HILL & SMITH HOLDINGS PLC I I H L L & S M T H H O L D N G S P L C I A n n u a l R e p o r t a n d i F n a n c a i l S t a t e m e n t s 2 0 0 0 HILL & SMITH HOLDINGS PLC Springvale Business and Industrial Park, Bilston, West Midlands, WV14 0QL, England Telephone: (01902) 357910 Fax: (01902) 357919 Annual Report and Financial Statements 2000 Pictures from left to right: Asset Weholite Pipe Barkers Fencing Contents 1 Results at a glance 1 Financial calendar 2 Directors, Advisers and Committees 4 Chairman’s Statement 6 Operational Review 10 Financial Review 12 Directors’ Report 14 Corporate Governance 16 Board’s Report on Remuneration 20 Other Information 21 Statement of Directors’ Responsibilities 22 Auditor’s report to the members of Hill & Smith Holdings PLC 23 Consolidated Profit and Loss Account 24 Consolidated Balance Sheet 25 Company Balance Sheet 26 Consolidated Cash Flow Statement 27 Other Primary Statements 28 Principal Accounting Policies 30 Notes to the Financial Statements 46 Five year record 47 Notice of Meeting 48 Principal Group Businesses Industrial Products W & S Allely Limited* PO Box 58, Alma Street, Smethwick, West Midlands, B66 2RP D. & J. Steels Limited Lambert Works, Colliery Road, Wolverhampton, West Midlands, WV1 2RD Tel: (0121) 558 3301 Fax: (0121) 555 5194 Tel: (01902) 453680 Fax: (01902) 455431 Email: sales@allely.co.uk Website: www.allely.co.uk Ash & Lacy Perforators Limited* PO Box 58, Alma Street, Smethwick, West Midlands, B66 2RP Tel: (0121) 558 8921 Fax: (0121) 565 1354 Email: sales@ashlacyperf.co.uk Website: www.ashlacyperf.co.uk Ash & Lacy Pressings Limited* Shenstone Works, Lynn Lane, Shenstone, Lichfield, WS14 0EB Tel: (01543) 480361 Fax: (01543) 481624 Email: enquiries@alpressings.co.uk Website: www.alpressings.co.uk Bromford Iron & Steel Company Limited* Bromford Lane, West Bromwich, West Midlands, B70 7JJ Tel: (0121) 525 1071 Fax: (0121) 525 0913 Email: enquiries@bromfordsteels.co.uk Website: www.bromfordsteels.co.uk Clews Brothers Limited* Hall Lane, Walsall Wood, WS9 9BB Tel: (01543) 452220 Fax: (01543) 360427 Email: sales@clewbro.co.uk Website: www.clewbro.co.uk Eden Material Services (UK) Limited* Unit 42a, No. 1 Industrial Estate, Medomsley Road, Consett, Co. Durham, DH8 6TT Tel: (01207) 590055 Fax: (01207) 590059 Email: sales@edenmaterials.co.uk Website: www.edenmaterials.co.uk IMAS Technology Limited* Unit 5, Hill Top, West Bromwich, West Midlands, B70 0TX Tel: (0121) 556 9300 Fax: (0121) 505 6123 Email: imastech@cwcom.net J & F Pool Limited* Perfex Works, Hayle, Cornwall, TR27 4EG Tel: (01736) 753571 Fax: (01736) 756190 Email: sales@jfpool.co.uk Website: www.jfpool.co.uk SI Pressure Instruments Limited* Garretts Green Lane, Birmingham, B33 0YA Tel: (0121) 784 6855 Fax: (0121) 784 4795 Email: sales@si-pressure.co Website: www.si-pressure.co Wombwell Foundry Limited* Hough Lane, Wombwell, Barnsley, South Yorkshire, S73 0LT Tel: (01226) 753161 Fax: (01226) 755553 Email: info@wf-uk.com Website: www.wf-uk.com The companies marked * are indirectly held. They are wholly owned subsidiaries of Ash & Lacy plc which became a subsidiary on 1 November 2000. All companies within the Group provide engineering products and services. The companies marked † also provide galvanising services. Results at a glance Turnover Operating profit Profit before taxation Profit after taxation Ordinary dividends Interim Final Earnings per ordinary share — basic — diluted — IIMR 2000 £000 1999 £000 58,858 61,940 4,620 4,352 3,473 2.10p 2.10p 4.20p 8.96p 8.93p 7.92p 4,778 3,562 2,293 2.10p 2.10p 4.20p 5.82p 5.81p 7.01p Net assets per ordinary share 63.92p 59.28p Financial calendar Annual General Meeting 2001 Payment of final dividend for the year to 30 September 2001 (ex dividend date 7 February 2001) Announcement of results for period to 31 March 2001 Payment of interim dividend Announcement of results for period to 30 September 2001 Preliminary Announcement of results to 31 December 2001 5 March 2001 9 April 2001 June 2001 October 2001 December 2001 April 2002 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 1 Directors, Advisers and Committees Directors left to right D.S. Winterbottom FCA, FCT Chairman (Non-Executive) David, aged 64, 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. D.L. Grove BA, FCA Deputy Chairman and Chief Executive David, aged 52, joined the Board on 20 March 1998. He is a chartered accountant and Chairman of a number of private companies involving steel, plastics and consumer products. He is a Pension Fund Trustee for the Hill & Smith Group Pension and Assurance Scheme. C.J. Burr FCA Group Finance Director Joined the Board on 2 November 2000 and was appointed Group Finance Director. Joined Ash & Lacy in 1990 from European Home Products plc having previously held a variety of positions with Singer Company Inc. in the UK & Continental Europe. He is a chartered accountant. Age 51. H.C. Everett BSc, CA Executive Director and Company Secretary Howard, previously Group Finance Director, is 56 and joined the Group from Rapid Metal Developments Limited, an RM Douglas PLC subsidiary, in 1990. He is a Pension Fund Trustee for the Hill & Smith Group Pension and Assurance Scheme. S.H.J.A. Knott BA (Econ) Non-Executive Director Simon, aged 69, 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 for the Hill & Smith Group Pension and Assurance Scheme. H.C. Marshall MSc, BSc Non-Executive Director Joined the Board on 2 November 2000. Joined Ash & Lacy in 1989 from Bullough plc. He is currently vice-chairman of West Midlands CBI, Board Member of West Midlands Industrial Development Board, Member of West Midlands Chamber of Commerce Council, and Trustee of CBSO Development Fund. Age 57. 2 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Audit Committee Messrs Winterbottom, Knott, Marshall, and Richardson (Chairman) Remuneration Committee Messrs Winterbottom, Knott (Chairman), Marshall, and Richardson Registered Office Springvale Industrial and Business Park Bilston West Midlands WV14 0QL Company Number 671474 R.E. Richardson Non-Executive Director Dick, aged 61, was Chairman and Chief Executive of Graystone PLC from 1992 to 1997, and was previously Deputy Chairman and Managing Director of Goring Kerr PLC and Managing Director of Tace PLC. He is a Mechanical and Electrical Engineer, and was appointed Non-Executive in May 1997. Life President John G. Silk LLB (Lond.) John, aged 76, joined the Board in 1981 and was Chairman from 1983 to 1995. He retired from the Board and was appointed Life President on 19 March 1999. He is also Deputy Chairman of Hampson Industries PLC and the Senior Partner of Silks, Solicitors. He is Chairman of the Pension Fund Trustees for the Hill & Smith Group Pension and Assurance Scheme. Advisers Registrars Computershare Services PLC, PO Box 82, The Pavilions, Bristol, BS99 7NH Auditors KPMG Audit Plc, 2 Cornwall Street, Birmingham, B3 2DL Bankers Barclays Bank PLC, Dudley, West Midlands, DY1 1PP Solicitors Silks, Oldbury, West Midlands, B69 4EZ Wragge & Co, Birmingham, B3 2AS Stockbrokers Old Mutual Securities, Birmingham, B4 6ES Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 3 . . . it was a sound year of consolidation for the Group . . . Chairman’s Statement General developing our strategy and, following the year end, we Again, I am pleased to report the progress made in completed the acquisition of Ash & Lacy plc (“Ash & the Group during the financial year ended Lacy”). We believe that this substantial and innovative 30 September 2000. Turnover in our continuing acquisition will do much to strengthen our core businesses increased by 4.2% to £58.86 million business activities, introduce new product opportunities (1999: £56.51 million) and, whilst operating profit was and will commence the improvement in shareholder a little down on the previous year, profit before tax after value I referred to earlier. We are evaluating still further accounting for disposals showed a healthy increase of 22.2% to £4.35 million (1999: £3.56 million). our acquisition but we welcome the Ash & Lacy companies and personnel into our Group. IIMR Earnings per share increased to 7.92p (1999: 7.01p) per share. Gearing at 18.6% (1999: 19.2%) improved slightly against the previous year, reflecting tight control, offset by increased cost of holding raw materials, and infill acquisitions made during the year. We also bought in a small number of our shares in the market. Dividends Mindful of our recent acquisition and our desire to build on the continuing good health of the Company, the Board is pleased to recommend a final dividend for the year of 2.1p per share (1999: 2.1p per share) making a total for the year of 4.2p per share (1999: 4.2p per share). The Board will be examining the Company’s dividend strategy for the future in the All in all, it was a sound year of consolidation for the context of our enhanced operations. Group, following our extensive reorganisation. However, at the same time, we continued to develop new products and make appropriate acquisitions to complement our core activities. Board Structure and Employees Following the acquisition of Ash & Lacy, Howard Marshall joined the Board as a non-executive Director. He was previously Chief Executive of Ash & Along with other small engineering businesses, the Lacy. Additionally, Chris Burr joined the Board as Board is concerned by the need to improve Group Finance Director; he was previously Finance shareholder value. Much time has been devoted to Director of Ash & Lacy. I welcome both of them and 4 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 look forward to working with them. Howard Everett moves to take the role of Executive Director and Company Secretary. May