TIDMHILS
RNS Number : 2215I
Hill & Smith Hldgs PLC
11 August 2021
Hill & Smith Holdings PLC
Half Year Results (unaudited) for the 6 months ended 30 June
2021
Strong recovery, strategic progress, positive outlook
Hill & Smith Holdings PLC ("Hill & Smith" or "the
Group") the international group creating sustainable infrastructure
and safe transport through innovation, announces its unaudited
results for the six months ended 30 June 2021 ("the period").
Financial Results
Change
----------------------------------
Organic constant
currency
30 June 30 June Reported (OCC)**
2021 2020 % %
------------------------ ---------- ---------- --------------- -----------------
Revenue GBP354.2m GBP315.6m +12 + 16
Underlying(*) :
Operating profit GBP42.5m GBP26.8m +59 +73
Operating margin 12.0% 8.5% +350 bps +390 bps
Profit before taxation GBP39.2m GBP22.8m +72
Earnings per share 38.5p 23.1p +67
Reported:
Operating profit GBP24.1m GBP23.5m +3
Operating margin 6.8% 7.4% -60bps
Profit before taxation GBP20.8m GBP19.5m +7
Basic earnings
per share 15.0p 19.7p -24
Dividend per share 12.0p 9.2p +30
------------------------ ---------- ---------- --------------- -----------------
Key Highlights:
-- Strong H1 performance, trading significantly ahead of 2020 which was impacted by COVID-19
o Good recovery in trading across all Group divisions, with
return to Group margin target range
o Ahead of H1 2019: organic constant currency growth +6% revenue
and +9% underlying operating profit
o Security sub-division continues to face challenges due to
impact of COVID-19 on certain end markets
o Ongoing raw material inflation and labour shortages have been
successfully managed
-- Continued focus on improving the quality of the portfolio, in line with refreshed strategy
o Acquisition of Prolectric Services Ltd, a UK market leader in
off-grid solar energy solutions
o Disposal of loss-making security access cover business
o Closure of loss-making variable message sign business
-- Group remains highly cash generative with a strong balance
sheet to support future growth opportunities
-- FY21 underlying operating profit expected to be slightly
ahead of the top end of current analyst range^
-- Interim dividend of 12.0p declared
Paul Simmons, Chief Executive, said:
"We are pleased with the first half trading performance, with
revenue and profit ahead of 2020 and 2019 levels. On behalf of the
Board, I would like to thank all our colleagues for their
significant contribution and continued resolve during these
challenging times.
"We are also encouraged by the strategic progress we have made
which is laying the foundations for long term sustainable growth.
This includes an acquisition, one disposal and one closure,
sustainability actions and senior management hires. Based on the
first half and the current outlook the Board now expects full year
underlying operating profit to be slightly ahead of the current
analyst range. Longer term, with or without the benefit of
additional significant government infrastructure spending, we
believe we are well placed to deliver strong profit growth."
^ The current analyst forecast range for FY21 operating profit
is GBP81.8m to GBP84.6m.
F or further information, please contact:
Hill & Smith Holdings PLC
Paul Simmons, Chief Executive Tel: +44 (0)121 704 7434
Hannah Nichols, Chief Financial Officer
EngineMHP Communications
Andrew Jaques/Rachel Farrington/Catherine Chapman Tel: +44 (0)20 3128 8100
* All underlying measures exclude certain non-underlying items,
which are as detailed in note 6 to the Financial Statements and
described in the Financial Review. References to an underlying
profit measure throughout this announcement are made on this basis.
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 5 to the financial
statements. They are presented on a consistent basis over time to
assist in comparison of performance.
** Organic constant currency excludes the impact of currency
translation movements, acquisitions, disposals and closures of
subsidiary businesses. In respect of acquisitions, the amounts
referred to represent the amounts for the period in the current
year that the business was not held in the prior year. In respect
of disposals and closures of subsidiary businesses, the amounts
referred to represent the amounts for the period in the prior year
that the business was not held in the current year.
Notes to Editors
Hill & Smith Holdings PLC creates sustainable infrastructure
and safe transport through innovation. The Group employs c.4,500
people worldwide with the majority employed by its autonomous,
agile, customer focussed operating businesses based in the UK, USA,
France, Sweden, India and Australia. It has a head office in the UK
and it is quoted on the London Stock Exchange (LSE: HILS.L).
The Group's operating businesses are organised into three main
business segments:
Roads & Security: supplying products and services to support
road and highway infrastructure including temporary and permanent
road safety barriers, renewable energy lighting and power
solutions, Intelligent Traffic Solutions, street lighting columns
and bridge parapets. The security portfolio includes hostile
vehicle mitigation solutions, high security fencing and automated
gate solutions.
Utilities: supplying steel and engineered composite solutions
with low embodied energy for a wide range of infrastructure markets
including energy generation and distribution, marine, rail and
housing. The division also supplies engineered pipe supports for
the water, power and liquid natural gas markets and seismic
protection solutions.
Galvanizing Services: dramatically increasing the sustainability
and maintenance free life of steel products including structural
steel work, lighting, bridges, agricultural and other products for
the industrial and infrastructure markets.
Business Review
Introduction
Trading in the first half of 2021 has been encouraging. The
Group delivered strong revenue and operating profit growth in
comparison to the same period last year which was impacted by
COVID-19 related disruption from the middle of March 2020. We are
also pleased to report that the Group delivered 6% revenue and 9%
profit growth on an organic constant currency basis compared to H1
2019, a prior record first half trading period, which reflects the
strengths of the Group's business model and the underlying
resilience of our end markets.
We have seen a good recovery in trading across all three
divisions. Our roads sub-division delivered revenue and profit
ahead of 2020 and 2019, reflecting continued strong levels of
demand for our products in the US and a solid performance in the
UK. While our security businesses delivered an improved performance
compared to the same period last year, the sub-division continued
to face challenges due to COVID-19 restrictions on public
gatherings and delayed customer projects.
Our Utilities division performed well supported by strong demand
for engineered composite solutions in the US and a good recovery in
demand in our engineered supports (formerly "pipe supports") and UK
utilities businesses. As a result, revenues and profits were ahead
of 2020 and 2019 levels.
In our Galvanizing division, revenue and profit were also ahead
of the same period in 2020 and 2019. This reflects a solid
performance in the US and a strong recovery in demand both in the
UK and France following the COVID-19 disruption in H1 2020.
As reported previously, we continue to experience headwinds
relating to raw material cost inflation and related shortages, with
steel being the most impacted category for the Group. In addition,
labour shortages have been a challenge, particularly in our US
businesses. Our local teams have successfully navigated these
challenges, taking swift action to mitigate the impact including
implementing price increases, securing supply of raw materials and
increasing wages to retain and attract staff. This highlights the
strengths of the Group's decentralised autonomous operating model
and some of the benefits it brings including agility and customer
intimacy. We continue to monitor and manage these headwinds as we
enter the second half.
The Group remains highly cash generative and maintains a strong
balance sheet which positions us well for the future as we focus on
developing and funding growth opportunities across the Group.
Geographically, the US and the UK remain our key areas of focus for
both organic growth and targeted acquisition opportunities.
Our Strategy
Our strategic decision making is guided by our purpose of
"creating sustainable infrastructure and safe transport through
innovation". Our purpose, alongside consideration of long-term
macro and market drivers determines our choice of markets and
applications. We are attracted to fast growing niche opportunities
and critical applications that provide significant value to our
customers. Our products and services help transport become safer
and infrastructure become more sustainable, with both the
environment and our customers benefiting through the value that our
diverse offerings provide.
We operate a decentralised autonomous operating model which
drives high levels of accountability, agility and customer intimacy
and is fundamental to our growth strategy. Our operating model
allows us to care about small, high growth, high gross margin
applications in a way that a more centralised, volume driven
organisation cannot. Innovation is also a key element of our
organic growth strategy, and we have recently launched a Group-wide
initiative to accelerate our rate of innovation. We aim to foster
an innovation culture across the Group, supported by a common
framework.
We take a disciplined approach to portfolio management as we
look to evolve our portfolio through organic developments,
thoughtful acquisitions and targeted disposals. The aim is to
improve the quality of our portfolio with each iteration and at the
beginning of this year we fine-tuned our portfolio management
criteria to place greater emphasis on higher gross margins and
long-term growth. Multiple initiatives are now underway to rebuild
the acquisition pipeline based on these new criteria.
In line with our refreshed strategy, we have taken a number of
actions to enhance the quality of the portfolio. In March 2021, we
acquired Prolectric Services Ltd ("Prolectric"), a UK market leader
in off-grid solar energy solutions, which operates in a market with
strong long term growth potential driven by the transition from
fossil fuels toward renewable energy. Prolectric is also an
excellent example of how we can utilise our extensive domain
knowledge in operations and customer end markets to de-risk the
acquisition of new to Hill & Smith technology. Trading since
acquisition has been in line with our expectations.
As previously disclosed, in March 2021, we also made the
decision to close our small, loss-making UK variable message sign
business and expect operations to fully cease by the end of this
year. In addition, in June 2021, we sold Technocover, our
loss-making security access cover business.
We continue to take action to organise for growth and
scalability. As previously announced, we formed a new Executive
Board in January 2021 and have introduced Group Presidents who are
responsible for accelerating organic growth within their market
portfolio and acquiring high quality businesses. We currently have
two Group Presidents in place and are actively recruiting for a
third to create a structure that will scale as the business
continues to grow. Talented people are fundamental to the success
of our decentralised model, and we are delighted that Andrew Park
joined the Group as Chief People Officer in June 2021 to lead on
talent and career development across the Group. We have also
recalibrated the 2021 Managing Director incentive scheme to align
with our growth ambitions.
Our purpose of "creating sustainable infrastructure and safe
transport through innovation" guides our decisions, ensuring that
improving sustainability is woven into our daily working lives. The
development of our environmental, social and governance (ESG)
strategy is a key priority for H2 2021 and we have established an
ESG steering group to work with the operating companies to create
common sense, actionable plans with measurable near-term targets.
We will also recruit a Head of Sustainability to provide additional
focus and guidance on this priority area.
An independent ESG materiality study was completed in June 2021,
having consulted a diverse range of employees, major customers,
suppliers, investors and our major lending bank. We are taking a
materiality-based approach to ESG, using a blend of our recent
materiality study and the relevant Sustainability Accounting
Standards Board (SASB) materiality maps. As a result of this we
have defined our ESG focus areas as:
-- sustainable products
-- greenhouse gas emission and energy reduction
-- health and safety
-- talent development and employment practices
-- engagement, diversity and inclusion
-- physical and transitional climate risks
-- ethical conduct
At the year end, we will provide a further update on action
plans, targets and progress to date.
