24.4
|
17.5
|
|
Tax
charge attributable to continuing operations
|
24.4
|
16.0
|
|
Tax
charge attributable to discontinued operations
|
-
|
1.5
|
|
|
24.4
|
17.5
|
In October 2017, the European
Commission opened a state aid investigation into the Group
Financing Exemption in the UK Controlled Foreign Company ('CFC')
legislation, announcing in April 2019 that it believed in certain
circumstances the CFC regime constituted State Aid. In 2021 the
Group received a charging notice from HMRC requiring it to pay
£1.6m in respect of state aid that HMRC considers had been
unlawfully received in previous years, which was paid in full in
February 2021.
Applications to annul the
Commission's decision had been made in prior years by the UK
Government, the Group and other affected taxpayers. The EU
General Court delivered its decision on these applications in June
2022, finding in favour of the Commission. In August 2022,
the UK Government and several multinationals, including the Group,
appealed against the General Court's decision. The UK / taxpayer
appeal was heard by the Court of Justice of the European Union
('CJEU') on 10 January 2024, and we are currently awaiting the
Advocate General's non-binding opinion which should be received in
April 2024, followed by the CJEU's final decision later this year.
Having taken expert advice, we have concluded that there are strong
grounds for appeal and that our appeal is likely to be
successful. As a result, we continue to recognise a tax
receivable of £1.6m within non-current assets, reflecting the
Group's view that the amount paid will ultimately be
recovered.
7. Earnings per
share
The weighted average number of
ordinary shares in issue during the year was 80.0m (2022: 79.9m),
diluted for the effects of the outstanding dilutive share options
81.0m (2022: 80.5m). 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.
|
|
2023
|
2022
|
|
Pence
per share
|
£m
|
Pence
per share
|
£m
|
|
Basic
earnings
|
|
|
|
|
|
-
continuing
|
86.0
|
68.8
|
66.7
|
53.3
|
|
-
discontinued
|
-
|
-
|
4.3
|
3.4
|
|
Total basic
earnings
|
86.0
|
68.8
|
71.0
|
56.7
|
|
Non-underlying items*
|
|
|
|
|
|
-
continuing
|
19.4
|
15.5
|
18.7
|
14.9
|
|
-
discontinued
|
-
|
-
|
2.2
|
1.8
|
|
Total non-underlying
items
|
19.4
|
15.5
|
20.9
|
16.7
|
|
Underlying earnings
|
|
|
|
|
|
-
continuing
|
105.4
|
84.3
|
85.4
|
68.2
|
|
-
discontinued
|
-
|
-
|
6.5
|
5.2
|
|
Total underlying
earnings
|
105.4
|
84.3
|
91.9
|
73.4
|
|
Diluted
earnings
|
|
|
|
|
|
-
continuing
|
85.0
|
68.8
|
66.2
|
53.3
|
|
-
discontinued
|
-
|
-
|
4.2
|
3.4
|
|
Total diluted
earnings
|
85.0
|
68.8
|
70.4
|
56.7
|
|
Non-underlying items*
|
|
|
|
|
|
-
continuing
|
19.1
|
15.5
|
18.5
|
14.9
|
|
-
discontinued
|
-
|
-
|
2.2
|
1.8
|
|
Total non-underlying
items
|
19.1
|
15.5
|
20.7
|
16.7
|
|
Underlying diluted earnings
|
|
|
|
|
|
-
continuing
|
104.1
|
84.3
|
84.7
|
68.2
|
|
-
discontinued
|
-
|
-
|
6.4
|
5.2
|
|
Total underlying diluted
earnings
|
104.1
|
84.3
|
91.1
|
73.4
|
*
Non-underlying items as detailed in note
4.
