Hill & Smith Holdings PLC
Westhaven House,
Arleston Way,
Shirley, Solihull, B90 4LH
Tel: +44 (0)121 704 7430 Fax: +44 (0)121 704 7439
2009
Hill & Smith Holdings PLC
Annual Report and Accounts for the
year ended 31 December 2009
2009
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Stock Code: HILS
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Hill & Smith Holdings PLC
Hill & Smith Holdings PLC is an international
group with leading positions in the design,
manufacture and supply of infrastructure
products, galvanizing services and building and
construction products to global markets.
It serves its customers from facilities principally
in the UK, France, USA, Thailand and China.
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Mallatite lighting columns and lanterns supplied for New Crossgate rail
maintenance facility. These columns are hinged for safe maintenance.
Flowforge open steel flooring and tubular ballastrade system supplied by
Access Design for Minworth, Warwickshire, waste water treatment plant.
Contents
Overview
01 Key Financial Highlights
02 Chairman’s Statement
Business Review
04 Chief Executive’s Review
10 Our Divisions / Management
14 Financial Review
16 Key Performance Indicators
17 Principal Risks and Uncertainties
18
Corporate Social Responsibility Review
Governance
22 Board of Directors
24 Directors’ Report
28 Corporate Governance Report
34 Directors’ Remuneration Report
42
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
43
44 Group Financial Statements
86 Company Financial Statements
94
Five Year Summary and Financial Calendar
Information
95 Shareholder Information
96
98
Principal Group Businesses
Contacts and Professional Advisers
Front Cover in descending order
Varley & Gulliver VGAN 300 parapet installed for the Formula 1 racing event
in Abu Dhabi, UAE.
Techspan’s AMI’s used on the M1 junctions 6a-10 Managed Motorway project.
Preston Village North Shields flood alleviation scheme for Northumbrian Water
using Asset International’s Weholite plastic piping.
Cautionary Statement
This Annual Report contains forward looking statements which are made in good faith
based on the information available at the time of its approval. It is believed that the
expectations reflected in these statements are reasonable but they may be affected by
a number of risks and uncertainities that are inherent in any forward looking statement
which could cause actual results to differ from those currently anticipated.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Key Financial Highlights
Record profit before taxation and earnings per share
Underlying earnings per share(*) up by 18.9%
Dividends per share up by 15.0%
Net debt substantially reduced by £58.6m
Free cash flow increased significantly to £46.6m (2008: £9.4m)
Revenue
Underlying operating profit(*)
Underlying profit before tax(*)
Underlying earnings per share(*)
Basic earnings per share
Dividend per share
Net debt
2009
£389.7m
£47.0m
£42.2m
38.3p
36.3p
11.5p
£87.6m
2008
£419.8m
£47.4m
£38.9m
32.2p
30.0p
10.0p
£146.2m
Change
-7.2%
-0.8%
+8.5%
+18.9%
+21.0%
+15.0%
-£58.6m
Revenue
£389.7m
-7.2%
Underlying earnings
per share(*)
38.3p
+18.9%
Dividend
per share
11.5p
+15.0%
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(*) Non-Underlying items represent business reorganisation costs, property items, amortisation of acquistion intangibles, impairments, gains on disposal of available for
sale financial assets, change in the value of financial instruments and net financing return on pension obligations.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Chairman’s Statement
“The achievement of record underlying(*) profit
before tax and earnings per share for 2009 has
once again demonstrated the strength of the
management teams across the Group.”
Bill Whiteley
Chairman
Introduction
Firstly, I am delighted to be joining the Company as your new
Chairman, following the retirement of David Grove on
31 December 2009. On behalf of the Board I would like to thank
David for his considerable contribution to the development of
the Group and the value he has added for shareholders over
the last ten years, formerly as Chief Executive and more recently
as Chairman. David’s achievement in creating a successful
international group is much appreciated by his colleagues and
Shareholders.
Together with my fellow Directors I look forward to continuing
the successful development of the Group.
Overview
The achievement of record underlying(*) profit before tax and
earnings per share for 2009 has once again demonstrated
the strength of the management teams across the Group, the
international spread and resilience of its core markets and the
leading positions it has in those markets.
During the year we reacted quickly to a number of market
opportunities and managed costs in line with changing demand
patterns. Overall margins increased and through excellent cash
management we achieved a substantial reduction in the level of
net debt.
The year has not just been about the strong management
of cost, margins and cash. We succeeded in maintaining our
market positions, winning major contracts, extended our
representation to China with a new operation for the pipe
supports business and continued to refine the portfolio of
businesses with strategic disposals. In addition we opened a new
galvanizing plant in Delaware, USA.
Results from continuing businesses
Group revenue decreased by 7.2% to £389.7m
(2008: £419.8m). Profit before taxation in the period
increased by 13.1% to £39.7m (2008: £35.1m) and underlying
profit before taxation(*) increased by 8.5% to £42.2m
(2008: £38.9m).
Basic earnings per share increased by 21.0% to 36.3p (2008:
30.0p) whereas underlying earnings per share(*), a more
consistent and meaningful measure of performance, was 18.9%
ahead of last year at 38.3p (2008: 32.2p). The underlying
02
earnings per share(*) has now grown by a compound average
growth rate in excess of 21% over the past five years.
Dividends
The results for 2009, together with the Board’s confidence in
the Group’s prospects, enable the Directors to recommend to
shareholders a final dividend of 6.8p (2008: 5.7p), making a
total dividend for the year of 11.5p (2008: 10.0p), an increase
of 15.0%. The dividend for the year is covered 3.3 times by
underlying earnings per share(*). Our progressive dividend policy
has increased dividend payments by an average of 20% in each
of the last three years. The final dividend, if approved, will be
paid on 9 July 2010 to those shareholders on the register at
close of business on 4 June 2010.
Group strategy
The business climate in 2009 dictated that the main focus was
on delivery of earnings, cash generation and cost containment.
However, investment continued to be made in developing
products and operations for strategic markets in the road and
utilities sectors. The development of the Group’s interest in
overseas markets remains a key priority, and projects in the
US, India and China were initiated or enhanced. The pursuit of
organic and acquisition growth opportunities are a priority for
the current year.
Finance
Cash generated from operations was again strong at £71.0m
(2008: £54.2m) reflecting both significantly lower levels of
working capital and the culture of cash management now
embedded throughout the organisation. Reduced capital
expenditure was in line with expectations at £11.7m (2008:
£22.5m) which represents a multiple of depreciation and
amortisation of 0.8 times (2008: 1.8 times). The Group
continues to invest selectively in available opportunities where
returns are highest and which exceed internal benchmarks.
The substantial cash generation during the year resulted
in Group net debt at 31 December 2009 being £87.6m, a
reduction of £58.6m compared to the previous year (£146.2m).
At the year end the Group had total debt facilities available of
£203.6m including committed term facilities of £177.0m. The
facilities at its disposal provide significant headroom against its
expected funding requirements.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
The future
The Board believes that the Group will continue to show
resilience in its performance and good progress in the delivery of
its strategy.
We have strong positions in our markets, a good geographical
spread, cash generative businesses and a balance sheet and
financing facility that enable us to pursue further development
opportunities that may arise.
Bill Whiteley
Chairman
9 March 2010
Disposals
The Group made two strategic divestments during the year.
In June, the Group disposed of its ultimate minority
shareholding in Neholl BV, a Netherlands based company with
galvanizing operations across the Benelux region, for a net cash
consideration of €5.7m (£4.9m). Although operating in the
galvanizing sector this minority interest was not regarded as a
long term investment opportunity. The cash proceeds were used
to reduce the Group’s net debt and the disposal realised a profit
on sale of £1.0m.
In December, the Group sold Ash & Lacy Perforators Limited,
a UK company operating in the perforated metal sector, for a
consideration of £3.1m (including cash balances disposed of
£2.1m) resulting in a loss on disposal of £0.6m for this non-core
business.
Employees
The Group has some 3,000 employees, all of whom underpin
our performance. On behalf of the Board I would like to express
our thanks for their hard work and enthusiasm and congratulate
them on achieving another record performance.
Board of Directors
During the year Jock Lennox joined the Board, as an
independent Non-Executive Director, following the retirement
of Dick Richardson at the 2009 Annual General Meeting. In
addition to being a former partner at Ernst & Young, Jock has
considerable experience across a wide range of industries and in
international transactions and expansion. Jock also succeeded
Dick Richardson as Chairman of the Audit Committee.
Howard Marshall, having completed over nine years of valuable
service to the Board, will not, in line with corporate governance
practice, be standing for re-election at the Annual General
Meeting to be held on 7 May 2010. During his time as a
Non-Executive Director Howard has brought an independent,
balanced and experienced view to the Board and has contributed
significantly to the development of the Group. Along with his
fellow Directors and colleagues I thank Howard for all that he
has done for the Company.
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(*) Non-Underlying items represent business reorganisation costs, property items,
amortisation of acquisition intangibles, impairments, gains on disposal of available for
sale financial assets, change in the value of financial instruments and net financing
return on pension obligations.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Chief Executive’s Review
“We delivered robust trading around the
world and our overseas operations now
account for over fifty per cent of total
underlying operating profit(*).”
Derek Muir
Group Chief Executive
Performance
Throughout 2009 we continued to demonstrate our ability
to innovate and adapt our product offering and to maximise
opportunities in our core product range and geographical
markets. We delivered robust trading around the world and our
overseas operations now account for over fifty per cent of total
underlying operating profit(*).
The year also involved a more intense focus on the management
and consolidation of our operations, as we adapted our cost
base to the changes in demand and the economic environment.
Net debt was significantly reduced with strong operating cash
flows and early action to reduce volume related costs enabled us
to deliver good operating results for 2009 in what was a difficult
trading environment.
Revenue decreased by 7.2% to £389.7m (2008: £419.8m)
due to lower raw material prices and volumes, especially in
the Galvanizing Services division. Acquisitions completed in
2008 contributed £8.4m additional revenue and favourable
appreciation of the US$ and the Euro exchange rates added a
further £19.4m. Underlying operating profit(*) was maintained
at £47.0m (2008: £47.4m) of which acquisitions made in 2008
accounted for £0.9m. Favourable exchange rate movements
contributed a further £3.4m of profit (7.2%), and the underlying
operating margin(*) improved by 0.8% to 12.1%.
A review of each of the Group’s three operating divisions of
Infrastructure Products, Galvanizing Services and Building and
Construction Products is given on page 5 to 9.
Group Strategy
The strategic objective is to deliver a consistent growth
in earnings, dividend and shareholder value. We aim to
continue our track record of delivery of this objective through
concentration on our core markets and a clear focus on four key
strategic drivers.
Strategic drivers
Organic growth
Geographic
expansion
Strategic
acquisitions
Legislative growth
Strategic drivers – Progress during 2009
Organic growth
l
Completed major contract for Asia supplying our new
Stronguard fencing product.
Increased penetration in the energy/power markets.
Achieved acceptance of Zoneguard in Canada in addition to
the existing eight US States.
Geographic expansion
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New pipe supports plant in China became fully operational.
Undertook groundwork for establishment of new
representation in India for Pipe Supports and Hill & Smith
infrastructure products.
Continued USA galvanizing expansion programme with new
plant in Delaware.
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Strategic acquisitions
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Continued to assess acquisition of suitable businesses involved
in the road and utilities sectors.
Increasing legislative requirements in our markets
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Maximised opportunities arising from committed Government
spend.
Undertook further product development for the security sector.
l
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
These actions have continued the development of our product
offering and representation in generally resilient markets, where
we see potential for both domestic and international growth.
Fundamental to the continued delivery of our strategy is the
retention and strengthening of our position as a preferred
supplier in the chosen market segments. To achieve this we have
experienced and entrepreneurial management teams in place,
capable of delivering product development and value based
solutions.
Infrastructure Products (IP)
The IP division is focused on four main markets – roads, rail,
utilities and security and accounted for 52% of total revenue for
2009. We have developed HS Roads, HS Rail, HS Utilities and
HS Security to drive each business unit’s growth of revenue and
profitability in these sectors. The division’s extensive range of
products include permanent and temporary road safety barriers,
fencing, overhead sign gantries, street lighting columns, bridge
parapets, demountable car parks, glass reinforced plastic (GRP)
railway platforms, variable road messaging solutions, traffic
data collection systems, plastic drainage pipes, pipe supports
for the power and liquid natural gas (LNG) markets, energy grid
components and security fencing.
Revenue increased by 5.6% to £202.5m in 2009 (2008:
£191.8m) which included a currency translation benefit of
£6.9m. Underlying operating profit(*) was improved by 5.6%
to £24.5m (2008: £23.2m), including a currency translation
benefit of £1.1m. In its first full year since acquisition, Creative
Pultrusions contributed an additional £8.4m revenue and £0.9m
operating profit.
HS Roads
A strong performance was achieved in a number of the key
business units supplying the UK roads sector, which benefitted
from the UK stimulus spend focused on improving road safety
and increasing the capacity of the road network.
In 2009 the Highways Agency accelerated its managed
motorway programme to provide hard shoulder running at peak
times on congested motorways, resulting in a record year for our
variable electronic message signage business. We have a strong
order book entering 2010 and the Highways Agency has now
announced four contractors for the £2 billion programme, which
runs through to 2014. This will create further demand for our
temporary and permanent barriers, new lightweight gantries,
variable electronic message signage and lighting columns.
During the year rental of our Varioguard temporary barrier
reached record utilisation levels and our rental fleet was
increased by 25km to 173km to accommodate the deployment
of 46km on the M25 widening project, which will remain in
place until the 2012 Olympics.
Our permanent vehicle restraint systems, Flexbeam, Brifen and
VGAN, produced an excellent performance both in the UK and
in the export markets of Scandinavia, USA and the Middle East.
Also our Varley & Gulliver parapet was installed on prestigious
international projects such as the YAS Island F1 Grand Prix
Circuit and the Sheikh Zayed Bridge, both in Abu Dhabi.
In the UK, financing for street lighting PFI’s was released for a
number of projects. Mallatite, our UK street lighting operation,
secured an £8m five year supply contract for 72,000 lighting
columns in Surrey and a £10m contract, for the South East
Coast PFI, for 100,000 lighting columns; both contracts starting
in the early part of 2010. Our lighting column operation in
France had a disappointing start to 2009 due to the political and
financial impact of the local elections although the order intake
improved in the second half, as more funds were released for
infrastructure expenditure.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Chief Executive’s Review
Installation of our Top Deck demountable car parking at Asda Bristol which provides an extra 280 parking spaces for the supermarket.
The car park was constructed in less than four weeks with minimal disruption to Asda’s operations and delivering rapid financial returns.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
“During the year rental of our Varioguard
temporary barrier reached record utilisation
levels and our rental fleet was increased by
25km to 173km.”
In the year, TopDeck installed a large demountable car park for
a supermarket project in Bristol. Although it was otherwise a
disappointing period for this new product, as capital projects
were impacted by the economic environment, funding for large
capital projects has become more readily available and the level
of interest in the product has started to improve.
We supplied our Zoneguard temporary vehicle restraint system
on twenty five projects covering eight US States. In January 2010
the first Zoneguard project in Canada was completed as part
of our strategy to supply into countries where the US Standard
NCHRP350 is adopted.
HS Rail
The order intake in the Rail business was below our initial
expectations for 2009. We have, however, started 2010 on a
positive note and have recently been awarded a contract for our
quick build GRP railway platform, with construction due to start
in March on the first extension project. The framework of 14
contractors for the rail platform extension programme is now in
place and we expect increased activity over the next three years.
HS Security
Our anti-personnel, high security systems for perimeter fencing
were used on a number of strategic homeland security sites such
as airports and military bases and also cash collection depots. In
the year we completed our largest order for the newly developed
Stronguard fencing which was supplied to a goldmining project
in the Asia Pacific region. This substantial order demonstrates
the strength of our product innovation and ability to penetrate
new geographical markets.
HS Utilities
We continued to grow our market share of energy expenditure
around the world. Our pipe supports operation in Thailand had
an excellent first half in 2009 on the back of a strong order
book. The second half order intake was slower due to the lack of
funding for new projects but this has since improved and orders
are now being placed. We anticipate 2010 to be the reverse of
2009 with a slower start but a stronger finish to the year. The new
pipe supports manufacturing facility in China is fully operational
and we are encouraged by the level of enquiries received.
The water authorities in the UK are moving from AMP4 (Asset
Management Programme) to AMP5 and the focus will be on
the improvement of storm water overflows and prevention of
flooding. Our Weholite large diameter plastic pipe business had
a steady year in 2009 and we are encouraged by the increase in
enquiries for new storm water retention tanks from the major
house builders as the sector recovers. Our order book is now
back to the levels seen in 2008.
In the USA the V&S Utilities operation started the year well.
However, the expected boost from the US stimulus package
for national grid improvements has not yet materialised with
a number of projects being delayed. Enquiry levels have now
improved and we anticipate that some benefits from the
stimulus will be seen in 2010.
Galvanizing Services
Our galvanizing operations provide zinc and other coatings for
a wide range of products including fencing, lighting columns,
structural steel work, bridges, agricultural and other products for
the infrastructure and construction sectors. For 2009 galvanizing
services generated 29% of Group revenue.
Due to the continued difficulties in the global economy, revenues
declined by 10.9% to £113.2m (2008: £127.1m) despite a
currency translation benefit of £12.3m. Underlying operating
profit(*) of £21.4m, including currency translation benefits of
£2.2m, was up 8.6% (2008: £19.7m) and operating margins
improved to 18.9% (2008: 15.5%) as a result of the swift action
taken during the year to control costs and adapt our working
patterns to suit demand.
In the first half of 2009 we saw a 24.9% decline in galvanizing
volumes, compared to the first half of 2008. The second half of
the year saw a marked improvement in the trend with volume
decline year on year for the second half down to 12.1%,
producing an overall decline for the full year of 19.1%.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Chief Executive’s Review
Hot dip galvanizing of a spiral staircase.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
“Our infrastructure markets in particular have
continued to be productive, providing the
Group with opportunities both in the UK and
internationally.”
Volumes in both the UK and France were better than expected
in the second half of the year, with France Galva in particular
producing a strong result for 2009 that was further improved by
currency translation benefits.
In the US volumes from the anticipated stimulus spend did not
materialise although the new plant in Delaware, had an excellent
first year processing 7,200 tonnes and producing revenue of
$4.3m. This continues to give us confidence to invest in the
expansion of our US operations in readiness for the beneficial
impact of the Government stimulus.
Outlook
Our infrastructure markets in particular have continued to
be productive, providing the Group with opportunities both
in the UK and internationally. In the UK we aim to maximise
opportunities arising from committed spend on major
infrastructure projects such as managed motorway programmes,
rail platform extensions, flood alleviation schemes and health
and safety on roads. In our overseas markets the increase in
tendering and order placement activity in 2010 for the oil, gas,
liquid natural gas and power generation markets, indicates signs
of recovery.
Building and Construction Products
This division supplies roofing systems, safety handrails and
flooring, lintels and residential doors in steel and, increasingly,
composite material. These building and construction products
are for a range of UK construction projects including housing,
schools and industrial buildings. Revenue in 2009 for the division
represented 19% of Group revenue.
Revenues declined 26.7% to £74.0m (2008: £100.9m)
reflecting the severe downturn in the UK construction market.
Consequently, despite decisive action to reduce the cost base,
underlying operating profit(*) fell by £3.4m to £1.1m (2008:
£4.5m).
Volumes in our lintel and residential door business improved
throughout the year, albeit from a low base, and the signs are
encouraging for the new year.
The roofing division which supplies industrial and commercial
builds was also affected by the economic climate. We do not
anticipate any upturn in volumes until at least the second half of
2010 when the recently announced PFI ‘Building Schools for the
Future’ programme will commence.
Industrial flooring volumes for the smaller, high margin projects
remain depressed while the larger infrastructure projects, for
which we supply product, are only now being released for the
construction sector.
Activity levels in our other markets continue to be impacted
by the general economic climate and we do not anticipate any
material increase in volumes. Nevertheless, the cost reduction
initiatives put into place in 2009, together with continued focus
on pricing discipline, will further strengthen the resilience of our
margins and earnings.
Through its strong presence in generally robust markets,
improved geographical spread and product diversity, the Group
is well positioned for 2010 and beyond.
Derek Muir
Group Chief Executive
9 March 2010
(*) Non-Underlying items represent business reorganisation costs, property items,
amortisation of acquisition intangibles, impairments, gains on disposal of available for
sale financial assets, change in the value of financial instruments and net financing
return on pension obligations.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Our Divisions
Infrastructure Products
Focused on four main markets — roads, rail, utilities and security — supplying products and services such as permanent and
temporary road safety barriers, fencing, overhead sign gantries, street lighting columns, bridge parapets, demountable car
parks, glass reinforced plastic railway platforms, variable road messaging solutions, traffic data collection systems, plastic
drainage pipes and pipe supports for the power and LNG markets, energy grid components and security fencing.
Operating from subsidiaries in the UK, France, USA, Thailand and China.
Galvanizing Services
Providing zinc and other coating services for a wide range of products including fencing, lighting columns, structural steelwork,
bridges, agricultural and other products for the infrastructure and construction markets.
Services are delivered from a network of galvanizing operations in the UK, France and USA.
Building and Construction Products
Supplying in steel and composite materials products such as roofing systems, safety handrails and flooring, lintels and doors, all
with a range of uses including large infrastructure projects involving schools and other public buildings.
All plants are based in the UK.
Group Business mix
Revenue
Underlying operating profit(*)
Infrastructure Products £202.5m
Infrastructure Products £24.5m
Galvanizing Services £113.2m
Galvanizing Services £21.4m
Building and Construction Products £74.0m
Building and Construction Products £1.1m
Revenue
2009 £389.7m
Underlying
operating
profit(*)
2009 £47.0m
(*) Non-Underlying items represent business reorganisation costs, property
items, amortisation of acquistion intangibles, impairments, gains on
disposal of available for sale financial assets, change in the value of financial
instruments and net financing return on pension obligations.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Divisional Management
“We have experienced and entrepreneurial management teams in place,
capable of delivering product development and value based solutions.”
1
4
2
5
3
6
1. Mark Tonks – UK.
Managing Director
Hill and Smith
Ltd and Varley &
Gulliver Ltd
Mark joined Hill &
Smith Ltd in April
1997, becoming
Sales and Marketing
Director during 1998,
before taking on his
current role. He has
played a significant
part in leading
product development,
marketing strategies
and business
improvement within
Infrastructure Products.
2. Yves Delot –
France. President
France Galva SA
Yves started his career
in the galvanizing
business in 1972 and
has been involved in
the manufacture of
street lighting columns
since 1988.
3. Brian Miller –
USA. President
Voigt & Schweitzer,
LLC.
Brian has been with
Voigt & Schweitzer,
LLC. since 1993
when he started as
the Finance Director.
Appointed President
in 2009, he was
previously employed by
the accounting firms
of Crowe Chizek and
Company and Arthur
Andersen.
4. Richard Jones –
Asia. President
Pipe Supports
Group
Richard joined Pipe
Supports in 1974,
became a Director in
1982 and Managing
Director in 1986. He
is heavily involved in
setting up overseas
sales networks
and establishing
manufacturing in low
cost countries.
6. Peter Lombardi
– UK. Managing
Director Industrial
Flooring Products
Peter joined the
Group in 2002.
Prior to this he held
senior positions
in international
manufacturing
companies including
General Motors
Components Group,
Rockwell International
and Suter Plc.
5. Steven Hopkins
– UK. Managing
Director Joseph Ash
Galvanizing
A qualified chartered
accountant, Steven
joined Hill & Smith
Holdings PLC in 1988,
initially as acquisitions
manager. He took
over responsibility for
a new, state of the art
galvanizing plant in
1997, taking on his
current role in 2005.
He is currently
Chairman of
the Galvanizers
Association.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Below is the Varley & Gulliver VGN 300 bridge parapet constructed on the only bridge leading to the Yas Marine hotel on the Abu Dhabi
Formula 1 race circuit. VGN 300 parapet was chosen not only for its functional performance but also its aesthetic qualities.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Financial Review
“Cash generated from operations
was again strong reflecting the
culture of cash management
now embedded throughout the
organisation.”
Mark Pegler
Group Finance Director
Overview
From our continuing operations, we generated record levels of
profitability despite lower revenues. Revenue decreased by 7.2%
to £389.7m (2008: £419.8m). Underlying operating profit(*)
of £47.0m was in line with the prior year of £47.4m resulting
in underlying operating profit margins(*) improving to 12.1%
(2008: 11.3%). Lower financing costs contributed to underlying
profit before taxation(*) growing by 8.5% to £42.2m (2008:
£38.9m) and underlying earnings per share(*) were 18.9% higher
at 38.3p (2008: 32.2p).
Finance costs
Notwithstanding the adverse impact of translation due to
exchange rate movements, net financing costs fell by £3.1m to
£5.2m, principally reflecting lower levels of average net debt
and continued low interest rates. The net cost from pension
fund financing under IAS19 was £0.5m (2008: £0.2m income)
and given its non-cash nature continues to be treated as
‘Non-Underlying’ in the Consolidated Income Statement. The
cash element of net financing costs is £4.8m (2008: £8.0m).
Underlying operating profit(*) covered net cash interest 9.8 times
(2008: 5.9 times).
Disposals
The Group made two divestments of non-core businesses during
the year. In June, the Group disposed of its ultimate minority
shareholding in Neholl BV, a Netherlands based company with
galvanizing operations across the Benelux region, for a net cash
consideration of €5.7m (£4.9m). The cash proceeds were used
to reduce the Group’s net debt and the disposal realised a profit
on sale of £1.0m.
In December, the Group sold Ash & Lacy Perforators Limited,
a UK company operating in the perforated metal sector for a
consideration of £3.1m (including cash balances disposed of
£2.1m) resulting in a loss on disposal of £0.6m.
Exchange rates
In common with other companies with international operations,
revenue and underlying operating profit(*) benefitted during
2009 from favourable average exchange rates used to translate
overseas earnings into Sterling compared to those utilised in
2008. Retranslating 2008 revenue and underlying operating
profit(*) using 2009 average exchange rates would have
increased the prior year results by £19.4m (5%) and £3.4m (7%)
respectively.
The average and year end exchange rates used to translate the
Group’s overseas operations were as follows:
Average
Year end
2009
2008
2009
2008
1.12
1.57
53.72
1.25
1.84
60.69
1.13
1.61
53.87
1.03
1.44
50.00
£ Sterling
Euro
US $
Thai Baht
14
During the first quarter of 2009 the Group took advantage of
the lower interest rate environment by entering into three year
interest rate swap agreements covering approximately half of
its committed term debt. The interest rate swaps will contribute
to protecting the Group against any adverse movements in
future rates.
Tax
The Group’s tax charge for the year was £12.2m
(2008: £15.3m). The underlying effective tax rate(*) for
the continuing businesses was 31.3% compared to 37.5% for
2008 reflecting improvements in the Group’s legal structure
following the acquisition of the remaining minority interest
in Zinkinvent GmbH in 2008. The international nature of our
operations does mean that the mix of profits in a particular year
can impact the rate of tax that we pay.
Dividend
The Group has a progressive dividend policy of increasing the
dividend paid to shareholders broadly in line with earnings
growth, after taking into account the investment needs
of the business. Consistent with this policy, the Board has
recommended a final dividend in respect of 2009 of 6.8 pence,
making the full year dividend 11.5 pence, an increase of 15.0%
on the total paid in respect of 2008 (10.0 pence). Underlying
dividend(*) cover was a healthy 3.3 times (2008: 3.2 times).
Cash generation and financing
Cash generated from operations was again strong at £71.0m
(2008: £54.2m) reflecting both significantly lower levels of
working capital and the culture of cash management now
embedded throughout the organisation. Reduced capital
expenditure was in line with expectations at £11.7m
(2008: £22.5m) which represents a multiple of depreciation
and amortisation of 0.8 times (2008: 1.8 times). The Group
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
(*) Non-Underlying items represent business reorganisation
costs, property items, amortisation of acquistion intangibles,
impairments, gains on disposal of available for sale financial
assets, change in the value of financial instruments and net
financing return on pension obligations.
continues to invest selectively in available opportunities where
returns are highest and which exceed internal benchmarks.
The substantial cash generation during the year resulted
in Group net debt at 31 December 2009 being £87.6m, a
reduction of £58.6m against 31 December 2008 (£146.2m).
The Group’s net debt remains principally denominated in Euros
and US Dollars which act as a hedge against the net asset
investments in overseas businesses. Net debt decreased year on
year by £11.7m due to exchange rate movements.
The principal debt facility is subject to covenants which are
tested semi-annually on 30 June and 31 December. The
covenants require that the ratio of EBITDA (adjusted profit
before interest, tax, depreciation and amortisation as defined
in the facility agreement) to net interest costs must exceed four
times and require the ratio of net debt to EBITDA to be no more
than three times.