I repeat my thanks to all our employees for their sustained efforts during yet another year of change. I say again that they are our most valuable asset. Trading It is well publicised that conditions continue to be difficult in our sector but, as long as there is no further adverse change in economic conditions, I look forward to a satisfactory outcome to the current trading period, which has started in line with our expectations. As Ash & Lacy had a different year end to our company, the decision was taken to change Hill & Smith Holdings’ year end to 31 December. This will give a 15 month period for the enlarged Group, which will only include Ash & Lacy companies from the date of acquisition (1 November 2000) to 31 December 2001. Pictures from top to bottom: Footbridge enclosure manufactured and installed on the M60 by Varley & Gulliver. Varioguard in process of installation. DAVID S. WINTERBOTTOM Large Constant Effort support being tested at Pipe Supports, Droitwich. Birtley lintels on site at builders’ merchant in Surrey. Chairman, 23 January 2001 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 5 During the year we invested further in our core businesses, both organically and by acquisition. Operational Review The increase in pre-tax profits and the continued At the end of the last financial year we were holding growth in EPS outlined in the Chairman’s Statement three surplus properties following the disposal of a was achieved against a background of increased number of non-core businesses. I am pleased to competitive pressures in some of the markets we report that all three properties were sold during the serve and significant increases in raw material costs, year at a combined figure in excess of book value. particularly steel. Our “Can Do” management culture enabled us to counter these negative factors. In the current financial year a number of business units with common customers, similar markets and During the year we invested further in our core related production processes have been investigating businesses, both organically and by acquisition. This shared objectives and co-ordinated export initiatives. strategy will continue to be pursued, encompassing This has now reached a stage whereby the acquisitions, investment in new products and businesses of Asset International, Barkers, Varley & services with higher than average growth prospects, Gulliver and Hill & Smith Limited will be combined and identifying projects which achieve lower unit costs from a focused capital spend programme. under one cohesive management team. Hence this will enable us to improve further our production efficiencies and to strengthen our combined sales and marketing efforts. This Infrastructure Products Group (IPG), as the new grouping will be called, would have represented in excess of 50% of the Group’s sales in the year being reported. In May 2000 two small bolt-on acquisitions which had been tracked for some time were completed. Firstly, the Optimum business was acquired for £129,000. This company’s products are complementary to Berry Systems, which was acquired by Hill & Smith Limited in 1999 and serves 6 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 the barrier protection off-highway market. Optimum was quickly relocated into the premises occupied by Hill & Smith Limited and Berry Systems and has been speedily integrated into these businesses. Secondly, Varley & Gulliver acquired the business of one of its major competitors in the parapet fencing market, BACO Parapets, for a consideration of £475,000. This business has been quickly relocated and integrated on to the Varley & Gulliver site. Following the initial relocation and reorganization costs, both these acquisitions are making a positive contribution to profits. The crash barrier market served by Hill & Smith Limited and Asset International Limited continues to be very competitive, but significant market penetration was achieved by the Varioguard work zone protection system following its introduction last year. As part of our policy of continuing to expand our range of products, we are currently introducing a wire rope protection system for use in certain highway applications. Barkers and Varley & Gulliver continued to make progress throughout the year and improved financial performances were achieved. Pictures from top to bottom: Hill & Smith and Varley & Gulliver products on site in Tripoli. Pedestrian guard rail manufactured and installed by Varley & Gulliver. Varioguard — on site on the Avonmouth Bridge, a permanent central reserve barrier. Our galvanising activities now represent a market share of about 10% in the UK and it is pleasing to Picture far left: Gantry cladding manufactured and installed by Varley & Gulliver on the M1/A1 link in Yorkshire. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 7 Operational Review continued report that both sales and profits again increased compared with the previous year. With the acquisition of Ash & Lacy plc after the year end, this will consolidate our position in this market still further. automated production line which should be installed in the first quarter of 2001. The smaller activities of GRP products and residential doors performed steadily during the year. Birtley Building Products again experienced tough market conditions and following the year end we disposed of our garage door business, which we regarded as sub-critical mass, and we also acquired a residential doors business to complement our own activity in this area. The main product area of Birtley is lintels, primarily supplying the housing market, and in order to reduce our unit costs of production further we have committed to invest in a fully Pipe Supports had a mixed year with the newly established USA operation moving into profit following a greenfield start-up, but the UK operation suffered from the high value of sterling and had to counter difficulties in competing in certain traditional export markets. We are not alone in this respect and we are actively seeking solutions to the problem in a positive manner. We are committed to flexible global sourcing of our product range in order to mitigate 8 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 the effects of high sterling exchange rates. As part of our global strategy, we have increased to 87% our investment in Thailand from the initial 80.5% acquired in October 1999. We are continuing to invest in sales personnel and representation in areas of the world where our products are in demand. D & J Steels produced a creditable return and is now offering more value added processing services to its traditional customer base. Having achieved further progress again in this financial year with our varied but nevertheless more focused portfolio of businesses, we believe we are ready for a larger challenge. The successful acquisition of Ash & Lacy plc after the year end represents an excellent opportunity for us to develop our strategy of managing a balanced portfolio of businesses, some of which have growth prospects, while others in low growth areas have the potential to improve returns from rationalization measures, bolt-on acquisitions or cost reduction and continuous improvement initiatives. This culture will be consolidated into the newly acquired businesses as part of the integration process. D.L. GROVE Group Chief Executive, 23 January 2001 Pictures from top to bottom: Asset multiplate in use for railway tunnel. Asset Weholite plastic pipe at Newport, South Wales. Pictures far left from top to bottom: Loft access trap door from Birtley Building Products. Canopies manufactured by Birtley-Bainbridge for Penarth Marina in Wales. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 9 Financial Review Profit & Loss Account Balance Sheet Operating profit was £4.62m (1999: £4.78m). After Increased goodwill at £3.21m reflects the goodwill disposal of property and losses relating to sales of capitalised during the year on acquisition of the businesses, profit before interest was £5.02m (1999: BACO parapets operation and Optimum. Investment £4.24m). Interest charges remained at £0.67m in tangible assets for the year exceeds depreciation (1999: £0.68m). Tax at £0.88m (1999: £1.27m) was and as a result the net book value is now £17.47m below the standard rate due in part to relief obtained (1999: £17.05m). in respect of prior years. Stocks have risen to £7.63m (1999: £6.62m) as materials were purchased early to safeguard rising prices during 2000. Debtors at £17.69m (1999: £14.84m) were substantially higher than last year due primarily to an uplift in activity at the year end. This increase is also noticeable in trade creditors. Share capital has reduced due to the buy-back of 325,000 shares early in 2000. 10 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Cash Cash inflow from operating activities was £4.21m (1999: £8.85m), which reflects increased working capital compared with last year. After accounting for the effects of acquisitions and disposals of fixed assets and businesses, taxation and dividends, net debt increased by £0.16m. Net debt at the year end was £4.59m (1999: £4.43m). Gearing Net gearing at 30 September 2000 was 18.6% (1999: 19.2%). Following the acquisition of Ash & Lacy plc on 1 November 2000, the number of Hill & Smith shares in issue will be approximately 60m and borrowing will be approximately £75m. D.L. GROVE 23 January 2001 Pictures from top to bottom: Fencing provided by Barkers to match original Victorian railings at Eaton Park, Manchester. Varioguard in place protecting roadworks on the motorway network. Birtley special lintels provided to the Sikh temple in Bradford. Pictures far left from top to bottom: Sliding pipe support for a 1200 NS water pipe in Snowdonia from Pipe Supports. Sliding bearing in use on Killingholme CHP Plant, Humberside from Pipe Supports. