Hill & Smith
Annual Report 1998

Plain-text annual report

Hill & Smith Holdings PLC Annual Report and Financial Statements 1998 C o n t e n t s Results at a glance Financial calendar Chairman’s statement Directors, advisers and committees Operations and financial review Report of the Directors Other information Statement of Directors’ Responsibilities Reports of the Auditors Report of the Remuneration Committee Consolidated Profit and Loss Account Consolidated Balance Sheet Consolidated Cash Flow Statement Notes to the Consolidated Cash Flow Statement Statement of Total Recognised Gains and Losses Note of Historical Cost Profits and Losses Movement in Shareholders’ Funds Principal Accounting Policies Notes to the Financial Statements Parent Company Balance Sheet Notes to the Parent Company Balance Sheet Five Year Record Notice of Meeting Principal Group Companies Page 1 1 2 4 6 12 14 14 15 16 19 20 21 22 23 23 23 24 25 36 37 39 40 41 Hill & Smith Holdings PLC R e s u l t s a t a g l a n c e Turnover Operating profit (Loss)/profit before taxation (Loss)/profit after taxation Ordinary dividends Interim Final (Loss)/earnings per ordinary share — net basis FRS3 — IIMR Net assets per ordinary share Operating cash flow per share 1998 £000 76,497 3,628 (2,466) (2,844) 2.10p 2.10p 4.20p (7.20p) 3.46p 57.34p 19.49p 1997 £000 81,281 2,698 1,216 1,011 2.10p 2.10p 4.20p 2.56p 3.57p 66.14p 14.84p F i n a n c i a l C a l e n d a r Payment of final dividend for the year to 30th September 1998 (ex dividend date 25th January 1999) Announcement of results for half year to 31st March 1999 Payment of interim dividend Preliminary announcement of results to 30th September 1999 Annual General Meeting 2000 7th April 1999 Mid-June 1999 Late September 1999 Mid-December 1999 24th March 2000 1 Hill & Smith Holdings PLC C h a i r m a n ’ s S t a t e m e n t Roger Simpson (Construction Products) stepped down from the PLC Board but continue to have executive roles within the Group. Having reached the age of 74, John Silk has decided to retire from the Board at the AGM after completing 18 years’ service, of which 12 (1983–95) were as Chairman. The Board is proposing that John be appointed Life President and I am delighted that he has accepted this appointment, subject to shareholders’ approval. On John Silk’s retirement David Grove will be appointed Deputy Chairman. After an initial strategic review of the Group’s activities, an ongoing programme of disposals was deemed necessary and the first stage of this process was the sale of Tatham Miller Limited and the assets of Spirel and Duct & Access earlier this year. Total net cash receipts after costs from these disposals will amount to £3.2m, compared with a book value of £4.6m. In addition to this shortfall, there is an aggregate restatement of goodwill already written off to reserves of £2.2m, which appears in the profit and loss account but has no effect on the net asset value in the Balance Sheet. A property disposal relating to the above businesses is expected to be completed in the current year. As there are further divestments to be made, I am pleased to be reporting to you again this year after a year of considerable change and reorganisation within the Group. There have been a number of changes in the composition of the Board of Directors during the year. In June, Mr Mike Sara, our Group Chief Executive, resigned and I would like to thank Mike for his dedicated and loyal service to the Group over a 16- year period. In March, Mr David Grove joined the Board as Development Director with a brief to review the Group’s future strategy and make recommendations to the Board. Following the departure of Mike Sara, David was appointed Acting the financial results for the year under review Chief Executive and he will continue in this role until a classify our continuing businesses as either suitable replacement is found. In September, we retaining or discontinuing. I am pleased to decided to eliminate divisional reporting and replace report that, as far as the retaining activities it with a flatter operational structure. As a result of this are concerned, a creditable performance was reorganisation, Tony Pensom (Building Products) and achieved in the year to September 1998, I am pleased to report that, as far as the retaining activities are concerned, a creditable performance was achieved in the year to September 1998, whereby operating profit before exceptionals increased by 22% to £4.4m on an increase in sales of 9% to £55.8m. 2 Annual Report and Accounts 1998 whereby operating profit before exceptionals activities, particularly as our major capital investment increased by 22% to £4.4m on an increase in projects are now complete. sales of 9% to £55.8m. The continuing businesses are maintaining the In respect of the discontinuing activities, a provision progress made in the past year and current trading is of £1.6m has been made for the loss on sale of the in line with the Board’s expectations. The discontinuing businesses earmarked for disposal. Certain activities are trading at around the break-even level but properties have been revalued during the year, market conditions for these businesses remain resulting in a net deficit charged to the profit and uncertain. Following on from the material improvement loss account of £257,000. At 30th September 1998 in the Group’s anticipated cash flow in the current year, the net assets of the Group were 57.34p per share. the Board is evaluating selective bolt-on acquisitions to The overall results for the Group have been severely affected by the restructuring during the year and a loss after tax of £2.8m has been incurred. However, following the significant changes implemented during the year, the Board has reviewed the future prospects and the improvement in the Group’s ability to generate a positive cash flow. As a result, a final dividend of 2.1p per share is proposed, making 4.2p for the full year which is the same as last year. Despite the changes during the year, earnings at the IIMR level were 3.46p per share (1997 — 3.57p per share). Operating cash flow was 19.49p per share (1997 — 14.84p), which the Board regards as very acceptable for the year. At the beginning of the financial year, the Group’s gearing was 58% and although there had been a further strengthen and develop our core activities. The Group is approaching a situation whereby it is not constrained by high debt and loss-making businesses and therefore our strategy will need to be fine-tuned so that we have an overall plan for the Group’s future profitable growth and development. The action taken in 1998 has paved the way for a recovery in the Group’s prospects and an enhancement of shareholder value, subject as always to the economic environment within which we operate. After 33 years John W Hinks & Co. will be standing down as our auditors; it is proposed they are replaced by KPMG Audit Plc. I would like to take this opportunity to thank them for their efforts on behalf of the Company and shareholders over three decades. The Board will convene an Extraordinary General small reduction to 56.7% at the half year, expenditure Meeting at which you will be asked to vote in favour of shortly thereafter sent the gearing well above this Resolutions authorising the Company to purchase its level. Plans were subsequently implemented to own shares, renewing the existing authority of the reduce the gearing significantly until the cash Board to allot shares for cash, amending the Articles of generating qualities of the Group’s businesses were Association, appointing a life President, amending the more robust. At the year end, total net indebtedness 1995 executive share option scheme and adopting a had been reduced to £11.3m (£15.1m at September new executive share option scheme. The Meeting will 1997) representing gearing of 50%. be held immediately after the conclusion of the Annual Since the year end, a Sale and Lease-Back transaction has been completed in respect of the newly built premises at Coseley, which accommodate the Hill & Smith road barrier and galvanising General Meeting and you will find enclosed with the Annual Report a separate Notice convening the Meeting together with a letter from me explaining the proposals. activities. These premises have been sold for £3.85m Finally, I would like to express my thanks to all the which represents a small surplus against cost Group’s employees for their hard work and loyal (£3.8m). Gearing has therefore been reduced by a support during a year of change. further 17%. With improved financial controls and more focus on returns on capital employed, I expect DAVID S. WINTERBOTTOM to see a continuation of the strong operating cash flow during the current financial year from our trading Chairman 9th December 1998 3 Hill & Smith Holdings PLC D i r e c t o r s , A d v i s e r s a n d C o m m i t t e e s D.S. WINTERBOTTOM F.C.A., F.C.T. Chairman JOHN G. SILK LL.B. (London) Non-Executive Director and Deputy Chairman David, aged 62, a Chartered Accountant, joined the Board on 1st October 1997. He is also Chairman of CPL Industries Limited, Wightlink Group Limited, and Deputy Chairman of T J Hughes PLC. Additionally, he is Chairman of a number of institutionally owned companies, and Non-Executive Director of Electrocomponents PLC, and other public and private companies. John, aged 74, joined the Board in 1981 and was Chairman from 1983 to 1995. He is also Deputy Chairman of Hampson Industries PLC and the Senior Partner of Silks, Solicitors. He is Chairman of the Pension Fund Trustees. D.L. GROVE B.A., F.C.A. Acting Chief Executive David, aged 50, joined the Board on 20th March 1998. He is a chartered accountant and Chairman of a number of private companies involving steel, plastics and consumer products. He is a Pension Fund Trustee. R e g i s t e re d O ff i c e Springvale Industrial and Business Park, Bilston, West Midlands, WV14 0QL A d v i s e r s Registrars Computershare Services PLC, Caxton House, Redcliffe Way, Bristol, BS99 7NH Auditors John W. Hinks & Co., Smethwick, West Midlands, B67 7BH B a n k e r s Midland Bank plc, Willenhall, West Midlands, WV13 2AF Barclays Bank PLC, Dudley, West Midlands, DY1 1PP Credit Lyonnais, London, EC2A 2JP S o l i c i t o r s Silks, Oldbury, West Midlands, B69 4EZ S t o c k b ro k e r s Albert E Sharp Securities, Birmingham, B4 6ES 4 Annual Report and Accounts 1998 H.C. EVERETT B.Sc., C.A. Group Financial Director and Company Secretary R.E. RICHARDSON Non-Executive Director Dick, aged 59, was Chairman and Chief Executive of Graystone PLC from 1992 to 1997, and was previously Deputy Chairman and Managing Director of Goring Kerr PLC and Managing Director of Tace PLC. He is a Mechanical and Electrical Engineer, and was appointed Non-Executive in May 1997. C o m p a n y N u m b e r 671474 Incorporated in England and Wales Howard is 54, and joined the Group from Rapid Metal Developments Limited, an R.M. Douglas PLC subsidiary, in 1990. He speaks French and the Scandinavian languages. He is a Pension Fund Trustee. S.H.J.A. KNOTT B.A. (Econ) Non-Executive Director Simon, aged 67, was responsible for the flotation of Hill & Smith in 1969 and joined the Board in 1981. He is a Non-Executive