The results of the covenant calculations at 31 December 2009
were:
Change in Net Debt
Operating profit
Depreciation and amortisation†
Working capital movement
Pensions and provisions
Other items
Operating cash flow
Tax paid
Interest paid (net)
Capital expenditure
Sale of fixed assets
Free cash flow
Dividends
Acquisitions and disposals
Shares issues
Change in net debt
– Continuing operations
– Discontinued operations
Opening net debt
Exchange
Closing net debt
2009
£m
44.9
15.0
11.8
(1.2)
0.5
71.0
(9.6)
(3.7)
(11.7)
0.6
46.6
(7.5)
7.1
0.7
46.9
—
46.9
(146.2)
11.7
(87.6)
2008
£m
43.4
12.8
(1.7)
(2.3)
2.0
54.2
(16.0)
(7.0)
(22.5)
0.7
9.4
(6.6)
(4.3)
0.1
(1.4)
5.6
4.2
(117.8)
(32.6)
(146.2)
† Includes £0.9m (2008: £0.6m) in respect of acquisition intangibles.
At the year end the Group had committed facilities available
of £177.0m and a further £26.6m in overdrafts and other on
demand facilities. The Group’s principal debt facility is a £150m
multi currency facility signed in June 2007 and which runs to
June 2012. Funding available under this facility at 31 December
2009 amounted to £146.0m. The facility amortises throughout
its existence with £16.9m and £21.5m falling due for repayment
in 2010 and 2011 respectively.
Interest Cover
Net debt to EBITDA 1.3 times
Actual
12.8 times
Covenant
4.0 times
3.0 times
Appropriate monitoring procedures are in place to ensure
continuing compliance with banking covenants and, based on
our current estimates, we expect to comply with the covenants
in the foreseeable future. The facilities at the Group’s disposal
provide significant headroom against its expected funding
requirements.
Pensions
The Hill & Smith Executive Pension Scheme and the Hill &
Smith Pension Scheme (the ‘Schemes’) remain the largest
employee benefit obligations within the Group. In common
with many other UK companies, the Schemes are mature having
significantly more pensioners and deferred pensioners than
active participating members.
Subsequent to the year end the Group agreed the triennial
valuation for the two UK defined benefit pension plans as at
5 April 2009. This valuation resulted in a funding deficit of
£26.7m. A recovery plan has been agreed with the Trustees
that requires deficit funding payments of £1.9m for three years,
followed by payments of £2.3m for a further seven years. The
current level of deficit funding amounts to £0.6m. The date of
the next triennial review will be 5 April 2012.
The IAS19 deficit at 31 December 2009 for the Group’s defined
benefit plans was £16.7m, up from £11.8m in the prior year. The
increase principally reflects lower corporate bond yields together
with higher inflation expectations.
Mark Pegler
Group Finance Director
9 March 2010
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Key Performance Indicators
The Board of Hill & Smith Holdings PLC has adopted certain financial and non-financial Key Performance Indicators (KPIs) as
stated below. Other similar performance indicators are used at the subsidiary business level adapted to suit the diversity
and variety of the Group’s operations.
Revenue
Our aim is to increase revenue each year through a combination of price and volume increases, organic growth and acquisition.
In 2009, our Group revenue fell by 7.2% to £389.7m, primarily as a result of lower volumes, raw material prices and the general
economic climate.
Underlying operating margin(*)
This represents the Group’s underlying operating profit(*) divided by Group revenue. In 2009 our underlying operating margin(*) was
12.1% compared to 11.3% in the previous year.
Profitability
The Group measures profitability KPIs at all levels. The final results for 2009 produced year on year increases in underlying profit
before tax(*) and underlying earnings per share(*) of 8.5% and 18.9% respectively.
Net cash from operating activities
The Company actively monitors working capital levels in all its operations. In 2009 the Group generated free cash flow of £46.6m
(2008: £9.4m) including a working capital inflow of £11.8m driven by the Group’s continued focus on working capital management.
Health and safety
The health and safety performance of each subsidiary is monitored and reviewed at each monthly Board meeting. The number of
reported accidents is monitored each month and appropriate action taken. In 2009 we achieved a 33% year on year reduction in the
number of accidents.
From the new programme of site audits, carried out by external consultants, a weighted scoring system has now been introduced for
benchmarking and targeting an overall improvement in health and safety performance.
Sustainability
We continue to track our performance on CO2 emission reduction and have added CO2 tonnes per £m of revenue to our internal
reporting. Further details of our achievement for 2009 and our plans for 2010, are contained in the Corporate Social Responsibility
Report on pages 18 and 19.
(*) Non-Underlying items represent business reorganisation costs, property items, amortisation of acquisition intangibles, impairments, gains on disposal of available for sale financial
assets, change in the value of financial instruments and net financing return on pension obligations.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Principal Risks and Uncertainties
The Group is required to formally review the principal areas of risk and uncertainty for all its businesses in order for the major risks to
be addressed at all levels. Outlined below is a description of the principal risks and uncertainties specific to our businesses, together
with commentary on the monitoring and mitigation of such risks. Related details are provided in Note 26 on page 85.
Market dynamics and competition
The Group operates in a business environment where it needs to
be proactive to market dynamics including customer preference,
new technology, regulatory changes and competition, all of
which could have an adverse effect on the financial performance
of the Group.
The Group derives part of its revenue from Government spending
on infrastructure projects, such as road and rail and any timing,
funding or policy issues can have an adverse impact on key areas
of the business.
Our investment and commitment to research and product
development continues to ensure we maintain strong
competitive market positions. We monitor those businesses most
likely to be impacted by these risks and the markets in which
they operate, working with customers and regulatory bodies and
where necessary expanding our geographical reach and product
portfolio.
Commercial relationships
The Group benefits from close commercial relationships with a
number of long standing key customers and suppliers. The loss
of any of these or a significant worsening of commercial terms
could have an impact on the Group’s reported results.
The Group ensures sufficient resource is devoted to maintaining
the close working relationships we have with customers and
suppliers.
Product failure
Many of the Group’s products are supplied to the public sector
for the benefit of members of the public. To the extent that any
of the Group’s products fail, this could generate adverse publicity
and have a similar effect on the Group’s reputation, its financial
position and its ability to win new business.
Where appropriate, accreditation, regulatory approval and
testing are undertaken to reach required compliance levels.
Quality control procedures are applied in tandem with the
compliance requirements to ensure products are safe and fit for
purpose. Regular reviews are also undertaken with the Group’s
insurance brokers.
Supply of key raw materials
In recent years there has been significant volatility in the price of
certain of the Group’s key raw materials, particularly steel, which
is used in the fabrication of many of the Group’s products, and
zinc, which is used in the Group’s galvanizing operations.
We monitor the availability and price of key raw materials and
forward purchase these where judged to be appropriate. Where
market conditions permit, any increase in raw material or energy
costs are reflected in our selling prices.
Financial risks
The Group is exposed to a number of financial risks including
credit risk, liquidity risk and market risks.
A description of these risks and the Group’s approach to
managing them is described in Note 21 and on pages 71 - 76 to
the Group Financial Statements.
Pensions
Factors outside the Company’s control, such as mortality rates,
interest and inflation rates and investment performance, may
lead to an increase in the deficit and Company contributions.
The Group liaises regularly with the Trustees on all aspects,
including assessment of the risks factors, appropriate mitigating
actions and investment performance of the assets.
Environmental and health and safety risks
Changes in legislation and standards, or the Group’s failure to
adequately control environmental risks, may have an adverse
effect on the Group. A serious failure on the part of the Group
to adequately control its health and safety risks could have
an adverse impact on its operations, reputation and financial
performance.
Operational management work within the policies and processes
laid down by the Group. Where appropriate outside specialist
expertise is engaged and recommendations and improvements
monitored for implementation as necessary.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Corporate Social Responsibility
Our strategy
To make the principles of Corporate Social Responsibility (CSR)
part of our business to ensure high standards of corporate
behaviour are maintained throughout the Group. This will be
demonstrated by measured improvements in our CSR performance
and our business activities being conducted in a responsible, fair
and balanced manner.
Responsibilities and accountability
The Board of Directors have implemented policies dealing with
the Group’s responsibilities for the environment and relationships
with its various stakeholder groups, including its employees. The
policies are based upon a combination of custom and practice
from around the Group along with industry best practice. These
policies are reviewed and updated, as and when necessary,
to reflect changes to legislation, emerging best practice and
the needs of the business; they set the framework for the
implementation and development of the CSR activities throughout
the Group. D W Muir, the Chief Executive, is the main Board
Director responsible for CSR in the Group.
Operating company Managing Directors are responsible for
compliance with the Group’s policies, their communication
across the business units and implementation of the supporting
principles. This involves appropriate delegation in parts of the
operating companies and in certain cases has evolved into specific
and expanded roles for individual employees who act as the local
CSR champion.
All our employees have a responsibility to be aware of, and to
comply with, the Group’s policies and procedures, which have
been developed for their guidance and to regulate the conduct
of the day-to-day operations of the business. Employees are
encouraged to make suggestions to improve these policies and
procedures.
Key performance indicators (KPIs)
We continue to operate KPIs covering carbon (CO2) emissions,
energy consumption and health and safety.
Priorities for 2009
In our last Annual Report we identified the following priorities:
l
Further improvements in energy conservation and management
of CO2 emissions.
Our CO2 emissions were reduced by 9%, exceeding our annual
target of 5%.
As a result of lower production volumes in our galvanizing
plants, which adversely affected energy usage efficiency, the
saving of 1.8%, on Co2 tonnes per £m of revenue, was not as
high as in previous years.
Health and safety accident reduction and management of lost
working time.
Across the Group we achieved a 33% reduction in the number
of accidents. Our management and recording of lost working
time has also improved and will allow us to effectively monitor
and set realistic targets.
Improved waste management
A number of operations have implemented waste recycling
schemes and initiatives to reduce packaging. We are continuing
to review opportunities to effect improvements and structure
suitable reporting and monitoring criteria for 2010.
Increased levels of training and development
Overall levels of training and development were maintained
and in certain instances increased as a number of operating
companies applied for compliance and standards recognition.
l
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Mallatite Limited based in Chesterfield were awarded ISO
14001 which was added to their OHSAS 18001 and ISO 9001
achievements. The industrial flooring operation at Lionweld
Kennedy in Middlesbrough was also presented with the RoSPA
gold award in recognition of its training and health and safety
performance.
l
Review of standards for our suppliers
Increased compliance with the standards referred to on page
21 and with our Code of Business Operation, has resulted in
improved quality, delivery and control. We are continuing to
work on this issue in 2010.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
CO2 and energy management
The Group’s operating units liaise with our external energy
consultants and the Carbon Trust, on the practices and initiatives
for the improvement in the reduction of our CO2 emissions.
As we come to the final year of our three year programme we
are looking at the next stage of energy and CO2 management,
particularly in relation to the Carbon Reduction Commitment
(“CRC”). In conjunction with our consultants and the Carbon
Trust we are reviewing our management of the CRC.
For the UK operations, our consultants carried out further
reviews of energy consumption, focusing upon routine
maintenance, the repair of compressors, reviewing and adjusting
heating systems and improving lighting efficiency. Savings have
been produced at relatively low cost and have contributed to our
overall 9% year on year, reduction in CO2 emissions.
Wind turbine
Having carried out a detailed evaluation of the introduction
of a 2 mwh wind turbine, at the only site potentially suitable,
we concluded that the project was neither economically or
operationally viable.
Vehicle fleet
Both in respect of our commercial fleet and company car fleet
we have:
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fitted GPS tracking devices to delivery vehicles – reducing
engine idling times by 80%;
continued our collaboration with suppliers to further reduce
the number of lorry miles for deliveries;
upon replacement, further encouraged the use of lower
emission company cars, as manufacturers improve the CO2
performance;
encouraged the use of car sharing and cycling schemes
amongst our employees.
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Waste reduction
Throughout the Group initiatives involving relatively little
expenditure have been implemented to improve recycling
and packaging usage. Joseph Ash (Telford plant) invested in
a machine to handle aerosol paint cans, transforming them
from hazardous waste to saleable scrap. At another Joseph
Ash galvanizing plant in Chesterfield we installed an additional
flux treatment plant that reduces chemical usage, wastage and
through greater energy efficiency, CO2 emissions.
We continue to assess individual opportunities and an
appropriate overall strategy for the management of waste.
Environment
Our Environmental Policy is available throughout the Group and
is published on our website.
The policy requires high standards at all sites with the objective
of continuous improvement in environmental performance,
based on risk assessment and the management and mitigation
of identified risks.
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Of particular note during the year was the achievement of the
ISO 14001 accreditation for Mallatite in the UK.
At the beginning of the year one of our UK operations installed
a rainwater harvesting system to capture surface water run-off.
The tanks for the system are manufactured from Weholite plastic
pipe made by another Group operation, Asset International, and
store 300,000 litres of rainwater that can be used in the plants
production process. Construction, operations and maintenance
of the harvesting system were neither labour or energy intensive.
Plastic Weholite storm water and storage piping is an example of
an environmentally friendly product manufactured by the Group.
Asset International completed a project for Severn Trent Water
using Weholite which will deliver an extra saving of CO2 equal to
2,600 tonnes, compared to alternative products.
Business in the community
As in previous years our businesses have been involved in a
variety of local community projects. In the UK we have extended
our relationship with Business in the Community and are
currently developing with them a scheme to benefit local schools
through work place awareness and training.
Other companies across the Group engaged with their local
communities on schemes ranging from Eco-School assistance to
local charity funding and event support and sponsorship. In the USA
and Thailand we also sponsored the planting of over 1,000 trees.
Health and safety performance 2009
We set ourselves a target of reducing the number of accidents
by 10% year on year for each of the three years 2008-2011. We
have again met our target for 2009 with the achievement of a
substantial 33% reduction in the number of accidents year
on year.
Unfortunately two fatalities occurred at our sites during the year.
The first incident resulted from a working at height accident
at Bromford Lane, West Midlands, where a third party was
carrying out works under the direction and control of a new
tenant, from outside the Group, who was in occupation of a
building on our site. The second incident occurred at our V&S
LLC galvanizing plant in Michigan, USA where an employee was
involved in an accident whilst a crane was in operation. Both
incidents are currently the subject of investigation by the relevant
enforcement authorities.
Over the past year we have:
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undertaken eleven site audits reviewing management systems
and activities;
actioned appropriate audit report findings to ensure
continuous improvement in our health and safety
performance;
investigated, where appropriate reportable (RIDDOR)
accidents and implemented any necessary changes to
procedures.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Business Review
Corporate Social Responsibility
Employment
Policies
The Group relies upon the abilities and commitment of its
employees and has a clear policy objective of promoting an
environment in which all employees are motivated and enabled in
order to achieve their best. Employees at all levels throughout the
Group are encouraged to make the fullest contribution. Fairness
and equal opportunity are core to the Group’s employment policy
and this applies to not only any job applicant or matters relating to
gender, age, race, sexual preference, marital status, religion, belief
or disability but also promotion development and training. The
Group has a policy of non-discrimination and does not tolerate
bullying or harassment in any form.
The Group gives full consideration to applications for employment
from disabled persons where the requirements of the job can
be adequately fulfilled by a handicapped or disabled person. In
the event of an existing employee becoming disabled continuing
employment will be provided wherever practicable.
Each operating subsidiary has employment and related policies
and procedures tailored to the local operations and detailed in
staff handbooks or employment terms and conditions. These are
reviewed and updated as necessary in the light of any legislative
or employment practice changes. The Board values two way
communication between the business units management and
employees on all matters affecting the welfare of the business
including regular senior management visits to operating units.
The Group provide a range of training and development
opportunities to employees, including:
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induction training;
health and safety training;
programmes relating to the enhancement of knowledge/skills
for each employee’s current position;
programmes relating to the provision of knowledge/skills for
new procedures or standards;
programmes with a specific management or supervisory focus;
support with programmes leading to a professional or
academic qualification.
The Group recognises that normally the main training method will
be through each employee’s immediate line manager, with most
training carried out in the workplace. Training is primarily delivered
through internal resources with assistance from external providers
as and when required.
Health and Safety
Health and Safety is a key issue for the Group. Our Group Health
and Safety Policy forms the foundation of our health and safety
management together with bespoke systems and processes for all
our operations. The policy is available throughout the Group and is
published on our website. The policy requires high standards at all
sites with the objective of continuous improvement in health and
safety performance.
The Group has policies and procedures in place to comply with the
appropriate requirements of the Data Protection Act.
As a result of a review undertaken during the year by external
consultants we have identified the following key issues for greater
effectiveness of our policy:
Employee involvement and reward
Effective communication is encouraged within the Group through
the subsidiary company management, the Group’s website and
intranet and the development of centralised briefings and training
programmes
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Resource requirements.
Setting new standards.
Communications.
Corporate reporting.
Procurement.
The Group continues to encourage employee share ownership
through the 2005 Employee ShareSave Scheme.
An action plan has been developed for implementation in 2010
to address these issues and achieve improved effectiveness and
performance.
Training and development
Recruitment, training and development is designed to ensure that
the Group has suitably skilled and qualified employees to satisfy
the operational needs of the business as well as offer opportunity
for personal growth and development.
The management of our health and safety performance is
aligned with the operation of the business and in practice all
employees are responsible for ensuring that our health and safety
policies are implemented and for identifying additional areas
and opportunities for further development. In support of this we
regularly use our intranet for communication on health and safety
matters and the exchange of information and ideas arising from
our quarterly Group Health and Safety Committee meetings.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Our prime health and safety key performance indicators focus
on accident reporting and cause. These indicators are used to
monitor the effectiveness of the policy implementation and the
related management systems.
We have also developed for our UK sites a scored auditing
system, benchmarking the individual business unit’s health
and safety performance. This scoring system is a product of
the programme of site audits carried out during 2009 and will
facilitate greater levels of monitoring and targeted improvement.
The main objective for 2010 remains the continued achievement
of a 10% year on year reduction in accidents.
Code of Business Operation
The Board has set down a Code of Business Operation that
applies to all Directors, managers and employees in the Group.
All Directors, managers and employees must exercise high
standards of integrity and sound ethical judgement, adhering
to the letter and spirit of the Code and of all laws, rules and
regulations applicable to the conduct of the Group’s business.
This Code is currently being reviewed with the assistance of
external advice and through the internal audit function.
Whistleblowing
The Board encourages employees to raise concerns about
misconduct and malpractice and have adopted a Group
Whistleblowing Policy and Procedure to ensure that such
concerns can be raised and reviewed fairly and properly. As
with the Code of Business Operation the effectiveness of the
Whistleblowing Policy and Procedure is under review.
Supply chain
Our policy on the management of human rights, working
conditions and the environment in the supply chain is one of a
series of governance policies that are intended to underpin the
Group’s values.
The Group sources components, materials and services for its
manufacturing processes from a number of countries. Whilst
there are local and national differences in standards in relation
to many aspects of the manufacturing and wider business
environment, there are a number of minimum standards that
must be achieved by all.
It is the policy of the Group that it will only trade with suppliers
who meet or exceed these minimum standards or demonstrate
progression towards these standards over an agreed and suitable
timescale.
Each operation of the Group is required to have appropriate
systems in place to ensure that suppliers comply with or exceed
the following requirements:
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compliance with appropriate legislation;
provision of a safe and competent workforce employed in
accordance with industry best practice;
timely submission of tenders and delivery to the agreed
specification, on time and at the agreed price;
co-operation with the Group and the rest of its supply chain.
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We continue to monitor compliance and the actions taken by
subsidiaries to improve the standards laid down.
Priorities for 2010:
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Review of our main CSR initiatives and KPIs.
New policies for Health and Safety, Whistleblowing and Code
of Business Operations.
A new 3 year plan for energy, CO2 emissions and CRC
management.
Further improvement of our management of waste.
Achievement of 10% annual reduction in the number of
accidents.
Improvement in the average weighted scored performance
arising from the health and safety audit programme.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Governance
Board of Directors
234
1
5
6
1 W H Whiteley(*) (Chairman)
2 D W Muir (Group Chief Executive)
3 M Pegler (Group Finance Director)
4 J F Lennox(*)
5 H C Marshall(*)
6 C J Snowdon(*)
(*) Non-Executive Director
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Committees
Audit Committee
Messrs Lennox (Chairman), Marshall, Snowdon
and Whiteley
Remuneration Committee
Messrs Marshall (Chairman), Lennox,
Snowdon and Whiteley
Nominations Committee
Messrs Whiteley (Chairman), Lennox, Marshall,
Muir and Snowdon
Company Secretary
J C Humphreys FCIS
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Directors’ Biographies
W H Whiteley BSc, FCMA
D W Muir BSc, C Eng, MICE
Chairman and Non-Executive
Group Chief Executive
Bill, aged 61, joined the Board on 1 January
2010. He has spent the majority of his career
at international engineering group Rotork plc,
where he was Chief Executive from 1996 to
2008. In July 2009, he became Chairman of
Spirax Sarco Engineering plc, the FTSE 250
engineering group. He is also a Non-Executive
Director of Brammer plc and Renishaw plc.
Derek, aged 49, joined the Board on 21 August
2006. He has been a senior manager within the
Hill & Smith Group for 22 years. He was appointed
Managing Director of Hill & Smith Limited, one of
the Group’s principal subsidiaries in 1998 and from
2001 he was the Group Managing Director of the
core Infrastructure Products segment.
M Pegler BCom, ACA
Group Finance Director
C J Snowdon BA, FCA
Non-Executive
Mark, aged 41, joined the Company as Finance
Director designate on 7 January 2008 and was
appointed to the Board on 11 March 2008. Mark
has extensive experience on an international level
having been Group Finance Director of Whittan
Group Limited, a private equity backed business,
between 2002 and 2007. After qualifying with
Price Waterhouse, he spent several years in various
corporate and operational roles in international
manufacturing businesses.
Clive, aged 56, joined the Board in May 2007.
Since 1997, he has held the position of Chief
Executive of Umeco plc, a leading international
provider of advanced composite materials and
supply chain services, principally to the aerospace
industry. He joined Umeco after a career which
included senior roles with Vickers plc, BTR plc,
Hawker Siddeley and Burnfield plc and is currently
Chairman of Midlands Aerospace Alliance. Clive is
the Senior Independent Director.
H C Marshall MSc, BSc
Non-Executive
J F Lennox CA
Non-Executive
Howard, aged 66, joined the Board on 2 November
2000. He is currently the Chairman of JSJS Design
plc and a Director of LJM Consultancy. He was
previously Chief Executive of Ash & Lacy plc,
Chairman and Chief Executive of Bullough plc,
Chairman of Imaginatik Plc, Governor of the
Birmingham City University and Chairman of
Orchestra of the Swan. Howard is Chairman of the
Remuneration Committee.
Jock, aged 53, joined the Board in May 2009. He
is a Non-Executive Director of Oxford Instruments
plc, a member of the Advisory Board of Alchemy
and a member of the Council of the Institute of
Chartered Accountants of Scotland. He is also a
Director of Golden Lane Housing Ltd. Jock was
formerly a Partner of Ernst & Young where he
began his career in 1977, becoming a Partner in
1988. Jock is Chairman of the Audit Committee.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Directors’ Report
The Directors present their 49th Annual Report together with the Financial Statements for the year ended 31 December 2009.
Principal activities
During 2009 the principal activities of the Group comprised the manufacture and supply of:
– Infrastructure Products
– Galvanizing Services
– Building and Construction Products
Pages 5 to 9 contain further details of these three areas of the business and the subsidiaries operating within them are set out on
pages 96 to 97.
Business review
A review of the development and performance of the business of the Group during the financial year ended 31 December
2009, detailing its position at the end of that financial year, key performance indicators, a description of the principal risks and
uncertainties and its prospects is provided in this report.
The information required to be disclosed, in addition to that reported below and which is incorporated into this report by reference,
can be found in the Business Review, but excludes the section entitled ‘Corporate Social Responsibility’ (with the exception of the
two sections relating to employment policies and employee involvement and reward on pages 20and 21).
Results
The Group profit before taxation for the year, from continuing operations, amounted to £39.7m (2008: £35.1m). Group revenue
at £389.7m was 7.2% lower on the prior year, mainly as a result of lower volumes, raw material prices and the general economic
slowdown. Operating profit at £44.9m (2008: £43.4m) was 3.5% above the level for the previous year.
Details of the results for the year are shown on the Consolidated Income Statement on page 44 and the business segment
information is given on pages 55 to 57.
Dividends
The Directors recommend the payment of a final dividend of 6.8p per Ordinary Share (2008: 5.7p per Ordinary Share) which,
together with the interim dividend of 4.7p per Ordinary Share (2008: 4.3p per Ordinary Share) paid on 7 January 2010, makes a
total distribution for the year of 11.5p per Ordinary Share (2008: 10.0p per Ordinary Share). Subject to shareholders approving this
recommendation at the Annual General Meeting, the dividend will be paid on 9 July 2010 to shareholders on the register at the
close of business on 4 June 2010. The latest date for receipt of Dividend Re-investment Plan elections is 18 June 2010.
Articles of Association
The rules relating to amendment of the Company’s Articles of Association are that any change must be authorised by a Special
Resolution of the Company in a general meeting.
Share capital
Exchange traded
Class
New ordinary shares issued during the year
Rights & Obligations
The Company’s ordinary shares are listed on the Main Market of the
London Stock Exchange.
Single class of ordinary shares of 25p each
Employee share schemes
1995 Save As You Earn Scheme
1995 Executive Share Option Scheme
2005 Executive Share Option Scheme
Total new ordinary shares issued
159,489
10,000
274,290
443,779
All issued shares rank equally.
Rights and obligations attaching to the Company’s shares are set out in the
Company’s Articles of Association.
For further details of share capital see Note 22 on page 76 of the Group Financial Statements.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
There are no restrictions on the transfer of shares in the Company provided they are fully paid up and the Company does not hold
any lien over them and as the shares rank equally none of them carry any special rights with regards to control of the Company. Such
equal rights apply to shares acquired through any of the Company’s employee share schemes and those shares so acquired carry no
lesser or greater rights than shares acquired in the Company in any other way. Accordingly there are no restrictions on voting rights
attaching to any shares, whether relating to the level of shareholding or otherwise.
The Company is not aware of any arrangements between shareholders of the Company that may result in restrictions on the transfer
of Ordinary Shares or voting rights. In relation to the purchase by the Company of its own shares the rules relating thereto are set
out in the Company’s Articles of Association which state that the Directors’ powers to authorise such purchase by the Company are
subject to the provisions of the relevant statutes and also the UK Listing Authority requirements, as the Company’s shares are listed
on the London Stock Exchange.
Accordingly a Resolution is put to the members of the Company at the Company’s Annual General Meeting in each year (currently
the authority is limited by the Resolution of the 2009 Annual General Meeting and will be limited by the Resolution to be put to the
2010 General Meeting) for approval to make market purchases not exceeding 5% of the Company’s then issued share capital. The
prices to be paid must be a minimum price of 25 pence per Ordinary Share (the nominal value) and a maximum price of 5% above
the average of the middle market quotations for Ordinary Shares derived from the London Stock Exchange Daily Official List for the
five business days immediately preceding the day on which any such purchase takes place.
Substantial shareholdings
As at 9 March 2010, the Directors had been advised of the following holdings representing 3% or more of the voting rights of the
issued Ordinary Share capital of the Company:
Company
F&C Asset Management
Henderson Global Investors
Legal & General Investment Management
Invesco Perpetual
Discretionary Unit Fund Managers
Number of
Ordinary
Shares
6,962,860
5,188,560
3,091,158
2,483,086
2,323,038
%
of Issued
Share Capital
9.06
6.75
4.02
3.23
3.02
Directors
The Directors who served during the year ended 31 December 2009 and to the current date are as follows:
Name
D L Grove(*)
J F Lennox(*)
H C Marshall(*)
D W Muir
M Pegler
R E Richardson(*)
C J Snowdon(*)
W H Whiteley(*)
(*) Non-Executive Directors.
Date of
Appointment
Date of
Resignation/
Retirement
20 March 1998 31 December 2009
AGM
Re-election
AGM Election
7 May 2010
12 May 2009
2 November 2000
21 August 2006
11 March 2008
1 May 1997
11 May 2007
1 January 2010
12 May 2009
7 May 2010
7 May 2010
Biographical details of the Directors are shown on page 23. Details of the Directors’ service contracts and letters of engagement are
set out in the Directors’ Remuneration Report on pages 37 and 38.
Directors are appointed pursuant to the Articles of Association either by the Directors, to fill a vacancy, or by the members in general
meeting, subject to the maximum number of Directors being ten. Any Director appointed by the Directors will be subject to election
by the members in a general meeting at the next Annual General Meeting. Each Director is subject to re-election at least once in
every three years and any Non-Executive Director serving nine years or more is subject to annual re-election.
The Director retiring by rotation at the forthcoming Annual General Meeting is C J Snowdon who being eligible, offers himself for
re-election. J F Lennox and W H Whiteley were appointed as Non-Executive Directors by the Board on 12 May 2009 and
1 January 2010 respectively and in accordance with the Company’s Articles of Association, will retire and offer themselves for
election at the next Annual General Meeting. Both appointments follow the retirements of R E Richardson and D L Grove. The Board
recommends to shareholders the re-election of C J Snowdon and the election of J F Lennox and W H Whiteley.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Directors’ Report
H C Marshall, having served more than nine years as a Non-Executive Director, is subject to annual re-election at the next Annual
General Meeting. H C Marshall has decided not to stand for re-election.
Directors’ interests
The table below shows the beneficial interests as at the beginning of the year and as at 31 December 2009 or on the date of
retirement (if earlier) of the persons who on that date were Directors (including the interests of their connected persons) in the
Ordinary Shares of Hill & Smith Holdings PLC. All such interests were beneficial except as otherwise stated. However, interests in
Ordinary Shares that are the subject of awards under the 2007 Long Term Incentive Plan, the 2005 Executive Share Option Scheme,
the 2005 ShareSave Scheme and the 1995 SAYE Scheme, and disclosed elsewhere, are not included in the table below but are
shown on pages 39 and 40.