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 11 Directors’ Report The Directors present their fortieth annual report together with the financial statements for the year ended 30 September 2000. Trading review The Chairman’s Statement on pages 4 and 5 and the Operational and Financial Reviews on pages 6 to 11 contain a review of the trading for the year, a statement as to the current trading position and an indication of the outlook for the future. Principal activities The principal activities of the Group companies at September 2000 are: Galvanising services. Motorway barrier, bridge parapet, security and all other types of steel fencing. Pipe supports. Steel lintels, and ancillary building products. Steel and plastic drainage pipes, tunnel and culvert structures. Steel stockholding. Post-balance sheet event On 1 November 2000 the Company’s recommended offer for Ash & Lacy plc was declared unconditional. Over 90% of the shares have been acquired and the remainder will be acquired. The basic offer valued Ash & Lacy plc at £69.6 million. The cost has been funded by share issue and bank borrowing. In the year to December 1999 Ash & Lacy plc reported a pre-tax profit of £11.126 million. Dividends The Directors recommend a final dividend of 2.10p per share (1999: 2.10p per share) to be paid, making the total distribution for the year 4.20p per share (1999: 4.20p per share). Employees Group policy is to encourage employees to become shareholders in the Company and all employees with at least six months’ continuous service qualify for invitations to join the 1995 Savings Related Share Option Scheme. The Group aims to give autonomy to all its subsidiary undertakings and to make its employees aware of the financial and economic factors affecting the performance of the employing company. This is achieved by consultative policies 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 The names and biographical details of the Directors holding office at the date of this report are shown on pages 2 and 3. Mr Marshall and Mr Burr were appointed following the acquisition of Ash & Lacy plc. As they were appointed since the date of the last Annual General Meeting they retire in accordance with the Company’s Articles of Association and a Resolution proposing their re-election will be submitted at the Annual General Meeting. The Directors retiring by rotation are Mr Knott and Mr Everett who, being eligible, offer themselves for re-election. The interests of the Directors in office at the year end and their families in the ordinary shares of the Company according to the register required to be kept by the Companies Act 1985, and their options, are disclosed in note 20 to the financial statements. Except as disclosed in note 20 to the financial statements, no Director had any interest in any material contract or arrangement in relation to the business of the Company or any of its subsidiaries during the year. Purchase of own shares On 28 January 2000, 10 February 2000 and 17 February 2000 the Company purchased 100,000; 75,000; and 150,000 of its own shares at a cost of £198,000 in total. These shares, which represented 0.8% of the issued share capital, were cancelled on 31 March 2000. 12 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Donations Charitable donations amounting to £1,200 were made in the year. There were no political contributions. Supplier payment policy Individual operating companies within the Group are responsible for establishing and adhering to appropriate policies with regard to the payment of their suppliers. The companies agree terms and conditions under which business transactions with suppliers are conducted. The Group does not follow any code or standard on payment practice but it is the Group’s policy that, provided a supplier is complying with the relevant terms and conditions, including the prompt and complete submission of all specified documentation, payment will be made in accordance with agreed terms. It is Group policy to ensure that suppliers know the terms on which payment will take place when business is agreed. The average credit period is 76 days (1999: 75 days). The Holding Company does not have trade creditors. Auditors 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, 23 January 2001 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 13 Corporate Governance The Board is pleased to report that the Company Non-executive Directors complies, except where stated otherwise, with The The Company has experienced non-executive Directors Combined Code (“the Code”) issued by the UK Listing Authority and has done so in all material respects throughout the year. Board Committees 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. The Board has established an Audit Committee, a Non-executive Directors are not appointed for Remuneration Committee and an Executive specified terms as required by the Code. Committee. The senior independent non-executive Director is The Board of Directors, presently comprising the Chairman, the Chief Executive, two executive Mr S.H.J.A. Knott. Directors and three non-executive Directors, meets Remuneration policy at least nine times a year and has a list of matters Details of the Company’s remuneration policy is specifically reserved for its decision. provided in the Board’s Report on Remuneration on A procedure is in place to allow Directors to take pages 16 to 19. independent professional advice if necessary at the Company’s expense. All Directors have free access Relations with Shareholders to the advice and services of the company secretary. Members of the Board meet regularly with 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 comprises the Chairman and the non- executive Directors, with written terms of reference. The executive Directors may also be invited to institutional 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 attend meetings. The Company’s auditors are invited shareholders and gives at least 20 working days’ to attend at least two meetings during the year. notice in advance of the meeting. At general The Remuneration Committee comprises the Chairman and the non-executive Directors and meets as and when required. It is responsible for determining the remuneration packages of the meetings, the Company counts all proxy votes and, except where a poll is called, indicates the level of proxies lodged on each resolution giving the balance for and against the resolution, after it has been dealt executive Directors and for advising on remuneration with on a show of hands. policy for senior executives. In addition, it also administers the Company’s 1995 and 1999 executive share option schemes. All Directors are required to stand for re-election at the first Annual General Meeting following their Internal Control The Board of Directors has overall responsibility for the Group’s system of internal controls and for monitoring its effectiveness. appointment and at least every three years by In order to discharge its responsibility in a manner rotation thereafter. which ensures compliance with laws and regulations 14 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 and promotes effective and efficient operations, the nothing which, in the opinion of the Board, indicated Board of Directors has established an organisational that the system was inappropriate or unsatisfactory. structure with clear operating procedures, lines of responsibility, and delegated authority. In particular, there are clear procedures for: — capital investments, with detailed appraisal, authorisation and post-investment review; — financial reporting, within a comprehensive financial planning and accounting framework; — monitoring of business risks, with key risks identified and reported to the Board and Audit Committee. Responsibility for monitoring the system of internal financial control is delegated by the Board to the Audit Committee which has the following processes to discharge its responsibility: — whilst there is no formal internal audit function, reports covering financial control weaknesses at specific operations are produced on an ad hoc basis by the Group financial controller and are reviewed by the Audit Committee; — recommendations made by the external auditors as a result of the annual audit process are reviewed by the Audit Committee; — issues identified by the internal and external audit processes are discussed with management and action plans put in place to address the issues. The Chairman of the Audit Committee reports the outcome of its meetings to the Board and the Board receives the minutes of all Audit Committee meetings. Formal guidance as to the review of non-financial internal control, as required by the Code, included transitional rules that did not require full compliance with that guidance until December 2000. During the year ended 30 September 2000 the Board undertook a formal risk review to address the wider non-financial issues facing the Group. This was based on each operation producing a risk register identifying their key risks, the probability of those risks occurring, their impact if they do occur and the actions being taken to manage those risks to the desired level. This information was then passed up on a filter basis culminating in the production of a Group risk register. This identifies the key risks facing the Group across all its businesses under a number of generic risk areas. These risks are discussed at Executive Committee meetings and regular monitoring reports are received giving an update on progress. The Board reviews the Group risk register and receives regular reports from the Executive Directors on any major problems that have occurred and how the risks have changed since their initial identification. The Board reviews the role of insurance in managing risks across the Group. The Directors report that full procedures are in place to achieve compliance with the internal control aspects of the Code for the next financial period. Going Concern The Directors report that they have undertaken After making enquiries, the Directors have a during the year a formal review of the effectiveness reasonable expectation that the Company and its of the Group’s system of internal financial controls as subsidiaries have adequate resources to continue in envisaged by the Code. It must be recognised, however, that such a system can provide only reasonable and not absolute assurance and in that context, the review revealed operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 15 Board’s Report on Remuneration The Remuneration Committee positions in comparable companies. The salaries are The Remuneration Committee comprises the reviewed annually as at 1 October or when a Chairman, Mr D.S. Winterbottom, and the three change of responsibilities occurs. Benefits in kind non-executive Directors, Mr S.H.J.A. Knott, who provided are in the main a company car and fuel chairs the Committee, Mr H.C. Marshall and and private health care insurance. Mr R.E. 