Hill & Smith
Annual Report 1999

Plain-text annual report

Annual Report and Financial Statements 1999 CCoonntteennttss Results at a glance Financial calendar Chairman’s Statement Directors, President, Advisers and Committees Operational Review Financial Review Directors’ Report Corporate Governance Statement Board’s Report on Remuneration Other Information Statement of Directors’ Responsibilities Auditor’s report to the members of Hill & Smith Holdings PLC Consolidated Profit and Loss Account Consolidated Balance Sheet Company Balance Sheet Consolidated Cash Flow Statement Other Primary Statements Principal Accounting Policies Notes to the Financial Statements Five Year Record Notice of Meeting Principal Group Businesses Page 1 1 2 4 7 11 12 14 16 19 20 21 22 23 24 25 26 27 29 46 47 48 RReessuullttss aatt aa ggllaannccee Turnover Operating profit Profit/(loss) before taxation Profit/(loss) after taxation Ordinary dividends Interim Final Earnings/(loss) per ordinary share — basic — diluted — IIMR Net assets per ordinary share Operating cash flow per ordinary share Financial calendar Annual General Meeting 2000 Payment of final dividend for the year to 30 September 1999 (ex dividend date 7 February 2000) Announcement of results for half year to 31 March 2000 Payment of interim dividend Preliminary announcement of results to 30 September 2000 1999 £000 61,940 4,778 3,562 2,293 2.10p 2.10p 4.20p 5.82p 5.81p 7.01p 59.28p 22.47p 1998 £000 76,497 3,628 (1,566) (1,944) 2.10p 2.10p 4.20p (4.92p) (4.92p) 3.46p 59.61p 19.49p 23 March 2000 7 April 2000 May 2000 Early October 2000 Late November 2000 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 1 CChhaaiirrmmaann’’ss SSttaatteemmeenntt progress achieved, has been . . . These adjustments due to FRS12 must be confusing to the reader of the report and accounts, but net assets at 30 September 1999 and earnings before exceptional items remain unaffected by these changes. The effect of the various adjustments is that the tax charge is 36% for the year and this leaves the IIMR EPS at 7.01p per share (1998: 3.46p per share). The Board has continued to concentrate on cash management within the Group. Operating cash flow per share was 22.47p, an increase on last year’s 19.49p, and I am delighted to confirm to you that the situation I reported in my interim statement for the half year, outlining the progress achieved, has been sustained for we achieved net borrowings of £4.43 million at the year the full trading year. Our operating profits for the year to end (1998: £11.26 million). This was after expending £3 30 September 1999 increased by 31.7% to £4.78 million million to acquire Berry Safety Systems Limited. (1998: £3.63 million). We are, of course, now required to adopt the new financial reporting standard FRS12, to The major reorganisation of the Group’s businesses is which I made reference at the half year. This changes the now completed and the Board is concentrating on organic presentation of our full year accounts and has the effect of reducing the displayed profits on ordinary activities before tax to £3.56 million (1998: loss £1.57 million). growth with the introduction of new products. Additionally, we continue to look for appropriate acquisitions in line with our core strategy. Mindful of the above, and recognising the need to consolidate and build 2 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 . . . sustained for the full trading year on the good health of the Company, the Board is May I thank all employees for their sustained efforts and recommending a final dividend for the year of 2.1p per success through yet another year of change. Our greatest share (1998: 2.1p per share), making a total for the year asset is our people and we must never forget that in of 4.2p per share (1998: 4.2p per share). dictating how we deal with corporate situations from time At the AGM in March, Mr John Silk retired from the to time. Board and following the shareholders’ approval, John was appointed Life President of the Company — a position which he will hold with distinction. Mr David Grove, following the AGM, was confirmed as Deputy Chairman and Group Chief Executive. Finally I come to current and future trading. Conditions continue to be difficult for the engineering sector; however, given the usual caveat about no further adverse change in economic conditions, I look forward to a satisfactory outcome to the current trading year. Our systems have been checked and cleared for Year 2000 compatibility, although our operations are not highly microprocessor dependent. Contingency plans are in place to ensure that senior management are available to make any urgent decisions in the first days of the new year. DAVID S. WINTERBOTTOM Chairman 30 November 1999 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 3 DDiirreeccttoorrss,, PPrreessiiddeenntt,, AAddvviisseerrss aanndd CCoommmmiitttteeeess 1 2 3 DIRECTORS 1 D.S. WINTERBOTTOM FCA, FCT Chairman (Non-Executive) David, aged 63, a Chartered Accountant, joined the Board on 1 October 1997. He is also Chairman of CPL Industries Limited, Wightlink Group Limited and TJ Hughes PLC. Additionally, he is Chairman of a number of institutionally owned companies, and Non- Executive Director of Electrocomponents PLC. 4 S.H.J.A. KNOTT BA (Econ) Non-Executive Director Simon, aged 68, 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. 5 R.E. RICHARDSON Non-Executive Director 2 D.L. GROVE BA, FCA Deputy Chairman and Chief Executive Dick, aged 60, was Chairman and Chief Executive of Graystone PLC from 1992 to 1997, and was previously Deputy Chairman and Managing Director of David, aged 51, joined the Board on 20 March 1998. Goring Kerr PLC and Managing Director of Tace PLC. He is a chartered accountant and Chairman of a He is a Mechanical and Electrical Engineer, and was number of private companies involving steel, plastics appointed Non-Executive in May 1997. and consumer products. He is a Pension Fund Trustee. LIFE PRESIDENT 6 JOHN G. SILK LLB (Lond.) 3 H.C. EVERETT BSc, CA Group Finance Director and Company Secretary John, aged 75, joined the Board in 1981 and was Chairman from 1983 to 1995. He retired from the Board Howard is 55, and joined the Group from Rapid Metal and was appointed Life President on 19 March 1999. Developments Limited, an RM Douglas PLC He is also Deputy Chairman of Hampson Industries PLC subsidiary, in 1990. He speaks French and the and the Senior Partner of Silks, Solicitors. He is Scandinavian languages. He is a Pension Fund Trustee. Chairman of the Pension Fund Trustees. 4 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 4 5 6 Audit Committee Messrs Winterbottom, Knott, and Richardson (Chairman) Remuneration Committee Messrs Winterbottom, Knott (Chairman), and Richardson Advisers Registrars Computershare Services PLC, PO Box 82, The Pavilions, Bristol, BS99 7NH Auditors KPMG Audit Plc, 2 Cornwall Street, Birmingham, B3 2DL Executive Committee D.L. Grove (Chief Executive) Bankers H.C. Everett (Finance Director and Company Secretary) HSBC Bank plc, A.J. Pensom R.W. Simpson D. Muir R.G. Jones Registered Office Springvale Industrial and Business Park Bilston West Midlands WV14 0QL Company Number 671474 Willenhall, West Midlands, WV13 2AF Barclays Bank PLC, Dudley, West Midlands, DY1 1PP Credit Lyonnais, London, EC2A 2JP Solicitors Silks, Oldbury, West Midlands, B69 4EZ Stockbrokers Albert E Sharp Securities Birmingham, B4 6ES Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 5 1 2 3 4 5 6 7 OOppeerraattiioonnaall RReevviieeww . . . financial performance clearly vindicates the action taken 1999 was a year of delivery. The financial performance clearly vindicates the action taken last year to As stated, the Group‘s strategy is to develop its core businesses both organically and, where appropriate, by establish a new streamlined strategy for the Group‘s acquisition. In May 1999 the Group acquired Berry future development. The disposal programme for non-core activities continued during the year. Our drop forging interests, British & Midland Forgings Limited and Criterion Stampings Limited, were sold to Brockhouse, which has a Systems for £3m. This business sells and erects barrier and protection systems for buildings, car parks and other off-highway areas where vehicular movements take place. This is the first major acquisition the Group has made since 1993 and it has been successfully integrated substantial forging activity in West Bromwich in the West into the Hill & Smith portfolio. Midlands. We have retained a minority equity stake in this Hill & Smith Limited had another successful year. enlarged forging group, which will be rationalised onto a Although the new road building programme is to decline, single site in West Bromwich. I am pleased to report that the road maintenance programme is growing steadily. the properties previously occupied by British & Midland The acquisition of Berry Systems increased our product and Criterion Stampings are expected to be sold in the range and customer base. near future. Varley & Gulliver Limited had a satisfactory year, but Tipton Steel Stockholders, which had suffered significant market conditions were not as buoyant as the losses recently, was sold to a management buy-in team previous year. and the property occupied by Tipton, which was initially retained by Hill & Smith, will be sold in the current financial year. The Group‘s galvanising activities continued to expand during the year with the tonnage processed increasing by over 10% on the previous year. Pictures 1 Pre-curved steel parapet, Black Country Route, Varley & Gulliver. 2 Crash cushion protecting end of concrete barrier, Hill & Smith. 3 Double sided tensioned barrier system, Hill & Smith. 4 Central reservation barrier on Dudley southern by-pass, Hill & Smith. 5 High containment barrier at sign gantry, Hill & Smith. 6 Birmingham canal side parapet, Varley & Gulliver. 7 Transition between tensioned and open box beam barrier systems, Hill & Smith. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 7 1 2 3 4 5 7 6 Operational Review . . . we opened a manufacturing facility in New Orleans Asset International continues to make progress and, Pipe Supports Limited expanded significantly during 1999 following the success of the Weholite plastic pipe, a third in response to its strategy as a global supplier of pipe extrusion line was commissioned during 1999 at a cost of support systems on major projects. During the year we £600,000. During the year Varioguard was launched into opened a manufacturing facility in New Orleans to service the UK market. This product is a temporary barrier the American market. Anticipated losses were incurred in system, which can be speedily delivered and erected to 1999, resulting from the normal start-up costs associated protect work zones relating to road maintenance. The with such a venture. Demand for our products in the USA enthusiastic response from consulting engineers and is buoyant at present and this activity should make a contractors has given us the confidence to invest positive contribution in the current financial year. In order substantially in this product to increase our hire stock, as to consolidate our position in south east Asia, we this product is usually rented for the duration of acquired an 80% interest in a pipe supports business in roadworks schemes. Thailand in October 1999. This is a very small business Birtley Building Products Limited achieved a creditable and currently has sales of £500,000 per annum. performance despite the price competition in the W.H. Barker & Sons Limited continues to make less than traditional lintels market. A cost-cutting programme was satisfactory returns in a very competitive marketplace. initiated in 1999 and this will continue in the current financial year, thus improving our competitive position in the marketplace. Pictures 1 Birtley lintels, high corrosion protection, Brighton Marina. 2 “Weholite” line production at Asset International factory. D & J Steels Limited continues to trade profitably but against the background of falling demand in the forging market. We are continuing to invest in our core businesses where we have significant market share and are constantly appraising opportunities which will consolidate the growth and development of the Group. 3 Contract galvanising from Birtley. 4 “Varioguard” providing protection on the A1(M) at Hertford, Asset International. 5 Special curve profile Birtley lintel on Barratt D.L. GROVE Chief Executive 30 November 1999 development. 6 Steel residential door and factory built GRP canopy from Bainbridge. 7 “Multiplate” aggregate tunnel assembly in Ireland, Asset International. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 9 1 2 3 4 5 6 7 8 10 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 FFiinnaanncciiaall RReevviieeww Operating profit from continuing activities was £4.82m . . . Operating profit from continuing activities was £4.82m (1998: £4.21m), despite the impact of the sale and £17.05m (1998: £24.09m) reflecting the reduction in assets due to disposals during the year and investments of leaseback of the Bilston site in November 1998, which £1.4m, which represent the continued investment in increased overheads but reduced interest costs. The Brockhouse Forgings Limited and Tipton Steel discontinued activities resulted in losses at the operating Stockholders Limited. level of £0.04m (1998: £0.58m), and exceptional losses on disposal of £0.54m (1998: restated £3.90m). The 1998 figures were restated due to the impact of FRS12; this meant that £0.90m previously provided in 1998 was written back to the 1998 figures and the actual loss written off to the 1999 figures. This adjustment of £0.90m has had no impact on the net assets of the business. Interest charges of £0.68m (1998: £1.44m) are covered 7 times (1998: 2.5 times) by operating profit, and were reduced due to the strong cash inflow from operating activities and net capital divestment during the year. Tax at £1.27m (1998: £0.38m) was more than the Properties held for realisation are the three sites at Tipton, Bescot and Willenhall. At the time of writing this report, it is expected that all three sites will be sold prior to 31 March 2000, for at least book value. Overall stock reductions were due in part, £2.26m, to continuing activities and in part, £0.88m, to disposals. Likewise, debtor reductions of £1.64m were due to continuing activities and £2.35m were due to disposals. Creditors have been reduced mainly due to a reduction in borrowings of £6.82m, coupled with trade creditors at £1.5m lower on continuing activities and £1.83m lower standard percentage rate expected due to an adjustment due to disposals. relating to earlier years. Profit after tax of £2.29m compares to a restated loss in Share capital has been reduced due to the buy-back of 625,000 ordinary shares at a total price of £406,000. 1998 of £1.94m. The dividend is 1.4 times covered and C a s h IIMR earnings per share is 7.01p (1998: restated 3.46p). B a l a n c e S h e e t The balance sheet shows the goodwill of £2.83m due to the purchase of the Berry operation, tangible assets of Cash flow for the year was strong with net cash inflow due to operating activities of £8.85m (1998: £7.70m): this represents 22.47p per share (1998: 19.49p). This enabled net debt to be reduced during the year by £6.82m (1998: Pictures 1 Heavy duty pipe supports for Texas. 2 Barker’s fencing at Hansworths Park, London. 3 Pipe Supports factory in New Orleans, Louisiana. 4 Press and furnace in our Louisiana factory. 5 Blooms Field Estate, Birmingham, Barker fencing. 6 Fencing at Kelloggs, Manchester, Barker. 7 High security for NHS Trust, Coventry, Barker. 8 CNC profile machine in the USA at Pipe Supports. £3.88m), to £4.43m. G e a r i n g Net gearing at 30 September 1999 was 19% compared with 50% at 30 September 1998. H.C. EVERETT Financial Director 30 November 1999 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 11 DDiirreeccttoorrss’’ RReeppoorrtt The Directors present their thirty-ninth annual report Employees together with the financial statements for the year ended Group policy is to encourage employees to become 30 September 1999. Trading review 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 Chairman’s Statement on page 2 and the Operational The Group aims to give autonomy to all its subsidiary and Financial Reviews on pages 7 to 11 contain a review of undertakings and to make its employees aware of the financial the trading for the year, a statement as to the current trading and economic factors affecting the performance of the position and an indication of the outlook for the future. employing company. This is achieved by consultative policies Principal activities The principal activities of the Group companies are: Galvanising services. Motorway barrier, bridge parapet, security and all other types of steel fencing. Pipe supports. such as the issue of newsletters and management briefings. 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. Directors and Directors’ interests Steel lintels, garage doors and ancillary building products. The names and biographical details of the Directors holding Steel and plastic drainage pipes, tunnel and culvert office at the date of this report are shown on page 4. structures. Steel stockholding. Fixed assets The Directors retiring by rotation are Mr Richardson and Mr Winterbottom who, being eligible, offer themselves for re- election. The interests of the Directors in office at the year end and The Directors have reduced the value of certain of the their families in the ordinary shares of the Company Group’s properties, to reflect their opinion of current market according to the register required to be kept by the conditions. Dividends Companies Act 1985, and their options, are disclosed in note 22 to the financial statements. Except as disclosed in note 22 to the financial statements, The Directors recommend a final dividend of 2.10p per share no Director had any interest in any material contract or to be paid, making the total distribution for the year 4.20p arrangement in relation to the business of the Company or per share (1998: 4.20p per share). any of its subsidiaries during the year. 12 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 Purchase of own shares Supplier payment policy On 24 June 1999 the Company purchased 625,000 of its Individual operating companies within the Group are own 25p shares at a cost of 65p per share (£406,250 in total). This represented 1.58% of the called up share capital in issue at the time. All of these shares were subsequently cancelled on 10 August 1999. These were the only shares 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 purchased and held by the Company during the year. policy that, provided a supplier is complying with the relevant Year 2000 terms and conditions, including the prompt and complete submission of all specified documentation, payment will be The Directors are aware of the importance of the Year 2000 made in accordance with agreed terms. It is Group policy to issue and the impact it could have on many areas of the ensure that suppliers know the terms on which payment will business, both internally and with regard to its relationship with the outside world. take place when business is agreed. The average credit period is 75 days (1998: 74 days). The Holding Company does not have trade creditors. The Group has completed its project to review millennium related issues and has updated all its key systems as Auditors required. However, given the complexity of the problem, no set of measures can absolutely guarantee coverage of all issues involved. The estimated total cost of specific Year 2000 work undertaken and for the work still required is not material. Discussions have also been held to consider contingency planning and management are confident that reasonable steps have been taken. Donations Charitable donations amounting to £1,200 were made in the year. There were no political contributions. In accordance with Section 385 of the Companies Act 1985, a resolution for the reappointment of KPMG Audit Plc as auditor of the Company is to be proposed at the forthcoming annual general meeting. By order of the Board H.C. EVERETT Company Secretary 30 November 1999 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 13 CCoorrppoorraattee GGoovveerrnnaannccee SSttaatteemmeenntt The Board is pleased to report that the Company complies, meetings. The Company’s auditors are invited to attend at except where stated otherwise, with the Code of Best least two meetings during the year. 