The successful execution of our strategy will drive superior
returns for shareholders, provide high quality jobs for employees,
benefit the environment and local communities and provide long term
opportunities for our supply chain partners.
Results
The Group has seen a good recovery in trading compared to H1
2020 which was impacted by COVID-19 related business closures and
reduced levels of demand from the middle of March 2020. Revenue for
the period was GBP354.2m (2020: GBP315.6m), an increase of 12% on a
reported basis. Organic constant currency revenue growth was 16%.
Underlying operating profit for the period was GBP42.5m (2020:
GBP26.8m) and underlying operating margin recovered strongly to
12.0% compared to 8.5% in 2020. Underlying profit before taxation
was GBP39.2m (2020: GBP22.8m). Reported operating profit was
GBP24.1m (2020: GBP23.5m) and reported profit before tax was
GBP20.8m (2020: GBP19.5m) . Underlying earnings per share increased
to 38.5p (2020: 23.1p) and reported earnings per share was 15.0p
(2020: 19.7p).
The principal reconciling items between underlying and reported
operating profit are non-cash charges including the write down of
goodwill relating to one of our security businesses of GBP10.8m and
the amortisation of acquisition intangibles of GBP3.0m, together
with costs associated with the closure of the UK variable message
signs business of GBP3.3m. Note 6 of the financial statements
provides further details on the Group's non-underlying items.
Dividend
The Board has declared an interim dividend for FY 2021 of 12.0p
per share (2020: 9.2p). The interim dividend will be paid on 7
January 2022 to shareholders on the register on 3 December 2021.
Looking forward, we aim to provide sustainable and progressive
dividend growth, targeting a prudent dividend cover of around 2.5
times underlying earnings.
Board Update
In February 2021, we were pleased to announce the appointment of
Leigh-Ann Russell as a Non-executive Director with effect from 1
April 2021. Leigh-Ann's appointment is part of the Group's careful
succession planning to recruit Non-executive Directors with the
necessary skills, experience and diversity to support the Group's
future development.
Outlook
The Group has made a good start to the year and, assuming end
markets remain open, we expect FY 2021 underlying operating profit
to be slightly ahead of the top of the current analyst forecast
range(^) , with a more balanced first half, second half weighting
compared to prior years. While we continue to face headwinds in raw
material cost inflation and labour shortages, our local teams have
acted quickly to mitigate the impact and expect to continue to do
so.
We are encouraged by the potential for a significant
infrastructure bill to be passed in the US under the Biden
administration and our US businesses are well placed to take
advantage of the opportunities arising from any increased
investment. In the UK, the Government remains committed to the
increased levels of funding for Road Investment Strategy 2 ('RIS2')
and we expect this to support medium-term growth. While we still
await the outcome of the parliamentary review on the benefits and
safety of Smart Motorways, we were encouraged by the commencement
of the first new RIS2 Smart Motorway scheme in June 2021.
The medium to longer term outlook for the Group remains
positive, supported by strong growth drivers for both sustainable
infrastructure and safe transport.
Operational Review
Roads & Security
GBPm OCC
%
-------------- ----- -----
+/-
2021 2020 %
---------------------------------- ------ ------ ----- -----
Revenue 146.8 128.2 +15 +15
---------------------------------- ------ ------ ----- -----
Underlying operating
profit 9.5 4.3 +121 +138
---------------------------------- ------ ------ ----- -----
Underlying operating
margin % 6.5 3.4
---------------------------------- ------ ------
Reported operating (loss)/profit (8.0) 2.0
---------------------------------- ------ ------
The Roads & Security division includes UK and international
companies which design, manufacture and install temporary and
permanent safety products for the roads market, alongside UK-based
businesses which provide a range of security products to protect
people, buildings and infrastructure from attack, including high
security fencing and hostile vehicle mitigation (HVM)
solutions.
The division has seen strong growth in revenue and margin during
the period, reflecting a good recovery in parts of the UK roads
portfolio which were impacted by COVID-19 related disruption in H1
2020 and the continued high levels of demand in our US roads
business. While our security businesses continued to face
challenges due to COVID-19 restrictions on public gatherings and
delayed customer projects, on an underlying basis the sub-division
was profitable and trading performance was ahead of the same period
last year. As a result, revenue for the period increased by 15% to
GBP146.8m after a currency headwind of GBP2.5m and net contribution
from acquisitions and disposals of GBP2.1m. Underlying operating
profit increased to GBP9.5m (2020: GBP4.3m), with a corresponding
improvement in operating margins to 6.5% (2020: 3.4%). The reported
loss of GBP8.0m included a goodwill impairment charge of GBP10.8m
in respect of ATG Access, closure costs of GBP3.3m relating to the
variable message sign business and a loss of GBP0.8m on the
disposal of the security access cover business. Further details are
set out in note 6 to the financial statements.
UK Roads
Our temporary safety barrier rental business operated as
expected during the period with lower levels of barrier utilisation
as RIS1 schemes came to an end. While we were encouraged by the
commencement of the first RIS2 Smart Motorway scheme in June 2021,
we still await the outcome of the Transport Committee parliamentary
review on the safety and benefits of Smart Motorways .
The permanent safety barrier business continues to see good
levels of demand, primarily driven by large highway schemes and a
buoyant maintenance and repair market. Our remaining UK roads
portfolio consists of street furniture and lighting columns, bridge
parapets, temporary car parks and concrete arches. All these
businesses showed a strong recovery compared to the same period in
2020 , which was adversely impacted by customer delays and
deferrals caused by COVID-19 disruption.
As highlighted above, in March 2021 we acquired Prolectric, a UK
market leader in off-grid solar energy solutions, for an initial
cash consideration of GBP12.0m. Prolectric offers a range of
remotely monitored lighting and security products, either for
rental or sale, which are field proven in rail, road and other
niche infrastructure applications. The technology also enables
customers to measure the reduction in CO2 emissions versus diesel
powered alternatives. The business benefits from the ongoing
transition from fossil fuels to a zero-carbon economy and the need
to reduce noise pollution, driven by government legislation and
customer demands.
As previously announced, in March 2021 we made the decision to
close our small, loss making UK variable message sign business and
expect operations to fully cease by the end of this year.
US Roads
The US Roads business saw good levels of demand in the first
half with revenue increasing year on year. Demand was particularly
strong for our tested Zoneguard temporary safety barrier and
SmartCushion crash attenuators. This is the result of being well
positioned in key states, maintaining strong distributor
relationships, and having a good reputation with installers and
state departments of transport. During the period, the business
took appropriate pricing actions to offset the steep increase in
steel raw materials and freight costs and while first half margins
were impacted, we expect margins to show improvement in the second
half.
Our US roads growth strategy is, in part, based on geographical
expansion and the build of our new facility in Garland, Texas, is
on plan and budget. In addition, in the second half we will
continue to invest in rental barrier fleet expansion and product
development to further support the growth strategy.
We are encouraged by the apparent bipartisan support for a
future infrastructure framework bill, which outlines significant
investment in roads and bridges, and are excited about the
prospects for further growth.
International Roads
The restructuring of our roads business in Sweden is ongoing,
although we have been adversely impacted by the postponement of
several major highway repair projects due to government funding
challenges. The strengthened local team have made good progress on
restructuring the operations and are continuing to refine their key
areas of market focus.
In contrast, the lighting column business in France performed
robustly with a solid order book and our Australian road business
benefitted from higher levels of road barrier sales.
Security
Our security businesses are based in the UK and provide a range
of perimeter security solutions including hostile vehicle
mitigation ('HVM') to both UK and international markets.
During the period, key markets for our HVM solutions remained
impacted by COVID-19 restrictions including crowded places
protection, stadiums, airports and shopping centres. We are however
starting to see a gradual recovery in demand and all businesses in
the portfolio delivered an improved performance compared to the
same period in 2020, albeit still lower than 2019 levels. Demand
for UK security barrier rental is returning, with the resumption of
high-profile events including the G7 Summit in Cornwall. The demand
for perimeter security solutions in data centres remains
strong.
We continue to take steps to enhance the quality of the
portfolio and in June 2021, we sold Technocover, our loss-making
security access cover business, for a consideration of GBP2.2m. The
loss recognised on disposal was GBP0.8m.
Given the HVM market outlook remains challenging, and it is
likely to take some time for activity to return to pre-pandemic
levels, the Group reassessed the value of acquisition goodwill
relating to the ATG Access business and concluded that an
impairment charge of GBP10.8m was required. Further details are set
out in note 6 to the financial statements.
Utilities
GBPm
--------------
+/- OCC
2021 2020 % %
--------------------------- ------ ------
Revenue 107.7 101.4 +6 +14
--------------------------- ------ ------ ---- ----
Underlying operating
profit 12.0 8.2 +46 +64
--------------------------- ------ ------ ---- ----
Underlying operating
margin % 11.1 8.1
--------------------------- ------ ------
Reported operating profit 11.7 7.7
--------------------------- ------ ------
Our Utilities division supplies steel and engineered composite
solutions to a wide range of infrastructure markets including
energy generation and distribution, marine, rail and housing. The
division also provides engineered pipe supports for the water,
power and liquid natural gas markets and seismic protection
solutions .
The division delivered a strong first half performance,
underpinned by a good recovery in engineered supports and UK
utilities, which were disrupted by COVID-19 last year, and
continued high levels of demand for US engineered composites
solutions. Revenue increased by 6% to GBP107.7m (2020: GBP101.4m),
including a currency translation headwind of GBP6.8m. The organic
constant currency revenue increase was 14%. Underlying operating
profit increased to GBP12.0m (2020: GBP8.2m), including a negative
currency impact of GBP0.9m. Underlying operating margin also
improved to 11.1% (2020: 8.1%), slightly ahead of the target margin
range for the division of 8 to 11%.
UK
Our UK businesses delivered a strong trading performance
compared to the same period last year, which was significantly
impacted by COVID-19 disruption. The industrial flooring business
has experienced good levels of demand in the first half,
particularly for large data centre and distribution centre
projects. The building products business, supplying composite
residential doors, steel lintels and builders' metal work, has seen
a strong recovery in the markets it serves and prospects for the
second half are encouraging.