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. Remuneration Policy Performance related cash bonuses There is a performance related cash bonus scheme in operation for the executive 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 The remuneration policy is set by the Board as a salary. whole with the Remuneration Committee then working within the policy to set individual executive remuneration. 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 The basic object of the policy is to ensure that the company of which Mr Grove is the chairman, GIL, in remuneration packages offered are designed to attract addition to receiving an annual fee for permitting Mr and retain executive Directors and key senior Grove to provide his services to the Company may also executives of the right calibre and motivate them to receive an annual performance related cash bonus make the maximum possible contribution to the Group dependent upon the amount of increase in the Group and to increase shareholder value. The remuneration Operating Profit (as therein defined) in accordance with packages consist of a basic salary and certain benefits the formula set out in that agreement. That bonus is in kind; performance related cash bonuses, share capped at 1.5 times the sum of the annual salary options and pension benefits. In framing its payable to Mr Grove under his service agreement and remuneration policies, full consideration has been given the annual fee payable to GIL. to Section B of the Code. The main elements of the remuneration package for executive Directors are: Share options The Company has three share option schemes under which options can be granted to executive Basic salary and benefits in kind Directors and senior executives. Two of those Basic salaries are determined by the Remuneration schemes are executive share option schemes (“the Committee, taking into account the performance of 1995 Executive Share Option Scheme” and “the each individual and the rates of salary for similar 1999 Non-Approved Executive Share Option 16 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Scheme”) which are administered by the Details of options held by the Directors are shown in Remuneration Committee and the other scheme is a note 20 on page 42. savings related share option scheme (“the 1995 Savings Related Share Option Scheme”). Directors’ pension entitlement Mr H.C. Everett is the only executive Director to Options granted under the two executive share option participate in the Hill & Smith Group Pension and schemes cannot be granted at less than market value Assurance Scheme which provides pensions and and, subject to limited exceptions, can only be other benefits within the Inland Revenue limits. The exercised if specified performance criteria are met. The scheme provides an executive Director, at normal performance criteria currently set by the Remuneration retirement age, 65, with a pension of two-thirds of Committee under both executive share option his final pensionable salary, subject to completion of schemes are that options may only be exercised if the a sufficient number of years’ service. In accordance growth in earnings per share of the Company with policy formulated many years ago, pensionable calculated on an IIMR basis over a 3 year period is not salary includes the annual performance related less than the increase in the Retail Price Index plus 6 bonus. Whilst the practice does not comply with the per cent over the same period. Combined Code, the Remuneration Committee is of 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 2000 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 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 opinion that as such bonus forms an integral part of an executive Director’s overall package, it is appropriate for it to continue to be pensionable. Dependants of executive Directors are eligible for a pension of two-thirds of the pension entitlement and the payment of a lump sum in the event of the death of the Director whilst in service. Service Agreements The Chairman, Mr D.S. Winterbottom, and two of the 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 The 1995 Savings Related Share Option Scheme is consideration of GIL permitting Mr Grove to provide open to all employees, including executive Directors, his services to the Company it receives from the who have completed 6 months’ continuous service. Company an annual fee and a performance related Under this scheme the Company can, if it thinks fit, cash bonus. grant options at a price up to 20 per cent below the The Chairman’s service agreement is terminable by market price. On the last occasion — January 1999 either party giving to the other 12 months’ notice to — on which options were granted under this terminate the same but if a Change in Control (as scheme they were granted at market value. that expression is defined in the service agreement) Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 17 Board’s Report on Remuneration continued of the Company takes place the Group Chairman a Change in Control, the service agreement is may at any time within the 12 month period terminated by Mr Grove or is terminated by the immediately following such Change in Control Company without proper notice, Mr Grove is entitled terminate the agreement by 90 days’ notice instead to a sum equal to 18 months’ salary. 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 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. Remuneration of Chairman and non-executive Directors 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. Notice to be given by the Company must not be The three non-executive Directors each receive an less than 18 months. On termination of the service annual fee which is agreed by the other members of agreement by the Company without proper notice, the Board following a recommendation by the Mr Everett is under a duty to mitigate any loss Chairman. unless such termination is effected within the period of 12 months following a Change in Control. Mr C. Burr, who joined the Board on 2 November 2000, continues to operate under the terms of his contract with Ash & Lacy plc, prior to adoption of a new contract. 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 18 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Directors’ Remuneration Details — Year ended 30 September 2000 The remuneration in respect of each Director for the year ended 30 September 2000 was as follows: Fees/ Salary £000 33 110 60 Chairman: (Non-executive) D.S. Winterbottom Executive: D.L. Grove H.C. Everett Non-executive: John G. Silk (retired March 1999) — S.H.J.A. Knott R.E. Richardson 15 15 233 Directors’ pensions Pension benefits earned by the Directors Age at year end H.C. Everett 56 Notes to pension benefits Performance Total for Total for Benefits related bonus £000 £000 2000 £000 1999 £000 — — 11 — — — 11 — — — — — — — 33 110 71 — 15 15 244 33 228 84 11 15 15 386 Director’s Increase in contributions accrued pension Accumulated total accrued in year £000 4 during the year pension at year end £000 2 £000 23 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: S.H.J.A. KNOTT Chairman, Remuneration Committee 23 January 2001 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 19 Other Information Interests of Directors and substantial shareholders Of G. Hampson Silk’s ordinary shares, 3,340,959 are either registered in his own name or his wife’s name. Directors’ shareholdings have varied between Of the remaining ordinary shares, 730,876 are 30 September 2000 and 15 January 2001 as registered in the name of a private limited company of follows: As a consequence of the acquisition of Ash & Lacy plc the following shares in Hill & Smith Holdings PLC were acquired by Directors with effect from 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. 