8. Dividends
Dividends paid during the year
|
|
2023
|
2022
|
|
Pence
per share
|
£m
|
Pence
per share
|
£m
|
|
Interim
dividend paid in relation to year-ended 31 December 2021
|
-
|
-
|
12.0
|
9.6
|
|
Final
dividend paid in relation to year-ended 31 December 2021
|
-
|
-
|
19.0
|
15.1
|
|
Interim
dividend paid in relation to year-ended 31 December 2022
|
13.0
|
10.4
|
-
|
-
|
|
Final
dividend paid in relation to year-ended 31 December 2022
|
22.0
|
17.6
|
-
|
-
|
|
Total
|
35.0
|
28.0
|
31.0
|
24.7
|
Dividends declared in respect of the year
|
|
2023
|
2022
|
|
Pence
per share
|
£m
|
Pence
per share
|
£m
|
|
Interim
dividend declared in relation to year-ended 31 December
2022
|
-
|
-
|
13.0
|
10.4
|
|
Final
dividend declared in relation to year-ended 31 December
2022
|
-
|
-
|
22.0
|
17.6
|
|
Interim
dividend declared in relation to year-ended 31 December
2023
|
15.0
|
12.0
|
-
|
-
|
|
Final
dividend proposed in relation to year-ended 31 December
2023
|
28.0
|
22.5
|
-
|
-
|
|
Total
|
43.0
|
34.5
|
35.0
|
28.0
|
The final dividend for 2023 was
proposed after the year end date and was not recognised as a
liability at 31 December 2023, in accordance with IAS
10.
9. Acquisitions
Enduro Composites, Inc.
On 17 February 2023 the Group
acquired 100% of the share capital of Enduro Composites, Inc.
("Enduro") for a cash
consideration after working capital adjustments of £28.7m. Enduro,
located in Houston, Texas, is a designer, manufacturer and supplier
of engineered composite solutions focused on industrial and
infrastructure market segments. Enduro will become part of the
Group's Engineered Solutions division, is highly complementary to
our existing northeastern and midwestern US composite businesses
and will further accelerate our strategy in this exciting and
growing market.
Details of the acquisition are set
out below:
|
|
Pre-acquisition
carrying amount
£m
|
Policy alignment
and fair value
adjustments
£m
|
Total
£m
|
|
Intangible Assets
|
|
|
|
|
Brands
|
-
|
1.0
|
1.0
|
|
Customer
lists
|
-
|
9.9
|
9.9
|
|
Order
backlog
|
-
|
1.6
|
1.6
|
|
Property,
plant and equipment
|
2.7
|
(0.2)
|
2.5
|
|
Right-of-use assets
|
-
|
2.3
|
2.3
|
|
Inventories
|
4.5
|
(0.5)
|
4.0
|
|
Current
assets
|
6.5
|
(0.1)
|
6.4
|
|
Deferred
tax asset
|
1.4
|
-
|
1.4
|
|
Cash and
cash equivalents
|
1.8
|
-
|
1.8
|
|
Total
assets
|
16.9
|
14.0
|
30.9
|
|
Lease
Liabilities
|
-
|
(2.3)
|
(2.3)
|
|
Current
liabilities
|
(4.8)
|
(0.3)
|
(5.1)
|
|
Corporation tax
|
-
|
(0.2)
|
(0.2)
|
|
Deferred
tax liability
|
-
|
(2.9)
|
(2.9)
|
|
Total
liabilities
|
(4.8)
|
(5.7)
|
(10.5)
|
|
Net assets
|
12.1
|
8.3
|
20.4
|
|
Consideration
|
|
|
|
|
Total
consideration
|
|
|
28.7
|
|
Goodwill
|
|
|
8.3
|
|
Cash flow
effect
|
|
|
|
|
Consideration in the year
|
|
|
28.7
|
|
Cash
acquired with the business
|
|
|
(1.8)
|
|
Net cash consideration shown
in the Consolidated Statement of Cash Flows
|
|
|
26.9
|
Brands, customer lists and an
order backlog have been recognised as specific intangible assets as
a result of the acquisition. The residual goodwill arising, which
has been allocated to the Engineered Solutions segment, primarily
represents the highly skilled workforce, future technological
advantages and potential for geographical expansion afforded to the
Group. Policy alignment and fair value adjustments have been made
to align the accounting policies of the acquired business with the
Group's accounting policies and to reflect the fair value of assets
and liabilities acquired. In respect of leases, the Group measured
the acquired lease liabilities using the present value of the
remaining lease payments at the date of acquisition. The
right-of-use assets were measured at an amount equal to the lease
liabilities and adjusted to reflect the terms of the leases
relative to market terms. The fair value of the current assets
acquired includes £5.8m of trade receivables, which have a gross
value of £6.2m.