USA
Overall US utilities delivered organic revenue and profit growth
against strong comparators. The US composite business delivered a
strong first half and continues to see high levels of demand for a
range of composite solutions including fire resistant utility
poles, waterfront protection products and mass transit
infrastructure. The business has a strong order backlog and we
expect further progress in the second half. The electricity
distribution substation business faced challenges as a result of
rising steel prices and customers delaying non-essential projects,
however we anticipate demand will recover as steel prices
stabilise. Prospects for future growth remain encouraging, driven
by the requirement to upgrade the ageing electricity infrastructure
in the US.
Engineered Supports
Our engineered pipe support business in India delivered a strong
first half performance, having successfully navigated the
challenges presented by further COVID-19 restrictions and raw
material input cost increases and shortages. The business enters
the second half with a solid order book and we are continuing to
see a strong demand to supply products and engineering services to
support key liquefied natural gas developments across the
globe.
Our US business supplies engineered pipe and hanger supports and
seismic protection devices for a range of end markets. The business
delivered a good performance in the first half, supported by a
strong rebound in demand in commercial construction for schools,
hospitals, biotech, pharma, and water treatment. The expansion of
our seismic protection device manufacturing capability is on plan
and the prospects for future growth are encouraging.
Galvanizing Services
GBPm
------------ ---- ----
+/- OCC
2021 2020 % %
--------------------------- ----- ----- ---- ----
Revenue 99.7 86.0 +16 +21
--------------------------- ----- ----- ---- ----
Underlying operating
profit 21.0 14.3 +47 +59
--------------------------- ----- ----- ---- ----
Underlying operating
margin % 21.1 16.6
--------------------------- ----- -----
Reported operating profit 20.4 13.8
--------------------------- ----- -----
The Galvanizing Services division offers corrosion protection
services to the steel fabrication industry with multi-plant
facilities in the UK, the USA and France. The galvanizing process
dramatically increases the sustainability and maintenance free life
of steel products.
The division delivered a strong recovery in trading compared to
the same period last year, which was impacted by the complete
closure of our French operations for a month and a slowdown in
volumes across all geographies. Revenue and profit were also ahead
of 2019 levels.
Volumes of steel galvanized were 11% higher than the same period
last year and revenue increased by 16% to GBP99.7m (2020:
GBP86.0m), including a currency translation headwind of GBP3.5m.
The organic constant currency increase was 21%. Underlying
operating profit increased significantly to GBP21.0m (2020:
GBP14.3m), including a negative currency impact of GBP1.1m.
Underlying operating margin recovered to 21.1% (2020: 16.6%), back
within our target margin range for the division of 19 to 22%.
UK
Our galvanizing businesses are located on 10 sites, four of
which are strategically adjacent to our infrastructure products
manufacturing facilities. The UK group continued to see a strong
recovery in demand in the first half, partly due to the release of
construction and housing projects which had previously been
deferred. Overall volumes were 25% higher than the same period last
year, in part due to the COVID-19 slowdown in the second quarter of
2020. The strategy of focusing on higher margin, lower volume
business is proving successful and benefited operating margins
during the period. The UK business benefits from a wide sectoral
spread of customers who operate in resilient end markets such as
infrastructure, construction and agriculture and we expect this
strong demand to continue into the second half.
USA
Predominantly located in the north east of the country, we are a
market leader with eight strategically located plants offering
local services and extensive support to fabricators and product
manufacturers involved in highways, construction, utilities and
transportation.
The business delivered a solid performance in the first half.
While volumes galvanized were 6% below the same period last year,
the business delivered 6% organic constant currency revenue growth
which reflects the benefits of pricing actions, product mix and a
good demand for value added coating services. As a result, the
business delivered a good improvement in operating profit. During
the period, the team has faced challenges due to customer project
delays as a result of end market component shortages and higher
steel costs. Labour shortages have also limited production capacity
in some of our plants. We expect the situation to improve in the
second half as COVID-19 unemployment reliefs come to an end and raw
material availability increases.
In the medium to longer term, the outlook is positive with US
infrastructure spend levels remaining robust across a wide range of
our customer end markets.
France
In France we have 10 strategically located galvanizing plants,
each serving a local market. We act as a key part of the
manufacturing supply chain in those markets and deliver a high
level of service and quality to maintain our position as market
leaders.
The business performed well in the first half of 2021, supported
by a continued recovery in demand. As a result, volumes galvanized
were 14% ahead of the same period last year which was impacted by
COVID-19 related closures. The outlook for the second half is
encouraging, with the team working hard to drive sales and profit
growth.
Financial Review
Cash Generation and Financing
Operating cash flow before movement in working capital was
GBP55.3m (2020: GBP43.1m), an increase of GBP12.2m demonstrating
the ongoing effectiveness of the Group's cash generative model.
As expected, the working capital outflow in the period was
GBP15.3m (2020: inflow of GBP18.3m), reflecting a higher level of
receivables due to increased trading activity. The Group continues
to focus on maximising working capital efficiency and to date has
not experienced any significant deterioration in customer payment
profiles since the onset of the pandemic, with debtor days at 30
June 2021 at 55 days (31 December 2020: 54 days).
Capital expenditure of GBP10.7m (2020: GBP12.9m) represents a
multiple of depreciation and amortisation of 1.0 times (2020: 1.1
times). Significant spend during the period included GBP0.7m on the
expansion of our temporary barrier rental facility in Texas,
GBP0.5m to increase manufacturing capacity in our high margin US
seismic restraints operation, and GBP0.6m on expanding production
facilities in our US electricity distribution business.
Net financing costs for the period were GBP3.3m (2020: GBP4.0m).
The cash element of financing costs was lower than the prior year
at GBP2.7m (2020: GBP3.4m), reflecting lower levels of average net
debt during the period following the strong cash generation
performance in the second half of 2020. The net cost of pension
fund financing under IAS 19 was GBP0.2m (2020: GBP0.2m) and the
amortisation of costs relating to refinancing activities was
GBP0.4m (2020: GBP0.4m).
Underlying cash conversion was 61% which reflects the working
capital outflow in the period. Assuming typical trading patterns,
we expect improved cash conversion in the second half.
Net Debt and Facilities Headroom
The Group continues to be highly cash generative with a strong
balance sheet. N et debt at the end of the period amounted to
GBP154.6m (31 December 2020: GBP146.2m), with the GBP8.4m increase
including cash outflows of GBP7.3m for the 2020 interim dividend
and GBP11.8m on the Prolectric acquisition.
The Group's principal financing facilities are a headline
GBP280m multi-currency revolving credit agreement, which expires in
December 2023, and $70m senior unsecured notes with maturities in
June 2026 and June 2029, together with a further GBP13.4m of
on-demand local overdraft arrangements. Throughout the period the
Group has operated well within these facilities and at 30 June
2021, the Group had GBP216.4m of headroom (GBP204.6m committed,
GBP11.8m on demand).
The principal borrowing facilities are subject to covenants that
are measured biannually in June and December, being net debt to
EBITDA of a maximum of 3.0 times and interest cover of a minimum of
4.0 times. The ratio of covenant net debt to EBITDA at 30 June 2021
was 1.1 times (31 December 2020: 1.3 times) and interest cover was
22.8 times (31 December 2020: 17.0 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 1.5 to 2.0 times. The Board would be prepared to
see leverage above the target range for short periods of time if
strategically appropriate.
Return On Invested Capital ('ROIC')
The Group's ROIC for the period to 30 June 2021 was 16.3% (2020:
13.0%), the increase reflecting the improved trading performance in
the first half of the year. We continue to maintain a disciplined
approach to capital investment, focussing on allocating capital to
our higher growth, higher return markets.
Tax
The underlying effective tax rate for the period was 21.8% (year
ended 31 December 2020: 19.8%) and is the estimated effective rate
for the full year. The tax charge for the period was GBP8.9m (2020:
GBP3.8m) and includes a GBP0.3m charge (2020: GBP0.6m credit) in
respect of non-underlying items, principally relating to the
amortisation of acquisition intangibles. Cash tax paid in the
period was GBP9.2m (2020: GBP10.0m).
Exchange Rates
The Group is exposed to movements in exchange rates when
translating the results of its overseas operations into Sterling.
Retranslating H1 2020 revenue and underlying operating profit using
average exchange rates for H1 2021 would have reduced revenue by
GBP12.8m and underlying operating profit by GBP2.4m, mainly as a
result of Sterling's appreciation against the US Dollar. A one cent
movement in the average US Dollar rate currently results in an
adjustment of approximately GBP2.0m to the Group's annual revenues
and GBP0.4m to annual underlying operating profit, while the
equivalent impacts for a one cent movement in the Euro are GBP0.7m
and GBP0.1m respectively.
Non-underlying Items
The total non-underlying items charged to operating profit in
the Consolidated Income Statement amounted to GBP18.4m (2020:
GBP3.3m) and comprised the following:
-- An impairment charge of GBP10.8m in respect of goodwill
relating to ATG Access Ltd, our HVM business (2020: GBPnil)
-- Costs associated with the closure of the UK variable message
signs business of GBP3.3m (2020: GBPnil)
-- Amortisation of acquired intangible assets of GBP3.0m (2020: GBP3.1m)
-- A loss on disposal of Technocover Ltd, our small UK security
access cover business, of GBP0.8m (2020: GBPnil)
-- Acquisition related expenses of GBP0.5m (2020: GBP0.2m).
The non-cash element of these charges was GBP16.3m. Further
details are set out in note 6 of the financial statements .
Pensions
The Group operates defined benefit pension plans in the UK,
France and the USA. The IAS 19 deficit of these plans at 30 June
2021 was GBP16.6m, a reduction of GBP3.0m from 31 December 2020
(GBP19.6m).
The deficit of the UK scheme, the largest employee benefit
obligation in the Group, was lower than the prior year end at
GBP11.3m (31 December 2020: GBP14.0m) due to the Group's deficit
recovery payments and an increase of 50 basis points in the
discount rate during the period, in line with increases in bond
yields, being partly offset by lower asset returns. The Group
continues to be actively engaged in dialogue with the scheme's
Trustees with regards to management, funding and investment
strategies. The next triennial valuation will be as at April
2022.
Going Concern
After making enquiries, 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 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 December 2022, 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 31 December 2021, 30 June 2022 and
31 December 2022. 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 31 December 2022. The Directors do not consider the
resulting performance levels to be plausible given the Group's
strong trading performance in the six months to 30 June 2021 and
the positive outlook across the infrastructure markets in which it
operates.
Principal Risks and Uncertainties
The Group has a process for identifying, evaluating and managing
the principal risks and uncertainties that it faces, and the
Directors have reviewed these principal risks and uncertainties
during the period. It is the Directors' opinion that the principal
risks set out on pages 50 to 53 of the Group's Annual Report for
the year ended 31 December 2020, remain applicable to the current
financial year.
