TIDMHILS
RNS Number : 7164I
Hill & Smith PLC
09 August 2023
9(th) August 2023
Hill & Smith PLC
Half Year Results (unaudited) for the six months ended 30 June
2023
Record results, strong outlook
Hill & Smith PLC ("Hill & Smith" or "the Group"), the
international provider of sustainable infrastructure products and
services, announces its unaudited results for the six months ended
30 June 2023 ("the period").
Financial Results
Underlying(*) Change Statutory
-------------
30 June 30 June 2022 Constant OCC 30 June 30 June
2023 (1) Reported % Currency % (^) % 2023 2022 (1) Change %
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Continuing
Operations
(1)
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Revenue GBP420.8m GBP349.9m +20% +17% +9% GBP420.8m GBP349.9m +20%
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Operating
profit GBP62.5m GBP43.6m +43% +38% +20% GBP53.5m GBP34.8m +54%
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Operating
margin 14.9% 12.5% +240bps 12.7% 9.9% +280bps
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Profit
before tax GBP57.2m GBP40.2m +42% GBP48.2m GBP31.4m +54%
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Earnings
per share 53.6p 38.7p +39 % 43.5p 29.3p +48 %
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Total Group
(1)
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Earnings
per share 53.6p 43.2p +24% 43.5p 32.7p +33%
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
Dividend
per share 15.0p 13.0p +15% 15.0p 13.0p +15%
----------- -------------- ------------ ------------ -------- ----------- ----------- ----------
(1) Continuing operations exclude France Galva, which was
divested in October 2022 and was accounted for as a discontinued
operation in the prior year comparatives. Total Group includes both
continuing and discontinued operations. Refer to note 9 to the
financial statements.
Key Highlights:
-- Record trading performance
o Group revenue up 9% and operating profit up 20% on an organic
constant currency basis
o Operating margin increased by 240bps to 14.9%, with improved
product mix and operational gearing
o Strong momentum in our US businesses focused on structurally
growing infrastructure markets, representing 73% of H1 operating
profit
o Resilient performance in our UK businesses
-- Continued focus on delivering value enhancing acquisitions
o Completed acquisitions of Enduro and Korns Galvanizing in H1
(deploying GBP38.5m in aggregate)
o All recent acquisitions trading well with Enduro and National
Signal ahead of expectations. Contribution from acquisitions:
GBP41m revenue, GBP8m operating profit
o Continued progress on building M&A pipeline
-- Strong cash generation with H1 cash conversion at 87%
o Covenant leverage at 0.7 times
-- Interim dividend up 15% at 15p
-- FY23 operating profit expected to be modestly ahead of current market consensus
-- We will be hosting an investor seminar covering the growth
strategy for our composites business at the end of November.
Further details of the event will follow.
Alan Giddins, Executive Chair, said:
"Hill & Smith has delivered a record first half performance,
reflecting the strong performance of our US businesses and the
resilient performance of those in the UK. This strong trading has
been evidenced across the Group, in particular through a standout
performance in our Engineered Solutions division as well as a
strong contribution from recently acquired businesses. The record
results are testament to the benefits of our autonomous operating
model. I would also like to thank all of our employees for their
considerable commitment and contribution.
"The full year outlook is now expected to be modestly ahead of
market expectations. The geographic mix of the portfolio has also
evolved and there is now a heavier weighting towards faster growing
US end markets, which accounted for 73% of Group profits. Longer
term, we remain confident about our prospects given our structural
end market growth drivers, the quality of our operating businesses
and strong balance sheet, all of which will allow us to accelerate
our growth further."
The current company compiled analyst consensus expectation for
FY23 is for underlying operating profit of GBP111.8m with a range
of GBP110.2m-GBP112.8m.
F or further information, please contact:
Hill & Smith PLC
Alan Giddins, Executive Chair Tel: +44 (0)121 704 7434
Hannah Nichols, Chief Financial Officer
MHP
Reg Hoare/Rachel Farrington/Catherine Chapman Tel: +44 (0)20 3128 8613
There will be an in-person presentation for analysts and
institutional investors this morning at 10am, hosted at Numis, 45
Gresham St, London EC2V 7BF, as well as a webcast and conference
call with a facility for Q&A. To register for the webcast,
please use this link . For conference call dial in details, please
contact hugo.harris@mhpgroup.com . A copy of the presentation will
be made available at
https://hsgroup.com/investors/reports-and-presentations/ .
* All underlying measures exclude certain non-underlying items,
which are as detailed in note 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.
^ Where we refer to organic constant currency (OCC) movements,
these exclude the impact of currency translation effects and
acquisitions, disposals and closures of subsidiary businesses. In
respect of acquisitions, the amounts referred to represent the
amounts for the period in the current year that the business was
not held in the prior year. In respect of disposals and closures of
subsidiary businesses, the amounts referred to represent the
amounts for the period in the prior year that the business was not
held in the current year. Constant currency amounts are prepared
using exchange rates which prevailed in the current year.
Notes to Editors
Hill & Smith PLC is a leading provider of sustainable
infrastructure products and services The Group employs c.4,250
people worldwide with the majority employed by its autonomous,
agile, customer focussed operating businesses based in the UK, USA,
Australia and India. The Group office is in the UK and Hill &
Smith PLC is quoted on the London Stock Exchange (LSE: HILS.L).
The Group's operating businesses are organised into three main
business divisions:
Galvanizing Services: increasing the sustainability and
maintenance free life of steel products including structural steel
work, lighting, bridges and other products for industrial and
infrastructure markets.
Engineered Solutions: supplying engineered steel and composite
solutions with low embodied energy for a wide range of
infrastructure markets including power generation and distribution,
marine, rail and housing. The division also supplies engineered
pipe supports for the water, power and liquid natural gas markets
and seismic protection solutions.
Roads & Security: supplying products and services to support
road and highway infrastructure including temporary and permanent
road safety barriers, intelligent traffic solutions, street
lighting columns and bridge parapets. In addition, the division
includes two businesses which are market leaders in the provision
of off-grid solar lighting and power solutions. The security
portfolio includes hostile vehicle mitigation solutions, high
security fencing and automated gate solutions.
H1 2023 Review
The Group has delivered a record first half performance,
reflecting strong momentum in our US businesses focused on
structurally growing infrastructure markets. Alongside this, our UK
businesses delivered a resilient performance, supported by the
leading positions they hold in their respective niche markets. The
record results are also testament to the benefits of our autonomous
operating model and the commitment of our talented local teams.
Revenue in the first half was up 9% and operating profit was up
20% on an organic constant currency basis with Group operating
margin increasing by 240 basis points to 14.9%, the margin
expansion attributable to improved portfolio mix and the benefits
of operational gearing. Acquisitions contributed c.GBP41m revenue
and c.GBP8m operating profit in the period.
The Engineered Solutions division delivered an exceptional
performance, driven by increasing demand for composite solutions in
the US. Our business supplying structural steel substation
components also saw robust demand, underpinned by the ongoing
requirement to modernise the US electric grid.
In Galvanizing Services, our US business delivered record
revenue and operating profit, underpinned by strong volume growth
across a range of infrastructure end markets. As expected,
operating profit in the UK galvanizing business was lower than H1
2022, a record first half, with the impact of lower volumes and
higher energy costs, partly offset through pricing and an improved
product mix.
The Roads & Security division delivered good constant
currency revenue and profit growth, attributable to buoyant demand
in National Signal, our US off grid solar lighting solutions
business, which has traded ahead of expectations since acquisition
in October 2022. The division saw profit decline on an organic
basis which mainly reflects the impact of further restructuring
actions taken in our US Roads business. Our UK Roads & Security
portfolio delivered revenue and profit lower than H1 2023,
reflecting the more challenging UK economic backdrop.
The Group continues to be highly cash generative, with cash
conversion in the first half of 87% and net debt remaining at 0.7
times EBITDA on a covenant basis. The strong balance sheet
underpins the resilience of the Group and provides us with
flexibility to continue to invest in growth opportunities including
acquisitions, where we have an increasingly strong M&A
pipeline.
Strategic progress update
Portfolio Management
Acquisitions form a key part of the Group's growth strategy. In
the first half we have made good progress in building our M&A
pipeline, with a continued focus on high quality businesses with
attractive organic growth potential. All potential acquisitions are
tightly evaluated to ensure they fit with our strategic and
financial criteria. Once acquired, we implement a rigorous and
detailed integration plan.
In the year to date, we have acquired two high quality
businesses for a total headline consideration of GBP38.5m. In
February 2023, the Group acquired Enduro Composites, a designer,
manufacturer and supplier of engineered composite solutions based
in Houston, Texas for GBP29.0m. Enduro is highly complementary to
our existing US composites business and will further accelerate our
strategy in the exciting and growing composites market. Trading
since acquisition has been ahead of our expectations.
In March 2023, we acquired Korns Galvanizing based in Johnstown,
Pennsylvania for GBP9.5m, strengthening our US galvanizing market
presence. The site operations have been successfully integrated
within V&S Galvanizing and trading since acquisition has been
in line with expectations.
In April 2023 we completed the disposal of the final part of our
loss making Swedish roads business.
ESG
The growth of our business is naturally aligned to the
Environmental Social and Governance agenda: our products and
services make infrastructure more sustainable and increase
transport safety.
Within our business, our ESG strategy encompasses seven focus
areas including our commitment to reduce Greenhouse Gas (GHG)
emissions. During the period we successfully completed an extensive
exercise to establish the Group baseline data for all emission
scopes, which has received third party Limited Assurance. This has
enabled us to submit both near and long term Science Based Target
initiative (SBTi) commitments for approval with an overarching
target to reach net zero GHG emissions across the value chain by
2050. This sits alongside our commitment to reach net zero for our
Scope 1 and 2 emissions by 2040. Our Head of Sustainability
continues to work with our teams to drive local energy saving
initiatives and explore decarbonisation technology options to
underpin our GHG reduction plan.
We also continue to take action across our other ESG priority
areas including Health & Safety, Talent & Engagement and
Diversity & Inclusion.
Board updates
In May 2023, the Group announced that Alan Giddins had formally
assumed the role of Executive Chair for an expected period of 12 to
18 months, a role that he had been undertaking since July 2022 on
an interim basis while the Group searched for a new Chief Executive
Officer. This will provide the Group with continuity and stability,
as it executes on its strategy at pace, in a period with
significant opportunity.
After a tenure of nine years, Annette Kelleher stepped down from
the Board as Non-executive Director in May 2023 and we thank her
for her significant contribution during this time.