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 22 to the financial statements, Mr John G. Silk, who retired from the board in The Remuneration Committee comprises the Chairman and the two 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 March 1999, is a partner in a firm which advises the Group. administers the Company’s 1995 and 1999 executive share The Board is of the opinion, however, that this relationship did option schemes. not materially interfere with the exercise of his independent judgement with regard to the affairs of the Group. B o a r d C o m m i t t e e s The Board has established an Audit Committee, Remuneration Committee and an Executive Committee. All Directors are required to stand for re-election at the first Annual General Meeting following their appointment and at least every three years by rotation thereafter. E x e c u t i v e C o m m i t t e e The Executive Committee meets at least six times a year, The Board of Directors, presently comprising the Chairman, comprises four senior Directors from subsidiary companies, the Chief Executive, one executive Director and two non- the Financial Director and is chaired by the Chief Executive. executive Directors, meets at least nine times a year and has Its role is to assist the Chief Executive and to advise the a list of matters specifically reserved for its decision. Board on day-to-day executive matters. A procedure is in place to allow Directors to take independent professional advice if necessary at the Company’s expense. All Directors have free access to the advice and services of the company secretary. Owing to the small size of the Board a Nomination Committee, as required by the Code, is not deemed appropriate. The Audit Committee meets at least three times a year and N o n - e x e c u t i v e D i r e c t o r s 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. Non-executive Directors are not appointed for specified terms as required by the Code. comprises the Chairman and the two non-executive R e m u n e r a t i o n p o l i c y Directors, with written terms of reference. The Chief Details of the Company’s remuneration policy is provided in Executive and Finance Director may also be invited to attend the Board’s Report on Remuneration on pages 16 to 18. 14 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 R e l a t i o n s w i t h S h a r e h o l d e r s — monitoring of business risks, with key risks identified and Members of the Board meet regularly with institutional reported to the Board and Audit Committee. shareholders, mainly in the periods following the announcement of the interim and final results, but also at other times during the year, particularly when proposed transactions would require shareholders’ approval. The Company arranges for the notices of the Annual General Meeting and related papers to be sent to shareholders and gives at least 20 working days’ notice in advance of the meeting. At general meetings, the Company counts all proxy votes and, except where a poll is called, indicates the level of There are also clear procedures for monitoring the system of internal financial control, supplemented by reports from the external auditors. Formal guidance as to the review of non-financial internal control, as required by the Combined Code, has only recently been published. Consequently, the Directors consider that they are unable to report that they have undertaken during the year a formal review of the effectiveness of the Group’s system of non-financial internal controls as envisaged by proxies lodged on each resolution giving the balance for and The Combined Code. against the resolution, after it has been dealt with on a show of hands. I n t e r n a l F i n a n c i a l C o n t r o l However, the Directors have continued to follow existing guidance and have reviewed the effectiveness of the Group’s internal financial controls during the financial year ended The Board of Directors has overall responsibility for the 30 September 1999. Group’s system of internal controls and for monitoring its It must be recognised, however, that such a system can effectiveness. provide only reasonable and not absolute assurance and in In order to discharge its responsibility in a manner which that context, the review revealed nothing which, in the ensures compliance with laws and regulations and promotes opinion of the Board, indicated that the system was effective and efficient operations, the Board of Directors has inappropriate or unsatisfactory. established an organisational structure with clear operating procedures, lines of responsibility, and delegated authority. G o i n g C o n c e r n In particular, there are clear procedures for: After making enquiries, the Directors have a reasonable expectation that the Company and its subsidiaries have — capital investments, with detailed appraisal, authorisation adequate resources to continue in operational existence for and post-investment review; the foreseeable future. For this reason, they continue to — financial reporting, within a comprehensive financial adopt the going concern basis in preparing the financial planning and accounting framework; statements. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 15 BBooaarrdd’’ss RReeppoorrtt oonn RReemmuunneerraattiioonn 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 the Chairman, Mr D.S. Winterbottom, and the two non-executive Directors, Mr S.H.J.A. Knott, who chairs the Committee, and Mr R.F. Richardson. It is responsible for determining all aspects of the remuneration packages of executive Directors and key senior executives and consults with the Chief Executive on its proposals. 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. R e m u n e r a t i o n P o l i c y The remuneration policy is set by the Board as a whole with the Remuneration Committee then working within the policy to set individual executive remuneration. The basic object of the policy 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 and to increase shareholder value. The remuneration packages consist of a basic salary and certain benefits in kind; performance related cash bonuses, share options and pension benefits. In framing its remuneration policies, full consideration has been given to Schedule B of The Combined Code. The main elements of the remuneration package for executive Directors are: 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 1 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 is a performance related cash bonus scheme in operation for the Group Finance Director, Mr H.C. Everett, and for key senior executives. Under the 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. The maximum bonus under this scheme is capped at 40 per cent of basic salary. The Chief Executive, Mr D.L. Grove, does not himself receive any bonus but under an agreement between the Company and Grove Industries Limited (“GIL”), a company of which Mr Grove is the chairman, GIL, in addition to receiving an annual fee for permitting Mr Grove to provide his services to the Company may also recieve an annual performance related cash bonus dependent upon the amount of increase in the Group Operating Profit (as therein defined) in accordance with the formula set out in that agreement. That bonus is capped at 1.5 times the sum of the annual salary payable to Mr Grove under his service agreement and the annual fee payable to GIL. Share options The Company has three share option schemes under which options can be granted to executive Directors and senior executives. Two of those schemes are executive share option schemes (“the 1995 Executive Share Option Scheme” and “the 1999 Non-Approved Executive Share Option Scheme”) which are administered by the Remuneration Committee and the other scheme is a savings related share option scheme (“the 1995 Savings Related Share Option Scheme”). Options granted under the two executive share option schemes cannot be granted at less than market value and, subject to limited exceptions, can only be exercised if specified performance criteria are met. The performance criteria currently set by the Remuneration Committee under both executive share option schemes 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 granted under the 1995 Executive Share Option Scheme must be exercised between 3 and 10 years after the date of grant and options granted under the 1999 Non Approved Executive Share Option Scheme must be exercised between 3 and 7 years after the date of grant. In granting options under the two executive share option schemes, the Remuneration Committee has continued the practice which was adopted by the Company when granting 16 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 options under a previous executive share option scheme in that the number of options granted 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. On the last occasion — January 1999 — on which options were granted under this scheme they were granted at market value. Details of options held by the Directors are shown in note 22 on page 40. Directors’ pension entitlement Mr H.C. Everett is the only executive Director to participate in the Hill & Smith Group Pension and Assurance Scheme which provides pensions and other benefits within the Inland Revenue limits. The scheme provides an executive Director, at normal retirement age, 65, with a pension of two-thirds of his final pensionable salary, subject to completion of a sufficient number of years’ service. In accordance with policy formulated many years ago, pensionable salary includes the 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. S e r v i c e A g r e e m e n t s The Chairman, Mr D.S. Winterbottom, and the two executive Directors, Mr D.L. Grove and Mr H.C. Everett, have service agreements with the Company and, as mentioned above, GIL also has an agreement with the Company whereby in consideration of GIL permitting Mr Grove to provide his services to the Company it receives from the Company an annual fee and a performance related cash bonus. The Chairman’s service agreement is terminable by either party giving to the other 12 months’ notice to terminate the same but if a Change in Control (as that expression is defined in the service agreement) of the Company takes place the Group Chairman may at any time within the 12 month period immediately following such Change in Control terminate the agreement by 90 days’ notice instead of 12 months’ notice. In the event of the service agreement being terminated by either party within the 12 month period immediately following such Change in Control the terms of the contract are payable in full without mitigation. Mr Everett may terminate his service agreement with the Company by giving 6 months’ notice to the Company to terminate the same. The Company may terminate this service agreement by giving Mr Everett 12 months’ notice to terminate the same but if the notice is given within the period of 12 months immediately following a Change in Control the Notice to be given by the Company must not be less than 18 months. On termination of the service agreement by the Company without proper notice, Mr Everett is under a duty to mitigate any loss unless such termination is effected within the period of 12 months following a Change in Control. Mr D.L. Grove’s service agreement is terminable by either party giving to the other 12 months’ notice to terminate the same but during the period of 90 days following a Change in Control the period of notice required to be given by the Company to Mr Grove is increased from 12 months to 18 months and the period of notice required to be given by Mr Grove to the Company is reduced from 12 months to 90 days. If, during the period of 90 days immediately following a Change in Control, the service agreement is terminated by Mr Grove or is terminated by the Company without proper notice, Mr Grove is entitled to a sum equal to 18 months’ salary. The agreement between the Company and GIL referred to under the heading Performance related cash bonuses contains similar termination arrangements to those contained in the service agreement between the Company and Mr Grove. R e m u n e r a t i o n o f C h a i r m a n a n d n o n - e x e c u t i v e D i r e c t o r s The remuneration of the Chairman of the Board is determined by the Board after recommendations duly made to it by the other members of the Remuneration Committee. The two non-executive Directors each receive an annual fee which is agreed by the other members of the Board following a recommendation by the Chairman. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 17 Board’s Report on Remuneration Directors’ Remuneration Details — Year ended 30 September 1999 The remuneration in respect of each Director for the year ended 30 September 1999 was as follows: Fees/ Salary £000 Performance related bonus £000 Benefits £000 Total for 1999 £000 Chairman: (Non-executive) D.S. Winterbottom Executive: D.L. Grove H.C. Everett Non-executive: John G. Silk S.H.J.A. Knott R.E. Richardson Former Directors: M.E. Sara A.J. Pensom R.W. Simpson 33 93 63 11 15 15 230 — — — 230 — — 11 — — — 11 — — — 11 — 135 10 — — — 145 — — — 145 33 228 84 11 15 15 386 — — — 386 Total for 1998 £000 30 39 69 21 15 15 189 185 71 86 531 D.L. Grove was appointed to the Board as Development Director on 20 March 1998 and on the resignation of M.E. Sara on 9 June 1998 took on the role of acting Chief Executive until 12 April 1999 when his appointment was made permanent. John G. Silk retired from the Board at the AGM held on 19 March 1999 and now holds the office of Life President. Directors’ pensions Pension benefits earned by the Directors H.C.Everett Age at year end 55 Director‘s contributions in year £000 3 Increase in accrued pension during the year £000 1 Accumulated total accrued pension at year end £000 16 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 Director’s contributions are the contributions paid in the year by the Director under the terms of the scheme. 3. The pensions shown above are subject to a guaranteed annual increase of 3%. This report was approved by the Board and signed on its behalf by: D.S. WINTERBOTTOM Chairman 30 November 1999 18 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 OOtthheerr IInnffoorrmmaattiioonn Interests of Directors and substantial shareholders Of G. Hampson Silk’s ordinary shares, 3,316,427 are either There were no changes in the interests of Directors and their registered in his own name or his wife’s name. Of the families in the ordinary shares of the Company between 30 September 1999 and 21 January 2000. The Company has been notified of the following substantial shareholdings on 21 January 2000. Ordinary % of issued shares share capital 4,100,636 4,100,638 10.5 10.5 G. Hampson Silk P.J. Hampson Silk Funds Managed by: Close Investment 1997 Fund 7,376,733* 18.9 Friends Ivory & Sime Asset Management Britannic Assurance plc Framlington 1,867,510 1,550,000 1,320,000 4.8 4.0 3.4 * Close Securities Limited has granted an option to D.L. Grove, see note 22. 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 21 January 2000. Year 2000 There have been no material problems reported up to 21 January 2000 by the holding company or any of the Group’s subsidiaries. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 19 SSttaatteemmeenntt ooff DDiirreeccttoorrss’’ RReessppoonnssiibbiilliittiieess Company law requires the Directors to prepare financial prepare the financial statements on the going concern statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss for that period. In preparing those financial basis unless it is inappropriate to presume that the Group will continue in business. statements, the Directors are required to: The Directors are responsible for keeping proper accounting select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect disclosed and explained in the financial statements; fraud and other irregularities. 20 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 (cid:2) (cid:2) (cid:2) (cid:2) AAuuddiittoorr’’ss rreeppoorrtt ttoo tthhee mmeemmbbeerrss ooff HHiillll && SSmmiitthh HHoollddiinnggss PPLLCC We have audited the financial statements on pages 22 to 45. Basis of audit opinion We conducted our audit in accordance with Auditing Respective responsibilities of Directors and auditors Standards issued by the Auditing Practices Board. An audit The Directors are responsible for preparing the Annual Report including, as described on page 20, the financial includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It statements. Our responsibilities, as independent auditors, are also includes an assessment of the significant estimates and established by statute, the Auditing Practices Board, the judgements made by the Directors in the preparation of the Listing Rules of the London Stock Exchange, and by our financial statements, and of whether the accounting policies profession’s ethical guidance. are appropriate to the Group’s circumstances, consistently We report to you our opinion as to whether the financial applied and adequately disclosed. statements give a true and fair view and are properly We planned and performed our audit so as to obtain all the prepared in accordance with the Companies Act. We also information and explanations which we considered necessary report to you if, in our opinion, the Directors’ report is not in order to provide us with sufficient evidence to give consistent with the financial statements, if the Company has reasonable assurance that the financial statements are free not kept proper accounting records, if we have not received from material misstatement, whether caused by fraud or all the information and explanations we require for our audit, other irregularity or error. In forming our opinion we also or if information specified by law or the Listing Rules evaluated the overall adequacy of the presentation of the regarding Directors’ remuneration and transactions with the information in the financial statements. Company is not disclosed. We review whether the statement on pages 14 and 15 Opinion reflects the Company’s compliance with those provisions of In our opinion the financial statements give a true and fair the Combined Code specified for our review by the Stock view of the state of affairs of the Company and the Group as Exchange, and we report if it does not. We are not required at 30 September 1999 and of the profit of the Group for the to form an opinion on the effectiveness of the Company’s year then ended and have been properly prepared in corporate governance procedures or its internal controls. accordance with the Companies Act 1985. We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited financial KPMG Audit Plc statements. We consider the implication for our report if we Chartered Accountants 2 Cornwall Street become aware of any apparent misstatements or material Registered Auditor inconsistencies with the financial statements. 30 November 1999 Birmingham B3 2DL Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 21 CCoonnssoolliiddaatteedd PPrrooffiitt aanndd LLoossss AAccccoouunntt for the year ended 30 September 1999 1999 1999 1999 1998 Continuing £000 Notes Discon- tinued £000 Total Continuing £000 £000 1998 Restated Discon- tinued £000 1998 Restated Total £000 Turnover Continuing operations Acquisitions Cost of sales Gross profit Distribution costs Administrative expenses Operating profit/(loss) Excluding acquisitions and exceptional items Acquisitions Exceptional items Operating profit/(loss) Profit on sale of property Loss on sale of net assets Related goodwill Less 1997 provision Loss on sale of businesses Profit/(loss) on ordinary activities before interest Interest payable and similar charges Profit/(loss) on ordinary activities before tax Tax on profit/(loss) on ordinary activities Profit/(loss) for the financial year Dividends on equity shares Retained profit/(deficit) for the year 2 3 3 3 2 2 4 5 8 9 Profit/(loss) per ordinary share: Basic Diluted IIMR 10 55,651 854 56,505 (40,350) 5,435 — 61,086 854 5,435 (4,389) 61,940 (44,739) 55,811 — 55,811 (39,742) 20,686 — 20,686 (16,871) 76,497 — 76,497 (56,613) 16,155 1,046 17,201 16,069 3,815 19,884 (2,583) (8,752) (343) (745) (2,926) (9,497) (2,268) (9,593) (1,226) (3,169) (3,494) (12,762) 4,644 176 — 4,820 — — — — — (42) — — 4,602 176 — (42) — (925) 386 — (539) 4,820 (581) 4,778 — (925) 386 — (539) 4,239 (677) 3,562 (1,269) 2,293 (1,635) 658 5.82p 5.81p 7.01p 4,428 — (220) 4,208 153 — — — — (580) — — (580) — (2,116) (2,187) 400 (3,903) 4,361 (4,483) 3,848 — (220) 3,628 153 (2,116) (2,187) 400 (3,903) (122) (1,444) (1,566) (378) (1,944) (1,661) (3,605) (4.92p) (4.92p) 3.46p 22 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 CCoonnssoolliiddaatteedd BBaallaannccee SShheeeett as at 30 September 1999 Fixed assets Intangible assets — goodwill Tangible assets Investments Current assets Property held for realisation Stocks Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current assets Total assets less current liabilities Creditors: Amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Share premium Revaluation reserve Capital redemption reserve Profit and loss account Equity shareholders’ funds 1999 1998 Notes £000 £000 Restated £000 Restated £000 460 9,614 18,739 23 28,836 (23,200) 906 6,624 14,841 1,291 23,662 (18,488) 11 12 13 14 15 16 17 18 20 21 23 23 23 23 2,826 17,054 1,400 21,280 5,174 26,454 (2,843) (531) 23,080 9,734 133 1,907 156 11,150 23,080 — 24,093 — 24,093 5,636 29,729 (5,245) (901) 23,583 9,890 133 2,290 — 11,270 23,583 Net assets per share 59.28p 59.61p These financial statements were approved by the Board of Directors on 30 November 1999 and were signed on its behalf by: D.S. WINTERBOTTOM Director D.L. GROVE Director Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 23 CCoommppaannyy BBaallaannccee SShheeeett as at 30 September 1999 Notes £000 £000 £000 £000 1999 1998 Fixed assets Tangible assets Investments Current assets Property held for realisation Debtors Cash at bank and in hand Creditors: Amounts falling due within one year Net current (liabilities)/assets Total assets less current liabilities Creditors: Amounts falling due after more than one year Provisions for liabilities and charges Net assets Capital and reserves Called up share capital Share premium Capital redemption reserve Profit and loss account Equity shareholders’ funds 12 13 14 16 17 18 20 21 23 23 23 44 20,863 20,907 41 21,001 21,042 906 1,994 — 2,900 (7,943) — 4,207 474 4,681 (3,101) (5,043) 1,580 15,864 (1,000) (313) 14,551 9,734 133 156 4,528 14,551 22,622 (2,000) — 20,622 9,890 133 — 10,599 20,622 