Key considerations relating to the review of principal risks and
uncertainties during the period are set out below:
Principal Risk Considerations
Reduction in government It is increasingly likely that infrastructure
spending plans investment will continue to be a key part of
national spending plans, particularly in the
short to medium term. In the UK, the next phase
of the road investment spend (RIS2) has been
confirmed with schemes due to commence during
2021. In the US, bipartisan support for a Federal-funded
infrastructure investment bill is encouraging.
The Group is well placed to benefit from these
investments and as a result, the Directors believe
there has been a slight reduction in the net
risk.
----------------------------------------------------------
Contractual failure With the ongoing impact of the COVID-19 pandemic,
the potential for increased credit default has
been identified, although this has not yet materialised.
The Group continues to closely monitor the position,
with trade credit insurance policies in place
in the UK and France which partly mitigate exposure.
The Directors believe that there has been no
change in the net risk.
----------------------------------------------------------
Supply chain failure The after-effects of the COVID-19 pandemic on
global supply chains have impacted the price
and availability of key raw materials and components
across several Group businesses, as highlighted
in the 2020 Annual Report. Local contingency
planning around buffer stock levels, supplier
sourcing arrangements and sales price increases
have helped to mitigate the increased risk exposure.
The Directors believe that there has been an
increase in the net risk.
----------------------------------------------------------
IT systems failure Given threat actors have tried to capitalise
on the disruption of the COVID-19 pandemic and
ransomware attacks are becoming ever more prevalent,
the Group is continuing to take action to develop
its cyber security controls and mitigate the
enhanced risk, including the recent recruitment
of a Chief Information Security Officer. The
Directors believe that there has been a slight
increase in the net risk.
----------------------------------------------------------
Talent, development, As reported, parts of the Group have experienced
diversity, recruitment labour shortages during the period, particularly
and retention of key in the US. We expect the situation to improve
employees in the second half as COVID-19 unemployment reliefs
come to an end. The Directors believe there has
been a slight increase in the net risk.
----------------------------------------------------------
Prevention of harm or The Group has followed all local guidelines to
injury to people ensure that facilities are COVID-19 safe. While
the potential risk due to COVID-19 remains, the
Directors' assessment is that this has been mitigated
by the measures implemented and the net risk
remains unchanged.
----------------------------------------------------------
Directors' Responsibility Statement
We confirm that to the best of our knowledge:
-- The condensed set of Financial Statements has been prepared
in accordance with IAS 34: Interim Financial Reporting as contained
in UK-adopted IFRS;
-- The interim management report includes a fair review of the information required by:
a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the condensed
set of Financial Statements; and a description of the principal
risks and uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period including any changes in the related party transactions
described in the last Annual Report that could do so.
This report was approved by the Board of Directors on 10 August
2021 and is available on the Company's website ( www.hsholdings.com
).
P Simmons H K Nichols
Group Chief Executive Group Chief Financial Officer
10 August 2021
Financial Statements
Condensed Consolidated Income Statement
Six months ended 30 June 2021
6 months ended 6 months ended Year ended 31 December
30 June 2021 30 June 2020 2020
========================================= ========================================= =========================================
Underlying Non-underlying(*) Total Underlying Non-underlying(*) Total Underlying Non-underlying(*) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
==================== =========== ================== ======== =========== ================== ======== =========== ================== ========
Revenue 4 354.2 - 354.2 315.6 - 315.6 660.5 - 660.5
Cost of sales (222.2) - (222.2) (203.2) - (203.2) (415.9) - (415.9)
---------------- ----------- ------------------ -------- ----------- ------------------ -------- ----------- ------------------ --------
Gross profit 132.0 - 132.0 112.4 - 112.4 244.6 - 244.6
Distribution
costs (18.7) - (18.7) (16.3) - (16.3) (34.1) - (34.1)
Administrative
expenses (71.2) (18.4) (89.6) (70.0) (3.3) (73.3) (142.2) (27.1) (169.3)
Other operating
income 0.4 - 0.4 0.7 - 0.7 1.6 - 1.6
================ =========== ================== ======== =========== ================== ======== =========== ================== ========
Operating
profit 5 42.5 (18.4) 24.1 26.8 (3.3) 23.5 69.9 (27.1) 42.8
Financial
income 7 0.2 - 0.2 0.3 - 0.3 0.6 - 0.6
Financial
expense 7 (3.5) - (3.5) (4.3) - (4.3) (7.9) - (7.9)
================ =========== ================== ======== =========== ================== ======== =========== ================== ========
Profit before
taxation 39.2 (18.4) 20.8 22.8 (3.3) 19.5 62.6 (27.1) 35.5
Taxation 8 (8.6) (0.3) (8.9) (4.4) 0.6 (3.8) (12.4) 0.9 (11.5)
================ =========== ================== ======== =========== ================== ======== =========== ================== ========
Profit for the
period
attributable
to owners of
the parent 30.6 (18.7) 11.9 18.4 (2.7) 15.7 50.2 (26.2) 24.0
================ =========== ================== ======== =========== ================== ======== =========== ================== ========
Basic earnings
per
share 9 15.0p 19.7p 30.2p
Diluted
earnings per
share 9 14.9p 19.6p 30.0p
================ =========== ================== ======== =========== ================== ======== =========== ================== ========
* The Group's definition of non-underlying items and further
details of the amounts included are set out in note 6.
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2021
6 months 6 months Year
ended ended ended
30 June 30 J une 31 December
2021 2020 2020
GBPm GBPm GBPm
============================================================ ======== ================ ============
Profit for the period 11.9 15.7 24.0
============================================================ ======== ================ ============
Items that may be reclassified subsequently to profit
or loss
Exchange differences on translation of overseas operations (6.5) 19.6 (2.5)
Exchange differences on foreign currency borrowings
denominated as net investment hedges 1.5 (5.3) -
Items that will not be reclassified subsequently to
profit or loss
Actuarial gain/(loss) on defined benefit pension schemes 1.0 (1.6) (2.3)
Taxation on items that will not be reclassified to
profit or loss 0.6 0.3 0.8
============================================================ ======== ================ ============
Other comprehensive (expense)/income for the period (3.4) 13.0 (4.0)
============================================================ ======== ================ ============
Total comprehensive income for the period attributable
to owners of the parent 8.5 28.7 20.0
============================================================ ======== ================ ============
Condensed Consolidated Statement of Financial Position
Six months ended 30 June 2021
30 June 30 June 31 December
2021 2020 2020
Notes GBPm GBPm GBPm
===================================== ======= ======= ===========
Non-current assets
Intangible assets 184.0 216.6 188.5
Property, plant and equipment 177.2 198.7 183.6
Right-of-use assets 34.7 34.4 30.9
Corporation tax receivable 8 1.6 - -
Deferred tax assets 1.4 2.0 1.4
===================================== ======= ======= ===========
398.9 451.7 404.4
===================================== ======= ======= ===========
Current assets
Assets held for sale - 1.6 -
Inventories 99.1 99.3 96.3
Trade and other receivables 150.4 127.5 122.7
Current tax assets - - 1.3
Cash and short term deposits 12 19.2 20.5 22.0
================================= ======= ======= ===========
268.7 248.9 242.3
===================================== ======= ======= ===========
Total assets 667.6 700.6 646.7
===================================== ======= ======= ===========
Current liabilities
Trade and other liabilities (132.1) (117.1) (116.7)
Current tax liabilities (4.0) (5.9) (5.5)
Provisions (1.4) (0.5) (3.3)
Lease liabilities 12 (9.6) (9.7) (8.6)
Loans and borrowings 12 (6.3) (0.4) (8.6)
================================= ======= ======= ===========
(153.4) (133.6) (142.7)
===================================== ======= ======= ===========
Net current assets 115.3 115.3 99.6
===================================== ======= ======= ===========
Non-current liabilities
Other liabilities (1.4) (1.5) (1.4)
Provisions (4.6) (2.6) (2.5)
Deferred tax liabilities (10.8) (8.4) (9.0)
Retirement benefit obligations (16.6) (20.3) (19.6)
Lease liabilities 12 (26.3) (26.6) (23.8)
Loans and borrowings 12 (131.6) (179.2) (127.2)
================================= ======= ======= ===========
(191.3) (238.6) (183.5)
===================================== ======= ======= ===========
Total liabilities (344.7) (372.2) (326.2)
===================================== ======= ======= ===========
Net assets 322.9 328.4 320.5
===================================== ======= ======= ===========
Equity
Share capital 19.9 19.9 19.9
Share premium 39.5 38.2 38.4
Other reserves 4.9 4.9 4.9
Translation reserve 12.2 34.0 17.2
Retained earnings 246.4 231.4 240.1
===================================== ======= ======= ===========
Total equity 322.9 328.4 320.5
===================================== ======= ======= ===========
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2021
Share Share Other Translation Retained Total
Capital Premium reserves reserves Earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= =========== ============= =======
At 1 January 2021 19.9 38.4 4.9 17.2 240.1 320.5
========================================= ======== ======== ========= =========== ============= =======
Comprehensive income
Profit for the period - - - - 11.9 11.9
Other comprehensive income for the
period - - - (5.0) 1.6 (3.4)
Transactions with owners recognised
directly in equity
Dividends - - - - (7.3) (7.3)
Credit to equity of share-based payments - - - - 0.6 0.6
Satisfaction of long term incentive
payments - - - - (0.2) (0.2)
Own shares held in employee benefit
trust - - - - (0.5) (0.5)
Tax taken directly to the Consolidated
Statement of Changes in Equity - - - - 0.2 0.2
Shares issued - 1.1 - - - 1.1
========================================= ======== ======== ========= =========== ============= =======
At 30 June 2021 19.9 39.5 4.9 12.2 246.4 322.9
========================================= ======== ======== ========= =========== ============= =======
Other reserves represents the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m capital
redemption reserve.
Six months ended 30 June 2020
Share Share Other Translation Retained Total
Capital Premium reserves reserves Earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= =========== ============= =======
At 1 January 2020 19.9 37.4 4.9 19.7 225.1 307.0
----------------------------------------- -------- -------- --------- ----------- ------------- -------
Comprehensive income
Profit for the period - - - - 15.7 15.7
Other comprehensive income for the
period - - - 14.3 (1.3) 13.0
Transactions with owners recognised
directly in equity
Dividends - - - - (8.4) (8.4)
Credit to equity of share-based payments - - - - 0.3 0.3
Shares issued - 0.8 - - - 0.8
========================================= ======== ======== ========= =========== ============= =======
At 30 June 2020 19.9 38.2 4.9 34.0 231.4 328.4
========================================= ======== ======== ========= =========== ============= =======
Other reserves represents the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m capital
redemption reserve.