2 November 2000. D.L. Grove S.H.J.A. Knott H.C. Marshall C.J. Burr H.C. Everett 41,400 800,000 65,220 62,628 913 Of P.J. Hampson Silk’s ordinary shares, 3,340,960 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 The Company has been notified of the following discretionary trust of which he is a trustee. As far as the Directors are aware, there were no other notifiable shareholdings according to the Company’s share register on 15 January 2001. The shares in issue on 15 January 2001 were 59,755,682. Further shares will be issued in due course to non-assenting shareholders of Ash & Lacy plc who at 15 January have not accepted the Company’s offer. substantial shareholdings of 3% or more of the issued share capital on 15 January 2001. Ordinary % of issued shares share capital G. Hampson Silk 4,125,168 P.J. Hampson Silk 4,125,169 Funds Managed by: Close Investment 1997 Fund Cayzer Trust Friends Ivory & Sime plc 9,176,733 5,155,738 2,773,510 Flemming Investment Trust Management 2,500,000 6.9 6.9 15.4 8.6 4.6 4.2 Close Securities Limited has granted an option to D.L. Grove, see note 20. 20 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Statement of Directors’ Responsibilities Company law requires the Directors to prepare prepare the financial statements on the going financial statements for each financial year which concern basis unless it is inappropriate to give a true and fair view of the state of affairs of the presume that the Group will continue in Company and Group and of the profit or loss for business. that period. In preparing those financial statements, the Directors are required to: The Directors are responsible for keeping proper accounting records which disclose with reasonable select suitable accounting policies and then accuracy at any time the financial position of the apply them consistently; Company and to enable them to ensure that the make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; 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 fraud and other irregularities. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 21 (cid:2) (cid:2) (cid:2) (cid:2) Auditor’s Report to the members of Hill & Smith Holdings PLC Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of the information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 September 2000 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. KPMG Audit Plc Chartered Accountants Registered Auditor 23 January 2001 2 Cornwall Street Birmingham B3 2DL We have audited the financial statements on pages 23 to 45 and the detailed information set out on page 19 of the Board’s Report on Remuneration. Respective responsibilities of Directors and auditors The Directors are responsible for preparing the Annual Report. As described on page 21, this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services Authority, and by our profession’s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act. We also report to you if, in our opinion, the Directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding Directors’ remuneration and transactions with the Company is not disclosed. We review whether the statement on pages 14 and 15 reflects the Company’s compliance with the seven provisions of the Combined Code specified for our review by the Financial Services Authority, and we report if it does not. We are not required to form an opinion on the effectiveness of the Company’s corporate governance procedures or its internal controls. 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 statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. 22 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Consolidated Profit & Loss Account for the year ended 30 September 2000 Turnover Cost of sales Gross profit Distribution costs Administrative expenses Operating profit/(loss) Profit on sale of property Loss on sale of net assets Related goodwill Loss on sale of businesses Profit/(loss) on ordinary activities before interest Net interest Profit on ordinary activities before tax Tax on profit on ordinary activities Profit for the financial year Dividends on equity shares Retained profit for the year Earnings per ordinary share: Basic Diluted IIMR Notes 1 1 2 3 6 7 8 2000 Total £000 1999 Continuing £000 1999 Discon- tinued £000 1999 Total £000 58,858 (42,114) 56,505 (40,350) 5,435 (4,389) 61,940 (44,739) 16,744 16,155 1,046 17,201 (3,021) (9,103) 4,620 464 (64) — (64) 5,020 (668) 4,352 (879) 3,473 (1,621) 1,852 8.96p 8.93p 7.92p (2,583) (8,752) 4,820 — — — — (343) (745) (42) — (925) 386 (539) 4,820 (581) (2,926) (9,497) 4,778 — (925) 386 (539) 4,239 (677) 3,562 (1,269) 2,293 (1,635) 658 5.82p 5.81p 7.01p Turnover and operating profit for the year ended 30 September 2000 were derived wholly from continuing operations. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 23 Consolidated Balance Sheet as at 30 September 2000 Fixed assets Intangible assets Tangible assets Investments Current assets Property held for realisation Stocks Debtors Cash at bank and in hand 9 10 11 12 13 14 Creditors: Amounts falling due within one year 15 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 Minority interest — equity Net assets per share 16 18 19 21 21 21 21 Notes £000 £000 £000 £000 2000 1999 — 7,632 17,689 288 25,609 (22,302) 906 6,624 14,841 1,291 23,662 (18,488) 3,213 17,470 1,365 22,048 3,307 25,355 (305) (330) 24,720 9,654 135 1,781 238 12,876 24,684 36 24,720 63.92p 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 — 23,080 59.28p These financial statements were approved by the Board of Directors on 23 January 2001 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 2000 Company Balance Sheet as at 30 September 2000 Fixed assets Tangible assets Investments Current assets Property held for realisation Debtors Creditors: Amounts falling due within one year Net current liabilities 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 Notes £000 £000 £000 £000 2000 1999 10 11 12 14 15 16 18 19 21 21 21 — 2,099 2,099 (7,433) 30 19,886 19,916 (5,334) 14,582 — (138) 14,444 9,654 135 238 4,417 14,444 906 1,994 2,900 (7,943) 44 20,863 20,907 (5,043) 15,864 (1,000) (313) 14,551 9,734 133 156 4,528 14,551 These financial statements were approved by the Board of Directors on 23 January 2001 and were signed on its behalf by: D.S. WINTERBOTTOM Director D.L. GROVE Director Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 25 Consolidated Cash Flow Statement for the year ended 30 September 2000 Net cash inflow from operating activities Notes 25 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 fixed assets Sale of fixed assets Sale of properties held for realisation £000 2 (589) (82) (1,989) 144 1,370 2000 £000 4,213 1999 £000 £000 8,851 (669) (386) 14 (635) (56) (1,987) 3,728 444 (677) (748) (475) 2,185 Acquisitions and disposals Purchase of businesses Sale of businesses net of costs of disposal 27 (665) (64) 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 (Decrease)/increase in cash Reconciliation of net cash flow to movement in net debt (Decrease)/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 1999 Net debt as at 30 September 2000 (729) (1,632) 322 (4,072) (3,750) (3,750) 3,878 128 (284) (156) (4,433) (4,589) 4 (378) (3,500) (198) 26 26 26 26 26 26 26 (1,175) (377) — 189 (1,608) (406) (1,552) (831) 7,228 (1,825) 5,403 5,403 1,419 6,822 — 6,822 (11,255) (4,433) 26 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Other Primary Statements Consolidated Statement of Total Recognised Gains and Losses for the year ended 30 September 2000 Profit for the financial year Realised gain/(unrealised deficit) on revaluation of properties Exchange differences on the retranslation of net investments Total recognised gains and losses relating to the financial year 2000 £000 3,473 126 (54) 3,545 1999 £000 2,293 (373) 4 1,924 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 2000 Profit/(loss) for the financial year Dividends Exchange differences Revaluation deficit New share capital subscribed Goodwill taken to profit and loss account on disposal Purchase of own shares Net increase/(reduction) in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds Group Company 2000 £000 3,473 (1,621) 1,852 (54) — 4 — (198) 1,604 23,080 24,684 1999 £000 2,293 (1,635) 658 4 (373) — (386) (406) (503) 23,583 23,080 2000 £000 1,708 (1,621) 87 — — 4 — (198) (107) 14,551 14,444 1999 £000 (4,030) (1,635) (5,665) — — — — (406) (6,071) 20,622 14,551 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 27 Principal Accounting Policies The following accounting policies have been applied through the profit and loss account as part of the consistently in dealing with items which are profit or loss on disposal. considered material in relation to the Group’s financial statements: Basis of preparation Purchased goodwill (representing the excess of the fair value of the consideration given over the fair value of the separable net assets acquired) arising on consolidation in respect of acquisitions since 1 The financial statements have been prepared in October 1998 is capitalised. Positive goodwill is accordance with applicable accounting standards amortised by equal annual instalments over its and under the historical cost accounting rules, estimated useful life. modified to include the revaluation of 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 2000. 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. Goodwill and negative goodwill Purchased goodwill (both positive and negative) arising on consolidation in respect of acquisitions before 1 October 1998, when FRS10 Goodwill and intangible assets was adopted, was written off to reserves in the year of acquisition. In accordance The Directors consider each acquisition separately for the purpose of determining the amortisation period for any goodwill that arises. 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. 