Post-acquisition the acquired
business has contributed £34.4m revenue and £5.0m underlying
operating profit, which are included in the Group's Consolidated
Income Statement. If the acquisition had been made on 1 January
2023, the Group's results for the period would have shown revenue
of £835.7m, underlying operating profit of £123.4m and reported
operating profit of £104.7m. The Group incurred expenses of £0.9m
relating to the acquisition, which are included in non-underlying
costs in the year (see note 4).
Korns Galvanizing Company Inc.
On 8 March 2023 the Group acquired
the business and assets of Korns Galvanizing Company Inc.
("Korns") for a cash
consideration of £9.4m. Korns, located in Johnstown, Pennsylvania,
has a single site specialising in spin galvanizing and has a
customer base spread across a wide range of infrastructure related
end markets, including commercial construction, fire protection,
oil & gas and utilities.
Details of the acquisition are set
out below:
|
|
Pre-acquisition
carrying amount
£m
|
Provisional policy
alignment
and fair value
adjustments
£m
|
Total
£m
|
|
Intangible Assets
|
|
|
|
|
Customer
lists
|
-
|
1.6
|
1.6
|
|
Property,
plant and equipment
|
1.2
|
-
|
1.2
|
|
Inventories
|
0.5
|
(0.1)
|
0.4
|
|
Current
assets
|
0.3
|
-
|
0.3
|
|
Total
assets
|
2.0
|
1.5
|
3.5
|
|
Current
liabilities
|
(0.2)
|
(0.1)
|
(0.3)
|
|
Total
liabilities
|
(0.2)
|
(0.1)
|
(0.3)
|
|
Net assets
|
1.8
|
1.4
|
3.2
|
|
Consideration
|
|
|
|
|
Total
consideration
|
|
|
9.4
|
|
Goodwill
|
|
|
6.2
|
|
Cash flow
effect
|
|
|
|
|
Consideration in the year
|
|
|
9.4
|
|
Cash
acquired with the business
|
|
|
-
|
|
Net cash consideration shown
in the Consolidated Statement of Cash Flows
|
|
|
9.4
|
Customer lists have been
recognised as a specific intangible asset as a result of the
acquisition. The residual goodwill arising, which has been
allocated to the US Galvanizing CGU within the Galvanizing Services
segment, primarily represents the highly skilled workforce and
potential for geographical expansion afforded to the Group. Policy
alignment and fair value adjustments have been made to align the
accounting policies of the acquired business with the Group's
accounting policies and to reflect the fair value of assets and
liabilities acquired. The fair value of the current assets acquired
includes £0.3m of trade receivables, which have a gross value of
£0.3m.
Post-acquisition the acquired
business has contributed £4.8m revenue and £1.0m underlying
operating profit, which are included in the Group's Consolidated
Income Statement. If the acquisition had been made on 1 January
2023, the Group's results for the period would have shown revenue
of £830.5m, underlying operating profit of £122.6m and reported
operating profit of £103.9m. The Group incurred expenses of £0.4m
relating to the acquisition, which are included in non-underlying
costs in the year (see note 4).
United Fiberglass of America Inc.
On 16 November 2023 the Group
acquired the business and assets of United Fiberglass of America
Inc. ("United Fiberglass") for a cash consideration of £11.8m, plus
£0.6m relating to post completion working capital adjustments
payable early in 2024. United Fiberglass, located in Springfield,
Ohio, is a designer, manufacturer and supplier of composite pipe,
conduit and bridge drain infrastructure systems. The business has
become part of Creative Composites Group, within our Engineered
Solutions division. The business is highly complementary to
our existing composite activities and will further accelerate our
strategy in this exciting and growing market, expanding our
customer base and product range, while also providing additional
manufacturing capability.