Director of other PLCs including Rights & Issues I.T. PLC, of which he is Chairman. He is a Pension Fund Trustee. A u d i t C o m m i t t e e Messrs Silk (Chairman), Winterbottom, Knott and Richardson R e m u n e r a t i o n C o m m i t t e e Messrs Silk (Chairman), Winterbottom, Knott and Richardson E x e c u t i v e C o m m i t t e e D.L. Grove (Acting Chief Executive) H.C. Everett (Financial Director and Company Secretary) A.J. Pensom R.W. Simpson D. Muir 5 Hill & Smith Holdings PLC O p e r a t i o n s a n d F i n a n c i a l R e v i e w With the above disposals and the amalgamation of our other business units in our large portfolio, we have now reduced the number of profit centres to 9 . . . In March I was initially appointed to the Board to During the year, three business units were disposed spearhead a strategic review of the Group’s of. Duct & Access Covers Limited and Spirel S.A. operations and this was followed in June 1998 with were both loss making and had no critical mass or my appointment as Acting Chief Executive. My brief niche market features. Tatham Miller Limited, was to implement a reorganisation and streamline the Group’s activities as agreed with the Board. At the time the Group had a turnover approaching £80m per annum which was spread across 15 profit centres. The Group was dissipating its managerial and financial resources over too wide a spectrum and was operating in areas where it has no although profitable, needed to have a wider distribution network in order to take full advantage of the economies of scale. Therefore, we disinvested. With the above disposals and the amalgamation of our other business units in our large portfolio, we have now reduced the number of profit centres to 9 significant market position or unique selling features. and a further reduction can be anticipated in 1999. The overall effect of this was that the financial Following these changes, the divisional structure returns were inadequate and our gearing of nearly was deemed inappropriate and therefore this has 70% was causing concern. been dismantled with all operating Managing Airport baggage handling trolley in steel galvanised by Hill & Smith. Sign gantry and bridge parapet supplied by Varley & Gulliver and motorway barrier supplied by Hill & Smith on the new A1/M1 link in Yorkshire 6 Annual Report and Accounts 1998 Asset Weholite HDPE pipe chosen for 650 m long sea outfall in Scotland. Directors now reporting direct to the Chief margins and cash flow management. We are Executive. I would like to report on the individual continuing to invest in the Weholite plastic pipe operating units as follows. Hill & Smith Limited performed very well during the year with turnover from its traditional market up 12% and profits ahead of last year. During the year, the company relocated from its old Brierley Hill factory to a purpose-built facility at Bilston near Wolverhampton. The annual size of the crash barrier market is mainly determined by government spending. The government has recently published its latest policy document “A New Deal for Trunk Roads in England and Wales” in which a further reduction in the new roads programme was outlined. This negative factor will be partly compensated by increased spending on the maintenance of current roads and further spending on safety improvements. In 1997, 3,599 people were killed on roads in the UK with related injuries totalling 323,945. Hill & Smith Limited intend to develop and introduce more products into the market to further improve road safety in the future. Asset International Limited’s new management team have turned the company round from the loss- making situation in 1997. Suitable progress was made during the year in increasing operating activity and sales increased by 150% in 1998 due to the use of this product by several water companies in their own capital sewerage schemes and other infrastructure developments in both the public and private sectors. During the year, we supplied the largest diameter plastic pipe sea outfall ever built in the UK for the North of Scotland Water PFI Scheme. Asset’s Scottish and Irish depots continue to make progress. Pedestrian underpass in Carmarthen connecting residential area with superstore. Multiplate supplied by Asset with anti- graffiti paint system. 7 Hill & Smith Holdings PLC O p e r a t i o n s a n d F i n a n c i a l R e v i e w A considerable investment has been made in the Group’s galvanising facilities in 1996 and 1997. In order to reduce operating costs and co-ordinate competition in the margin-sensitive lintels market. our production, marketing and product development Further management changes and rationalisation resources, the Asset and Hill & Smith operations improvements are being implemented together with were combined under one management team after initiatives to reduce capital employed. the year end. This unit becomes the largest profit centre in our Group representing 30% of the Group’s turnover. At Varley & Gulliver Limited it is pleasing to report that both sales and profits are ahead of the previous year with a particularly strong performance in the The operations at Birtley Building Products Limited last quarter resulting from work related to the new and Bainbridge Engineering Limited have also been A1/M1 link road. combined for similar reasons to the above. Bainbridge barely broke even during the year and management changes have taken place, thus leaving only the production unit at Bury, with all other functions being organised at the Birtley site. At Birtley, sales and profits declined during the year mainly as a result of flat demand and increased Pipe Supports Limited continues to develop its presence in the global market for the design and supply of pipe support systems and installations for major capital projects such as power stations on a world-wide basis. Sales were ahead of last year by 15% although profits declined because of high Birtley range of Supergalv lintels are designed for use in a wide variety of shapes, dimensions and loadings. 8 Part of the UK’s first fully automated hot-dip galvanising plant at Birtley. Annual Report and Accounts 1998 Garage doors supplied by Birtley. exports and the problems of a strong pound plus a the current year our throughput increased by 15% to large loss on one major contract. As a business of 57,000 tonnes and capacity is available to expand this type expands, systems need to be more robust this volume further, although the external galvanising and action is being taken in this area. Further market is currently showing a slowdown in line with opportunities exist for the development of this general economic activity. business as a global supplier, particularly in South- East Asia and the USA. The steel stockholding companies had a difficult year. D & J (Steels) Limited managed to increase W.H. Barker & Son (Engineers) Limited had a market share against falling volumes in the forging disappointing year with profits declining on an market but its profits fell against last year. Tipton increased turnover. The main reason for this shortfall Steel Stockholders Limited fell into heavy losses was margin pressure in the palisade fencing market because of the surplus of steel plate and the whereas our new products made some progress. resultant collapse in prices together with a fall in A considerable investment has been made in the Group’s galvanising facilities in 1996 and 1997. In demand from our traditional engineering customers. Badly timed forward purchasing in 1997 exacerbated this problem. A major de-stocking Aluminium Sign Gantry supplied and installed by Varley and Gulliver. Residential door and canopies manufactured by Bainbridge Engineering. 9 Hill & Smith Holdings PLC O p e r a t i o n s a n d F i n a n c i a l R e v i e w Cash inflow before financing was £3,851,000, compared with an outflow last year of £3,799,000. exercise has been carried out and our stock will be have been inadequate. The current management at a sensible level by the end of the calendar teams are well aware of what is expected in order to year 1998. The forging business also had a difficult year with a fall in demand from our major customers and increased price competition for new business. deliver improved overall returns. We have the challenge of some exciting new developments in the Group as well as the problems of how to achieve the best returns from some of our commodity products and supplies into declining markets. Significant costs have been eliminated by reducing our operation to a single shift and further Results rationalisation measures between our two sites are being examined. The drop forging market is currently in some difficulty and further rationalisation across the market is no doubt required in future. Trading results for the year show operating profit at £3,628,000 compared with £2,698,000 in 1997. Of this profit, £4,208,000 (1997 — £1,997,000) is due to continuing retaining activities. Substantial provisions for losses on disposal and actual losses In the recent past the returns on capital employed of on disposal result in a loss before interest of our business units and their ability to generate cash £1,022,000 (1997 — £2,298,000 profit). Above: HDPUF cold support manufactured as part of a joint partnership by Pipe Supports Limited. Left: Constant effort supports and Easi-Slide bearing from Pipe Supports 10 Annual Report and Accounts 1998 Decorative fencing from Barker in use round the Mary Rose, Portsmouth and above, King George Park, London. Cash Balance Sheet Our approach to cash management was reviewed Following the disposals, provisions made, and an during the year and new requirements and controls overall loss for the year, the net asset per share has have been put in place. During the year the declined to 57.34p (1997 — 66.14p). operating cash flow per share improved to 19.5p (1997 — 14.8p). The operating profit was £3,628,000 (1997 — £2,698,000) and operating cash flow was £7,703,000 (1997 — £5,858,000). Cash inflow before financing was £3,851,000, compared with an outflow last year of £3,799,000. Taxation The taxation charge during the year was £378,000 (1997 — £205,000). It is to be expected that the charge will rise in future as the impact of our disposal of loss-making activities takes effect. As part of this cash-conscious approach the level of Dividend stock has been reduced to £9,614,000 at the year end (1997 — £14,564,000). This reduction of £4,950,000 included £2,086,000 from activities disposed of during the year whereas £2,864,000 related to businesses held at both year ends. A final dividend of 2.1p (1997 — 2.1p) is proposed to be paid on 7th April 1999. The total dividend payable for the year will cost £1,661,000 (1997 — £1,658,000) which is covered by operational cash flow of £7,703,000 (1997 — £5,858,000). Gearing D.L. GROVE At the year end our total borrowings amounted to Acting Chief Executive £11,255,000 (1997 — £15,140,000) which 9th December 1998 represents gearing of 50% (1997 — 58%). Following the year end, a sale for £3,850,000 and leaseback of the newly constructed premises at Bilston for Hill & Smith Limited has resulted in a further substantial fall in our gearing. 