None of the Directors has a beneficial interest in the shares of any of the Company’s subsidiaries.
Directors
D L Grove (retired 31 December 2009)
J F Lennox (appointed 12 May 2009)
H C Marshall
D W Muir
M Pegler
C J Snowdon
Former Directors
R E Richardson (retired 12 May 2009)
Beneficial
interest
in Ordinary Shares
at 1 Jan 2009
(or appointment date)
919,969
—
78,624
40,834
4,000
20,000
Beneficial
interest
in Ordinary
Shares at
31 Dec 2009
(or retirement date)
859,969
2,500
78,624
40,834
4,000
25,000
Change to
beneficial
interest
(60,000)
2,500
—
—
—
5,000
3,859
—
3,859
There were no changes in the beneficial interests of the Directors in the Company’s Ordinary Shares between 31 December 2009 and
the date of this report, other than the exercise by D W Muir, in accordance with the UK Listing Rules, of 12,360 options under the
1995 SAYE Scheme, which matured and became exercisable on 1 January 2010. Mr Muir continues to hold the shares in his name.
W H Whiteley was appointed a Director on 1 January 2010 and held prior to this date 3,000 ordinary shares in the Company,
purchased on 30 December 2009.
The Register of Directors’ Interests, which is open to inspection, contains full details of Directors’ shareholdings and options to
subscribe for ordinary shares.
Conflicts
No Director had any interest in any material contract or arrangement in relation to the business of the Company and any of its
subsidiaries during the year.
The Company amended its Articles of Association in May 2008 to deal with, amongst other things, the provisions of conflict of
interest in the Companies Act 2006 which came into force in October 2008. As a result, the Company has procedures for the
disclosure and review of any conflicts, or potential conflicts, of interest which the Directors may have and for the authorisation,
where considered appropriate, of such conflict matters by the Board. Any potential conflicts of interest in relation to newly appointed
Directors are considered by the Board prior to appointment.
Directors’ and officers’ liability insurance
The Company purchases and maintains liability insurance for its Directors and officers and those of the subsidiaries of the Group.
Financial instruments
The financial risk management objectives and policies are as detailed in Note 21 on pages 71 to 76.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Significant agreements
There are no agreements between the Group and its Directors
or employees providing for compensation for loss of office or
employment that occurs because of a change of control, other
than revised notice periods and termination payments for
D W Muir and M Pegler set out in the Director’s Remuneration
Report on page 38.
The Group has a multi currency revolving facility which includes
a change of control provision. Under this provision, a change in
ownership/control of the Company could result in withdrawal of
these facilities.
There are no other significant agreements to which the Group
is a party that take effect, alter or terminate upon a change of
control of the Group.
Research and development
During the year, the Group spent a total of £0.7m (2008: £2.1m)
on research and development.
Political and charitable donations
Charitable donations amounting to £35,000 (2008: £28,000)
were made in the year principally to local charities serving the
communities in which the Group operates. There were no
political contributions.
Disclosure of information to auditors
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company’s
auditors are unaware; and each Director has taken all the steps
that he ought to have taken as a Director to make himself
aware of any relevant audit information and to establish that the
Company’s auditors are aware of that information.
Going concern
After making enquiries, the Directors have a reasonable
expectation that the Company and its subsidiaries have
adequate resources to continue in operational existence for the
foreseeable future. For this reason, they continue to adopt the
going concern basis in preparing the Financial Statements.
Annual General Meeting
The Annual General Meeting of the Company will be held
at 11.00 am on Friday 7 May 2010 at The Village Hotel, The
Green Business Park, Shirley, Solihull, B90 4GW. Notice is sent
to shareholders separately with this Report, together with an
explanation of the special business to be considered at the
meeting.
Other important dates can be found in the Financial Calendar on
page 94.
Employment policies
Details of the Group’s Employment Policies are set out on
pages 20 and 21.
Company information
Further information on the Company is available on the Group
website: www.hsholdings.com.
By order of the Board
John Humphreys
Company Secretary
9 March 2010
Supplier payment policy
Individual operating companies within the Group are responsible
for establishing and adhering to appropriate policies for 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 required
documentation, payment will be made in accordance with the
agreed terms. It is the Group’s policy to ensure that suppliers
know the terms on which payments will take place when
transactions are agreed. The Group’s average credit period was
75 days (2008: 77 days). The Company’s average credit period
was 36 days (2008: 36 days).
Independent auditor
A resolution for the re-appointment of KPMG Audit Plc as
auditor of the Company will be proposed at the forthcoming
Annual General Meeting.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Corporate Governance
Governance framework
Effective governance is key to the Company’s ability to operate
successfully and discharge its responsibilities. The focus is
on providing a simple but effective framework of business
principles, structures and controls designed to drive standards
and performance across the Group and accountability to the
Company’s shareholders for the conduct of the Company’s
affairs.
The Board’s commitment to a high standard of corporate
governance is designed to underpin integrity within the Group
and preserve investor confidence in the decisions taken by the
Board.
The following paragraphs, together with the Directors’
Remuneration Report contained on pages 34 to 41 provide
a description of how the main supporting principles of
corporate governance have been applied within the
Company during 2009.
You can find out more about our approach to corporate
governance by accessing the following documents online at
www.hsholdings.com:
In December 2009 the Board announced the appointment of
W H Whiteley, as a Non-Executive Director and as the new
Chairman of the Board, effective from 1 January 2010. The
Board is fully satisfied that on his appointment as Chairman
W H Whiteley was independent in character and judgement and
satisfied the requirements of the Code applying to a Chairman
on appointment.
l The Board is to assess the Non-Executive Directors’
independence.
R E Richardson, Senior Independent Director, was appointed
to the Board on 1 May 1997. His length of service on the
Board exceeded the nine years referred to in the Combined
Code. The Board considered that R E Richardson maintained
an independent and rigorous approach to the Group’s business
and his length of service was not an impairment to his
independence.
R E Richardson retired from the Board on 12 May 2009 and
J F Lennox was appointed in his place as an Independent
Non-Executive Director. For the purposes of the Code, J F Lennox
is deemed to be independent.
l Terms of Reference for the Audit, Remuneration and
Nomination Committees.
l Corporate Social Responsibility Policies (inc Health & Safety).
l Business Operating Policy.
l Whistleblowing Policy and Procedure.
H C Marshall’s membership of the Board has always been as a
Non-Executive Director and his Board colleagues consider him
as being independent in his approach to the role and in his
judgement and character. He has no interests or relationships
that affect his independent approach.
Compliance with the Combined Code
Subject to the ‘Exceptions’ detailed below, the Directors consider
the Company has throughout 2009 fully complied with the
principles set out in Section 1 of the UK Financial Reporting
Council’s Combined Code of Corporate Governance (the Code).
‘Exceptions’
l A former Chief Executive should not become the Chairman.
Major shareholders were, and continued to be, supportive of the
rationale behind the appointment of D L Grove as Chairman. At
the time of the appointment the Board considered the significant
benefits of continuity, as well as the leadership that D L Grove
brought to the role of Chairman and has been satisfied that this
has been the case.
Having held the post of Chairman since May 2007 D L Grove
has, with effect from 31 December 2009, retired from his
position as a Non-Executive Director and as Chairman of the
Company and accordingly this ‘exception’ to compliance with
the Code no longer applies.
The Board is fully satisfied that both C J Snowdon (who offers
himself for re-election at the Annual General Meeting) and
J F Lennox (who offers himself for election, following his
appointment during the year) are independent in character and
judgement and that there are no circumstances or relationships
which are likely to affect their character and judgement.
Composition of the Board
As from 1 January 2010 the composition of the Board comprises
three independent Non-Executive Directors (W H Whiteley,
Chairman, C J Snowdon, Senior Independent Director and
J F Lennox) two Executive Directors (D W Muir and M Pegler)
and H C Marshall, a Non-Executive Director who, although not
deemed independent by the Code, is deemed independent by
the Board. Accordingly the composition of the Board during the
year has moved towards complete compliance with the Code
and this position will be fully achieved by the conclusion of the
next Annual General Meeting.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
The Directors and the Board
Directors
Position
W H Whiteley
D W Muir
M Pegler
H C Marshall
C J Snowdon
J F Lennox
Chairman
(appointed 1 January 2010)
Chief Executive
Finance Director
Non-Executive Director
Non-Executive Director
(Senior Independent Director)
Non-Executive Director
(appointed 12 May 2009)
No. of years
Independent
on the (as determined by
Audit
Nominations
Remuneration
Board
the Code/Board)
Committee
Committee
Committee
—
3
2
9
2
—
Yes
No
No
Yes
Yes
Yes
Yes
No
No
Yes
Yes
Yes
(Chairman)
Yes
(Chairman)
Yes
No
Yes
Yes
Yes
Yes
No
No
Yes
(Chairman)
Yes
Yes
The Chairman has prime responsibility for leadership of the Board, sets its agenda, devotes such time to his role as is necessary to
properly discharge his duties and facilitates the effective engagement of the Non-Executive Directors. He is responsible, jointly with
the Chief Executive, for communication with the Company’s shareholders and representation of the Group externally. The Chief
Executive has executive responsibility for executing the Group’s strategy and development. He leads the management of the Group
with the aim of optimising long term shareholder value by meeting key strategic and financial objectives.
The changes in the composition of the Board during the year are noted in the Directors’ Report. Biographical details of all the
Directors are set out on page 23.
All Directors have access to the Company Secretary who is responsible for ensuring legal and regulatory compliance. The Company
Secretary is responsible for assisting the Chairman in all matters relating to corporate governance. The Company Secretary also acts
as Secretary to each of the Audit, Nominations and Remuneration Committees.
Details of the terms of appointment of both the Executive and Non-Executive Directors are set out on pages 37 and 38 of the
Directors’ Remuneration Report, which refers to Executive Director’s service contracts and Non-Executive Director’s letters of
engagement, copies of which are available for inspection at the Company’s registered office and which will be available for
inspection at the forthcoming Annual General Meeting to be held on 7 May 2010. The Non-Executive Directors of the Company,
including the Chairman, do not participate in any bonus, share option or share ownership schemes and there are no pension benefits
or payments.
Re-election of Directors
In accordance with the Company’s Articles, not more than one-third of the Directors are required to be re-elected at each Annual
General Meeting of the Company, the Directors so doing being those who have been longest in office since their last appointment
or re-election. Every Director must in any event be re-elected at least every three years.
C J Snowdon is the Director retiring by rotation at the forthcoming Annual General Meeting of the Company and, being eligible,
offers himself for re-election. The Board and the Nominations Committee support the re-election of C J Snowdon having assessed his
performance, value to the Board and its Committees and his ability to continue to operate as a Director.
As recommended by the Code, Non-Executive Directors who have been in office for more than nine years are required to stand
for re-election at the next Annual General Meeting. H C Marshall was appointed to the Board on 2 November 2000 and will not
be seeking re-election at the Annual General Meeting. He will be retiring from the Board with effect from the conclusion of that
meeting.
Election of Directors
Following the appointments of J F Lennox (12 May 2009) and W H Whiteley (1 January 2010) as Non-Executive Directors, both will
retire and offer themselves for election at the Annual General Meeting to be held on 7 May 2010.
The role of the Board and its effectiveness
The Board is responsible to the Company’s shareholders for:
l strategic direction,
l
l
l
l governance and internal controls.
financial performance and monitoring,
resource allocation,
risk management,
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Corporate Governance
The schedule of matters reserved to the Board for its own and its Committees’ decisions ensures exclusive decision making powers
over these responsibilities as well as such matters as:
remuneration policies;
l
l accounting policies;
l capital expenditure;
l acquisitions;
l disposals and;
financing.
l
The Board adopts an annual timetable to ensure significant matters are given appropriate consideration and sufficient time for
debate. The Board normally meets ten times per year to consider the matters referred to above and any other related issues. All
Directors attended meetings in person or by telephone.
The Directors ensure the effectiveness of the Board through regular Board and Committee meetings and by having open lines of
communication between Board members. Details of attendances at these meetings are set out below:
Directors
D L Grove
J F Lennox
H C Marshall
D W Muir
M Pegler
R E Richardson
C J Snowdon
Plc
Board
(10 meetings)
Audit
Committee
(3 meetings)
Remuneration
Committee
(5 meetings)
Nominations
Committee
(1 meeting)
8
6
10
10
10
4
10
—
2
3
—
—
1
3
—
2
5
—
—
3
5
1
1
1
1
1
—
1
Notes:
l
J F Lennox was appointed on 12 May 2009 and attended all possible Board and Committee meetings. He also attended one
Board meeting as an observer, prior to his appointment.
l W H Whiteley attended one Board meeting and one Remuneration Committee meeting in December 2009 as an observer prior
to his appointment on 1 January 2010.
l M Pegler attended the Nominations Committee as an observer.
l R E Richardson retired 12 May 2009.
The Board is supplied in a timely manner with the appropriate information to enable it to discharge its duties, including providing
constructive challenge to, and scrutiny of the management of the Company. Further information is obtained by the Board from the
Executive Directors and other relevant Senior Executives as the Board, particularly its Non-Executive members, considers appropriate.
Procedures are in place for Directors to take independent professional advice, when necessary, at the Company’s expense.
The Board is supported by the Company Secretary who, under the direction of the Chairman, ensures good communication and
information flows within the Board, including between Executive and Non-executive Directors and between the Board and its
Committees.
Board balance and independence
Having assessed the four Non-Executive Directors against the criteria set out in the Combined Code the Board considers all of them
to be independent. All four Non-Executive Directors remain independent of management and free from any business or other
relationship that would materially interfere with the exercise of their independent judgement. The Board membership and that of its
Committees is designed to ensure that no one individual or group dominates proceedings and that the wide variety of skills allows
effective leadership across the business activities of the Group.
Senior Independent Director
During the year C J Snowdon was appointed the Senior Independent Director, replacing R E Richardson.
Board development
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, the Board has agreed guidelines for meeting their own
training needs.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
There is in place a performance evaluation process for the
Board and each of the Audit, Nominations and Remuneration
Committees. This process involves the circulation of a
questionnaire to Directors, through the Company Secretary. The
Chairman, with the assistance of the Company Secretary, reports
the collective findings to the Board and agrees any actions to
be taken. The areas covered include effectiveness of individual
contributions, relationships, communication and development.
The current process is under review to determine its scope,
effectiveness and value to the Board.
Committees of the Board
The Board has three Committees, as follows:
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 pensions administration,
actuarial and consultancy 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 Accounting Practices Board.
The Committee approves the scope and terms of engagement
of each audit, and then reviews the performance of the auditor
following the completion of each audit.
Audit Committee
The Audit Committee consists of four Non-Executive Directors
and is chaired by J F Lennox. Executive Directors are invited to
attend as necessary. The objectives of the Audit Committee have
been confirmed in its terms of reference as:
Remuneration Committee
The membership of the Remuneration Committee comprises
four Non-Executive Directors and is chaired by H C Marshall.
D W Muir is invited to attend meetings as necessary.
l ensuring the integrity of the Group’s Financial Statements;
reviewing and monitoring the Group’s internal control
l
systems;
l overseeing the effectiveness of the Group’s internal audit
activity;
l overseeing the Group’s relationship with its external auditors;
l ensuring that Group reporting complies in all respects with
relevant statutory and required financial reporting standards,
including corporate governance disclosures.
A review and update of the terms of reference was undertaken
in November 2009 and approved by the Board. Details can be
found on the Company’s website at www.hsholdings.com.
Financial Reporting: a procedure setting out responsibilities
for the preparation of the Group’s Financial Statements and
their review by the external auditor and the Audit Committee
has been documented. This also sets out the basis on which
the Board makes its statement on ‘Going Concern’. The Audit
Committee reviewed the preliminary and interim statements
prior to their approval by the Board. The Committee has also
considered the external auditor’s management letter and
the assumptions underlying the Financial Statements prior to
recommending their approval to the Board.
External Reporting: the Audit Committee has an agreed
procedure setting out the basis upon which the Committee will
consider and make recommendations as appropriate concerning
the appointment, re-appointment or removal of the external
auditor. The Committee assesses the qualification, expertise,
independence and objectivity of the auditor on an annual basis
and has set down a 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.
Under its terms of reference, the Remuneration Committee is
responsible for:
l ensuring that the Company’s Executive Directors and certain
other agreed Senior Executives are fairly and properly
rewarded for their individual contributions to the Company’s
overall performance;
l demonstrating to shareholders and other interested parties
that the remuneration (including all benefits and terms of
employment) of the Executive Directors of the Company are
set by a committee of Board members who have no personal
interest in the outcome of their decisions and who will give
due regard to the interests of the shareholders and to the
financial and commercial health of the Company;
l assessing how the Company should comply with established
best practice in Directors’ remuneration.
Full details of the role, policies and activities of the Remuneration
Committee are set out in the Directors’ Remuneration Report on
pages 34 to 41.
Nominations Committee
The Nominations Committee comprises four Non-Executive
Directors and D W Muir (Chief Executive). The Chairman of the
Committee is W H Whiteley.
The Board understands the need to refresh its membership and,
to that end, has established a Nominations Committee whose
objectives are:
l ensuring that the size and composition of the Board is
appropriate for the needs of the Group;
l selecting the most suitable candidate or candidates for
appointment to the Board;
l overseeing succession planning for the Board.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Corporate Governance
The Nominations Committee agrees a formal process, including
whether external assistance would be appropriate, when it
deems it necessary to make new appointments. The terms of
reference of the Nominations Committee make it clear that the
appointment of the Chairman of the Board is a matter for the
Board as a whole to consider.
l continuous direct contact with operating companies and
divisional management and attendance at monthly subsidiary
board meetings;
l consolidated reports and independent commentaries are
prepared and submitted to the Board for review at formal
monthly Board meetings;
The Board has an approved standard engagement letter for
Non-Executive appointments to the Board, including expected
time committments, a fee structure and a programme for the
induction of new Directors. During the year the Committee
appointed consultants to recruit a replacement for D L Grove
as Chairman and met once formally, along with the Executive
Directors, to decide upon the appointment of his successor.
Internal controls
The Directors have overall responsibility for ensuring that the
Group maintains a sound system of internal control to provide
them with reasonable assurance that all information used
within the business and for external publication is adequate.
This includes financial, operational and compliance control and
risk management, to ensure that assets are safeguarded and
shareholders’ investments protected.
In line with best practice, the Board has reviewed the internal
control system in place during the year and up to the date of
the approval of this report. This review, along with internal
consultation led by the Board, ensures that the system of
internal control remains effective. Where weaknesses are
identified as a result of the reviews, new procedures are put
in place to strengthen controls and these are also reviewed at
regular intervals.
The Board has in place risk assessment processes and established
procedures to implement the relevant guidance as updated
by the Financial Reporting Council (the Turnbull Committee
Guidance). There is a process for identifying, managing and
reviewing any changes in the risks faced by the business. This
process, which is kept under continual review and improvement,
has been in place during the year under review and remains
in place as at the date of approval of this report. The process
operates under the direction of the Board and is reviewed by the
Audit Committee.
The key procedures that the Directors have established and
which are designed to provide effective internal control for the
Group are:
l
l
regular Board meetings to consider a schedule of matters
reserved for the Directors’ consideration;
the Audit Committee of the Board considers significant
financial control matters as appropriate;
l Group guidance and policy documentation for the
preparation of financial and management information;
l monitoring of the financial performance of operating
companies and divisions through analysis of regular financial
and management reports;
l maintenance of local operating Boards and divisional
management teams, enabling the Board to delegate
appropriate levels of authority to a small number of
subsidiary company Directors and managers, all of whom are
accountable to the Group Board;
the application of rigorous annual budgeting processes and
presentations. All budgets are subject to approval at Group
Board level;
the review and comparison of detailed monthly management
reports, received from each business unit, against budgets
and forecasts;
l
l
l clearly defined policies and controls for capital expenditure
that include annual budgets, appraisal and review
procedures;
l adoption of a Group risk management framework that
identifies responsibilities at both Group and subsidiary level
for the ongoing management of risk across the business;
l programming internal audit work to take account of the risk
l
assessment results and processes;
the use of external professional advisers to carry out due
diligence for potential acquisitions.
Through the procedures set out above the Board has reviewed,
in accordance with the Turnbull Committee Guidance, the
effectiveness of the system of internal control in operation
during the financial year.
Internal audit
The Audit Committee has set down the criteria by which it will
assess the effectiveness of the internal audit function on an
annual basis.
In addition to the above areas of activity set out in its terms of
reference, the Committee has also approved arrangements by
which staff may raise concerns about possible improprieties in
matters of financial reporting. No significant matters were raised
in the reports made to the Audit Committee during the year.
Whistleblowing
If any employee in the Group has reasonable grounds to believe
that the Group Business Operating Policy is being breached by
any person or group of people, he or she is able to contact
the Company Secretary with full details. The Company has
a “Whistleblowing” policy which is on display at its
operations and which can be viewed on its website at
www.hsholdings.com.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Group Treasury management
The Group uses financial instruments and derivatives comprising
borrowings, cash and liquid resources, trade receivables and
payables and in particular forward currency contracts and
interest rate swaps to manage financial risks associated with
its underlying business activities and the financing of those
activities. This function is run purely as a service centre for the
Group and its prime objective is to manage financial risk arising
from liquidity, interest rates and foreign exchange. Further
information on these matters is set out in Note 21 on pages 71
to 76 including the Group’s arrangements for credit insurance.
It is, and has been throughout the period under review and up
to the date of approval of this report, the Group’s policy that
no speculative trading in financial instruments or derivatives be
undertaken.
Shareholder communications and relations
The Board recognises the importance of good clear
communications with shareholders. There is regular dialogue
with institutional investors and analysts to discuss the progress
of the business and deal with a wide range of enquiries. This
includes meetings and presentations after the announcement
of the results for the year and the half year with feedback
from the Company’s brokers as necessary. Directors regularly
receive copies of analyst reports and reports on movement
in major shareholdings as well as key broker comments. The
Chairman and Senior Independent Director are available to meet
with shareholders concerning corporate governance issues,
if so required. Copies of all major press releases and interim
and annual reports are posted on the Company’s website
together with additional detail on major contracts and projects,
key financial information, Company products, structure and
background.
The Board wishes to encourage the constructive use of
the Company’s Annual General Meeting for shareholder
communication. Each of the Chairmen of the Audit,
Nominations and Remuneration Committees will be in
attendance at the forthcoming Annual General Meeting, which
will be convened on at least 20 working days’ notice.
As with previous practice, the level of proxies cast for each
resolution will be communicated following approval of each
resolution at the forthcoming Annual General Meeting. After the
conclusion of the meeting the final results are published through
a Regulatory Information Service on the Company’s website.
Further information regarding the share capital structure of the
Company is contained in the Directors’ Report on pages 24 to
27.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Directors’ Remuneration Report
The Directors’ Remuneration Report is divided into two
parts. The first part contains commentary on the Company’s
remuneration policy, which is not required to be audited. The
second part contains information that has been audited in
accordance with the relevant statutory requirements.
As required, a resolution to approve the report will be proposed
at the Annual General Meeting on 7 May 2010.
PART 1 – (Not subject to Audit)
Remuneration Committee (the “Committee”)
Membership
The members of the Committee during the year were
H C Marshall (Chairman), J F Lennox (appointed 12 May 2009),
R E Richardson (retired 12 May 2009) and C J Snowdon.
W H Whiteley was appointed to the Committee as from
1 January 2010. All members of the Committee are Non-
Executive Directors of the Company, are regarded as
independent and do not participate in any form of
performance related pay or pension arrangements.
Meetings
The Committee met five times in the period under review and
on each occasion all the Committee members were present.
The Company Secretary acts as secretary to the Committee. The
Chairman and the Chief Executive also attended meetings of the
Committee by invitation. No Executive Director or other attendee
is present when their own remuneration is under consideration.
Responsibilities
As set out on page pages 31 and 32 of the Corporate
Governance Report, the Committee determines, on behalf of
the Board, the Company’s policy on remuneration and the terms
of engagement of the Executive Directors, certain other agreed
Senior Executives and the fees of the Chairman. The Committee
operates under clear written terms of reference (available on the
Company’s website: www.hsholdings.com).
The responsibilities of the Committee include:
l
reviewing and recommending the remuneration policy
for Executive Directors and certain other agreed Senior
Executives, for the Board to approve;
l within this policy, agreeing the individual remuneration
packages;
l approving the design of, and determining targets for, any
performance related pay schemes operated by the Company
for the Executive Directors and certain other agreed Senior
Executives and approving the total payments made under
such schemes;
reviewing and recommending the design of, and any
changes to, all share incentive plans for approval by the
Board and shareholders;
reviewing the terms and conditions to be included in the
service agreements for Executive Directors and certain other
agreed Senior Executives;
l
l
l approving the terms of any compensation package in the
event of early termination of contracts of Executive Directors
or certain other agreed Senior Executives, ensuring that they
are fair to the individual and to the Company. In doing so the
Committee will ensure that failure is not rewarded and the
duty to mitigate loss is fully recognised.
Key activities during the year
During the year the Committee:
l
reviewed the remuneration policy and determined the
appropriate individual remuneration packages of Executive
Directors and certain other agreed Senior Executives;
l determined the fees for the Chairman;
l determined final annual bonus payments for Executive
l
Directors and certain other agreed Senior Executives for the
2008 financial year;
considered and approved awards to Executive Directors and
one other agreed Senior Executive under the Company’s
2007 Long Term Incentive Plan (including a review of
performance conditions/targets to ensure that they were
appropriately challenging);
l approved the Directors’ Remuneration Report which was
included in the 2008 Annual Report.
Advisers
To the extent required the Committee used the external services
of Deloitte LLP as its principal external adviser during 2009 on
matters relating to the Executive Directors’ base salaries and
performance related pay.
Separately during the year Deloitte LLP also provided taxation
advice and other non-audit services to the Company.
The Chairman and the Chief Executive also gave advice to the
Committee by request.
Overall Remuneration policy and purpose
Broad policy
The remuneration policy is designed to be in line with the
Company’s fundamental principles of fairness, being competitive
and supporting the Company’s corporate strategy.
The Committee believes that a consistently applied cohesive
reward structure with links to corporate performance is key to
ensuring attainment of the Company’s strategic goals.
Accordingly, the Company sets out to provide competitive
remuneration to all its employees, appropriate to the business
environment in the markets in which it operates. To achieve
this, the remuneration packages are based on the following
principles:
l
total rewards should be set to be fair and attractive;
l appropriate elements of the remuneration package should
be designed to reinforce the link between performance
and reward.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
The Company also seeks to align the interests of shareholders and employees at all levels by giving employees opportunities and
encouragement to build up a shareholding interest in the Company through various share option schemes.
Executive remuneration
The Company operates in highly competitive environments and for it to continue to compete successfully, it is essential that the level
of remuneration and benefits offered for leadership roles achieve the objectives of attraction, retention, motivation and reward of
high calibre individuals.
The base salaries of Executive Directors continue to be reviewed annually. The Committee does not have a formal positioning policy for
base salary as it is acutely aware of the issues around setting pay solely by reference to a benchmark reference point. Instead, to review
salaries, the Committee uses external base salary information as a basis for considering a range of factors, including:
– the performance of the business/function under the incumbent’s stewardship;
– the scope and relative complexity of the business/function;
– individual performance and experience;
– reporting relationships;
– the importance of each role within the organisation;
– the external market for talent at that level;
– the levels of incentives, pension and other benefits which are driven from base salary.
The performance related elements of remuneration are reviewed on an annual basis. As an integral part of this process the
performance conditions and targets are reviewed to ensure that they are sufficiently stretching and that they continue to be aligned
with the business strategy and the creation of shareholder value. This ensures that Executive Directors’ incentives are firmly aligned
with the interests of shareholders.
Summary of Executive Directors’ remuneration arrangements
Component
Purpose
Application
Delivery/Criteria
Base salary
Performance
related bonus
Market competitive
Reflect skills and
experience
Incentivise the
attainment of
corporate targets
on an annual basis
Incentivise growth in
2007 Long Term
Incentive Plan (LTIP) earnings per share
over a three year
period
Pension
Provision of
competitive post-
retirement benefits
Payable monthly
Pensionable and
used for pension
contributions
Paid annually
Non-pensionable
Discretionary annual
grant of conditional
share awards.
Maximum award is
100% of salary.
Non-pensionable
Chief Executive
– Hill & Smith
Executive
Pension Scheme
Finance Director
– Pension
contribution
External benchmarking review of appropriate salary levels
and review of performance, experience and related factors.
Based on UEPS performance over one financial year.
Maximum bonus opportunity for both Chief Executive
and Finance Director is 100% of base salary.
Performance measured over three financial years. Vesting
of award is as follows:
– 50% based upon achievement of absolute growth in
UEPS targets.
– 50% based upon UEPS growth relative to other FTSE
All-Share companies basic EPS growth.
Defined benefit arrangement which provides, at normal
retirement age, a pension based upon an accrual of 1/30th
of the Earnings Cap for each year of service from
1 October 1998 (see also Note under pension
arrangements).
A contribution of 25% of base salary to a private pension
arrangement.