Year ended 31 December 2020
Share Share Other Translation Retained Total
Capital Premium reserves reserves Earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= =========== ============= =======
At 1 January 2020 19.9 37.4 4.9 19.7 225.1 307.0
----------------------------------------- -------- -------- --------- ----------- ------------- -------
Comprehensive income
Profit for the period - - - - 24.0 24.0
Other comprehensive income for the
period - - - (2.5) (1.5) (4.0)
Transactions with owners recognised
directly in equity
Dividends - - - - (8.4) (8.4)
Credit to equity of share-based payments - - - - 0.8 0.8
Tax taken directly to the Consolidated
Statement of Changes in Equity - - - - 0.1 0.1
Shares issued - 1.0 - - - 1.0
========================================= ======== ======== ========= =========== ============= =======
At 31 December 2020 19.9 38.4 4.9 17.2 240.1 320.5
========================================= ======== ======== ========= =========== ============= =======
Other reserves represents the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m capital
redemption reserve.
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2021
Year ended
6 months ended 6 months ended 31 December
30 June 2021 30 June 2020 2020
Notes GBPm GBPm GBPm
=============================================== ============== ============== ============
Profit before tax 20.8 19.5 35.5
Add back net financing costs 3.3 4.0 7.3
Operating profit 24.1 23.5 42.8
Adjusted for non-cash items:
Share-based payments 0.6 0.3 0.8
Loss on disposal of subsidiary 0.8 - -
Gain on disposal of non-current assets (0.4) (0.2) (1.9)
Gain on revaluation of assets held
for sale - (0.4) -
Depreciation of owned assets 10.5 10.9 21.9
Amortisation of intangible assets 3.7 3.7 7.5
Right-of-use asset depreciation 5.2 5.3 10.4
Gain on lease termination - - (0.1)
Impairment of non-current assets 10.8 - 19.5
=============================================== ============== ============== ============
31.2 19.6 58.1
=============================================== ============== ============== ============
Operating cash flow before movement
in working capital 55.3 43.1 100.9
(Increase)/decrease in inventories (3.3) 2.0 1.0
(Increase)/decrease in receivables (29.5) 20.9 21.6
Increase/(decrease) in payables 17.5 (4.6) (4.4)
Decrease in provisions and employee
benefits (1.6) (2.1) (0.8)
=============================================== ============== ============== ============
Net movement in working capital and
provisions (16.9) 16.2 17.4
=============================================== ============== ============== ============
Cash generated by operations 38.4 59.3 118.3
Purchase of assets for rental to customers (1.6) (2.0) (3.1)
Income taxes paid (9.2) (10.0) (16.5)
Interest paid (2.4) (3.2) (6.0)
Interest paid on lease liabilities (0.4) (0.4) (0.8)
=============================================== ============== ============== ============
Net cash from operating activities 24.8 43.7 91.9
Interest received 0.3 0.3 0.6
Proceeds on disposal of non-current
assets 0.7 0.6 6.5
Purchase of property, plant and equipment (8.7) (10.2) (15.5)
Purchase of intangible assets (0.4) (0.7) (1.8)
Acquisitions of
businesses (11.8) - (0.9)
Disposal of subsidiary 1.2 - -
=============================================== ============== ============== ============
Net cash used in investing activities (18.7) (10.0) (11.1)
Issue of new shares 1.1 0.8 1.0
Purchase of shares for employee
benefit trust (0.7) - -
Dividends paid 10 (7.3) (8.4) (8.4)
Repayments of lease liabilities (5.0) (5.4) (11.1)
New loans and borrowings 28.0 8.0 -
Repayment of loans and borrowings (22.5) (35.4) (74.4)
=========================================== ============== ============== ============
Net cash used in financing activities (6.4) (40.4) (92.9)
=============================================== ============== ============== ============
Net decrease in cash (0.3) (6.7) (12.1)
Cash at the beginning of the period 13.9 26.0 26.0
Effect of exchange rate fluctuations (0.3) 1.2 -
=============================================== ============== ============== ============
Cash and cash equivalents at the
end of the period 12 13.3 20.5 13.9
=========================================== ============== ============== ============
Notes to the Financial Statements
1. Basis of preparation
Hill & Smith Holdings PLC is incorporated in the UK. The
Condensed Consolidated Interim Financial Statements of the Company
have been prepared on the basis of International Financial
Reporting Standards ('IFRSs') that were effective at 10 August 2021
and in accordance with IAS 34: Interim Financial Reporting,
comprising the Company, its subsidiaries and its interests in
jointly controlled entities (together referred to as the
'Group').
As required by the Disclosure and Transparency Rules of the
Financial Services Authority, the Condensed Consolidated Interim
Financial Statements have been prepared applying the accounting
policies and presentation that were applied in the preparation of
the Company's published Consolidated Financial Statements for the
year ended 31 December 2020 (these statements do not include all of
the information required for full Annual Financial Statements and
should be read in conjunction with the full Annual Report for the
year ended 31 December 2020).
New IFRS standards, interpretations and amendments adopted
during 2021
The following amendments and interpretations apply for the first
time in 2021, but do not have an impact on the Condensed
Consolidated Interim Financial Statements of the Group.
-- Covid-19-Related Rent Concessions beyond 30 June 2021 - Amendments to IFRS 16
-- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The comparative figures for the financial year ended 31 December
2020 are not the Company's statutory accounts for that financial
year. Those accounts have been reported on by the Company's auditor
and delivered to the Registrar of Companies. The report of the
auditor (i) was unqualified, (ii) did not include a reference to
any matters to which the auditor drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under Section 498 (2) or (3) of the Companies Act
2006.
These Condensed Consolidated Interim Financial Statements have
not been audited or reviewed by an auditor pursuant to the Auditing
Practices Board's Guidance on Financial Information.
The Condensed Consolidated Interim Financial Statements are
prepared on the going concern basis, as explained in the Financial
Review.
2. Financial risks, estimates, assumptions and judgements
The preparation of the Condensed Consolidated Interim Financial
Statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and expense.
Actual results may differ from estimates.
In preparing these Condensed Consolidated Interim Financial
Statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
Consolidated Financial Statements as at and for the year ended 31
December 2020, relating to actuarial assumptions on pension
obligations, impairment of goodwill and other indefinite life
intangible assets, and liabilities for uncertain tax positions.
3. Exchange rates
The principal exchange rates used were as follows:
6 months ended 6 months ended Year ended
30 June 2021 30 June 2020 31 December 2020
================================= ====================== ==================== ===================
Average Closing Average Closing Average Closing
================================= ========== ========== ========= ========= ========== =======
Sterling to Euro (GBP1 = EUR) 1.15 1.17 1.14 1.10 1.13 1.11
Sterling to US Dollar (GBP1
= USD) 1.39 1.38 1.26 1.24 1.28 1.36
Sterling to Swedish Krona (GBP1
= SEK) 11.67 11.81 12.20 11.51 11.80 11.15
Sterling to Indian Rupee (GBP1
= INR) 101.87 102.75 93.41 93.33 95.10 99.73
Sterling to Australian Dollar
(GBP1 = AUD) 1.80 1.84 1.92 1.80 1.86 1.76
================================= ========== ========== ========= ========= ========== =======
4. Segmental information
The Group has three reportable segments which are Roads &
Security, Utilities, and Galvanizing Services. Several operating
segments that have similar economic characteristics have been
aggregated into these reporting segments. The Group's internal
management structure and financial reporting systems differentiate
between these segments, and, in reporting, management have taken
the view that they comprise a reporting segment on the basis of the
following economic characteristics:
-- The Roads & Security segment contains a group of
businesses supplying products designed to ensure the safety and
security of roads and other national infrastructure, many of which
have been developed to address national and international safety
standards, to customers involved in the construction of that
infrastructure;
-- The Utilities segment contains a group of businesses
supplying products characterised by a degree of engineering
expertise, to public and private customers involved in the
construction of facilities serving the utilities markets; and
-- The Galvanizing Services segment contains a group of
companies supplying galvanizing and related materials coating
services to companies in a wide range of markets including
construction, agriculture and infrastructure.
Corporate costs are allocated to reportable segments in
proportion to the revenue of each of those segments.
Segmental Income Statement
6 months ended 30 June 6 months ended 30 June
2021 2020
======================== ================================= =================================
Reported Underlying Reported Underlying
operating operating operating operating
Revenue profit profit* Revenue profit profit*
GBPm GBPm GBPm GBPm GBPm GBPm
======================== ========= ========== ========== ========= ========== ==========
Roads & Security 146.8 (8.0) 9.5 128.2 2.0 4.3
Utilities 107.7 11.7 12.0 101.4 7.7 8.2
Galvanizing Services 99.7 20.4 21.0 86.0 13.8 14.3
======================== ========= ========== ========== ========= ========== ==========
Total Group 354.2 24.1 42.5 315.6 23.5 26.8
======================== ========= =========
Net financing costs (3.3) (3.3) (4.0) (4.0)
======================== ========= ========== ========== ========= ========== ==========
Profit before taxation 20.8 39.2 19.5 22.8
Taxation (8.9) (8.6) (3.8) (4.4)
======================== ========= ========== ========== ========= ========== ==========
Profit after taxation 11.9 30.6 15.7 18.4
======================== ========= ========== ========== ========= ========== ==========
Year ended 31 December
2020
=================================
Reported Underlying
operating operating
Revenue profit profit*
GBPm GBPm GBPm
======================= ========= ========== ==========
Roads & Security 263.4 5.6 13.2
Utilities 211.2 20.1 20.9
Galvanizing Services 185.9 17.1 35.8
======================= ========= ========== ==========
Total Group 660.5 42.8 69.9
======================= =========
Net financing costs (7.3) (7.3)
======================= ========= ========== ==========
Profit before taxation 35.5 62.6
Taxation (11.5) (12.4)
======================= ========= ========== ==========
Profit after taxation 24.0 50.2
======================= ========= ========== ==========
(*) Underlying operating profit is an alternative performance
measure which is stated before non-underlying items as defined in
note 6 and is the measure of segment profit used by the Chief
Operating Decision Maker, who is the Chief Executive. The 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 GBP0.8m of products and services to Utilities (six
months ended 30 June 2020: GBP0.8m, year ended 31 December 2020:
GBP1.7m) and GBP3.1m of products and services to Roads &
Security (six months ended 30 June 2020: GBP2.6m, year ended 31
December 2020: GBP5.2m). Utilities sold GBP1.5m of products and
services to Roads & Security (six months ended 30 June 2020:
GBP1.0m, year ended 31 December 2020: GBP2.2m). Roads &
Security sold GBP0.1m of products and services to Utilities (six
months ended 30 June 2020: GBPnil, year ended 31 December 2020:
GBP0.2m). These internal revenues, along with revenues generated
within each segment, have been eliminated on consolidation.