11 Hill & Smith Holdings PLC R e p o r t o f t h e D i r e c t o r s The Directors present their 38th annual report together with the financial statements for the year ended 30th September 1998. a Director of the Company until 9th June 1998 and Messrs A.J. Pensom and R.W. Simpson until 30th September 1998. Trading results The Group loss for the year, before taxation, amounted to £2.466m compared with a profit of £1.216m for the previous year. This figure is arrived at after substantial losses on sale and provisions for losses on sale of operations. Principal activities The principal activities of the Group companies are: Galvanising services. Steel lintels, garage doors and ancillary building products. Motorway barrier, bridge parapet, security and all other types of steel fencing. Steel and plastic drainage pipes, tunnel and culvert structures. Steel stockholding. Pipe supports. Drop and upset forging. The Chairman’s Statement on page 2 and 3and the Operations and Financial Review on pages 6 to 11 contain a review of the trading for the year, a statement as to the current trading position and an indication of the outlook for the future. Fixed assets The Directors have reduced the value of certain of the Group’s properties, to reflect their opinion of current market conditions. Dividends The Directors recommend a final dividend of 2.10p per share to be paid, making the total distribution for the year 4.20p per share (1997 — 4.20p per share). Share capital Particulars of changes in share capital are set out in Note 16 to the financial statements. Employees Group policy is to encourage employees to become shareholders in the Company and all employees with at least six months’ continuous service qualify for invitations to join the 1995 Savings Related Share Option Scheme. The Group has a consistent policy which ensures equal consideration to applications for employment from any persons including disabled persons. The same equal consideration for training and career development is maintained within the Group. Mr D.L. Grove was appointed to the Board on 20th March 1998. As he was appointed to the Board since the date of the last Annual General Meeting, he retires in accordance with the Company’s Articles of Association and a Resolution proposing his election will be submitted at the Annual General Meeting. The Directors retiring by rotation are Mr H.C. Everett and Mr S.H.J.A. Knott who, being eligible, offer themselves for re-election. Mr Everett has a service contract with the Company, details of which are contained in the Report of the Remuneration Committee. Mr Knott, being a non-executive Director, does not have a service contract. The interests of the Directors in office at the year end and their families in the ordinary shares of the Company according to the register required to be kept by the Companies Act 1985, and their options, are disclosed in note 21 to the financial statements. The Directors and their families have no interest in the 14 per cent first mortgage debenture stock 2000/2003. Except as disclosed in Note 21 to the financial statements, no Director had any interest in any material contract or arrangement in relation to the business of the Company or any of its subsidiaries during the year. The Company has purchased and maintained insurance to cover its Directors and Officers against liabilities in relation to their duties to the Company. Corporate Governance The Board is pleased to report that the Company complies with the Code of Best Practice (“the Code”) incorporated in the Report of the Committee on the Financial Aspects of Corporate Governance, and has done so in all material respects throughout the year. As reported in Note 21 to the financial statements, Mr John G. Silk is a partner in a firm which advises the Group. The Board is of the opinion, however, that this relationship does not materially interfere with the exercise of his independent judgement with regard to the affairs of the Group. Board Committees The Board has established an Audit Committee and a Remuneration Committee. The Board of Directors, presently comprising the Chairman, the Acting Chief Executive, one executive Director and three non-executive Directors, meets at least nine times a year and has a list of matters specifically reserved for its decision. Directors and Directors’ interests The names and biographical details of the Directors holding office at the date of this report are shown on pages 4 and 5. In addition, Mr M.E. Sara served as The Audit Committee meets at least three times a year and comprises the non-executive Directors, with written terms of reference. Meetings may also be attended by the Acting Chief Executive and Finance Director, and 12 Annual Report and Accounts 1998 the Company’s auditors are normally invited. The Remuneration Committee comprises the non- executive Directors and meets as and when required. It is responsible for determining the remuneration packages of the executive Directors and for advising on remuneration policy for senior executives. In addition, it also administers the 1997 Executive Share Option Scheme. A report by the Remuneration Committee is set out on pages 16 to 18. Executive Committee The Executive Committee meets at least six times a year and comprises three senior Directors from subsidiary companies, the Financial Director and is chaired by the Chief Executive. Its role is to assist the Chief Executive and to advise the Board on day- to-day executive matters. Non-executive Directors The Company has experienced non-executive Directors who represent a source of strong independent advice and judgement. The remuneration of non-executive Directors is set by the Board in line with market levels. Internal Financial Control The Board of Directors has overall responsibility for the Group’s system of internal financial control. In order to discharge that responsibility in a manner which ensures compliance with laws and regulations and promotes effective and efficient operations, the Directors have established an organisational structure with clear operating procedures, lines of responsibility, and delegated authority. In particular, there are clear procedures for: — capital investment, with detailed appraisal, authorisation and post-investment review; — financial reporting, within a comprehensive financial planning and accounting framework; — monitoring of business risks, with key risks identified and reported to the Board and Audit Committee. There are also clear procedures for monitoring the system of internal financial control, supplemented by reports from the external auditors. The Board has reviewed the effectiveness of the system of internal financial control in operation during the financial year through the monitoring process set out in the above paragraph. It must be recognised that such a system can provide only reasonable and not absolute assurance and in that context, the review revealed nothing which, in the opinion of the Board, indicated that the system was inappropriate or unsatisfactory. Directors have reviewed current internal financial projections and the facilities available to meet the Group’s cash requirements. Year 2000 Compliance Each individual subsidiary, under the control of the finance director, has been reviewing this issue. Each subsidiary is at present completing a detailed survey which includes contacting the suppliers and/or manufacturers of equipment and providers of services to establish whether the equipment is year 2000 compliant. The Board will review the results of the survey and take action where necessary. Costs to date amount to £43,000 and currently future costs are expected to be £112,000. Given the complexity of the problem, it is not possible for any organisation to guarantee that no Year 2000 problems will remain, because at least some level of failure may still occur. Donations Charitable donations amounting to £1,883 were made in the year. There were no political contributions. Supplier payment policy Individual operating companies within the Group are responsible for establishing appropriate policies with regard to the payment of their suppliers. The companies agree terms and conditions under which business transactions with suppliers are conducted. The Group does not follow any code or standard on payment practice but it is the Group’s policy that, provided a supplier is complying with the relevant terms and conditions, including the prompt and complete submission of all specified documentation, payment will be made in accordance with agreed terms. It is Group policy to ensure that suppliers know the terms on which payment will take place when business is agreed. The average credit period is 74 days (1997 — 74 days). The Holding Company does not have trade creditors. Company status The close company provisions of the Income and Corporation Taxes Act 1988 do not apply to the Company and there has been no change in this respect since the end of the financial year. Auditors Messrs John W. Hinks & Co. will not be seeking reappointment as auditors of the Company. The Company has received notice that a Resolution to appoint KPMG Audit Plc as auditor of the Company is to be proposed at the Annual General Meeting. By order of the Board Going Concern The Directors are satisfied that the Group is a going concern. In forming this view, the H.C. EVERETT Secretary 9th December 1998 13 Hill & Smith Holdings PLC O t h e r I n f o r m a t i o n Interests of Directors and substantial shareholders Directors acquired the following ordinary shares in the Company, between 30th September 1998 and 29th January 1999. S.H.J.A. Knott H.C. Everett H.C. Everett D. Grove Date of acquisition 14.12.98 10.12.98 11.12.98 15.01.99 No. of shares 10,000 3,225 19,712 100,000 The Company has been notified of the following substantial shareholdings on 29th January 1999. Ordinary % of issued shares share capital G. Hampson Silk P.J. Hampson Silk 4,100,636 4,100,638 Managed by: Friends Provident Asset Management Group Britannic 1,867,510 1,550,000 10.4 10.4 4.7 3.9 Close Investment 1997 Fund 7,376,733 18.6 Of G. Hampson Silk’s ordinary shares, 3,316,427 are either registered in his own name or his wife’s name. Of the remaining ordinary shares, 730,876 are registered in the name of a private limited company of which he is a Director and in which he has control of more than one-third of the voting power at general meetings of that company and 53,333 are held in a discretionary trust of which he is a trustee. Of P.J. Hampson Silk’s ordinary shares, 3,316,429 are either registered in his own name or his wife’s name. Of the remaining ordinary shares, 730,876 are registered in the name of a private limited company of which he is a Director and in which he has control of more than one-third of the voting power at general meetings of that company and 53,333 are held in a discretionary trust of which he is a trustee. As far as the Directors are aware, there were no other notifiable shareholdings according to the Company’s share register on 29th January 1999. S t a t e m e n t o f D i r e c t o r s ’ R e s p o n s i b i l i t i e s The Directors are required by company law to prepare financial statements which give a true and fair view of the state of affairs of the Company and the Group at the end of the financial year and of the profit of the Company and the Group for that year. The financial statements must be prepared in compliance with the required formats and disclosures of the Companies Act 1985 and with applicable accounting standards. In addition, the Directors are required: i) ii) to select suitable accounting policies and then apply them consistently; to make judgements and estimates that are reasonable and prudent; iii) to prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors confirm that the financial statements comply with the above requirements, and that applicable accounting standards have been followed. The Directors are also responsible for maintaining adequate accounting records so as to enable them to ensure that the financial statements comply with the requirements of the Companies Act 1985, for safeguarding the assets of the Company, and for preventing and detecting fraud and other irregularities. 