Notes: UEPS (Underlying Earnings Per Share)
See page 36 for details of ‘Other Benefits’ provided.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Directors’ Remuneration Report
Detail of Executive Directors’ remuneration
The remuneration policy for Executive Directors is structured
to ensure a proper balance of fixed and variable performance
related remuneration (linked to short and long term objectives).
The current balance of the Executive Directors’ remuneration
between fixed and variable performance components (excluding
pension and “other benefits”) is as follows:
Group Chief Executive
Chief Executive
44%
Group Finance Director
41%
56%
59%
n Fixed
n Variable/performance related (Bonus and LTIP awards)
The components of Executive Directors’ remuneration are
outlined in more detail below.
Fixed remuneration
Basic salary
Basic annual salaries for Executive Directors are reviewed by the
Committee on an annual basis or when a material change of
responsibility occurs. In making salary decisions the Committee
considers salaries offered for similar roles by reference to practice
across industry comparators and companies of a similar size and
complexity to the Company.
The Deloitte LLP report commissioned by the Committee, for the
1 January 2008 remuneration review, placed the base salaries
for both the Chief Executive and Finance Director at the lower
end of the benchmark ranges. As both were relatively new in
their respective positions the Committee acknowledged that the
benchmarking positions were at that time appropriate and that
future reviews would take into account further experience and
maturity gained in the particular roles.
A subsequent similar benchmarking exercise for the 1 January
2009 review was undertaken by Deloitte LLP, taking into
account company complexity and size weightings, to produce
appropriate positioning of the salaries for both the Chief
Executive and Finance Director.
As a result of this external benchmarking exercise and the
factors of performance and additional experience, the Chief
Executive’s and Finance Director’s salaries were reviewed and
aligned to the mid-point between the median of the core bench
marking comparator group and the median of the Deloitte LLP
weighted company complexity and size measure.
Pension arrangements
Chief Executive
D W Muir participates in the Hill & Smith Executive Pension
Scheme, which provides a defined benefit pension and other
related benefits.
Under this arrangement D W Muir’s pension benefit is based
upon an accrual of 1/30th of the Earnings Cap (applying prior to
6 April 2006 and increased in line with the rules of the Scheme)
for each year of pensionable service calculated from 1 October
1998. The table on page 40 gives details of the changes in the
value of D W Muir’s accrued pensions during 2009.
Finance Director
M Pegler receives a payment of 25% of his base salary as a
defined contribution to his own private pension arrangements.
Other than as stated above, there are no other pension
arrangements in place for Executive Directors.
Other benefits
These principally comprise car benefits, life insurance,
membership of the Company’s healthcare, income protection
scheme and personal accident insurance. These benefits do not
form part of pensionable earnings.
Performance related remuneration
Cash bonus
Executive Directors are eligible for an annual performance
related cash bonus. The basis for the payment of any bonus
is determined by reference to underlying earnings per share
performance over one financial year of the Company. The
Committee is committed to only paying maximum bonuses
in circumstances where stretching performance targets have
been satisfied. Bonuses are not pensionable. As a result of
the remuneration review for the 1 January 2009 the Finance
Director’s maximum bonus entitlement was set at 100%
of base salary. This alteration was made so as to align his
benefits with the benchmarked core comparator group and
the Deloitte LLP weighted complexity and size measure and to
reflect the Committee’s and Chief Executive’s assessment of his
performance since appointment.
Long term incentive plans
The Company operates three share plans: the 2007 Long Term
Incentive Plan, the 2005 Executive Share Option Scheme and
the 2005 ShareSave Scheme. The Long Term Incentive Plan is
the primary long term incentive vehicle for Executive Directors.
Prior to the implementation of the Long Term Incentive Plan in
2007, awards were made to Executive Directors under the 2005
Executive Share Option Scheme.
2007 Long Term Incentive Plan (LTIP)
The Hill & Smith 2007 Long Term Incentive Plan provides for
the grant of conditional share awards. Generally, awards are
made to Executive Directors on an annual basis with the level
of vesting determined by reference to stretching performance
conditions. The maximum market value of shares pursuant to
an award to any Director or employee in respect of any financial
year is 100% of that Director’s or employee’s base salary. Awards
are not pensionable and may not generally be assigned or
transferred.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Awards to the Chief Executive and Finance Director were
made on 25 March 2009. The value of the shares subject to
the award was equal to 31% of the Chief Executive’s salary
and 48% of the Finance Director’s salary. These awards were
set in the context of the low level of the share price and were
fixed at 75,000 shares each for the Chief Executive and Finance
Director. The Committee also reviewed the original performance
conditions and were satisfied that they continue to be aligned
with the business strategy and the creation of shareholder value.
Further details of subsisting awards to Executive Directors are
shown in the table on page 39.
For awards made pursuant to the LTIP, the performance targets
are based on the Company’s underlying earnings per share
(UEPS) measured over the relevant three year period. The UEPS
criterion was chosen to reflect the business strategy and ensure
that earnings attributable to the shareholders increased at an
appropriate rate before any awards under the LTIP vest.
Half of the award is based on the Company’s UEPS performance
against prescribed targets which were determined by the
Committee at the time each award was granted. The Committee
set a threshold level of UEPS growth (20% over the performance
period), below which none of this proportion of the award vests,
and a stretch level of UEPS growth (45% over the performance
period), at which all of this proportion of the award vests.
Vesting is on a straight line basis between the two threshold
points of 20% and 45%. For the 25 March 2009 award only
the stretch level of 45% was reduced to 40% to reflect the
lower percentage of salary each of these individual awards
represented.
The Committee continues to believe that absolute UEPS targets
are appropriate to incentivise the Executive Directors to develop
the UEPS in line with the business plan.
The remaining half of the award is based on the Company’s
UEPS growth relative to the FTSE All-Share index basic earnings
per share (EPS) growth (the index uses basic earnings per share
only). The ranking of the Company’s UEPS performance over the
performance period determines the vesting for this proportion
of the award, as per the vesting schedule shown in the table
below:
UEPS performance ranking of the
Company in FTSE All-Share index
Below median
Between median and upper quartile
Between upper quartile and 100th percentile
Vesting
Percentage
0%
50%
100%
The Committee determined that the measurement of relative
growth for half of the award would complement the absolute
growth targets to ensure that an award could only fully vest
if the Company’s performance is superior to a majority of the
companies in the FTSE All-Share index.
The Committee also has the discretion to make an adjustment
to the number of shares vesting from an award to take account
of the underlying financial performance of the Company over
which performance is measured.
2005 Executive Share Option Scheme
Under this scheme, options may be awarded at the discretion of
the Committee to acquire Ordinary Shares at an exercise price no
lower than the market value of a share at the date of grant. The
options can only be exercised between three and ten years after
the date of grant. Additionally options may only be exercised if
the growth in underlying earnings per share of the Company
over a three year period is not less than the increase in the Retail
Price Index plus nine per cent, over the same period.
No awards were made to Executive Directors under this scheme
in 2009. For options outstanding under the 2005 Executive
Share Option Scheme see the table on page 40.
2005 ShareSave Scheme
The 2005 ShareSave 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.
Executive Directors did participate in the scheme in 2009 and
details are contained in the table on page 40 including those for
subsisting options.
Dilution
The dilutive effect of the grants of awards is considered by the
Committee when granting awards under the long term incentive
and share option plans. In accordance with its commitment, the
percentage of the issued share capital that could be allocated
under all of the Company’s employee share plans over a period
of ten years should be under 10%. Currently the LTIP, as the
principal long term incentive vehicle for Executive Directors, does
not have a dilutive effect because it does not involve the issue
and allotment of new shares in the Company but rather relies on
the market purchase of shares.
Executive Directors’ service agreements
The Committee operates a policy of one year rolling contracts
for Executive Directors. Each Executive Director has such a
contract, executed at the time of his appointment (and amended
from time to time as required). The Committee would consider
the circumstances of any individual case of early termination and
would determine compensation payments accordingly. A fair but
robust principle of mitigation would be applied to the payment
of compensation in these circumstances.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Directors’ Remuneration Report
Current service agreements as at the date of this Report:
Executive Director
D W Muir
M Pegler
Date of Service
Contract
4 June 2007
28 November 2007
Notice Period
to be given
to the Director
12 months
12 months
D W Muir’s service agreement provides twelve months’ notice
of termination to be given by the Company and for D W Muir
to give the Company twelve months’ notice of termination.
During the period of ninety days following a change of control
the notice period to be given by the Company to D W Muir is
twelve months and by D W Muir to the Company is reduced
from twelve months to ninety days. If during the period of
ninety days following a change of control, the service agreement
is terminated by D W Muir or is terminated by the Company
without prior notice, D W Muir is entitled to a sum equal to
twelve months’ basic salary.
M Pegler’s service agreement entitles him to receive twelve
months’ notice of termination by the Company. In the event that
M Pegler terminates the service agreement he is due to give the
Company six months’ notice. During the period of ninety days
following a change of control the notice period to be given by
the Company to M Pegler is twelve months and by M Pegler
to the Company is reduced from six months to ninety days. If
during the period of ninety days following a change of control,
the service agreement is terminated by M Pegler or is terminated
by the Company without prior notice, M Pegler is entitled to a
sum equal to twelve months’ basic salary.
Apart from the above, there are no special provisions in the
Executive Directors’ service contracts for compensation for loss
of office.
D L Grove announced his intention to retire from the Board on
31 December 2009 and consequently his service agreement
dated 9 July 1999 terminated on this date without cost to the
Company.
Shareholding guidelines
The Committee has established a shareholding guideline under
which it is expected that Executive Directors retain half of
any shares which vest for awards made from 2008 onwards,
pursuant to the 2007 Long Term Incentive Plan.
Policy on external appointments
Subject to the approval of the Board in each case, Executive
Directors may accept external appointments as Non-Executive
Directors of other companies and retain any related fees paid
to them provided always that such external appointments are
not considered by the Board to prevent or reduce the ability of
the Executive to perform his role to the required standard. Such
appointments are seen as a way in which Executives can gain a
broader business experience and, in turn, benefit the Company.
Currently the Chief Executive and the Finance Director do not
hold any external Non-Executive Directorships.
D L Grove is a Non-Executive Director of Headlam Group plc. In
respect of such position he retained the fees paid to him for his
services. In 2009, the total amount of such fees paid to him in
respect of these services was £35,000.
38
Non-Executive Directors
The Non-Executive Directors do not have service contracts. Fees
for Non-Executive Directors are determined by the Chairman
and Chief Executive in light of market best practice and with
reference to the time commitment and responsibilities associated
with the role. The Non-Executive Directors do not participate in
any decision made by the Board in relation to the determination
of their fees.
The Audit Committee Chairman and the Remuneration
Committee Chairman receive additional fees as does the Senior
Independent Director.
The Non-Executive Directors are not eligible for performance
related bonuses or the grant of awards under the Company’s
long term incentive plans. No pension contributions are made on
their behalf.
The appointments of all the Non-Executive Directors are
governed by letters of engagement. Under the terms of their
engagement, the notice period to be given by the Non-Executive
Directors to the Company is three months and the Company
is obliged to give the same length of notice to each individual
Director to terminate their engagement. H C Marshall will not be
standing for re-election to the Board at the forthcoming Annual
General Meeting to be held on 7 May 2010.
Total shareholder return graphs
The UK Directors’ Remuneration Report Regulations 2002
require the inclusion in the Directors’ Remuneration Report of
a graph showing total shareholder return (TSR) over a five year
period in respect of a holding of the Company’s shares, plotted
against TSR in respect of a hypothetical holding of shares of a
similar kind and number by reference to which a broad equity
market index is calculated.
The following graph shows the TSR performance of the
Company over the five year period to 31 December 2009. The
Company’s performance has been compared against the FTSE
All-Share Index and FTSE Small Cap Index (which were chosen
because they represent broad equity indices of which the
Company is a constituent). The graph is based on three month
average values and has been re-based to 100 at the start of the
five year period.
Hill & Smith Holdings total return on investment
Hill & Smith
Holdings PLC
FTSE 350
FTSE Small Cap
400.00
350.00
300.00
250.00
200.00
150.00
100.00
50.00
0
2005
2009
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
PART 2 – (Subject to Audit)
Directors’ emoluments in 2009
The aggregate remuneration, excluding pension contributions and the value of long term incentive awards, paid to or accrued for
all Directors of the Company for services in all capacities during the year ended 31 December 2009 was £1.5m (2008: £2.4m). The
remuneration of individual Directors is set out below.
Directors
D W Muir
M Pegler (appointed 11 March 2008)
D L Grove
J F Lennox (appointed 12 May 2009)
H C Marshall
C J Snowdon
Former Directors
C J Burr (retired 11 March 2008)
R E Richardson (retired 12 May 2009)
Total
Salary/fees
£000
Performance
Related Bonus
£000
Value of
benefits
£000
375
240
115
23
42
41
—
18
854
355
227
—
—
—
—
—
—
582
20
14
15
—
—
—
—
—
49
Total
2009
£000
750
481
130
23
42
41
—
18
Total
2008
£000
679
317
855*
—
39
36
455†
41
1,485
2,422
* Payment made to D L Grove pursuant to an agreement dated 6 December 2007 compensating him for removal of future bonus entitlement and conditional upon the net sum being
used to purchase shares in the Company.
† Payment made to C J Burr as compensation due under his service agreement.
The Executive Directors were also granted awards of Ordinary Shares under the Company’s 2007 Long Term Incentive Plan (LTIP).
Details of awards made in the year under the LTIP are given below.
Long Term Incentive Plan (LTIP)
The interests of Directors at 31 December 2009, in shares that are the subject of awards under the LTIP are shown below:
Executive Director
D W Muir
Total D W Muir
M Pegler
Total M Pegler
At 31 Dec 2009
Award date number of shares number of shares number of shares
At 1 Jan 2009 Awarded in 2009
02 Jul 2007*
14 Mar 2008†
25 Mar 2009‡
14 Mar 2008†
25 Mar 2009‡
67,791
99,849
—
167,640
60,514
—
60,514
—
—
75,000
75,000
—
75,000
75,000
67,791
99,849
75,000
242,640
Performance
period
3 years from
1 Jan 2007
1 Jan 2008
1 Jan 2009
Vesting date
1 Jan 2010
1 Jan 2011
1 Jan 2012
60,514
75,000
1 Jan 2008 1 Jan 2011
1 Jan 2012
1 Jan 2009
135,514
No awards vested or lapsed in 2009.
* The share price as calculated on 2 July 2007 in accordance with the LTIP rules was 367p.
† The share price as calculated on 14 March 2008 in accordance with the LTIP rules was 330p.
‡ The share price as calculated on 25 March 2009 in accordance with the LTIP rules was 154p.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Directors’ Remuneration Report
Share options
The interests of Directors, and of former Directors who served during 2009, in options to subscribe for Ordinary Shares in the
Company, which include options granted under the 2005 Executive Share Option Plan, the 2005 ShareSave Scheme and 1995 SAYE
Scheme, together with options granted and exercised during 2009, are included in the following table:
At 1 Jan 2009
number of shares
Dates from
Grant price number of shares number of shares which exercisable
Granted in 2009
At 31 Dec 2009
Latest expiry date
D W Muir
2005 Exec Share Option Plan
2005 ShareSave Scheme
1995 SAYE Scheme
M Pegler
2005 ShareSave Scheme
D L Grove
2005 ShareSave Scheme
1995 SAYE Scheme
78,114
1,328
12,360
205p
318p
100p
3,902
246p
759
12,360
318p
100p
—
—
—
—
—
—
78,114
1,328
12,360
4 Oct 2008
1 Jan 2013
1 Jan 2010
4 Oct 2015
1 Jul 2013
1 Jul 2010
3,902 1 Dec 2011
1 Jun 2012
759
12,360
1 Jan 2011
I Jan 2010
1 Jul 2011
1 Jul 2010
Apart from the LTIP awards made to D W Muir and M Pegler on 25 March 2009 no further options or awards were made to Directors.
During 2009, the mid market price of Ordinary Shares in the Company ranged from 140p to 365p. The mid market price of an
Ordinary Share on 31 December 2009 was 344p.
Pensions
Defined benefits earned by Directors
Age at period end
Accrued benefit at 31 December 2009
Increase in accrued benefits excluding inflation
Increase in accrued benefits including inflation
Director’s contributions
Transfer value of accrued benefits at 1 January 2009
Transfer value of accrued benefits at 31 December 2009
D W Muir
49
£114,001 pa
£6,880 pa
£9,391 pa
£12,210
£1,074,114
£1,425,140
1 The pension entitlement is that which would be paid annually on retirement based on service to the period end and includes the
deferred pension element for pre 1 October 1998 service which, as from 6 April 2008, has ceased any linkage to salary.
2 The increase in accrued benefits is on account of the additional benefits from one more year of service and the change made on
6 April 2008 in respect of service pre 1 October 1998 which is subject to statutory revaluation as a deferred benefit.
3 The individual has the option to pay Additional Voluntary Contributions; neither the contributions nor the resulting benefits are
included in the above table.
4 The following is additional information relating to the Director’s pension:
(a) Normal Retirement Age:
(b) Spouse’s pension:
(c) Pension increases:
– post April 1997 pension
– pre April 1997 pension
(d) Discretionary benefits:
60
2/3 pension on death after retirement
increases in line with RPI, limited to 5% per annum, subject to a minimum of 3%
per annum on pension accrued post 1 October 1998.
nil
None
5 The transfer value at 31 December 2009 has been calculated on the basis set by the Trustees of the Hill & Smith Executive
Pension Scheme having taken actuarial advice.
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Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Defined contribution arrangements
M Pegler receives a payment of 25% of his base salary as a contribution to his own private pension arrangements. The Company
contributed £60,000 to M Pegler’s private pension arrangement in 2009.
Transactions with Directors
There were no material transactions between the Company and the Directors during 2009.
Howard Marshall
Chairman, Remuneration Committee
9 March 2010
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Statement of Directors’ Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report
and the Group and Parent Company Financial Statements in
accordance with applicable law and regulations.
Responsibility Statement of the Directors in respect of the
Annual Financial Report
We confirm that to the best of our knowledge:
the Group and Parent Company Financial Statements in the
Annual Report, which have been prepared in accordance
with applicable UK law and with the applicable set of
accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
and Group as a whole;
the management report (which comprises the Directors’
report and the Business Review) includes a fair review of
the development and performance of the business and the
position of the Company and Group as a whole, together
with a description of the principal risks and uncertainties that
they face.
By order of the Board.
John Humphreys
Company Secretary
9 March 2010
Company law requires the Directors to prepare Group and
Parent Company Financial Statements for each financial year.
Under that law they are required to prepare the Group Financial
Statements in accordance with IFRSs as adopted by the EU and
applicable law and have elected to prepare the Parent Company
Financial Statements in accordance with UK Accounting
Standards and applicable law (UK Generally Accepted
Accounting Practice).
l
l
Under Company law the Directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Parent
Company and of their profit or loss for that period. In preparing
each of the Group and Parent Company Financial Statements,
the Directors are required to:
l
select suitable accounting policies and then apply them
consistently;
l make judgements and estimates that are reasonable and
l
l
prudent;
for the Group Financial Statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
EU;
for the Parent Company Financial Statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in
the Parent Company Financial Statements;
l prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Parent Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Parent
Company’s transactions and disclose with reasonable accuracy
at any time the financial position of the Parent Company and
enable them to ensure that its Financial Statements comply with
the Companies Act 2006. 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.
Under applicable law and regulations, the Directors are also
responsible for preparing a Directors’ Report, Directors’
Remuneration Report and Corporate Governance Statement that
complies with that law and those regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company’s website. Legislation in the UK governing the
preparation and dissemination of Financial Statements may differ
from legislation in other jurisdictions.
42
17271HILLSMIT FRONT.indd 42
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29/03/2010 21:13
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Independent Auditor’s Report
to the members of Hill & Smith Holdings PLC
liabilities, financial position and profit or loss of the Company
with a description of the principal risks and uncertainties that
We have audited the Financial Statements of Hill & Smith
Holdings PLC for the year ended 31 December 2009 which
comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated and
Parent Company Balance Sheet, the Consolidated Statement
of Changes in Equity, the Parent Company Reconciliation of
Movements in Shareholders’ Funds, the Consolidated Statement
of Cash Flows and the related notes. The financial reporting
framework that has been applied in the preparation of the
Group Financial Statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the EU.
The financial reporting framework that has been applied in
the preparation of the Parent Company Financial Statements
is applicable law and UK Accounting Standards (UK Generally
Accepted Accounting Practice).
Opinion on other matters prescribed by the Companies Act
2006
In our opinion:
l
l
l
the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006; and
the information given in the Directors’ Report for the
financial year for which the Financial Statements are
prepared is consistent with the Financial Statements; and
the information given in the Corporate Governance Report
set out on pages 32 and 33 with respect to internal control
and risk management systems in relation to financial
reporting processes and about share capital structures is
consistent with the Financial Statements.
This report is made solely to the Company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act
2006. 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 auditors’ 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
As explained more fully in the Statement of Directors’
Responsibilities set out on page 42, the Directors are responsible
for the preparation of the Financial Statements and for being
satisfied that they give a true and fair view. Our responsibility is
to audit the Financial Statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
A description of the scope of an audit of financial statements
is provided on the APB’s website at www.frc.org.uk/apb/scope/
UKP.
Opinion on Financial Statements
In our opinion:
l
l
l
l
the Financial Statements give a true and fair view of the state
of the Group’s and of the Parent Company’s affairs as at
31 December 2009 and of the Group’s profit for the year
then ended;
the Group Financial Statements have been properly prepared
in accordance with IFRSs as adopted by the EU;
the Parent Company Financial Statements have been
properly prepared in accordance with UK Generally Accepted
Accounting Practice;
the Financial Statements have been prepared in accordance
with the requirements of the Companies Act 2006; and, as
regards the Group Financial Statements, Article 4 of the IAS
Regulation.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
l adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have not
been received from branches not visited by us; or
the Parent Company Financial Statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by
law are not made; or
l
l
l we have not received all the information and explanations
we require for our audit; or
l a Corporate Governance Statement has not been prepared
by the Company.
Under the Listing Rules we are required to review:
l
l
the Directors’ Statement, set out on page 27, in relation to
going concern; and
the part of the Corporate Governance Report beginning on
page 28 relating to the Company’s compliance with the nine
provisions of the June 2008 Combined Code specified for
our review.
Graham Neale
Senior Statutory Auditor
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
1 Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
9 March 2010
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17271HILLSMIT FRONT.indd 43
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43
29/03/2010 21:13
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Consolidated Income Statement
Year ended 31 December 2009
Underlying Underlying*
Non-
£m
–
(0.5)
(0.9)
(1.8)
1.0
0.1
(2.1)
3.4
(3.8)
(2.5)
1.0
(1.5)
Revenue
Notes
1,2
£m
389.7
Trading profit
Amortisation of acquisition intangibles
Business reorganisation costs
Gain on disposal of available for sale financial assets
Profit on sale of properties
Operating profit
Financial income
Financial expense
Profit before taxation
Taxation
Profit for the year from continuing operations
Discontinued operations
Profit for the year
Attributable to:
Equity holders of the parent
Minority interest
Profit for the year
Continuing basic earnings per share
Basic earnings per share
Continuing diluted earnings per share
Diluted earnings per share
Dividend per share — Interim
Dividend per share — Final proposed
Total
47.0
–
–
–
–
47.0
0.7
(5.5)
42.2
(13.2)
29.0
38.3p
7
4
4
4
1,2
6
6
8
3
9
9
9
9
10
10
10
Non-
Underlying*
£m
–
(0.2)
(0.6)
(3.2)
–
–
(4.0)
4.5
(4.3)
(3.8)
(0.7)
(4.5)
2009
Total
£m
Underlying
£m
389.7
419.8
47.4
–
–
–
–
47.4
1.4
(9.9)
38.9
(14.6)
24.3
32.2p
46.5
(0.9)
(1.8)
1.0
0.1
44.9
4.1
(9.3)
39.7
(12.2)
27.5
–
27.5
27.5
–
27.5
36.3p
36.3p
35.9p
35.9p
4.7p
6.8p
11.5p
2008
Total
£m
419.8
47.2
(0.6)
(3.2)
–
–
43.4
5.9
(14.2)
35.1
(15.3)
19.8
2.9
22.7
22.7
–
22.7
26.2p
30.0p
25.9p
29.7p
4.3p
5.7p
10.0p
* Non-Underlying items represent business reorganisation costs, property items, amortisation of acquisition intangibles, impairments, gains on disposal of available for sale
financial assets, change in the value of financial instruments and net financing return on pension obligations.
44
17271HILLSMIT BACK.indd 44
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Proof 20
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Consolidated Statement of Comprehensive Income
Year ended 31 December 2009
Profit for the year
Exchange differences on translation of overseas operations
Exchange differences on foreign currency borrowings denominated as net investment hedges
Effective portion of changes in fair value of cash flow hedges
Net change in fair value of available for sale financial assets
Net change in fair value of available for sale financial assets transferred to profit or loss
Actuarial loss on defined benefit pension schemes
Taxation on items taken directly to other comprehensive income
Other comprehensive income for the year
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Minority interest
Total comprehensive income for the year
Notes
21
25
8
2009
£m
27.5
(15.1)
10.8
(0.6)
1.0
(1.0)
(5.7)
1.8
(8.8)
18.7
19.0
(0.3)
18.7
2008
£m
22.7
29.0
(21.6)
–
–
–
(5.7)
1.2
2.9
25.6
25.2
0.4
25.6
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17271HILLSMIT BACK.indd 45
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45
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Consolidated Balance Sheet
As at 31 December 2009
Non-current assets
Intangible assets
Property, plant and equipment
Available for sale financial assets
Other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other liabilities
Current tax liabilities
Interest bearing borrowings
Net current assets
Non-current liabilities
Other liabilities
Provisions for liabilities and charges
Deferred tax liability
Retirement benefit obligation
Interest bearing borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Translation reserve
Hedge reserve
Retained earnings
Equity attributable to equity holders of the parent
Minority interest
Total equity
Approved by the Board of Directors on 9 March 2010 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
46
2009
Notes
£m
2008
(Restated)
£m
11
12
13
16
15
16
17
1
18
17,18
19
20
14
25
17,19
1
1
22
23
109.8
105.1
–
1.1
216.0
43.8
76.8
41.1
161.7
377.7
(74.7)
(8.3)
(31.2)
118.6
113.6
6.4
1.3
239.9
57.1
97.2
25.9
180.2
420.1
(87.5)
(6.9)
(16.7)
(114.2)
(111.1)
47.5
69.1
(0.2)
(5.0)
(12.7)
(16.7)
(97.5)
(0.3)
(6.7)
(14.5)
(11.8)
(155.4)
(132.1)
(188.7)
(246.3)
(299.8)
131.4
120.3
19.0
28.5
4.5
5.2
(0.6)
74.8
131.4
–
131.4
18.9
27.9
4.5
9.2
–
57.7
118.2
2.1
120.3
17271HILLSMIT BACK.indd 46
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Proof 20
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Consolidated Statement of Changes in Equity
Year ended 31 December 2009
Share
capital
£m
Share
premium
£m
Hedge
reserve
£m
Other Translation
reserve
£m
reserves
£m
Retained
earnings
£m
Minority
interest
£m
At 1 January 2008 as previously reported
Restatement
At 1 January 2008 (restated)
Total comprehensive income for the year
Dividends (restated)
Change in ownership interest in subsidiaries
Credit to equity of share-based payments
Shares issued
At 31 December 2008 (restated)
Total comprehensive income for the year
Dividends
Change in ownership interest in subsidiaries
Credit to equity of share-based payments
Tax taken directly to the Consolidated
Statement of Changes in Equity
Shares issued
Note
10
10
22
22
10
4
22
8
22
18.9
–
18.9
–
–
–
–
–
18.9
–
–
–
–
–
0.1
27.8
–
27.8
–
–
–
–
0.1
27.9
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
–
(0.6)
–
–
–
–
–
4.5
–
4.5
–
–
–
–
–
4.5
–
–
–
–
–
–
2.2
–
2.2
7.0
–
–
–
–
9.2
(4.0)
–
–
–
–
–
43.1
2.7
45.8
18.2
(6.6)
–
0.3
–
57.7
23.6
(7.5)
–
0.5
0.5
–
At 31 December 2009
19.0
28.5
(0.6)
4.5
5.2
74.8
Total
equity
£m
98.0
2.7
100.7
25.6
(6.6)
0.2
0.3
0.1
120.3
18.7
(7.5)
(1.8)
0.5
1.5
–
1.5
0.4
–
0.2
–
–
2.1
(0.3)
–
(1.8)
–
–
–
–
0.5
0.7
131.4
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17271HILLSMIT BACK.indd 47
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47
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Consolidated Statement of Cash Flows
Year ended 31 December 2009
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payment
Movement in fair value of forward contracts
Loss on disposal of subsidiaries
Gain on disposal of available for sale financial assets
Gain on disposal of property, plant and equipment
Depreciation
Amortisation of intangible assets
Impairment of non-current assets
Operating cash flow before movement in working capital
Decrease in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Decrease in provisions and employee benefits
Net movement in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash from operating activities
Interest received
Loan settlement
Proceeds on disposal of non-current assets
Purchase of property, plant and equipment
Purchase of intangible assets
Disposal of available for sale financial assets
Disposal of subsidiaries
Deferred consideration received in respect of disposals
Acquisitions of minority interests
Refund/(payment) in respect of acquisitions of subsidiaries and associates
Net cash used in investing activities
Issue of new shares
Dividends paid
New loans raised
Repayment of loans
Repayment of obligations under finance leases
Net cash used in financing activities
Net increase/(decrease) in cash from continuing operations
Cash flow from assets and liabilities held exclusively for sale
Cash flow from other discontinued operations
Net increase/(decrease) in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
Notes
£m
0.5
–
0.6
(1.0)
(0.1)
13.0
2.0
0.5
9.4
15.1
(12.7)
(1.2)
0.7
–
0.6
(9.7)
(0.7)
4.9
0.7
0.8
–
0.7
0.7
(7.5)
16.2
(43.2)
(4.9)
6
1,2
5,22
7
4
4
7
7,12
7,11
7,11,12
13
11
4
4
11
22
10
3
17
£m
0.3
0.2
–
–
(0.4)
11.4
1.4
1.9
2.3
(5.2)
1.2
(2.3)
1.3
1.0
0.7
(16.8)
(2.1)
–
0.3
0.1
(21.0)
(12.8)
0.1
(6.6)
–
(17.9)
(2.3)
2009
£m
39.7
5.2
44.9
15.5
60.4
10.6
71.0
(9.6)
(4.4)
57.0
(2.0)
(38.7)
16.3
–
–
16.3
25.9
(1.1)
41.1
2008
£m
35.1
8.3
43.4
14.8
58.2
(4.0)
54.2
(16.0)
(9.3)
28.9
(49.3)
(26.7)
(47.1)
19.1
8.6
(19.4)
41.3
4.0
25.9
48
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Group Accounting Policies
Hill & Smith Holdings PLC is a company incorporated in the UK.
