Hill & Smith Holdings PLC 2 Highlands Court Cranmore Avenue Shirley Solihull B90 4LE Telephone: (0121) 704 7430 Facsimile: (0121) 704 7439 Website: www.hsholdings.co.uk H i l l & S m l i i t h H o d n g s P L C A n n u a l R e p o r t 2 0 0 4 Hill & Smith Holdings PLC Annual Report 2004 Hill and Smith is a decentralised group serving the infrastructure, building and construction industries. Contents Chairman’s Statement Operational Review Financial Review Directors, Advisers and Committees Directors’ Report Corporate Governance Directors’ Remuneration Report Statement of Directors’ Responsibilities Independent Auditor’s Report to the Members of Hill & Smith Holdings PLC Financial Statements Principal Accounting Policies Notes to the Financial Statements Principal Group Businesses Five Year Summary Financial Calendar 2 4 7 10 12 14 18 23 24 25 30 32 50 52 52 “The Group made further substantial progress in 2004, achieving record profits and further increasing the scope and strength of its operations.” Highlights Record turnover and profits Earnings per share up 28%* Final dividend up 12% (cid:3) Continuation of our product development programme Lionweld Kennedy acquisition successfully integrated Trading Results Year ended 31 December 2004 Year ended 31 December 2003† Change Turnover £268.7m £241.7m 11.2% Profit before taxation* £11.8m £9.1m 30.1% Dividend per share 5.0p 4.6p 8.7% Earnings per share* 13.7p 10.7p 27.8% * Before exceptional items and goodwill amortisation. † Restated to take account of the adoption of FRS 17. Hill & Smith Holdings PLC Annual Report 2004 1 ➔ ➔ ➔ ➔ (cid:3) (cid:3) (cid:3) (cid:3) Chairman’s Statement General The Group made further substantial progress in 2004, achieving record profits and further increasing the scope and strength of its operations. Turnover increased by 11.2% to £268.7 million. Operating profit before exceptional items and goodwill amortisation was £15.1 million which represents a 19.8% improvement on the previous year (2003: £12.6 million) where the figures have been restated to take account of the adoption of FRS 17. Profit before taxation increased from £6.2 million to £8.4 million, an increase of 35.7%. Despite the higher interest rates during the year, profit before exceptional items and goodwill amortisation increased by 30.1% to £11.8 million (2003: £9.1 million). Adjusted earnings per share grew by 27.8% to 13.66p (2003: 10.69p). Operations We continued our strategy of investing in our growing businesses, where we believe there are many opportunities for margin enhancement, cost reduction and new product development. The success of this strategy and the culture of innovation we have encouraged throughout the Group are clearly demonstrated by the year’s substantial increase in profits. The Building and Construction Products division contributed 90.3% of our year’s operating profit and it continues to be our main focus for investment and future growth. Operating profits of £13.6 million were 17.0% higher than 2003. We continue to benefit from public expenditure programmes, especially those related to improved health and safety requirements, security and the reduction of road congestion. Further expenditure in these areas, particularly relating to roads, has been well signposted by Government agencies which should stimulate further demand for our products and services in the future. The Industrial Products division continues to operate under a tight regime and the active management of these businesses resulted in a much improved level of profitability and cash generation during the year. The majority of the Group’s products are steel based and during 2004 we were able to achieve our profit improvement and maintain our supplier- customer partnerships and service despite substantially higher raw material prices and even some material shortages. Asset International’s steel safety barrier, “VARIOGUARD®”, being installed at the front of the Brighton Centre in readiness for the Labour Party Conference. 2 Hill & Smith Holdings PLC Annual Report 2004 “We continued our strategy of investing in our growing businesses, where we believe there are many opportunities . . .” Dividends Since 2001 we have maintained a progressive dividend Outlook We will continue to invest both organically and, where policy whilst increasing dividend cover. In line with this appropriate, by acquisition. We will concentrate on further policy, your Board is recommending a final dividend of strengthening our core businesses and on improving our 2.75p per share (2003: 2.45p) subject to shareholders’ product offering into our major markets. The current trading approval, making a total for the year of 5.0p per share period has started in line with our expectations and, subject (2003: 4.6p) which is covered 2.7 times by adjusted to market conditions remaining favourable, I look forward to earnings (2003: 2.3 times). another satisfactory performance in 2005. Acquisition In October we acquired the principal operations of Lionweld Kennedy Limited which were complementary to several of our existing businesses and gave us additional manufacturing capacity and geographic spread. Although it had no material impact on the year’s results, we are confident this acquisition will provide more substantial revenue and profit benefits in the future. Employees I would like to thank all our employees for their dedicated contributions in providing and maintaining our high quality product portfolio and in giving our customers a premium service which has helped to sustain the momentum of profitability across our Group. David Winterbottom Chairman 9 March 2005 Ash & Lacy perforated balustrade on the main staircase at N.E. Worcester College, Redditch Campus. Hill & Smith Holdings PLC Annual Report 2004 3 Operational Review Overview The significant advance in profitability in 2004 vindicates our Against a background of rising prices and supply chain shortages, our business units worked hard with our investment strategy in recent years. This consists of an suppliers and customers to ensure that there was no ongoing new or improved product development disruption to customer deliveries. I have to congratulate our programme in markets where we have leading positions management teams for responding to the challenge in an and where there is strong customer demand. Our innovative and professional manner. management teams are focused on delivering further developments in the future and it is part of our management culture that we are the innovators in the majority of markets Building and Construction Products Turnover increased by 12.3% in 2004 to £229.8 million we supply. Furthermore, we are continually investing in new (2003: £204.7 million), due in part to the effect of the equipment to improve efficiencies and reduce our unit costs significant steel price increases we experienced during the of production. We are confident that our programme for year. Adjusted operating profit increased by 17.0% in 2004 organic growth will continue to deliver commensurate to £13.6 million (2003: £11.6 million). Hill & Smith Limited returns for shareholders. Acquisitions will continue to be and its related companies in the road infrastructure and made where appropriate to complement the underlying security markets increased their contribution to Group growth of our business units. profits despite some margin pressures as we continued to sell on the basis of quality and service. Further investment was made during the year expanding our hire fleet of Varioguard temporary crash barrier, which is utilised in protecting workzones across the road networks in the UK, where we are market leader. The Brifen wire rope safety fence system is now approved and installed in over 30 countries around the world. Shown is the system effectively restraining a 38 ton truck in Oklahoma, USA. 4 Hill & Smith Holdings PLC Annual Report 2004 “The significant advance in profitability in 2004 vindicates our investment strategy in recent years.” Our product development programme continues to provide Redman Fisher Engineering was the subject of management our customers with enhanced value solutions and we are changes and restructuring in 2003 and the new senior ahead of schedule in developing a broad portfolio of vehicle management team produced a much more robust restraint systems which comply with the new regulatory performance. Their business will be further strengthened by standards which are to be introduced in the near future. The the addition of the well known Lionweld Kennedy brand Highways Agency has been charged by the Government to which we acquired towards the end of the year. reduce the number of deaths and serious injuries on UK roads by 40% over the next five years. Our expanding Following the significant start up costs of our new Ashzip product portfolio is providing hardware which will assist in standing seam product range in 2003, Ash & Lacy Building achieving this objective. Government spending in the areas Systems achieved substantial increases of both sales and of road health and safety, both in terms of travellers, traffic profits in 2004 on the back of favourable market conditions. management personnel and contractors, plus expenditure on security and the reduction of congestion continues to Thanks to our modern production facilities, in which we run well ahead of the growth in GDP. have invested heavily in recent years, our Joseph Ash In our steel reinforcement operations we are working with both made good contributions to Group results. This was our construction industry partners to provide more off-site despite lively competition in the marketplace and our fabrication in order to improve their supply chain continuing drive towards lower operating costs, which led productivity and increase the value added content and to our decision to close the Southampton factory of profitability of our sales. We believe this development will Joseph Ash. galvanizing and Birtley Building Products lintels operations secure a new competitive advantage for us as the sales revenues generated by the Heathrow Airport Terminal 5 Joint Venture reduce in line with expectations as the project nears completion. The “Mass” pedestrian and vehicle safety system, in use at Guildford Town Centre. Hill & Smith Holdings PLC Annual Report 2004 5 Operational Review continued Industrial Products Sales last year were 4.9% ahead of the previous year at components of our product portfolio. This will release our skilled people to concentrate on higher value added £38.8 million (2003: £37.0 million). Operating profits at £1.5 products and make further developments to our product million were 53.2% ahead (2003: £1.0 million). In general, range. Management and employees throughout the Group across the businesses in this division, market conditions remain highly motivated and focused on achieving the remain challenging and the profit improvement in the year Group’s objectives. resulted mainly from cost reduction and value added efficiency gains. Our Pipe Supports operation expanded its activities with the construction of a new factory in Thailand. Conclusion We will continue to expand our core businesses supplying the infrastructure, building and construction industries with niche products, innovative solutions and excellent service to maintain our market leadership. With rising raw material and energy costs, we are increasingly outsourcing the David Grove Chief Executive manufacture of the high labour content commodity type 9 March 2005 Channel Tunnel Rail Link, Medway Crossing and A2/M2 Upgrade. Vehicle parapets and pedestrian guardrail panels supplied by Varley & Gulliver, noise barriers supplied by Barkers Engineering, crash barrier, Multiplate and Varioguard® supplied by Hill & Smith. 6 Hill & Smith Holdings PLC Annual Report 2004 Financial Review Summary of Results The year’s results were the best ever recorded by the Sales and Operating Profit Group turnover increased by 11.2% to £268.7 million Company and were achieved against a background of (2003: £241.7 million). Excluding acquisitions and the prior substantial increases in world commodity prices, year disposals, like-for-like sales growth was 11.5% in both particularly steel. Steel is our most important raw material divisions. Within the Building and Construction Products and our ability to handle the supply situation was division, sales by our Joint Venture with Laing O’Rourke fundamental to our trading success in the year. These reduced in line with expectations as its Heathrow Terminal higher raw material prices were a significant factor affecting 5 contract progressed. However, higher sales at Express our sales, cost of sales and working capital. Underlying Reinforcements more than offset this with the result that volumes were broadly similar to last year. With relatively sales of reinforcing products grew overall. Several other modest increases in wages and other overheads, adjusted companies in this division increased sales, in particular Ash operating profit increased strongly. Sales, profits and & Lacy Building Systems, Barkers Engineering and Varley & earnings per share were all at record levels. Gulliver which all recorded record sales with year on year The results cover the twelve months to 31 December 2004. the Industrial Products division came from Bromford Iron & increases of more than 25%. The main growth in sales in They include the first two months’ trading of the Lionweld Steel and W&S Allely. Kennedy operations which we acquired at the end of October 2004. The prior year numbers include small Operating margins in the Building and Construction contributions from the SI Pressure Instruments and Products division were maintained and grew strongly in the Wombwell Foundry businesses which were discontinued Industrial Products division where Bromford Iron & Steel in 2003. and Ash & Lacy Perforators both had a much improved year. Group adjusted operating profit increased by 