Results from continuing operations
The Group has delivered a record set of results for the first
half of 2023. Revenue was GBP420.8m (2022: GBP349.9m), an increase
of 20% on a reported basis. OCC revenue growth was 9%. Constant
currency revenue growth was 17% reflecting a strong trading
performance in both National Signal and Enduro, our two larger
recent US acquisitions. Underlying operating profit was GBP62.5m
(2022: GBP43.6m), an increase of 43% on a reported basis. OCC
operating profit growth was 20% and constant currency growth was
38%. Operating margins improved to 14.9% (2022: 12.5%). Underlying
profit before taxation was GBP57.2m (2022: GBP40.2m). Reported
operating profit was GBP53.5m (2022: GBP34.8m) and reported profit
before tax was GBP48.2m (2022: GBP31.4m) . Underlying earnings per
share increased to 53.6p (2022: 38.7p) and reported earnings per
share was 43.5p (2022: 29.3p).
We are also pleased to report that Total Group underlying
earnings per share increased by 24% to 53.6p (2022: 43.2p), driven
by the strong underlying performance of the business and the
redeployment of the France Galva proceeds into acquisitions with
higher growth and higher quality earnings.
The principal reconciling items between underlying and reported
operating profit include the amortisation of acquisition
intangibles of GBP4.3m and a loss of GBP3.2m on disposal of our
Swedish road business. Note 6 to the financial statements provides
further details on the Group's non-underlying items.
Dividend
In light of the strong H1 performance and our confidence in the
Group's prospects, we have declared an interim dividend for FY23 of
15.0p per share, an increase of 15% (2022: 13.0p). The interim
dividend will be paid on 5 January 2024 to shareholders on the
register on 1 December 2023. Looking forward, we aim to provide
sustainable and progressive dividend growth, targeting a prudent
dividend cover of around 2.5 times underlying earnings.
Outlook
The Group is well-positioned in infrastructure markets with
attractive structural growth drivers. The geographic mix of the
portfolio has also evolved and there is now a heavier weighting
towards faster growing US end markets, which in the period
accounted for 73% of Group operating profit. These factors,
alongside the strong first half performance, the quality of our
M&A pipeline and the benefits of our agile operating model,
provide confidence that the Group will continue to make good
progress in 2023, despite the macro-economic headwinds. We expect
operating profit to be modestly ahead of current market
expectations albeit slightly H1 weighted due to the phasing of
orders in our composite business and forecast FX headwinds in the
second half.
In the medium to longer term, the outlook is supported by strong
market growth drivers for sustainable infrastructure. In
particular, our US businesses are well placed to benefit from the
increasing industrial expansion, driven by onshoring, technology
change and Federal funding including the Infrastructure Investment
and Jobs Act (IIJA) and Chips Act.
Operational Review
Engineered Solutions GBPm
--------------
2023 2022 C onstant
Reported currency OCC
% % %
---------------------- ------ ------
Revenue 181.7 136.5 +33 +29 +17
---------------------- ------ ------ --------- ---------- ----
Underlying operating
profit (1) 30.9 14.1 +119 +106 +89
---------------------- ------ ------ --------- ---------- ----
Underlying operating
margin % (1) 17.0% 10.3%
---------------------- ------ ------
Statutory operating
profit 28.5 13.8
---------------------- ------ ------
(1) Underlying measures are set out in note 5 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 6 to the Financial Statements.
Our Engineered Solutions division provides steel and composite
solutions for a wide range of infrastructure markets including
energy generation and distribution, marine, rail and housing. The
division also supplies engineered supports for the water, power and
liquid natural gas markets, and seismic protection solutions for
commercial construction.
The division delivered a standout performance, with 17% revenue
and 89% profit growth on an OCC basis, driven by strong volume
growth in our higher margin US composite and structural steel
electricity substation businesses. Operating margins increased
significantly to 17.0% (2022: 10.3%), reflecting the benefits of
operational gearing and the improved portfolio mix.
US
The US businesses delivered 27% OCC revenue growth and record
operating profit in the first half.
Our composites business is the largest company within the
division and delivered record revenue and operating profit
underpinned by high demand for its range of engineered composite
solutions including utility poles, waterfront protection, cooling
towers and mass transit infrastructure. The business also delivered
improved margins compared to H1 2022, a soft comparator, due to
excellent commercial execution, a more favourable product mix and
increased volumes. Given the high level of H1 activity, we expect
FY23 profit to be first half weighted. The outlook for 2024 is very
positive, with focus end markets expected to benefit from
unprecedented levels of government investment, ongoing grid
modernisation and onshoring. The business is also seeing an
increasing adoption of innovative composite solutions, supported by
legacy material availability, lifecycle cost and sustainability
considerations.
In February 2023 we were pleased to acquire Enduro for a
headline consideration of GBP29.0m. Located in Texas, Enduro is a
designer, manufacturer and supplier of engineered composite
solutions and is highly complementary to our existing northeastern
and midwestern US business, further accelerating our strategy in
the exciting and growing composites market. Enduro has traded ahead
of expectations since acquisition, and we have approved capital
investment to expand capacity in the second half to support future
growth in demand.
Our business supplying structural steel components for
electricity substations continued to see strong demand in the first
half and delivered record revenue and operating profit. The
business enters the second half with a strong orderbook supported
by high project demand to expand and upgrade ageing power
infrastructure. We are making a number of strategic capex
investments to increase capacity.
Our engineered supports business delivered a solid performance,
with profit at similar levels to the prior year. While the business
has seen a slowdown in commercial construction demand, it is
expected that this will be offset by an increase in demand for
infrastructure and factory projects in the second half.
Overall prospects for future growth in all our US Engineered
Solutions businesses are very positive. We expect market demand to
be supported by investment to modernise the ageing electric grid
and solutions to protect against extreme weather. The outlook is
further supported by multi-year planned government spending on
infrastructure via the IIJA and the Chips Act, and private
investment from US manufacturers and producers to onshore vital
components.
UK
Revenue in our UK businesses declined by 4% on an organic basis
and profit was at a similar level to H1 2022. The industrial
flooring business delivered a resilient performance, reflecting
buoyant demand from data centre, battery plant and oil & gas
markets and the second half outlook for the business is cautiously
optimistic. As expected, volumes in our UK building products
business were lower than H1 2022, reflecting a slowdown in new
build and repair, maintenance and improvement sectors. The volume
decline was offset by higher selling prices which, together with a
focus on margins and tight cost management, resulted in operating
profit ahead of the same period last year. We expect our UK
building product end markets to continue to be challenging in the
second half.
Galvanizing Services
GBPm Reported Constant OCC
% currency %
%
--------------
Continuing Operations 2023 2022
(2)
----------------------- ------ ------
Revenue 99.6 84.5 +18 +14 +10
----------------------- ------ ------ --------- ---------- ----
Underlying operating
profit (1) 22.6 21.4 +6 +1 -2
----------------------- ------ ------ --------- ---------- ----
Underlying operating
margin % (1) 22.7% 25.3%
----------------------- ------ ------
Statutory operating
profit 21.7 20.8
----------------------- ------ ------
(1) Underlying measures are set out in note 5 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 6 to the Financial Statements.
(2) Continuing operations exclude France Galva, which was
reported as a discontinued operation in the prior year.
The Galvanizing Services division offers hot-dip galvanizing and
powder coating services with multi-plant facilities in the US and
the UK. Hot-dip galvanizing is a proven steel corrosion protection
solution which significantly extends the service life of steel
structures and products. The division benefits from a wide sectoral
spread of customers who operate in a range of end markets including
road and bridge and other infrastructure, construction, and
transportation.
The division delivered a robust performance in the first half,
with 10% OCC revenue growth and operating profit at similar levels
to H1 2022, a strong comparator for the UK. The division continues
to deliver superior margins, with H1 2023 operating margin at
22.7%, reflecting the value-add service provided to customers. The
results are attributable to strong volume growth in the US, offset
by a volume decline and higher energy costs in the more challenging
UK market.
US
Predominantly located in the northeast and midwest of the
country, the US galvanizing business delivered a strong
performance, with 18% OCC revenue growth and record operating
profit. The strong growth is attributable to a 15% organic increase
in production volumes with pricing action taken to offset higher
labour and raw material costs. As a result, the business continued
to deliver superior operating margins, with customers valuing the
excellent quality of service provided by our local teams.
In March 2023, we were pleased to acquire Korns Galvanizing for
a headline consideration of GBP9.5m. Located in Johnstown,
Pennsylvania, Korns specialises in spin galvanizing and expands our
production capacity in the key northeastern market, broadening the
range of galvanizing services we can offer to our existing customer
base. The integration of Korns into our existing business is going
well and trading since acquisition has been in line with our
expectations.
In the medium to longer term, the outlook for US galvanizing is
positive. The business is well placed to benefit from high levels
of industrial expansion activity in the US supported by the IIJA,
investment in technology and a more general move to the onshoring
of certain activities. We continue to quote on IIJA related
projects and expect to see incremental demand from bridge and
highway and renewable energy projects in the second half of
2023.
UK
In UK galvanizing, revenue was flat on an organic basis, which
reflects a 19% decline in production volumes offset by pricing
actions taken to cover higher energy and labour costs. The volume
decline reflects the challenges of wider end markets and certain
key customers delaying projects. As a result, operating profit and
operating margin were lower than last year's record first half.
The integration of Widnes Gal vanising, acquired in September
2022, is progressing well and the business delivered results ahead
of expectations in H1 2023.
Our market leading UK galvanizing business has the benefits of
serving a diversified customer base. Given the challenges in
certain end markets, the business is focusing on more resilient,
growth sectors such as green energy and cable management solutions
and is cautiously positive for the second half.
Roads & Security
GBPm Reported Constant OCC
% currency %
%
--------------
Continuing Operations 2023 2022
(2)
----------------------- ------ ------
Revenue 139.5 128.9 +8 +7 -2
----------------------- ------ ------ --------- ---------- ----
Underlying operating
profit (1) 9.0 8.1 +11 +15 -49
----------------------- ------ ------ --------- ---------- ----
Underlying operating
margin % (1) 6.5% 6.3%
----------------------- ------ ------
Statutory operating
profit 3 .3 0.2
----------------------- ------ ------
(1) Underlying measures are set out in note 5 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 6 to the Financial Statements.
(2) Continuing operations exclude the French lighting column
business, which was reported as a discontinued operation in the
prior year.