The Group considers a company a subsidiary when it holds more than 50% of the shares and voting rights, so that it has the power to
govern the operating and financial policies of that entity so as to obtain benefits from its activities. The Group considers a company to
be an associate when it holds more than 20% of the shares and voting rights and is able to significantly influence the decisions of that
entity.
The Group Financial Statements consolidate the Company and its subsidiaries, proportionately consolidate any jointly controlled entities
and equity account the Group’s interest in associates. The Parent Company Financial Statements present information about the Company
as a separate entity and not about the Group.
The Group Financial Statements have been prepared and approved by the Directors in accordance with International Financial Reporting
Standards, as adopted by the EU (‘Adopted IFRSs’). The Company has elected to prepare its Parent Company Financial Statements in
accordance with UK GAAP; these are presented on pages 86 to 93.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group
Financial Statements.
Judgments made by the Directors in the application of these accounting policies that have a significant effect on the Group Financial
Statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 26.
Going concern and liquidity risk
The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out
in the Business Review on pages 4 to 21. The financial position of the Group, its cash flows, liquidity position and borrowing facilities
are described in the Business Review on pages 14 and 15. In addition, Note 21 to the Group Financial Statements includes the Group’s
objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments
and hedging activities; and its exposures to credit risk and liquidity risk.
The businesses of the Group have long established relationships with customers and suppliers which, together with the Group’s current
financial strength, provide a solid foundation. The Group’s forecasts and projections, taking account of reasonably possible changes in
trading performance, show that the Group should be able to operate within the level of its current bank facilities, of which the Group’s
principal debt facility is a £150m multi currency facility expiring in June 2012. As a consequence, the Directors believe that the Group is
well placed to manage its business risks successfully despite the current uncertain economic outlook.
After making enquiries, the Directors have a reasonable expectation that the Company and its subsidiaries have adequate resources to
continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing
the Annual Report and Accounts.
New IFRS standards and interpretations adopted during 2009
In 2009 the following standards had been endorsed by the EU, became effective and therefore were adopted by the Group:
l IAS1 (Revised) — Presentation of Financial Statements
l IAS23 (Revised) — Borrowing costs
l Amendment to IAS10 — Events after the accounting period
l Amendment to IFRS2 — Share-based payments
l Amendment to IFRS7 — Financial Instruments: Disclosures
l IFRS8 — Operating segments
l IFRIC14 IAS19 — The limit on a defined benefit asset, minimum funding requirements and their interaction
Following the adoption of IFRS8 — Operating segments as at 1 January 2009, the Group now determines and presents operating
segments based on the information that is presented internally to the Group’s Chief Executive, who is the Group’s Chief Operating
Decision Maker. However, the Group continues to report the same three operating segments since these form the basis of internal
reporting.
Following the adoption of the amendment to IAS10 — Events after the accounting period, the Group now accounts for dividends when
they are declared. Accordingly, the prior year comparatives have been restated and the effect of this is shown in Note 10.
The adoption of the remaining standards and interpretations has not had a significant impact on the results for the year.
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17271HILLSMIT BACK.indd 49
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Group Accounting Policies
New IFRS standards and interpretations not adopted
The IASB and IFRIC have issued additional standards and interpretations which are effective for periods starting after the date of these
Financial Statements. The following standards and interpretations have not yet been adopted by the Group:
l
l
l
IAS27 (Revised) — Consolidated and separate financial statements (effective for annual periods beginning on or after 1 July 2009)
IFRS3 (Revised) — Business Combinations (effective for business combinations taking place in annual periods beginning on or after
1 July 2009)
IFRIC16 — Hedges of a Net Investment in a Foreign Operation
The Group does not anticipate that the adoption of the above standards and interpretations will have a material effect on its Financial
Statements on initial adoption.
Measurement convention
The Group Financial Statements are prepared on the historical cost basis except where the measurement of balances at fair value is
required as explained below.
Intangible assets
In respect of subsidiaries, jointly controlled entities and associated companies, goodwill on acquisition comprises the excess of the fair
value of the purchase consideration and any associated acquisition costs for the investment over the Group’s share of the fair value
of the identifiable assets and liabilities acquired. On an ongoing basis the goodwill is measured at cost less impairment losses (see
accounting policy ‘Impairment of assets’). Fair value adjustments are always considered to be provisional at the first Balance Sheet date
after the acquisition to allow the maximum time to elapse for management to make a reliable estimate.
The Group has elected not to apply IFRS3 retrospectively. Goodwill prior to 1 October 1998 was written off to reserves. Goodwill from
1 October 1998 to 31 December 2003 was amortised in line with UK GAAP. From 1 January 2004 this goodwill is subject to annual
impairment testing. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment
over the carrying amount of the net assets acquired at the date of exchange.
Brands and customer lists that are acquired by the Group as part of a business combination are stated at cost less accumulated
amortisation and impairment losses (see accounting policy ‘Impairment of assets’). Cost reflects management’s judgement of the fair
value of the individual intangible asset calculated by reference to the net present value of future benefits accruing to the Group from the
utilisation of the asset, discounted at an appropriate discount rate.
The US brand is considered to have an indefinite life and therefore is subject to annual impairment testing (see accounting policy
‘Impairment of assets’). For other brands and customer lists, amortisation is provided equally over the estimated useful economic life of
the assets concerned, currently up to 20 years.
Expenditure on development activities is capitalised if the product or process is considered to be technically and commercially viable and
the Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour
and an appropriate proportion of overheads. Other development expenditure is recognised in the Consolidated Income Statement as
an expense as incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.
Amortisation is provided equally over the estimated useful economic life of the assets concerned, currently up to seven years.
Trade licences are amortised over the specific term granted to each individual licence.
Property, plant, equipment and depreciation
Depreciation is provided to write off the cost or deemed cost less the estimated residual value of property, plant and equipment by equal
instalments over their estimated useful economic lives as follows:
Freehold buildings
Leasehold buildings
Plant, machinery and vehicles
5 to 50 years
life of the lease
4 to 20 years
50
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Proof 20
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
No depreciation is provided on freehold land.
The Group has chosen to take the first time adoption exemption available under IFRS1 to use a previous revaluation for certain land and
buildings as its deemed cost at the transition date. All other items of property, plant and equipment are stated at cost unless it is felt that
this value should be impaired.
Discontinued operations
A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical
area of operations that has been disposed of or is held for sale, or represents operations acquired exclusively with a view to resale.
Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria as a discontinued operation, the
comparative Consolidated Income Statement is represented as if the operation had been discontinued from the start of the comparative
period.
The results and cash flows of major lines of business that have been divested have been classified as discontinued operations.
Financial instruments
Financial assets and liabilities are recognised on the Group’s Balance Sheet when the Group becomes a party to the contractual
provisions of the instrument.
The Group’s investments in equity securities and certain debt securities are classified as available for sale financial assets. Subsequent to
initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and
losses on available for sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or
loss in equity is transferred to profit or loss.
Trade receivables and trade payables are initially measured at fair value. Subsequent to initial recognition, they are carried at amortised
cost using the effective interest method, less any impairment losses.
Derivative financial instruments of the Group are used to hedge its exposure to interest rate and foreign currency risks arising from
operational, financing and investment activities.
In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However,
derivatives that do not qualify for hedge accounting are accounted for as trading instruments, as follows:
l Derivative financial instruments are stated at fair value. The unhedged gain or loss on remeasurement to fair value is recognised
immediately in the Consolidated Income Statement.
l The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the
Balance Sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties.
l The fair value of foreign exchange contracts is the estimated amount that the Group would receive or pay to terminate such
contracts at the Balance Sheet date, taking into account the forward exchange rates prevailing at that date.
Where derivative financial instruments are used to hedge the cash flow risk, such as interest rate swaps, the effective part of any gain
or loss on the fair value of cash flow hedges is recognised in the Consolidated Statement of Comprehensive Income and in the hedge
reserve, while any ineffective part is recognised immediately in the Consolidated Income Statement. Amounts recorded in the hedge
reserve are subsequently reclassified to the Consolidated Income Statement when the interest expense is actually recognised.
To qualify for hedge accounting the hedging relationship must meet several conditions with respect to documentation, probability
of occurrence, hedge effectiveness and reliability of measurement. At the inception of the transaction, the Group documents the
relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the
hedge transaction. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm
commitments or forecast transactions. The Group also documents its assessment, at hedge inception and on a half yearly basis, as to
whether the derivatives that are used in hedging transactions have been, and are likely to continue to be, effective in offsetting changes
in fair value or cash flows of hedged items.
Interest bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition,
interest bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the
Consolidated Income Statement over the period of the borrowings on an effective interest basis.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated
Statement of Cash Flows.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Group Accounting Policies
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Any gain or loss
on translation of monetary foreign currency assets and liabilities arising from a movement in exchange rates subsequent to initial
measurement is included as an exchange gain or loss in the Consolidated Income Statement.
The assets and liabilities of overseas subsidiary undertakings, including goodwill and fair value adjustments arising on acquisition, are
translated at the closing exchange rate. Income statements and cash flows of such undertakings are translated into Sterling at weighted
average rates of exchange, other than substantial transactions that are translated at the rate on the date of the transaction. The
adjustments to period end rates are taken to the cumulative translation reserve in equity and reported in the Consolidated Statement
of Comprehensive Income. When an overseas operation is disposed of, in part or in full, the relevant amount in the translation reserve is
transferred to profit or loss.
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign
operation are recognised directly in equity and reported in the Consolidated Statement of Comprehensive Income, to the extent that
the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged
part of a net investment is disposed of, the associated cumulative amount in the translation reserve is transferred to profit or loss as an
adjustment to the profit or loss on disposal.
The principal exchange rates used were as follows:
Sterling to Euro (£1 = €)
Sterling to US Dollar (£1 = $)
Sterling to Thai Baht (£1 = Baht)
Average
1.12
1.57
53.72
2009
Closing
1.13
1.61
53.87
Average
1.25
1.84
60.69
2008
Closing
1.03
1.44
50.00
Inventories
Inventories are stated at the lower of cost and net realisable value. In determining the cost of raw materials, consumables and goods
purchased for resale, the FIFO or average cost method is used. Cost for work in progress and finished goods comprises direct materials,
direct labour and an appropriate proportion of attributable overheads.
Provisions
A provision is recognised in the Balance Sheet when the Group has a present legal or constructive obligation as a result of a past event
and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a pre tax rate that reflects current market assessments of the time value of
money and, when appropriate, the risks specific to the liability.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring
either has commenced or has been announced publicly. Future operating costs are not provided for.
In accordance with the Group’s environmental policy and applicable legal requirements, a provision for site restoration in respect of
contaminated land is recognised as an obligation arises.
The estimated cost of returning properties held under leases to their original condition in accordance with the terms of specific lease
contracts is recognised as soon as such costs are able to be reliably estimated.
Impairment of assets
The carrying amounts of the Group’s non-financial assets, other than inventories (see accounting policy ‘Inventories’) and deferred
tax balances (see accounting policy ‘Deferred taxation’), are reviewed at each Balance Sheet date to determine whether there is an
indication of impairment. Impairment reviews are undertaken at the level of each significant cash generating unit, which are no larger
than operating segments as defined in IFRS8 — Segmental reporting. If such an indication exists, the relevant asset’s recoverable
amount is estimated. An impairment loss is recognised whenever the carrying amount of the asset or its cash generating unit exceeds its
recoverable amount.
For goodwill and intangible assets that have an indefinite life, the recoverable amount is assessed at each Balance Sheet date and an
impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Leases
Leases for which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial
recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease
payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are classified as operating leases and the leased assets are not recognised on the Group’s Balance Sheet. Payments made
under operating leases are recognised in the Consolidated Income Statement on a straight line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the
outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Rental income from operating leases is recognised as revenue in the Consolidated Income Statement on an accruals basis.
Revenue
Revenue from the sale of goods represents the amount (excluding value added tax) invoiced to third party customers, net of returns,
trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to
the buyer and the amount of revenue can be measured reliably. No revenue is recognised where the recovery of the consideration is not
probable or where there are significant uncertainties regarding associated costs or the possible return of goods.
Government grants
Government grants are recognised as a liability in the Balance Sheet and credited to operating profit over the estimated useful economic
life of the relevant assets or the length of employment specified in the grant.
Guarantees
The Group’s policy is to not give external guarantees.
Retirement benefits
The Group operates pension schemes under which contributions by employees and by the sponsoring companies are held in trust funds
separated from the Group’s finances.
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the Consolidated Income
Statement as incurred.
The Group’s net obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating
the amount of future benefit that employees have earned in return for their service in the current and prior periods. This benefit is
discounted to determine its present value, and the fair value of any scheme assets is deducted. The discount rate is the yield at the
Balance Sheet date on AA rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is
performed by a qualified Actuary using the projected unit method. Scheme assets are valued at bid price.
Current and past service costs are recognised in operating profit within the Consolidated Income Statement. Also in the Consolidated
Income Statement, the expected return on pension scheme assets is included in financial income and the expected costs on pension
scheme liabilities in financial expense.
All actuarial gains and losses in calculating the Group’s obligation in respect of defined benefit schemes are recognised annually in
reserves and reported in the Consolidated Statement of Comprehensive Income.
Share-based payment transactions
The fair value of shares/options granted is recognised as an employee expense, with a corresponding increase in equity reserves. The
fair value is calculated at the grant date and spread over the period during which the employees become unconditionally entitled to
the shares/options. The Black–Scholes model has been adopted as the method of evaluating the fair value of the options. The amount
recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting
conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do
meet the related service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting
conditions, the grant date fair value of the share-based payment is measured to reflect such conditions and there is no adjustment for
differences between expected and actual outcomes.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Group Accounting Policies
Financial income and expense
Financial income comprises interest income on funds invested, expected returns on pension scheme assets and gains on the fair value of
financial assets and liabilities at fair value through profit or loss. Interest income is recognised as it accrues in the Consolidated Income
Statement using the effective interest method.
Financial expense comprises interest expense on borrowings, expected interest cost on pension scheme obligations, unwinding of
discounts, losses on the fair value of financial assets and liabilities at fair value through profit or loss and the interest expense component
of finance lease payments. All borrowing costs are recognised in the Consolidated Income Statement using the effective interest method.
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised
in the Consolidated Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the
Consolidated Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability
for current tax is calculated using tax rates enacted or substantively enacted at the Balance Sheet date, and any adjustments to tax
payable in respect of previous years.
Deferred taxation
Deferred tax is provided in full using the Balance Sheet liability method and represents the tax expected to be payable or recoverable
on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes, the
initial recognition of assets and liabilities not resulting from a business combination that affects neither accounting or taxable profit,
and differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
Ordinary dividends
Dividends are accounted for in the Financial Statements when the Group declares the payment of the dividend.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Notes to the Consolidated Financial Statements
1. Segmental information
Business segment analysis
The Group has three reportable segments which are Infrastructure Products, Galvanizing Services and Building and Construction
Products. Several operating segments which have similar economic characteristics have been aggregated into these reporting segments.
Income Statement — continuing
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total Group
Net financing costs
Continuing operations profit before taxation
Taxation
Continuing operations profit after taxation
Income Statement — discontinued
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total Group
Net financing costs
Discontinued operations profit before taxation
Taxation
Discontinued operations profit after taxation
Income Statement
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
2009
Underlying
Revenue
£m
Result
£m
result*
£m
Revenue
£m
Result
£m
202.5
113.2
74.0
389.7
–
–
–
–
202.5
113.2
74.0
389.7
191.8
127.1
100.9
419.8
–
35.6
84.6
120.2
191.8
162.7
185.5
540.0
23.5
21.2
0.2
44.9
(5.2)
39.7
(12.2)
27.5
24.5
21.4
1.1
47.0
(4.8)
42.2
(13.2)
29.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23.5
21.2
0.2
44.9
(5.2)
39.7
(12.2)
27.5
24.5
21.4
1.1
47.0
(4.8)
42.2
(13.2)
29.0
22.5
18.8
2.1
43.4
(8.3)
35.1
(15.3)
19.8
–
1.7
3.4
5.1
(0.5)
4.6
(1.7)
2.9
22.5
20.5
5.5
48.5
(8.8)
39.7
(17.0)
22.7
2008
Underlying
result*
£m
23.2
19.7
4.5
47.4
(8.5)
38.9
(14.6)
24.3
–
–
–
–
–
–
–
–
23.2
19.7
4.5
47.4
(8.5)
38.9
(14.6)
24.3
* Underlying result is stated before Non-Underlying items as defined on the Consolidated Income Statement, and is the measure of segment profit used by the Chief Operating
Decision Maker. The Result columns are included as additional information.
Infrastructure Products provided £0.7m (2008: £0.3m) revenues to Building and Construction Products. Galvanizing Services provided
£4.8m (2008: £5.8m) revenues to Infrastructure Products and £1.8m (2008: £2.0m) revenues to Building and Construction Products.
Building and Construction Products provided £0.5m (2008: £0.7m) revenues to Infrastructure Products. These internal revenues, along
with revenues generated from within their own segments, have been eliminated on consolidation.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
1. Segmental information continued
Balance Sheet
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total segment assets/(liabilities)
Taxes
Provisions and retirement benefits
Net debt
Total Group
Net assets
Capital expenditure and amortisation/depreciation
Total
assets
2009
Total
liabilities
Total
assets
£m
£m
£m
(35.4)
(24.6)
(14.9)
(74.9)
(21.0)
(21.7)
(128.7)
115.8
232.6
45.8
394.2
–
–
25.9
109.7
193.2
33.7
336.6
–
–
41.1
377.7
2008
Total
liabilities
(Restated)
£m
(32.7)
(31.7)
(23.4)
(87.8)
(21.4)
(18.5)
(172.1)
(246.3)
420.1
(299.8)
131.4
120.3
2009
Impairment
losses,
amortisation
and
expenditure depreciation
£m
Capital
£m
2008
Impairment
losses,
amortisation
and
expenditure depreciation
£m
Capital
£m
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total Group
Property, plant and equipment (Note 12)
Intangible assets (Note 11)
Total Group
8.7
4.3
0.7
13.7
13.0
0.7
13.7
6.9
6.5
2.1
15.5
13.4
2.1
15.5
6.6
11.4
1.8
19.8
17.7
2.1
19.8
3.4
6.5
4.8
14.7
11.4
3.3
14.7
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
1. Segmental information continued
Geographical segment analysis
Detailed below is the analysis of revenue by geographical market, irrespective of origin.
Revenues
UK
Rest of Europe
USA
The Middle East
Asia
Rest of World
Total
Below are tables showing total assets and capital expenditure by major geographical segment.
Total assets
UK
Rest of Europe
USA
Asia
Total Group
Capital expenditure
UK
Rest of Europe
USA
Asia
Total Group
2. Operating profit
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Profit on sale of fixed assets
Other operating income
Operating profit
2009
£m
Continuing Discontinued
£m
£m
239.0
102.5
57.0
6.5
8.6
6.2
419.8
84.6
35.6
–
–
–
–
120.2
207.5
93.8
59.0
12.3
9.5
7.6
389.7
2009
£m
189.0
93.3
87.6
7.8
377.7
2009
£m
7.3
2.0
3.9
0.5
13.7
2008
£m
323.6
138.1
57.0
6.5
8.6
6.2
540.0
2008
£m
184.5
126.2
103.2
6.2
420.1
2008
£m
11.3
4.0
4.2
0.3
19.8
2009
£m
Continuing Discontinued
£m
£m
2008
£m
389.7
(262.0)
419.8
(285.7)
120.2
(99.1)
540.0
(384.8)
127.7
(20.0)
(63.5)
0.1
0.6
44.9
134.1
(23.0)
(68.6)
0.4
0.5
43.4
21.1
(8.1)
(7.9)
–
–
5.1
155.2
(31.1)
(76.5)
0.4
0.5
48.5
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
3. Discontinued operations and assets held for sale
Discontinued operations
Following the acquisition on 2 July 2007 of Zinkinvent GmbH the Group decided that it did not wish to retain the Benelux and German
trading operations of that company. Accordingly, these businesses were accounted for as discontinued operations from the date
of acquisition. These operations were disposed of in August 2008 for a consideration of £22.1m, including deferred consideration
of £1.0m. In November 2008, the Group exited the steel bar reinforcing market through the disposal of its interests in Express
Reinforcements Limited and the cessation of its related activities. As a result these operations have been treated as discontinued
activities.
The results of the discontinued operations are as follows:
Income Statement
Operating profit (Note 2)
Net financing charges (Note 6)
Profit before taxation
Taxation (Note 8)
Discontinued operations profit for the year
Cash flows
Net cash from operating activities
Net cash from investing activities
Net cash used in financing activities
Cash flow from other discontinued operations
The impact of the disposal of Express Reinforcements Limited on the Group’s results is as follows:
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Current liabilities
Deferred tax (Note 14)
Net assets
Consideration:
Cash consideration
Deferred consideration
Expenses
Total net proceeds
Profit on disposal
Cash flow effect:
Cash consideration
Cash left in the business
Expenses
Net cash consideration
2008
£m
5.1
(0.5)
4.6
(1.7)
2.9
5.6
8.0
(5.0)
8.6
2008
£m
4.0
3.5
7.0
13.4
3.8
(22.3)
(0.3)
9.1
12.8
0.4
(1.0)
12.2
3.1
12.8
(3.8)
(1.0)
8.0
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
4. Non-Underlying items
Non-Underlying items in 2009 include a gain of £1.0m in relation to the disposal of the Group’s ultimate minority interest in Neholl BV
which was held as an available for sale financial asset:
Available for sale financial assets (Note 13)
Minority interest
Shareholder’s equity
Consideration:
Cash consideration
Expenses
Total net proceeds
Profit on disposal
Cash flow effect:
Cash consideration
Expenses
Net cash consideration shown in the Consolidated Statement of Cash Flows and Note 17
The Group realised a loss on the disposal of Ash & Lacy Perforators Limited as follows:
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Current liabilities
Net Assets
Consideration:
Cash consideration
Deferred consideration
Expenses
Total net proceeds
Loss on disposal
Cash flow effect:
Cash consideration
Cash left in the business
Expenses
Net cash consideration shown in the Consolidated Statement of Cash Flows and Note 17
2009
£m
5.7
(1.8)
3.9
5.0
(0.1)
4.9
1.0
5.0
(0.1)
4.9
2009
£m
1.1
0.2
1.4
2.1
(1.2)
3.6
2.9
0.2
(0.1)
3.0
(0.6)
2.9
(2.1)
(0.1)
0.7
Also included are a £0.1m gain on the sale of land, reorganisation and redundancy costs of £1.2m (2008: £1.9m) and intangible
amortisation and impairment charges of £1.4m (2008: £2.5m offset by a net curtailment gain of £0.6m in respect of the Group’s
retirement obligations). Amounts included within financial income and expense represents the net financing return on pension
obligations of £0.5m cost (2008: £0.2m income) and the gain on the fair value of financial instruments of £0.1m (2008: £nil). Tax
on Non-Underlying items includes a charge of £0.1m (2008: £1.1m) resulting from a change in the UK tax legislation preventing the
recoverability of Industrial Buildings Allowances.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
5. Employees
The average number of people employed
by the Group during the year
Infrastructure Products
Galvanizing Services
Building and Construction Products
The aggregate remuneration for the year
Wages and salaries
Share-based payments
Social security costs
Pension costs*
2009
Continuing Discontinued
2008
1,316
1,294
622
3,232
1,224
1,379
696
3,299
–
229
213
442
1,224
1,608
909
3,741
£m
£m
£m
£m
76.6
0.5
13.4
2.2
92.7
78.4
0.3
14.1
2.6
95.4
12.3
–
2.9
0.2
15.4
90.7
0.3
17.0
2.8
110.8
* Pension costs shown above exclude the effect of net curtailment gains of £nil (2008: £0.6m) on the UK defined benefit pension schemes and £nil (2008: £0.2m) on the overseas
defined benefit pension schemes.
Details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 34 to 41.
6. Net financing costs
Interest on bank deposits
Interest on other loans
Total interest income
Change in fair value of financial assets and liabilities
Expected return on pension scheme assets (Note 25)
Total other income
Financial income
Interest on bank loans and overdrafts
Interest on finance leases and hire purchase contracts
Interest on other loans
Total interest expense
Change in fair value of financial assets and liabilities
Put option discount unwind
Expected interest cost on pension scheme obligations (Note 25)
Total other expense
Financial expense
Continuing net financing costs/(income)
Discontinued operations
Net financing costs
Non-
Underlying Underlying
£m
£m
2009
£m
Underlying
£m
Non-
Underlying
£m
0.7
–
0.7
–
–
–
0.7
4.8
0.5
0.2
5.5
–
–
–
–
5.5
4.8
–
–
–
0.1
3.3
3.4
3.4
–
–
–
–
–
–
3.8
3.8
3.8
0.4
1.2
0.2
1.4
–
–
–
1.4
8.5
0.4
0.5
9.4
–
0.5
–
0.5
9.9
8.5
–
–
–
0.1
4.4
4.5
4.5
–
–
–
–
0.1
–
4.2
4.3
4.3
(0.2)
0.7
–
0.7
0.1
3.3
3.4
4.1
4.8
0.5
0.2
5.5
–
–
3.8
3.8
9.3
5.2
–
5.2
2008
£m
1.2
0.2
1.4
0.1
4.4
4.5
5.9
8.5
0.4
0.5
9.4
0.1
0.5
4.2
4.8
14.2
8.3
0.5
8.8
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
7. Expenses and Auditor’s remuneration
Income Statement charges
Depreciation of property, plant and equipment:
Owned
Leased
Operating lease rentals:
Plant and machinery
Other
Research and development expenditure
Amortisation of acquisition intangibles
Amortisation of development costs
Amortisation of other intangible assets
Impairment loss
Fair value loss on forward exchange contracts
Foreign exchange loss
Income Statement credits
Profit on disposal of properties
Profit on disposal of other fixed assets
Grants receivable
Rental income
Foreign exchange gain
A detailed analysis of the Auditor’s remuneration worldwide is as follows:
Hill & Smith Holdings PLC
Audit of the Company’s annual accounts
Audit of the Company’s subsidiaries
Other services*
Valuation and actuarial services
Hill & Smith Holdings PLC pension schemes
Valuation and actuarial services
Other services — pension administration
2009
£m
Continuing Discontinued
£m
£m
2008
£m
10.6
2.4
1.5
4.4
0.2
0.9
1.0
0.1
0.5
–
–
0.1
–
0.1
5.6
0.2
9.4
2.0
1.2
4.3
0.1
0.6
0.7
0.1
1.9
0.2
0.3
–
0.4
–
4.0
–
0.6
–
0.2
0.4
–
–
–
–
–
–
–
–
–
0.1
–
–
10.0
2.0
1.4
4.7
0.1
0.6
0.7
0.1
1.9
0.2
0.3
–
0.4
0.1
4.0
–
2009
£m
Continuing Discontinued
£m
£m
2008
£m
0.1
0.4
0.1
0.1
0.7
0.2
0.3
0.5
0.1
0.4
0.4
0.2
1.1
0.2
0.3
0.5
–
–
–
–
–
–
–
–
0.1
0.4
0.4
0.2
1.1
0.2
0.3
0.5
* Includes £nil (2008: £0.1m) relating to the Auditor’s work as reporting accountants in respect of corporate transactions, the costs of which are capitalised.