14 Annual Report and Accounts 1998 R e p o r t o f t h e A u d i t o r s t o t h e M e m b e r s o f H i l l & S m i t h H o l d i n g s P L C We have audited the financial statements on pages 19 to 38 which have been prepared under the historical cost convention as modified by the revaluation of certain fixed assets and the accounting policies set out on page 24. R e s p e c t i v e r e s p o n s i b i l i t i e s o f D i r e c t o r s a n d a u d i t o r s As described on page 14, the Company’s Directors are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on these financial statements and to report our opinion to you. B a s i s o f o p i n i o n We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. O p i n i o n In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group at 30th September 1998 and of the loss for the year then ended and have been properly prepared in accordance with the Companies Act 1985. John W. Hinks & Co. Chartered Accountants and Registered Auditor UK 200 Group Member Firm Church House, 5–14 South Road, Smethwick, West Midlands, B67 7BH 9th December 1998 R e p o r t o f t h e A u d i t o r s t o H i l l & S m i t h H o l d i n g s P L C o n C o r p o r a t e G o v e r n a n c e M a t t e r s In addition to our audit of the financial statements, we have reviewed the Directors’ statements on pages 12 and 13 concerning the Company’s compliance with the paragraphs of the Cadbury Code of Best Practice specified for our review by the London Stock Exchange and their adoption of the going concern basis in preparing the financial statements. The objective of our review is to draw attention to any non- compliance with the September 1997 Listing Rules 12.43(j) and 12.43(v). B a s i s o f o p i n i o n We carried out our review in accordance with guidance issued by the Auditing Practices Board. That guidance does not require us to perform the additional work necessary to, and we do not, express any opinion on the effectiveness of either the Group’s system of internal financial control or its corporate governance procedures nor on the ability of the Group or Company to continue in operational existence. O p i n i o n With respect to the Directors’ statement on internal financial control and going concern on pages 12 and 13, in our opinion the Directors have provided the disclosures required by the Listing Rules referred to above and such statements are not inconsistent with the information of which we are aware from our audit work on the financial statements. Based on enquiry of certain Directors and officers of the Company, and examination of relevant documents, in our opinion the Directors’ statements on pages 12 and 13 appropriately reflect the Company’s compliance with the other aspects of the Code specified for our review by the September 1997 Listing Rule 12.43(j). John W. Hinks & Co. Chartered Accountants and Registered Auditor UK 200 Group Member Firm Church House, 5–14 South Road, Smethwick, West Midlands, B67 7BH 9th December 1998 15 Hill & Smith Holdings PLC R e p o r t o f t h e R e m u n e r a t i o n C o m m i t t e e T h e R e m u n e r a t i o n C o m m i t t e e The Remuneration Committee comprises all the non- executive Directors of the Company and is chaired by Mr John G. Silk. It is responsible for determining all aspects of the remuneration packages of executive Directors and key senior executives. The members of the Committee have no personal financial interest, other than as shareholders, in the matters to be decided, no potential conflicts of interest arising from cross-directorships and no day- to-day involvement in running the business. Compliance The Remuneration Committee has complied throughout the period with Section A of the Best Practice Provisions attached to the September 1997 Listing Rules of the London Stock Exchange and, in framing its remuneration policy, has given full consideration to Section B thereto. The Auditors’ Report on the Financial Statements set out on page 15 confirms that the scope of their Report covers the disclosures contained in this Report that are specified for audit by the London Stock Exchange. Remuneration Policy The basic object of the policy of the Remuneration Committee is to ensure that the remuneration packages offered are designed to attract and retain executive Directors and key senior executives of the right calibre and motivate them to make the maximum possible contribution to the Group. The remuneration packages consist of a basic salary and certain benefits in kind, performance related cash bonuses, share options and pension benefits. Basic salary and benefits in kind Basic salaries are determined by the Remuneration Committee, taking into account the performance of each individual and the rates of salary for similar positions in comparable companies. The salaries are reviewed annually as at 1st October or when a change of responsibilities occurs. Benefits in kind provided are in the main a company car and fuel and private health care insurance. Performance related cash bonuses Currently, there are two performance related cash bonus schemes in operation for the Group Finance Director, H.C. Everett, and for key senior executives. These two Schemes do not apply to the acting Chief Executive, D.L. Grove, but are intended to be part of the remuneration package of the new Chief Executive when appointed. Under the first bonus scheme a cash bonus expressed in terms of a percentage of basic salary is awarded annually on the achievement of specific financial and other targets set at the beginning of each financial year by the Remuneration Committee and the maximum bonus under this scheme is capped at 40 per cent of basic salary. The second scheme is based upon remunerating the executive responsible for the return on capital employed in the business unit which he controls. The Remuneration Committee specifies in percentage terms the returns on capital employed which should be achieved in each year of a two year period. If those returns are achieved, the Executive will at the end of the second year of the two year period be awarded a cash bonus equal to 10 per cent of the difference in amount between the total of the profits before interest and tax and the specified returns on capital employed for the two year period. The bonus under this scheme is capped at 30 per cent of the basic salary received by the Executive in the second year. D.L. Grove’s services as a Director are provided by Grove Industries Limited (“GIL”), a company controlled by D.L. Grove, and under the agreement between the Company and GIL providing for his services the Company, in addition to paying an annual fee to GIL for such services, may be liable to pay GIL an annual bonus/reward linked to any increase in the Group operating profit (as therein defined) in accordance with a formula set out in the agreement. That bonus/reward is capped at 11/2 times the annual fee. Share options In March 1995 the Company, in general meeting, adopted two share option schemes under which options can be granted to executive Directors and senior executives, the one scheme being known as The Hill & Smith Holdings 1995 Executive Share Option Scheme (“the 1995 Executive Share Option Scheme”) and the other as the Hill & Smith Holdings 1995 Savings Related Share Option Scheme (“the 1995 Savings Related Share Option Scheme”). Both these schemes are Inland Revenue approved schemes. Under the 1995 Executive Share Option Scheme, which is administered by the Remuneration 16 Annual Report and Accounts 1998 Committee, options can only be granted at market value, are subject to specified performance criteria and can only be exercised between 3 and 10 years after the date granted if such criteria are met. The performance criteria currently set by the Remuneration Committee are that options may only be exercised if the growth in earnings per share of the Company calculated on an IIMR basis over a 3 year period is not less than the increase in the Retail Price Index plus 6 per cent over the same period. Options were granted under this Scheme on that basis in February 1996. The rules of the scheme provide that as at the date any option is granted to an individual under the scheme, the market value of that option and of all subsisting options under the scheme and any other approved executive share option scheme within the 10 years prior to that date shall not exceed four times his then yearly remuneration. However, the Finance Act 1996 has enacted that for a scheme such as this to retain its Inland Revenue approved status the total market value of such options shall not exceed £30,000, thus restricting considerably the number of options which now may be granted to any individual under this scheme. In granting options under this scheme the Remuneration Committee has followed the practice adopted by the Company when granting options under a similar previous scheme in that the number of options awarded to an individual has reflected the salary grade of that individual. The 1995 Savings Related Share Option Scheme is open to all employees, including executive Directors, who have completed 6 months’ continuous service. Under this scheme the Company can, if it thinks fit, grant options at a price up to 20 per cent below the market price. Options under this scheme at 20 per cent below the market price were granted in February 1997 and on 15th December 1998 further options under the scheme will be offered at market price. H.C. Everett is the only Director holding options granted by the company and details of those options are set out in note 21 on page 34. Executive Directors’ pension entitlement The executive Directors, other than D.L. Grove, participate in the Hill & Smith Group Pension and Assurance Scheme which provides pensions and other benefits within the Inland Revenue limits. The scheme provides them, at normal retirement age, 65, with a pension of two-thirds of their final pensionable salary, subject to completion of a sufficient number of years service. In accordance with policy formulated many years ago, pensionable salary includes an annual performance related bonus. The Remuneration Committee is of the opinion that as such bonus forms an integral part of an executive Director’s overall package, it is appropriate for it to continue to be pensionable. Dependants of executive Directors are eligible for a pension of two-thirds of the pension entitlement and the payment of a lump sum in the event of the death of the Director whilst in service. Service Agreements The service agreement of H.C. Everett with the Company provides that either party to the agreement may determine the same on giving to the other not less than 24 months’ prior notice in writing but after discussions between H.C. Everett and the Company the period of notice has been varied by deed of variation. Under the terms of the deed of variation the service agreement may be terminated by H.C. Everett on giving not less than 6 months’ notice and by the Company on giving not less than 12 months’ notice unless such notice is given in the 12 months immediately following a Change in control (as that expression is therein defined) of the Company in which case the notice to be given by the Company must be not less than 18 months. On termination of the service agreement by the Company H.C. Everett is under a duty to mitigate any loss unless the notice terminating the service agreement is given by the Company within 12 months following a Change in Control. D.L. Grove does not have a service agreement with the Company but the agreement under which the Company pays GIL for his services can be terminated by either the Company or GIL by 3 months’ notice. Non-Executive Directors Non-executive Directors do not have service agreements with the Company and receive fees for their services. These fees are decided by the Board as a whole and reviewed annually. 