The Roads & Security division supplies products and services
to support the delivery of safe road and highway infrastructure,
alongside a range of security products to protect people, buildings
and infrastructure from attack. In addition, the division includes
two businesses which are market leaders in the provision of
off-grid solar lighting and power solutions.
The division delivered 7% revenue growth and 15% profit growth
on a constant currency basis, reflecting strong H1 trading in
National Signal, our recently acquired US off-grid solar lighting
business. On an OCC basis, operating profit was lower than the same
period last year and included the impact of further restructuring
costs in our US Roads business. Alongside this, our UK Roads &
Security portfolio delivered revenue and profit lower than H1 2023,
reflecting the more challenging UK economic backdrop. As a result,
first half operating margins only showed a modest improvement
compared to H1 2022, and we expect further margin improvement in
the second half.
UK
Revenue was 5% lower and operating profit was also lower than H1
2022 on an organic basis. While the barrier rental business
delivered an improved performance, with an increased level of fleet
utilisation, our wider UK roads portfolio experienced challenges,
with inflationary and budgetary pressures across central government
and local authorities resulting in project delays and
cancellations. We expect the outlook to continue to be challenging
into 2024 and that project activity may slow down next year in
anticipation of the Road Investment Strategy 3 period (2025-2030) .
Prolectric, our off-grid solar energy business, delivered modest
revenue growth in the period, reflecting a slowing in construction
end markets. The business is increasingly focused on more resilient
sectors such as defence and facilities management, and with a
healthy order book, expects to make good progress in the second
half.
US
Our US Roads portfolio comprises two businesses: National
Signal, our off-grid solar lighting solutions business acquired in
October 2022, and our roadside safety products business.
Trading in National Signal was very strong in the first half,
supported by a high order backlog and buoyant demand from rental
companies for sustainable solar lighting solutions to replace their
existing fleet. While we do not expect to see such exceptional
levels of demand in the second half, the medium-term outlook for
the business is positive, underpinned by a drive toward sustainable
solutions and an expected boom in large scale infrastructure
projects.
Revenue in the road traffic safety product business was 2% above
the same period last year on an OCC basis, however first half
operating profit was significantly impacted by restructuring costs,
mainly associated with re-engineering the trailer product line.
This was partly offset by an increase in demand for barrier
rentals. The new senior management team are implementing a range of
operational improvement plans and we expect the business to make
some progress in the second half. The medium-term outlook for the
business remains positive, with demand supported by the
introduction of new safety standards and increased levels of state
and federal investment to upgrade US road infrastructure. The IIJA
includes a five-year reauthorisation of the US federal highway
programme, and incremental investment of c.$110 billion in highway
and bridge improvements through to 2026 .
Scandinavia
In April 2023 we completed the disposal of the final part of our
loss-making Swedish roads business.
Security
Our Security businesses are based in the UK and provide a range
of perimeter security solutions including hostile vehicle
mitigation ('HVM') to both UK and international markets. Revenue
was 3% lower than H1 2022 on an organic basis, reflecting a more
second half weighted project phasing in our HVM solutions business
this year. Our UK security barrier rental business performed well,
as our security solutions were deployed to provide protection at
high profile events including King Charles' Coronation and the
Eurovision Song Contest in Liverpool. The outlook for our security
portfolio remains mixed given the UK and wider economic
uncertainty, however we expect that our quality product offering
and a focus on more resilient end markets such as data centres will
support further progress.
Financial Review
Cash generation
Cash conversion in the first half was strong at 87%, a
significant improvement compared to H1 2022. The improvement
reflects a tight focus on working capital and an easing of supply
chain challenges which has enabled certain businesses to reduce
their stock holding. We expect the Group to deliver strong cash
conversion in 2023, in line with our target level of 80%+ and
consistent with historic levels. The calculation of our underlying
cash conversion ratio can be found in note 5 to the financial
statements.
Operating cash flow before movement in working capital was
GBP77.4m (2022: GBP62.2m). The working capital outflow in the
period was GBP7.2m (2022: GBP41.5m). The outflow reflects working
capital absorption to support good growth, with all businesses
focused on maximising working capital efficiency. Working capital
as a percentage of annualised sales was 17.5%. Debtor days were in
line with expectations at 55 days (30 June 2022: 62 days excluding
France Galva).
Capital expenditure of GBP12.7m (2022: GBP17.1m) represents a
multiple of depreciation and amortisation of 1.2 times (2022: 1.5
times). Investment in the period included GBP2.5m in our US
composites business and GBP2.5m in our US galvanizing business.
Net financing costs for the period from continuing operations
were GBP5.3m (2022: GBP3.4m). The net cost of pension fund
financing under IAS 19 was GBP0.2m (2022: GBP0.1m), and the
amortisation of costs relating to refinancing activities was
GBP0.3m (2022: GBP0.4m).
The Group generated GBP38.7m of free cash flow in the period
(2022: an outflow of GBP7.1m), providing funds to support our
acquisition strategy and dividend policy.
Net debt and financing
Net debt at the end of the period amounted to GBP132.1m (31
December 2022: GBP119.7m). Outflows in the period included GBP10.4m
for the 2022 interim dividend and GBP41.3m on M&A activity,
principally the acquisitions of Enduro and Korns. Net debt at the
period end includes lease liabilities under IFRS 16 of GBP39.2m (31
December 2022: GBP39.3m).
The Group's principal financing facilities comprise a GBP250m
revolving credit facility, which expires in November 2026, with an
option to extend for a further year, and $70m senior unsecured
notes with maturities in June 2026 and June 2029, together with a
further GBP7.1m of on-demand local overdraft arrangements.
Throughout the period the Group has operated well within these
facilities and at 30 June 2023, the Group had GBP217.8m of headroom
(GBP210.7m committed, GBP7.1m on demand). Approximately 50% of the
Group's drawn debt at 30 June 2023 is subject to fixed interest
rates, providing a hedge against recent market movements.
The principal borrowing facilities are subject to covenants that
are measured biannually in June and December, being net debt to
EBITDA of a maximum of 3.0 times and interest cover of a minimum of
4.0 times. The ratio of covenant net debt to EBITDA at 30 June 2023
was 0.7 times (31 December 2022: 0.7 times) and interest cover was
22.6 times (31 December 2022: 21.6 times).
The Board considers that the ratio of covenant net debt to
EBITDA is a key metric from a capital management perspective and
targets a ratio of 1.0 to 2.0 times. The Board would be prepared to
see leverage above the target range for short periods of time, if
strategically appropriate.
Return on Invested Capital
We use return on invested capital (ROIC) to measure our overall
capital efficiency, with a target of achieving returns in excess of
18%, above the Group's cost of capital, through the cycle. The
Group's ROIC for the period to 30 June 2023 was 21.3% (2022:
17.5%), the improvement reflecting the strong trading and our
disciplined approach to capital investment.
Tax
The underlying effective tax rate for the period for continuing
operations was 25.0% (FY 2022: 22.4 %). The tax charge for the
period for continuing operations was GBP13.4m (2022: GBP7.9 m ) and
includes a GBP 0.9m credit (2022: GBP1.3 m credit ) in respect of
non-underlying items, principally relating to the amortisation of
acquisition intangibles. Cash tax paid in the period was GBP14.9m
(2022: GBP8.1m), the increase reflecting higher profitability and
our decision to carry forward taxable UK losses to be used in
future periods.
Exchange rates
The Group is exposed to movements in exchange rates when
translating the results of its overseas operations into Sterling.
Retranslating 2022 half year revenue and underlying operating
profit from continuing operations using average exchange rates for
2023 would have increased revenue by GBP8.8m and underlying
operating profit by GBP1.6m, mainly due to Sterling's appreciation
against the US Dollar. A one cent movement in the average US Dollar
rate currently results in an adjustment of approximately GBP3.6m to
the Group's annual revenues and GBP0.7m to annual underlying
operating profit.
Non-underlying items
The total non-underlying items charged to operating profit from
continuing operations in the Consolidated Income Statement amounted
to GBP9.0m (2022: GBP8.8m). The items were mainly non-cash related
and included the following:
-- Amortisation of acquired intangible assets of GBP4.3m
-- Loss on disposal of our Swedish roads business of GBP3.2m
-- Expenses related to acquisitions and disposals of GBP2.2m,
including GBP0.9m accrued deferred consideration relating to the
National Signal acquisition
Further details are set out in note 6 to the Financial
Statements .
Pensions
The Group operates defined benefit pension plans in the UK and
the USA. The IAS 19 deficit of these plans at 30 June 2023 was
GBP5.0m, a reduction of GBP2.2m from 31 December 2022 (GBP7.2m).
The deficit of the UK scheme, the largest employee benefit
obligation in the Group, was lower than the prior year end at
GBP4.4m (31 December 2022: GBP6.5m) 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
UK schemes' Trustees with regards to management, funding and
investment strategies including buy-in options.
Going concern
After making enquiries, the Directors have reasonable
expectations that the Company and its subsidiaries have adequate
resources to continue in operational existence for the foreseeable
future and for the period to 31 December 2024. Accordingly, they
continue to adopt the going concern principle.
When making this assessment, the Group considers whether it will
be able to maintain adequate liquidity headroom above the level of
its borrowing facilities and to operate within the financial
covenants on those facilities. The Group has carefully modelled its
cash flow outlook for the period to December 2024, considering the
ongoing uncertainties in global economic conditions. In this "base
case" scenario, the forecasts indicate significant liquidity
headroom will be maintained above the Group's borrowing facilities
and financial covenants will be met throughout the period,
including the covenant tests at 31 December 2023, 30 June 2024 and
31 December 2024.
The Group has also carried out "reverse stress tests" to assess
the performance levels at which either liquidity headroom would
fall below zero or covenants would be breached in the period to 31
December 2024. The Directors do not consider the resulting
performance levels to be plausible given the Group's strong trading
performance in the period and the resilience of the end markets in
which we operate.
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 64 to 68 of the Group's Annual Report for
the year ended 31 December 2022, remain applicable to the current
financial year.
Key considerations relating to review of principal risks and
uncertainties during the period are set out below:
Principal Risk Considerations
Reduction in Government We remain confident that infrastructure investment
spending plans will continue to form part of national spending
plans both in the US and UK, despite ongoing
macro-economic uncertainty. Our US businesses
are exposed to structurally growing infrastructure
end markets supported by significant government
investment including the IIJA and the Chips Act
and expect to see an increase in relevant project
activity from H2 2023. In April 2023 the UK Government
cancelled plans for new smart motorways in recognition
of the current lack of public confidence felt
by drivers. While this decision has caused short
term disruption, in the medium to longer term
the UK Government is committed to investment
in the strategic road network, driven by increasing
road usage, and we await further details of Road
Investment Strategy 3. As a result, the Board
believe there has been no change in this risk
during the first half.