In the following tables, revenue from contracts with customers
is disaggregated by primary geographical market, major
product/service line and timing of revenue recognition. Revenue by
primary geographical market is defined as the end location of the
Group's product or service. The table also includes a
reconciliation of the disaggregated revenue with the Group's
reportable segments.
Roads & Security Utilities Galvanizing Total
-------------------------------------- ================== ================== ================== ==================
6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months
ended ended ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2021 2020 2021 2020 2021 2020 2021 2020
Primary geographical markets GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------
UK 80.2 68.2 34.4 26.3 35.6 26.5 150.2 121.0
Rest of Europe 27.5 24.7 2.5 2.5 29.4 23.1 59.4 50.3
North America 32.7 31.5 66.3 70.4 34.7 36.4 133.7 138.3
The Middle East 2.0 1.6 0.3 0.4 - - 2.3 2.0
Rest of Asia 0.9 0.4 3.3 1.5 - - 4.2 1.9
Rest of the world 3.5 1.8 0.9 0.3 - - 4.4 2.1
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
146.8 128.2 107.7 101.4 99.7 86.0 354.2 315.6
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
Major product/service lines
Manufacture, supply and installation
of products 136.9 116.5 107.7 101.4 - - 244.6 217.9
Galvanizing services - - - - 99.7 86.0 99.7 86.0
Rental income 9.9 11.7 - - - - 9.9 11.7
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
146.8 128.2 107.7 101.4 99.7 86.0 354.2 315.6
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
Timing of revenue recognition
Products and services transferred
at a point in time 115.7 93.7 56.4 51.1 99.7 86.0 271.8 230.8
Products and services transferred
over time 31.1 34.5 51.3 50.3 - - 82.4 84.8
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
146.8 128.2 107.7 101.4 99.7 86.0 354.2 315.6
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
Year ended 31 December
2020
Roads
& Security Utilities Galvanizing Total
GBPm GBPm GBPm GBPm
================================================== =========== =============== ============= =====
Primary geographical markets
UK 140.7 59.6 59.2 259.5
Rest of Europe 53.9 6.0 50.9 110.8
North America 58.0 138.2 75.8 272.0
The Middle East 5.2 1.4 - 6.6
Rest of Asia 0.8 5.4 - 6.2
Rest of the world 4.8 0.6 - 5.4
-------------------------------------------------- =========== =============== ============= =====
263.4 211.2 185.9 660.5
-------------------------------------------------- =========== =============== ============= =====
Major product/service lines
Manufacture, supply and installation of products 240.4 211.2 - 451.6
Galvanizing services - - 185.9 185.9
Rental income 23.0 - - 23.0
-------------------------------------------------- =========== =============== ============= =====
263.4 211.2 185.9 660.5
-------------------------------------------------- =========== =============== ============= =====
Timing of revenue recognition
Products and services transferred at a point in
time 201.6 107.9 185.9 495.4
Products and services transferred over time 61.8 103.3 - 165.1
-------------------------------------------------- =========== =============== ============= =====
263.4 211.2 185.9 660.5
-------------------------------------------------- =========== =============== ============= =====
5. 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 tax;
-- Underlying operating profit;
-- Underlying operating profit margin;
-- Organic measure of change in revenue and underlying operating profit;
-- Underlying cash conversion ratio;
-- Capital expenditure to depreciation and amortisation ratio; and
-- Underlying earnings per share. A reconciliation of statutory
earnings per share to underlying earnings per share is provided in
note 9.
All underlying measures exclude certain non-underlying items,
which are detailed in note 6. 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
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
========================================== ======== ======== ==============
Underlying profit before tax 39.2 22.8 62.6
========================================== ======== ======== ==============
Non-underlying items:
Amortisation of acquisition intangibles (3.0) (3.1) (6.1)
Business reorganisation costs (2.9) - -
Impairment of assets (11.2) - (20.3)
Acquisition related expenses (0.5) (0.2) (0.3)
Past service pension expense - - (0.4)
Loss on disposal of subsidiary (0.8) - -
Reported profit before tax 20.8 19.5 35.5
========================================== ======== ======== ==============
Reconciliation of underlying to reported operating profit by
segment
Roads & Security Utilities Galvanizing Total
================== ================== ================== ==================
6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months
ended ended ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======== ======== ======== ======== ======== ======== ========
Underlying operating profit 9.5 4.3 12.0 8.2 21.0 14.3 42.5 26.8
================================== ======== ======== ======== ======== ======== ======== ======== ========
Non-underlying items:
Amortisation of acquisition
intangibles (2.1) (2.1) (0.3) (0.5) (0.6) (0.5) (3.0) (3.1)
Business reorganisation
costs (2.9) - - - - - (2.9) -
Acquisition related expenses (0.5) (0.2) - - - - (0.5) (0.2)
Loss on disposal of subsidiary (0.8) - - - - - (0.8) -
Impairment of assets (11.2) - - - - - (11.2) -
Reported operating profit/(loss) (8.0) 2.0 11.7 7.7 20.4 13.8 24.1 23.5
================================== ======== ======== ======== ======== ======== ======== ======== ========
Year ended 31 December
2020
Roads
& Security Utilities Galvanizing Total
GBPm GBPm GBPm GBPm
========================================== =========== =============== =========== ======
Underlying operating profit 13.2 20.9 35.8 69.9
========================================== =========== =============== =========== ======
Non-underlying items:
Amortisation of acquisition intangibles (4.3) (0.7) (1.1) (6.1)
Impairment of assets (2.8) - (17.5) (20.3)
Acquisition related expenses (0.3) - - (0.3)
Pension past service expense (0.2) (0.1) (0.1) (0.4)
Reported operating profit 5.6 20.1 17.1 42.8
========================================== =========== =============== =========== ======
Calculation of underlying operating profit margin
Roads & Security Utilities Galvanizing Total
================== ================== ================== ==================
6 months 6 months 6 months 6 months 6 months 6 months 6 months 6 months
ended ended ended ended ended ended ended ended
30 June 30 June 30 June 30 June 30 June 30 June 30 June 30 June
2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======== ======== ======== ======== ======== ======== ======== ========
Underlying operating profit 9.5 4.3 12.0 8.2 21.0 14.3 42.5 26.8
============================= ======== ======== ======== ======== ======== ======== ======== ========
Revenue 146.8 128.2 107.7 101.4 99.7 86.0 354.2 315.6
Underlying operating profit
margin (%) 6.5% 3.4% 11.1% 8.1% 21.1% 16.6% 12.0% 8.5%
============================= ======== ======== ======== ======== ======== ======== ======== ========
Year ended 31 December
2020
Roads
& Security Utilities Galvanizing Total
GBPm GBPm GBPm GBPm
======================================== =========== =============== =========== =====
Underlying operating profit 13.2 20.9 35.8 69.9
======================================== =========== =============== =========== =====
Revenue 263.4 211.2 185.9 660.5
Underlying operating profit margin (%) 5.0% 9.9% 19.3% 10.6%
======================================== =========== =============== =========== =====
Organic measure of change in revenue and underlying operating
profit
Roads & Security Utilities Galvanizing Total
=================== =================== =================== ===================
Underlying Underlying Underlying Underlying
operating operating operating operating
Revenue profit Revenue profit Revenue profit Revenue profit
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================== ======= ========== ======= ========== ======= ========== ======= ==========
2020 128.2 4.3 101.4 8.2 86.0 14.3 315.6 26.8
Impact of exchange rate
movements from 2020 to 2021 (2.5) (0.4) (6.8) (0.9) (3.5) (1.1) (12.8) (2.4)
------------------------------ ------- ---------- ------- ---------- ------- ---------- ------- ----------
2020 translated at 2021
exchange rates (A) 125.7 3.9 94.6 7.3 82.5 13.2 302.8 24.4
Acquisitions and disposals 2.1 0.2 - - - - 2.1 0.2
Organic growth (B) 19.0 5.4 13.1 4.7 17.2 7.8 49.3 17.9
============================== ======= ========== ======= ========== ======= ========== ======= ==========
2021 146.8 9.5 107.7 12.0 99.7 21.0 354.2 42.5
Organic growth % (B divided
by A) 15% 139% 14% 64% 21% 59% 16% 73%
============================== ======= ========== ======= ========== ======= ========== ======= ==========
Calculation of underlying cash conversion ratio
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020 GBPm
GBPm GBPm
=================================================== ======== ======== ==============
Underlying operating profit 42.5 26.8 69.9
=================================================== ======== ======== ==============
Calculation of adjusted operating cash flow:
Cash generated by operations 38.4 59.3 118.3
Less: Purchase of assets for rental to customers (1.6) (2.0) (3.1)
Less: Purchase of property, plant and equipment (8.7) (10.2) (15.5)
Less: Purchase of intangible assets (0.4) (0.7) (1.8)
Less: Repayments of lease liabilities (5.0) (5.4) (11.1)
Add: Proceeds on disposal of non-current assets
and assets held for sale 0.7 0.6 6.5
Add back: Defined benefit pension scheme deficit
payments 1.9 1.7 3.6
Add back: Cash flows relating to non-underlying
items 0.6 0.2 0.6
Adjusted operating cash flow 25.9 43.5 97.5
=================================================== ======== ======== ==============
Underlying cash conversion (%) 61% 162% 139%
=================================================== ======== ======== ==============
Calculation of capital expenditure to depreciation and
amortisation ratio
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020 GBPm
GBPm GBPm
====================================================== ======== ======== ==============
Calculation of capital expenditure:
Purchase of assets for rental to customers 1.6 2.0 3.1
Purchase of property, plant and equipment 8.7 10.2 15.5
Purchase of intangible assets 0.4 0.7 1.8
====================================================== ======== ======== ==============
10.7 12.9 20.4
====================================================== ======== ======== ==============
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 10.5 10.9 21.9
Amortisation of development costs 0.5 0.5 1.2
Amortisation of other intangible assets 0.2 0.1 0.2
11.2 11.5 23.3
====================================================== ======== ======== ==============
Capital expenditure to depreciation and amortisation
ratio 1.0x 1.1x 0.9x
====================================================== ======== ======== ==============
6. Non-underlying items
Non-underlying items are disclosed separately in the
Consolidated Income Statement where, in the Directors' judgement,
the quantum, nature or volatility of such items gives further
information to obtain a fuller understanding of the underlying
performance of the business. The following are included by the
Group in its assessment of non-underlying items:
-- Gains or losses arising on disposal, closure, restructuring
or reorganisation of businesses that do not meet the definition of
discontinued operations.