These financial statements were approved by the Board of Directors on 30 November 1999 and were signed on its behalf by: D.S. WINTERBOTTOM Director D.L. GROVE Director 24 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 CCoonnssoolliiddaatteedd CCaasshh FFllooww SSttaatteemmeenntt for the year ended 30 September 1999 Net cash inflow from operating activities Notes 27 1999 £000 £000 8,851 1998 £000 £000 7,703 Returns on investment and servicing of finance Interest received Interest paid Interest element of finance lease rental payments Taxation Corporation tax paid Capital expenditure and financial investment Purchase of tangible fixed assets Sale of tangible fixed assets Sale of properties held for realisation 14 (635) (56) (1,987) 3,728 444 (677) (748) 223 (1,608) (59) (3,927) 1,122 — (1,444) (462) 2,185 (2,805) Acquisitions and disposals Purchase of business Sale of businesses net of costs of disposal 29 30 (1,175) (377) — 2,518 Equity dividends paid Cash inflow before financing Financing Issue of ordinary share capital Capital element of finance lease rental payments net of advances Repayment of loans Purchase of own shares Increase in cash Reconciliation of net cash flow to movement in net debt Increase in cash in the period Decrease in debt and lease financing Changes in net debt from cash flows New finance leases Movement in net debt in the year Net debt at 30 September 1998 Net debt as at 30 September 1999 (1,552) (831) 7,228 (1,825) 5,403 5,403 1,419 6,822 — 6,822 (11,255) (4,433) — 189 (1,608) (406) 28 28 28 28 28 28 46 (278) (3,224) — 2,518 (1,659) 3,851 (3,456) 395 395 3,502 3,897 (12) 3,885 (15,140) (11,255) Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 25 OOtthheerr PPrriimmaarryy SSttaatteemmeennttss Consolidated Statement of Total Recognised Gains and Losses for the year ended 30 September 1999 Profit/(loss) for the financial year Unrealised deficit on revaluation of properties Gross exchange differences on the retranslation of net investments Total recognised gains and losses relating to the financial year Prior year adjustment (as explained in note 1) Total gains and losses recognised since last annual report 1998 Restated £000 (1,944) (1,164) 7 (3,101) 1999 £000 2,293 (373) 4 1,924 900 2,824 Note of Consolidated Historical Cost Profits and Losses There is no material difference between the results as disclosed in the profit and loss account and the results as given on an unmodified historical cost basis. Reconciliation of Movements in Shareholders’ Funds for the year ended 30 September 1999 Profit/(loss) for the financial year Dividends Exchange differences Revaluation deficit New share capital subscribed (net of issue costs) Goodwill taken to profit and loss account on disposal Purchase of own shares Net reduction in shareholders’ funds Opening shareholders’ funds (Group: originally £22,683,000 restated for prior year adjustment of £900,000 as explained in note 1) Closing shareholders’ funds Group 1998 Restated £000 (1,944) (1,661) (3,605) 7 (1,164) 46 2,187 — (2,529) 1999 £000 2,293 (1,635) 658 4 (373) — (386) (406) (503) Company 1999 1998 £000 (4,030) (1,635) (5,665) — — — — (406) £000 (300) (1,661) (1,961) — — 46 — — (6,071) (1,915) 23,583 23,080 26,112 23,583 20,622 14,551 22,537 20,622 26 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 PPrriinncciippaall AAccccoouunnttiinngg PPoolliicciieess The following accounting policies have been applied The Directors consider each acquisition separately for the consistently in dealing with items which are considered purpose of determining the amortisation period for any material in relation to the Group’s financial statements: goodwill that arises. Basis of preparation The financial statements have been prepared in accordance with applicable accounting standards and under the historical On the subsequent disposal or termination of a business acquired since 1 October 1998, the profit or loss on disposal or termination is calculated after charging/(crediting) the unamortised amount of any related goodwill (negative cost accounting rules, modified to include the revaluation of goodwill). certain land and buildings. Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings made up to 30 September 1999. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal. Under Section 230(4) of the Companies Act 1985 the Company is exempt from the requirement to present its own profit and loss account. In the Company’s financial statements, investments in subsidiary undertakings and associates are stated at cost less amounts written off for impairment. Tangible fixed assets and depreciation Depreciation is provided to write off the cost or valuation less the estimated residual value of tangible fixed assets by equal instalments over their estimated useful economic lives as follows: Freehold buildings — 50 years Leasehold land and buildings — life of lease Plant, machinery and vehicles — 4 to 20 years No depreciation is provided on freehold land. Goodwill and negative goodwill Purchased goodwill (both positive and negative) arising on Foreign currencies consolidation in respect of acquisitions before 1 October Transactions in foreign currencies are recorded using the rate 1998, when FRS10 Goodwill and intangible assets was of exchange ruling at the date of the transaction. Any gain or adopted, was written off to reserves in the year of loss on translation arising from a movement in exchange acquisition. In accordance with transitional rules of FRS 10, rates subsequent to the date of a transaction is included as this treatment has continued to be applied to such an exchange gain or loss in the profit and loss account. acquisitions. When a subsequent disposal occurs any related goodwill previously written off to reserves is written back through the profit and loss account as part of the profit or loss on disposal. The assets and liabilities of overseas subsidiary undertakings are translated at the closing exchange rate. Profit and loss accounts of such undertakings are consolidated at the average exchange rate during the year and the adjustment to Purchased goodwill (representing the excess of the fair value year end rates is taken directly to reserves. Exchange of the consideration given over the fair value of the separable differences arising on the retranslation of the opening net net assets acquired) arising on consolidation in respect of assets of foreign subsidiaries, foreign currency loans used for acquisitions since 1 October 1998 is capitalised. Positive overseas investment and transactions executed solely for the goodwill is amortised by equal annual instalments over its purpose of hedging foreign currency asset exposure are estimated useful life. taken directly to reserves. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 27 Principal Accounting Policies Government grants Stocks Capital based government grants are included within accruals Stocks are stated at the lower of cost and net realisable and deferred income in the balance sheet and credited to value. In determining the cost of raw materials, consumables operating profit over the estimated useful economic lives of and goods purchased for resale, the FIFO method is used. the assets to which they relate. Leases Cost for work in progress and finished goods comprises direct materials, direct labour and an appropriate proportion of attributable overheads. Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Taxation Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the lease. Pension Costs The charge for taxation is based on the result for the year and takes into account taxation deferred 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 The Group contributes into two defined contribution pension actual liability will crystallise. schemes. The assets of the schemes are held separately from those of the Group in independently administered funds. The amount charged against profits represents the contributions payable to the schemes in respect of the year. Turnover Turnover represents the amounts (excluding value added tax) derived from the provision of goods and services to third The Group operates a pension scheme providing benefits party customers. based on final pensionable pay. The assets of the scheme are held separately from those of the Group. Contributions to the scheme are charged to the profit and loss account so as to spread the cost of pensions over employees’ working lives with the Group. 28 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 NNootteess ttoo tthhee FFiinnaanncciiaall SSttaatteemmeennttss 1. Change of accounting policy The implementation of Financial Reporting Standard 12 (Provisions, contingent liabilities and contingent assets) has required the Directors to amend the Group’s accounting policy in respect of certain provisions made at 30 September 1998. Accordingly, £900,000 of the provisions for losses on disposal of subsidiaries originally made at that time have been released by means of a prior year adjustment and are now charged as an exceptional item in the year to 30 September 1999. Comparative figures have been restated accordingly. The impact of the adjustment is to decrease the loss for the year ended 30 September 1998 and to increase net assets at that date by £900,000. 2. Segmental information Galvanising Services 1999 1998 £000 £000 Engineering Products 1999 1998 Restated £000 £000 Total 1999 £000 1998 Restated £000 9,430 (3,482) 5,948 1,275 — — 8,188 (3,329) 55,992 — 4,859 55,992 71,638 — 71,638 65,422 (3,482) 61,940 79,826 (3,329) 76,497 957 4,267 3,538 5,542 4,495 — — (539) (3,903) (539) (3,903) — 153 — 153 1,275 957 3,728 (212) 5,003 (764) 745 (867) 7,900 8,750 20,755 26,105 28,655 34,855 4,239 (122) (5,575) (11,272) 23,080 23,583 Turnover Total sales Inter-segment sales Segment operating profit Loss on sale of discontinued operations Profit/(loss) on sale of fixed assets Segment profit/(loss) before interest and taxation Common costs Group profit/(loss) before interest and taxation Net assets Segment net assets Unallocated net liabilities Total net assets Discontinued activities relate in total to the engineering products sector. Unallocated net liabilities represent net borrowings including hire-purchase and finance leases, taxation and dividends payable less properties held for realisation. Turnover and profit by country of origin is as follows: UK America Rest of Europe Turnover Operating profit 1999 £000 61,570 370 — 61,940 1998 £000 75,126 — 1,371 76,497 1999 £000 4,888 (110) — 4,778 1998 £000 3,876 — (248) 3,628 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 29 Notes to the Financial Statements 2. Segmental information continued Turnover by geographical destination is as follows: UK Rest of Europe Asia America Middle East Africa Far East 1999 £000 54,810 1,662 4,501 766 25 176 — 61,940 1998 £000 68,009 4,206 3,323 557 228 135 39 76,497 3. Continuing operations The total figures for continuing operations in 1999 include the following amounts relating to acquisitions: cost of sales £457,000, distribution costs £60,000 and administrative expenses £161,000. 