--------------------------------------------------------
Changes in global economic Central banks in both the US and UK have raised
outlook and geopolitical interest rates further during the period in an
environment attempt to control inflation. While this is a
concern for the cost of living, an increase in
interest rates has had a limited impact on the
Group's ability to grow given our cash generative
model and strong balance sheet, with low leverage
and mix of fixed and floating rate debt. Alongside
this our businesses operate in resilient, less
discretionary infrastructure markets. As a result,
the Board believe there has been no change in
this risk during the first half .
--------------------------------------------------------
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 9 August
2023 and is available on the Company's website ( www.hsgroup.com
).
Alan Giddins Hannah Nichols
Executive Chair Group Chief Financial Officer
Financial Statements
Condensed Consolidated Income Statement
Six months ended 30 June 2023
6 months ended 6 months ended Year ended 31 December
30 June 2023 30 June 2022 2022
========================================= ========================================= =========================================
Underlying Non-underlying(*) Total Underlying Non-underlying(*) Total Underlying Non-underlying(*) Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
===================== =========== ================== ======== =========== ================== ======== =========== ================== ========
Continuing
Operations
Revenue 4 420.8 - 420.8 349.9 - 349.9 732.1 - 732.1
Cost of sales (254.9) - (254.9) (218.5) - (218.5) (461.6) - (461.6)
---------------- --- ----------- ------------------ -------- ----------- ------------------ -------- ----------- ------------------ --------
Gross profit 165.9 - 165.9 131.4 - 131.4 270.5 - 270.5
Distribution
costs (17.3) - (17.3) (17.1) - (17.1) (31.7) - (31.7)
Administrative
expenses (86.6) (9.0) (95.6) (71.2) (8.8) (80.0) (142.0) (18.6) (160.6)
Other operating
income 0.5 - 0.5 0.5 - 0.5 0.3 - 0.3
================ === =========== ================== ======== =========== ================== ======== =========== ================== ========
Operating 4,
profit 5 62.5 (9.0) 53.5 43.6 (8.8) 34.8 97.1 (18.6) 78.5
Financial
income 7 0.2 - 0.2 0.2 - 0.2 0.5 - 0.5
Financial
expense 7 (5.5) - (5.5) (3.6) - (3.6) (9.7) - (9.7)
================ === =========== ================== ======== =========== ================== ======== =========== ================== ========
Profit before
taxation 57.2 (9.0) 48.2 40.2 (8.8) 31.4 87.9 (18.6) 69.3
Taxation 8 (14.3) 0.9 (13.4) (9.2) 1.3 (7.9) (19.7) 3.7 (16.0)
================ === =========== ================== ======== =========== ================== ======== =========== ================== ========
Profit for the
period
from
continuing
operations 42.9 (8.1) 34.8 31.0 (7.5) 23.5 68.2 (14.9) 53.3
---------------- === =========== ================== ======== =========== ================== ======== =========== ================== ========
Discontinued
Operations
Profit from
discontinued
operations 9 - - - 3.6 (0.9) 2.7 5.2 (1.8) 3.4
---------------- --- ----------- ------------------ -------- ----------- ------------------ -------- ----------- ------------------ --------
Profit for the
year
attributable
to the
owners of the
parent 42.9 (8.1) 34.8 34.6 (8.4) 26.2 73.4 (16.7) 56.7
---------------- === =========== ================== ======== =========== ================== ======== =========== ================== ========
Basic earnings
per
share 10 43.5p 32.7p 71.0p
Basic earnings
per
share -
continuing 43.5p 29.3p 66.7p
Diluted
earnings per
share 10 43.3p 32.5p 70.4p
Diluted
earnings per
share -
continuing 43.3p 29.1p 66.2p
================ === =========== ================== ======== =========== ================== ======== =========== ================== ========
* 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 2023
6 months 6 months Year
ended ended ended
30 June 30 J une 31 December
2023 2022 2022
GBPm GBPm GBPm
============================================================ ======== ================ ============
Profit for the period 34.8 26.2 56.7
============================================================ ======== ================ ============
Items that may be reclassified subsequently to profit
or loss
Exchange differences on translation of overseas operations (19.5) 29.1 27.4
Exchange differences on foreign currency borrowings
denominated as net investment hedges 4.5 (6.5) (4.8)
Items that will not be reclassified subsequently to
profit or loss
Actuarial gain/(loss) on defined benefit pension schemes 0.5 2.7 (2.8)
Taxation on items that will not be reclassified to
profit or loss (0.1) (0.7) 0.7
============================================================ ======== ================ ============
Other comprehensive (expense)/income for the period (14.6) 24.6 20.5
============================================================ ======== ================ ============
Total comprehensive income for the period attributable
to owners of the parent 20.2 50.8 77.2
============================================================ ======== ================ ============
Condensed Consolidated Statement of Financial Position
Six months ended 30 June 2023
30 June 30 June 31 December
2023 2022 2022
Notes GBPm GBPm GBPm
===================================== ======= ======= ===========
Non-current assets
Intangible assets 202.2 168.2 182.6
Property, plant and equipment 177.0 179.6 186.3
Right-of-use assets 38.5 35.1 38.7
Corporation tax receivable 8 1.6 1.6 1.6
Deferred tax assets 0.1 0.4 0.1
===================================== ======= ======= ===========
419.4 384.9 409.3
===================================== ======= ======= ===========
Current assets
Assets held for sale - 94.0 1.8
Inventories 115.1 111.4 113.8
Trade and other receivables 163.5 152.7 144.3
Current tax assets - - 0.3
Cash and cash equivalents 14 22.3 18.4 24.8
================================= ======= ======= ===========
300.9 376.5 285.0
===================================== ======= ======= ===========
Total assets 720.3 761.4 694.3
===================================== ======= ======= ===========
Current liabilities
Liabilities held for sale - (30.0) -
Trade and other liabilities (127.6) (131.4) (120.8)
Current tax liabilities (7.2) (5.2) (8.6)
Provisions (2.6) (4.6) (3.7)
Lease liabilities 14 (8.2) (8.0) (8.7)
Loans and borrowings 14 (0.2) (5.9) (0.3)
================================= ======= ======= ===========
(145.8) (185.1) (142.1)
===================================== ======= ======= ===========
Net current assets 155.1 191.4 142.9
===================================== ======= ======= ===========
Non-current liabilities
Other liabilities - (0.2) (0.2)
Provisions (3.0) (2.2) (2.7)
Deferred tax liabilities (13.2) (13.7) (11.6)
Retirement benefit obligations (5.0) (3.8) (7.2)
Lease liabilities 14 (31.0) (27.7) (30.6)
Loans and borrowings 14 (115.0) (145.1) (104.9)
================================= ======= ======= ===========
(167.2) (192.7) (157.2)
===================================== ======= ======= ===========
Total liabilities (313.0) (377.8) (299.3)
===================================== ======= ======= ===========
Net assets 407.3 383.6 395.0
===================================== ======= ======= ===========
Equity
Share capital 20.0 20.0 20.0
Share premium 43.8 42.5 42.8
Other reserves 4.9 4.9 4.9
Translation reserve 23.1 38.1 38.1
Retained earnings 315.5 278.1 289.2
===================================== ======= ======= ===========
Total equity 407.3 383.6 395.0
===================================== ======= ======= ===========
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2023
Share Share Other Translation Retained Total
Capital Premium reserves reserves Earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= =========== ============= =======
At 1 January 2023 20.0 42.8 4.9 38.1 289.2 395.0
========================================= ======== ======== ========= =========== ============= =======
Comprehensive income
Profit for the period - - - - 34.8 34.8
Other comprehensive income for the
period - - - (15.0) 0.4 (14.6)
Transactions with owners recognised
directly in equity
Dividends - - - - (10.4) (10.4)
Credit to equity of share-based payments - - - - 1.9 1.9
Satisfaction of long term incentive
and deferred bonus awards - - - - (0.9) (0.9)
Own shares held by employee benefit
trust - - - - 0.5 0.5
Shares issued - 1.0 - - - 1.0
========================================= ======== ======== ========= =========== ============= =======
At 30 June 2023 20.0 43.8 4.9 23.1 315.5 407.3
========================================= ======== ======== ========= =========== ============= =======
Six months ended 30 June 2022
Share Share Other Translation Retained Total
Capital Premium reserves reserves Earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= =========== ============= =======
At 1 January 2022 20.0 40.9 4.9 15.5 258.3 339.6
----------------------------------------- -------- -------- --------- ----------- ------------- -------
Comprehensive income
Profit for the period - - - - 26.2 26.2
Other comprehensive income for the
period - - - 22.6 2.0 24.6
Transactions with owners recognised
directly in equity
Dividends - - - - (9.6) (9.6)
Credit to equity of share-based payments - - - - 1.5 1.5
Satisfaction of long term incentive
and deferred bonus awards - - - - (0.2) (0.2)
Own shares held in employee benefit
trust - - - - (0.1) (0.1)
Shares issued - 1.6 - - - 1.6
========================================= ======== ======== ========= =========== ============= =======
At 30 June 2022 20.0 42.5 4.9 38.1 278.1 383.6
========================================= ======== ======== ========= =========== ============= =======
Year ended 31 December 2022
Share Share Other Translation Retained Total
Capital Premium reserves reserves Earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
========================================= ======== ======== ========= =========== ============= =======
At 1 January 2022 20.0 40.9 4.9 15.5 258.3 339.6
----------------------------------------- -------- -------- --------- ----------- ------------- -------
Comprehensive income
Profit for the period - - - - 56.7 56.7
Other comprehensive income for the
period - - - 22.6 (2.1) 20.5
Transactions with owners recognised
directly in equity
Dividends - - - - (24.7) (24.7)
Credit to equity of share-based payments - - - - 2.4 2.4
Own shares held by employee benefit
trust - - - - 0.5 0.5
Satisfaction of long term incentive
and deferred bonus awards - - - - (0.9) (0.9)
Tax taken directly to the Consolidated
Statement of Changes in Equity - - - - (1.0) (1.0)
Shares issued - 1.9 - - - 1.9
========================================= ======== ======== ========= =========== ============= =======
At 31 December 2022 20.0 42.8 4.9 38.1 289.2 395.0
========================================= ======== ======== ========= =========== ============= =======
Other reserves represent the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m capital
redemption reserve.