19.8% The financial statements include the effects of the adoption to £15.1 million. for the first time of FRS 17: Retirement Benefits, the accounting standard dealing with pension costs. The prior Net exceptional charges amounted to £1.7 million. These year comparatives have been restated accordingly. related in the main to the cost of business reorganisations Berry Systems rails and fencing for the multi-storey car park at Docklands Exhibition Centre, London. Hill & Smith Holdings PLC Annual Report 2004 7 Financial Review continued at Joseph Ash, where we closed the Southampton factory, and at the Industrial Flooring companies, including the Earnings per share Adjusted earnings per share before exceptional items and costs of integrating the newly acquired Lionweld Kennedy goodwill amortisation amounted to 13.66p, an increase of operations. They also include £0.4 million (£0.1 million 27.8% compared to last year and the highest ever achieved credit after tax) in respect of costs associated with share by the Group. option gains, as set out in the Directors’ Remuneration Report on page 19. Interest Net interest costs were unchanged at £3.8 million, the Dividends In line with our progressive dividend policy, we again propose to increase the level of the distribution to shareholders. The recommended final dividend, together slightly lower average borrowings offsetting the increase in with the interim dividend already paid, makes a total for the general market rates. Adjusted net interest cover improved year of 5.0p per share, an increase of 8.7% from last year. to 4.0 times (2003: 3.4 times). Based on adjusted earnings, this level of dividend is covered 2.7 times (2003: 2.3 times). Profit before tax After crediting £0.5 million of FRS 17 related other finance income, adjusted pretax profit rose by 30.1% to a record £11.8 million (2003: £9.1 million). Taxation The effective tax rate on profits before exceptional items and goodwill amortisation was 28.2% compared to the standard rate of 30%, mainly as a result of the benefit of industrial buildings allowances which were no longer subject to clawback. Reinforcing bar supplied to Express Reinforcements’ joint venture at Terminal 5, Heathrow. © t h g i r y p o c A A B 8 Hill & Smith Holdings PLC Annual Report 2004 “Sales, profits and earnings per share were all at record levels.” Financing Year end net borrowings increased slightly to £37.9 million International Financial Reporting Standards European listed groups are required to adopt International (2003: £36.5 million). The balance sheet position was Financial Reporting Standards (“IFRS”) for their financial affected by the £2.5 million cash acquisition of the Lionweld statements from 2005, including comparative information Kennedy operations towards the end of the year and by a for 2004. Although the Group has not yet finalised its £3.0 million decrease during the year in the level of advance assessment of the effects of the adoption of IFRS, it payments received in connection with our Terminal 5 currently believes there will be no material impact on its Joint Venture. reported adjusted earnings or cash flow and that the principal other changes will be restricted to the costs of Despite the large increase in turnover, we restricted the share-based payments such as share option grants, the increase in working capital. We also maintained our vigorous non-amortisation of goodwill and the non-accrual of the programme of capital expenditure, investing a total of £8.0 proposed final dividend. million, £2.4 million in excess of the depreciation charge. Year end net assets increased to £31.3 million (2003: £30.8 million). Pensions There was an increase of £2.1 million in the FRS 17 net pension liability. Although investment returns exceeded expectations, improved mortality rates increased liabilities by a greater amount, in line with the experience of most other company occupational pension schemes. Further Chris Burr Finance Director information is given in note 23 to the Financial Statements. 9 March 2005 Sologuard® in use to create the required contraflow for maintenance work on the M25 Bell Common Tunnel. Sologuard® is a development of Varioguard®. Hill & Smith Holdings PLC Annual Report 2004 9 Directors Executive Directors Chris Burr, left; David Grove, right Non-executive Directors from left: David Winterbottom, Howard Marshall, Dick Richardson D S Winterbottom FCA, FCT Non-Executive Chairman R E Richardson FCMI Senior Non-Executive Director David, aged 68, joined the Board in October 1997. He is Dick, aged 65, joined the Board in May 1997. He is Non-Executive Chairman of Shiloh PLC, Chairman of CPL Chairman of Westech Industrial Holdings plc and a number Industries Limited and Wightlink Shipping Limited. David of private industrial/investment companies. He was recently retired from the Board of Electrocomponents PLC previously Chairman and Chief Executive of Graystone as Senior Non-Executive Director. PLC, Deputy Chairman and Managing Director of Goring Kerr PLC and Managing Director of Tace PLC. D L Grove BA, FCA Deputy Chairman and Chief Executive H C Marshall MSc, BSc Non-Executive Director David, aged 56, joined the Board in March 1998. He is a Howard, aged 61, joined the Board in November 2000. He Non-Executive Director of a number of private was previously Chief Executive of Ash & Lacy Plc and manufacturing, distribution and investment companies. Chairman of Bullough Plc. He is currently a Board Member He is Chairman of the West Midlands Industrial of West Midlands Industrial Development Board, and a Development Board. Governor of the University of Central England. C J Burr FCA Finance Director Chris, aged 55, joined the Board in November 2000. He was previously Group Finance Director of Ash & Lacy Plc, whom he joined in 1990 from European Home Products plc having previously held a variety of positions with Singer Company Inc. in the UK and Continental Europe. 10 Hill & Smith Holdings PLC Annual Report 2004 Advisers and Committees Registered Office 2 Highlands Court, Cranmore Avenue, Shirley, Solihull, Auditor KPMG Audit Plc, Birmingham B90 4LE Company Secretary C J Burr FCA Company Number 671474 Bankers Barclays Bank PLC, Birmingham Financial Adviser Stafford Corporate Consulting Limited, London Audit Committee Messrs Winterbottom, Marshall and Richardson (Chairman) Insurance Brokers & Risk Management Advisers Jardine Lloyd Thompson, Birmingham Remuneration Committee Messrs Winterbottom, Marshall (Chairman) and Richardson Pension Advisers KPMG LLP, Birmingham Nominations Committee Messrs Winterbottom (Chairman), Grove, Marshall and Registrars Computershare Investor Services PLC Richardson PO Box 82, The Pavilions, Bridgwater Road, Bristol, Life President John G Silk LLB (Lond.) John, aged 80, joined the Board in 1981 and was Chairman from 1983 to 1995. He retired from the Board and was appointed Life President in 1999. BS99 7NH Solicitors Silks, Oldbury, West Midlands Wragge & Co, Birmingham Howes Percival, Northampton Stockbrokers Arden Partners, Birmingham Hill & Smith Holdings PLC Annual Report 2004 11 Directors’ Report The Directors present their forty-fourth annual report The interests of the Directors in office at the year end and together with the financial statements for the year ended their families in the ordinary shares of the Company 31 December 2004. Principal activities The principal activities of the Group companies are: Building and Construction Products Industrial Products Trading review The Chairman’s Statement on pages 2 and 3 and the Operational and Financial Reviews on pages 4 to 9 contain a review of the trading for the period, a statement as to the current trading position and an indication of the outlook for the future. Dividends The Directors recommend a final dividend of 2.75p per share (2003: 2.45p) to be paid on 13 July 2005, which, together with the interim dividend of 2.25p per share paid on 21 January 2005, makes a total distribution for the year of 5.0p per share (2003: 4.6p). Employees The value of the contribution from all employees is recognised by the Board and this is reflected in the high levels of autonomy and accountability that are encouraged throughout the Group. The subsidiary undertakings are made aware of the financial, economic and other performance objectives through good communications and employee relations across all the operations. The Group also ensures consistent and fair treatment of all its employees and has equal opportunities for appropriate training, career development and promotion, regardless of physical disability, gender, race, religion or nationality. according to the register required to be kept by the Companies Act 1985, and their options, are disclosed on pages 20 to 22. 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. Details of Directors’ service contracts are incorporated in the Directors’ Remuneration Report on pages 18 to 22. Donations Charitable donations amounting to £9,000 (2003: £6,000) 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 was 96 days (2003: 81 days). The Company’s average credit period was 31 days (2003: 35 days). Research and Development Directors and Directors’ interests During the year the Group spent a total of £65,000 (2003: The names and biographical details of the Directors holding £60,000) on research and development. office at the date of this report are shown on page 10. The Directors retiring by rotation are D S Winterbottom and D L Substantial shareholders Grove who, being eligible, offer themselves for re-election. The Company has been notified of the following substantial 12 Hill & Smith Holdings PLC Annual Report 2004 shareholdings of 3% or more of the issued share capital on The Company’s authority to grant share options under the 9 March 2005: G Hampson Silk P J Hampson Silk Barclays PLC Gartmore Legal and General Ordinary Shares 3,927,701 3,933,502 2,324,945 2,121,411 2,170,384 % of issued share capital 6.32 6.33 3.74 3.42 3.50 1995 Savings Related Share Option Scheme expires on 30 March 2005. The Directors are therefore seeking shareholder approval of a new savings related share option scheme, on terms consistent with the current one, but updated for changes in tax laws and incorporating the latest ABI guidelines. This new scheme will be called the Hill & Smith 2005 Sharesave Scheme. The principal provisions of these new schemes are summarised on the appendix attached to the Notice of the Annual General Meeting. Of G Hampson Silk’s ordinary shares, 3,340,159 are either registered in his own name or his wife’s name. Of P J Hampson Silk’s ordinary shares, 3,340,960 are registered in his own or his Auditor In accordance with Section 385 of the Companies Act wife’s name and an additional 5,000 are held in the name of 1985, a resolution for the reappointment of KPMG Audit Plc nominee company Brewin Dolphin. Of the remaining ordinary as auditor of the Company is to be proposed at the shares of G Hampson Silk and P J Hampson Silk, 480,876 are forthcoming Annual General Meeting. registered in the name of a private limited company of which they are both directors and of which they each have control of more than one third of the voting power at general meetings of Capital gains tax For capital gains tax purposes the price of the Company’s that company and a further 106,666 are held in two ordinary shares of 25p each at 31 March 1982 was 12p. discretionary trusts of which they are both trustees. New executive and employee share option schemes The Company’s authority to grant share options under the 1995 Special business of the annual general meeting The Annual General Meeting will be held on 13 May 2005 at 10.30 a.m. in the Balcony Suite at The National Motorcycle Executive Share Option Scheme, a scheme approved by the UK Museum, Solihull. Notice is sent to shareholders separately Inland Revenue, expires on 30 March 2005. In addition to this with this Report together with an explanation of special Approved Executive Share Option Scheme, the Group operates business to be considered at the meeting. the 1999 Non-Approved Executive Share Option Scheme and although the Scheme does not expire until March 2009, the Directors feel it appropriate to update this scheme as well as the By order of the Board expiring 1995 scheme, in terms of changes in tax law and the latest Association of British Insurers (“ABI”) guidelines. Accordingly, the Directors are seeking the approval of shareholders at the Annual General Meeting for the establishment of a new overall scheme, to be named The Hill & Smith Holdings 2005 Executive Share Option Scheme. This new scheme (which will replace the 1995 and 1999 Executive Schemes) will allow the Company to issue Options approved by the Inland Revenue, and also unapproved options. If this new scheme is approved by shareholders, the 1999 Executive Scheme will be terminated and no further options granted under it. Chris Burr Company Secretary 9 March 2005 Hill & Smith Holdings PLC Annual Report 2004 13 Corporate Governance Hill & Smith is a decentralised group of trading subsidiaries Given the devolved nature of the Group, the Board does not operating in two broad market sectors. These subsidiaries consider this to be an issue of concern. In its view, both have a large degree of operational autonomy with separate Committees comply with the Combined Code provisions boards that report into the two Executive Directors of Hill & relating to small companies by having the other two Non- Smith. Because of the devolved nature of the Group, Hill & Executive Directors as independent members. Indeed, the Smith does not require an extensive head office nor is it Board considers that D S Winterbottom brings valuable appropriate for it to operate with a large plc board of insight and experience to the work of those committees. directors. The Board considers these to be commercial strengths for the Group and they have been important factors in the Board’s own