Details of the acquisition are set
out below:
|
|
Pre-acquisition
carrying amount
£m
|
Provisional policy
alignment
and fair value
adjustments
£m
|
Total
£m
|
|
Intangible Assets
|
|
|
|
|
Brands
|
-
|
0.3
|
0.3
|
|
Customer
lists
|
-
|
4.0
|
4.0
|
|
Order
backlog
|
-
|
0.4
|
0.4
|
|
Property,
plant and equipment
|
0.6
|
2.2
|
2.8
|
|
Inventories
|
1.8
|
-
|
1.8
|
|
Current
assets
|
1.2
|
(0.1)
|
1.1
|
|
Total
assets
|
3.6
|
6.8
|
10.4
|
|
Current
liabilities
|
(0.7)
|
-
|
(0.7)
|
|
Total
liabilities
|
(0.7)
|
-
|
(0.7)
|
|
Net assets
|
2.9
|
6.8
|
9.7
|
|
Consideration
|
|
|
|
|
Total
consideration
|
|
|
12.4
|
|
Goodwill
|
|
|
2.7
|
|
Cash flow
effect
|
|
|
|
|
Consideration in the year
|
|
|
11.8
|
|
Cash
acquired with the business
|
|
|
-
|
|
Net cash consideration shown
in the Consolidated Statement of Cash Flows
|
|
|
11.8
|
Brands, customer lists and an
order backlog have been recognised as specific intangible assets as
a result of the acquisition. The residual goodwill arising, which
has been allocated to the Engineered Solutions segment, primarily
represents the highly skilled workforce, future technological
advantages and potential for geographical expansion afforded to the
Group. Policy alignment and fair value adjustments have been made
to align the accounting policies of the acquired business with the
Group's accounting policies and to reflect the fair value of assets
and liabilities acquired. The fair value of the current assets
acquired includes £1.1m of trade receivables, which have a gross
value of £1.2m.
Post-acquisition the acquired
business has contributed £0.7m revenue and £0.1m underlying
operating profit, which are included in the Group's Consolidated
Income Statement. If the acquisition had been made on 1 January
2023, the Group's results for the period would have shown revenue
of £836.9m, underlying operating profit of £124.2m and reported
operating profit of £105.5m. The Group incurred expenses of £0.5m
relating to the acquisition, which are included in non-underlying
costs in the year (see note 4).
Conn-Fab Sales, Inc.
In December 2023, we acquired the
equipment, inventory, customer lists, order book and intellectual
property of Conn-Fab Sales, Inc. ("Conn-Fab"), which specialises in
adapter curbs, rails, and other customised rooftop seismic support
solutions. The acquisition supports the expansion of our existing
product portfolio and geographical reach across the US and southern
Canada. Consideration in the year was £0.3m, with a further
£0.5m being payable over the following 18
months once the qualifying accepted order value (as agreed at
acquisition date) has converted to sale. As the fair value of assets acquired was minimal, the
total consideration of £0.8m has been allocated to customer lists
acquired.
Given the December acquisition,
Conn-Fab's contribution to revenue and underlying operating profit
in the Group's 2023 results is less than £0.1m. If the acquisition
had been made on 1 January 2023, the Group's results for the period
would have shown revenue of £831.4m, underlying operating profit of
£123.1m and reported operating profit of £104.4m.
10. Cash and
borrowings
|
|
2023
£m
|
2022
£m
|
|
Cash and cash equivalents in
the Consolidated Statement of Financial Position
Cash and
cash equivalents
|
34.4
|
24.8
|
|
Bank
overdraft
|
-
|
-
|
|
Cash and cash equivalents
net of bank overdraft
|
34.4
|
24.8
|
|
Interest bearing loans and
other borrowings
|
|
|
|
Amounts
due within one year
|
(1.4)
|
(0.3)
|
|
Amounts
due after more than one year
|
(97.7)
|
(104.9)
|
|
Lease
liabilities due within one year
|
(8.0)
|
(8.7)
|
|
Lease
liabilities due after more than one year
|
(35.7)
|
(30.6)
|
|
Net debt
|
(108.4)
|
(119.7)
|
|
Change in net
debt
Operating
profit:
|
|
|
|
- from