A description of the work of the Audit Committee is set out in the Corporate Governance Report on pages 31 and 32 and includes an
explanation of how auditor objectivity and independence is safeguarded when non audit services are provided by the Auditor.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
8. Taxation
Current tax
UK corporation tax
Adjustments in respect of prior periods
Overseas tax at prevailing local rates
Deferred tax (Note 14)
Current year
Adjustments in respect of prior periods
Overseas tax at prevailing local rates
Tax on profit in the Income Statement
Current tax
Relating to foreign exchange
Relating to share-based payments
Deferred tax (Note 14)
Relating to defined benefit pension schemes
Relating to financial instruments
Relating to share-based payments
Tax on items taken directly to other comprehensive income
Deferred tax (Note 14)
Relating to share-based payments
Tax taken directly to the Consolidated Statement of Changes in Equity
2009
£m
Continuing Discontinued
£m
£m
2008
£m
4.4
–
11.4
15.8
1.9
0.2
(0.9)
0.1
–
1.6
1.7
–
–
–
1.7
17.0
–
–
–
(1.5)
–
0.3
(1.2)
–
–
5.0
(1.8)
7.9
4.3
–
9.8
11.1
14.1
(0.2)
0.7
0.6
12.2
1.9
0.2
(0.9)
15.3
0.1
(0.1)
–
(1.6)
(0.2)
–
(1.8)
(0.5)
(0.5)
The tax charge in the Consolidated Income Statement for the period is higher (2008: higher) than the standard rate of corporation tax in
the UK. The differences are explained below:
Profit from continuing operations before tax
Profit from discontinued operations before tax (Note 3)
Profit before taxation
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 28.0% (2008: 28.5%)
Expenses not deductible for tax purposes
Impairment of goodwill
Capital profits less losses and write downs not subject to tax
Overseas profits taxed at higher/(lower) rates
Overseas losses not relieved
Withholding taxes
Impact of change in legislation
Adjustments in respect of previous periods
Tax charge
Tax charge on continuing operations
Tax charge on discontinued operations (Note 3)
Tax charge
2009
£m
39.7
–
39.7
11.1
0.5
–
(0.3)
1.7
0.1
0.2
–
(1.1)
12.2
12.2
–
12.2
2008
£m
35.1
4.6
39.7
11.3
2.7
0.6
(0.7)
1.5
0.3
–
1.1
0.2
17.0
15.3
1.7
17.0
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
9. Earnings per share
The weighted average number of Ordinary Shares in issue during the year was 75.8m (2008: 75.6m), diluted for the effects of the
outstanding dilutive share options 76.5m (2008: 76.5m). Underlying earnings per share have been shown because the Directors consider
that this provides valuable additional information about the underlying performance of the Group.
Basic earnings
Discontinued business
Continuing basic earning per share
Non-Underlying items*
Underlying earnings
Diluted earnings
Discontinued business
Continuing diluted earning per share
Non-Underlying items*
Underlying diluted earnings
Pence
per share
36.3
–
36.3
2.0
38.3
35.9
–
35.9
2.0
37.9
2009
£m
27.5
–
27.5
1.5
29.0
27.5
–
27.5
1.5
29.0
Pence
per share
30.0
(3.8)
26.2
6.0
32.2
29.7
(3.8)
25.9
5.9
31.8
2008
£m
22.7
(2.9)
19.8
4.5
24.3
22.7
(2.9)
19.8
4.5
24.3
* Non-Underlying items as defined on the Consolidated Income Statement.
10. Dividends
Dividends paid in the year were the prior year’s interim dividend of £3.2m (2008: £2.7m) and the final dividend of £4.3m (2008: £3.9m).
Dividends declared after the Balance Sheet date are not recognised as a liability, in accordance with IAS10. The Directors have proposed
the following interim dividend and a final dividend for the current year, subject to shareholder approval, as shown below:
Equity shares
Interim
Final
Total
Pence
per share
4.7
6.8
11.5
2009
£m
3.6
5.3
8.9
Pence
per share
4.3
5.7
10.0
2008
£m
3.2
4.3
7.5
The Group previously had a policy of recognising dividends when they were committed, however, subsequent to the amendment of
IAS10 — Events after the accounting period, this policy has been aligned so that dividends are now recognised when they are declared.
This has resulted in the restatement of the 2008 Consolidated Balance Sheet. The effect of this restatement is reflected in the
Consolidated Statement of Changes in Equity and increases the opening retained earnings as at 1 January 2008 by £2.7m, the dividend
in 2008 is reduced by £0.5m to £6.6m and the dividend accrual of £3.2m as at 31 December 2008 has been removed from Note 18. On
the grounds of materiality no restated Consolidated Balance Sheet as at 1 January 2008 has been presented.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
11. Intangible assets
Cost
At 1 January 2008
Exchange adjustments
Acquisitions — subsidiaries
Acquisitions — minority interests
Additions internal
Additions external
Disposal of subsidiaries
Disposals
At 31 December 2008
Exchange adjustments
Additions internal
Additions external
Disposal of subsidiaries
At 31 December 2009
Amortisation and impairment losses
At 1 January 2008
Exchange adjustments
Disposals
Impairment losses
Amortisation charge for the year
At 31 December 2008
Exchange adjustments
Disposals of subsidiaries
Impairment losses
Amortisation charge for the year
At 31 December 2009
Carrying values
At 1 January 2008
At 31 December 2008
At 31 December 2009
Goodwill
£m
Brands
£m
Capitalised
Customer development
costs
£m
lists
£m
Licences
£m
77.5
15.3
5.9
5.0
–
–
(4.0)
–
99.7
(5.9)
–
0.1
(1.9)
92.0
–
–
–
1.9
–
1.9
–
(1.9)
–
–
–
77.5
97.8
92.0
9.8
3.1
0.9
–
–
–
–
–
13.8
(1.3)
–
–
–
12.5
0.2
–
–
–
0.2
0.4
–
–
–
0.3
0.7
9.6
13.4
11.8
1.9
0.7
0.6
–
–
–
–
–
3.2
(0.3)
–
–
–
2.9
0.2
0.1
–
–
0.4
0.7
(0.1)
–
–
0.6
1.2
1.7
2.5
1.7
4.6
–
–
–
0.3
1.7
–
–
6.6
–
0.1
0.5
–
7.2
1.2
–
–
–
0.7
1.9
–
–
0.1
1.0
3.0
3.4
4.7
4.2
0.6
–
–
–
–
0.1
–
(0.4)
0.3
–
–
–
–
0.3
0.1
–
(0.1)
–
0.1
0.1
–
–
–
0.1
0.2
0.5
0.2
0.1
Total
£m
94.4
19.1
7.4
5.0
0.3
1.8
(4.0)
(0.4)
123.6
(7.5)
0.1
0.6
(1.9)
114.9
1.7
0.1
(0.1)
1.9
1.4
5.0
(0.1)
(1.9)
0.1
2.0
5.1
92.7
118.6
109.8
2009
During the year the Group received a refund of consideration previously paid of £0.7m (Note 17) due to Creative Pultrusions Inc. not
achieving certain targets as laid out in the sale and purchase agreement. A fair value adjustment of £0.7m (Note 14) in respect of deferred
tax on the intangible fixed assets of Creative Pultrustions Inc. was also made, but no prior year adjustment in respect of the latter was made
on the grounds of materiality.
2008
Goodwill of £5.9m, brands of £0.9m and customer lists of £0.6m arose on the acquisition of Creative Pultrusions Inc. in September 2008.
Goodwill arises on this acquisition due primarily to the assembled workforce, technical expertise, knowhow, market share and geographical
advantages afforded to the Group through this acquisition. Details of the acquisition are provided in the table on the next page.
Goodwill of £5.0m arising on the acquisition of minority interests consisted of the following:
l £4.3m in respect of the purchase in July 2008 of the 31.8% minority interest in Zinkinvent GmbH. The £4.3m represents the excess
of the net consideration of £18.8m over the fair value of the put option recognised on acquisition in respect of the Group’s potential
obligation to purchase the minorities’ shareholdings.
l £0.7m in respect of the purchase in January 2008 of the minority interests in the US fabrication operations of Voigt & Schweitzer LLC
for a consideration of £2.2m.
No intangible assets other than goodwill were recognised upon these acquisitions as the Group had previously recognised the intangible
assets upon acquiring a majority shareholding in Zinkinvent GmbH in July 2007.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
11. Intangible assets continued
Details of acquisitions are shown below:
Intangible assets
Property, plant and equipment
Inventories
Current assets
Current liabilities
Deferred tax (Note 14)
Non-current liabilities (Note 20)
Shareholder’s equity
Consideration
Cash consideration in the year
Expenses
Total cost
Goodwill
Cash flow effect
Cash consideration
Expenses incurred in the year
Net cash consideration shown in the Consolidated Statement of Cash Flows and Note 17
Post acquisition profit for the year included in the Group’s Consolidated Income Statement
Creative
Pultrusions Inc.
pre-acquisition
carrying
amount
£m
Policy
alignment
and
provisional
fair value
adjustments
£m
Creative
Pultrusions
Inc.
£m
–
2.4
2.0
2.8
(2.2)
0.7
–
5.7
1.5
–
–
–
–
–
(0.3)
1.2
1.5
2.4
2.0
2.8
(2.2)
0.7
(0.3)
6.9
12.4
0.4
12.8
5.9
12.4
0.4
12.8
0.1
Policy alignment and provisional fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including
the application of fair values on acquisition and the elimination of inter Group balances.
Cash generating units with significant amounts of goodwill
Galvanizing Services – France
Galvanizing Services – USA
Joseph Ash Limited
Other cash generating units with no individually significant value
2009
£m
29.7
21.1
14.3
26.9
92.0
2008
£m
32.0
23.6
14.3
27.9
97.8
Goodwill impairments have been carried out at an operating segment level on all cash generating units to which goodwill is allocated.
Impairment tests on the carrying values of goodwill and the US brand name of £6.3m (2008: £7.0m), which is the Group’s only other
indefinite life intangible asset, are performed by analysing the carrying value allocated to each significant cash generating unit against its
value in use. All goodwill is allocated to specific cash generating units whch are in all cases no larger than operating segments. Value in
use is calculated for each cash generating unit as the net present value of that unit’s discounted future cash flows. These cash flows are
based on budget cash flow information for a period of one year with an average growth rate of 1.0% applied subsequent to the initial
budget period based on a prudent management estimate for revenue and associated cost growth.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
11. Intangible assets continued
An impairment charge of £nil (2008: £1.9m) was recognised in respect of the whole of the goodwill relating to Ash & Lacy Perforators
Limited, a single cash generating unit which was disposed of in 2009 and formed part of the Group’s Building and Construction
Products Division. This charge was treated as a Non-Underlying item and was included in continuing administrative expenses. The initial
measurements of the post tax and pre tax weighted average costs of capital were respectively 8.09% and 11.24% (2008: 6.98% and
9.55%). However, to reflect the differing risks and returns applied to the different cash generating units and the geographies in which
they operate, the pre tax discount rates and growth rates respectively have been adjusted as follows:
l Galvanizing Services – France: 16.82% and 1.0% (2008: 12.28% and 1.0%)
l Galvanizing Services – USA: 18.26% and 1.0% (2008: 13.82% and 0.5%).
l Joseph Ash Limited: 15.37% and 1.0% (2008: 11.16% and 1.0%)
Other cash generating units with no significant amounts of goodwill principally consist of subsidiaries in the Infrastructure Products and
Building and Construction Products segments.
The Group has applied sensitivities to assess whether any reasonable possible changes in assumptions could cause an impairment that
would be material to these Consolidated Financial Statements and no such impairments were identified.
12. Property, plant and equipment
Cost
At 1 January 2008
Exchange adjustments
Acquisitions
Disposal of subsidiaries
Additions
Disposals
At 31 December 2008
Exchange adjustments
Disposal of subsidiaries
Additions
Disposals
At 31 December 2009
Depreciation and impairment losses
At 1 January 2008
Exchange adjustments
Disposal of subsidiaries
Disposals
Charge for the year — Discontinued
Charge for the year — Continuing
At 31 December 2008
Exchange adjustments
Disposal of subsidiaries
Disposals
Charge for the year
Impairment provision
At 31 December 2008
Carrying values
At 1 January 2008
At 31 December 2008
At 31 December 2009
Land and
buildings
£m
Plant,
machinery
and vehicles
£m
46.1
11.6
1.6
(1.5)
5.4
(4.2)
59.0
(4.5)
–
1.5
(0.2)
55.8
4.4
0.6
(0.4)
(2.3)
–
2.0
4.3
(0.3)
–
–
2.3
–
6.3
41.7
54.7
49.5
113.6
6.4
0.8
(7.6)
12.3
(3.8)
121.7
(2.8)
(10.3)
11.5
(2.0)
118.1
62.8
0.9
(5.2)
(5.7)
0.6
9.4
62.8
(0.5)
(9.2)
(1.7)
10.7
0.4
62.5
50.8
58.9
55.6
Total
£m
159.7
18.0
2.4
(9.1)
17.7
(8.0)
180.7
(7.3)
(10.3)
13.0
(2.2)
173.9
67.2
1.5
(5.6)
(8.0)
0.6
11.4
67.1
(0.8)
(9.2)
(1.7)
13.0
0.4
68.8
92.5
113.6
105.1
The gross book value of land and buildings includes freehold land of £11.4m (2008: £12.3m).
Included in the carrying value of plant, machinery and vehicles is £13.5m (2008: £10.4m) in respect of assets held under finance lease
and hire purchase contracts.
Included within plant, machinery and vehicles are assets held for hire with a cost of £26.3m (2008: £21.5m) and accumulated
depreciation of £9.4m (2008: £7.0m).
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
13. Available for sale financial assets
Fair and carrying value
At 1 January 2008
Exchange adjustments
Interest receivable on loan
Loan repayment
At 31 December 2008
Exchange adjustments
Disposal (Note 4)
At 31 December 2009
Total
£m
5.7
1.6
0.1
(1.0)
6.4
(0.7)
(5.7)
–
Available for sale financial assets consisted of a 33.3% shareholding of Vista Investment NV in Neholl BV, a Dutch holding company.
The Group disposed of its 68.2% holding in Vista Investments NV on 26 June 2009 for a consideration of £5.0m, this transaction also
removed the 31.8% minority interest held by Mr Lars Baumguertel as shown in the Consolidated Statement of Changes in Equity. On
the date of disposal, the fair value was measured resulting in a £1.0m gain which was recognised directly in equity. The asset disposal
recycled the £1.0m gain to the Consolidated Income Statement as a gain on disposal of available for sale financial assets.
14. Deferred taxation
At 1 January 2008
Exchange adjustments
Fair value adjustment
Acquisition of subsidiaries (Note 11)
Disposal of subsidiaries (Note 3)
Credited/(charged) for the year in the Consolidated
Income Statement (Note 8)
Credited/(charged) for the year in the Consolidated Statement
of Comprehensive Income (Note 8)
At 31 December 2008
Exchange adjustments
Fair value adjustment (Note 11)
Credited/(charged) for the year in the Consolidated
Income Statement (Note 8)
Credited for the year in the Consolidated Statement
of Comprehensive Income (Note 8)
Credited for the year in the Consolidated Statement
of Changes in Equity (Note 8)
At 31 December 2009
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
Intangible
assets
£m
Property,
plant and
equipment
£m
(4.0)
(1.3)
–
–
–
(7.7)
(1.0)
–
–
0.3
Inventories
£m
Retirement Other timing
differences
obligation
£m
£m
(3.2)
(0.8)
–
–
–
2.7
–
–
–
–
1.5
(0.3)
(1.4)
0.7
–
Total
£m
(10.7)
(3.4)
(1.4)
0.7
0.3
0.1
(1.2)
0.9
(1.5)
0.5
(1.2)
–
(5.2)
0.5
(0.7)
–
(9.6)
0.6
–
–
(3.1)
0.2
–
0.1
(1.2)
0.9
–
–
–
–
–
–
(5.3)
(10.2)
(2.0)
1.5
2.7
–
–
0.5
1.6
–
4.8
(0.3)
0.7
–
–
1.2
(14.5)
1.3
(0.7)
(1.4)
(1.1)
0.2
0.5
–
2009
£m
1.7
(14.4)
(12.7)
1.8
0.5
(12.7)
2008
£m
3.6
(18.1)
(14.5)
No deferred tax asset has been recognised in respect of tax losses of £14.1m (2008: £14.6m) as their future use is uncertain. There is no
time limit on the carrying forward of these losses.
A deferred tax charge of £0.1m (2008: £1.1m) has been made resulting from a change during the prior year in the UK tax legislation
preventing the recoverability of Industrial Buildings Allowances.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
15. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2009
£m
24.1
7.6
12.1
43.8
2008
£m
29.2
8.5
19.4
57.1
The amount of inventories expensed to the Consolidated Income Statement in the year was £251.0m (2008: £273.0m). The value of
inventories written down and expensed in the Consolidated Income Statement during the year amounted to £0.3m (2008: £1.0m). The
amount of inventories held at fair value less cost to sell included in the above was £nil (2008: £nil).
16. Trade and other receivables
Other non-current receivables
Deferred consideration
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
2009
£m
2008
£m
1.1
1.3
70.5
4.0
2.3
76.8
90.6
5.1
1.5
97.2
The Group maintains a substantial level of credit insurance covering the majority of its trade receivables which mitigates against possible
impairment losses, as such the impairment losses are not significant.
The charge to the Consolidated Income Statement in the year in respect of impairment of trade receivables was £0.6m (2008: £0.5m).
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
17. Cash and borrowings
Cash and cash equivalents in the Balance Sheet
Cash and bank balances
Call deposits
Cash
Interest bearing loans and borrowings
Amounts due within one year (Note 18)
Amounts due after more than one year (Note 19)
Net debt
Change in net debt
Operating profit
Non-cash items
Operating cash flow before movement in working capital
Net movement in working capital
Changes in provisions and employee benefits
Operating cash flow
Tax paid
Net financing costs paid (net of investment loan settlement)
Capital expenditure
Sale of fixed assets
Free cash flow
Dividends paid (Note 10)
Disposals (see below)
Acquisitions (see below)
Issue of new shares
Net debt decrease/(increase) from continuing operations
Net cash inflow from discontinued operations
Net debt decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
Acquisitions
Acquisition of minority interests
Refund/(payment) in respect of acquisition of subsidiaries and associates (Note 11)
Total
Disposals
Disposal of subsidiaries (Note 4)
Disposal of available for sale financial assets (Note 4)
Deferred consideration received in respect of disposals
Disposal of assets and liabilities held for sale
Total
2009
£m
2008
£m
30.1
11.0
41.1
18.3
7.6
25.9
(31.2)
(97.5)
(16.7)
(155.4)
(87.6)
(146.2)
44.9
15.5
60.4
11.8
(1.2)
71.0
(9.6)
(3.7)
(11.7)
0.6
46.6
(7.5)
6.4
0.7
0.7
46.9
–
43.4
14.8
58.2
(1.7)
(2.3)
54.2
(16.0)
(7.0)
(22.5)
0.7
9.4
(6.6)
29.5
(33.8)
0.1
(1.4)
5.6
46.9
11.7
(146.2)
4.2
(32.6)
(117.8)
(87.6)
(146.2)
–
0.7
0.7
0.7
4.9
0.8
–
6.4
(21.0)
(12.8)
(33.8)
8.3
–
0.1
21.1
29.5
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
18. Current liabilities
Interest bearing loans and borrowings (Note 17)
Current portion of long term borrowings
Finance lease and hire purchase obligations
Bills of exchange
Trade and other current liabilities
Trade payables
Other taxation and social security
Accrued expenses
Fair value derivatives
Other payables
2009
£m
2008
(Restated)
£m
17.8
3.9
9.5
31.2
44.3
10.0
15.6
0.7
4.1
74.7
11.5
2.7
2.5
16.7
51.9
13.6
18.0
0.2
3.8
87.5
The dividend accrued for 2008 of £3.2m has been removed as a result of the change in Group policy in line with IAS10 (Note 10).
19. Non-current liabilities
Interest bearing loans and borrowings (Note 17)
Long term borrowings
Finance lease and hire purchase obligations
Other non-current liabilities
Deferred government grants
2009
£m
2008
£m
88.8
8.7
97.5
150.9
4.5
155.4
0.2
0.3
Finance leases and hire purchase obligations and the effective interest rates for the period they mature as at the Balance Sheet date are
detailed below:
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
Principal liability
Finance charges payable on outstanding commitments
2009
Effective
interest rate
%
Minimum
lease
payment
£m
Principal
£m
Effective
interest rate
%
Minimum
lease
payment
£m
2008
Principal
£m
4.36
4.4
3.9
4.68
3.0
4.41
4.40
4.3
4.9
9.2
13.6
12.6
1.0
4.68
4.68
4.0
4.7
8.7
12.6
2.0
2.9
4.9
7.9
7.2
0.7
2.7
1.9
2.6
4.5
7.2
The unsecured bank borrowings carry a rate of interest of 1.35% above LIBOR/EURIBOR subject to a ratchet as defined in the facility
agreement. In the USA bank borrowings that are not fixed (Note 21) are at LIBOR +1.5% and are secured against substantially all of the
assets of V&S LLC and its subsidiaries. Obligations under finance leases and hire purchase obligations are secured on the relevant assets.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
20. Provisions for liabilities and charges
At 1 January 2008
Exchange adjustments
On acquisition (Note 11)
Provided during the year
Utilised during the year
At 31 December 2008
Exchange adjustments
Utilised during the year
At 31 December 2009
Property
related
£m
Other
regulatory
£m
3.8
1.2
–
–
(0.1)
4.9
(0.3)
–
4.6
1.0
0.2
0.3
0.3
–
1.8
(0.2)
(1.2)
0.4
Total
£m
4.8
1.4
0.3
0.3
(0.1)
6.7
(0.5)
(1.2)
5.0
Property provisions relate to potential exposure to environmental costs of properties owned by the Group and dilapidation costs on
leasehold properties. Other regulatory provisions relate in the main to employment issues. The Group has sought independent expert
valuations where appropriate on these matters, although there are factors outside the Group’s control that give rise to uncertainties
surrounding these events. The Group does not expect to be reimbursed for any of these future costs.
All provisions relate to ongoing issues which are not anticipated to be resolved or result in a cash outflow within the next 12 months.
21. Financial instruments
(a) Management of financial risks
Overview
The Group has exposure to a number of risks associated with its use of financial instruments.
This note presents information about the Group’s exposure to each of these risks, the Group’s objectives, policies and processes for
measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these
Consolidated Financial Statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect
changes in market conditions and the Group’s activities. The Group, through its training and management standards and procedures,
aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Group Audit Committee oversees how management monitors compliance with the Group’s risk management policies and
procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group
Audit Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk
management controls and procedures, the results of which are reported to the Audit Committee.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises from cash and cash equivalents, derivative financial instruments and principally from the Group’s receivables from
customers. The maximum exposure to credit risk for receivables and other financial assets is represented by their carrying amount.
It is the Group’s policy to insure a substantial part of the Group’s trade receivables, any residual risk is spread across a significant number
of customers. As such the impairment losses are not significant. Purchase limits are established for each customer, which represent the
maximum open amount without requiring approval from the Board, these limits are reviewed regularly. Customers that fail to meet the
Group’s benchmark creditworthiness may transact with the Group only on a prepayment basis.
The Group’s UK companies represent the majority of the trade receivable at 31 December 2009 with 66.7% (2008: 60.4%) and currently
the only geographical region that does not insure their trade receivables is the USA, which represents 9.9% (2008: 12.7%) of the
Group’s trade debt. The USA has a policy of taking out trade references before granting credit limits and selectively insuring where it is
deemed necessary by management.
The Group’s policy is to not provide financial guarantees. At 31 December 2009 and 2008, no guarantees were outstanding.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
21. Financial instruments continued
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both
normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
It is the Group’s policy to minimise its liquidity risk in terms of limiting the amounts of borrowings maturing within the next 12 months
and as at 31 December 2009 all such debt was covered by cash and cash equivalents netting to £9.9m positive current liquidity (2008:
£9.2m). The Group has an amortising £150.0m multi currency facility consisting of fixed term and revolving credit that runs to June
2012. The repayment profile using 2009 year end exchange rates is as follows:
2010
2011
2012
£m
16.9
21.5
62.0
Along with various other on demand lines of credit, including bank overdrafts, finance leases and bills of exchange, the Group has
access to facilities of £203.6m.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the
Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return on risk.
The Group buys and sells derivatives in the ordinary course of business, and also incurs financial liabilities, in order to manage market
risks. All such transactions are carried out within the guidelines set by the Board.
Currency risk
The Group publishes its Consolidated Financial Statements in Sterling, but conducts business in several foreign currencies, including
significant operations based in Continental Europe, the USA and Asia. This results in foreign currency exchange risk due to exchange
rate movements which will affect the Group’s transaction costs and the translation of the results and underlying net assets of its foreign
operations.
The trading currency of each operation is predominantly in the same denomination, however, the Group uses forward exchange
contracts to hedge the majority of exposures that do exist. The Group does not apply hedge accounting to these derivative financial
instruments.
The Group has hedged its investment in US and European operations by way of financing the acquisitions through like denominations
through its multi currency banking facility. The Group’s investments in other subsidiaries are not hedged because fluctuations on
translation of their assets into Sterling are not significant to the Group.
Interest rate risk
The Group adopts interest rate swaps when engaging in long term specific investments or contracts in order to more reliably assess
financial implications of these procurements. However, the Group currently feels that using fixed interest rates for short term day to day
trading is not appropriate.
The UK Parent Company holds Sterling, US Dollar and Euro derivative instruments, designed to reduce the Group’s exposure to interest
rate fluctuations, as set out opposite. The notional amounts represent approximately 46.5% (2008: 0.0%) of the gross year end Sterling
borrowings, 56.3% (2008: 0.0%) of the Euro borrowings and 44.9% (2008: 0.0%) of the US Dollar borrowings all held in the UK. The
Group also has US Dollar and Euro arrangements which are held locally and are detailed in the following table, the US Dollar notional
amounts representing approximately 29.8% (2008: 33.4%) of the local US Dollar year end gross borrowings.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
21. Financial instruments continued
Country
UK
UK
UK
UK
UK
UK
USA
USA
USA
USA
Belgium
Belgium
Financial
instrument
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Cap
Cap
Maturity
date
2 January 2012
7 June 2012
7 June 2012
7 June 2012
7 June 2012
7 June 2012
1 April 2010
1 February 2011
1 July 2012
1 October 2015
30 March 2010
30 March 2011
Rate
excluding
margin
%
2009
Notional
amounts
£m
2009
Notional
amounts
€m
2009
Notional
amounts
$m
2.230
2.360
2.325
2.550
2.610
2.280
3.100
5.700
4.200
4.800
4.300
4.300
4.1
4.1
7.0
16.1
9.1
1.5
0.4
23.3
1.9
0.1
1.6
1.2
Insurance
The Group purchases insurance for commercial, legal and contractual reasons. The Group retains insurable risk where external insurance
is not commercially viable.
Capital management
The Board maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development
of the business. The Board monitors both the demographic spread of shareholders, as well as the return on capital, which the Group
defines as total shareholders’ equity and the level of dividends to ordinary shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the
advantages and security afforded by a sound capital position.
There are financial covenants associated with the Group’s borrowings which are interest cover and EBITDA to net debt. The Group
comfortably complied with these covenants in 2009 and 2008.
There were no changes in the Group’s approach to capital management during the year.
(b) Total financial assets and liabilities
The table below sets out the Group’s accounting classification of its financial assets and liabilities and their fair values as at 31 December.
The fair values of all financial assets and liabilities are not materially different to the carrying values.
Held for
trading
£m
Available
for sale
£m
Amortised
cost
£m
Cash and cash equivalents
Interest bearing loans due within one year
Interest bearing loans due after more than one year
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2009
Cash and cash equivalents
Interest bearing loans due within one year
Interest bearing loans due after more than one year
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2008
–
–
–
(0.7)
–
–
(0.7)
–
–
–
(0.2)
–
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
6.4
–
6.4
41.1
(31.2)
(97.5)
–
73.9
(64.0)
(77.7)
25.9
(16.7)
(155.4)
–
93.4
(73.7)
Total
carrying
value
£m
41.1
(31.2)
(97.5)
(0.7)
73.9
(64.0)
(78.4)
25.9
(16.7)
(155.4)
(0.2)
99.8
(73.7)
Fair
value
£m
41.1
(31.2)
(97.5)
(0.7)
73.9
(64.0)
(78.4)
25.9
(16.7)
(155.4)
(0.2)
99.8
(73.7)
(126.5)
(120.3)
(120.3)
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
21. Financial instruments continued
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as
follows:
l Level 1: unadjusted quoted prices in active markets for identical assets or liabilities.
l Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either as a direct price or
indirectly derived from prices.
l Level 3: inputs for the asset or liability that are not based on observable market data.
Derivative financial liabilities
At 31 December 2009
Level 1
£m
–
–
Level 2
£m
(0.7)
(0.7)
Level 3
£m
–
–
Total
£m
(0.7)
(0.7)
At 31 December 2009 the Group did not have any liabilities classified at Level 1 or Level 3 in the fair value hierarchy. There have been no
transfers in any direction in the year.
The reconciliation of movements in Level 3 fair value measurements of financial assets is as follows:
At 1 January 2009
Exchange adjustments
Credited for the year in the Consolidated Statement of Comprehensive Income
Disposal of available for sale financial assets
Disposal of related minority interest
At 31 December 2009
Available
for sale
£m
6.4
(0.7)
1.0
(4.9)
(1.8)
–
The Group’s financial assets, excluding short term receivables, consist mainly of cash and call deposit accounts.