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. with transitional rules of FRS 10, this treatment has Foreign currencies continued to be applied to such acquisitions. When Transactions in foreign currencies are recorded using a subsequent disposal occurs any related goodwill the rate of exchange ruling at the date of the previously written off to reserves is written back transaction. Any gain or loss on translation arising 28 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 from a movement in exchange rates subsequent to benefits based on final pensionable pay. The assets of the date of a transaction is included as an exchange the scheme are held separately from those of the gain or loss in the profit and loss account. Group. Contributions to the scheme are charged to the The assets and liabilities of overseas subsidiary undertakings are translated at the closing exchange rate. Profit and loss accounts of such undertakings profit and loss account so as to spread the cost of pensions over employees’ working lives with the Group. are consolidated at the average exchange rate Stocks during the year and the adjustment to year end rates Stocks are stated at the lower of cost and net is taken directly to reserves. Exchange differences realisable value. In determining the cost of raw arising on the retranslation of the opening net assets materials, consumables and goods purchased for of foreign subsidiaries, foreign currency loans used resale, the FIFO method is used. Cost for work in for overseas investment and transactions executed progress and finished goods comprises direct solely for the purpose of hedging foreign currency materials, direct labour and an appropriate asset exposure are taken directly to reserves. proportion of attributable overheads. Government grants Taxation Capital based government grants are included within The charge for taxation is based on the result for the accruals and deferred income in the balance sheet and year and takes into account taxation deferred credited to operating profit over the estimated useful because of timing differences between the treatment economic lives of the assets to which they relate. of certain items for taxation and accounting Leases Assets acquired under finance leases are capitalised and the outstanding future lease obligations are purposes. Provision is made for deferred tax only to the extent that it is probable that an actual liability will crystallise. shown in creditors. Operating lease rentals are Turnover charged to the profit and loss account on a straight Turnover represents the amounts (excluding value line basis over the period of the lease. added tax) derived from the provision of goods and services to third party customers. Pension Costs The Group contributes into two defined contribution pension 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. The Group operates a pension scheme providing Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 29 Segment operating profit Loss on sale of discontinued operations Profit on sale of fixed assets Segment profit before interest and taxation Common costs Group profit before interest and taxation Net assets Segment net assets Unallocated net liabilities Total net assets Notes to the Financial Statements 1. Segmental information Turnover Total sales Inter-segment sales Galvanising Services 2000 1999 £000 £000 Engineering Products 2000 £000 1999 £000 10,582 (3,695) 6,887 9,430 (3,482) 5,948 51,971 — 51,971 55,992 — 55,992 2000 £000 62,553 (3,695) 58,858 Total 1999 £000 65,422 (3,482) 61,940 1,603 1,275 3,697 4,267 5,300 5,542 — — — — (64) 464 (539) — 1,603 1,275 4,097 3,728 (64) 464 5,700 (680) (539) — 5,003 (764) 5,020 4,239 7,324 7,900 22,605 20,755 29,929 28,655 (5,209) 24,720 (5,575) 23,080 Discontinued activities in 1999 related 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 Rest of world Turnover Operating profit 2000 £000 56,255 2,603 58,858 1999 £000 61,570 370 61,940 2000 £000 4,548 72 4,620 1999 £000 4,888 (110) 4,778 30 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 1. Segmental information continued Turnover by geographical destination is as follows: UK Rest of Europe Asia America Middle East Africa 2. Net interest On bank loans and overdrafts On all other loans Finance charges payable in respect of finance leases and hire-purchase contracts Interest payable and similar charges Less: interest receivable 3. Profit on ordinary activities before taxation Profit on ordinary activities before taxation is stated after charging: Auditors’ remuneration (including Company £10,000 (1999: £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 Loss on disposal of fixed assets After crediting: Profit on disposal of fixed assets Income from fixed asset investments 2000 £000 49,299 1,760 3,158 4,457 141 43 58,858 2000 £000 448 140 82 670 (2) 668 2000 £000 78 1,634 188 150 227 368 9 141 4 — 43 1999 £000 54,810 1,662 4,501 766 25 176 61,940 1999 £000 495 140 56 691 (14) 677 1999 £000 75 1,736 144 60 326 270 14 37 — 34 18 Fees paid to KPMG Audit Plc and its associates for non-audit services amounted to £39,000 (1999: £175,000). Non-audit fees comprise accountancy, tax and other advisory services in connection with acquisitions and disposals, tax compliance services and other services. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 31 Notes to the Financial Statements 4. 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 page 19. 5. Staff numbers and costs The average number of persons employed by the Group (including Directors) was: Production Administration Sales and distribution The aggregate payroll costs of these persons were as follows: Wages and salaries Social security costs Other pension costs/(credit) 6. Taxation UK corporation tax at 30% (1999: 30.5%) Deferred taxation Adjustments relating to an earlier year — corporation tax 7. Dividends Equity shares: Interim dividend payable of 2.10p per share (1999: 2.10p) Final dividend proposed of 2.10p per share (1999: 2.10p) 2000 Number 548 148 74 770 2000 £000 13,553 1,094 (61) 14,586 2000 £000 1,155 (26) (250) 879 2000 £000 810 811 1,621 1999 Number 465 184 80 729 1999 £000 13,482 1,097 25 14,604 1999 £000 1,118 (29) 180 1,269 1999 £000 818 817 1,635 32 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 8. Earnings per share The basic earnings per share is arrived at by dividing the profit after tax of £3.473m (1999: £2.293m) by 38,777,907 shares (1999: 39,389,495), 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 £3.473m (1999: £2.293m) by 38,897,976 shares (1999: 39,457,503), 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 £3.073m (1999: £2.765m) divided by 38,777,907 shares (1999: 39,389,495), being the weighted average number of ordinary shares in issue during the year. The reconciliation to basic earnings per share is as follows: Basic earnings per share Profit on sale of property Loss on sale of businesses Tax effect on non-operating exceptional items IIMR earnings per share 9. Intangible fixed assets Group Cost At beginning of year Arising on acquisitions during year At end of year Amortisation At beginning of year Charged in year At end of year Net book value At end of year 2000 Pence 8.96 (1.20) 0.16 — 7.92 1999 Pence 5.82 — 1.37 (0.18) 7.01 Goodwill 2000 £000 2,886 537 3,423 60 150 210 1999 £000 — 2,886 2,886 — 60 60 3,213 2,826 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 33 Notes to the Financial Statements 10. Tangible fixed assets Land and buildings Freehold £000 Long leasehold £000 Plant, machinery and vehicles £000 7,107 168 — — — 7,275 124 89 — — 213 7,062 6,983 400 — — — — 400 16 7 — — 23 377 384 19,878 2,040 53 (1,871) 26 20,126 10,191 1,726 (1,823) 1 10,095 10,031 9,687 Group Total £000 27,385 2,208 53 (1,871) 26 27,801 10,331 1,822 (1,823) 1 10,331 17,470 17,054 Company Plant, machinery and vehicles £000 102 13 — (23) — 92 58 18 (14) — 62 30 44 Cost or valuation At beginning of year Additions Acquisitions during the year Disposals Exchange differences At end of year Depreciation At beginning of year Charge for the year Disposals Exchange differences At end of year Net book value At 30 September 2000 At 30 September 1999 Certain of the Group’s properties were 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 2000 £000 3,225 2,123 2,005 322 7,675 6,153 (1,158) 4,995 1999 £000 3,225 2,123 2,005 154 7,507 6,153 (1,125) 5,028 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 (1999: £3,200,000). Included in the net book value of plant, machinery and vehicles is £1,500,000 (1999: £1,402,000) 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 £831,000 (1999: £224,000) and accumulated depreciation of £63,000 (1999: £8,000). 34 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 11. Fixed asset investments Group Cost and net book value At beginning of year Additions Repaid during year At end of year Trade investments £000 950 65 — 1,015 Loans £000 450 — (100) 350 Total £000 1,400 65 (100) 1,365 As part of the arrangements for the disposal of certain subsidiary undertakings, 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 with the permission of that company’s bankers following the approval of the company’s accounts for the year ended 30 April 1999. 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 £100,000 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 one instalment on 1 May 2001. Company Cost At beginning of year Repaid during year At end of year Provisions At beginning of year At end of year Net book value At 30 September 2000 At 30 September 1999 Shares in Group undertakings £000 Loans to Group undertakings £000 Trade investments £000 15,219 — 15,219 3,875 3,875 11,344 11,344 8,119 (877) 7,242 — — 7,242 8,119 950 — 950 — — 950 950 Other Loans £000 450 (100) 350 — — 350 450 Total £000 24,738 (977) 23,761 3,875 3,875 19,886 20,863 A list of the principal Group businesses is given on page 48. All of the Group’s subsidiaries at 30 September 2000 are wholly owned except for Pipe Supports (Asia) Limited, a company incorporated in Thailand, in which the Group has an equity interest of 87%. 