17 Hill & Smith Holdings PLC R e p o r t o f t h e R e m u n e r a t i o n C o m m i t t e e Directors’ Remuneration Details — Year ended 30th September 1998 The remuneration in respect of each Director for the year ended 30th September 1998 was as follows: Fees/ Salary £000 Benefits £000 Performance related bonus £000 Compensation for loss of office £000 Total for 1998 £000 Total for 1997 £000 Chairman: (Non-executive) D.S. Winterbottom Executive: M.E. Sara* D.L. Grove† H.C. Everett A.J. Pensom‡ R.W. Simpson‡ Non-executive: John G. Silk S.H.J.A. Knott R. E. Richardson 30 57 39 55 65 65 21 15 15 362 — 6 — 9 5 6 — — — 26 — — — 5 1 15 — — — 21 — 122 — — — — — — — 122 30 185 39 69 71 86 21 15 15 531 — 99 — 60 69 69 21 14 6 338 * M.E. Sara (the former Chief Executive) ceased to be employed by the Company on 9th June 1998 and on his resignation as a Director the Company paid to him £122,000, before deduction of income tax, as compensation for termination of his employment. † D.L. Grove was appointed to the Board as Development Director on 20th March 1998 but on the resignation of M.E. Sara on 9th June 1998 took on the role of acting Chief Executive pending the appointment of a new Chief Executive. The Company has an agreement with Grove Industries Limited, a company controlled by D.L. Grove, for the provision of his services as a Director under which fees for such services and an annual bonus/reward calculated as therein mentioned are payable to Grove Industries Limited. ‡ Both A.J. Pensom and R.W. Simpson retired from the Board on 30th September 1998 but continue to be employed as key senior executives within the Group. Directors’ pensions Pension benefits earned by the Directors Age at year end 57 54 47 57 M.E. Sara H.C. Everett A.J. Pensom R.W. Simpson Directors contributions in year pension during the year £000 2 2 4 3 Increase in accrued Accumulated total accrued pension at year end £000 41 15 18 16 £000 3 2 3 3 Notes to pension benefits 1. The pension entitlement is that which would be paid annually on retirement based on service to the year end. 2. The increase in accrued pension during the year excludes any increase for inflation. 3. The Directors‘ contributions are the contributions paid in the year by the Directors under the terms of the scheme. 4. The pensions shown above are subject to a guaranteed annual increase of 3%. 5. The pension entitlement of M. E. Sara at his age on 9th June 1998, the date he ceased to be employed by the Company, was £31,170 p.a. and the Company and the pension trustees made provision for his pension to be £41,310 p.a. with immediate effect. JOHN G. SILK Chairman, Remuneration Committee 9th December 1998 18 Annual Report and Accounts 1998 C o n s o l i d a t e d P r o f i t a n d L o s s A c c o u n t for the year ended 30th September 1998 1998 1998 1998 1998 1997 Continuing Turnover Cost of sales Gross profit Distribution cost Administrative expenses Operating profit/(loss): excluding exceptional items exceptional items Notes 1 2a 2a 2a 2a 2b Profit on sale of property 2c Provision for loss on sale of operations/loss on sale of operations Based on book value of net assets Less 1997 provision 2d Related goodwill Loss on sale (Loss)/profit on ordinary activities before interest Net interest payable (Loss)/profit on ordinary activities before tax Taxation (Loss)/profit for the financial year Dividends (Loss) for the year (Loss)/earnings per share — FRS 3 — IIMR 4 5 6 17 7 7 Dis- Retaining continuing continued £000 £000 £000 Dis- Total £000 55,811 (39,742) 12,011 (10,475) 8,675 (6,396) 76,497 (56,613) 16,069 1,536 2,279 19,884 (2,268) (9,593) (455) (1,296) (771) (1,873) (3,494) (12,762) Total Restated £000 81,281 (60,845) 20,436 (3,661) (14,077) 4,428 (220) 4,208 153 (215) — (365) — 3,848 (220) 4,339 (1,641) (215) (365) 3,628 — — 153 — — — — (1,588) — (1,428) 400 (3,016) 400 (1,588) (1,028) (2,616) — (2,187) (2,187) (1,588) (3,215) (4,803) 2,698 — (400) — (400) — (400) 4,361 (1,803) (3,580) (1,022) (1,444) 2,298 (1,082) (2,466) (378) 1,216 (205) (2,844) (1,661) 1,011 (1,658) (4,505) (647) (7.20p) 3.46p 2.56p 3.57p 19 Hill & Smith Holdings PLC C o n s o l i d a t e d B a l a n c e S h e e t as at 30th September 1998 Tangible fixed assets Current assets Property held for realisation Stocks Debtors Cash at bank and in hand Creditors (amounts due within one year) Net current assets Total assets less current liabilities Creditors (amounts due after one year) Provisions for liabilities and charges Accruals and deferred income Net assets Capital and reserves Called up share capital Share premium Revaluation reserves Profit and loss account Equity shareholders’ funds Notes 8 9 10 11 12 12 14 15 16 17a 17b 17c 1998 £000 24,093 460 9,614 18,739 23 28,836 (23,105) 5,731 29,824 (5,245) (1,801) (95) 22,683 9,890 133 2,290 10,370 22,683 1997 £000 25,757 645 14,564 20,250 10 35,469 (26,978) 8,491 34,248 (6,785) (1,211) (140) 26,112 9,869 108 3,509 12,626 26,112 Net assets per share 57.34p 66.14p These financial statements were approved by the Board on 9th December 1998 and signed on its behalf by: D.S. WINTERBOTTOM D.L. GROVE Directors 20 Annual Report and Accounts 1998 C o n s o l i d a t e d C a s h F l o w S t a t e m e n t for the year ended 30th September 1998 Net cash inflow from operating activities 1 7,703 5,858 Notes £000 £000 £000 £000 1998 1997 Returns on investment and servicing of finance Interest received Interest paid Interest element of finance lease rental payments Taxation Corporation tax paid Capital expenditure Purchase of tangible fixed assets Grants received Sale of tangible fixed assets Acquisitions and disposals Sale of businesses 3 Equity dividends paid Cash inflow/(outflow) before financing Financing Issue of share capital Capital element of finance lease rental payments net of advances Loan advances Repayment of loans Increase/(decrease) in cash Reconciliation of net cash flow to movement in net debt Movement in cash Decrease/(increase) in debt and lease financing Changes in net debt from cash flows New finance leases Movement in net debt in year Net debt as at 30th September 1997 Net debt as at 30th September 1998 223 (1,608) 211 (1,236) (59) (1,444) (57) (1,082) (462) (671) (3,927) — 1,122 46 (278) — (3,224) (2,805) 2,518 (1,659) 3,851 (3,456) 395 395 3,502 3,897 (12) 3,885 (15,140) (11,255) (5,873) 25 391 1 (287) 4,500 (1,008) (5,457) — (2,447) (3,799) 3,206 (593) (593) (3,205) (3,798) (7) (3,805) (11,335) (15,140) 21 Hill & Smith Holdings PLC N o t e s t o t h e C o n s o l i d a t e d C a s h F l o w S t a t e m e n t 1. Reconciliation of operating profit to net cash inflows from operating activities Operating profit Depreciation less grants and profit on disposal Stock Debtors Creditors Pension provisions Reorganisation costs 1998 £000 3,628 2,097 2,864 (935) 1,286 198 (1,435) 7,703 19.49p Operating cash flow per share 2. Analysis of net debt Cash at bank and in hand Bank overdrafts Debt due after one year Debt due within one year Finance leases 3. Effect of disposal of business Tangible fixed assets Stocks Debtors Bank overdraft Creditors Taxation Deferred tax Net assets Loss on disposal Consideration Satisfied by: Cash Net cash inflow Net consideration Disposal of bank overdraft Cash inflow 1998 £000 Cash flow £000 Disposal of business £000 Other non-cash £000 23 (4,135) (4,112) (4,875) (1,608) (660) (7,143) (11,255) 13 (104) (91) 153 3,071 278 3,502 3,411 — 486 486 — — — — 486 — — — 1,109 (1,109) (12) (12) (12) 1998 £000 1,249 2,086 2,648 (486) (2,588) (97) (9) 2,803 (771) 2,032 2,032 2,032 486 2,518 1997 £000 2,698 2,001 179 314 (47) 219 494 5,858 14.84p 1997 £000 10 (4,517) (4,507) (6,137) (3,570) (926) (10,633) (15,140) 1997 £000 — — — — — — — — — — — — — — The operating cash flows in respect of the disposed businesses are not significant in relation to Group activity. 22 Annual Report and Accounts 1998 C o n s o l i d a t e d S t a t e m e n t o f T o t a l R e c o g n i s e d G a i n s a n d L o s s e s for the year ended 30th September 1998 (Loss)/profit for the financial year Revaluation deficit Exchange differences Prior year adjustment Total recognised gains and losses relating to the year 1998 £000 (2,844) (1,164) 7 — (4,001) C o n s o l i d a t e d N o t e o f H i s t o r i c a l C o s t P r o f i t s a n d L o s s e s for the year ended 30th September 1998 Reported (loss)/profit on ordinary activities before tax Difference between historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount Historical cost (loss)/profit on ordinary activities before taxation Historical cost loss for the year retained after taxation and dividends 1998 £000 (2,466) 31 (2,435) (4,474) C o n s o l i d a t e d R e c o n c i l i a t i o n o f M o v e m e n t i n S h a r e h o l d e r s ’ F u n d s for the year ended 30th September 1998 (Loss)/profit for the financial year Dividends New share capital subscribed Revaluation deficit Goodwill taken to profit and loss account on disposal Exchange difference Net movement in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 1998 £000 (2,844) (1,661) (4,505) 46 (1,164) 2,187 7 (3,429) 26,112 22,683 1997 £000 1,011 (1,183) (25) (148) (345) 1997 £000 1,216 67 1,283 (580) 1997 £000 1,011 (1,658) (647) 1 (1,183) — (25) (1,854) 27,966 26,112 23 Hill & Smith Holdings PLC P r i n c i p a l A c c o u n t i n g P o l i c i e s The financial statements are prepared under the historical cost convention, as modified by the revaluation of land and buildings and in accordance with applicable accounting standards. Basis of consolidation and accounting for acquisitions and disposals The consolidated financial