assessment of its corporate governance arrangements. The Board has taken the opportunity presented by the introduction of the new Combined Code on Corporate Governance to review its approach to corporate governance. Consequently, the Board has made certain changes during the year which it considers to be appropriate to the needs and nature of the Group. As such, where it does not comply with the Code, it is happy to provide its explanations for not doing so on the basis that it believes that such non-compliance is more appropriate to shareholders’ long-term interests. The Board and Board Committees The Board consists of five Directors: three Non-Executive and two Executive. The names, roles, committee membership and biographical details of the Directors are set out on page 10. The Board considers the three Non- Executive Directors to be independent. Whilst it is recognised that H C Marshall used to be the Chief Executive of one of the group subsidiaries, Ash & Lacy Plc, prior to its acquisition by the Group in 2000, H C Marshall’s membership of the Hill & Smith Board has always been as a Non-Executive Director and his Board colleagues have consistently recognised him as being independent in his approach to the role. This view was further endorsed during the recent board evaluation exercise (see below) which also confirmed the view that the Board retains the right mix of skills and experience to fulfil its role effectively in the context of the structure of the Group. D S Winterbottom is a member of the Audit and Remuneration Committees. The Combined Code suggests that the Chairman of the Board should not be considered as independent for the purposes of the independence tests. Because of the portfolio nature of the Group, the Board is primarily focused on the strategic direction of the Group, the management of risk, monitoring of financial performance and the allocation of resources. During the year, the Schedule of Matters reserved for the Board has been updated to ensure that the Board is made aware of all matters that are appropriate for it to consider but sees this as also enabling its subsidiaries to manage their own affairs in a clearly defined framework of control. A Board procedures manual has been created documenting the Board’s key reporting and administrative processes to ensure that information is fully provided to the Board and Board committees to enable them to fulfil their roles properly. During the year the Board met eleven times and each Board meeting was fully attended with the exception of one unscheduled meeting where H C Marshall was unable to attend at short notice. The Audit Committee met three times, the Remuneration Committee twice and the newly created Nominations Committee once. All the Committee meetings were fully attended. The Chairman and Non- Executive Directors regularly discuss matters informally outside of Board meetings. Given the small size of the Board, they have therefore concluded that there is no purpose in formally having meetings without the Executive Directors present, other than where necessary in Audit and Remuneration Committee meetings. The roles of the Chairman in running the Board and the Chief Executive in running the Group’s business have always been understood. However, job descriptions for both positions have been issued during the year to ensure that these are clearly defined. There have been no major changes in the Chairman’s external time commitments. During the year D S Winterbottom retired as a Non- Executive Director of Electrocomponents PLC and has been appointed Non-Executive Chairman of Shiloh PLC, a healthcare company. 14 Hill & Smith Holdings PLC Annual Report 2004 The Board recognises that by having combined the roles of matter for the Board as a whole to consider and D S Finance Director and Company Secretary, there might be Winterbottom will not participate in the Board decision the perception of risk to the integrity of the Board’s concerning the appointment of his replacement as corporate governance structure and consequently an Chairman. independent chartered secretary has been appointed to advise the Chairman on all corporate governance matters The Board has also approved a standard letter for future and to act as Secretary to the Audit and Nominations Non-Executive appointments to the Board (including Committees. The Senior Independent Director is responsible for appraising the performance of the Chairman of the Board and is available to meet shareholders to discuss concerns that they may have if they wish to do so. Nominations Committee and Board Appointments In view of the nature of the Group as described above, the Board believes that the current number and balance of Directors to be sensible and considers the Group has benefited from having stable board membership for the past few years. The Board understands that it will clearly be necessary in the medium term to develop the membership of the Board and, whilst there have been no plans to do so during the year, they have put some of the infrastructure in place to enable that process to be implemented at the appropriate time. In particular, they have established the Nominations Committee whose objectives are: (cid:4) To ensure that the size and composition of the Board is appropriate to the needs of the Group. expected time commitments and a fee structure) and a standard programme for the induction of new Directors. Board Development During the year the Board has undertaken a board evaluation exercise. This was undertaken by the Chairman who met with each of the Directors individually using a standard agenda focusing on the role and effectiveness of the Board as a whole, the contributions of individual Directors to Board and committee meetings and communications. R E Richardson, as Senior Independent Director, also held a reciprocal discussion with the Chairman. The results of those interviews were summarised and subsequently discussed by the Board as a whole. The Board believes that the benefit of its collective experience is a valuable asset but accepts that Directors need to keep their professional knowledge up to date from time to time. Consequently, they have recently agreed guidelines for meeting their own training needs. The Board has also adopted a procedure to enable Directors to take professional advice at the Company’s expense. (cid:4) To select the most suitable candidate or candidates for Remuneration Committee appointment to the Board. (cid:4) To oversee succession planning for the Board. The terms of reference for the Nominations Committee are available on the Company’s website. As with the other Board committees, the terms of reference of the Remuneration Committee have been updated to bring them in line with the best practice recommendations of the Combined Code. A copy of the new terms of reference is available on the Group’s website. The Nominations Committee will agree a formal process for Full details of the role and activities of the Remuneration making board appointments, including a decision on Committee are set out in the Directors’ Remuneration whether external assistance would be appropriate, when it Report on pages 18 to 22. In order to avoid any deems it necessary to make new appointments. The terms compromise in the activities of the Remuneration of reference of the Nominations Committee make it clear Committee, H C Marshall, as Chairman, also takes that the appointment of the Chairman of the Board is a responsibility for minuting meetings. Hill & Smith Holdings PLC Annual Report 2004 15 Corporate Governance continued Audit Committee Committee reviewed the preliminary and interim statements The role of the Audit Committee has been assessed during prior to their approval by the Board. The Committee has the year in the light of the new Combined Code and, in also considered the external auditor’s management letter particular, the Smith Guidance incorporated into the Code. and the assumptions underlying the financial statements The terms of reference of the Committee have also been prior to recommending their approval to the Board. revised in the light of the Smith Guidance. The new terms of reference are available on the Group’s website. External Audit The objectives of the Audit Committee have been re- basis upon which the Committee will consider and make The procedure adopted by the Committee sets out the confirmed in the new terms of reference as: (cid:4) To ensure the integrity of the financial statements of the Company; (cid:4) To review and monitor the Group’s internal control systems; (cid:4) To oversee the effectiveness of the Group’s internal audit activity; (cid:4) To oversee the Group’s relationship with its external auditors; and (cid:4) To ensure that Group reporting complies in all respects with relevant statutory and required financial reporting standards, including corporate governance disclosures. R E Richardson is the Chairman of the Audit Committee and its other members are Messrs Marshall and Winterbottom. D S Winterbottom is a chartered accountant and is deemed to have recent and relevant financial experience. As indicated above, the members of the Audit Committee attend seminars as and when required to ensure that their knowledge of relevant legislation and best practice developments is maintained. Three Audit Committee meetings have been held during the year, one meeting having been dedicated to reviewing and approving policies and procedures to ensure that the Committee can demonstrate full compliance with the financial reporting and internal controls principles set out in the Combined Code. Financial Reporting A procedure setting out responsibilities for the preparation recommendations as appropriate concerning the appointment, re-appointment or removal of the external auditor. The Committee will annually assess the qualification, expertise, independence and objectivity of the auditor and have set down the normal timetable and criteria for making those assessments. Policies concerning the employment of former employees of the external auditor and the use of the external auditor to perform non-audit services have been adopted. In regard to the latter, the Committee believes that there are certain non-audit services where it is cost-effective for the external auditor to be used. These primarily include merger and acquisition due diligence work and tax advisory services. A number of activities are prohibited, including work on accounting records, internal audit, IT consultancy and advice to the Remuneration Committee. The policy is consistent with the ethical standards recommended by the Auditing Practices Board. The Committee approves the scope of each audit, the terms of engagement and reviews the performance of the auditor following the completion of each audit. Internal Control The Board accepts overall responsibility for the Group’s system of internal control which is designed to manage rather than eliminate risk and can provide only reasonable assurance against material misstatement or loss. The Board has delegated responsibility for the review of the effectiveness of the Company’s systems of internal control to the Audit Committee. There are three elements to this of the Group’s financial statements and their review by the review: an assessment of the Group’s major areas of risk, a external auditor and the audit committee has been review of the internal audit activity and assessment of the documented. This also sets out the basis on which the reporting processes of the subsidiary businesses to the Board make its statement on going concern. The Audit Main Board. 16 Hill & Smith Holdings PLC Annual Report 2004 Risk The Committee has set down the criteria by which it will In September a new risk assessment process was adopted assess the effectiveness of the internal audit function on an with subsidiary companies being asked to complete a risk annual basis. questionnaire in conjunction with their budget submissions. The risk questionnaire covered both financial and non- In addition to the above areas of activity set out in its terms financial risk. Risks identified were aggregated and assessed of reference, the Committee has also approved on the basis of their likely impact and probability. In addition, arrangements by which staff may raise concerns about the Executive Directors also completed a risk assessment for possible improprieties in matters of financial reporting. This the Group as a whole. Having established the risk profile, a will be communicated to subsidiary companies along with Group Risk Management Framework has been adopted. the Group’s new disciplinary and grievance procedures. This identifies the responsibilities at both Group and subsidiary level for the ongoing management of risk across Shareholder Communications and Relations the business. The Board recognises the importance of good communications with shareholders. In recent years, In order to underpin this, a Risk Forum has been established institutional shareholders have invariably been primarily chaired by the Group Internal Auditor (see below) consisting interested in meeting with the Chief Executive. Arising from of risk managers from each of the subsidiary companies. The the board evaluation exercise, steps have been taken to framework also sets down an ongoing programme for invite shareholders to meet with more Board members, managing risk including ongoing identification and analysis of particularly the Finance Director and the Chairman, in risk and an assessment of the controls and actions (with addition to the Chief Executive. The Chairman and Senior individuals responsible identified) to mitigate risk. Independent Director are available to meet with shareholders concerning corporate governance issues, if so required. Internal Audit The planning of internal audits will be determined taking into The Board wishes to encourage the constructive use of the account the risks identified within the risk assessment Company’s