4. Net interest payable and similar charges On bank loans and overdrafts On all other loans Finance charges payable in respect of finance leases and hire-purchase contracts Less: interest receivable 5. Profit/(loss) on ordinary activities before taxation Profit/(loss) on ordinary activities before taxation is stated After charging: Auditors’ remuneration (including Company £10,000 (1998: £10,000)) Depreciation and other amounts written off tangible fixed assets: Owned Leased Amortisation of goodwill Operating lease rentals — plant and machinery — other Foreign exchange loss Research and development expenditure After crediting: Profit on disposal of fixed assets Income from fixed asset investments 1999 £000 495 140 56 691 (14) 677 1999 £000 75 1,736 144 60 326 270 14 37 34 18 1998 £000 1,468 140 59 1,667 (223) 1,444 1998 £000 80 2,084 144 — 497 95 — — 86 — Fees paid to KPMG Audit Plc and its associate for non-audit services amounted to £175,000 (1998: £40,000 to John W Hinks & Co.). Non-audit fees comprise accountancy, tax and other advisory services in connection with acquisitions and disposals (£114,000), tax compliance services (£48,000) and other services (£13,000). 30 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 6. Remuneration of Directors The disclosures required by the Companies Act 1985 and the London Stock Exchange in respect of Directors’ emoluments are given in the Board’s report on remuneration on pages 16 to 18. 7. Staff numbers and costs The average number of persons employed by the Group (including Directors) was: 1999 Number 1998 Number Production Administration Sales and distribution The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs 8. Taxation UK corporation tax at 30.5% (1998: 31%) Deferred taxation Adjustments relating to an earlier year — corporation tax 465 184 80 729 1999 £000 13,482 1,097 25 14,604 1999 £000 1,118 (29) 180 1,269 The tax charge includes relief of £70,000 (1998: £439,000) relating to non-operating exceptional items. 9. Dividends Equity shares: Interim dividend paid of 2.10p per share (1998: 2.10p) Final dividend proposed of 2.10p per share (1998: 2.10p) 1999 £000 818 817 693 164 102 959 1998 £000 15,952 1,513 331 17,796 1998 £000 330 103 (55) 378 1998 £000 830 831 The interim dividend originally declared with the half year results at £832,000 has reduced as a result of the share buy- back on 24 June 1999 of 625,000 ordinary shares. 1,635 1,661 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 31 Notes to the Financial Statements 10. Earnings per share The basic earnings per share is arrived at by dividing the profit after tax of £2.293m (1998: restated loss £1.944m) by 39,389,495 shares (1998: 39,518,286), being the weighted average number of ordinary shares in issue during the year. The diluted earnings per share is arrived at by dividing the profit after tax of £2.293m (1998: restated loss of £1.944m) by 39,457,503 shares (1998: 39,518,817), being the weighted average number of ordinary shares as adjusted for the dilutive effect of share options outstanding at the year end. The IIMR earnings per share is calculated by reference to earnings of £2.765m (1998: £1.368m) divided by 39,389,495 shares (1998: 39,518,286), being the weighted average number of ordinary shares in issue during the year. The reconciliation to basic earnings/(loss) per share is as follows: Basic earnings/(loss) per share Profit on sale of property Loss on sale of businesses Tax effect on non-operating exceptional items IIMR earnings per share 11. Intangible fixed assets Group Cost Arising on acquisition during year At end of year Amortisation Charged in year At end of year Net book value At 30 September 1999 At 30 September 1998 1999 Pence 5.82 — 1.37 (0.18) 7.01 1998 Pence (4.92) (0.38) 9.87 (1.11) 3.46 Goodwill £000 2,886 2,886 (60) (60) 2,826 — On 12 May 1999 the Company acquired all of the shares of Berry Safety Systems Limited (formerly Brockhouse Forgings Limited) and associated subsidiaries. The resulting goodwill of £2,886,000 was capitalised and will be written off over 20 years which the Directors consider to be the minimum period expected to benefit from the acquisition. The book and fair value of the net assets acquired and details of the consideration paid are included in note 29. The acquired business, which represents only a part of Brockhouse Forgings Limited’s trading prior to its acquisition by the Group, made a profit before tax of £252,000 from the beginning of its financial year to the date of acquisition. In its previous financial year to 28 November 1998 it made an operating profit, before common costs, of £618,000. 32 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 12. Tangible fixed assets Land and buildings Freehold £000 Long leasehold £000 Group Plant, machinery and vehicles £000 Cost or valuation At beginning of year Additions Acquisitions during the year Disposals Disposals on termination of activities Transfers to current assets Revaluation Transfers from subsidiaries At end of year Depreciation At beginning of year Charge for the year Disposals Disposals on termination of activities Revaluation Transfers from subsidiaries At end of year Net book value At 30 September 1999 At 30 September 1998 11,798 13 — (3,598) — (706) (400) — 7,107 142 83 (74) — (27) — 124 6,983 11,656 600 — — — — (200) — — 400 8 8 — — — — 16 384 592 Company Plant, machinery and vehicles £000 62 14 — — — — — 26 Total £000 35,511 1,987 13 (4,123) (4,697) (906) (400) — 23,113 1,974 13 (525) (4,697) — — — 19,878 27,385 102 11,268 1,789 (355) (2,511) — — 11,418 1,880 (429) (2,511) (27) — 10,191 10,331 9,687 11,845 17,054 24,093 21 22 — — — 15 58 44 41 Certain of the Group’s properties have been revalued at 30 September 1999 by the Directors, having taken appropriate professional advice, on the basis of open market value for their existing use. Particulars relating to revalued assets are given below: Land and buildings At 1997 open market value for existing use At 1998 open market value for existing use At 1999 open market value for existing use At historic cost Cost/valuation Historical cost of revalued assets Aggregate depreciation based on historical cost Historical cost net book value 1999 £000 3,225 2,123 2,005 154 7,507 6,153 (1,125) 5,028 1998 £000 6,325 2,808 — 3,265 12,398 8,608 (1,092) 7,516 Other tangible fixed assets, including additions subsequent to the revaluation of land and buildings, are included at cost. The gross book value of land and buildings includes freehold land of £3,200,000 (1998: £4,600,000). Included in the net book value of plant, machinery and vehicles is £1,402,000 (1998: £1,060,000) in respect of assets held under finance leases and similar hire-purchase contracts. Included within plant, machinery and vehicles are assets held for hire with a cost of £224,000 (1998: £Nil) and accumulated depreciation of £8,000 (1998: £Nil). Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 33 Notes to the Financial Statements 13. Fixed asset investments Group Cost and net book value At beginning of year Additions At end of year Trade investments £000 — 950 950 Loans £000 — 450 450 Total £000 — 1,400 1,400 As part of the arrangements for the disposal of certain subsidiary undertakings during the year, the Company acquired certain trade investments and made loans to those companies. The Company holds 100% of the issued ‘A’ ordinary share capital of Brockhouse Forgings Limited, acquired at a cost of £750,000 and a loan amounting to £250,000 which is secured by a fixed and floating charge on all the assets of the company, carries interest at 2% above the bank rate and is repayable at any time following the approval of the company’s accounts for the year ended 30 April 2000. The investment is accounted for as a trade investment because the Group, which has only 19.5% of the voting rights, is unable to exercise any significant influence over the company. The Company also holds 100% of the 8% cumulative redeemable preference shares issued by Tipton Steel Stockholders Limited, acquired at a cost of £200,000 and a loan amounting to £200,000 which is secured and carries interest at 8%. The preference shares are repayable in two instalments on 1 May 2002 and 2003, or earlier at that company’s request, whilst the loan stock is repayable in two instalments on 1 May 2000 and 2001. Company Cost At beginning of year Additions Disposals At end of year Provisions At beginning of year Impairment losses Disposals At end of year Net book value At 30 September 1999 At 30 September 1998 Shares in Group Loans to Group undertakings undertakings £000 £000 15,847 1,818 (2,446) 6,196 1,923 — 15,219 8,119 1,042 3,763 (930) 3,875 — — — — 11,344 14,805 8,119 6,196 Trade investments £000 — 950 — 950 — _ — — 950 — Other Loans £000 — 450 — 450 — — — — Total £000 22,043 5,141 (2,446) 24,738 1,042 3,763 (930) 3,875 450 — 20,863 21,001 Additions to shares in Group undertakings are shown net of a dividend of £4,366,000 paid out of pre-acquisition reserves. A list of the principal Group businesses is given on page 48. All of the Group’s subsidiaries at 30 September 1999 are wholly owned. Asset International (Ireland) Limited is incorporated in the Republic of Ireland and Pipe Supports USA, Inc. is incorporated in the United States of America. In addition, the Company holds 100% of the issued share capital of Royston Steel Fencing Limited, having acquired a further 50%, also for £1, on 11 December 1998. 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 financial statements of the Group. It is not expected that any further losses will arise to the Group upon the winding-up of the company. 34 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 14. Properties held for realisation Group Company Cost at beginning of year Transfers from fixed assets Transfers from subsidiaries Disposals Cost at end of year 15. Stocks Raw materials and consumables Work in progress Finished goods and goods for resale 16. Debtors Trade debtors Amounts owed by subsidiary undertakings Corporation tax Advance corporation tax Other debtors Prepayments and accrued income 1999 £000 460 906 — (460) 906 1998 £000 645 460 — (645) 460 1999 £000 — — 1,366 (460) 906 1999 £000 3,176 1,544 1,904 6,624 Group 1998 £000 — — — — — 1998 £000 4,358 2,097 3,159 9,614 Group Company 1999 £000 13,341 — 459 134 94 813 14,841 1998 £000 16,855 — 718 181 376 609 18,739 1999 £000 — 1,505 271 — — 218 1,994 1998 £000 — 2,553 137 563 86 868 4,207 Trade debtors include £20,000 (1998: £137,000) due after more than one year. At 30 September 1998 the Company had taxation recoverable after one year amounting to £280,000. 