statements include the Company and its subsidiaries. Intra-Group sales and profits are eliminated on consolidation and all sales and profit figures relate to external transactions only. The trading results of subsidiaries acquired or sold are included in the consolidated profit and loss account from or until the effective date of acquisition or disposal respectively. Fair values are ascribed to tangible assets and liabilities of subsidiaries at dates of acquisition and any surplus or deficiency between such values and the purchase consideration is dealt with through reserves. When a business is sold any goodwill dealt with through reserves at the time the business was purchased is added back to the book value in determining the profit or loss on disposal. Fixed assets Interests in land and buildings are stated at valuation or historical cost. The cost of other fixed assets is their purchase cost, together with any incidental expenses of acquisition. Depreciation is calculated so as to write off the cost or valuation of fixed assets over the expected useful and economic lives of the assets concerned. Freehold buildings are depreciated at 2% per annum. Leasehold property is depreciated over the term of the lease. Freehold land is not depreciated. Plant, equipment and vehicles are depreciated in accordance with prudent commercial bases, at rates calculated on the assumed lives which vary between 4 and 20 years. Stocks and work in progress These are valued on a “first-in, first-out” basis at the lower of cost and net realisable value. In respect of work in progress and finished goods, cost includes all production overheads and the attributable proportion of indirect overhead expenses. Deferred taxation The charge for taxation is based on the result for the year and takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for taxation and accounting purposes. Provision is made for deferred tax only to the extent that it is probable that an actual liability will crystallise. Advance corporation tax recoverable by deduction from future corporation tax is carried forward within deferred taxation or as ACT recoverable within debtors as appropriate. No provision is made for any possible liabilities on the future sales of properties at their revalued book figures as it is intended that such properties will be retained for use in the business. Provision is made for liabilities arising in respect of properties held for resale. Turnover Turnover, which excludes value added tax, sales between Group companies and trade discount, represents the invoiced value of goods and services supplied. Foreign currency Assets and liabilities denominated in foreign currencies are translated into sterling at the exchange rate ruling at the balance sheet date. The results of overseas operations are also translated into sterling, at the exchange rate ruling at the balance sheet date. Exchange differences arising from the retranslation of opening net assets denominated in foreign currencies are taken direct to reserves. All other exchange differences are taken to the profit and loss account. Government grants Capital grants received are included as a deferred credit and are being written off to revenue over the life of the assets concerned. Leased assets With respect to finance leases, the relevant assets are capitalised and the corresponding liability is included as an obligation. The depreciation policy shown above is adopted in respect of such assets and the interest content of the agreements is charged to the profit and loss account. Rental payments in respect of assets on operating leases are charged to the profit and loss account on a straight line basis over the period of the lease. Pension scheme arrangements Contributions to defined benefit schemes are charged to the profit and loss account so as to spread the cost of pension provisions evenly over the members’ working lives with the Group. Contributions to defined contribution schemes are charged to the profit and loss account as incurred. 24 Annual Report and Accounts 1998 N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 1 . A n a l y s i s b y a c t i v i t y a. i) Analysis of turnover and profit before taxation Turnover Profit 1998 £000 8,188 (3,329) 4,859 70,267 1,371 71,638 76,497 1997 £000 7,183 (3,043) 4,140 74,162 2,979 77,141 81,281 Galvanising services — UK — Less intra-group Engineering Products — UK — Rest of Europe Sales to third parties Central costs Operating profit before exceptional items Less: Exceptional items — operating — non-operating (Loss)/profit before interest and taxation 1998 £000 957 — 957 3,786 (248) 3,538 4,495 (647) 3,848 (220) (4,650) (1,022) 1997 £000 571 — 571 4,429 62 4,491 5,062 (723) 4,339 (1,641) (400) 2,298 The segmental information has been restructured to show the separate contributions made by services, and manufacturing and supply of product. a. ii) Analysis of net operating assets Galvanising Other activities — UK — UK — Rest of Europe Common interest-bearing liabilities Total net assets b. Turnover by geographical destination is as follows: UK Rest of Europe North America Africa Asia Middle East Far East 1998 £000 8,750 24,509 19 (10,595) 1997 £000 8,645 31,702 (21) (14,214) 22,683 26,112 1998 £000 68,009 4,206 557 135 3,323 228 39 76,497 1997 £000 73,153 4,894 725 347 2,133 — 29 81,281 25 Hill & Smith Holdings PLC N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 . P r o f i t a n d l o s s a c c o u n t a. The results for the two years have been analysed between discontinued and continuing activities. Continuing activities have been further analysed between activities to be retained and those to be discontinued. The comparative figures adjusted to reflect the analysis of activities in 1998 are shown below. Notes 1 Turnover Cost of sales Gross profit Distribution costs Administrative expenses Operating profit before exceptional items Exceptional items Operating profit Provision for loss on sale of operations 2d Profit on ordinary activities before interest 1997 1997 1997 Continuing Retaining Discontinuing Discontinued £000 £000 £000 51,358 (37,877) 13,481 (2,127) (9,357) 3,638 (1,641) 1,997 — 1,997 14,438 (12,067) 2,371 (433) (1,401) 537 — 537 — 537 15,485 (10,901) 4,584 (1,101) (3,319) 164 — 164 (400) 1997 Total Restated £000 81,281 (60,845) 20,436 (3,661) (14,077) 4,339 (1,641) 2,698 (400) (236) 2,298 Exceptional costs including reorganisation costs have been reclassified within the appropriate headings used in 1998. b. Exceptional item i) Bad debt provision ii) Reorganisation costs 1998 £000 — 220 220 1997 £000 1,000 641 1,641 These items are included in administrative expenses except for £197,000 in 1997 which is in the cost of sales. c. Profit on sale of property Profit on disposal of property held for realisation d. Loss on disposal of operations Provision for loss on disposal Loss on disposal including goodwill 1998 £000 153 1998 £000 1,588 3,215 4,803 1997 £000 — 1997 £000 400 — 400 26 Annual Report and Accounts 1998 3 . O p e r a t i n g p r o f i t After charging: Depreciation — on tangible fixed assets owned — on assets held under finance leases and hire-purchase contracts Hire of equipment Property rents payable Auditors’ remuneration — Audit — Other services — In respect of Parent Company After crediting: Net property income Profit on disposal of fixed assets 4 . I n t e r e s t Interest payable and similar charges on bank loans, overdrafts and other loans — Repayable within five years not by instalments (Bank overdraft) — Repayable within five years by instalments (Bank loans) — Repayable wholly or partly between 2000 and 2003 (Mortgage debenture) Interest on finance leases and hire-purchase contracts Interest receivable 5 . Ta x a t i o n o n ( l o s s ) / p r o f i t o n o r d i n a r y a c t i v i t i e s UK corporation tax at 31% (1997 — 32%) Transfer to deferred taxation Prior year — corporation tax 1998 £000 2,084 144 497 95 80 40 10 — 86 1997 £000 1,963 139 510 93 86 65 9 24 91 1998 £000 1997 £000 986 482 140 59 1,667 (223) 1,444 1998 £000 330 103 433 (55) 378 838 258 140 57 1,293 (211) 1,082 1997 £000 224 17 241 (36) 205 The taxation charge for the year arises because no tax relief is available on goodwill written off on disposals, on certain provisions and on overseas losses. 27 Hill & Smith Holdings PLC N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 6 . D i v i d e n d s Interim dividend of 2.10p per share paid (1997 — 2.10p per share) Proposed final dividend of 2.10p per share (1997 — 2.10p per share) 1998 £000 830 831 1,661 1997 £000 829 829 1,658 7 . ( L o s s ) / e a r n i n g s p e r s h a r e The (loss)/earnings per share is arrived at by dividing the loss after tax of £2.844m (1997 — profit £1.011m) by 39,518,286 (1997 — 39,477,555) shares, being the weighted average number of ordinary shares in issue during the year. A further measure of earnings per share has been recommended by the Institute of Investment Management and Research (IIMR) for adoption by financial analysts to provide useful information on the underlying performance of the Group. The IIMR earnings per share is calculated by reference to earnings of £1.368m (1997 — £1.411m) divided by 39,518,286 (1997 — 39,477,555) shares, being the weighted average number of ordinary shares in issue during the year. The reconciliation to basic (loss)/earnings per share is as follows: Basic (loss)/earnings per share Profit on sale of property Provision for losses/loss on sale of operations Tax effect on non-operating exceptional items IIMR earnings per share p per share 1998 (7.20) (0.38) 12.15 (1.11) 3.46 1997 2.56 — 1.01 — 3.57 28 Annual Report and Accounts 1998 8 . Ta n g i b l e f i x e d a s s e t s Cost or valuation At 30th September 1997 Additions Disposals Disposals of subsidiaries Exchange movement Transfers between categories Transfers to current assets Revaluation Freehold land and buildings £000 11,862 2,009 — (500) — (103) (460) (1,010) At 30th September 1998 11,798 Depreciation At 30th September 1997 Provision for the year Disposals Disposals of subsidiaries Exchange movement Revaluation At 30th September 1998 Net book value At 30th September 1998 Net book value At 30th September 1997 Long leasehold land and buildings £000 Plant, machinery and vehicles £000 Assets in the course of construction £000 1,185 — — (135) — — — (450) 600 — 20 — (1) — (11) 8 25,640 1,930 (3,836) (988) 60 307 — — 23,113 13,134 2,035 (3,598) (370) 67 — 11,268 — 173 — (3) — (28) 142 Total £000 38,891 3,939 (3,836) (1,623) 60 — (460) (1,460) 35,511 13,134 2,228 (3,598) (374) 67 (39) 11,418 24,093 204 — — — — (204) — — — — — — — — — — — 11,656 592 11,845 11,862 1,185 12,506 204 25,757 The net book value of assets held under finance leases and hire-purchase contracts amounted to £1,060,000. Included in the above is freehold land not subject to depreciation of £4,600,000. Certain of the Group’s properties were valued by the Directors at 30th September 1998 at open market value. a. The cost or valuation figures for land Freehold Long Leasehold and buildings include: Valuation made in 1997 Valuation made in 1998 Stated at historical cost b. The amount of revalued land and buildings as determined according to the historical cost accounting rule is: Cost Depreciation c. Capital commitments: Contracted for 1998 £000 6,325 2,408 3,065 11,798 1998 £000 8,254 1,015 7,239 1997 £000 10,700 — 1,162 11,862 1998 £000 — 400 200 600 1997 £000 1,185 — — 1,185 Freehold Long Leasehold 1997 £000 8,219 956 7,263 1998 £000 354 77 277 1998 £000 128 1997 £000 456 100 356 1997 £000 2,451 29 Hill & Smith Holdings PLC N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 9 . P r o p e r t i e s h e l d f o r r e a l i s a t i o n Cost at 30th September 1997 Transfers from fixed assets Disposals Cost at 30th September 1998 1998 £000 645 460 (645) 460 1997 £000 — 645 — 645 The property held for realisation is available for resale, following the cessation of operations at that subsidiary. 