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2023
6 months Year ended
ended 6 months ended 31 December
30 June 2023 30 June 2022 2022
Notes GBPm GBPm GBPm
================================================ ============= ============== ============
Profit before tax from continuing operations 48.2 31.4 69.3
Profit before tax from discontinued
operations - 3.9 4.9
Add back net financing costs 5.3 3.4 9.3
Operating profit 53.5 38.7 83.5
Adjusted for non-cash items:
Share-based payments 2.1 1.5 2.0
Loss on disposal of subsidiary 3.2 0.7 1.4
(Gain)/loss on disposal of non-current
assets (0.8) 0.1 0.3
Depreciation of owned assets 9.8 10.3 19.1
Amortisation of intangible assets 4.8 4.0 8.3
Right-of-use asset depreciation 4.8 4.4 8.8
Impairment of non-current assets - 2.5 6.4
================================================ ============= ============== ============
23.9 23.5 46.3
================================================ ============= ============== ============
Operating cash flow before movement
in working capital 77.4 62.2 129.8
Decrease/(increase) in inventories 5.0 (20.1) (21.0)
Increase in receivables (19.8) (38.1) (19.1)
Increase/(decrease) in payables 7.6 16.7 (2.5)
Decrease in provisions and employee
benefits (2.6) (0.5) (4.3)
================================================ ============= ============== ============
Net movement in working capital and
provisions (9.8) (42.0) (46.9)
================================================ ============= ============== ============
Cash generated by operations 67.6 20.2 82.9
Purchase of assets for rental to customers (0.6) (7.1) (10.6)
Income taxes paid (14.9) (8.1) (15.5)
Interest paid (4.5) (2.5) (6.4)
Interest paid on lease liabilities (0.6) (0.4) (0.8)
================================================ ============= ============== ============
Net cash from operating activities 47.0 2.1 49.6
Interest received 0.3 0.3 0.5
Proceeds on disposal of non-current
assets 0.4 0.1 0.4
Proceeds on disposal of assets held
for sale 2.5 - -
Purchase of property, plant and equipment (10.5) (8.7) (18.4)
Purchase of intangible assets (1.6) (1.3) (2.5)
Deferred consideration paid in respect
of past acquisitions (2.7) - -
Acquisitions of subsidiaries (36.7) - (24.6)
Disposals of subsidiaries 6 0.4 1.5 58.6
Net cash (used in)/from investing
activities (47.9) (8.1) 14.0
Issue of new shares 1.0 1.6 1.9
Purchase of shares for employee benefit
trust (0.4) (0.3) (0.4)
Dividends paid 11 (10.4) (9.6) (24.7)
Costs associated with refinancing
during the year - - (2.1)
Repayments of lease liabilities (4.6) (4.9) (9.5)
New loans and borrowings 50.5 33.4 160.8
Repayments of loans and borrowings (36.6) (16.8) (184.8)
============================================ ============= ============== ============
Net cash (used in)/from financing
activities (0.5) 3.4 (58.8)
================================================ ============= ============== ============
Net (decrease)/increase in cash and
cash equivalents net of bank overdraft (1.4) (2.6) 4.8
Cash and cash equivalents net of bank
overdraft at the beginning of the period 24.8 18.1 18.1
Effect of exchange rate fluctuations (1.2) 1.5 1.9
================================================ ============= ============== ============
Cash and cash equivalents net of
bank overdraft at the end of the
period 14 22.2 17.0 24.8
============================================ ============= ============== ============
Notes to the Financial Statements
1. Basis of preparation
Hill & Smith PLC is incorporated in the UK. The Condensed
Consolidated Interim Financial Statements of the Company have been
prepared on the basis of the UK-adopted International Financial
Reporting Standards ('IFRSs') 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 2022 (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 2022).
New IFRS standards, interpretations and amendments adopted
during 2023
The following amendments and interpretations apply for the first
time in 2023, but do not have an impact on the Condensed
Consolidated Interim Financial Statements of the Group.
-- Amendments to IAS 8 - Definition of Accounting Estimates
-- Amendments to IAS 1 - Disclosure of Accounting Policies
-- Amendments to IAS 12 - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
The comparative figures for the financial year ended 31 December
2022 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 2022, 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 2023 30 June 2022 31 December 2022
================================= ====================== ==================== ===================
Average Closing Average Closing Average Closing
================================= ========== ========== ========= ========= ========== =======
Sterling to Euro (GBP1 = EUR) 1.14 1.17 1.19 1.16 1.17 1.13
Sterling to US Dollar (GBP1
= USD) 1.23 1.27 1.30 1.21 1.24 1.20
Sterling to Swedish Krona (GBP1
= SEK) 12.94 13.74 12.44 12.45 12.47 12.49
Sterling to Indian Rupee (GBP1
= INR) 101.36 104.33 98.94 95.97 97.01 99.41
Sterling to Australian Dollar
(GBP1 = AUD) 1.82 1.91 1.81 1.77 1.78 1.77
================================= ========== ========== ========= ========= ========== =======
4. Segmental information
The Group has three reportable segments which are Roads &
Security, Engineered Solutions and Galvanizing Services. The
Group's internal management structure and financial reporting
systems differentiate between these segments, and, in reporting,
management have taken the view that they comprise a reporting
segment on the basis of the following economic characteristics:
-- The Roads & Security segment contains a group of
businesses supplying products designed to ensure the safety and
security of roads and other national infrastructure, many of which
have been developed to address national and international safety
standards, to customers involved in the construction of that
infrastructure;
-- The Engineered Solutions segment contains a group of
businesses supplying products characterised by a degree of
engineering expertise, to public and private customers involved in
the construction of facilities serving the utilities and other
infrastructure markets; and
-- The Galvanizing Services segment contains a group of
companies supplying galvanizing and related materials coating
services to companies in a wide range of markets including
construction, agriculture and infrastructure.
Corporate costs are allocated to reportable segments in
proportion to the revenue of each of those segments.
Segmental Income Statement - continuing operations
6 months ended 30 June 6 months ended 30 June
2023 2022
======================== ================================= =================================
Reported Underlying Reported Underlying
operating operating operating operating
Revenue profit profit* Revenue profit profit*
GBPm GBPm GBPm GBPm GBPm GBPm
======================== ========= ========== ========== ========= ========== ==========
Roads & Security 139.5 3.3 9.0 128.9 0.2 8.1
Engineered Solutions 181.7 28.5 30.9 136.5 13.8 14.1
Galvanizing Services 99.6 21.7 22.6 84.5 20.8 21.4
======================== ========= ========== ========== ========= ========== ==========
Group 420.8 53.5 62.5 349.9 34.8 43.6
======================== ========= =========
Net financing costs (5.3) (5.3) (3.4) (3.4)
======================== ========= ========== ========== ========= ========== ==========
Profit before taxation 48.2 57.2 31.4 40.2
Taxation (13.4) (14.3) (7.9) (9.2)
======================== ========= ========== ========== ========= ========== ==========
Profit after taxation 34.8 42.9 23.5 31.0
======================== ========= ========== ========== ========= ========== ==========
Year ended 31 December
2022
=================================
Reported Underlying
operating operating
Revenue profit profit*
GBPm GBPm GBPm
======================= ========= ========== ==========
Roads & Security 261.5 1.7 18.1
Engineered Solutions 289.9 34.1 35.0
Galvanizing Services 180.7 42.7 44.0
======================= ========= ========== ==========
Group 732.1 78.5 97.1
======================= =========
Net financing costs (9.2) (9.2)
======================= ========= ========== ==========
Profit before taxation 69.3 87.9
Taxation (16.0) (19.7)
======================= ========= ========== ==========
Profit after taxation 53.3 68.2
======================= ========= ========== ==========
(*) 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 GBP1.2m of products and services to Engineered
Solutions (six months ended 30 June 2022: GBP1.0m, year ended 31
December 2022: GBP2.0m) and GBP2.7m of products and services to
Roads & Security (six months ended 30 June 2022: GBP4.1m, year
ended 31 December 2022: GBP6.8m). Engineered Solutions sold GBP0.5m
of products and services to Roads & Security (six months ended
30 June 2022: GBP1.0m, year ended 31 December 2022: GBP1.9m). 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 lines and timing of revenue recognition. Revenue by
primary geographical market is defined as the end location of the
Group's product or service. The table also includes a
reconciliation of the disaggregated revenue with the Group's
reportable segments.
Roads & Security Engineered Galvanizing Total
Solutions
-------------------------------------- ================== ================== ================== ==================
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
2023 2022 2023 2022 2023 2022 2023 2022
Primary geographical markets GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------
UK 80.1 84.1 41.9 44.8 44.1 41.4 166.1 170.3
Rest of Europe 4.9 8.7 4.4 4.7 - - 9.3 13.4
North America 50.0 30.8 129.4 84.7 55.5 43.1 234.9 158.6
The Middle East 1.0 2.2 3.1 0.4 - - 4.1 2.6
Rest of Asia 0.3 1.4 2.3 1.7 - - 2.6 3.1
Rest of the world 3.2 1.7 0.6 0.2 - - 3.8 1.9
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
139.5 128.9 181.7 136.5 99.6 84.5 420.8 349.9
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
Major product/service lines
Manufacture, supply and installation
of products 126.9 117.0 181.7 136.5 - - 308.6 253.5
Galvanizing services - - - - 99.6 84.5 99.6 84.5
Rental income 12.6 11.9 - - - - 12.6 11.9
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
139.5 128.9 181.7 136.5 99.6 84.5 420.8 349.9
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
Timing of revenue recognition
Products and services transferred
at a point in time 110.4 102.6 87.8 81.3 99.6 84.5 297.8 268.4
Products and services transferred
over time 29.1 26.3 93.9 55.2 - - 123.0 81.5
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
139.5 128.9 181.7 136.5 99.6 84.5 420.8 349.9
-------------------------------------- ======== ======== ======== ======== ======== ======== ======== ========
Year ended 31 December
2022
Roads Engineered
& Security Solutions Galvanizing Total
GBPm GBPm GBPm GBPm
================================================== =========== ================ ============= =====
Primary geographical markets
UK 163.5 87.2 81.8 332.5
Rest of Europe 16.7 8.7 - 25.4
North America 70.3 187.1 98.9 356.3
The Middle East 4.9 2.4 - 7.3
Rest of Asia 1.9 3.9 - 5.8
Rest of the world 4.2 0.6 - 4.8
-------------------------------------------------- =========== ================ ============= =====
261.5 289.9 180.7 732.1
-------------------------------------------------- =========== ================ ============= =====
Major product/service lines
Manufacture, supply and installation of products 240.3 289.9 - 530.2
Galvanizing services - - 180.7 180.7
Rental income 21.2 - - 21.2
-------------------------------------------------- =========== ================ ============= =====
261.5 289.9 180.7 732.1
-------------------------------------------------- =========== ================ ============= =====
Timing of revenue recognition
Products and services transferred at a point in
time 210.2 153.8 180.7 549.7
Products and services transferred over time 51.3 136.1 - 182.4
-------------------------------------------------- =========== ================ ============= =====
261.5 289.9 180.7 732.1
-------------------------------------------------- =========== ================ ============= =====
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;
-- Covenant net debt to EBITDA ratio; and
-- Underlying earnings per share. A reconciliation of statutory
earnings per share to underlying earnings per share is provided in
note 10.