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. 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. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 35 Notes to the Financial Statements 12. Properties held for realisation Group Company 13. Stocks Raw materials and consumables Work in progress Finished goods and goods for resale 14. Debtors Trade debtors Amounts owed by subsidiary undertakings Corporation tax Advance corporation tax Other debtors Prepayments and accrued income 2000 £000 — 1999 £000 906 2000 £000 — 2000 £000 2,764 863 4,005 7,632 Group Group Company 2000 £000 16,481 — 140 — 281 787 17,689 1999 £000 13,341 — 459 134 94 813 14,841 2000 £000 — 1,671 327 — — 101 2,099 1999 £000 906 1999 £000 3,176 1,544 1,904 6,624 1999 £000 — 1,505 271 — — 218 1,994 Trade debtors include £65,000 (1999: £20,000) due after more than one year. 15. Creditors: amounts falling due within one year Group Company Debenture loan (see note 16) Bank loans and overdrafts (see note 16) Obligations under finance leases and hire-purchase contracts (see note 16) Trade creditors Amounts owed to Group undertakings Corporation tax Other taxation and social security Accruals and deferred income Dividends proposed 2000 £000 — 4,122 468 12,221 — 801 1,612 1,457 1,621 22,302 1999 £000 1,000 1,500 381 10,065 — 734 1,194 1,979 1,635 18,488 2000 £000 — 5,380 — — 85 — 4 343 1,621 7,433 1999 £000 1,000 4,108 — — 31 18 — 1,151 1,635 7,943 36 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 16. Creditors: amounts falling due after more than one year Bank loans and overdrafts Obligations under finance leases and hire-purchase contracts Accruals and deferred income Group Company 2000 £000 — 287 18 305 1999 £000 2,375 468 — 2,843 2000 £000 — — — — 1999 £000 1,000 — — 1,000 The maturity of financial liabilities entered into by the Group and the Company are as follows: Debenture loan Amounts due within one year 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 2000 £000 1999 £000 2000 £000 1999 £000 — 1,000 — 1,000 4,122 1,500 5,380 4,108 — — — 4,122 468 103 184 287 755 1,500 875 2,375 3,875 381 193 275 468 849 — — — 5,380 — — — — — 500 500 1,000 5,108 — — — — — The debenture loan comprised 14% first mortgage debenture stock which was secured on freehold and leasehold properties of certain of the Company’s subsidiaries. The Company has redeemed, in whole, the debenture stock at par on 30 September 2000. 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. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 37 Notes to the Financial Statements 17. 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. Following the acquisition of Ash & Lacy plc on 1 November 2000 the Group has locked into fixed interest rates on part of its borrowings. Currency exposure The Group is subject to fluctuations in exchange 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. F i n a n c i a l a s s e t s ( b ) The Group’s financial assets, excluding short-term debtors, consist mainly of a cash surplus held at bank in the current account and fixed asset investments as detailed in Note 11. 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. 38 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 17. Financial instruments continued F i n a n c i a l l i a b i l i t i e s ( c ) 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 was a fixed rate mortgage debenture repaid 30 September 2000. 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 at 30 September 2000 Sterling at 30 September 1999 Floating rate financial liabilities £000 Fixed rate financial liabilities £000 4,122 3,875 755 1,849 Total £000 4,877 5,724 Fixed rate financial liabilities Weighted average period for which rate is fixed (years) Weighted average interest rate % Sterling at 30 September 2000 — finance leases and hire-purchase agreements Sterling total at 30 September 1999 7.8 11.2 2.1 2.0 ( d ) M a t u r i t y p ro 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 16 to the financial statements. At 30 September 2000 the Group had the following undrawn committed facilities with an average maturity of 11/2 months, in respect of which all conditions precedent had been met: Undrawn committed borrowing facilities Expiring in one year or less 2000 £000 1999 £000 16,000 9,000 F a i r v a l u e s ( e ) At 30 September 2000 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. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 39 Notes to the Financial Statements 18. Provisions for liabilities and charges Group At beginning of year Utilised during year Credit for the year At end of year Pensions obligations (See Note 24) £000 313 (175) — 138 Deferred taxation £000 218 — (26) 192 Total £000 531 (175) (26) 330 The amounts provided for deferred taxation and the amounts not provided are set out below: Difference between accumulated depreciation and amortisation and capital allowances Other timing differences 2000 Provided Unprovided £000 £000 Provided £000 1999 Unprovided £000 222 (30) 192 681 (47) 634 246 (28) 218 588 (110) 478 Company At beginning of year Utilised during year At end of year Pension obligations £000 313 (175) 138 40 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 19. Called up share capital Authorised 48,000,000 Ordinary shares of 25p each Allotted, called up and fully paid 38,616,489 Ordinary shares of 25p each (1999: 38,934,016) 2000 £000 1999 £000 12,000 12,000 9,654 9,734 The Company purchased 100,000; 75,000; 150,000 of its own shares on on 28 January 2000; 10 February 2000; 17 February 2000, which were subsequently cancelled on 31 March 2000. The aggregate cost of purchase was £198,000. During the year 7,473 ordinary shares were allotted under Share Option Schemes (1999: no shares). The authorised share capital was increased on the 27 October 2000 to 80,000,000 shares of 25p each. Options outstanding at 30 September 2000 were: 1985 Executive Share Option Scheme: 53,000 ordinary shares 106,773 ordinary shares 1995 Executive Share Option Scheme: 132,265 ordinary shares 297,000 ordinary shares Option price £000 95.063p 112.500p Date exercisable £000 01.02.95 28.01.97 Expiry date £000 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: 3,446 ordinary shares 9,960 ordinary shares 1995 Savings Related Share Option Scheme: 223,584 ordinary shares 388,309 ordinary shares 90.000p 90.000p 01.04.00 01.04.02 01.10.00 01.10.02 66.000p 41.330p 01.04.02 01.03.04 01.10.02 01.09.04 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 41 Notes to the Financial Statements 20. 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 Directors’ options H.C. Everett 1995 Savings Related Share Option Scheme 1995 Executive Share Options Scheme 1999 Unapproved Executive Share Option Scheme 30 September 30 September 1999 15,690 — 502,494 78,712 479,545 2000 15,690 — 502,494 78,712 479,545 At 30 Granted during year September 1999 At 30 Lapsed during September 2000 year Exercise Date price exercisable Expiry date 6,181 16,259 17,600 10,000 — — — — — — — — 6,181 16,259 66.000p 41.330p 01.04.02 01.10.02 01.03.04 01.09.04 17,600 113.597p 10,000 68.500p 20.02.99 20.02.06 04.08.02 04.08.09 20,000 — — 20,000 68.500p 04.08.02 04.08.06 D.L. Grove 1999 Unapproved Executive Share Option Scheme 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 (1999: 1,844,183 shares). The market price of the Company’s shares at 30 September 2000 was 64.0p. The market price for the year varied between 51.5p and 74.5p. 42 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 21. Share premium and reserves Group At beginning of year Retained profit for the year Exchange adjustments Realised on disposal Shares issued Purchase of own shares At end of year Company At beginning of year Retained profit for the year Shares issued Purchase of own shares At end of year Share premium Revaluation reserve account £000 £000 Capital redemption reserve £000 Profit and loss account £000 133 — — — 2 — 135 1,907 — — (126) — — 1,781 156 — — — — 82 238 11,150 1,852 (54) 126 — (198) 12,876 Share Capital premium redemption reserve account £000 £000 Profit and loss account £000 133 — 2 — 135 156 — — 82 238 4,528 87 — (198) 4,417 The cumulative amount of positive goodwill resulting from acquisitions in earlier financial years which has been written off is £2,800,000 (1999: £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 (1999: £836,000). 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 profit dealt with in the financial statements of the holding company of £1,708,000 (1999: loss of £4,030,000). 22. Contingent liabilities The Company has guaranteed the bank loans and overdrafts of its subsidiaries; the amount outstanding at the year end was £2,244,000 (1999: £305,618). The Group had guarantees outstanding to a bank in respect of performance bonds of £142,000 (1999: £802,000) and a Customs and Excise counter indemnity of £20,000 (1999: £6,000). 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 2000 43 Notes to the Financial Statements 23. Commitments ( a ) Capital commitments at the end of the financial year, for which no provision has been made, are as follows: Group Company Contracted 2000 £000 1,198 1999 £000 40 2000 £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 24. Pension scheme 2000 1999 Land and buildings £000 17 25 339 381 Other £000 12 177 — 189 Land and buildings £000 — 28 339 367 1999 £000 — Other £000 17 206 — 223 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 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 credit for the year was £61,000 (1999: cost of £25,000) net of a provision release of £175,000 (1999: £104,000). There is a provision for pension costs remaining of £138,000 (1999: £313,000). This provision is being released to profit in line with actuary’s advice received. The next actuarial valuation is being carried out as at 5 April 2000 and the result will be reflected in next year’s financial statements. 