Hill & Smith Annual Report 1999

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FY1999 Annual Report · Hill & Smith

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Annual Report and Financial Statements 1999

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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

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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

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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

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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

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

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.

Transition between tensioned and open box beam

barrier systems, Hill & Smith.

Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 7

1 2

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.

“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.

“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.

“Multiplate” aggregate tunnel assembly in Ireland,

Asset International.

Hill & Smith Holdings PLC Annual Report and Financial Statements 1999 9

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.

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

93
63

11
15
15

230

—
—
—

230

—

—
11

—
—
—

—

135
10

—
—
—

145

—
—
—

145

228
84

11
15
15

386

—
—
—

386

Total for
1998
£000

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

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

share capital

4,100,636

4,100,638

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

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

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

3
3

2
4

5
8

Profit/(loss) per ordinary share:
Basic
Diluted
IIMR

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

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

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

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

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

1999

£000

8,851

1998

£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

(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

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

691
(14)

677

1999
£000

1,736
144
60
326
270
14
37

34
18

1998
£000

1,468
140

1,667
(223)

1,444

1998
£000

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

(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
—
—
—
—

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

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

1998
£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

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

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

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

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
—

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

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

A461

A461 to
Junction 9, M6

Brierley
Hill

Stourbridge

A456

Dudley

Merry Hill
Centre

A
4
0
3
6

A4123 to
Junction 2, M5

A458

A456

A491 to
Junction 4, M5

A456 to
Junction 3, M5

Hill & Smith Holdings PLC 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