Annual General Meeting for shareholder process. Reporting communication. At the 2004 AGM, the level of proxies cast for each resolution was communicated following approval of each resolution. A similar approach will be taken at the The Executive Directors maintain close and frequent contact forthcoming AGM. The Chairmen of the Audit, Nomination with subsidiary company management and have regular and Remuneration Committees will be in attendance at the performance review meetings with them. Improvements have forthcoming AGM, which will be convened on at least 20 been made during the year to reporting from the subsidiary working days’ notice. companies on areas of non-financial risk during the year, in particular health & safety and the environment. Reporting will The Board has also considered whether to make more use be further improved in 2005 as the board reporting of electronic facilities for communicating with shareholders procedures are embedded to support the Schedule of and has concluded, in view of the costs involved, that any Matters reserved for the Board. further steps would not warrant the time or expense. The Board is satisfied with the effectiveness of the Group’s Going Concern current system of internal control. Internal Audit After making enquiries, the Directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for During the year a full-time Group Internal Auditor was the foreseeable future. For this reason, they continue to recruited. This will improve the scope and focus of the adopt the going concern basis in preparing the financial Group’s internal audit activity in 2005. statements. Hill & Smith Holdings PLC Annual Report 2004 17 Directors’ Remuneration Report The remuneration policy is set by the Board as a whole. No Director participates in setting his own remuneration. The remuneration and emoluments of the individual Executive Directors and key senior executives are determined by the Remuneration Committee, working within the policy. The Committee also oversees and administers the Company’s share option schemes. The Remuneration Committee during the year comprised: Mr H C Marshall* Mr D S Winterbottom Mr R E Richardson Non-Executive Director Non-Executive Chairman Senior Non-Executive Director * Chairman of the Remuneration Committee The objective of the Remuneration Committee is to decide upon the form and amount of Executive Director and key executive remuneration that will attract and retain the right calibre of individual, as well as motivating executive performance to levels that not only maximise contribution for the benefit of shareholders, but also align the interests of shareholders and executives. The Committee is responsible for determining all aspects of the remuneration package for Executives and will as necessary consult with the Chief Executive on its proposals. The Committee also uses the services of external professionals, Mellon Resources, to decide upon whether the remuneration paid is appropriate. Mellon Resources provide no other services to the Company. The members of the Committee have no potential conflicts of interest arising from cross-directorships and no day-to-day involvement in running the business. Remuneration of Chairman and Non-Executive Directors The remuneration of the Chairman is determined by the Board after recommendations made by the other members of the Remuneration Committee. The remuneration of the two other Non-Executive Directors is determined by the Board following recommendations made by the Chairman. The Non-Executives do not participate in any bonus, share option or pension arrangements. Remuneration of Executive Directors The remuneration of Executive Directors consists of a number of separate elements; (cid:4) basic salary car and fuel allowance (cid:4) benefits in kind (medical expenses, life assurance and accident insurance) (cid:4) performance-related cash bonuses (cid:4) pension provision share options Basic salary and benefits in kind Basic annual salaries for Executive Directors and key senior executives are reviewed annually on 1 January each year or when a material change of responsibility occurs. The level of salary is determined with reference to individual performance and the rates of salary offered for similar roles. Due account is also taken of the responsibilities, skills and experience required to fulfil the executive’s role within the Company. Performance-related cash bonuses Under his service agreement D L Grove receives an annual performance-related cash bonus dependent upon the increase in the Group earnings per share (as therein defined) in accordance with the formula set out in that agreement. This bonus is capped at 75% of basic annual salary. Bonuses for C J Burr are awarded on the basis of the Group’s achievement of internal cash and profit targets and, where deemed appropriate by the Committee, supplementary discretionary bonuses that take into account his individual performance and responsibilities in his role as an Executive Director. Directors’ pension provision C J Burr participates in the Hill & Smith Executive Pension Scheme which provides pensions and other benefits within Inland Revenue limits. The scheme provides, at normal retirement age, a maximum pension of two-thirds of the final pensionable salary, subject to completion of a sufficient number of years’ service. Bonus is excluded from the definition of pensionable salary. There are no pension arrangements in place for other Directors and no change took place in C J Burr’s arrangements during the year. Share options The Company has three share option schemes under which options can be granted to Executive Directors, senior executives, and all employees. Two of those schemes are executive share option schemes (“the 1995 Executive Share Option Scheme” and “the 1999 Non-Approved Executive Share Option Scheme”) which are administered by the Remuneration Committee. The final scheme is a savings related share option scheme (“the 1995 Savings Related Share Option Scheme”). 18 Hill & Smith Holdings PLC Annual Report 2004 (cid:4) (cid:4) Options granted under the two executive share option schemes cannot be granted at less than market value and, subject to limited exceptions, can only be exercised if a specified performance criterion is met. The performance criterion currently set by the Remuneration Committee under both executive share option schemes is that options may only be exercised if the growth in earnings per share of the Group before exceptional items and goodwill amortisation over a three year period is not less than the increase in the Retail Price Index plus six per cent over the same period. The criterion was set to ensure that earnings attributable to the shareholders increased at a rate in excess of inflation prior to any exercise of options. The Remuneration Committee has resolved that for options granted under the new executive share option scheme (assuming it is approved at the Annual General Meeting) this condition will continue to apply, but subject to the requirement that growth in earnings per share is not less than the increase in the Retail Price Index plus nine per cent. Options granted under the 1995 Executive Share Option Scheme must be exercised between three and ten years after the date of grant and options granted under the 1999 Non-Approved Executive Share Option Scheme must be exercised between three and seven years after the date of grant. In granting options under the two executive share option schemes, the Remuneration Committee takes into account the salary grade of that individual. The 1995 Savings Related Share Option Scheme is open to all employees, including Executive Directors, who have completed six months’ continuous service. Under this scheme the Company can, if it thinks fit, grant options at a price up to twenty per cent below the market price. In 2004 the Company granted options under the Savings Related Scheme at a price five per cent below the market price. As stated in the Directors’ Report, the Board is recommending for shareholder approval the adoption of new share option schemes to replace the 1995 Executive Share Option Scheme, the 1999 Non-Approved Executive Share Option Scheme and the 1995 Savings Related Share Option Scheme. Full details are given in the attachment to the Notice of General Meeting to be held on 13 May 2005. Disclosure of D L Grove’s option gain and bonus On 27 April 2004, D L Grove exercised all of his options over 2,294,183 shares held by Close Securities Limited at prices between 40p and 55p per share. The market value of the shares on 27 April 2004 was 100p per share, resulting in a taxable gain for D L Grove of £1,214,357. Tax regulations have required the Company to account for £485,743 income tax on this gain. Whilst not contractually obliged to do so, D L Grove has reimbursed the Company for the whole of the income tax it has paid. At the same time, the Company is entitled to corporation tax relief on the gain which, at 30%, will result in a tax saving of £364,307. D L Grove was advised that, with Close Securities’ agreement, he could have varied the agreements to receive cancellation payments rather than exercise his options, which would have eliminated his acquisition and disposal expenses. If D L Grove had followed this course of action, the Company would have incurred additional National Insurance costs of £101,485 (after deducting corporation tax relief) and would not have been entitled to the corporation tax saving of £364,307. The Company agreed with D L Grove that he would not vary the option agreements, as he would have been entitled to do, but would, instead, exercise his options strictly in accordance with the terms of the agreements. As part of the agreements it has reached with D L Grove, the Company has paid a bonus to him of £358,335 (before deduction of income tax and National Insurance) which recognises the benefit obtained by the Company as a result of him following the agreements and not varying them, the additional expenses which he incurred as a result and his reimbursement of the income tax paid by the Company. If D L Grove had followed the alternative route advised to him and had reimbursed only the income tax which he was contractually obliged to reimburse, the cost to the Company, after corporation tax relief, would have been £409,000. This compares with a benefit to the Company of the transactions as carried out, after charging the bonus paid to D L Grove, of £61,000, after corporation tax relief, i.e. an overall saving to the Company of £470,000. Hill & Smith Holdings PLC Annual Report 2004 19 Directors’ Remuneration Report continued Directors’ remuneration Executive D L Grove C J Burr H C Everett Non-Executive D S Winterbottom H C Marshall R E Richardson Total Basic Salary/ Fees £000 Value of Benefits £000 Performance Related Bonus £000 Payment re Share Option Gain £000 Total for Year to 31.12.04 £000 Total for Year to 31.12.03 £000 320 160 — 54 27 29 590 16 19 — — — — 35 240 80 — — — — 320 358 — — — — — 358 934 259 — 54 27 29 1,303 448 206 130 50 25 25 884 In addition, D L Grove realised a gain of £1,140,988 as a result of the exercise of share options during the year. The auditor is required to report on the table above and the information given below on Directors’ pensions and Directors’ share options. Total Shareholder Return Under Statutory Instrument 2002 Number 1986, we are required to show the shareholder return over 5 years in graphical form against a broad equity index; the graph is shown below. The indices selected are the FTSE All Shares Index and the FTSE Small Capitalisation Index, which are broadly-based indices of shareholder return. Hill & Smith Holdings PLC 5 Year relative performance n r u t e R % 60 40 20 0 -20 -40 2000 2001 2002 2003 2004 Hill & Smith FTSE All Share FTSE Small Cap The graph shows that the Company has matched or outperformed both comparator indices in four of the past five years. 20 Hill & Smith Holdings PLC Annual Report 2004 Directors’ pensions Pension benefits earned by the Directors Age at year end Accrued benefit at 31 December 2004 Increase in accrued benefits excluding inflation Increase in accrued benefits including inflation Directors’ contributions Transfer value of accrued benefits at 1 January 2004 Transfer value of accrued benefits at 31 December 2004 C J Burr 55 £48,167 £3,370 £4,717 £8,888 £557,086 £796,168 1 2 The accrued pension entitlement is that which would be paid annually on retirement based on service to the year end. The individual has the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are included in the above table. 