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 from
continuing operations
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
================================================= ======== ======== ==============
Underlying profit before tax from continuing
operations 57.2 40.2 87.9
================================================= ======== ======== ==============
Non-underlying items:
Amortisation of acquisition intangibles (4.3) (2.9) (6.0)
Business reorganisation costs 0.7 (1.6) (2.9)
Expenses related to acquisitions and disposals (2.2) (1.1) (6.4)
Loss on disposal of subsidiaries (3.2) (0.7) (2.3)
Impairment of assets - (2.5) (1.0)
Reported profit before tax from continuing
operations 48.2 31.4 69.3
================================================= ======== ======== ==============
Reconciliation of underlying to reported operating profit from
continuing operations by segment
Roads & Security Engineered Galvanizing Total
Solutions
================== ================== ========================= =====================
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
2023 2022 2023 2022 2023 2022 2023 2022
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================ ======== ======== ======== ======== =========== ============ =========== ========
Underlying operating profit
from continuing operations 9.0 8.1 30.9 14.1 22.6 21.4 62.5 43.6
============================ ======== ======== ======== ======== =========== ============ =========== ========
Non-underlying items:
Amortisation of
acquisition
intangibles (2.3) (2.2) (1.5) (0.3) (0.5) (0.4) (4.3) (2.9)
Business reorganisation
costs 0.7 (1.6) - - - - 0.7 (1.6)
Expenses related to
acquisitions
and disposals (0.9) (0.9) (0.9) - (0.4) (0.2) (2.2) (1.1)
Loss on disposal of
subsidiaries (3.2) (0.7) - - - - (3.2) (0.7)
Impairment of assets - (2.5) - - - - - (2.5)
Reported operating profit
from continuing operations 3.3 0.2 28.5 13.8 21.7 20.8 53.5 34.8
============================ ======== ======== ======== ======== =========== ============ =========== ========
Year ended 31 December
2022
Roads Engineered
& Security Solutions Galvanizing Total
GBPm GBPm GBPm GBPm
==================================================================== =========== ============ =========== ========
Underlying operating profit from continuing operations 18.1 35.0 44.0 97.1
==================================================================== =========== ============ =========== ========
Non-underlying items:
Amortisation of acquisition intangibles (4.6) (0.5) (0.9) (6.0)
Business reorganisation costs (2.9) - - (2.9)
Impairment of assets (6.4) - - (6.4)
Expenses related to acquisitions and disposals (1.5) (0.4) (0.4) (2.3)
Loss on disposal of subsidiaries (1.0) - - (1.0)
Reported operating profit from continuing operations 1.7 34.1 42.7 78.5
==================================================================== =========== ============ =========== ========
Calculation of underlying operating profit margin from
continuing operations
Roads & Security Engineered Galvanizing Total
Solutions
================== ================== ================== ==================
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
2023 2022 2023 2022 2023 2022 2023 2022
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======== ======== ======== ======== ======== ======== ======== ========
Underlying operating profit 9.0 8.1 30.9 14.1 22.6 21.4 62.5 43.6
============================= ======== ======== ======== ======== ======== ======== ======== ========
Revenue 139.5 128.9 181.7 136.5 99.6 84.5 420.8 349.9
Underlying operating profit
margin (%) 6.5% 6.3% 17.0% 10.3% 22.7% 25.3% 14.9% 12.5%
============================= ======== ======== ======== ======== ======== ======== ======== ========
Year ended 31 December
2022
Roads Engineered
& Security Solutions Galvanizing Total
GBPm GBPm GBPm GBPm
======================================== =========== ================ =========== =====
Underlying operating profit 18.1 35.0 44.0 97.1
======================================== =========== ================ =========== =====
Revenue 261.5 289.9 180.7 732.1
Underlying operating profit margin (%) 6.9% 12.1% 24.3% 13.3%
======================================== =========== ================ =========== =====
Measures of organic and constant currency change in revenue and
underlying operating profit from continuing operations
Roads & Security Engineered Galvanizing Total
Solutions
=================== =================== =================== ===================
Underlying Underlying Underlying Underlying
operating operating operating operating
Revenue profit Revenue profit Revenue profit Revenue profit
Continuing operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======= ========== ======= ========== ======= ========== ======= ==========
2022 128.9 8.1 136.5 14.1 84.5 21.4 349.9 43.6
Impact of exchange rate
movements from 2022 to 2023 1.5 (0.3) 4.8 0.9 2.5 1.0 8.8 1.6
----------------------------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
2022 translated at 2023
exchange rates (A) 130.4 7.8 141.3 15.0 87.0 22.4 358.7 45.2
Acquisitions and disposals 11.6 5.0 15.9 2.6 3.9 0.6 31.4 8.2
Organic growth/(decline)
(B) (2.5) (3.8) 24.5 13.3 8.7 (0.4) 30.7 9.1
============================= ======= ========== ======= ========== ======= ========== ======= ==========
2023 (C) 139.5 9.0 181.7 30.9 99.6 22.6 420.8 62.5
Organic change % (B divided
by A) (1.9%) (48.7%) 17.3% 88.7% 10.0% (1.8%) 8.6% 20.1%
============================= ======= ========== ======= ========== ======= ========== ======= ==========
Constant currency change
% ((C-A) divided by A) 7.0% 15.4% 28.6% 106.0% 14.5% 0.9% 17.3% 38.3%
============================= ======= ========== ======= ========== ======= ========== ======= ==========
Calculation of underlying cash conversion ratio
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2022
2023 2022 GBPm
GBPm GBPm
=========================================================== ======== ======== ==============
Underlying operating profit:
Continuing operations 62.5 43.6 97.1
Discontinued operations - 4.8 6.8
----------------------------------------------------------- -------- -------- --------------
62.5 48.4 103.9
=========================================================== ======== ======== ==============
Calculation of adjusted operating cash flow:
Cash generated by operations 67.6 20.2 82.9
Less: Purchase of assets for rental to customers (0.6) (7.1) (10.6)
Less: Purchase of property, plant and equipment (10.5) (8.7) (18.4)
Less: Purchase of intangible assets (1.6) (1.3) (2.5)
Less: Repayments of lease liabilities (4.6) (4.9) (9.5)
Add: Proceeds on disposal of non-current assets
and assets held for sale 2.9 0.1 0.4
Add back: Defined benefit pension scheme deficit
payments 1.9 1.9 3.7
(Deduct)/add back: Cash flows relating to non-underlying
items (0.6) 0.9 6.5
Adjusted operating cash flow 54.5 1.1 52.5
=========================================================== ======== ======== ==============
Underlying cash conversion (%) 87% 2% 51%
=========================================================== ======== ======== ==============
Calculation of capital expenditure to depreciation and
amortisation ratio
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2022
2023 2022 GBPm
GBPm GBPm
====================================================== ======== ======== ==============
Calculation of capital expenditure:
Purchase of assets for rental to customers 0.6 7.1 10.6
Purchase of property, plant and equipment 10.5 8.7 18.4
Purchase of intangible assets 1.6 1.3 2.5
====================================================== ======== ======== ==============
12.7 17.1 31.5
====================================================== ======== ======== ==============
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 9.8 10.3 19.1
Amortisation of development costs 0.5 0.5 1.1
Amortisation of other intangible assets - 0.5 1.0
10.3 11.3 21.2
====================================================== ======== ======== ==============
Capital expenditure to depreciation and amortisation
ratio 1.2x 1.5x 1.5x
====================================================== ======== ======== ==============
Calculation of net debt to EBITDA ratio
6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2022
2023 2022 GBPm
GBPm GBPm
====================================================== ======== ======== ==============
Reported net debt 132.1 165.5 119.7
Lease liabilities (39.2) (36.6) (39.3)
Amounts related to refinancing under IFRS 9 1.9 2.1 2.2
Covenant net debt (A) 94.8 131.0 82.6
====================================================== ======== ======== ==============
Underlying operating profit 62.5 48.4 103.9
Depreciation of property, plant and equipment 9.8 10.3 19.1
Right-of-use asset depreciation 4.8 4.4 8.8
Amortisation of development costs 0.5 0.5 1.1
Amortisation of other intangible assets - 0.5 1.0
Underlying EBITDA 77.6 64.1 133.9
====================================================== ======== ======== ==============
Adjusted for:
Lease payments (4.6) (4.9) (10.3)
Share-based payments expense 2.1 1.5 2.0
Annualised EBITDA of subsidiaries disposed/acquired 4.2 (1.2) (3.7)
Prior period H2 EBITDA 65.7 57.4 n/a
====================================================== ======== ======== ==============
Covenant EBITDA (B) 145.0 116.9 121.9
====================================================== ======== ======== ==============
Covenant net debt to EBITDA (A divided by
B) 0.7 1.1 0.7
====================================================== ======== ======== ==============
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 and disposals,
comprising professional fees incurred and any consideration which,
under IFRS 3 (Revised) is required to be treated as a
post-acquisition employment expense, and changes in contingent
consideration payable on acquisitions.
-- Impairment charges in respect of tangible or intangible fixed
assets, or right-of-use assets.
-- Changes in the fair value of derivative financial instruments.
-- Significant past service items or curtailments and
settlements relating to defined benefit pension obligations
resulting from material changes in the terms of the schemes.
The non-underlying tax charge or credit comprises the tax effect
of the above non-underlying items.
Details in respect of the non-underlying items recognised in the
current period and prior year are set out below.