1 0 . S t o c k s Raw materials and consumables Work in progress Finished goods and goods for resale 1 1 . D e b t o r s Trade debtors due in less than one year Trade debtors due in more than one year Other debtors Prepayments Advance corporation tax (ACT) recoverable within one year Corporation tax ACT recoverable after one year, less amount deducted from deferred taxation 1998 £000 4,358 2,097 3,159 9,614 1998 £000 16,718 137 376 609 718 181 — 18,739 1997 £000 6,682 3,066 4,816 14,564 1997 £000 17,954 — 382 1,217 135 — 562 20,250 1 2 . C r e d i t o r s Loans (note 13) Bank overdraft Trade creditors Corporation tax ACT on dividends Other taxes and social security Accruals Proposed dividend Hire-purchase Amounts due within one year Amounts due after one year 1998 £000 1,608 4,135 12,986 — 208 1,540 1,507 831 290 23,105 1997 £000 3,570 4,517 14,084 21 414 1,686 1,579 829 278 26,978 1998 £000 4,875 — — — — — — — 370 5,245 1997 £000 6,137 — — — — — — — 648 6,785 Of the obligations under finance leases and hire-purchase commitments, due after one year, £281,000 is due within one to two years and £89,000 between two and five years. 30 Annual Report and Accounts 1998 1 3 . L o a n s 14% First mortgage debenture stock European Coal and Steel Community loans Bank loan Treasury loans Amounts due within one year Amounts due after one year 1998 £000 — — 108 1,500 1,608 1997 £000 — 70 2,000 1,500 3,570 1998 £000 1,000 — — 3,875 4,875 1997 £000 1,000 — 137 5,000 6,137 The debenture stock is secured on freehold and leasehold properties of certain of the Company’s subsidiaries. The Company has the option to redeem, in whole or in part, the debenture stock at par in any of the years 2000 to 2003, and on 30th September 2003 any debenture stock remaining outstanding will be repaid at par. The debenture stock carries a fixed rate of interest of 14% per annum payable on 31st March and 30th September, and contains no right to convert into share capital in the Company. The Treasury loans carry a rate of interest of 0.7% above the London Inter-bank Offered Rate. Of the amount of £3,875,000 due after one year, £1,500,000 is due within one to two years and £2,375,000 is due within two to five years. 1 4 . P r o v i s i o n s f o r l i a b i l i t i e s a n d c h a r g e s Deferred taxation Pension scheme provision Provision for reorganisation costs Provision for loss on disposal At 30th September 1997 Charge in year Utilized in year Disposal of subsidiary At 30th September 1998 Deferred taxation i) Provided in financial statements: Accelerated capital allowances Advance corporation tax recoverable Deferred taxation £000 249 103 — (15) 337 ii) If provision had been made for all timing differences, further liability as follows would have appeared in the financial statements: Accelerated capital allowances Other timing differences Revaluation of properties 1998 £000 337 417 47 1,000 1,801 1997 £000 98 219 494 400 1,211 Pension Provision for Provision for loss on scheme reorganisation disposal costs provision £000 £000 £000 219 198 — — 417 494 — (447) — 47 1998 £000 337 — 337 1,604 (123) 468 1,949 400 1,588 (988) — 1,000 1997 £000 249 (151) 98 1,703 (103) 425 2,025 31 Hill & Smith Holdings PLC N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 1 5 . A c c r u a l s a n d d e f e r r e d i n c o m e Government grants At 30th September 1997 Amounts written off Received in year At 30th September 1998 1 6 . S h a r e c a p i t a l Authorised 48,000,000 ordinary shares of 25p each (1997 — 48,000,000) Called up and fully paid 39,559,016 ordinary shares of 25p each (1997 — 39,477,555) 1998 £000 140 (45) — 95 1997 £000 168 (53) 25 140 1998 £000 1997 £000 12,000 12,000 9,890 9,869 During the year 81,461 ordinary shares were allotted under the 1985 Savings Related Share Option Scheme at a price of 55.228p each. Options outstanding at 30th September 1998 were: 1985 Executive Share Option Scheme: 53,000 ordinary shares 126,133 ordinary shares 1995 Executive Share Option Scheme: Option price Date exercisable Expiry date 95.063p 112.500p 01.02.95 28.01.97 01.02.02 28.01.04 354,130 ordinary shares 113.597p 20.02.99 20.02.06 1985 Savings Related Share Option Scheme: 17,099 ordinary shares 40,583 ordinary shares 20,300 ordinary shares 229,952 ordinary shares 35,951 ordinary shares 55.228p 73.218p 73.218p 90.000p 90.000p 01.04.98 01.04.98 01.04.00 01.04.00 01.04.02 01.10.98 01.10.98 01.10.00 01.10.00 01.10.02 1995 Savings Related Share Option Scheme: 452,914 ordinary shares 66.000p 01.04.02 01.10.02 32 Annual Report and Accounts 1998 1 7 . R e s e r v e s a. Share premium At 30th September 1997 Premium on shares issued At 30th September 1998 b. Revaluation reserves At 30th September 1997 Transfer to profit and loss account Revaluation deficit At 30th September 1998 c. Profit and loss account At 30th September 1997 Retained loss for the year Goodwill taken to loss on disposal Transfer from revaluation reserve Exchange difference At 30th September 1998 d. Goodwill 1998 £000 108 25 133 1998 £000 3,509 (55) (1,164) 2,290 1998 £000 12,626 (4,505) 2,187 55 7 10,370 The accumulated goodwill written off to reserves in respect of the acquisition of continuing businesses is £1,578,000 (1997 — £3,765,000). 1 8 . C o n t i n g e n t l i a b i l i t i e s a. The Group had guarantees outstanding to a bank in respect of performance bonds of £934,000 (1997 — £1,550,000), Customs and Excise of £91,000 (1997 — £91,000) and to other third parties of £10,000 (1997 — £10,000), at 30th September 1998. b. The Group also has guarantees arising in the ordinary course of the Group’s business and on these no material losses are anticipated. 1 9 . P a r t i c u l a r s o f e m p l o y e e s The average number of persons, all of whom were engaged in the principal activities, employed by the Group (including Directors) during the year was: Their total remuneration was: Wages and salaries Social security Other pension costs 1998 1997 959 1,013 1998 £000 15,952 1,513 331 17,796 1997 £000 16,232 1,469 284 17,985 33 Hill & Smith Holdings PLC N o t e s t o t h e F i n a n c i a l S t a t e m e n t s 2 0 . D i r e c t o r s ’ r e m u n e r a t i o n The disclosures required by the Companies Act 1985 and the London Stock Exchange in respect of Directors’ emoluments are given in the Report of the Remuneration Committee on page 16 to 18. 2 1 . D i r e c t o r s ’ i n t e r e s t s The Directors of the Company at the end of the year, and the interest of the Directors and their families in the ordinary shares of the Company according to the register required to be kept by the Companies Act 1985 were as follows: D.S. Winterbottom R.E. Richardson John G. Silk S.H.J.A. Knott H.C. Everett D.L. Grove (appointed 20th March 1998) 30th September 1997 30th September 1998 or later date of appointment — — 685,572 342,494 55,095 — 15,690 — 685,572 492,494 55,775 379,545 Mr Silk has a beneficial interest in 421,159 (1997 — 421,159) shares in an Estate in which he is both an Executor and a Trustee. John G. Silk is a partner in Silks, Solicitors to the Company, which received fees of £67,000 for services rendered to the Company. In addition to the Directors listed above, Mr M.E. Sara served as a Director until 9th June 1998 and Messrs A.J. Pensom and R.W. Simpson until 30th September 1998. Directors’ options H.C. Everett At 30th September 1997 14,850 17,600* 6,181 Granted during year — — — At 30th Lapsed during September 1998 14,850 17,600 6,181 year — — — Exercise Date price exercisable 01.04.98 20.02.99 01.04.02 73.218p 113.597p 66.000p Expiry date 01.10.98 20.02.06 01.10.02 The options marked * were granted under the 1995 Executive Share Option Scheme; the other options were granted under the 1985 Savings Related Share Option Scheme. D.L. Grove holds options granted by a third party in respect of 1,844,183 shares at prices between 40p and 47p per share exercisable on or before August 2005. The market price of the Company’s shares at 30th September 1998 was 45.0p. The market price for the year varied between 42.5p and 70.5p. 34 Annual Report and Accounts 1998 2 2 . F i n a n c i a l c o m m i t m e n t s The Group’s annual commitment under non-cancellable operating leases was as follows: Leases expiring within: One to two years Two to five years Over five years Land and buildings 1998 1997 £000 £000 9 1 — 10 10 88 20 118 Other 1998 £000 6 156 — 162 1997 £000 27 336 — 363 2 3 . P e n s i o n s c h e m e a r r a n g e m e n t s The Group contributes into three pension schemes, two of which are defined contribution schemes and one a funded defined benefit scheme. The assets of all schemes are held in trust funds and, therefore, held separately from the Group’s assets. The principal scheme is a defined benefit scheme covering the majority of members, the Hill & Smith Group Pension and Assurance Scheme. Contributions to the principal scheme are charged to the profit and loss account so as to spread the cost of pensions over members’ working lives with the Group. The contributions are determined by a qualified actuary on the basis of triennial valuations using the projected unit credit method. With regard to the principal scheme, the most recent valuation was at 5th April 1997. This showed that the market value of the scheme’s assets was £21,514,591 and that the actuarial value of these assets represented 118% of the benefits that had accrued to members, after allowing for expected future increases in earnings. The assumptions which have the most significant effect on the results of the valuation are those relating to the rate of return on investments and the rates of increase in salaries and pensions. It was assumed that the investment returns would be 9.5% per annum, and that salary increases would average 8% per annum. The pension cost for the year was £331,000 (1997 — £284,000). There is a provision for pension costs of £417,000 (1997 — £219,000). This provision will be released to profit in line with actuarial advice. The next actuarial valuation is at 5th April 2000. Where beneficial, the other Group schemes are to be merged with the principal scheme in due course. The Group has no significant exposure to any other post-retirement obligations. 2 4 . P o s t - b a l a n c e s h e e t e v e n t On 23rd November 1998 the Group sold its Springvale property for £3,850,000 as part of a sale and leaseback arrangement. The Group has entered into a 25 year lease at an initial annual rental of £339,000. 