3 The following is additional information relating to the Directors’ pensions: (a) (b) (c) Normal Retirement Age: Spouse’s pensions: Pension increases: (d) Discretionary benefits: 60 2/3 pension on death after retirement Pensions increase in line with RPI, limited to 5% per annum, subject to a minimum of 3% per annum None 4 The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. During the period, the Scheme Actuary advised the Trustees that the recommended assumptions used under GN11 have been revised, particularly in respect of the life expectancy tables and rates of investment returns. This contributed to a part of the increase in the transfer value. Directors’ interests Directors’ shareholdings at the end of the financial year were as follows: D S Winterbottom D L Grove R E Richardson C J Burr H C Marshall 31 December 2004 15,690 1,125,945* 3,518 62,628 68,601 31 December 2003 15,690 540,945 3,518 62,628 68,601 * Increased by 585,000 as a result of the exercise of share options on 27 April 2004. Hill & Smith Holdings PLC Annual Report 2004 21 Directors’ Remuneration Report continued Directors’ share options At 31 December 2003 42,000* 158,000† C J Burr D L Grove 500,000† Granted in year Exercised in year — — 12,360‡ — 12,360‡ — — — — — At 31 December 2004 42,000* 158,000† 12,360‡ 500,000 12,360‡ Exercise price (p) Date first exercisable 70.3 70.3 100.0 67.1 100.0 2/7/04 2/7/04 1/1/10 9/7/02 1/1/10 Expiry date 2/7/11 2/7/08 1/7/10 9/7/06 1/7/10 * † ‡ 1995 Executive Share Option Scheme 1999 Non-Approved Executive Share Option Scheme 1995 Savings Related Share Option Scheme — Granted 1 January 2005 At 31 December 2004 the mid-market price of the Company’s shares was 120.0p. During the year the Company’s mid- market share price ranged between a low of 93.5p and a high of 122.5p. Service agreements The Chairman and the two Executive Directors have service agreements with the Company. The contracts provide for twelve months’ notice if terminated by the Company. In the event of a Change in Control the period of notice is also twelve months. This follows D L Grove and C J Burr agreeing to the reduction of this notice period from eighteen months to twelve months. The Chairman’s service agreement is terminable by either party on twelve months’ notice but if a Change in Control of the Company takes place the Chairman may at any time within the twelve month period immediately following such Change in Control terminate the agreement by ninety days’ notice instead of twelve months’ notice. In the event of the service agreement being terminated by either party within the twelve month period immediately following such Change in Control the terms of the contract are payable in full without mitigation. D L Grove’s service agreement is terminable by either party on twelve months’ notice. During the period of ninety days following a Change in Control the period of notice required to be given by the Company to D L Grove is twelve months and the period of notice required to be given by D L Grove to the Company is reduced from twelve months to ninety days. If, during the period of ninety days immediately following a Change in Control, the service agreement is terminated by D L Grove or is terminated by the Company without prior notice, D L Grove is entitled to a sum equal to twelve months’ salary. C J Burr may terminate his service agreement with the Company by giving six months’ notice. The Company may terminate the agreement by giving twelve months’ notice. If the notice is given within the period of twelve months immediately following a Change in Control the notice to be given by the Company is also twelve months. On termination of the service agreement by the Company without prior notice C J Burr is under a duty to mitigate any loss unless such termination is effected within the period of twelve months following a Change in Control. The dates of the contracts are as follows: D S Winterbottom D L Grove C J Burr 4 March 1999 9 July 1999 20 June 2001 Non-Executive Appointments Neither H C Marshall nor R E Richardson has a service agreement; their appointments are governed by letters of engagement. Under the terms of their engagement, the notice period to be given by both H C Marshall and R E Richardson to the Company is three months and the Company is bound to give the same length of notice to either H C Marshall or R E Richardson to terminate the engagement. Howard Marshall Chairman, Remuneration Committee 9 March 2005 22 Hill & Smith Holdings PLC Annual Report 2004 Statement of Directors’ Responsibilities Company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and Group and of the profit or loss for that period. In preparing those financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently (cid:4) 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 (cid:4) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Hill & Smith Holdings PLC Annual Report 2004 23 (cid:4) (cid:4) Independent Auditor’s Report to the Members of Hill & Smith Holdings PLC We have audited the financial statements on pages 25 to 49. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and auditors The Directors are responsible for preparing the Annual Report and the Directors’ Remuneration Report. As described on page 23, this includes responsibility for preparing the financial statements in accordance with applicable United Kingdom law and accounting standards. Our 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. responsibilities, as We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. 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 regarding Directors’ remuneration and transactions with the Group is not disclosed. We review whether the Corporate Governance Statement on pages 14 to 17 reflects the Company’s compliance with the nine provisions of the 2003 FRC Code specified for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report, including the Corporate Governance Statement and the unaudited part of the Directors’ Remuneration Report, 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. 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 and the part of the Directors’ Remuneration Report to be audited. 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 and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited. 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 31 December 2004 and of the profit of the Group for the year then ended; and the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985. KPMG Audit Plc Chartered Accountants Registered Auditor 9 March 2005 2 Cornwall Street Birmingham B3 2DL 24 Hill & Smith Holdings PLC Annual Report 2004 (cid:4) (cid:4) Group Profit and Loss Account for the year ended 31 December 2004 Year ended 31 December 2004 Year ended 31 December 2003 Before exceptional items and (Restated) Before exceptional items and goodwill Exceptional Goodwill goodwill Exceptional Goodwill amortisation items amortisation Total amortisation items amortisation Notes £000 £000 £000 £000 £000 £000 £000 Total £000 Turnover Existing operations Acquisitions 266,935 1,717 Total turnover 1,2 268,652 — — — — 266,935 241,665 — — 1,717 — 268,652 241,665 Operating profit Existing operations Acquisitions 15,105 (21) (1,616) (268) (1,674) 11,815 (289) — 12,592 — — — — (5) — — 241,665 — — — 241,665 (1,630) — 10,957 — Operating profit 1,2,3 15,084 (1,884) (1,674) 11,526 12,592 (5) (1,630) 10,957 Profit on sale of businesses Profit on sale of properties Loss on termination of operations 3 — — — — 187 — — — — — 187 — — — — 540 85 (1,851) — — — 540 85 (1,851) Profit on ordinary activities before interest Net interest payable Other finance income Profit on ordinary activities before taxation Tax on profit Profit on ordinary activities after taxation Minority interests 1 5 23 15,084 (1,697) (1,674) 11,713 12,592 (1,231) (1,630) 9,731 (3,779) 502 — — — — (3,779) 502 (3,755) 239 — — — — (3,755) 239 6 7 11,807 (3,333) (1,697) 991 (1,674) 18 8,436 (2,324) 9,076 (2,486) (1,231) 598 (1,630) 16 6,215 (1,872) 8,474 (8) (706) — (1,656) — 6,112 (8) 6,590 (3) (633) — (1,614) — 4,343 (3) Profit for the year 8,466 (706) (1,656) 6,104 6,587 (633) (1,614) 4,340 Dividends Retained profit for the year Earnings per share Diluted earnings per share 8 21 9 9 * FRS 3 All results relate to continuing operations (3,112) 2,992 (2,838) 1,502 13.66p (1.14p) 13.06p (1.09p) (2.66p) (2.56p) 9.85p* 10.69p 9.42p* 10.61p (1.03p) (1.02p) (2.62p) (2.60p) 7.04p* 6.99p* Hill & Smith Holdings PLC Annual Report 2004 25 Group Balance Sheet at 31 December 2004 Fixed assets Intangible assets Tangible assets Investments Current assets Properties held for resale Stocks Debtors Cash and deposits Creditors: amounts falling due within one year Borrowings and finance leases Other creditors Net current assets Total assets less current liabilities Creditors: amounts falling due after one year Borrowings and finance leases Provisions for liabilities and charges Net assets excluding pension liability Pension liability Net assets Share capital and reserves Called up share capital Share premium Capital redemption reserve Revaluation reserve Other reserves Profit and loss account Equity shareholders’ funds Equity minority interests 31 December 31 December 2004 £000 2003 (Restated) £000 Notes 10 11 12 13 14 15 15 16 18,19 23 20 21 21 21 21 21 26,041 44,860 25 70,926 1,746 27,004 57,977 9,901 96,628 27,240 41,437 25 68,702 1,407 23,641 47,226 14,323 86,597 (11,806) (79,774) (10,370) (66,768) (91,580) (77,138) 5,048 9,459 75,974 78,161 (36,003) (4,030) 35,941 (4,649) 31,292 15,519 3,519 238 685 4,313 6,968 31,242 50 31,292 (40,438) (4,343) 33,380 (2,569) 30,811 15,424 3,423 238 739 4,313 6,632 30,769 42 30,811 Approved by the Board of Directors on 9 March 2005 and signed on its behalf by: D L Grove Director C J Burr Director 26 Hill & Smith Holdings PLC Annual Report 2004 Company Balance Sheet at 31 December 2004 Fixed assets Tangible assets Investments Current assets Debtors Cash and deposits Creditors: amounts falling due within one year Borrowings and finance leases Other creditors Net current liabilities Total assets less current liabilities Creditors: amounts falling due after one year Borrowings and finance leases Provisions for liabilities and charges Net assets Share capital and reserves Called up share capital Share premium Capital redemption reserve Profit and loss account Equity shareholders’ funds Approved by the Board of Directors on 9 March 2005 and signed on its behalf by: D L Grove Director C J Burr Director 31 December 31 December 2004 £000 2003 (Restated) £000 Notes 11 12 14 15 15 37 104,234 104,271 15,583 30 15,613 50 97,226 97,276 19,821 30 19,851 (29,998) (5,449) (24,471) (6,163) (35,447) (30,634) (19,834) (10,783) 84,437 86,493 16 (34,207) (39,045) 18,19 — (23) 50,230 47,425 20 21 21 21 15,519 3,519 238 30,954 50,230 15,424 3,423 238 28,340 47,425 Hill & Smith Holdings PLC Annual Report 2004 27 Group Cash Flow Statement for the year ended 31 December 2004 Notes 24a 24b 24c 24d Net cash flow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Acquisitions and disposals Equity dividends paid Cash flow before financing Financing Issue of new shares Loan advances Loan repayments Redemption of loan notes Repayments of capital element of finance leases (Decrease)/increase in cash in the year Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash Cash outflow from borrowings Change in net debt resulting from cash flows New finance leases Amortisation of arrangement fees Movement in net debt in the year Net debt at the start of the year Net debt at the end of the year 24e 24e 191 1,500 (4,250) (827) (1,102) Year ended 31 December 2004 £000 18,097 (4,108) (2,258) (6,286) (2,533) (2,846) 66 (4,488) (4,422) (4,422) 4,679 257 (1,542) (138) (1,423) (36,485) (37,908) 89 50,406 (57,539) (328) (861) Year ended 31 December 2003 (Restated) £000 20,925 (4,040) (1,182) (4,230) 1,031 (2,759) 9,745 (8,233) 1,512 1,512 8,322 9,834 (1,414) (35) 8,385 (44,870) (36,485) 28 Hill & Smith Holdings PLC Annual Report 2004 Other Primary Statements Statement of Group Total Recognised Gains and Losses for the year ended 31 December 2004 Profit for the year Actuarial (loss)/gain recognised in the pension scheme Deferred tax arising on losses/(gains) in the pension scheme Current tax arising on losses in the pension scheme Currency translation differences on overseas net investments Total recognised gains and losses relating to the the year Prior year adjustment (see note 25) Total recognised gains and losses since the last annual report Year ended Year ended 31 December 31 December 2003 (Restated) £000 4,340 393 (118) — (17) 4,598 2004 £000 6,104 (3,920) 904 272 34 3,394 (7,177) (3,783) Note of Group Historical Cost Profits and Losses for the year ended 31 December 2004 There is no material difference between the results as shown in the profit and loss account and their historical cost equivalent. Reconciliation of movement in Shareholders’ Funds for the year ended 31 December 2004 Group Company Profit for the year Dividends Other recognised net gains and losses relating to the year New ordinary share capital issued Net increase in shareholders’ funds Opening shareholders’ funds (original £37,946,000 restated for prior year adjustment of £7,177,000) Shareholders’ funds at the end of the year Year ended 31 December 2004 £000 6,104 (3,112) 2,992 (2,710) 191 473 Year ended Year ended 31 December 31 December 2004 2003 (Restated) £000 4,340 (2,838) 1,502 258 89 £000 5,726 (3,112) 2,614 — 191 Year ended 31 December 2003 (Restated) £000 6,719 (2,838) 3,881 — 89 1,849 2,805 3,970 30,769 31,242 28,920 30,769 47,425 50,230 43,455 47,425 Hill & Smith Holdings PLC Annual Report 2004 29 Principal Accounting Policies The following accounting policies have been applied Purchased goodwill (representing the excess of the fair consistently in dealing with items which are considered value of the consideration given over the fair value of the material in relation to the Group’s financial statements separable net assets acquired) arising on consolidation in except as noted below. The Company has adopted FRS respect of acquisitions since 1 October 1998 is capitalised. 17: Retirement Benefits in full in these financial statements. Goodwill is amortised by equal annual instalments over its The comparative figures have been restated accordingly. estimated useful life. The Directors consider each Further details are given in note 25. acquisition separately for the purpose of determining the amortisation period for any goodwill that arises. Basis of preparation The financial statements have been prepared in The net assets of businesses acquired are incorporated into accordance with applicable accounting standards and the consolidated financial statements at their fair value to under the historical cost accounting rules, modified to the Group. Fair value adjustments are always considered to include the revaluation of certain land and buildings. be provisional at the first balance sheet date after acquisition to allow the maximum time to elapse for Basis of consolidation management to make a reliable estimate. The consolidated financial statements include the financial statements of the Company and its subsidiary undertakings Investments made up to 31 December 2004. The acquisition method of In the Company’s financial statements, investments in accounting has been adopted. Under this method, the subsidiary undertakings are stated at cost, less amounts results of subsidiary undertakings acquired or disposed of written off for impairment. in the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of Foreign currencies disposal. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Any Under Section 230(4) of the Companies Act 1985 the gain or loss on translation arising from a movement in Company is exempt from the requirement to present its exchange rates subsequent to the date of a transaction is own profit and loss account. included as an exchange gain or loss in the profit and loss Where a Group company is party to a joint arrangement account. that is not an entity, the Group accounts directly for its part The assets and liabilities of overseas subsidiary of the income and expenditure, assets, liabilities and cash undertakings are translated at the closing exchange rate. flows on consolidation. Such joint arrangements are Profit and loss accounts of such undertakings are effectively an extension of the Group’s activities and do not consolidated at the average exchange rate during the year carry on a trade or business of their own. and the adjustment to year end rates is taken directly to Goodwill and negative goodwill reserves. Exchange differences arising on the retranslation of the opening net assets of foreign subsidiaries, foreign Purchased goodwill (both positive and negative) arising on currency loans used for overseas investment, and consolidation in respect of acquisitions before 1 October transactions executed solely for the purpose of hedging 1998, when FRS 10, Goodwill and Intangible Assets, was foreign currency asset exposure, are taken directly to adopted, was written off to reserves in the year of reserves. acquisition. In accordance with the transitional rules of FRS 10, this treatment has continued to be applied to such Turnover acquisitions. When a subsequent disposal occurs, any Except for work completed under long term contracts related goodwill previously written off to reserves is written (page 31), turnover represents the amount (excluding value back through the profit and loss account as part of the added tax) invoiced to third party customers following the profit or loss on disposal. delivery of goods or provision of services. 30 Hill & Smith Holdings PLC Annual Report 2004 Tangible fixed assets and depreciation Depreciation is provided to write off the cost or valuation surplus/deficit arising from employee service in the year is charged to operating profit. The expected return on the less the estimated residual value of tangible fixed assets by schemes’ assets and the increase during the year in equal instalments over their estimated useful economic the present value of the schemes’ liabilities arising from lives as follows: Freehold buildings Leasehold land and buildings 50 years life of lease Plant, machinery and vehicles 4 to 20 years the passage of time are recognised in other finance income. Actuarial gains and losses are recognised in the consolidated statement of total recognised gains and losses. Contributions in respect of defined contribution schemes No depreciation is provided on freehold land. are charged to the profit and loss account in the year to which they relate. The Group has followed the transitional provisions of FRS 15 to retain the book value of freehold land and buildings, certain of which had been revalued from their historic cost. Stocks Stocks are stated at the lower of cost and net realisable value. In determining the cost of raw materials, Investment properties are revalued annually. Any surplus or consumables and goods purchased for resale, the FIFO deficit arising is transferred to a revaluation reserve, except method is used. Cost for work in progress and finished for any impairment in value which is charged against the goods comprises direct materials, direct labour and an profit for the year. Depreciation is not provided in respect of appropriate proportion of attributable overheads. such properties. This is not in accordance with the requirements of the Companies Act 1985. However, these properties are not held for consumption but for investment Long term contracts The profit attributable to the stage of completion of a long and the Directors consider that their systematic annual term contract is recognised when the outcome of the depreciation would be inappropriate. The policy adopted is contract can be foreseen with reasonable certainty. therefore considered to be necessary for the accounts to Turnover for such contracts is stated as cost appropriate to give a true and fair view. Government grants Capital based government grants are included within their stage of completion plus attributable profits, less amounts recognised in previous years. Provision is made for losses as soon as they are foreseen. accruals and deferred income in the balance sheet and Contract work in progress is stated at costs incurred, less credited to operating profit over the estimated useful those transferred to the profit and loss account, after economic lives of the assets to which they relate. deducting foreseeable losses and payments on account not matched with turnover. Leases Assets acquired under finance leases are capitalised and Amounts recoverable on contracts are included in debtors the outstanding future lease obligations are shown in and represent turnover recognised in excess of payments creditors. Operating lease rentals are charged to the profit on account. and loss account on a straight-line basis over the period of the lease. Research and development Research and development expenditure is written off in the Pension costs As explained in note 23 the Group has fully adopted FRS year in which it is incurred. 17 during the year. Deferred taxation Deferred tax is provided, without discounting, on timing Defined benefit pension scheme surpluses (to the extent differences between the treatment of items for taxation they are recoverable) or deficits are recognised in full on the and accounting purposes except as otherwise required by balance sheet, net of deferred tax. The movement in the FRS 19. Hill & Smith Holdings PLC Annual Report 2004 31 Notes to the Financial Statements 1 Segmental information Continuing operations: Existing operations Acquisitions Building and Construction Year ended 31 December 2004 Year ended 31 December 2003 Profit before (Restated) Profit before Operating interest Net Operating interest Net Turnover profit* and tax assets Turnover profit* and tax assets £000 £000 £000 £000 £000 £000 £000 £000 228,132 1,717 13,636 (21) 10,651 (282) 47,259 204,687 — 1,105 11,633 — 9,714 — 39,639 — Products 229,849 13,615 10,369 48,364 204,687 11,633 9,714 39,639 Continuing operations: Existing operations Industrial Products Continuing operations: Existing operations Acquisitions Total operations Tax and dividends Other provisions Net borrowings Goodwill Total Group By geographical origin UK Rest of World Total 38,803 38,803 1,469 1,469 1,344 11,578 36,978 1,344 11,578 36,978 959 959 17 17 12,572 12,572 266,935 1,717 15,105 (21) 268,652 15,084 11,995 (282) 11,713 58,837 241,665 — 59,942 241,665 1,105 12,592 — 12,592 9,731 — 52,211 — 9,731 52,211 (10,505) (6,278) (37,908) 26,041 31,292 (7,929) (4,226) (36,485) 27,240 30,811 267,100 14,828 11,457 1,552 256 256 31,277 240,448 1,217 15 12,454 9,684 30,127 138 47 684 268,652 15,084 11,713 31,292 241,665 12,592 9,731 30,811 Turnover by geographical destination UK Rest of Europe Asia USA Rest of World Total 242,964 18,443 1,874 770 4,601 268,652 220,508 11,864 2,446 1,135 5,712 241,665 * Operating profit is stated before exceptional items and goodwill amortisation. 32 Hill & Smith Holdings PLC Annual Report 2004 2 Operating profit Turnover Cost of sales Gross profit Distribution costs Administrative expenses Other operating income Year ended 31 December 2004 £000 268,652 (206,993) Year ended 31 December 2003 (Restated) £000 241,665 (184,693) 61,659 56,972 (20,839) (25,860) 124 (20,352) (24,243) 215 Operating profit before exceptional items and goodwill amortisation 15,084 12,592 Exceptional items Goodwill amortisation Operating profit (1,884) (1,674) (5) (1,630) 11,526 10,957 Operating profit before exceptional items and goodwill amortisation has been shown because the Directors consider that this gives a more meaningful indication of the underlying performance of the Group. 3 Exceptional items Exceptional items from existing operations include £424,000 in respect of the special bonus and associated costs incurred in connection with the exercise by D L Grove of share options, as explained in the Directors’ Remuneration Report on page 19. The remainder relates primarily to costs arising from business reorganisations at Redman Fisher Engineering Limited and Joseph Ash Limited. Exceptional items on acquisitions relate to costs incurred in reorganising and integrating the Lionweld Kennedy operations which were acquired during the year (see Note 24 (f)). The profit on sale of properties of £187,000 relates to the sale of Bumpers Farm, Chippenham. 4 Employees The average number of people employed by the Group during the year was: Building and Construction Products Industrial Products The aggregate employment cost for the year was: Wages and salaries Social security costs Pension cost Year ended 31 December 2004 Year ended 31 December 2003 (Restated) 1,880 440 2,320 £000 49,923 4,972 1,701 56,596 1,815 527 2,342 £000 48,916 4,921 1,533 55,370 Details of the Directors’ remuneration and share interests are given in the Directors' Remuneration Report on pages 18 to 22. Hill & Smith Holdings PLC Annual Report 2004 33 Notes to the Financial Statements continued 5 Net interest payable Interest payable: Bank loans and overdrafts Interest on finance leases and hire purchase contracts Amortisation of arrangement fees Other loans Interest receivable 6 Profit on ordinary activities before taxation The profit on ordinary activities is stated after charging: Depreciation of tangible fixed assets: Owned Leased Amortisation of goodwill Operating lease rentals: Plant and machinery Other Research and development expenditure Auditor’s remuneration (including Company £41,000 (2003: £33,000)) Non-audit fees paid to the auditor and their associates: Other assurance services Taxation In relation to acquisitions and disposals Other fees Foreign exchange loss After crediting: Profit on disposal of fixed assets Grants receivable Rental income Foreign exchange gain Year ended Year ended 31 December 31 December 2004 £000 2003 £000 3,475 3,825 187 138 74 3,874 (95) 3,779 154 35 158 4,172 (417) 3,755 Year ended Year ended 31 December 31 December 2004 £000 2003 £000 5,110 475 1,674 777 4,388 65 222 64 60 — 45 — 36 3 1,988 197 5,369 250 1,630 788 3,046 60 201 51 38 110 39 173 160 — 1,863 — 34 Hill & Smith Holdings PLC Annual Report 2004 7 Taxation UK corporation tax on profits of the year Adjustments in respect of previous periods Foreign tax Deferred taxation: origination and reversal of timing differences Current year Adjustments in respect of previous periods Year ended Year ended 31 December 31 December 2004 £000 2,558 — 39 2,597 (111) (162) 2,324 2003 (Restated) £000 1,315 (136) 22 1,201 820 (149) 1,872 Factors affecting tax charge for the year The tax charge for the year has been reduced by £347,000 (2003: £232,000) as a result of capital allowances in respect of industrial buildings which are no longer subject to clawback. The current tax charge for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below: Profit on ordinary activities before taxation Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% Effect of goodwill amortisation Profit on ordinary activities before goodwill amortisation Year ended Year ended 31 December 31 December 2004 £000 8,436 2,531 484 2003 (Restated) £000 6,215 1,865 473 multiplied by the standard rates of corporation tax in the UK of 30% 3,015 2,338 Expenses not deductible for tax purposes Deductible employee share option gains not charged against profit Capital allowances for period in excess of depreciation Income and expenditure timing differences Capital profits less losses and write-downs not subject to tax Overseas profits taxed at lower rates Overseas losses not relieved Adjustments in respect of previous periods Current tax charge 317 (412) (346) 110 (98) (35) 46 — 256 (20) (681) (372) (209) (16) 41 (136) 2,597 1,201 Hill & Smith Holdings PLC Annual Report 2004 35 Notes to the Financial Statements continued 8 Dividends Equity shares: Interim paid Final proposed Total 9 Earnings per share Year ended Year ended Year ended Year ended 31 December 31 December 31 December 31 December 2004 2003 Pence per share Pence per share 2.25 2.75 5.00 2.15 2.45 4.60 2004 £000 1,405 1,707 3,112 2003 £000 1,324 1,514 2,838 The weighted average number of shares in issue during the year was 61,999,081 (2003: 61,608,085), diluted for the effects of outstanding share options 64,805,705 (2003: 62,076,036). Earnings per share have been calculated on earnings of £6,104,000 (2003: £4,340,000 as restated) and earnings per share before exceptional items and goodwill amortisation on earnings of £8,466,000 (2003: £6,587,000 as restated). Earnings per share before exceptional items and goodwill amortisation have been shown because the Directors consider that this gives a more meaningful indication of the underlying performance of the Group. 10 Intangible fixed assets Goodwill Group At 31 December 2003 Additions in the year Amortisation charge for the year At 31 December 2004 Gross Amortisation £000 32,419 475 — 32,894 £000 (5,179) — (1,674) (6,853) Net £000 27,240 475 (1,674) 26,041 All acquisitions are being amortised over a period of twenty years. Additions in the year primarily represent the goodwill arising on the acquisition of Lionweld Kennedy. 