-- Amortisation of intangible fixed assets arising on
acquisitions, which can vary depending on the nature, size and
frequency of acquisitions in each financial period.
-- Expenses associated with acquisitions, comprising
professional fees incurred and any consideration which, under IFRS
3 (Revised) is required to be treated as a post-acquisition
employment expense.
-- Impairment charges in respect of tangible or intangible fixed
assets, or right-of-use assets.
-- Changes in the fair value of derivative financial instruments.
-- Significant past service items or curtailments and
settlements relating to defined benefit pension obligations
resulting from material changes in the terms of the schemes.
The non-underlying tax charge or credit comprises the tax effect
of the above non-underlying items.
Details in respect of the non-underlying items recognised in the
current period and prior year are set out below.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
========================================= ======== ======== ============
Amortisation of acquisition intangibles (3.0) (3.1) (6.1)
Business reorganisation costs (a) (2.9) - -
Impairment of assets (b) (11.2) - (20.3)
Acquisition related expenses (c) (0.5) (0.2) (0.3)
Past service pension expenses (d) - - (0.4)
Loss on disposal of subsidiary (e) (0.8) - -
========================================= ======== ======== ============
(18.4) (3.3) (27.1)
========================================= ======== ======== ============
Notes:
a) Following a period of weak trading and a strategic review of
future options, in March 2021 the Group took the decision to close
its loss-making variable message sign ('VMS') business. Business
reorganisation costs of GBP2.9m in 2021 reflect the anticipated
cash costs of closure, which is expected to be completed by the end
of the year. An additional impairment charge of GBP0.4m has also
been recognised in the period following a reassessment of the
carrying value of inventories in the business and is recognised
within "impairment of assets" in the table above.
b) In 2021, an impairment charge of GBP10.8m in respect of
goodwill relating to ATG Access Limited ('ATG') has been recorded.
ATG operates in niche security markets, manufacturing and
distributing hostile vehicle mitigation and related products that
protect both public and private developments such as transport
hubs, commercial buildings and infrastructure sites from the threat
of attack. The COVID-19 pandemic has had two significant impacts on
ATG's markets: firstly, the restrictions on public gatherings
across the world and secondly, a constraint on customer budgets
resulting in them de-prioritising significant security projects.
Following a challenging trading period in 2020, results in the
first half of 2021 have remained well below previous expectations
leading the Board to reassess the business's future prospects. This
reassessment concluded that the pace of ATG's recovery is likely to
be slower than had previously been anticipated, mainly due to an
expectation of prolonged inactivity in several of its key sectors
and also reflecting increased competition in the market.
Consequently, the impairment review performed at 30 June 2021
concluded that ATG's expected future cash flows were not sufficient
to support its carrying value at that date, resulting in an
impairment of the acquisition goodwill.
In 2020, the impairment charge of GBP20.3m included asset
impairments of GBP2.8m associated with the VMS closure, reflecting
the expected realisable value of the business's assets at that
date, and comprised goodwill and intangible assets of GBP1.1m,
tangible fixed assets of GBP0.5m, inventories of GBP0.8m and
right-of-use lease assets of GBP0.4m. The remaining GBP17.5m
impairment charge reflected an impairment of goodwill relating to
France Galva SA, following a reassessment of its future outturn in
light of the impacts of the COVID-19 pandemic.
c) Acquisition related expenses of GBP0.5m (year ended 31
December 2020: GBP0.3m) include GBP0.1m (year ended 31 December
2020: GBP0.2m) relating to future consideration payments to
previous owners of the acquired businesses, the terms of which
require those costs to be treated as a post-acquisition employment
expense in accordance with IFRS 3 (Revised).
d) In October 2018, the High Court handed down a judgement
requiring businesses with defined benefit pension schemes to
equalise the historical Guaranteed Minimum Pensions between male
and female members. In 2020 there was a further hearing in relation
to members who have transferred out of schemes, which concluded
that schemes do need to revisit historical transfers for
equalisation. The Group recognised a charge of GBP0.4m in 2020 in
respect of the impact of the latest judgement.
e) On 15 June 2021 the Group completed the disposal of
Technocover Limited, our small, loss-making security access covers
business, at a loss of GBP0.8m. Details of the disposal are set out
below.
Disposal of Technocover GBPm
=============================== =====
Property, plant and equipment 1.7
Right-of-use assets 0.1
Inventories 0.5
Current assets 1.9
Cash 0.6
Lease liabilities (0.1)
Current liabilities (2.1)
Net assets disposed 2.6
===============================
Consideration
Consideration received 2.2
Less costs of disposal (0.4)
Loss on disposal 0.8
=============================== =====
7. Net financing costs
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2020
2021 2020 GBPm
GBPm GBPm
============================================= ======== ======== ==============
Interest on bank deposits 0.2 0.3 0.6
============================================= ======== ======== ==============
Financial income 0.2 0.3 0.6
============================================= ======== ======== ==============
Interest on loans and borrowings (2.5) (3.3) (6.0)
Interest on lease liabilities (0.4) (0.4) (0.8)
Financial expenses related to refinancing (0.4) (0.4) (0.8)
Interest cost on net pension scheme deficit (0.2) (0.2) (0.3)
============================================= ======== ======== ==============
Financial expense (3.5) (4.3) (7.9)
============================================= ======== ======== ==============
Net financing costs (3.3) (4.0) (7.3)
============================================= ======== ======== ==============
8. Taxation
Tax has been provided on the underlying profit at the estimated
effective rate of 21.8% (2020: 19.5%) for existing operations for
the full year.
In October 2017, the European Commission opened a state aid
investigation into the Group Financing Exemption in the UK
Controlled Foreign Company ('CFC') legislation. On 2 April 2019 the
Commission announced that it believes that in certain circumstances
the UK's CFC regime constituted State Aid. In common with other
UK-based international companies, the Group may be affected by the
outcome of this case. In January 2021 the Group received a charging
notice from HMRC requiring it to pay GBP1.6m in respect of state
aid that HMRC considers had been unlawfully received in previous
years. The amount was paid in full in February 2021. Based on the
current status of the case in both the UK and EU jurisdictions, we
have concluded that it is appropriate to recognise this amount as a
tax receivable at 30 June 2021.
9. Earnings per share
The weighted average number of ordinary shares in issue during
the period was 79.6m, diluted for the effect of outstanding share
options 80.3m (six months ended 30 June 2020: 79.4m and 79.9m
diluted; the year ended 31 December 2020: 79.5m and 79.9m diluted).
Underlying earnings per share are shown below as the Directors
consider that this measurement of earnings gives valuable
information on the underlying performance of the Group:
6 months ended 6 months ended Year ended 31
30 June 2021 30 June 2020 December 2020
============================= ======================= ==================== ======================
Pence Pence Pence
per share GBPm per share GBPm per share GBPm
============================= =============== ====== ============ ====== ============== ======
Basic earnings 15.0 11.9 19.7 15.7 30.2 24.0
Non-underlying items * 23.5 18.7 3.4 2.7 33.0 26.2
============================= =============== ====== ============ ====== ============== ======
Underlying earnings 38.5 30.6 23.1 18.4 63.2 50.2
============================= =============== ====== ============ ====== ============== ======
Diluted earnings 14.9 11.9 19.6 15.7 30.0 24.0
Non-underlying items * 23.3 18.7 3.3 2.7 32.9 26.2
============================= =============== ====== ============ ====== ============== ======
Underlying diluted earnings 38.2 30.6 22.9 18.4 62.9 50.2
============================= =============== ====== ============ ====== ============== ======
* Non-underlying items as detailed in note 6.
10. Dividends
Dividends paid in the period were the prior year's interim
dividend of GBP7.3m (2020: GBP8.4m). Dividends declared after the
Balance Sheet date are not recognised as a liability, in accordance
with IAS 10. The Directors have proposed an interim dividend for
the current year of GBP9.6m, 12.0p per share (2020: GBP7.3m, 9.2p
per share), which will be paid on 7 January 2022 to shareholders on
the register on 3 December 2021.
11. Intangible assets
Acquisition of Prolectric Services Limited
On 1 March 2021, the Group acquired 100% of the share capital of
Prolectric Services Limited ("Prolectric") and its dormant
subsidiaries for an initial consideration of GBP12.0m. Further
consideration of up to GBP5.7m is payable depending on Prolectric's
achievement of financial performance targets in the 12-month period
to 31 March 2022. Prolectric, located in Clevedon, North Somerset,
is a UK market leader in off-grid solar energy solutions, aligning
closely with the Group's purpose of creating sustainable
infrastructure and providing new technology that the Group can
leverage in its existing markets. Details of the acquisition are
set out below:
Policy alignment
Pre-acquisition and
carrying fair value
amount adjustments Total
Assets acquired and liabilities assumed GBPm GBPm GBPm
================================================== =============== ================ =====
Intangible assets
Brands - 0.7 0.7
Customer lists - 3.0 3.0
Contracts, licences and other assets 0.1 1.5 1.6
Property, plant and equipment 2.6 (1.5) 1.1
Right-of-use assets - 2.4 2.4
Inventories 0.4 - 0.4
Current assets 1.8 - 1.8
Cash 0.2 - 0.2
Total assets 5.1 6.1 11.2
================================================== =============== ================ =====
Lease liabilities - (1.8) (1.8)
Current liabilities (1.0) - (1.0)
Current interest bearing liabilities (1.2) 1.2 -
Deferred tax - (1.4) (1.4)
Total liabilities (2.2) (2.0) (4.2)
================================================== =============== ================ =====
Net assets 2.9 4.1 7.0
================================================== =============== ================
Consideration
Consideration in the year 12.0
Fair value of contingent consideration
due within 1 year 0.9
Goodwill 5.9
================================================== =============== ================ =====
Cash flow effect
Consideration in the year 12.0
Cash acquired with the business (0.2)
================================================== =============== ================ =====
Net cash consideration shown in the Consolidated
Statement of Cash Flows 11.8
================================================== =============== ================ =====
Brands, customer lists, contracts, licences and other assets
have been recognised as specific intangible assets as a result of
the acquisition. The residual goodwill arising, which has been
allocated to the Roads & Security segment, primarily represents
the highly skilled workforce, future technological advantages and
potential for geographical expansion afforded to the Group. Policy
alignment and fair value adjustments have been made to align the
accounting policies of the acquired businesses 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
GBP1.3m of trade receivables, which have a gross value of
GBP1.3m.