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
====================================================== ======== ======== ============
Loss on disposal of subsidiaries (a) (3.2) (0.7) (1.4)
Business reorganisation costs (b) 0.7 (1.6) (2.9)
Impairment of assets (c) - (2.5) (6.4)
Amortisation of acquisition intangibles (4.3) (3.0) (6.2)
Expenses related to acquisitions and disposals (2.2) (1.9) (3.5)
Total non-underlying items (9.0) (9.7) (20.4)
Total non-underlying items - continuing operations (9.0) (8.8) (18.6)
Total non-underlying items - discontinued operations - (0.9) (1.8)
====================================================== ======== ======== ============
Notes:
a) In April 2023, the Group completed the disposal of its
remaining Swedish operations, at a loss of GBP3.2m. Details of the
disposal are set out below:
Disposal of remaining Swedish roads operations GBPm
================================================ =====
Right-of-use assets 0.1
Inventories 1.7
Trade and other receivables 2.6
Corporation tax receivables 0.4
Lease liabilities (0.2)
Current liabilities (1.3)
Net assets disposed 3.3
================================================
Consideration received 0.4
Cumulative exchange differences (0.3)
Loss on disposal 3.2
================================================ =====
In 2022, the loss on disposal of GBP1.4m included GBP1.0m
relating to the sale of two trading divisions of the Swedish
business and GBP0.4m on the disposal of France Galva.
b) In May 2022, the Group took the decision to exit the
low-margin plastic products operations that formed part of our US
roads business. Net charges on closure in 2022 totalled GBP2.9m,
comprising business reorganisation costs of GBP1.1m and asset
impairment charges of GBP1.8m. In March 2023, the Group sold the
property that the business had occupied, which had been reported as
an asset held for sale at 31 December 2022, for consideration of
GBP2.5m resulting in a profit on disposal of GBP0.7m.
c) Impairment charges of GBP6.4m in 2022 included GBP4.4m in
respect of acquisition intangible assets relating to Parking
Facilities Limited, one of the Group's security operations, and
GBP2.0m relating to the Swedish and US roads portfolio management
actions referred to above.
7. Net financing costs from continuing operations
Continuing operations 6 months 6 months Year ended
ended ended 31 December
30 June 30 June 2022
2023 2022 GBPm
GBPm GBPm
============================================= ======== ======== ==============
Interest on bank deposits 0.2 0.2 0.5
============================================= ======== ======== ==============
Financial income 0.2 0.2 0.5
============================================= ======== ======== ==============
Interest on loans and borrowings (4.4) (2.7) (6.4)
Interest on lease liabilities (0.6) (0.4) (0.8)
Financial expenses related to refinancing (0.3) (0.4) (2.4)
Interest cost on net pension scheme deficit (0.2) (0.1) (0.1)
============================================= ======== ======== ==============
Financial expense (5.5) (3.6) (9.7)
============================================= ======== ======== ==============
Net financing costs (5.3) (3.4) (9.2)
============================================= ======== ======== ==============
8. Taxation
Tax has been provided on the underlying profit from continuing
operations at the estimated effective rate of 25.0% (2022: 22.4%)
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, announcing in April
2019 that it believed in certain circumstances the CFC regime
constituted State Aid. In 2021 the Group received a charging notice
from HMRC requiring it to pay GBP1.6m in respect of state aid that
HMRC considers had been unlawfully received in previous years,
which was paid in full in February 2021.
Applications to annul the Commission's decision had been made in
prior years by the UK Government, the Group and other affected
taxpayers. The EU General Court delivered its decision on these
applications in June 2022, finding in favour of the Commission.
Many of those affected, including the Group, have appealed this
decision to the Court of Justice of the EU. Having taken expert
advice, we have concluded that our appeal is likely to be
successful. As a result, we continue to recognise a tax receivable
of GBP1.6m within non-current assets, reflecting the Group's view
that the amount paid will ultimately be recovered.
9. Discontinued operations in the prior year
The Group completed the disposal of France Galva SA ('France
Galva'), our French galvanizing and lighting column operations, on
4 October 2022 for GBP62.0m. France Galva was classified as a
disposal group as required by IFRS 5 and its results were reported
within discontinued operations in the prior year, details of which
are set out on page 150 of the Group's Annual Report for the year
ended 31 December 2022. France Galva was treated as held for sale
at 30 June 2022.
10. Earnings per share
The weighted average number of ordinary shares in issue during
the period was 80.1m, diluted for the effect of outstanding share
options 80.5m (six months ended 30 June 2022: 79.9m and 80.4m
diluted; the year ended 31 December 2022: 79.9m and 80.5m 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 2023 30 June 2022 December 2022
======================= ==================== ======================
Pence Pence Pence
per share GBPm per share GBPm per share GBPm
=============== ====== ============ ====== ============== ======
Basic earnings
- continuing 43.5 34.8 29.3 23.5 66.7 53.3
- discontinued - - 3.4 2.7 4.3 3.4
=================================== =============== ====== ============ ====== ============== ======
Total basic earnings 43.5 34.8 32.7 26.2 71.0 56.7
=================================== =============== ====== ============ ====== ============== ======
Non-underlying items *
- continuing 10.1 8.1 9.4 7.5 18.7 14.9
- discontinued - - 1.1 0.9 2.2 1.8
=================================== =============== ====== ============ ====== ============== ======
Total non-underlying items 10.1 8.1 10.5 8.4 20.9 16.7
=================================== =============== ====== ============ ====== ============== ======
Underlying earnings
- continuing 53.6 42.9 38.7 31.0 85.4 68.2
- discontinued - - 4.5 3.6 6.5 5.2
=================================== =============== ====== ============ ====== ============== ======
Total underlying earnings 53.6 42.9 43.2 34.6 91.9 73.4
=================================== =============== ====== ============ ====== ============== ======
Diluted earnings
- continuing 43.3 34.8 29.1 23.5 66.2 53.3
- discontinued - - 3.4 2.7 4.2 3.4
=================================== =============== ====== ============ ====== ============== ======
Total diluted earnings 43.3 34.8 32.5 26.2 70.4 56.7
=================================== =============== ====== ============ ====== ============== ======
Non-underlying items *
- continuing 10.0 8.1 9.4 7.5 18.5 14.9
- discontinued - - 1.1 0.9 2.2 1.8
=================================== =============== ====== ============ ====== ============== ======
Total non-underlying items 10.0 8.1 10.5 8.4 20.7 16.7
=================================== =============== ====== ============ ====== ============== ======
Underlying diluted earnings
- continuing 53.3 42.9 38.5 31.0 84.7 68.2
- discontinued - - 4.5 3.6 6.4 5.2
=================================== =============== ====== ============ ====== ============== ======
Total underlying diluted earnings 53.3 42.9 43.0 34.6 91.1 73.4
=================================== =============== ====== ============ ====== ============== ======
* Non-underlying items as detailed in note 6.
11. Dividends
Dividends paid in the period were the prior year's interim
dividend of GBP10.4m (2022: GBP9.6m). 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 GBP12.0m, 15.0p per share (2022: GBP10.4m,
13.0p per share), which will be paid on 5 January 2024 to
shareholders on the register on 1 December 2023.
12. Acquisitions
Enduro Composites, Inc
On 20 February 2023 the Group acquired 100% of the share capital
of Enduro Composites, Inc ("Enduro") for an initial cash
consideration of GBP28.3m, plus a further GBP0.7m relating to post
completion working capital adjustments. Enduro, located in Houston,
Texas, is a designer, manufacturer and supplier of engineered
composite solutions focused on industrial and infrastructure market
segments. Enduro will become part of the Group's Engineered
Solutions division, is highly complementary to our existing
northeastern and midwestern US composite businesses and will
further accelerate our strategy in this exciting and growing
market.
Details of the acquisition are set out below:
Provisional
policy alignment
and fair
Pre-acquisition value
carrying amount adjustments Total
GBPm GBPm GBPm
================================================== ================ ================= ======
Intangible Assets
Brands - 1.0 1.0
Customer lists - 10.0 10.0
Order backlog - 1.5 1.5
Property, plant and equipment 2.7 (0.2) 2.5
Right-of-use assets - 2.3 2.3
Inventories 4.5 (0.5) 4.0
Current assets 6.5 (0.1) 6.4
Deferred tax asset 1.4 - 1.4
Cash and cash equivalents 1.8 - 1.8
Total assets 16.9 14.0 30.9
================================================== ================ ================= ======
Lease Liabilities - (2.3) (2.3)
Current liabilities (4.8) (0.3) (5.1)
Corporation tax - (0.2) (0.2)
Deferred tax liability - (2.9) (2.9)
================= ======
Total liabilities (4.8) (5.7) (10.5)
================================================== ================ ================= ======
Net assets 12.1 8.3 20.4
================================================== ================ ================= ======
Consideration
Total consideration 29.0
Goodwill 8.6
================================================== ================ ================= ======
Cash flow effect
Consideration in the year (29.0)
Cash acquired with the business 1.8
Net cash consideration shown in the Consolidated
Statement of Cash Flows (27.2)
================================================== ================ ================= ======
Brands, customer lists and an order backlog have been recognised
as specific intangible assets as a result of the acquisition. The
residual goodwill arising, which has been allocated to the
Engineered Solutions segment, primarily represents the highly
skilled workforce, future technological advantages and potential
for geographical expansion afforded to the Group. Policy alignment
and fair value adjustments have been made to align the accounting
policies of the acquired business with the Group's accounting
policies and to reflect the fair value of assets and liabilities
acquired. In respect of leases, the Group measured the acquired
lease liabilities using the present value of the remaining lease
payments at the date of acquisition. The right-of-use assets were
measured at an amount equal to the lease liabilities and adjusted
to reflect the terms of the leases relative to market terms. The
fair value of the current assets acquired includes GBP5.9m of trade
receivables, which have a gross value of GBP6.2m.
Post-acquisition the acquired business has contributed GBP15.9m
revenue and GBP2.6m operating profit, which are included in the
Group's Consolidated Income Statement. If the acquisition had been
made on 1 January 2023, the Group's results for the period would
have shown revenue of GBP426.7m, underlying operating profit of
GBP64.0m and reported operating profit of GBP55.0m.
Korns Galvanizing Company Inc.
On 8 March 2023 the Group acquired the business and assets of
Korns Galvanizing Company Inc. ("Korns") for a cash consideration
of GBP9.5m. Korns, located in Johnstown, Pennsylvania, has a single
site specialising in spin galvanizing and has a customer base
spread across a wide range of infrastructure related end markets,
including commercial construction, fire protection, oil & gas
and utilities.