36 Hill & Smith Holdings PLC Annual Report 2004 11 Tangible fixed assets Group Company Land and buildings Plant, Plant, Short machinery Short machinery Freehold leasehold & vehicles Total leasehold & vehicles £000 £000 £000 £000 £000 £000 Total £000 Cost or valuation At 31 December 2003 Exchange adjustments Acquisitions Additions Disposals 16,587 814 79,849 97,250 — 911 1,042 (66) — — 35 — (16) 400 6,923 (4,236) (16) 1,311 8,000 (4,302) At 31 December 2004 18,474 849 82,920 102,243 Depreciation At 31 December 2003 Exchange adjustment Disposals Charge for the year At 31 December 2004 Net book value 1,310 — — 247 1,557 48 — — 16 64 54,455 55,813 (4) (4) (4,011) 5,322 (4,011) 5,585 55,762 57,383 At 31 December 2004 16,917 785 27,158 44,860 At 31 December 2003 15,277 766 25,394 41,437 Particulars relating to revalued assets are given below: Land & 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 9 — — — — 9 2 — — — 2 7 7 105 114 — — 5 — — — 5 — 110 119 62 — — 18 80 30 43 64 — — 18 82 37 50 31 December 31 December 2004 £000 2,850 547 1,939 13,987 19,323 6,315 (1,881) 4,434 2003 £000 2,850 547 2,005 11,999 17,401 6,315 (1,725) 4,590 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 £7,959,000 (2003: £7,680,000). Included in the net book value of plant, machinery and vehicles is £3,782,000 (2003: £2,457,000) in respect of assets held under finance lease and similar hire purchase contracts. Included within plant, machinery and vehicles are assets held for hire with a cost of £7,497,000 (2003: £4,707,000) and accumulated depreciation of £1,240,000 (2003: £681,000). Hill & Smith Holdings PLC Annual Report 2004 37 Notes to the Financial Statements continued 12 Fixed asset investments Group Cost At 31 December 2003 and 31 December 2004 Provisions At 31 December 2003 and 31 December 2004 Net book value Trade investments £000 815 790 Loans £000 Total £000 250 1,065 250 1,040 At 31 December 2003 and 31 December 2004 25 — 25 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 bank rate and is repayable at any time with the permission of that company’s bankers. 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. Company Cost At 31 December 2003 Additions At 31 December 2004 Provisions At 31 December 2003 At 31 December 2004 Net book value At 31 December 2004 At 31 December 2003 Share in Group Loans to Group Trade undertakings undertakings investments £000 £000 £000 82,662 1,005 83,667 1,910 1,910 81,757 80,752 17,790 6,003 23,793 1,316 1,316 22,477 16,474 750 — 750 750 750 — — Other Loans £000 250 — 250 250 250 — — Total £000 101,452 7,008 108,460 4,226 4,226 104,234 97,226 A list of the principal Group businesses is given on pages 50 and 51. All the Group’s subsidiaries are wholly owned except for Pipe Supports (Asia) Limited, a company incorporated in Thailand, in which the Group has an equity interest of 87%. Redman Fisher (Ireland) Limited is incorporated in the Republic of Ireland. The Company’s subsidiary, Express Reinforcements Limited, continues to operate a joint arrangement through Express O’Rourke JV Limited, a company in which it holds 50% of the issued share capital. Express O’Rourke JV Limited manufactures and supplies steel reinforcement products for the construction of Terminal 5, Heathrow Airport. 38 Hill & Smith Holdings PLC Annual Report 2004 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 Deferred tax Other debtors Prepayments and accrued income Group 31 December 31 December 2004 £000 12,623 2,895 11,486 27,004 2003 £000 12,934 2,445 8,262 23,641 Group Company 31 December 31 December 31 December 31 December 2004 £000 2003 £000 53,692 42,443 — — — 1,617 2,668 — — — 434 4,349 2004 £000 — 13,056 1,768 6 644 109 2003 £000 38 17,996 — — — 1,787 57,977 47,226 15,583 19,821 Hill & Smith Holdings PLC Annual Report 2004 39 Notes to the Financial Statements continued 15 Creditors: amounts falling due within one year Borrowings and finance leases Bank loans and overdrafts Current portion of long term bank loans Finance lease and hire purchase obligations Loan notes Other creditors Trade creditors Bills of exchange Corporation tax Other taxation and social security Accruals and deferred income Payments received on account Proposed dividend Other creditors 16 Creditors: amounts falling due after one year Borrowings and finance leases Long term bank loans Finance lease and hire purchase obligations Group Company 31 December 31 December 31 December 31 December 2004 £000 — 9,612 1,070 1,124 2003 £000 — 7,612 807 1,951 2004 £000 2003 £000 19,036 14,683 9,612 226 1,124 7,612 225 1,951 11,806 10,370 29,998 24,471 48,552 41,366 8,067 2,471 2,529 8,278 2,365 3,104 4,408 2,217 2,405 2,553 6,816 5,412 2,838 3,161 79,774 66,768 803 — — 10 1,049 — 3,104 483 5,449 2,037 — — 36 941 — 2,838 311 6,163 Group Company 31 December 31 December 31 December 31 December 2004 £000 33,757 2,246 36,003 2003 £000 38,369 2,069 40,438 2004 £000 33,757 450 34,207 2003 £000 38,369 676 39,045 40 Hill & Smith Holdings PLC Annual Report 2004 16 Creditors: amounts falling due after one year (continued) The maturity of financial liabilities entered into by the Group and the Company is as follows: 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 Loan notes Amounts due within one year 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 31 December 2004 £000 31 December 31 December 2004 2003 £000 £000 31 December 2003 £000 9,612 7,612 28,648 22,295 5,112 28,645 33,757 43,369 1,124 1,124 4,612 33,757 38,369 45,981 1,951 1,951 1,070 807 1,305 941 2,246 3,316 795 1,274 2,069 2,876 5,112 28,645 33,757 62,405 1,124 1,124 226 225 225 450 676 4,612 33,757 38,369 60,664 1,951 1,951 225 225 451 676 901 The bank loans carry a rate of interest of up to 1.25% above LIBOR and are secured by a first fixed and floating charge over substantially all of the Group’s assets. Obligations under finance leases and hire purchase obligations are secured on the relevant assets. Included within bank loans due within one year is £5,000,000 (2003: £3,500,000) in respect of a revolving credit facility over which refinancing is permitted, the earliest date at which the lender can require repayment being 30 June 2008. In the absence of the refinancing facility, this amount would have been repayable on 31 January 2005. 17 Financial instruments (a) Management of financial risks 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. Interest rate risk The Group has used an interest rate swap to fix approximately 20% (2003: 36%) of its year end gross borrowings at a base rate of 6.11%. 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 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. The Group uses forward exchange contracts to hedge the majority of exposures that do exist. Hill & Smith Holdings PLC Annual Report 2004 41 Notes to the Financial Statements continued 17 Financial instruments (continued) (b) Financial assets 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 12. Where cash surpluses arise in the short term, interest is earned based on a floating rate related to bank base rates or LIBOR. Where the Group’s funding requirements allow longer term investment of surplus cash, management will review available options to obtain the best possible return whilst maintaining an appropriate degree of access to the funds. (c) Financial liabilities 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. 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 31 December 2004 Sterling at 31 December 2003 Sterling at 31 December 2004 Sterling at 31 December 2003 Floating rate Fixed rate financial liabilities £000 38,309 31,927 financial liabilities £000 Total £000 9,500 18,881 47,809 50,808 Fixed rate financial liabilities Weighted Weighted average period average for which rate interest rate % 5.4 6.8 is fixed years 0.8 1.3 (d) Maturity profile 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 31 December 2004 the Group had the following undrawn committed facilities, in respect of which all conditions precedent had been met: Undrawn committed borrowing facilities Expiring after more than two years 2004 £000 2003 £000 17,500 19,000 (e) Fair values At 31 December 2004 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. 42 Hill & Smith Holdings PLC Annual Report 2004 18 Provisions for liabilities and charges Deferred taxation £000 At 31 December 2003 As previously reported Prior year restatement (see note 25) Movement in deferred tax on pension liability (see notes 19 & 23) Provisions released Utilised during the year At 31 December 2004 4,661 (1,975) 2,686 892 — (1,177) 2,401 Group Total £000 6,318 (1,975) 4,343 892 (9) (1,196) 4,030 Deferred taxation £000 Company Total £000 23 — 23 — — (29) (6) 23 — 23 — — (29) (6) Other £000 1,657 — 1,657 — (9) (19) 1,629 Other provisions at 31 December 2004 relate to potential liabilities for environmental costs and dilapidations on leasehold properties. 19 Deferred taxation Details of amounts provided for deferred taxation are set out below: Group Company 31 December 31 December 31 December 31 December At 31 December 2003 As previously reported Prior year restatement (see note 25) 2004 £000 4,661 (3,076) 1,585 (Credited)/charged for the year in the profit and loss account (273) (Credited)/charged for the year in the statement of total recognised gains and losses At 31 December 2004 Difference between accumulated depreciation, amortisation and capital allowances Other timing differences Deferred tax on pension liability (see notes 18 & 23) (904) 408 2,916 (515) 2,401 (1,993) 408 2004 £000 645 (622) 23 (29) — (6) (5) (1) (6) 2003 £000 473 (448) 25 (2) — 23 (5) 28 23 2003 £000 3,764 (2,968) 796 671 118 1,585 2,927 (241) 2,686 (1,101) 1,585 Hill & Smith Holdings PLC Annual Report 2004 43 Notes to the Financial Statements continued 20 Called up share capital 31 December 31 December 2004 £000 2003 £000 Authorised 80,000,000 Ordinary shares of 25p each (2003: 80,000,000) 20,000 20,000 Allotted, called up and fully paid 62,075,294 Ordinary shares of 25p each (2003: 61,697,484) 15,519 15,424 During the year the Company issued 377,810 shares under its various share option schemes (2003: 132,529), realising £191,198 (2003: £89,008) Options over the Company's shares outstanding at 31 December 2004 were: 1985 Executive Share Option Scheme 1995 Executive Share Option Scheme 1999 Non-Approved Executive Share Option Scheme Number of shares 68,053 65,599 74,000 52,000 173,000 500,000 4,000 158,000 177,000 Option Date first price (p) exercisable Expiry date 113 114 69 70 66 67 69 70 66 23 Jan 1998 23 Jan 2005 20 Feb 1999 20 Feb 2006 4 Aug 2002 4 Aug 2009 2 July 2004 2 July 2011 21 Jan 2005 21 Jan 2012 9 July 2002 9 July 2006 4 Aug 2002 2 Aug 2006 2 Apr 2004 2 July 2008 21 Jan 2005 21 Jan 2012 1995 Savings Related Share Option Scheme 1,458,759 100 1 Jan 2010 1 July 2010 21 Share premium and reserves Group At 31 December 2003 As previously reported Prior year restatement (see note 25) Retained profit for the year Exchange differences Net actuarial loss recognised in the pension scheme Transfer between reserves Shares issued Capital Share redemption Revaluation Other Profit and loss account premium £000 reserve £000 reserve £000 reserves (Restated) £000 £000 3,423 — 3,423 — — — — 96 238 — 238 — — — — — 739 — 739 — — — (54) — 685 4,313 — 4,313 — — — — — 13,809 (7,177) 6,632 2,992 34 (2,744) 54 — 4,313 6,968 At 31 December 2004 3,519 238 44 Hill & Smith Holdings PLC Annual Report 2004 21 Share premium and reserves (continued) Company At 31 December 2003 As previously reported Prior year restatement (see note 25) Retained profit for the year Shares issued At 31 December 2004 Share premium £000 Capital redemption reserve £000 3,423 — 3,423 — 96 3,519 238 — 238 — — 238 Profit and loss account (Restated) £000 29,790 (1,450) 28,340 2,614 — 30,954 Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired. The Group has taken advantage of Section 131 of the Companies Act 1985. The cumulative amount of positive goodwill resulting from acquisitions in earlier financial years which has been written off is £2,413,000 (2003: £2,413,000), 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 (2003: £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 Group profit for the year includes profit dealt with in the financial statements of the Company of £5,726,000 (2003: £6,719,000). 