As part of the acquisition agreement, contingent consideration
has been agreed. The amount of contingent consideration is
dependent on Prolectric's adjusted operating profit for the
12-month period to 31 March 2022. Below the 'trigger' (as defined
in the Share Purchase Agreement), no additional consideration is
due. If the 'trigger' is achieved, additional consideration of
GBP2.2m becomes payable. Above this level, there are several
targets between which the additional consideration increases
linearly. Should Prolectric achieve the 'cap' (as defined in the
Share Purchase Agreement), a maximum additional consideration of
GBP5.7m will become payable. As at the acquisition date, the fair
value of the contingent consideration was estimated to be GBP0.9m,
calculated on a probability-weighted basis.
Post-acquisition the acquired business has contributed GBP2.5m
revenue and GBP0.2m underlying operating profit, which are included
in the Group's Consolidated Income Statement. If the acquisition
had been made on 1 January 2021, the Group's results for the period
would have shown revenue of GBP355.4m and underlying operating
profit of GBP42.8m.
Impairment of goodwill and indefinite life intangible assets
IAS 36 Impairment of Assets requires the Group to test goodwill
and other indefinite life intangible assets for impairment
annually, or at other reporting period ends where there is an
indication of impairment. In determining which Cash Generating
Units (CGUs) to test at 30 June 2021, the Group identified those
where the trading performance or outlook in the first six months of
the year had fallen substantially below previous expectations. On
this basis, impairment tests were carried out on the ATG Access and
Parking Facilities CGUs. Notwithstanding a positive performance in
the first half of 2021, given that the France Galva SA CGU was
impaired by GBP17.5m at 31 December 2020 and was therefore carried
at its recoverable amount at that date, the Group concluded that it
would also be appropriate to test France Galva SA at 30 June
2021.
Consistent with past practice and as disclosed in the Group's
2020 Annual Report, impairment tests on the carrying values of
goodwill are performed by comparing the carrying value allocated to
each significant CGU against its value in use. All goodwill is
allocated to specific CGUs, which are in all cases no larger than
operating segments. Value in use is calculated for each CGU as the
net present value of that unit's discounted future cash flows.
Short-term cash flows are based on latest management forecasts for
the second half of 2021 and strategic plans for the following four
years. The cash flows beyond the strategic plan period use growth
rates which reflect the long-term historical growth in GDP of the
economies in which each CGU is located, which vary between 1.6% and
2.0%. The Board believes the use of long-term historical growth
rates is currently the most reliable indicator of future growth
rates, given the ongoing volatility and uncertainty in any
forward-looking growth projections at the reporting date. Discount
rates are derived from a market participant's cost of capital, risk
adjusted for individual CGU's circumstances.
Based on the methodology outlined above, the impairment review
for ATG Access concluded that the carrying values of the assets of
the business exceeded their recoverable amount by GBP10.8m. The
Group has therefore recognised an impairment charge of GBP10.8m in
respect of ATG Access, as detailed in note 6, all of which has been
allocated to the goodwill arising on acquisition. No impairments
were identified for the France Galva SA or Parking Facilities
CGUs.
The Group has applied sensitivities to assess whether any
reasonably possible changes in assumptions could cause an
impairment of the goodwill in each tested CGU. These sensitivity
analyses identified potential impairments in respect of the France
Galva SA and ATG Access CGUs.
France Galva SA
The pace of recovery in galvanizing volumes, long term cash flow
growth rates and the discount rate are the key assumptions on which
the goodwill impairment review is most sensitive. The Group's
sensitivity analyses modelled several scenarios for the pace of
galvanizing volume recovery between 2021 and 2025, reflecting the
relatively wide range of recovery outcomes that are possible given
the ongoing economic uncertainties, together with variations in the
rate of future cash flow growth and possible discount rates. The
following table provides information on additional impairment
charges that may arise in those scenarios, for each of the key
assumptions (independently in each case):
Sensitivity Sensitised
applied headroom/(impairment)
Input Scenario % GBPm
================================ ===================
Percentage change in 2025
galvanizing volumes compared
with 2019 Base case 1.1 7.0
================================
H&S sensitised
* (5.3) (5.1)
Zero headroom (2.6) -
==================================================== =========== ======================
Annual cash flow growth
2026 onwards Base case 1.6 7.0
================================
H&S sensitised 0.0 (1.5)
Zero headroom 0.3 -
==================================================== =========== ======================
Pre-tax discount rate Base case 18.5 7.0
================================
H&S sensitised 20.5 (4.0)
Zero headroom 19.7 -
==================================================== =========== ======================
* This scenario assumes no growth in galvanizing volumes between
2021 and 2025. The sensitivity compares future volumes with 2019 to
determine the extent to which performance is expected to return to
pre-pandemic levels in the future.
ATG Access
ATG's future performance is largely dependent on the pace of
post-pandemic recovery in UK and global security products markets,
which itself is inherently dependent on public and customer
behaviour. It is plausible that the pace of recovery could be more
gradual than that assumed in the impairment tests that have been
carried out, in which case a further material impairment could
arise. Revenue growth, gross margins, long-term cash flow growth
and the discount rate are the key assumptions on which the goodwill
impairment review is most sensitive. The following table provides
information on the impact on calculated headroom of various
scenarios for each of those key assumptions (independently in each
case):
Sensitivity Additional
applied impairment
Input Scenario % GBPm
========================= ==================
Compound annual revenue
growth 2021-2025 Base case 3.9 -
=========================
H&S sensitivity
1 * 2.0 (3.3)
H&S sensitivity
2 * 0.0 (6.6)
============================================ =========== ===========
Gross profit margin 2025
onwards Base case 27.3 -
=========================
H&S sensitivity
1 ** 25.5 (2.9)
H&S sensitivity
2 ** 23.8 (5.6)
============================================ =========== ===========
Annual cash flow growth
2026 onwards Base case 2.0 -
=========================
H&S sensitivity
1 1.0 (1.5)
H&S sensitivity
2 0.0 (2.7)
============================================ =========== ===========
Pre-tax discount rate Base case 20.2 -
=========================
H&S sensitivity
1 21.4 (1.9)
H&S sensitivity
2 22.7 (3.4)
============================================ =========== ===========
* Illustrates the impacts of compound revenue growth at 2%
(consistent with long-term UK growth rates) and 0% (i.e. revenues
do not grow from the forecast 2021 outturn).
** Illustrates the impacts of long-term gross margins of 25.5%
(the midpoint of the base case range between 2021 and 2025) and
23.8% (consistent with the forecast H2 2021 outturn).
12. Analysis of net debt
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
================================================ ======== ======== ====================
Cash and cash equivalents in the Condensed
Consolidated Statement of Financial Position
Cash and short term deposits 19.2 20.5 22.0
Bank overdrafts (5.9) - (8.1)
------------------------------------------------ -------- -------- --------------------
Cash and cash equivalents 13.3 20.5 13.9
Interest bearing loans and other borrowings
Amounts due within one year (0.4) (0.4) (0.5)
Amounts due after more than one year (131.6) (179.2) (127.2)
Lease liabilities due within one year (9.6) (9.7) (8.6)
Lease liabilities due after more than one
year (26.3) (26.6) (23.8)
================================================ ======== ======== ====================
Net debt (154.6) (195.4) (146.2)
================================================ ======== ======== ====================
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2021 2020 2020
GBPm GBPm GBPm
================================================ ======== ======== ======================
Change in net debt
Operating profit 24.1 23.5 42.8
Non-cash items 31.2 19.6 58.1
================================================ ======== ======== ======================
Operating cash flow before movement in working
capital 55.3 43.1 100.9
Net movement in working capital (15.3) 18.3 18.2
Change in provisions and employee benefits (1.6) (2.1) (0.8)
================================================ ======== ======== ======================
Operating cash flow 38.4 59.3 118.3
Tax paid (9.2) (10.0) (16.5)
Net financing costs paid (2.1) (2.9) (5.4)
Capital expenditure (10.7) (12.9) (20.4)
Proceeds on disposal of non-current assets
and assets held for sale 0.7 0.6 6.5
================================================ ======== ======== ======================
Free cash flow 17.1 34.1 82.5
Dividends paid (note 10) (7.3) (8.4) (8.4)
Acquisitions (13.6) - (0.9)
Disposals 1.3 - -
Expense associated with refinancing activities (0.4) (0.4) (0.8)
Purchase of shares for employee benefit trust (0.7) - -
Issue of new shares 1.1 0.8 1.0
New leases and lease remeasurements (7.2) (1.0) (3.2)
Interest on lease liabilities (0.4) (0.4) (0.8)
Net debt (increase)/decrease (10.1) 24.7 69.4
Effect of exchange rate fluctuations 1.7 (4.8) (0.3)
Net debt at the beginning of the period (146.2) (215.3) (215.3)
================================================ ======== ======== ======================
Net debt at the end of the period (154.6) (195.4) (146.2)
================================================ ======== ======== ======================
13. Financial instruments
The table below sets out the Group's accounting classification
of its financial assets and liabilities and their fair values as at
30 June 2021. The fair values of all financial assets and
liabilities are not materially different to the carrying
values.
Designated Total
at Amortised carrying Fair
fair value cost value value
GBPm GBPm GBPm GBPm
====================================== =========== ========= ========= =========
Cash and cash equivalents - 13.3 13.3 13.3
Loans and borrowings due within one
year - (0.4) (0.4) (0.4)
Loans and borrowings due after more
than one year - (131.6) (131.6) (131.6)
Lease liabilities due within one year - (9.6) (9.6) (9.6)
Lease liabilities due after more than
one year - (26.3) (26.3) (26.3)
Other assets - 141.7 141.7 141.7
Other liabilities - (116.6) (116.6) (116.6)
====================================== =========== ========= ========= =======
Total at 30 June 2021 - (129.5) (129.5) (129.5)
====================================== =========== ========= ========= =======
Fair value hierarchy
There were no financial instruments carried at fair value at 30
June 2021, 30 June 2020 or 31 December 2020.
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END
IR VBLFFFVLFBBD
(END) Dow Jones Newswires
August 11, 2021 02:00 ET (06:00 GMT)
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