continuing operations
|
103.8
|
78.5
|
|
- from
discontinued operations
|
-
|
5.0
|
|
Total
Group operating profit
|
103.8
|
83.5
|
|
Non-cash
items
|
47.6
|
46.3
|
|
Operating cash flow before
movement in working capital
|
151.4
|
129.8
|
|
Net
movement in working capital
|
22.8
|
(42.6)
|
|
Changes
in provisions and employee benefits
|
(0.8)
|
(4.3)
|
|
Operating cash
flow
|
173.4
|
82.9
|
|
Tax
paid
|
(31.7)
|
(15.5)
|
|
Net
financing costs paid
|
(8.4)
|
(5.9)
|
|
Capital
expenditure
|
(31.8)
|
(31.5)
|
|
Proceeds
on disposal of non-current assets and assets held for
sale
|
3.3
|
0.4
|
|
Free cash
flow
|
104.8
|
30.4
|
|
Dividends
paid (note 8)
|
(28.0)
|
(24.7)
|
|
Acquisitions of subsidiaries (note 9)
|
(53.5)
|
(25.6)
|
|
Disposals
of subsidiaries (note 4)
|
(0.2)
|
58.6
|
|
Amortisation of costs associated with refinancing activities
(note 5)
|
(0.6)
|
(2.4)
|
|
Purchase
of shares for employee benefit trust
|
(2.6)
|
(0.4)
|
|
Issue of
new shares
|
1.8
|
1.9
|
|
Lease
additions, terminations and remeasurements
|
(12.6)
|
(9.0)
|
|
Leases
disposed of (note 4)
|
0.3
|
2.8
|
|
Loans and
borrowings disposed of
|
-
|
0.3
|
|
Interest
on lease liabilities
|
(1.3)
|
(0.8)
|
|
Net debt
decrease
|
8.1
|
31.1
|
|
Effect of
exchange rate fluctuations
|
3.2
|
(6.1)
|
|
Net debt
at the beginning of the year
|
(119.7)
|
(144.7)
|
|
Net debt at the end of the
year
|
(108.4)
|
(119.7)
|
|
Reconciliation of movements
in financial liabilities to cash flows arising from financing
activities
|
|
|
|
|
2023
£m
|
2022
£m
|
|
Interest bearing loans and
other borrowings and lease liabilities
|
|
|
|
At 1
January
|
144.2
|
162.6
|
|
New loans
and borrowings
|
73.9
|
160.8
|
|
Repayments of loans and borrowings
|
(76.3)
|
(184.8)
|
|
Payment
of lease liabilities
|
(9.4)
|
(9.5)
|
|
Costs of
refinancing during the year
|
(0.5)
|
(2.1)
|
|
Cash flows used in financing
activities
|
(12.3)
|
(35.6)
|
|
Other
changes
|
|
|
|
Effect of
exchange rate fluctuations
|
(3.2)
|
6.9
|
|
Amortisation of costs associated with refinancing activities
(note 5)
|
0.6
|
2.4
|
|
Loans and
borrowings disposed of
|
-
|
(0.3)
|
|
Lease
changes:
|
|
|
|
Effect of
exchange rate fluctuations
|
(0.7)
|
1.0
|
|
New
leases
|
14.6
|
9.1
|
|
Terminations
|
(2.4)
|
(0.2)
|
|
Re-measurement
|
-
|
0.1
|
|
Acquisitions of subsidiaries
|
2.3
|
1.0
|
|
Disposals
of subsidiaries
|
(0.3)
|
(2.8)
|
|
Interest
expense
|
1.3
|
0.8
|
|
Interest
paid
|
(1.3)
|
(0.8)
|
|
At 31
December
|
142.8
|
144.2
|
Notes
1. The financial information
previously set out does not constitute the Company's statutory
accounts for the years ended 31 December 2023 or 2022 but is
derived from those accounts. Statutory accounts for 2022 have been
delivered to the registrar of companies, and those for 2023 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 2024 and will be
displayed on the Company's website
at www.hsgroup.com.
Copies of the Annual Report will also be available from the
registered office at Westhaven House, Arleston Way, Solihull, B90
4LH.
3. Events
Calendar:
i.
The Annual General Meeting will be held at Cranmore Park
Conference, Event & Exhibition Centre, Cranmore Avenue,
Shirley, West Midlands, B90 4LF on Thursday 23 May 2024.
ii. The
proposed final dividend for 2023 will be paid on 5 July 2024 to
shareholders on the register on 31 May 2024 (ex-dividend date 30
May 2024).
iii. The last
date for receipt of Dividend Reinvestment Plan elections is 14 June
2024.
iv. Interim
results announcement for the period to 30 June 2024 due 8 August
2024.
v. Payment
of the 2024 interim dividend due 3 January 2025.
4. This preliminary
announcement of results for the year ended 31 December 2023 was
approved by the Directors on 11 March 2024.
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.