22 Guarantees and other financial commitments (a) Guarantees The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2004 was £2,363,000 (2003: £Nil). The Group had guarantees outstanding to a bank in respect of performance bonds of £1,722,104 (2003: £2,919,250). (b) Capital commitments Group Company 31 December 2004 £000 31 December 31 December 2004 £000 2003 £000 31 December 2003 £000 Contracted for but not provided in the accounts 335 228 — — (c) Operating lease commitments Annual commitments under non-cancellable operating leases expiring: 31 December 2004 31 December 2003 Group Within one year Between one and two years Between two and five years After five years Company Within one year Between one and two years Between two and five years After five years Land & buildings £000 136 114 429 2,813 3,492 — — — 34 34 Other £000 567 815 910 1 2,293 10 23 4 — 37 Land & buildings £000 104 — 238 2,654 2,996 — — — 34 34 Other £000 379 421 718 108 1,626 — — 26 — 26 Hill & Smith Holdings PLC Annual Report 2004 45 Notes to the Financial Statements continued 23 Pensions The Company operates two main pension schemes; one providing benefits accruing in the future on a defined benefit basis and a second, and larger, scheme providing benefits that are on a defined contribution basis. This second scheme also contains some defined benefit liabilities. The assets of both schemes are administered by trustees and are kept entirely separate from those of the Company. Independent actuarial valuations are carried out every three years. Contribution rates are determined on the basis of advice from an independent professionally qualified actuary, with the objective of providing the funds required to meet pension obligations as they fall due. Pension costs are similarly determined and are charged to the profit and loss account so as to spread the cost over the members’ working lives with the Company. There is also a separate Group personal pension plan operated by one of the Company’s subsidiaries. The profit and loss account for the year includes a pension charge of £1,701,000 (2003: £1,533,000) as restated, which includes the costs of the defined contribution scheme and the defined benefit scheme which are detailed below. Composition of the scheme The Group operates defined benefit schemes in the UK. A full actuarial valuation of the schemes was carried out as at as at 5 April 2003 and updated to 31 December 2004 by a qualified actuary. The principal assumptions used by the actuary were: Rate of increase in salaries Rate of increase in pensions in payment Discount rate Inflation assumption 31 December 31 December 31 December 31 December 2004 3.90% 2.65% 5.60% 2.75% 2003 3.75% 2.50% 5.75% 2.60% 2002 3.50% 2.00% 6.00% 2.00% 2001 4.00% 2.25% 6.00% 2.50% The Schemes hold assets and liabilities in respect of defined contribution benefits; these are equal in value and are excluded from the following figures. The assets in the scheme and expected rates of return as at 31 December were: Expected rate of return 2004 UK Equities Bonds Gilts With Profits policies Cash Other 8.00% 5.60% 4.75% 6.10% 4.75% 8.00% Total market value of assets Market Expected rate of Value return 2003 8.00% 5.75% 5.00% 6.25% 4.00% 8.00% 2004 £000 29,229 6,220 3,117 10,122 1,501 410 50,599 Present value of scheme liabilities (57,241) (Deficit)/surplus in the scheme (6,642) Related deferred tax asset (see note 19) Net pension (liability)/asset 1,993 (4,649) Market Expected Market Expected rate of return 2001 8.00% 6.00% 5.50% 6.75% 4.00% 8.00% Value 2003 £000 27,735 5,613 3,330 10,038 237 618 47,571 (51,241) (3,670) 1,101 (2,569) rate of return 2002 8.00% 6.00% 4.50% 6.25% 4.00% 8.00% Value 2002 £000 24,682 6,280 1,795 10,321 900 897 44,875 (48,616) (3,741) 1,122 (2,619) Market Value 2001 £000 28,864 5,884 1,659 11,150 2,350 1,050 50,957 (49,207) 1,750 (525) 1,225 46 Hill & Smith Holdings PLC Annual Report 2004 23 Pensions (continued) Analysis of the amount which has been charged to operating profit Current service cost Curtailments gain Total operating charge Analysis of the amount which has been credited to other finance income Expected return on pension scheme assets Interest on pension scheme liabilities Net return Analysis of the amount which has been recognised in the Statement of Total Recognised Gains and Losses Actual return less expected return on pension scheme assets Experience gains and losses arising on the pension scheme liabilities Changes in assumptions underlying the present value of the scheme liabilities Actuarial (loss)/gain Movement in the deficit during the year Deficit in scheme at the start of the year Movement in the year: Current service cost Contributions Other financing income Actuarial (loss)/gain Deficit in the scheme at the end of the year 31 December 2004 £000 31 December 2003 £000 717 (47) 670 792 — 792 31 December 2004 £000 31 December 2003 £000 3,398 (2,896) 502 3,068 (2,829) 239 31 December 2004 £000 31 December 2003 £000 545 413 (4,878) (3,920) 2,923 502 (3,032) 393 31 December 2004 £000 31 December 2003 £000 (3,670) (3,741) (670) 1,116 502 (3,920) (6,642) (792) 231 239 393 (3,670) 31 December 2004 £000 31 December 2003 £000 31 December 2002 £000 History of experience gains and losses during the year Difference between the expected return and actual return on scheme assets: Amount Percentage of scheme assets Experience gains and losses on scheme liabilities Amount Percentage of present value of scheme liabilities Total amount recognised in the Statement of Total Recognised Gains and Losses Amount Percentage of present value of scheme liabilities 545 1% 413 1% 2,923 6% 502 1% (8,694) (19)% (1,204) (2)% (3,920) (7)% 393 1% (5,521) (11)% Hill & Smith Holdings PLC Annual Report 2004 47 23 Pensions (continued) The Company is a member of the Group pension schemes which provide benefits on final pensionable pay. Because the Company is unable to identify its share of the scheme assets and liabilities on a consistent and reasonable basis, as permitted by FRS 17 ‘Retirement Benefits’, the schemes have been accounted for by the Company as if they were defined contribution schemes. 24 Notes to the Cash Flow Statement Year ended 31 December 2004 Before exceptional Exceptional items and items and goodwill goodwill amortisation amortisation £000 £000 Year ended 31 December 2003 (Restated) Total £000 Total £000 (a) Reconciliation of operating profit to net cash inflow from operating activities Operating profit Depreciation Amortisation of goodwill Profit on sale of fixed assets Change in working capital: Stocks Debtors Creditors and provisions 15,084 5,585 — (36) (2,613) (10,284) 11,954 (943) (3,558) — 1,674 — — — 291 291 11,526 10,957 5,585 1,674 (36) (2,613) (10,284) 12,245 (652) 5,619 1,630 (160) (573) 3,283 169 2,879 Net cash inflow/(outflow) from operating activities 19,690 (1,593) 18,097 20,925 (b) Returns on investments and servicing of finance Interest received Interest paid Interest element of finance lease rentals (c) Capital expenditure and financial investment Purchase of fixed assets Sale of fixed assets (d) Acquisitions and disposals Purchase of subsidiary undertakings and businesses (see note 24(f)) Sale of businesses (net of disposal costs) Termination of businesses 95 (4,016) (187) (4,108) (7,098) 812 (6,286) (2,533) — — (2,533) 417 (4,303) (154) (4,040) (5,442) 1,212 (4,230) — 2,882 (1,851) 1,031 48 Hill & Smith Holdings PLC Annual Report 2004 24 Notes to the Cash Flow Statement (continued) (e) Analysis of net debt Cash at bank and in hand Debt due within one year Debt due after one year Finance leases Net debt 31 December 2003 £000 14,323 (9,563) (38,369) (2,876) (36,485) Cash flow £000 (4,422) (1,035) 4,612 1,102 257 Other non-cash 31 December 2004 changes £000 — (138) — (1,542) (1,680) £000 9,901 (10,736) (33,757) (3,316) (37,908) (f) Purchase of subsidiary businesses (see note 24(d)) 31 December Net assets acquired: Tangible fixed assets Stock Provisions Goodwill Satisfied by: Cash 2004 £000 1,311 925 (175) 2,061 472 2,533 2,533 2,533 The Group acquired part of the business and assets of Lionweld Kennedy Limited on 27 October 2004. The acquisition has been accounted for under the acquisition method of accounting. Provisionally, no fair value adjustments have been made. 25 Prior year restatement The Company has adopted FRS 17: Retirement Benefits in these financial statements. The comparative figures have been restated accordingly. The adoption of FRS 17 has resulted in a decrease in the Group’s reported profit before tax for the year ended 31 December 2003 of £750,000. There is an overall decrease in the Group’s shareholders’ funds as at 31 December 2003 of £7,177,000. The amount of the restatement credited directly to the Group’s P&L reserve for the year ended 31 December 2003 which is included in the movement in shareholder’s funds above was £275,000. The adoption of FRS 17 has resulted in an overall decrease in the Company’s shareholders’ funds as at 31 December 2003 of £1,450,000. 26 Related party transactions During the year the Company purchased £22,537 (2003: £Nil) of services from Drayparcs Limited, of which £10,888 (2003: £Nil) remained due to Drayparcs Limited as at 31 December 2004. Drayparcs Limited is a company of which D L Grove is the chairman and a major shareholder. All of these transactions were undertaken on an arm’s length basis. Hill & Smith Holdings PLC Annual Report 2004 49 Principal Group Businesses Building and Construction Products Infrastructure Products Group Other businesses Asset International Limited (Large diameter plastic drainage pipes and storm water attenuation tanks) Stephenson Street, Newport, Gwent, NP9 0XH Tel: (01633) 273081 Fax: (01633) 281301 Email: sales@assetint.co.uk Website: www.assetint.co.uk Barkers Engineering Limited (Fencing, galvanizing, powder coating and fasteners) Etna Works, Duke Street, Fenton, Stoke-on-Trent, Staffordshire, ST4 3NS Tel: (01782) 319264 Fax: (01782) 599724 Email: sales@barkers-engineering.co.uk Website: www.barkers-engineering.co.uk Hill & Smith Limited (Highway and off-highway safety barriers, temporary highway and general workzone protection systems and corrugated steel structures) Springvale Business and Industrial Park, Bilston, Wolverhampton, West Midlands, WV14 0QL Tel: (01902) 499400 Fax: (01902) 499419 Email: info@hill-smith.co.uk Website: www.hill-smith.co.uk Mallatite Limited (Street and highway lighting columns) Sandfold Lane, Levenshulme, Manchester, M19 3FT Tel: (0161) 225 3100 Fax: (0161) 257 2625 Email: sales@mallatite.co.uk Website: www.mallatite.co.uk Varley & Gulliver Limited (Parapets, gantries and pedestrian guardrails) 57–70 Alfred Street, Sparkbrook, Birmingham, B12 8JR Tel: (0121) 773 2441 Fax: (0121) 766 6875 Email: sales@v-and-g.co.uk Website: www.v-and-g.co.uk Ash & Lacy Building Systems Limited* (Metal cladding building systems and ancillary products) Bromford Lane, West Bromwich, West Midlands, B70 7JJ Tel: (0121) 525 1444 Fax: (0121) 525 3444 Email: enquiry@ashandlacy.com Website: www.ashandlacy.com Birtley Building Products Limited (Steel lintels, residential doors and galvanizing) 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 Express Reinforcements Limited* (Steel reinforcement products) Fordwater Trading Estate, Ford Road, Chertsey, Surrey, KT16 8HG Tel: (01932) 579600 Fax: (01932) 579601 Email: sales@expressreinforcements.co.uk Website: www.expressreinforcements.co.uk Redman Fisher Engineering Limited* (Industrial flooring, handrail systems and structures) Birmingham New Road, Tipton, West Midlands, DY4 9AQ Tel: (01902) 880880 Fax: (01902) 880446 Email: sales@redmanfisher.co.uk Website: www.redmanfisher.co.uk Joseph Ash Limited* (Galvanizing and the manufacture of steel storage tanks) Charles Henry Street, Birmingham, B12 0SP Tel: (0121) 622 4661 Fax: (0121) 666 6049 Email: sales@josephash.co.uk Website: www.josephash.co.uk 50 Hill & Smith Holdings PLC Annual Report 2004 Industrial Products W & S Allely Limited* (Aluminium, brass, copper and stainless steel stockholding) PO Box 58, Alma Street, Smethwick, West Midlands, B66 2RP Tel: (0121) 558 3301 Fax: (0121) 555 5194 Email: sales@allely.co.uk Website: www.allely.co.uk Ash & Lacy Perforators Limited* (Perforated and expanded metal) 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* (Speaker grilles and general presswork) Shenstone Works, Lynn Lane, Shenstone, Lichfield, WS14 0EB Tel: (01543) 480361 Fax: (01543) 481624 Email: sales@alpressings.co.uk Website: www.alpressings.co.uk Bromford Iron & Steel Company Limited* (Hot rolled steel flats, bars, sections and profiles) Bromford Lane, West Bromwich, West Midlands, B70 7JJ Tel: (0121) 553 6121 Fax: (0121) 525 0913 Email: enquiries@bromfordsteels.co.uk Website: www.bromfordsteels.co.uk The companies marked * are indirectly held. D & J Steels Limited (Forging and engineering steel stockholding) Lambert Works, Colliery Road, Wolverhampton, West Midlands, WV1 2RD Tel: (01902) 453680 Fax: (01902) 455431 Email: sales@dandjsteels.demon.co.uk Eden Material Services (UK) Limited* (Stainless steel hollow bar, tube and pipe stockholding) Unit 42a, No. 1 Industrial Estate, Medomsley Road, Consett, County Durham, DH8 6TT Tel: (01207) 590055 Fax: (01207) 590059 Email: sales@edenmaterials.co.uk Website: www.edenmaterials.co.uk Pipe Supports Limited* (Constant and variable pipe support systems) Salwarpe Road, Droitwich, Worcestershire, WR9 9BH Tel: (01905) 795500 Fax: (01905) 794126 Email: psl@pipesupports.com Website: www.pipesupports.com Hill & Smith Holdings PLC Annual Report 2004 51 Five Year Summary Year ended Year ended Year ended 15 months ended Year ended 31 December 31 December 31 December 31 December 30 September 2004 £000 2003† £000 2002 £000 2001 £000 2000 £000 268,652 241,665 212,740 241,849 58,858 15,084 11,807 31,242 19,690 13.66p 5.00p 12,592 9,076 30,769 21,267 10.69p 4.60p 14,008 10,019 35,848 24,244 11.79p 4.50p 15,696 10,085 34,348 30,244 12.01p 5.45p 4,770 4,102 23,979 4,213 7.63p 4.20p Turnover Operating profit* Profit before taxation* Shareholders’ funds Operating cash flow* Earnings per share* Dividends per share * Before exceptional items and goodwill amortisation † Restated Financial Calendar Annual General Meeting 2005 13 May 2005 Payment of final dividend for the year ended 31 December 2004 (ex dividend date 8 June 2005) 13 July 2005 Announcement of results for six months ending 30 June 2005 Payment of interim dividend Preliminary Announcement of results for the year ending 31 December 2005 September 2005 January 2006 March 2006 52 52 Hill & Smith Holdings PLC Annual Report 2004 Hill & Smith Holdings PLC Annual Report 2004 Hill and Smith is a decentralised group serving the infrastructure, building and construction industries. Contents Chairman’s Statement Operational Review Financial Review Directors, Advisers and Committees Directors’ Report Corporate Governance Directors’ Remuneration Report Statement of Directors’ Responsibilities Independent Auditor’s Report to the Members of Hill & Smith Holdings PLC Financial Statements Principal Accounting Policies Notes to the Financial Statements Principal Group Businesses Five Year Summary Financial Calendar 2 4 7 10 12 14 18 23 24 25 30 32 50 52 52 “The Group made further substantial progress in 2004, achieving record profits and further increasing the scope and strength of its operations.” Hill & Smith Holdings PLC 2 Highlands Court Cranmore Avenue Shirley Solihull B90 4LE Telephone: (0121) 704 7430 Facsimile: (0121) 704 7439 Website: www.hsholdings.co.uk H i l l & S m i l i t h H o d n g s P L C A n n u a l R e p o r t 2 0 0 4 Hill & Smith Holdings PLC Annual Report 2004