Where cash surpluses arise in the short term, interest is earned based on a floating rate related to bank base rate or LIBOR/EURIBOR.
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.
The Group’s financial liabilities, excluding short term creditors, are set out below. Fixed rate financial liabilities comprise Sterling, Euro and
US Dollar denominated finance leases and hire purchase agreements and bank loans. Floating rate financial liabilities comprise Sterling,
Euro and US Dollar bank loans and overdrafts, and Sterling finance leases and hire purchase agreements. The floating rate financial
liabilities bear interest at rates related to bank base rates or LIBOR/EURIBOR.
Each subsidiary has financial assets and liabilities which are predominantly in the same denomination as that subsidiary’s functional
currency. Excluding the UK Parent Company, the financial assets and liabilities not denominated in the functional currency of these
entities are insignificant to the Group.
The UK Parent Company holds Euro £49.5m (2008: £77.8m) and US Dollar £32.2m (2008: £38.7m) denominated interest bearing loans,
which are predominantly used to fund its European and United States operations and includes £81.7m (2008: £78.0m) designated as
a hedge of the net investment in a foreign operation. The foreign currency gain of £10.8m (2008: loss of £21.6m) for the effective
portion was recognised directly in equity netted against exchange differences on translation of foreign operations, any ineffective portion
recognised in the Consolidated Income Statement is insignificant.
Fixed rate financial liabilities
Sterling at 31 December 2009
US Dollar at 31 December 2009
Euro at 31 December 2009
Sterling at 31 December 2008
US Dollar at 31 December 2008
74
Weighted
average
period
for which
rate is fixed
Years
1.8
2.5
2.4
1.7
3.2
Weighted
average
interest rate
%
3.3
2.5
2.3
5.7
4.0
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
21. Financial instruments continued
(c) Maturity profile
The table below sets out the contractual cash flows associated with the Group’s financial liabilities, including estimated interest
payments, analysed by maturity:
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Bills of exchange
Other liabilities
Derivative liabilities
Total at 31 December 2009
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Bills of exchange
Other liabilities
Derivative liabilities
Total at 31 December 2008
Carrying Contractual
cash flows
amounts
£m
£m
6.6
100.0
12.6
9.5
64.0
0.7
193.4
11.5
150.9
7.2
2.5
73.7
0.2
(6.9)
(103.8)
(13.6)
(9.6)
(64.0)
(5.7)
(13.2)
(164.1)
(7.9)
(2.6)
(73.7)
(0.2)
246.0
(261.7)
Due
within
one year
£m
(1.0)
(18.6)
(4.4)
(9.6)
(64.0)
(2.9)
(1.5)
(14.4)
(3.0)
(2.6)
(73.7)
–
(95.2)
Due
between
one and
two years
£m
(0.7)
(22.7)
(4.3)
–
–
(1.8)
(29.5)
(4.0)
(18.9)
(2.0)
–
–
(0.1)
(25.0)
Due
between
two and
five years
£m
(2.2)
(62.5)
(4.9)
–
–
(0.8)
(70.4)
(3.1)
(130.7)
(2.9)
–
–
(0.1)
(136.8)
Due after
more than
five years
£m
(3.0)
–
–
–
–
(0.2)
(3.2)
(4.6)
(0.1)
–
–
–
–
(4.7)
(203.6)
(100.5)
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 one year
2009
£m
2008
£m
57.4
21.1
(d) Fair values
The loss in the year on the interest rate swaps held by the UK Parent Company was £0.6m (2008: £nil) which is recognised directly in
equity as these instruments are accounted for as cash flow hedges. Any ineffective portion of these hedges is taken to the Consolidated
Income Statement and was insignificant. The gain in the year on the US fixed rate interest swaps taken to the Consolidated Income
Statement was £0.1m (2008: £nil). The fair value of unhedged forward exchange contracts realised in the Consolidated Income
Statement as part of fair value derivatives amounted to a cost of £nil (2008: £0.2m). The values of the Group’s other financial
instruments at 31 December 2009 and 2008 were not materially different to the carrying value. Fair values were calculated using market
rates where available, otherwise cash flows were discounted at prevailing rates.
The Group has impaired non-current assets by £0.5m (2008: £1.9m) of their carrying values as detailed in Notes 11 and 12.
(e) Credit risk
Exposure to credit risk
The exposure to credit risk is substantially mitigated by the credit insurance employed by the Group. In the absence of this insurance the
maximum credit exposure on the carrying value of financial assets at the reporting date was:
Carrying amount
Available for sale financial assets (Note 13)
Loans and receivables
Cash at the end of the year (Note 17)
Total
At the reporting date the maximum exposure to credit risk for trade receivables, ignoring credit insurance was:
Carrying value of trade receivables by geographic region
UK
Rest of Europe
USA
Asia and the Middle East
Total (Note 16)
2009
£m
–
73.9
41.1
2008
£m
6.4
93.4
25.9
115.0
125.7
2009
£m
47.0
15.6
7.0
0.9
70.5
2008
£m
54.7
23.2
11.5
1.2
90.6
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
21. Financial instruments continued
Carrying value of trade receivables by business segment
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total (Note 16)
2009
£m
38.4
19.6
12.5
70.5
2008
£m
36.7
30.0
23.9
90.6
Impairment losses
The Group maintains a substantial level of credit insurance covering the majority of its trade receivables which mitigates against possible
impairment losses, as such impairment losses are not significant.
The ageing of trade receivables at the reporting date was:
Not past due
Past due 1–30 days
Past due 31–120 days
More than 120 days
Total
Gross
£m
53.2
13.8
5.0
1.8
73.8
Provisions
£m
(0.3)
(1.0)
(0.4)
(1.6)
(3.3)
2009
Net
£m
52.9
12.8
4.6
0.2
70.5
Gross
£m
61.5
19.7
9.3
2.9
93.4
Provisions
£m
(0.1)
–
(0.2)
(2.5)
(2.8)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2008
Exchange adjustments
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2008
Exchange adjustments
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2009
2008
Net
£m
61.4
19.7
9.1
0.4
90.6
£m
2.8
0.4
0.5
(0.9)
2.8
(0.1)
0.6
–
3.3
(f) Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short term fluctuations on the Group’s earnings.
Over the longer term, however, permanent changes in foreign exchange and interest rates may have an impact on consolidated
earnings. At the end of the reporting periods, the effects of hypothetical changes in interest and currency rates are as follows:
l Based on average month end net debt balances that are not subject to an interest rate swap, if interest rates had varied throughout
the year by 1% the positive or negative variation on the year’s result would have been £0.4m (2008: £1.3m), which would directly
impact on the Consolidated Income Statement.
l Based on a 10% weakening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement
would have been a gain of £1.8m (2008: £1.3m) and the impact directly in equity would have been a gain of £3.4m (2008: £1.4m).
l Based on a 10% strengthening in Sterling against all currencies throughout the year, the impact on the Consolidated Income
Statement would have been a loss of £1.4m (2008: £1.1m) and the impact directly in equity would have been a loss of £2.8m
(2008: £1.1m).
22. Called up share capital
Allotted, called up and fully paid
76.1m Ordinary Shares of 25p each (2008: 75.6m)
2009
£m
2008
£m
19.0
18.9
In 2009 the Company issued 0.5m shares under its various share option schemes (2008: 0.1m), realising £0.7m (2008: £0.1m).
76
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
22. Called up share capital continued
Options outstanding over the Company’s shares
1995 Executive Share Option Scheme
2007 LTIP Award (granted March 2009)*
2007 LTIP Award (granted March 2008)*
2007 LTIP Award (granted July 2007)*
2005 Executive Share Option Scheme
Number
of shares
–
180,000
205,749
103,045
2009
Option
price (p)
Number
of shares
2008
Option
price (p)
10,000
–
–
–
– 205,749
– 103,045
70
–
–
–
Date first
exercisable
2 July 2004
§
§
§
Expiry
date
2 July 2011
§
§
§
(granted October 2005)*
136,323
205 280,018
205
4 October 2008
4 October 2015
2005 Non-Approved Executive Share
Option Scheme (granted
October 2005)*
2007 grant of 2005 Approved Executive
Share Option Scheme (granted
April 2007)*
2007 grant of 2005 Non-Approved
Executive Share Option Scheme
84,375
205 214,970
205
4 October 2008
4 October 2015
247,021
350 298,459
350
13 April 2010
13 April 2017
(granted April 2007)*
450,979
350 492,541
350
13 April 2010
13 April 2017
2008 grant of 2005 Savings Related
Share Option Scheme (granted
January 2008)*†
81,165
318 113,529
318
1 January 2011
1 July 2011
2008 grant of 2005 Savings Related
Share Option Scheme (granted
January 2008)*†
190,913
318 250,020
318
1 January 2013
1 July 2013
2008 grant of 2005 Savings Related
Share Option Scheme (granted
December 2008)*†
2008 grant of 2005 Savings Related
Share Option Scheme (granted
December 2008)*†
2005 grant of 1995 Savings Related
Share Option Scheme (granted
121,396
246 212,321
246
1 December 2011
1 June 2012
222,691
246 318,380
246
1 December 2013
1 June 2014
January 2005)*†
778,325
100 981,167
100
1 January 2010
1 July 2010
Outstanding at the end of the year
2,801,982
Exercisable at the year end
Not exercisable at the year end
220,698
2,581,284
Outstanding at the end of the year
2,801,982
3,480,199
504,988
2,975,211
3,480,199
* Subject to share-based payments under IFRS2 (see below).
† Options may be exercised early under the terms of this scheme if employees meet the criteria of ‘good leaver’, which encompasses circumstances such as retirement or
redundancy.
§ Awards lapse on the earlier of the award holder ceasing their employment or the applicable performance conditions not being met. The earliest possible date for award is
1 January 2010 for the 2007 grant, 1 January 2011 for the 2008 grant and 1 January 2012 for the 2009 grant.
The remaining weighted average life of the outstanding share options is 3 years 4 months (2008: 4 years 7 months).
The movement and weighted average exercise prices of share options during the year:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Weighted
average
exercise
Millions
price (p) of options
2009
2009
Weighted
average
exercise
price (p)
2008
Millions
of options
2008
201
0
(163)
(270)
192
3.5
0.2
(0.5)
(0.4)
2.8
200
251
(119)
(295)
201
2.6
1.6
(0.1)
(0.6)
3.5
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The weighted average share price on the dates of exercise during the year for the above share options was 248p (2008: 289p), and the
weighted average fair value of options and awards granted in the year was 133p (2008: 68p).
17271HILLSMIT BACK.indd 77
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
22. Called up share capital continued
Share-based payments
All option schemes marked as being subject to share-based payments have 2005, 2007, 2008 or 2009 as their first qualifying year.
The fair value of services received in return for share options granted is measured by reference to the fair value of the share options
granted. The estimate of the fair value of the services received is measured based on the Black–Scholes model. The contractual life is the
life of the option in question and the growth in dividend yield is based on the best current estimate of future yields over the contractual
period.
December
January
2008 grant of 2008 grant of 2005 grant of
2009 grant of 2008 grant of 2007 grant of 2005 Savings 2005 Savings 1995 Savings
Related
2007
2005 grant
of 2005
LTIP Share Option Share Option Share Option Share Option Share Option
Schemes
2007 grant
of 2005
Schemes
Scheme
Scheme
Scheme
Related
Related
Award
2007
LTIP
Award
2007
LTIP
Award
Fair value at measurement date (p)
Share price at grant date (p)
Exercise price (p)
Expected volatility (%)
Option life (years)
Dividend yield (%)
Risk free interest rate (%)
133
154
0
30
3
4.6
2.1
318
330
0
29
3
4.6
3.8
328
367
0
22
3
3.7
5.1
3/3
160
246
28/24
3/5
4.6
1.8/2.8
51/49
331
318
29/25
3/5
4.6
4.0
37
120
100
36
5
3.7
4.5
59
351
350
22
3
3.7
5.1
34
208
205
36
3
3.7
4.5
The expected volatility is wholly based on the historic volatility (calculated based on the weighted average remaining life of the share
options), adjusted for any expected changes to future volatility due to publicly available information.
Share options have been granted to qualifying employees in line with either HM Revenue & Customs approved or non-approved
schemes, as indicated above. Other than the LTIP, the strike price for the option is made based on the market values of shares at the date
the option is offered.
The total expense recognised for the period arising from share-based payments is as follows:
Expensed during the year
2009
£m
0.5
2008
£m
0.3
23. Reserves
With the disposal of Vista Investment NV on 26 June 2009, the final minority interest was removed (Notes 4 and 13).
In January 2008 the outstanding minority interests in the three fabrication businesses under Voigt & Schweitzer LLC, the American
holding company within the Zinkinvent Group, were purchased for a consideration of £2.2m.
Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2008: £0.2m) capital
redemption reserve.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
24. Guarantees and other financial commitments
(a) Guarantees
The Group had no financial guarantee contracts outstanding (2008: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
2009
£m
0.2
2008
£m
0.3
(c) Operating lease commitments
The total future minimum commitments payable under non-cancellable operating leases fall into the periods as follows:
Group
Within one year
Between one and two years
Between two and five years
After five years
Land and
buildings
£m
2009
Other
£m
Land and
buildings
£m
4.6
4.6
12.1
23.6
44.9
1.8
1.2
1.4
–
4.4
5.4
5.0
13.3
26.7
50.4
The total future minimum commitments receivable under non-cancellable operating leases fall into the periods as follows:
Group
Within one year
Between one and five years
After five years
Land and
buildings
£m
0.7
2.2
1.9
4.8
2009
Other
£m
6.6
3.0
–
9.6
Land and
buildings
£m
0.5
1.7
0.9
3.1
2008
Other
£m
1.8
1.6
1.7
–
5.1
2008
Other
£m
5.5
3.5
–
9.0
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
25. Pensions
Total
The total Group retirement benefit assets and obligations are detailed below:
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
UK
£m
Overseas
£m
52.0
(67.4)
–
(15.4)
0.2
(1.4)
(0.1)
(1.3)
2009
£m
52.2
(68.8)
(0.1)
(16.7)
UK
£m
Overseas
£m
46.4
(56.8)
–
(10.4)
0.2
(1.4)
(0.2)
(1.4)
2008
£m
46.6
(58.2)
(0.2)
(11.8)
United Kingdom
The Group operates two main pension schemes in the UK, the Hill & Smith Executive Pension Scheme provides benefits on a defined
benefit basis, the other larger Hill & Smith Pension Scheme provides 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 Group. 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. There are also separate personal pension plans.
The Consolidated Income Statement for the year includes a pension charge of £1.9m (2008: £2.5m), which includes the costs of the
defined contribution scheme and the defined benefit scheme and which are detailed below.
All actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income.
Composition of the Scheme
The Group operates defined benefit schemes in the UK. A full Actuarial valuation of the schemes was last carried out as at 5 April 2009
and was updated to 31 December 2009 by a qualified Actuary.
The principal assumptions used by the Actuary
Rate of increase in salaries
Rate of increase in pensions payment
Discount rate
Inflation
Mortality table
2009
2008
2007
2006
2005
3.60%
3.40%
5.80%
3.60%
4.00%
2.80%
4.75%
2.90%
PA92YOB* PA92YOB* PA92YOB* PA92YOB* PA92C2005
4.50%
3.00%
5.20%
3.10%
4.80%
3.30%
5.70%
3.40%
2.70%
2.60%
6.50%
2.70%
* With the addition of the short cohort for the Hill & Smith Executive Pension Scheme, approximately 1.3 years is added to the life expectancies shown below:
The mortality assumptions imply the following expected future lifetimes from age 65:
Males currently aged 45
Females currently aged 45
Males currently aged 65
Females currently aged 65
2009
2008
2007
2006
2005
21.1 years 21.0 years 20.9 years 20.9 years 18.5 years
24.1 years 24.0 years 23.9 years 23.9 years 21.4 years
19.9 years 19.8 years 19.6 years 19.6 years 18.5 years
22.9 years 22.8 years 22.7 years 22.7 years 21.4 years
The assumptions have been chosen by the Directors from a range of possible actuarial assumptions which, due to the timescales
covered, may not be borne out in practice.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
25. Pensions continued
Assets and liabilities
One scheme holds assets and liabilities in respect of defined contribution benefits which are equal in value and are excluded from
the following figures. The fair value of scheme assets, which are not intended to be realised in the short term and may be subject to
significant change before they are realised, and the value of the scheme liabilities, which is derived from cash flow projections over long
periods and which is therefore inherently uncertain, are as follows:
Assets
Equities
Bonds
With profits policies
Hedge funds
Currency funds
Cash
Total fair value of scheme assets
Present value of scheme funded obligations
Retirement benefit obligation
Assets
Equities
Bonds
Gilts
With profits policies
Cash
Total fair value of scheme assets
Present value of scheme funded obligations
Retirement benefit obligation
Rate of
return
expected
2009
%
Market
value
2009
£m
Rate of
return
expected
2008
%
8.00
5.20
5.70
8.00
8.00
4.40
6.49
16.0
24.9
2.1
5.6
2.3
1.1
52.0
(67.4)
(15.4)
8.40
6.50
5.30
8.00
8.40
3.70
7.08
Rate of
return
expected
2006
%
8.00
5.20
4.60
5.80
4.60
7.02
Rate of
return
expected
2007
%
8.00
5.70
5.90
8.00
8.40
4.50
6.92
Rate of
return
expected
2005
%
7.50
4.75
4.10
5.25
4.10
6.49
Market
value
2008
£m
10.7
25.3
2.9
5.0
2.1
0.4
46.4
(56.8)
(10.4)
Market
Value
2006
£m
40.0
6.8
3.5
9.1
3.0
62.4
(72.9)
(10.5)
Market
value
2007
£m
21.2
28.5
4.8
5.7
2.6
0.8
63.6
(72.2)
(8.6)
Market
Value
2005
£m
36.1
7.0
3.4
8.8
2.2
57.5
(71.4)
(13.9)
The overall expected return on assets assumption has been calculated as an approximate weighted average of the expected returns
of each asset class taking into account the asset allocation of the scheme. When setting an expected return for each asset class, the
following factors have been considered:
Equities — a higher long term rate of return is expected on equity investments than that which is available on bonds. The extent to
which equities are assumed to provide higher returns than bonds in the future is estimated based on the returns achieved above bond
returns historically, market conditions at the Balance Sheet date and the employment of a UK active management approach with
equities.
Bonds, gilts and cash — where assets are held in bonds, gilts and cash, the expected long term rate of return is taken to be the yields
generally prevailing on such assets as at the Balance Sheet date.
With profit policies — the underlying asset allocation of the policies and the overall rate is based on the expected long term rate of
return on each of the asset classes with reference to this allocation.
Hedge funds — these funds invest in a range of investments including equities, bonds and alternatives to generate stable absolute
returns at a level above cash. The extent to which these funds are assumed to provide higher returns than cash in the future is based on
the manager’s objectives with regards to the average annual returns above cash and having regard to market conditions at the Balance
Sheet date.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
25. Pensions continued
Currency funds — these funds incorporate gearing to generate expected returns significantly above the returns available on cash. The
extent to which these funds are assumed to provide higher returns than cash in the future is estimated based on expected returns on
equity investments and market conditions at the Balance Sheet date.
Total expense recognised in the Consolidated Income Statement
Current service costs
Gain on curtailments and settlements
Charge/(credit) to operating profit
Expected return on pension scheme assets
Expected interest cost on pension scheme obligations
Total charged/(credited) to profit before tax
Defined
contribution
schemes
£m
Defined
benefit
schemes
£m
1.4
–
1.4
–
–
1.4
0.5
–
0.5
(3.3)
3.7
0.9
2009
Total
£m
1.9
–
1.9
(3.3)
3.7
2.3
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Current service costs
Expected interest cost
Actuarial loss/(gain)
Liabilities extinguished on settlement
Employee contributions
Benefits paid
Closing defined benefit obligations
Changes in fair values of scheme assets
Opening fair value of assets
Expected return on assets
Actuarial gain/(loss)
Employer contributions
Employee contributions
Benefits paid
Assets distributed on settlements
Closing fair value of assets
Actual return on scheme assets
Defined
contribution
schemes
£m
Defined
benefit
schemes
£m
1.6
–
1.6
–
–
1.6
0.9
(1.8)
(0.9)
(4.4)
4.1
(1.2)
2009
£m
56.8
0.5
3.7
10.2
–
0.1
(3.9)
67.4
2009
£m
46.4
3.3
4.4
1.7
0.1
(3.9)
–
52.0
7.7
2008
Total
£m
2.5
(1.8)
0.7
(4.4)
4.1
0.4
2008
£m
72.2
0.9
4.1
(10.9)
(4.9)
0.2
(4.8)
56.8
2008
£m
63.6
4.4
(16.2)
2.3
0.2
(4.8)
(3.1)
46.4
(11.8)
Expected employer contributions in the following year
Defined benefit schemes
Defined contribution schemes
2.7
1.4
1.3
1.5
82
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
25. Pensions continued
Amounts recognised in the Consolidated Statement of Comprehensive Income
% of scheme
assets/
liabilities
%
% of scheme
assets/
liabilities
%
2009
£m
% of scheme
assets/
liabilities
%
2008
£m
Difference between actual and expected return on scheme assets
Experienced gain/(loss) on scheme obligations
Changes in assumptions underlying the present value of
scheme obligations
Annual amount recognised
Total amount recognised
9
0
(16)
(8)
4.4
0.3
(10.5)
(5.8)
(21.1)
(35)
(1)
20
(9)
(16.2)
(0.7)
11.6
(5.3)
(15.3)
(3)
(1)
5
1
Amounts recognised in the Consolidated Statement of Comprehensive Income
Difference between actual and expected return on scheme assets
Experienced gain/(loss) on scheme obligations
Changes in assumptions underlying the present value of scheme obligations
Annual amount recognised
Total amount recognised
% of scheme
assets/
liabilities
%
% of scheme
assets/
liabilities
%
2006
£m
3
1
(2)
2
2.0
0.7
(1.2)
1.5
(10.6)
9
0
(18)
(11)
2007
£m
(2.0)
(0.8)
3.4
0.6
(10.0)
2005
£m
5.0
(0.3)
(12.8)
(8.1)
(12.1)
Overseas
In France the Group provides certain long term benefits and operates post employment defined benefit plans which provide lump sum
benefits at retirement in accordance with collective labour agreements. Some of those plans are funded with insurance companies.
The Group also operates defined contributions with plans in the USA. The amount contributed to these plans during the year was £0.2m
(2008: £0.1m).
The Consolidated Income Statement for the year includes a pension charge of £0.2m (2008: £0.1m), which includes the costs of the
defined contribution scheme and the defined benefit scheme as detailed below.
All actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income.
Composition of the scheme
The Group operates defined benefit schemes in France. An actuarial valuation of the schemes was carried out by an independent
Actuary as at 31 December 2009.
The principal assumptions used by the Actuary
Rate of increase in salaries
Discount rate
Inflation
Expected long term rate of return on plan assets
Mortality table
2009
2008
2007
2.00%
5.00%
2.00%
4.50%
2.00% 2.00–3.00%
5.25%
5.50%
2.00%
2.00%
4.50%
4.50%
MR/FR
TH 00-02, TG H/F 05
INSEE 98
TF 00-02
H/F
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Consolidated Financial Statements
25. Pensions continued
Assets and liabilities
The fair value of scheme assets, which are not intended to be realised in the short term and may be subject to significant change before
they are realised, and the value of the scheme liabilities, which is derived from cash flow projections over long periods and which is
therefore inherently uncertain, are as follows:
Assets
Cash and other insured fixed interest assets
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
Rate of
return
expected
2009
%
4.50
4.50
Rate of
return
expected
2008
%
4.50
4.50
Market
value
2009
£m
0.2
0.2
(1.4)
(0.1)
(1.3)
Market
value
2008
£m
0.2
0.2
(1.4)
(0.2)
(1.4)
Rate of
return
expected
2007
%
4.50
4.50
Market
value
2007
£m
0.1
0.1
(0.9)
(0.3)
(1.1)
Cash and other insured fixed interest assets — where assets are held in cash or a policy with a fixed interest asset allocation, the
expected long term rate of return is taken to be the yields generally prevailing on such assets as at the Balance Sheet date.
Total expense recognised in the Consolidated Income Statement
Current service cost
Gain on curtailments and settlements
Charge/(credit) to operating profit
Expected interest cost on pension scheme obligations
Total charged/(credited) to profit before tax
Defined
contribution
schemes
£m
Defined
benefit
schemes
£m
0.2
–
0.2
–
0.2
–
–
–
0.1
0.1
2009
Total
£m
0.2
–
0.2
0.1
0.3
Change in the present value of the defined benefit obligation
Opening defined benefit obligation
Expected interest cost
Actuarial (gain)/loss
Gain on curtailments and settlements
Exchange adjustments
Closing defined benefit obligation
Changes in fair values of scheme assets
Opening fair value of assets
Exchange adjustments
Closing fair value of assets
Actual return on scheme assets
Expected employer contributions in the following year
Defined benefit schemes
Defined contribution schemes
Amounts recognised in the Consolidated Statement of Comprehensive Income
Defined
contribution
schemes
£m
Defined
benefit
schemes
£m
0.1
–
0.1
–
0.1
–
(0.2)
(0.2)
0.1
(0.1)
2009
£m
1.6
0.1
(0.1)
–
(0.1)
1.5
2009
£m
0.2
–
0.2
–
–
0.2
Experienced loss on scheme obligations
Exchange rate adjustment on assets and liabilities
Amount recognised in the period
Total amount recognised
84
% of scheme
assets/
liabilities
%
% of scheme
assets/
liabilities
%
2009
£m
% of scheme
assets/
liabilities
%
2008
£m
3
n/a
–
0.1
0.1
(0.4)
(9)
n/a
(0.1)
(0.3)
(0.4)
(0.5)
0
n/a
2008
Total
£m
0.1
(0.2)
(0.1)
0.1
–
2008
£m
1.2
0.1
0.1
(0.2)
0.4
1.6
2008
£m
0.1
0.1
0.2
–
–
0.1
2007
£m
–
(0.1)
(0.1)
(0.1)
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
26. Accounting estimates, assumptions and judgements
The principal accounting estimates, assumptions and judgements employed in the preparation of these Consolidated Group Financial
Statements which could affect the carrying amounts of assets and liabilities at the Balance Sheet date are as follows:
Actuarial assumptions on pension obligations
In determining the valuation of the defined benefit pension deficit, certain assumptions about the scheme have been made, notably
the expected return on assets, inflation, discount rates, mortality, salary increases and pension increases. The factors affecting these
assumptions are largely outside the Group’s control (Note 25).
Impairment of goodwill
The determination of whether goodwill and other indefinite life intangible assets should be impaired requires the estimation of future
cash flows and growth factors adopted by each cash generating unit. Furthermore, discount rates applied to these cash flows are
determined by reference to the markets in which they operate and are risk adjusted to reflect risks and opportunities existing for each
cash generating unit. These factors are all affected by prevailing market and economic factors outside the Group’s control. Further
information on this issue is included in Note 11.
Share-based payments
In valuing the share-based payments charged in the Group’s accounts, the Company has used the Black–Scholes calculation model,
which makes various assumptions about factors outside the Group’s control, such as share price volatility and risk free interest rates.
Details of the options and assumptions used in deriving the share-based payments are disclosed in Note 22.
Environmental and dilapidation provisions
Estimated environmental and dilapidation costs have been derived on the basis of the most recent assessments of the likely cost. Certain
factors concerning these costs are outside the Group’s control. In making this assessment the Group has sought the aid of independent
experts where appropriate. Further information is included in Note 20.
Deferred taxation
Deferred taxation has been estimated using the best information available, including seeking the opinion of independent experts where
applicable (Note 14).
Valuation of intangible assets
Where an acquisition is of a significant size, it is reviewed by independent experts to assess the specific intangibles arising from the
acquisition. Brands and customer lists have been identified as part of this process and are disclosed in Note 11. The reasons for the
residual excess of consideration over net asset value are then identified to identify the reasons for goodwill arising, which in the case
of recent acquisitions, has resulted mainly from assembled workforce, technical expertise, know how, market share and geographical
advantages.
Brands have been valued based on estimated royalty rates discounted over their useful lives, which is normally 20 years, but considered
indefinite for the US Voigt & Schweitzer brand which has been successfully trading since 1956. Customer relationships have been valued
based on discounted forecast turnover rates and have been deemed to have a useful economic life of five years based upon the average
expected length of relationships with customers.