35 Hill & Smith Holdings PLC P a r e n t C o m p a n y B a l a n c e S h e e t as at 30th September 1998 Fixed assets Tangible assets Investments Current assets Debtors Cash at bank and in hand Creditors (amounts due within one year) Net current assets Total assets less current liabilities Creditors (amounts due after one year) Net assets Capital and reserves Called up share capital Share premium Profit and loss account Equity shareholders’ funds Notes 26 27 28 29 1998 £000 41 21,001 21,042 4,207 474 4,681 3,101 1,580 22,622 29 2,000 20,622 16 31 31 9,890 133 10,599 20,622 Restated 1997 £000 54 23,850 23,904 5,230 1,606 6,836 5,203 1,633 25,537 3,000 22,537 9,869 108 12,560 22,537 These financial statements were approved by the Board on 9th December 1998 and signed on its behalf by: D.S. WINTERBOTTOM D.L. GROVE Directors 36 Annual Report and Accounts 1998 N o t e s t o t h e P a r e n t C o m p a n y B a l a n c e S h e e t 2 5 . P r o f i t a n d l o s s a c c o u n t The Company has taken advantage of the statutory exemption from presenting its own profit and loss account. The loss for the financial year dealt with in the accounts of the Company amounted to £(300,000) (1997 — profit £1,245,000). 2 6 . Ta n g i b l e f i x e d a s s e t s Cost At 30th September 1997 Additions Disposals At 30th September 1998 Depreciation At 30th September 1997 Provision for the year Disposals At 30th September 1998 Net book value at 30th September 1998 Net book value at 30th September 1997 2 7 . F i x e d a s s e t i n v e s t m e n t s At 30th September 1997 Increase in loans during the year Disposals during the year (Increase) in provision during year At 30th September 1998 Office equipment and vehicles £000 117 26 (81) 62 63 26 (68) 21 41 54 Total £000 23,850 1,074 (2,881) (1,042) Shares in Group Loans to Group undertakings undertakings £000 £000 18,503 — (2,656) (931) 5,347 1,074 (225) (111) 14,916 6,085 21,001 A list of the Group undertakings is given on page 41. In addition, the Company acquired 50% of Royston Steel Fencing Limited at a cost of £1 under the terms of a creditors voluntary arrangement dated 23rd December 1997. This investment is temporary and when the assets of the company are realised it will be wound up. Consequently, its results and assets are not included in the consolidated accounts of the Group. The accounts of the company for the years ended 30th September 1997 and 1998 are not available. It is not expected that any further losses will arise to the Group upon the winding up of the company. All the Group’s subsidiaries are wholly owned. Asset International (Ireland) Limited is incorporated in the Republic of Ireland. 2 8 . D e b t o r s Amounts owed by Group undertakings Other debtors Prepayments Advance corporation tax (ACT) recoverable within one year ACT recoverable after one year Corporation tax 1998 £000 2,553 86 868 283 280 137 4,207 1997 £000 3,424 89 717 46 713 241 5,230 37 Hill & Smith Holdings PLC N o t e s t o t h e P a r e n t C o m p a n y B a l a n c e S h e e t 2 9 . C r e d i t o r s Loans (note 30) Bank overdraft Other creditors Amounts owed to Group undertakings Corporation tax ACT on dividends Other taxes and social security Accruals Proposed dividend 3 0 . L o a n s 14% First mortgage debenture stock Bank loan Treasury loan Amounts due within one year Amounts due after one year 1998 £000 1,000 102 415 — 72 — 21 660 831 3,101 1997 £000 2,500 589 492 342 — 354 23 74 829 5,203 1998 £000 2,000 — — — — — — — — 2,000 1997 £000 3,000 — — — — — — — — 3,000 Amounts due within one year Amounts due after one year 1998 £000 — — 1,000 1,000 1997 £000 — 2,000 500 2,500 1998 £000 1,000 — 1,000 2,000 1997 £000 1,000 — 2,000 3,000 The debenture stock is secured on freehold and leasehold properties of certain of the Company’s subsidiaries. The Company has the option to redeem, in whole or in part, the debenture stock at par in any of the years 2000 to 2003, and on 30th September 2003 any debenture stock remaining outstanding will be repaid at par. The debenture stock carries a fixed rate of interest of 14% per annum payable on 31st March and 30th September, and contains no right to convert into share capital in the Company. The Treasury loan carries a rate of interest of 0.7% over the cost of the discount rate in the London market. Of the amount of £1,000,000 due after one year, £500,000 is due within one to two years and £500,000 between two and five years. 3 1 . R e s e r v e s At 30th September 1997 Loss for the year after taxation and dividend Savings related share option scheme At 30th September 1998 3 2 . C o n t i n g e n t L i a b i l i t i e s Share Profit and premium loss account £000 £000 108 — 25 133 12,560 (1,961) — 10,599 a. The Company has guaranteed bank and other short-term borrowings of subsidiaries amounting at 30th September 1998 to £11,101,041 (1997 — £8,982,402). b. The Company had no guarantees in respect of trade liabilities of subsidiaries at 30th September 1998 (1997 — £50,000). c. The Company had a guarantee outstanding to a bank in respect of performance bonds of £763,422 (1997 — £1,550,000). d. The Group has made guarantees on behalf of subsidiaries arising in the course of their businesses and on these no material losses are anticipated. 38 Annual Report and Accounts 1998 F i v e Y e a r R e c o r d 1994 1995 1996 1997 1998 £000 £000 £000 £000 £000 (as restated) (as restated) Turnover 76,639 87,823 80,683 81,281 76,497 Operating profit 5,180 6,235 3,772 2,698 3,628 Profit/(loss) before taxation 4,625 5,434 2,922 1,216 (2,466) Taxation 1,549 1,546 622 205 378 Profit/(loss) after taxation 3,076 3,888 2,300 1,011 (2,844) Shareholders’ funds 27,115 28,173 27,966 26,112 22,683 Dividends per ordinary share 6.20p 6.20p 6.20p 4.20p 4.20p Operating cash flow per ordinary share 14.22p 13.08p 15.78p 14.84p 19.49p Equivalent market price at 31st March 1982* of a 25p ordinary share in Hill & Smith Holdings PLC, as adjusted by capitalisation issues to date, is 10.72p. * At this date a capitalisation issue of 1 for 10 new ordinary shares in the form of renounceable share certificates was in being and these were separately quoted at a price which, adjusted for the further capitalisation issues, would be equivalent to 10.94p. 39 Hill & Smith Holdings PLC N o t i c e o f M e e t i n g The Copthorne Notice is hereby given that the 38th Annual General Meeting of Hill & Smith Holdings PLC will be held at The Copthorne Hotel, The Waterfront, Level Street, Brierley Hill, DY5 1UR on 19th March 1999 at 12 noon for the following purposes: 1. To receive the Directors’ report and the financial statements for the year ended 30th September 1998 together with the Auditors’ report thereon. 2. To approve the payment of the proposed final dividend of 2.1p per share on 7th April 1999. (Resolution No. 1) To elect the following Director appointed to the Board since the date of the last Annual General Meeting: 3. Mr D.L. Grove. (Resolution No. 2) To re-elect the following Directors who retire by rotation as Directors of the Company: 4. Mr H.C. Everett. (Resolution No. 3) 5. Mr S.H.J.A. Knott. (Resolution No. 4) 6. To appoint KPMG Audit Plc as Auditors and to authorise the Directors to determine their remuneration. (Resolution No. 5) 15th February 1999 Springvale Business & Industrial Park Bilston, Wolverhampton, West Midlands, WV14 0QL By order of the Board H.C. EVERETT Secretary Notes: (1) The Company pursuant to Regulation 34 of the Uncertificated Securities Regulations 1995 specifies that only those Shareholders registered in the Register of members of the Company as at 6.00 p.m. on 17th March 1999 shall be entitled to attend or vote at the above Meeting in respect of the number of shares registered in their name at that time. Changes to entries on the Register after 6.00 p.m. on 17th March 1999 shall be disregarded in determining the rights of any person to attend and vote at the Meeting. (2) A member entitled to attend and vote at the Meeting is entitled to appoint a proxy to attend and vote in his stead. A proxy need not be a member of the Company. A form of proxy is enclosed. To be effective, the instrument appointing a proxy must be received at the Company’s registered office not less than 48 hours before the time for holding the Meeting. (3) The following documents will be available for inspection at the Company’s registered office on any weekday (except Saturday) during normal business hours for a period of fifteen minutes prior to the Annual General Meeting and during the Meeting: (a) a statement of all transactions of each Director and of their family interests in the share capital of the Company; (b) copies of contracts of service of the Directors of the Company. 40 The Copthorne Merry Hill Wolverhampton A 4 1 2 3 A461 A461 to Junction 9, M6 A 4 9 1 Brierley Hill Stourbridge 1 6 4 A A456 Dudley 1 6 4 A A 4 1 2 3 A 4 5 9 Merry Hill Centre A 4 0 3 6 A4123 to Junction 2, M5 A458 A458 A456 A491 to Junction 4, M5 A456 to Junction 3, M5 Hill & Smith Holdings PLC P r i n c i p a l G r o u p C o m p a n i e s Hill & Smith Limited Springvale Business and Industrial Park, Bilston, Wolverhampton, West Midlands, WV14 0QL Tel. (01902) 499400 Fax. (01902) 499419 Email: barrier@hill-smith.co.uk Website: www.hill-smith.co.uk West Midlands Galvanizers Springvale Business and Industrial Park, Bilston, Wolverhampton, West Midlands, WV14 0QL Tel. (01902) 353935 Fax. (01902) 405115 Pipe Supports Limited Salwarpe Road, Droitwich, Worcestershire, WR9 9BH Tel. (01905) 795500 Fax. (01905) 794126 Email: psl@pipesupports.com Website: www.pipesupports.com Tipton Steel Stockholders Limited Hobart Road, Tipton, West Midlands, DY4 9LQ Tel. (0121) 557 7251 Fax. (0121) 557 7258 Varley & Gulliver Limited 57–70 Alfred Street, Sparkbrook, Birmingham, West Midlands, B12 8JR Tel. (0121) 773 2441 Fax. (0121) 766 6875 Email: varley_and_gulliver@compuserve.com Asset International Limited Stephenson Street, Newport, Gwent, NP9 0XH Tel. (01633) 273081 Fax. (01633) 281301 Email: sales@assetint.co.uk Website: http://www.assetint.co.uk Netherton Street, Wishaw, Lanarkshire, ML2 0ED Tel. (01698) 355838 Fax. (01698) 356184 Tallaght Business Park, Tallaght, Dublin 24 Tel. 01 462 0555 Fax. 01 462 2786 W H Barker & Son Engineers Limited Etna Works, Duke Street, Fenton, Stoke-on-Trent, Staffs., ST4 3NS Tel. (01782) 319264 Fax. (01782) 599724 Birtley Building Products Limited Mary Avenue, Birtley, County Durham, DH3 1JF Tel. (0191) 410 6631 Fax. (0191) 410 0650 Email: info@birtley-building.co.uk Website: www.birtley-building.co.uk Bainbridge Engineering Woodhill Road, Bury, Lancashire, BL8 1BW Tel. (0161) 764 5034 Fax. (0161) 764 5020 British & Midland Forgings Limited Bescot Works, St Paul’s Road, Wednesbury, West Midlands, WS10 9QZ Tel. (0121) 556 4931 Fax. (0121) 556 4223 Criterion Stampings Criterion Works, Bilston Lane, Willenhall, Wolverhampton, West Midlands, WV13 2LH Tel. (01902) 366555 Fax. (01902) 634306 D. & J. Steels Limited Lambert Works, Colliery Road, Wolverhampton, West Midlands, WV1 2RD Tel. (01902) 453680 Fax. (01902) 455431 41 Hill & Smith Holdings PLC Springvale Business and Industrial Park, Bilston, West Midlands WV14 0QL England Telephone: (01902) 357910 Fax: (01902) 357919 

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