Hill & Smith Annual Report 1998

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FY1998 Annual Report · Hill & Smith

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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

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

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.

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

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

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

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

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.

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.

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.

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

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.

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

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

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

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

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:

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.

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

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

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.

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

57
39
55
65
65

21
15
15

362

—

6
—
9
5
6

—
—
—

—

—
—
5
1
15

—
—
—

—

122
—
—
—
—

—
—
—

122

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

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

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

Provision for loss on sale of
operations/loss on sale of operations
Based on book value of
net assets
Less 1997 provision

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

Dis-
Retaining continuing continued
£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)

(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

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

9
10
11

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

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

7,703

5,858

Notes

£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

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

(278)
—
(3,224)

(2,805)

2,518

(1,659)

3,851

(3,456)

395

3,502

3,897
(12)

3,885
(15,140)

(11,255)

(5,873)
25
391

(287)
4,500
(1,008)

(5,457)

—

(2,447)

(3,799)

3,206

(593)

(3,205)

(3,798)
(7)

(3,805)
(11,335)

(15,140)

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

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

Analysis of net debt

Cash at bank and in hand
Bank overdrafts

Debt due after one year
Debt due within one year
Finance leases

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)

1998
£000

1,249
2,086
2,648
(486)
(2,588)
(97)
(9)

2,803
(771)

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.

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)

(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

1,283

(580)

1997
£000

1,011
(1,658)

(647)

1
(1,183)
—
(25)

(1,854)
27,966

26,112

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.

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

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

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

Profit on ordinary activities
before interest

1997

Continuing

Retaining Discontinuing Discontinued
£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

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

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.

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

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)

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

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.

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)
—

1998
£000

337
—

337

1,604
(123)
468

1,949

400
1,588
(988)
—

1,000

1997
£000

249
(151)

1,703
(103)
425

2,025

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)
—

1997
£000

168
(53)
25

140

1998
£000

1997
£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

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

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.

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
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.

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

1998
£000

41
21,001

21,042

4,207
474

4,681

3,101

1,580

22,622

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

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)

63
26
(68)

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

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

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.

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

(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

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.

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.

The

Copthorne

Merry Hill

Wolverhampton

A461

A461 to
Junction 9, M6

Brierley
Hill

Stourbridge

A456

Dudley

Merry Hill
Centre

A
4
0
3
6

A4123 to
Junction 2, M5

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

Hill & Smith Holdings PLC

Springvale Business and Industrial Park,

Bilston, West Midlands WV14 0QL England

Telephone: (01902) 357910

Fax: (01902) 357919