27. Related party transactions
The key management are considered to be the Board of Directors of Hill & Smith Holdings PLC, whose remuneration can be seen in the
Directors’ Remuneration Report on pages 34 to 41. The compensation in total for each category required by IAS24 is as follows:
Salaries and short term employee benefits
Non-executive Directors’ fees
Pension costs
Share-based payments
2009
£m
1.2
0.2
0.1
0.3
1.8
2008
£m
1.3
0.1
0.1
0.2
1.7
During the year the Group had some minor transactions with GIL Investments Limited, of which D L Grove was during the year a major
shareholder. All of these transactions along with any trading between subsidiary companies or between segments were undertaken on
an arm’s length basis.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Company Balance Sheet
As at 31 December 2009
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Bank loans and overdrafts
Other creditors
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
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 2010 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
86
2009
Notes
£m
2008
(Restated)
£m
3
4
5
6, 7
6
7
9
10
10
10
0.1
333.3
333.4
0.2
330.4
330.6
72.0
17.4
89.4
56.8
7.5
64.3
(16.7)
(93.6)
(110.3)
(20.9)
312.5
(135.9)
(33.3)
(61.7)
(95.0)
(30.7)
299.9
(230.9)
176.6
69.0
19.0
28.5
0.2
128.9
176.6
18.9
27.9
0.2
22.0
69.0
Company Number: 671474
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Company Reconciliation of Movements in Shareholders’ Funds
As at 31 December 2009
Profit for the year
Dividends (restated)
Credit to equity of share-based payments
Shares issued in the year
Net increase/(decrease) in shareholders’ funds
Opening shareholders’ funds as previously reported
Restatement (Note 2)
Opening shareholders’ funds (restated)
Closing shareholders’ funds
2009
£m
2008
(Restated)
£m
113.9
(7.5)
0.5
0.7
107.6
69.0
–
69.0
176.6
4.5
(6.6)
0.3
0.1
(1.7)
68.0
2.7
70.7
69.0
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Proof 20
87
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Company Principal Accounting Policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s Financial Statements, except as noted below.
Basis of preparation
The Company’s Financial Statements have been prepared in accordance with applicable UK GAAP accounting standards and under the
historical cost accounting rules.
Under Section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Profit and Loss
Account.
Under FRS1 Cash Flow Statements, the Company is exempt from the requirement to prepare a Cash Flow Statement, on the grounds
that the Company is included in its own published Consolidated Financial Statements.
The Company has taken advantage of the exemptions contained in FRS8 Related Party Disclosures and has not disclosed transactions or
balances with wholly owned subsidiaries of the Group.
Investments in subsidiary undertakings
In the Company’s Financial Statements, investments in subsidiary undertakings are stated at cost, less amounts written off for
impairment. They are reviewed for impairment whenever events or circumstances indicate that the carrying value may not be
recoverable.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated into Sterling at closing rates at the Balance Sheet date and the gains or losses
on translation included in the Profit and Loss Account. Non-monetary assets and liabilities are translated into Sterling at historic rates of
exchange and are not updated to closing rates at the Balance Sheet date.
This policy applies to the Company’s long term bank loans denominated in foreign currencies, which are monetary items, and therefore
are translated into Sterling at closing rates at the Balance Sheet date, with exchange differences arising passing through the Profit and
Loss Account. This policy also applies to long term amounts denominated in foreign currencies owed to subsidiary undertakings and to
investments denominated in foreign currencies in intermediary holding companies.
However, the Company applies fair value hedge accounting where appropriate, in accordance with FRS26, in order to hedge loans
denominated in foreign currencies against all, or part, of the foreign currency denominated investments. Therefore, foreign exchange
differences arising on translation into Sterling of both the hedging loans and hedged investments using the closing rates at the Balance
Sheet date are taken to the Profit and Loss Account. Any unhedged investment balances continue to be held at cost as described above.
Financial instruments
The Company has adopted the requirements of FRS29 and has taken the exemption under that standard from disclosure on the grounds
that the Consolidated Financial Statements contain disclosures in compliance with IFRS7 in Note 21.
Financial assets and liabilities are recognised on the Company’s Balance Sheet when the Company becomes a party to the contractual
provisions of the instrument.
In accordance with its treasury policy, the Company does not hold or issue derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.
Bank loans and overdrafts are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, bank
loans and overdrafts are stated at amortised cost with any difference between cost and redemption value being recognised in the Profit
and Loss Account over the period of the borrowings on an effective interest basis.
Tangible fixed assets and depreciation
Depreciation is provided to write off the cost or valuation less the estimated residual value of tangible fixed assets by equal instalments
over their estimated useful economic lives as follows:
Leasehold improvements
Plant, machinery and vehicles
life of the lease
4 to 20 years
88
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Leases
Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Operating lease
rentals are charged to the Profit and Loss Account on a straight line basis over the period of the lease.
Pension scheme arrangements
The Company participates in the Hill & Smith Executive Pension Scheme and the Hill & Smith Pension Scheme, as described in Note 12.
As the Company is unable to identify its share of the Group pension scheme assets in respect of the defined benefit sections on a
consistent and reasonable basis, the schemes are accounted for as if they are defined contribution schemes, as permitted by FRS17.
Contributions in respect of defined contribution schemes are charged to the Profit and Loss Account in the period to which they relate.
Share-based payments
The share option programme allows employees to acquire shares of the Company. The fair value of options granted after 7 November
2002 and those not yet vested by 31 December 2004 are not recognised as an employee expense. Those vested since 1 January 2005
are expensed with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which
the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing
model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is
adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the
threshold for vesting.
Where the Company grants options over its own shares to the employees of its subsidiaries it recognises an increase in the cost of
investment in its subsidiaries equivalent to the equity settled share-based payment charge recognised in its subsidiary’s Financial
Statements with the corresponding credit being recognised directly in equity. This increase is offset in full by amounts recharged to the
subsidiary, which are recognised as a reduction in the cost of investment in subsidiary.
Income tax
The charge for taxation on the profit or loss for the year represents the sum of the tax currently payable or recoverable and deferred tax.
This charge is recognised in the Profit and Loss Account except to the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Current tax is the expected tax payable or recoverable on the taxable result for the year. The taxable result differs from net profit or loss
as reported in the Profit and Loss Account because it excludes items of income or expense that are not taxable or not deductible. The
Company’s debtor or creditor for current tax is calculated using tax rates enacted or substantively enacted at the Balance Sheet date, and
any adjustments in respect of previous years.
Deferred taxation
Deferred tax is provided, without discounting, on timing differences between the treatment of items for taxation and accounting
purposes as required by FRS19.
Ordinary dividends
Dividends payable are accounted in the Company’s Financial Statements when the Company declares the payment of the dividend.
Dividends receivable are accounted for on a cash accounting basis.
Financial guarantees
Where the Company enters into financial guarantee contracts to secure the indebtedness of other companies within its Group, the
Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be
required to make a payment under the guarantee.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Company Financial Statements
1. Profit on ordinary activities before taxation
The profit on ordinary activities is stated after charging
Operating lease rentals — land and buildings
2009
£m
2008
£m
0.1
0.1
Fees paid to KPMG Audit Plc and its associates for audit and non-audit services to the Company itself are not disclosed in the individual
Financial Statements of Hill & Smith Holdings PLC because the Group Financial Statements are required to disclose such fees on a
consolidated basis.
2. Dividends
Dividends paid in the year were the prior year’s interim dividend of £3.2m (2008: £2.7m) and the final dividend of £4.3m (2008: £3.9m).
Dividends declared after the Balance Sheet date are not recognised as a liability. The Directors have proposed a final dividend for the
current year, subject to shareholder approval, as shown below:
Equity shares
Interim
Final
Total
Pence per
share
4.7
6.8
11.5
2009
£m
3.6
5.3
8.9
Pence per
share
4.3
5.7
10.0
2008
£m
3.2
4.3
7.5
The restatement of prior year balances results from dividend recognition in line with FRS21 (IAS10 from a Group perspective), which is
more fully explained in Note 10 of the Group Financial Statements.
3. Tangible fixed assets
Cost or valuation
At 31 December 2008
At 31 December 2009
Depreciation
At 31 December 2008
Charge for the year
At 31 December 2009
Net book value
At 31 December 2009
At 31 December 2008
Short
leasehold
properties
£m
Plant,
machinery
and vehicles
£m
0.1
0.1
–
–
–
0.1
0.1
0.2
0.2
0.1
0.1
0.2
–
0.1
Total
£m
0.3
0.3
0.1
0.1
0.2
0.1
0.2
90
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
4. Fixed asset investments
Cost
At 31 December 2008
Exchange adjustments
Additions
Transferred to Group undertakings
At 31 December 2009
Provisions
At 31 December 2008
At 31 December 2009
Net book value
At 31 December 2009
At 31 December 2008
Shares in
subsidiary
Loans to
subsidiary
undertakings undertakings
£m
£m
309.8
(12.1)
18.7
(3.7)
312.7
1.9
1.9
310.8
307.9
23.8
–
–
–
23.8
1.3
1.3
22.5
22.5
Trade
investments
£m
0.8
–
–
–
0.8
0.8
0.8
Total
£m
334.4
(12.1)
18.7
(3.7)
337.3
4.0
4.0
–
–
333.3
330.4
A list of the principal businesses owned by the Company is given on pages 96 and 97. All of the Company’s subsidiaries are wholly
owned.
Additions represent a further investment in an intermediary holding company, Hill & Smith Overseas Limited of £18.7m. In May 2009 the
Company transferred its investments in Barkers Engineering Limited (£1.9m) and Birtley Building Products Limited (£1.8m) to one of the
Group’s intermediary holding companies, Hill & Smith Galvanized Products Limited for a consideration of £15.7m.
The Company also holds a trade investment of 19.5% in an unlisted company whose fair value cannot be accurately measured and is
fully written down.
5. Debtors
Amounts owed by subsidiary undertakings
Corporation tax
Deferred tax (Note 8)
Other debtors
Prepayments and accrued income
6. Creditors: amounts falling due within one year
Bank loans and overdrafts (Note 7)
Bank overdrafts
Current portion of long term bank loans
Other creditors
Trade creditors
Other taxation and social security
Accruals and deferred income
Other creditors
Amounts owed to subsidiary undertakings
2009
£m
69.4
0.6
0.2
1.4
0.4
72.0
2008
£m
51.3
3.7
0.1
0.8
0.9
56.8
2009
£m
2008
(Restated)
£m
–
16.7
16.7
1.4
0.1
3.0
0.9
88.2
93.6
23.3
10.0
33.3
1.8
0.1
4.4
0.6
54.8
61.7
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes to the Company Financial Statements
7. Creditors: amounts falling due after more than one year
The Company’s interest bearing loans and borrowings are detailed below. Further information on the Company’s exposure to interest
rate and foreign currency risk is provided in Note 21 of the Group Financial Statements.
Amounts owed to subsidiary undertakings
Long term bank loans
The Company’s bank loans and borrowings are also analysed below into the periods in which they mature:
Bank loans and overdraft
Amounts due within one year (Note 6)
Amounts due after more than one year:
Between one and two years
Between two and five years
2009
£m
53.9
82.0
135.9
2008
£m
101.5
129.4
230.9
2009
£m
2008
£m
16.7
33.3
21.2
60.8
82.0
98.7
15.0
114.4
129.4
162.7
The bank loans are unsecured and carry a rate of interest of 1.35% above LIBOR/EURIBOR subject to a ratchet as defined in the facility
agreement.
8. Deferred tax
At 1 January
Credited for the year in the Profit and Loss Account
At 31 December (Note 5)
Other timing differences
9. Called up share capital
Allotted, called up and fully paid
76.1m Ordinary Shares of 25p each (2008: 75.6m)
2009
£m
(0.1)
(0.1)
(0.2)
(0.2)
2008
£m
(0.1)
–
(0.1)
(0.1)
2009
£m
2008
£m
19.0
18.9
In 2009 the Company issued 0.5m shares under its various share option schemes (2008: 0.1m), realising £0.7m (2008: £0.1m).
Details of share options and related share-based payments are contained in Note 22 to the Group Financial Statements.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
10. Share premium and reserves
At 1 January 2008
Profit for the year
Dividends
Credit to equity of share-based payments
Shares issued
At 31 December 2008
Profit for the year
Dividends
Credit to equity of share-based payments
Shares issued
At 31 December 2009
Share
premium
Capital
redemption
reserve
£m
27.8
–
–
–
0.1
27.9
–
–
–
0.6
28.5
£m
0.2
–
–
–
–
0.2
–
–
–
–
0.2
Profit
and Loss
Account
(Restated)
£m
23.8
4.5
(6.6)
0.3
–
22.0
113.9
(7.5)
0.5
–
128.9
Details of share options and related share-based payments are contained in Note 22 to the Group Financial Statements.
11. Guarantees and other financial commitments
(a) Guarantees
The Company had no financial guarantee contracts outstanding (2008: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December
2009 was £9.1m (2008: £25.4m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
After five years
Land and
buildings
£m
2009
Other
£m
Land and
buildings
£m
0.1
–
0.1
2008
Other
£m
–
12. Pensions
The Company contributes to two Group pension schemes, one providing benefits accruing in the future on a defined benefit basis and
a second scheme providing benefits that are on a defined contribution basis. Details of the schemes and their most recent actuarial
valuations are contained in Note 25 to the Group Financial Statements. Because the Company is unable to identify its share of the
scheme assets and liabilities on a consistent and reasonable basis, the schemes have been accounted for by the Company as if they were
defined contribution schemes, as permitted by FRS17 Retirement Benefits. There are also separate personal pension plans.
The pension cost for the year includes contributions payable by the Company to the fund and amounted to £0.7m (2008: £1.6m),
of which additional deficit contributions were £0.6m (2008: £1.4m plus £1.2m for the reduced liability in deferred defined benefit
pensioners detailed in Note 25 of the Group’s Consolidated Financial Statements). There were no outstanding or prepaid contributions at
either the beginning or the end of the financial year.
Full details of the Group schemes are given in Note 25 to the Group Financial Statements.
13. Related party transactions
The Company related party transactions are the same as those transactions disclosed for the Group in Note 27 to the Group Financial
Statements.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Five Year Summary
Revenue
2009
£m
2008
£m
2007
£m
2006
£m
2005
£m
389.7
419.8
329.6
234.6
217.9
Underlying operating profit*
47.0
47.4
36.9
23.4
19.5
Underlying profit before taxation*
42.2
38.9
31.0
19.5
15.9
Shareholders’ funds
131.4
118.2
99.2
77.0
40.3
Underlying earnings per share
Proposed dividends per share
Pence
38.3
Pence
32.2
Pence
26.1
Pence
21.3
Pence
17.9
11.5
10.0
8.7
7.2
6.0
* Non-Underlying items represent business reorganisation costs, property items, amortisation of acquisition intangibles, impairments, gains on disposal of available for sale
financial assets, change in the value of financial instruments and net financing return on pension obligations.
Financial Calendar
Annual General Meeting
Interim Management Statement
Ex dividend date for 2009 final dividend
Record date 2009 final dividend
Dividend Reinvestment Plan — last date for election
Final 2009 ordinary dividend payable
Announcement of 2010 interim results
Interim Management Statement
Payment of 2010 interim dividend due
7 May 2010
May 2010
2 June 2010
4 June 2010
18 June 2010
9 July 2010
August 2010
November 2010
January 2011
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Shareholder Information
Shareholder base
Holdings of Ordinary Shares at 9 March 2010.
Holdings
1–500
501–1,000
1,001–5,000
5,001–50,000
50,001–100,000
100,001–500,000
500,001–1,000,000
above 1,000,000
Totals
Shareholder type
Individuals
Institutions
Other corporate
Totals
Dividend History – pence per share
Interim
Final
Total
* Proposed
Communication with shareholders and analysts
Directors meet with major shareholders and potential investors
following Interim and Final results, and at other times if requested.
Presentations for analysts are also held on the day of these
announcements and we keep in regular contact with analysts
throughout the year.
Corporate information
The Annual and Interim reports are the main forms of
communication with our shareholders. We have updated our
website to supplement these reports with additional information.
The website address is www.hsholdings.com and includes share
price information, investor relations information and contact details.
Annual General Meeting (AGM)
The AGM will be held on Friday 7 May 2010 at 11 am at The
Village Hotel, The Green Business Park, Shirley, Solihull, B90 4GW.
Full details are contained within the Notice of AGM. A proxy card
is also enclosed with this statement for voting. Alternatively you
can vote electronically as explained in the next paragraph.
Electronic proxy voting
To lodge your proxy vote via the internet, log on to www.
eproxyappointment.com. You will need the Shareholder Reference
number and PIN number printed on your Form of Proxy where you
will find the full instructions.
Shareholding online
Computershare Investor Centre gives access to view your holdings
online. To register click on Investor Centre on the Computershare
home page www.computershare.co.uk and follow the
instructions. You will be able to:
l View all your holding details for companies registered with
Computershare
l View the market value of your portfolio
l Update your contact address and personal details online
Shareholders
Shares
Number
%
Number
%
572
329
944
627
56
76
11
22
107,709
21.69
259,330
12.48
2,456,430
35.80
8,928,590
23.78
2.12
3,855,148
2.88 17,510,679
9,262,249
0.42
0.83 34,436,614
0.14
0.34
3.20
11.62
5.01
22.80
12.06
44.83
2,637
100.00 76,816,749
100.00
1,838
756
43
2,637
69.70 13,891,264
28.67 62,281,147
644,338
1.63
18.08
81.08
0.84
100.00 76,816,749
100.00
2005
2.60
3.40
6.00
2006
3.00
4.20
7.20
2007
3.60
5.10
8.70
2008
4.30
5.70
2009
4.70
6.80*
10.00
11.50
l Access current and historical market prices
l Access trading graphs
l Add additional shareholdings to your portfolio
Share dealing
Share dealing services are available through Computershare
Investor Services PLC. Log on to www.computershare.com/dealing/
uk for internet share dealing and for telephone dealing ring
0870 703 0084.
Dividend Reinvestment Plan ‘DRIP’ (Latest date for election
is 18 June 2010)
The Company offers shareholders the facility to re-invest their cash
dividends to buy more shares in the Company.
l
The service allows you to increase your shareholding in an easy
and convenient way.
l Online application process enables you to participate easily
and securely; www.computershare.com/investor.
–
Click on “Register Now” to sign up to the Investor Centre.
This will allow you to carry out a number of share related
transactions online, including opting for the DRIP
You will be required to fill in your Shareholder Reference
Number (SRN) and your postcode, together with your
e-mail address. You will also be asked to select a User
name (ID) and password of your choice.
Once registered select “Reinvestment Plans” from the
left hand menu and amend your current cash dividend
instruction, confirming acceptance of the DRIP terms and
conditions.
–
–
l New shares will be purchased as soon as possible on or after
the dividend pay date.
Shareholder helpline number
There is a helpline for shareholders who have enquiries about their
shareholdings. The dedicated helpline number is 0870 707 1058.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Principal Group Businesses
Infrastructure Products
Asset International Limited
Large diameter plastic pipes and storm water
attenuation tanks
Stephenson Street, Newport,
South Wales, NP19 4XH
Tel: +44 (0) 1633 273081
Fax: +44 (0) 1633 290519
sales@assetint.co.uk
www.assetint.co.uk
Barkers Engineering Limited*
Fencing, galvanizing, powder coating and
fasteners
Duke Street, Fenton, Stoke-on-Trent,
Staffordshire, ST4 3NS
Tel: +44 (0) 1782 319264
Fax: +44 (0) 1782 599724
sales@barkersengineering.com
www.barkersengineering.com
British Pipe Supports (Jingjiang) Limited*
Constant and variable pipe support systems
West End of Fuyang Road
South Developing District
Jingjiang City
Jiangsu Province
PRC, 214500, China
Tel: +86 (0) 523 8462 1530
Fax: +86 (0) 523 8462 1550
bps@pipesupports.com.cn
CA Traffic Limited
Traffic counting and classifying equipment
Griffin House, Gatehouse Way,
Aylesbury, Buckinghamshire, HP19 8BP
Tel: +44 (0) 1296 333499
Fax: +44 (0) 1296 333498
sales@c-a.co.uk
www.c-a.co.uk
Creative Pultrusions, Inc.*
Manufacturer of glass reinforced plastic
products (GRP) for the infrastructure market
Incorporated in USA
214 Industrial Lane, Alum Bank,
Pennsylvania, 15521, USA
Tel: +1 (814) 839 4186
Fax: +1 (814) 839 4276
www.creativepultrusions.com
Conimast International SAS*
Specialist highmast lighting columns
Incorporated in France
Z.I. La Sauniere BP70,
89600 Saint Florentin,
France
Tel: +33 (0) 3 86 43 82 01
Fax: +33 (0) 3 86 43 82 10
ci@galva.fr
www.conimast.fr
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, WV14 0QL
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 499419
barrier@hill-smith.co.uk
www.hill-smith.co.uk
Berry Systems (D)
Car park and industrial barriers, spring steel
barriers, protection bollards, speed ramps,
handrail panels
Tel: +44 (0) 1902 4991100
Fax: +44 (0) 1902 494080
sales@berrysystems.co.uk
www.berrysystems.co.uk
Brifen (D)
Wire rope safety barriers
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 499419
eng@brifen.co.uk
www.brifen.co.uk
Bristorm (D)
Anti-terrorist security fencing
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 499419
simon.box@hill-smith.co.uk
www.bristorm.com
Techspan Systems (D)
Electronic information messaging and display
systems
Griffin House, Gatehouse Way,
Aylesbury, Buckinghamshire, HP19 8BP
Tel: +44 (0) 1296 673000
Fax: +44 (0) 1296 673002
enquiries@techspan.co.uk
www.techspan.co.uk
TopDeck Parking (D)
Demountable car parking system
Springvale Business and Industrial Park,
Bilston, Wolverhampton, WV14 0QL
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 494080
sales@topdeckparking.co.uk
www.topdeckparking.co.uk
JA Envirotanks (D)
Steel storage tanks
PO Box 16, Charles Henry Street,
Birmingham, B12 0SP
Tel: +44 (0) 121 622 4661
Fax: +44 (0) 121 622 1402
sales@iaenvirotanks.co.uk
www.jaenvirotanks.com
Mallatite Limited
Street and highway lighting columns
Holmewood Industrial Estate,
Hardwick View Road, Holmewood,
Chesterfield, S42 5SA
Tel: +44 (0) 1246 593280
Fax: +44 (0) 1246 593281
sales@mallatite.co.uk
www.mallatite.co.uk
Pipe Supports Limited*
Constant and variable pipe support systems
Unit 22, West Stone, Berry Hill Industrial
Estate, Droitwich, Worcestershire, WR9 9AS
Tel: +44 (0) 1905 795500
Fax: +44 ((0) 1905 794126
psl@pipesupports.com
www.pipesupports.com
Pipe Supports Asia Limited*
Constant and variable pipe support systems
Incorporated in Thailand
26/5 Moo 9, Soi Rattanaraj,
Banga-Trad Road. Km 18.2
Bangchalong, Bangplee,
Samut Prakem, 10540, Thailand
Tel: +66 (2) 312 7685/7
Fax: +66 (2) 312 7707/10
psa@pipesupports.com
www.pipesupports.com
Varley & Gulliver Limited
Parapets, gantries and pedestrian guardrails
57-70 Alfred Street, Sparkbrook,
Birmingham, B12 8JR
Tel: +44 (0) 121 733 2441
Fax: 44 (0) 121 766 6875
sales@v-and-g.co.uk
www.v-and-g.co.uk
V&S Utilities**
Electrical utility products and service
Incorporated in USA
1000 Buckeye Park Road, Columbus,
Ohio 43207, USA
Tel: +1 (614) 449 8261
Fax: +1 (614) 449 8851
info@hotdipgalvanizing.com
www.hotdipgalvanzing.com
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where
indicated, the undertakings are subsidiaries incorporated in Great Britain.
* The Company’s effective interest is held indirectly for these undertakings.
** Trading name for V&S Schular Engineering, V&S Schular Tubular Products and V&S Clark Substations, all indirectly held and all wholly owned and incorporated in the USA.
(D) Operating division only, not a limited company.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Galvanizing Services
France Galva SA*
Galvanizing and powder coaters of steel
Incorporated in France
Joseph Ash Limited*
Galvanizing
Z.I. La Sauniere BP70, 89600
Saint Florentin, France
Tel: +33 (0) 3 86 43 82 01
Fax: +33 (0) 3 86 43 82 10
ci@galva.fr
www.galva.fr
Alcora Building 2, Mucklow Hill,
Halesowen, West Midlands
B62 8DG
Tel: +44 (0) 121 504 2560
Fax: +44 (0) 121 504 2599
sales@josephash.co.uk
www.josephash.co.uk
Voigt & Schweitzer, LLC*
Galvanizing
Incorporated in the USA
1000 Buckeye Park Road, Columbus,
Ohio 43207 USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@hotdipgalvanizing.com
www.hotdipgalvanizing.com
Building and Construction Products
Ash & Lacy Building Systems Limited*
Metal cladding building systems and ancillary
products
Bromford Lane, West Bromwich,
West Midlands B70 7JJ
Tel: +44 (0) 121 525 1444
Fax: +44 (0) 121 525 3444
sales@ashandlacy.com
www.ashandlacy.com
Birtley Building Products Limited*
Steel lintels, residential doors and galvanizing
Mary Avenue, Birtley,
County Durham, DH3 1JF
Tel: +44 (0) 191 410 6631
Fax: +44 (0) 191 410 0650
info@birtley-building.co.uk
www. birtley-building.co.uk
Bromford Iron & Steel Company Limited*
Hot rolled steel flats, bars, sections and
profiles
Bromford Lane, West Bromwich,
West Midlands, B70 7JJ
Tel: +44 (0) 121 553 6121
Fax: +44 (0) 121 525 0913
enquiries@bromfordsteels.co.uk
www.bromfordsteels.co.uk
Lionweld Kennedy Flooring Limited
Handrail and flooring structures
Marsh Road, Middlesbrough, TS1 5JS
Tel: +44 (0) 1642 245151
Fax: +44 (0) 1642 224710
sales@lk-uk.com
www.lk-uk.com
Redman Fisher Engineering Limited*
Industrial flooring, handrail systems and
structures
Bean Road, Birmingham New Road, Tipton,
West Midlands, DY4 9AQ
Tel: +44 (0) 1902 880880
Fax: +44 (0) 1902 880446
sales@redmanfisher.co.uk
www.redmanfisher.co.uk
Access Design and Engineering (D)
Specialising in GRP, steelwork and metalwork
contracts
Halesfield 18, Telford, Shropshire, TF7 4JS
Tel: +44 (0) 1952 588788
Fax: +44 (0) 1952 685139
sales@access-design.co.uk
www.access-design.co.uk
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Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where
indicated, the undertakings are subsidiaries incorporated in Great Britain.
* The Company’s effective interest is held indirectly for these undertakings.
(D) Operating division only, not a limited company.
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Contacts
Professional Advisers
Hill & Smith Holdings PLC
Registered Office
Westhaven House
Arleston Way
Shirley, Solihull
West Midlands
B90 4LH
Tel: 0121 704 7430
Fax: 0121 704 7439
Registration Details
Registered in England and Wales
Company Number: 671474
Company Website
www.hsholdings.com
Company Secretary
John Humphreys FCIS
Auditors
KPMG Audit Plc
1 Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Brokers
Arden Partners plc
Arden House
17 Highfield Road
Birmingham
B15 3DU
Lawyers
Wragge & Co
55 Colmore Row
Birmingham
B3 2QD
Silks Solicitors
Barclays Bank Chambers
Birmingham Street
Oldbury
B69 4EZ
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS99 7NH
Principal Bankers
Barclays Bank PLC
Midlands Corporate Banking Centre
PO Box 3333
15 Colmore Row
Birmingham
B3 2WN
Financial Public Relations
Hogarth Partnership Limited
No. 1 London Bridge
London
SE1 9BG
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Notes
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Notes
100
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Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS
Hill & Smith Holdings PLC
Hill & Smith Holdings PLC is an international
group with leading positions in the design,
manufacture and supply of infrastructure
products, galvanizing services and building and
construction products to global markets.
It serves its customers from facilities principally
in the UK, France, USA, Thailand and China.
Hill & Smith Holdings PLC
Annual Report and Accounts for the year ended 31 December 2009
Stock Code HILS09
Mallatite lighting columns and lanterns supplied for New Crossgate rail
maintenance facility. These columns are hinged for safe maintenance.
Flowforge open steel flooring and tubular ballastrade system supplied by
Access Design for Minworth, Warwickshire, waste water treatment plant.
Contents
Overview
01 Key Financial Highlights
02 Chairman’s Statement
Business Review
04 Chief Executive’s Review
10 Our Divisions / Management
14 Financial Review
16 Key Performance Indicators
17 Principal Risks and Uncertainties
18
Corporate Social Responsibility Review
Governance
22 Board of Directors
24 Directors’ Report
28 Corporate Governance Report
34 Directors’ Remuneration Report
42
Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
43
44 Group Financial Statements
86 Company Financial Statements
94
Five Year Summary and Financial Calendar
Information
95 Shareholder Information
96
98
Principal Group Businesses
Contacts and Professional Advisers
Front Cover in descending order
Varley & Gulliver VGAN 300 parapet installed for the Formula 1 racing event
in Abu Dhabi, UAE.
Techspan’s AMI’s used on the M1 junctions 6a-10 Managed Motorway project.
Preston Village North Shields flood alleviation scheme for Northumbrian Water
using Asset International’s Weholite plastic piping.
Cautionary Statement
This Annual Report contains forward looking statements which are made in good faith
based on the information available at the time of its approval. It is believed that the
expectations reflected in these statements are reasonable but they may be affected by
a number of risks and uncertainities that are inherent in any forward looking statement
which could cause actual results to differ from those currently anticipated.
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Hill & Smith Holdings PLC
Westhaven House,
Arleston Way,
Shirley, Solihull, B90 4LH
Tel: +44 (0)121 704 7430 Fax: +44 (0)121 704 7439
2009
Hill & Smith Holdings PLC
Annual Report and Accounts for the
year ended 31 December 2009
2009
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www.hsholdings.com
Stock Code: HILS
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