17. Creditors: amounts falling due within one year Debenture loan (see note 18) Bank loans and overdrafts (see note 18) Obligations under finance leases and hire-purchase contracts (see note 18) Trade creditors Amounts owed to Group undertakings Corporation tax Other taxation and social security Accruals and deferred income Dividend proposed Group Company 1999 £000 1,000 1,500 381 10,065 — 734 1,194 1,979 1,635 18,488 1998 £000 — 5,743 290 13,081 — 208 1,540 1,507 831 23,200 1999 £000 1,000 4,108 — — 31 18 — 1,151 1,635 7,943 1998 £000 — 1,102 — — — 72 21 1,075 831 3,101 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 35 Notes to the Financial Statements 18. Creditors: amounts falling due after more than one year Debenture loan Bank loans and overdrafts Obligations under finance leases and hire-purchase contracts Group Company 1999 £000 — 2,375 468 2,843 1998 £000 1,000 3,875 370 5,245 1999 £000 — 1,000 — 1,000 1998 £000 1,000 1,000 — 2,000 The maturity of financial liabilities entered into by the Group and the Company are as follows: Debenture loan Amounts due within one year Amounts due after more than one year Between one and two years Bank loans and overdraft Amounts due within one year Amounts due after more than one year Between one and two years Between two and five years Finance leases and hire-purchase obligations Amounts due within one year Amounts due after more than one year Between one and two years Between two and five years Group Company 1999 £000 1998 £000 1999 £000 1,000 — 1,000 — 1,000 1,000 1,000 — 1,000 1998 £000 — 1,000 1,000 1,500 5,743 4,108 1,102 1,500 875 2,375 3,875 381 193 275 468 849 1,500 2,375 3,875 9,618 290 281 89 370 660 500 500 1,000 5,108 — — — — — 500 500 1,000 2,102 — — — — — The debenture loan comprises 14% first mortgage debenture stock which 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 from 30 September 2000 to 30 September 2003 and then 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 31 March and 30 September and contains no right to convert into share capital in the Company. The Directors intend to redeem the debenture loan at the earliest opportunity provided bank interest rates remain attractive. Accordingly, the debenture loan has been classified as due within one year. The bank loans carry a rate of interest of 0.7% above the London Inter-Bank Offered Rate. Obligations under finance leases and hire-purchase contracts are secured on the relevant assets. 36 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 19. Financial instruments ( a ) M a n a g e m e n t o f f i n a n c i a l r i s k s The Group’s major financial risks relate to movements of interest and exchange rates. Management continually review the Group’s exposure to these issues and will, if required, make appropriate use of derivative financial instruments to mitigate this exposure. No such instruments have been in place during the year. Interest rate risk The Group is subject to fluctuations in interest rates on its borrowings and surplus cash. There is no internal policy requirement to take out interest rate hedging on these, although appropriate arrangements would be made if management believed that it was necessitated by market conditions. Currency exposure The Group is subject to fluctuations in interest rates on its net investments overseas and on transactional monetary assets and liabilities not denominated in the operating (or ‘functional’) currency of the operating unit concerned. The Group’s policy is to hedge, where practical, the net asset value of its overseas investments. This hedging is currently achieved through borrowings in the respective currencies. The Group is predominantly UK based and undertakes the majority of its transactions in Sterling. Consequently it has no material transactional monetary assets or liabilities denominated in currencies other than the functional currencies of its respective geographical areas of operation. As a result, there is no internal policy requirement to take out exchange rate hedging on the Group’s transactional monetary assets and liabilities although this position is continually reviewed and, were changes in the Group or market conditions to warrant it, appropriate arrangements would be made. ( b ) F i n a n c i a l a s s e t s The Group’s financial assets, excluding short-term debtors, consist mainly of a cash surplus held at bank in the current account. Where cash surpluses arise in the short term, interest is earned based on a floating rate related to bank base rates or LIBOR. Where the Group’s funding requirements allow longer term investment of surplus cash, management will review available options to obtain the best possible return whilst maintaining an appropriate degree of access to the funds. ( c ) F i n a n c i a l l i a b i l i t i e s The Group’s financial liabilities, excluding short term creditors, which are all sterling denominated, are set out below. Fixed rate financial liabilities comprise sterling denominated finance leases and hire-purchase agreements and bank loans. There is also a fixed rate mortgage debenture repayable 30 September 2000–2003. Floating rate financial liabilities comprise sterling denominated bank loans and overdrafts. The floating rate financial liabilities bear interest at rates related to bank base rates or LIBOR. Currency Sterling Sterling — mortgage debenture Sterling — finance leases and hire-purchase agreements Total weighted average Floating rate financial liabilities £000 Fixed rate financial liabilities £000 Total £000 3,875 1,849 5,724 Fixed rate financial liabilities Weighted average period for which rate is fixed (years) Weighted average interest rate % 14.0 7.8 11.2 1.0 3.1 2.0 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 37 Notes to the Financial Statements 19. Financial instruments continued ( d ) M a t u r i t y p r o f i l e The maturity profile of the Group’s and Company‘s financial liabilities other than short-term creditors such as trade creditors and accruals is shown in note 18 to the financial statements. At 30 September 1999 the Group had the following undrawn committed facilities with an average maturity of 51/2 months, in respect of which all conditions precedent had been met: Undrawn committed borrowing facilities Expiring in one year or less £000 9,000 ( e ) F a i r v a l u e s At 30 September 1999 the fair value of the Group’s financial instruments was not materially different to the book value of the instruments. The fair value was calculated using market rates where available, otherwise cash flows were discounted at prevailing rates. ( f ) C o m p a r a t i v e i n f o r m a t i o n In accordance with transitional arrangements, permitted by FRS13, comparative figures have not been provided for the above information. 20. Provisions for liabilities and charges Group At beginning of year — as previously reported Prior year adjustment At beginning of year — as restated Utilised during year Credit for the year Transferred out on disposal of subsidiaries At end of year Pensions obligations £000 Deferred taxation £000 Reorgani- sation costs £000 Loss on disposals £000 417 — 417 (104) — — 313 337 — 337 — (29) (90) 218 47 — 47 (47) — — — 1,000 (900) 100 (100) — — — Total £000 1,801 (900) 901 (251) (29) (90) 531 The amounts provided for deferred taxation and the amounts not provided are set out below: 1999 1998 Provided Unprovided £000 £000 Provided £000 Unprovided £000 Difference between accumulated depreciation and amortisation and capital allowances On revaluation of land and buildings Other timing differences 246 — (28) 218 588 — (110) 478 337 — — 337 Company At beginning of year Transferred from subsidiaries Utilised during year At end of year 38 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 1,604 468 (123) 1,949 Pension obligations £000 — 417 (104) 313 21. Called up share capital Authorised 48,000,000 Ordinary shares of 25p each Allotted, called up and fully paid 38,934,016 Ordinary shares of 25p each (1998: 39,559,016) 1999 £000 1998 £000 12,000 12,000 9,734 9,890 The Company purchased 625,000 of its own shares on 24 June 1999, which were subsequently cancelled on 10 August 1999. During the year no ordinary shares were allotted under Share Option Schemes (1998: 81,461 ordinary shares under the 1985 Savings Related Share Option Scheme at a price of 55.228p each). Options outstanding at 30 September 1999 were: 1985 Executive Share Option Scheme: 53,000 ordinary shares 106,773 ordinary shares 1995 Executive Share Option Scheme: 190,398 ordinary shares 306,000 ordinary shares Option price £000 Date exercisable £000 Expiry date £000 95.063p 112.500p 01.02.95 28.01.97 01.02.02 28.01.04 113.597p 68.500p 20.02.99 04.08.02 20.02.06 04.08.09 1999 Unapproved Executive Share Option Scheme: 500,000 ordinary shares 112,000 ordinary shares 67.167p 68.500p 09.07.02 04.08.02 07.07.06 04.08.06 1985 Savings Related Share Option Scheme: 20,300 ordinary shares 180,525 ordinary shares 34,219 ordinary shares 1995 Savings Related Share Option Scheme: 303,298 ordinary shares 496,891 ordinary shares 73.218p 90.000p 90.000p 01.04.00 01.04.00 01.04.02 01.10.00 01.10.00 01.10.02 66.000p 41.330p 01.04.02 01.03.04 01.10.02 01.09.04 Under the scheme rules for the Savings Related Share Option Schemes, early encashment of options is available to employees of disposed subsidiaries. Employees of Tipton Steel Stockholders and British & Midland Forgings must either take up their accrued options or lose them within 6 months of the sales by the Group of these companies (12 May and 28 May 1999 respectively). 7,473 shares, in respect of these options, will be issued in due course. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 39 Notes to the Financial Statements 22. Directors’ interests The Directors of the Company at the end of the year, and the interests 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 S.H.J.A. Knott H.C. Everett D.L. Grove 30 September 1999 15,690 — 502,494 78,712 479,545 30 September 1998 15,690 — 492,494 55,775 379,545 John G. Silk, who retired as a Director on 19 March 1999 (and is now Life President), is a partner in Silks, Solicitors to the Company, which received fees of £86,652 for services rendered to the Company. Directors’ options At 30 September 1998 Granted during year At 30 Lapsed during September 1999 year Exercise price Date exercisable Expiry date H.C. Everett 1985 Savings Related Share Option Scheme 14,850 — 14,850 — 73.218p 01.04.98 01.10.98 1995 Savings Related Share Option Scheme 6,181 — 1995 Executive Share Options Scheme 17,600 — — 16,259 — 10,000 — — — — 6,181 16,259 17,600 10,000 66.000p 41.330p 113.597p 68.500p 01.04.02 01.03.04 20.02.99 04.08.02 01.10.02 01.09.04 20.02.06 04.08.09 1999 Unapproved Executive Share Option Scheme D.L. Grove 1999 Unapproved Executive Share Option Scheme — 20,000 — 20,000 68.500p 04.08.02 04.08.06 — 500,000 — 500,000 67.167p 09.07.02 09.07.06 D.L. Grove also 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 (1998: 1,844,183 shares). The market price of the Company’s shares at 30 September 1999 was 65.5p. The market price for the year varied between 35.5p and 74.5p. 40 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 23. Share premium and reserves Group At beginning of year — as previously reported Prior year adjustment At beginning of year — as restated Retained profit for the year Exchange adjustments Goodwill transferred to profit and loss account on disposal Revaluation deficit Transfers Purchase of own shares Share Capital premium Revaluation redemption reserve reserve account £000 £000 £000 Profit and loss account £000 133 — 133 — — — — — — 2,290 — 2,290 — — — (373) (10) — — — — — — — — — 156 10,370 900 11,270 658 4 (386) — 10 (406) At end of year 133 1,907 156 11,150 Company At beginning of year Deficit for the year Purchase of own shares At end of year Share Capital premium redemption reserve account £000 £000 Profit and loss account £000 133 — — 133 — — 156 156 10,599 (5,665) (406) 4,528 The cumulative amount of positive goodwill resulting from acquisitions in earlier financial years which has been written off is £2,800,000 (1998: £2,800,000), which relates entirely to subsidiary undertakings. The cumulative amount of negative goodwill resulting from acquisitions in earlier financial years which has been written off is £836,000 (1998: £1,222,000). In accordance with Section 228 (7) of the Companies Act 1985, the Company has not presented its own profit and loss account. The consolidated profit for the financial year includes losses dealt with in the financial statements of the holding company of £4,030,000 (1998: £300,000). 24. Contingent liabilities The Company has guaranteed the overdrafts of its subsidiaries; the amount outstanding at the year end was £305,618 (1998: £11,101,041). The Group had guarantees outstanding to a bank in respect of performance bonds of £802,000 (1998: £934,000), Customs and Excise of £6,000 (1998: £91,000) and to other third parties of £Nil (1998: £10,000), at 30 September 1999. The Group also has guarantees arising in the ordinary course of the Group’s business and on these no material losses are anticipated. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 41 Notes to the Financial Statements 25. Commitments ( a ) Capital commitments at the end of the financial year, for which no provision has been made, are as follows: Group Company Contracted 1999 £000 40 1998 £000 128 1999 £000 — ( b ) Annual commitments under non-cancellable operating leases are as follows: Group Operating leases which expire: Within one year In the second to fifth years inclusive Over five years 26. Pension scheme 1999 1998 Land and buildings £000 — 28 339 367 Other £000 17 206 — 223 Land and buildings £000 — 10 — 10 1998 £000 — Other £000 — 162 — 162 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 5 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 increases 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 £25,000 (1998: £331,000) net of a provision release of £104,000 (1998: £Nil). There is a provision for pension costs remaining of £313,000 (1998: £417,000). This provision is being released to profit in line with actuary’s advice received. The next actuarial valuation is at 5 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. 42 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 27. Reconciliation of operating profit to operating cash flows Operating profit Depreciation, amortisation and impairment charges Cash flow relating to reorganisation provisions Decrease in stocks Decrease/(increase) in debtors (Decrease)/increase in creditors (Decrease)/increase in pension provision Net cash inflow from operating activities Operating cash flow per share 28. Analysis of net debt Cash in hand and at bank Overdrafts Debt due after one year Debt due within one year Finance leases Total At beginning of year £000 Cash flow £000 23 (4,135) (4,112) (4,875) (1,608) (660) (7,143) (11,255) 1,268 4,135 5,403 — 1,608 (189) 1,419 6,822 1999 £000 4,778 1,922 (147) 2,259 1,639 (1,496) (104) 8,851 22.47p Other non-cash changes £000 — — — 2,500 (2,500) — — — 1998 £000 3,628 2,097 (1,435) 2,864 (935) 1,286 198 7,703 19.49p At end of year £000 1,291 — 1,291 (2,375) (2,500) (849) (5,724) (4,433) Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 43 Notes to the Financial Statements 29. Purchase of subsidiary undertaking Net assets acquired Tangible fixed assets Stocks Debtors Cash at bank and in hand Creditors Tax payable Net assets Goodwill on acquisition Consideration Satisfied by Cash Net proceeds from sale of forges (see note 31) Cash outflow Consideration Acquisition of cash at bank and in hand Net consideration Net proceeds from sale of forges Cash outflow 1999 Book and fair value £000 13 146 395 3,470 (440) (286) 3,298 2,886 6,184 4,645 1,539 6,184 6,184 (3,470) 2,714 (1,539) 1,175 The operating cash flows of the acquired subsidiary undertaking are not significant in relation to Group activity. 44 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 30. Sale of subsidiary undertakings and businesses On 12 May 1999 the Group sold British and Midland Forgings Limited and Criterion Stampings Limited and on 28 May 1999 the Group sold Tipton Steel Stockholders Limited. The effect of both disposals was as follows: Net assets disposed of Tangible fixed assets Stocks Debtors Taxation Cash at bank and in hand Creditors Bank overdrafts Deferred taxation Net assets Loss on disposal Consideration Satisfied by Cash proceeds less costs of disposal Fixed asset investments (see note 31) Offset against purchase of Berry Safety Systems Limited (see note 31) Net cash (outflow)/inflow Net cash proceeds Disposal of (cash)/bank overdraft Cash (outflow)/inflow 1999 £000 2,186 877 2,348 (4) 168 (1,830) — (90) 3,655 (925) 2,730 (209) 1,400 1,539 2,730 (209) (168) (377) 1998 £000 1,249 2,086 2,648 (97) — (2,588) (486) (9) 2,803 (771) 2,032 2,032 — — 2,032 2,032 486 2,518 The operating cash flows of the businesses disposed of in both 1999 and 1998 were not significant in relation to Group activity. 31. Major non-cash transactions Consideration for the purchase of Berry Safety Systems Limited on 12 May 1999 was satisfied in part by proceeds from the sale of the Group’s forging businesses (British & Midland Forgings Limited and Criterion Stampings), amounting to £2,539,000 less the Group’s investment of £1,000,000, comprising shares in and loans to the purchaser. Proceeds from the sale of Tipton Steel Stockholders Limited on 28 May 1999 were satisfied in part by the Group’s investment of £400,000, comprising preference shares in and loans to the purchaser. Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 45 FFiivvee YYeeaarr RReeccoorrdd 1995 £000 1996 £000 1997 £000 1998 £000 1999 £000 Turnover 87,823 80,683 81,281 76,497 61,940 Operating profit Profit/(loss) before taxation Taxation Profit/(loss) after taxation 6,235 5,434 1,546 3,888 3,772 2,922 622 2,300 2,698 1,216 205 3,628 4,778 (1,566) 3,562 378 1,269 1,011 (1,944) 2,293 Shareholders’ funds 28,173 27,966 26,112 23,583 23,080 Dividends per ordinary share 6.20p 6.20p 4.20p 4.20p 4.20p Operating cash flow per ordinary share 13.08p 15.78p 14.84p 19.49p 22.47p Equivalent market price at 31 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. Figures for 1998 have been restated in accordance with note 1 to the financial statements. 46 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 NNoottiiccee ooff MMeeeettiinngg The Copthorne Notice is hereby given that the 39th Annual General Meeting of Hill & Smith Holdings PLC will be held at The Copthorne Hotel, The Waterfront, Level Street, Brierley Hill, DY5 1UR on Thursday, 23 March 2000 at 12 noon for the following purposes: 1. To receive and adopt the Directors’ report and the financial statements for the year ended 30 September 1999 together with the auditor’s report thereon. 2. To approve the payment of the proposed final dividend of 2.1p per share on 7 April 2000. 3. To re-elect Mr R.E. Richardson as a Director. 4. To re-elect Mr D.S. Winterbottom as a Director. 5. To reappoint KPMG Audit Plc as auditor and to authorise the Directors to determine the auditor’s remuneration. 11 February 2000 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 pm on 21 March 2000 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 pm on 21 March 2000 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 and 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. ATTENTION: Please note that the day of the Annual General Meeting is Thursday 23 March 2000. The Copthorne Merry Hill Wolverhampton A 4 1 2 3 A461 A461 to Junction 9, M6 A 4 9 1 Brierley Hill Stourbridge 1 6 4 A A456 Dudley 1 6 4 A A 4 1 2 3 A 4 5 9 Merry Hill Centre A 4 0 3 6 A4123 to Junction 2, M5 A458 A458 A456 A491 to Junction 4, M5 A456 to Junction 3, M5 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 47 PPrriinncciippaall GGrroouupp BBuussiinneesssseess 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, M22 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 Email: info@birtley-building.co.uk Website: www.birtley-building.co.uk 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 D. & J. Steels Limited Lambert Works, Colliery Road, Wolverhampton, West Midlands, WV1 2RD Tel: (01902) 453680 Fax: (01902) 455431 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 Berry Safety Systems* 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 Email: barrier@hill-smith.co.uk Website: www.hill-smith.co.uk Pipe Supports Limited‡ Salwarpe Road, Droitwich, Worcestershire, WR9 9BH Tel: (01905) 795500 Fax: (01905) 794126 Email: psl@pipesupports.com Website: www.pipesupports.com Pipe Supports USA, Inc‡ 2579 Lester Street, Harvey, Louisiana 700058, USA Tel: (001) 504 367 7473 Fax: (001) 504 367 7484 Email: PipSupUSA@aol.com Pipe Supports Asia Limited‡ 35/2 Bangna Trad Rd., Km11.5, Bangplee Samut Prakarn, Thailand 10540 Tel: (0066) 2316 3912 Fax: (0066) 2316 2431 Email: pipeasia@ks.th.com The businesses marked * trade as divisions of Hill & Smith Limited. The business marked † trades as a division of Birtley Building Products Limited. The companies marked ‡ are indirectly held. A holding of 80% of the ordinary shares of Pipe Supports Asia Limited, a company incorporated in Thailand, was acquired on 4 October 1999. 48 Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 Hill & Smith Holdings PLC Springvale Business and Industrial Park, Bilston, West Midlands, WV14 0QL, England Telephone: (01902) 357910 Fax: (01902) 357919 

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