Details of the acquisition are set out below:
Provisional
policy alignment
and fair
Pre-acquisition value
carrying amount adjustments Total
GBPm GBPm GBPm
================================================== ================ ================= =====
Intangible Assets
Customer lists - 1.7 1.7
Property, plant and equipment 1.2 - 1.2
Inventories 0.5 (0.1) 0.4
Current assets 0.3 - 0.3
Total assets 2.0 1.6 3.6
================================================== ================ ================= =====
Current liabilities (0.2) - (0.2)
Deferred tax - (0.4) (0.4)
Total liabilities (0.2) (0.4) (0.6)
================================================== ================ ================= =====
Net assets 1.8 1.2 3.0
================================================== ================ ================= =====
Consideration
Total consideration 9.5
Goodwill 6.5
================================================== ================ ================= =====
Cash flow effect
Consideration in the year (9.5)
Cash acquired with the business -
Net cash consideration shown in the Consolidated
Statement of Cash Flows (9.5)
================================================== ================ ================= =====
Customer lists have been recognised as a specific intangible
asset as a result of the acquisition. The residual goodwill
arising, which has been allocated to the Galvanizing Services
segment, primarily represents the highly skilled workforce, future
technological advantages and potential for geographical expansion
afforded to the Group. Policy alignment and fair value adjustments
have been made to align the accounting policies of the acquired
business with the Group's accounting policies and to reflect the
fair value of assets and liabilities acquired. In respect of
leases, the Group measured the acquired lease liabilities using the
present value of the remaining lease payments at the date of
acquisition. The right-of-use assets were measured at an amount
equal to the lease liabilities and adjusted to reflect the terms of
the leases relative to market terms. The fair value of the current
assets acquired includes GBP0.3m of trade receivables, which have a
gross value of GBP0.3m.
Post-acquisition the acquired business has contributed GBP1.9m
revenue and GBP0.2m operating profit, which are included in the
Group's Consolidated Income Statement. If the acquisition had been
made on 1 January 2023, the Group's results for the period would
have shown revenue of GBP421.8m, underlying operating profit of
GBP62.6m and reported operating profit of GBP53.6m.
13. 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 2023, the Group identified those
where the trading performance in the first six months of the year
had fallen below previous expectations. On this basis, an
impairment test was carried out on the Hill & Smith Inc. CGU.
Notwithstanding a positive performance in the first half of 2023,
given that the ATG Access CGU showed impairment headroom of only
GBP1.4m in the impairment calculations at 31 December 2022, the
Group concluded that it would also be appropriate to test ATG
Access at 30 June 2023.
Consistent with past practice and as disclosed in the Group's
2022 Annual Report, impairment tests on the carrying values of
goodwill are performed by comparing the carrying value allocated to
each CGU against its value in use. Value in use is calculated 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 2023 and strategic plans for the following four
years, which are prepared taking into account a range of factors
including past experience, the forecast future trading environment
and macroeconomic conditions in the Group's key markets. 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 are 2.0% for the UK and 2.5% for
the US. 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 reviews
for H&S Inc. and ATG Access at 30 June 2023 concluded that no
impairment charges were required to be recorded in the period. The
Group then applied sensitivities to assess whether any reasonably
possible changes in assumptions could cause an impairment of the
goodwill in each tested CGU.
Sensitivities
ATG Access
ATG's future performance is largely dependent on the continued
post-pandemic recovery in UK and global security products markets,
which itself is inherently dependent on both public/customer
behaviour and broader economic conditions. 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 Headroom/
Input Scenario applied (impairment)
% GBPm
========================= ===================== =========== ================
Compound annual revenue
growth 2023-2027 Base case 9.9% 1.9
H&S sensitivity 1* 6.0% (4.2)
H&S sensitivity 2* 2.0% (9.5)
Gross margin % 2023-27
** Base case 28.1% 1.9
H&S sensitised 27.0% (0.6)
Annual cash flow growth
2028 onwards Base case 2.0% 1.9
H&S sensitised 0.0% 0.1
Pre-tax discount rate Base case 16.3% 1.4
H&S sensitised 19.3% (0.8)
----------------------------------------------- ----------- ----------------
* Illustrates the impacts of compound revenue growth at 2%
(consistent with long-term UK growth rates) and 6% (the midpoint
between this and the base case).
** The base case assumes that average gross profit margins
across the period 2023-27 are slightly above the 27% achieved in
2022. The H&S sensitised case assumes no growth in the gross
margin from 2022 throughout the forecast period.
H&S Inc.
H&S Inc. manufactures, sells and rents a range of work zone
protection products including crash attenuators, trailer-mounted
message boards, and temporary road safety barriers, to construction
contractors and traffic specialists across the US roads market.
While underlying market conditions remain healthy, the business'
performance in 2022 and the first half of 2023 was impacted by
operational and cost input challenges, and restructuring costs. The
Group's projections for H&S Inc. assume that the actions taken
to address the operational issues will be successful, and that
short to medium term revenue growth will be above long-term
averages due to the anticipated increase in federal and state
highway spend from the IIJA over the next five years. The main
drivers of that revenue growth are expected to be temporary road
safety barrier rentals, supported by the business' investment in
building its rental barrier fleet over the past two years, and
crash attenuator sales, where the business has developed a
complementary offering to its existing market-leading product that
will begin to be marketed later in 2023. We recognise, however,
that there could be variations in the pace of improvement and
growth and therefore we have modelled a range of scenarios for the
outlook. Revenue growth, gross margins, long-term cash flow growth
and the discount rate are the key assumptions on which the
impairment calculations are most sensitive. The following table
provides information on the impact on calculated headroom of
possible scenarios for each of those key assumptions (independently
in each case):
Input Sensitivity Headroom/
Scenario applied (impairment)
% GBPm
================================ ================== =========== ================
Compound annual revenue growth
2023-2027 Base case 16.5% 9.0
Zero headroom 15.3% -
H&S sensitivity 14.5% (5.0)
=================================================== =========== ================
Compound annual gross profit
margin growth 2023-27 * Base case 1.8% 9.0
Zero headroom 0.9% -
H&S sensitivity 0.0% (6.3)
=================================================== =========== ================
Annual cash flow growth 2028
onwards Base case 2.5% 9.0
H&S sensitivity 0.0% (0.3)
=================================================== =========== ================
Pre-tax discount rate Base case 15.6% 9.0
Zero headroom 17.2% -
H&S sensitivity 19.0% (8.0)
=================================================== =========== ================
* The base case assumes a gross profit margin of 31.3% in 2023,
rising to 33.7% in 2027 at a compound annual growth rate of 1.8%.
The sensitivity scenario shows the potential impairment if the
gross margin of 31.3% remains constant throughout the period
2023-27.
14. Analysis of net debt
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
================================================== ======== ======== ==============
Cash and cash equivalents in the Condensed
Consolidated Statement of Financial Position
Cash and cash equivalents 22.3 18.4 24.8
Cash and cash equivalents classified as assets
held for sale - 4.0 -
Bank overdrafts (0.1) (5.4) -
-------------------------------------------------- -------- -------- --------------
Cash and cash equivalents net of bank overdrafts 22.2 17.0 24.8
Interest bearing loans and other borrowings
Amounts due within one year (0.1) (0.5) (0.3)
Amounts due after more than one year (115.0) (145.1) (104.9)
Loans and borrowings classified as liabilities
held for sale - (0.3) -
Lease liabilities classified as liabilities
held for sale - (0.9) -
Lease liabilities due within one year (8.2) (8.0) (8.7)
Lease liabilities due after more than one
year (31.0) (27.7) (30.6)
================================================== ======== ======== ==============
Net debt (132.1) (165.5) (119.7)
================================================== ======== ======== ==============
6 months 6 months
ended ended Year ended
30 June 30 June 31 December
2023 2022 2022
GBPm GBPm GBPm
================================================ ======== ======== ====================
Change in net debt
Operating profit from continuing operations 53.5 34.8 78.5
Operating profit from discontinued operations - 3.9 5.0
Non-cash items 23.9 23.5 46.3
================================================ ======== ======== ====================
Operating cash flow before movement in working
capital 77.4 62.2 129.8
Net movement in working capital (7.2) (41.5) (42.6)
Change in provisions and employee benefits (2.6) (0.5) (4.3)
================================================ ======== ======== ====================
Operating cash flow 67.6 20.2 82.9
Tax paid (14.9) (8.1) (15.5)
Net financing costs paid (4.2) (2.2) (5.9)
Capital expenditure (12.7) (17.1) (31.5)
Proceeds on disposal of non-current assets
and assets held for sale 2.9 0.1 0.4
================================================ ======== ======== ====================
Free cash flow 38.7 (7.1) 30.4
Dividends paid (note 11) (10.4) (9.6) (24.7)
Acquisitions (41.7) - (25.6)
Disposals 0.4 1.5 58.6
Expense associated with refinancing activities (0.3) (0.4) (2.4)
Purchase of shares for employee benefit trust (0.4) (0.3) (0.4)
Issue of new shares 1.0 1.6 1.9
New leases and lease remeasurements (3.2) (2.2) (9.0)
Leases disposed of 0.2 2.0 2.8
Loans and borrowings disposed of - - 0.3
Interest on lease liabilities (0.6) (0.4) (0.8)
Net debt (increase)/decrease (16.3) (14.9) 31.1
Effect of exchange rate fluctuations 3.9 (5.9) (6.1)
Net debt at the beginning of the period (119.7) (144.7) (144.7)
================================================ ======== ======== ====================
Net debt at the end of the period (132.1) (165.5) (119.7)
================================================ ======== ======== ====================
15. 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 2023. 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 net of bank
overdraft - 22.2 22.2 22.2
Loans and borrowings due within one
year - (0.1) (0.1) (0.1)
Loans and borrowings due after more
than one year - (115.0) (115.0) (115.0)
Lease liabilities due within one year - (8.2) (8.2) (8.2)
Lease liabilities due after more than
one year - (31.0) (31.0) (31.0)
Other financial assets - 154.2 154.2 154.2
Other financial liabilities - (117.2) (117.2) (117.2)
Total at 30 June 2023 - (95.1) (95.1) (95.1)
====================================== ============ ========= ========= =======
Fair value hierarchy
There were no financial instruments carried at fair value at 30
June 2023, 30 June 2022 or 31 December 2022.
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END
IR SSUESAEDSEIA
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