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. 44 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 25. Reconciliation of operating profit to operating cash flows Operating profit Depreciation, amortisation and impairment charges Cash flow relating to reorganisation provisions (Increase)/decrease in stocks (Increase)/decrease in debtors Increase/(decrease) in creditors Decrease in pension provision Net cash inflow from operating activities 26. 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 1,291 — 1,291 (2,375) (2,500) (849) (5,724) (4,433) (1,003) (2,747) (3,750) 1,000 2,500 378 3,878 128 2000 £000 4,620 1,972 — (725) (3,145) 1,666 (175) 4,213 Other non-cash changes £000 — — — 1,375 (1,375) (284) (284) (284) 1999 £000 4,778 1,922 (147) 2,259 1,639 (1,496) (104) 8,851 At end of year £000 288 (2,747) (2,459) — (1,375) (755) (2,130) (4,589) 27. Acquisitions of businesses The book value and fair value of businesses acquired during the year ended 30 September 2000 amounted to £128,000, comprising tangible fixed assets of £53,000, net current assets of £111,000 and a minority interest of £36,000. The cash outflow including expenses was £665,000. The resulting goodwill of £537,000 was capitalised and will be written off over 20 years which the Directors consider to be the minimum period expected to benefit from these acquisitions. The contribution of these acquisitions to operating cash flow was not significant in relation to group activity. The acquisitions were integrated immediately into existing operations and so no separate disclosure is possible concerning their turnover and operating profit since acquisition. 28. Post-balance sheet event On 1 November 2000 the Company’s recommended offer for Ash & Lacy plc was declared unconditional. Over 90% of the shares have been acquired and the remainder will be acquired. The basic offer valued Ash & Lacy plc at £69.6 million. The cost has been funded by share issue and bank borrowing. In the year to December 1999 Ash & Lacy plc reported a pre-tax profit of £11.126 million. Following the acquisition the number of Hill & Smith shares in issue will be approximately 60 million, and borrowings will be approximately £75 million. Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 45 Five year record 1996 £000 1997 £000 1998 £000 1999 £000 2000 £000 Turnover 80,683 81,281 76,497 61,940 58,858 Operating profit 3,772 2,698 3,628 4,778 4,620 Profit/(loss) before taxation 2,922 1,216 (1,566) 3,562 4,352 Taxation 622 205 378 1,269 879 Profit/(loss) after taxation 2,300 1,011 (1,944) 2,293 3,473 Shareholders’ funds 27,966 26,112 23,583 23,080 24,684 Dividends per ordinary share 6.20p 4.20p 4.20p 4.20p 4.20p 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. 46 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Notice of meeting The Copthorne Notice is hereby given that the 40th Annual General Meeting of Hill & Smith Holdings PLC will be held at The Copthorne Hotel, The Waterfront, Level Street, Brierley Hill, DY5 1UR on Monday 5 March 2001 at 12.30 p.m. for the following purposes: 1. To receive and adopt the Directors’ report and the financial statements for the year ended 30 September 2000 together with the auditor’s report thereon. 2. To approve the payment of the proposed final dividend of 2.1p per share on 9 April 2001. 3. To re-elect Mr H.C. Marshall as a Director. 4. To re-elect Mr C.J. Burr as a Director. 5. To re-elect Mr S.H.J.A. Knott as a Director. 6. To re-elect Mr H.C. Everett as a Director. 7. To reappoint KPMG Audit Plc as auditor and to authorise the Directors to determine the auditor’s remuneration. 1 February 2001 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 3 March 2001 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 3 March 2001 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 Registrars at P.O Box 1075, Bristol, BS99 3ZZ 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 Monday 5 March 2001. The Copthorne Merry Hill Wolverhampton A 4 1 2 3 A461 A461 to Junction 9, M6 A 4 9 1 Brierley Hill Stourbridge 1 6 4 A A456 Dudley 1 6 4 A A 4 1 2 3 A 4 5 9 Merry Hill Centre A 4 0 3 6 A4123 to Junction 2, M5 A458 A458 A456 A491 to Junction 4, M5 A456 to Junction 3, M5 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 47 Principal Group Businesses following the acquisition of Ash & Lacy plc Building and Construction Products INFRASTRUCTURE PRODUCTS GROUP Eurogrid Limited*/Access Design & Asset International Limited† Stephenson Street, Newport, Gwent, NP9 0XH Tel: (01633) 273081 Fax: (01633) 281301 Email: sales@assetint.co.uk Website: www.assetint.co.uk Netherton Street, Wishaw, Lanarkshire, M22 0ED Tel: (01698) 355838 Fax: (01698) 356184 Barkers Engineering Limited† Etna Works, Duke Street, Fenton, Stoke-on-Trent, Staffs., ST4 3NS Engineering Limited* Halesfield 18, Telford, TF7 4JS Tel: (01952) 581988 Fax: (01952) 586285 Email: sales@eurogrid.co.uk Website: www.eurogrid.co.uk Express Reinforcements Limited* Fordwater Trading Estate, Ford Road, Chertsey, Surrey, KT16 8HG Tel: (01932) 579600 Fax: (01932) 579601 Email: gharrington@expressreinforcements.co.uk Tel: (01782) 319264 Fax: (01782) 599724 Website: www.expressreinforcements.co.uk 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 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 Joseph Ash Limited*† Charles Henry Street, Birmingham, B12 0SP Tel: (0121) 622 4661 Fax: (0121) 666 6049 Email: ianh@josephash.co.uk Website: www.josephash.co.uk Pipe Supports Group Limited Salwarpe Road, Droitwich, Worcestershire, WR9 9BH Tel: (01905) 795500 Fax: (01905) 794126 Email: psl@pipesupports.com Website: www.pipesupports.com Ash & Lacy Building Products Limited* PO Box 12, Bean Road, Birmingham New Road, Bromford Lane, West Bromwich, West Midlands, B70 7JJ Tipton, West Midlands, DY4 9AA Redman Fisher Engineering Limited* Tel: (0121) 525 1444 Fax: (0121) 525 3444 Tel: (01902) 880880 Fax: (01902) 880446 Email: rob.heap@ashandlacybp.co.uk Website: www.ashandlacybp.co.uk Email: flooring@redmanfisher.co.uk Website: www.redmanfisher.co.uk 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 48 Hill & Smith Holdings PLC Annual Report and Financial Statements 2000 Pictures from left to right: Asset Weholite Pipe Barkers Fencing Contents 1 Results at a glance 1 Financial calendar 2 Directors, Advisers and Committees 4 Chairman’s Statement 6 Operational Review 10 Financial Review 12 Directors’ Report 14 Corporate Governance 16 Board’s Report on Remuneration 20 Other Information 21 Statement of Directors’ Responsibilities 22 Auditor’s report to the members of Hill & Smith Holdings PLC 23 Consolidated Profit and Loss Account 24 Consolidated Balance Sheet 25 Company Balance Sheet 26 Consolidated Cash Flow Statement 27 Other Primary Statements 28 Principal Accounting Policies 30 Notes to the Financial Statements 46 Five year record 47 Notice of Meeting 48 Principal Group Businesses Industrial Products W & S Allely Limited* PO Box 58, Alma Street, Smethwick, West Midlands, B66 2RP D. & J. Steels Limited Lambert Works, Colliery Road, Wolverhampton, West Midlands, WV1 2RD Tel: (0121) 558 3301 Fax: (0121) 555 5194 Tel: (01902) 453680 Fax: (01902) 455431 Email: sales@allely.co.uk Website: www.allely.co.uk Ash & Lacy Perforators Limited* PO Box 58, Alma Street, Smethwick, West Midlands, B66 2RP Tel: (0121) 558 8921 Fax: (0121) 565 1354 Email: sales@ashlacyperf.co.uk Website: www.ashlacyperf.co.uk Ash & Lacy Pressings Limited* Shenstone Works, Lynn Lane, Shenstone, Lichfield, WS14 0EB Tel: (01543) 480361 Fax: (01543) 481624 Email: enquiries@alpressings.co.uk Website: www.alpressings.co.uk Bromford Iron & Steel Company Limited* Bromford Lane, West Bromwich, West Midlands, B70 7JJ Tel: (0121) 525 1071 Fax: (0121) 525 0913 Email: enquiries@bromfordsteels.co.uk Website: www.bromfordsteels.co.uk Clews Brothers Limited* Hall Lane, Walsall Wood, WS9 9BB Tel: (01543) 452220 Fax: (01543) 360427 Email: sales@clewbro.co.uk Website: www.clewbro.co.uk Eden Material Services (UK) Limited* Unit 42a, No. 1 Industrial Estate, Medomsley Road, Consett, Co. Durham, DH8 6TT Tel: (01207) 590055 Fax: (01207) 590059 Email: sales@edenmaterials.co.uk Website: www.edenmaterials.co.uk IMAS Technology Limited* Unit 5, Hill Top, West Bromwich, West Midlands, B70 0TX Tel: (0121) 556 9300 Fax: (0121) 505 6123 Email: imastech@cwcom.net J & F Pool Limited* Perfex Works, Hayle, Cornwall, TR27 4EG Tel: (01736) 753571 Fax: (01736) 756190 Email: sales@jfpool.co.uk Website: www.jfpool.co.uk SI Pressure Instruments Limited* Garretts Green Lane, Birmingham, B33 0YA Tel: (0121) 784 6855 Fax: (0121) 784 4795 Email: sales@si-pressure.co Website: www.si-pressure.co Wombwell Foundry Limited* Hough Lane, Wombwell, Barnsley, South Yorkshire, S73 0LT Tel: (01226) 753161 Fax: (01226) 755553 Email: info@wf-uk.com Website: www.wf-uk.com The companies marked * are indirectly held. They are wholly owned subsidiaries of Ash & Lacy plc which became a subsidiary on 1 November 2000. All companies within the Group provide engineering products and services. The companies marked † also provide galvanising services. HILL & SMITH HOLDINGS PLC I I H L L & S M T H H O L D N G S P L C I A n n u a l R e p o r t a n d i F n a n c a i l S t a t e m e n t s 2 0 0 0 HILL & SMITH HOLDINGS PLC Springvale Business and Industrial Park, Bilston, West Midlands, WV14 0QL, England Telephone: (01902) 357910 Fax: (01902) 357919 Annual Report and Financial Statements 2000