Hill & Smith Holdings PLC
Westhaven House,
Arleston Way,
Shirley, Solihull, B90 4LH
Tel: +44 (0) 121 704 7430
Fax: + 44 (0) 121 704 7439
Hill & Smith Holdings PLC
Annual Report and Accounts for the
year ended 31 December 2010
2010
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www.hsholdings.com
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Hill & Smith Holdings PLC
Hill & Smith Holdings PLC is an international group
with leading positions in the supply to global markets
of infrastructure products, galvanizing services and
building and construction products.
It serves its customers from facilities principally in the
UK, France, USA, Thailand and China.
A fire escape galvanized by France Galva for the
Système U retail group head office in France.
Contents
Overview
01
02
Key Financial Highlights
Chairman’s Statement
Review of 2010
04
10
13
14
16
18
Business Review
Our Divisions
Key Performance Indicators
Principal Risks and Uncertainties
Key Resources and Contractual Relationships
Corporate Social Responsibility
Governance
24
26
30
35
42
Board of Directors and Biographies
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Financial Statements
43
44
82
90
Independent Auditor’s Report
Group Financial Statements
Company Financial Statements
Five Year Summary and Financial Calendar
Information
91
92
94
96
Shareholder Information
Principal Group Businesses
Directors, Contacts and Professional Advisers
Notes
Front Cover in descending order
V&S LLC’s galvanized welded studs on 64’ beams for the Tappanzee Bridge in New York.
Pipe Supports shoe for LNG plant project in Yemen, manufactured by Pipe Supports Asia
Ltd.
Varley & Gulliver parapet for the HQ building Al Raha Beach, Abu Dhabi.
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.
Key Financial Highlights
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Resilient performance in challenging conditions
55% of underlying operating profit* generated from non-UK operations
Strong performance in Galvanizing Services
Reduction in net debt – down from £87.6m to £70.6m
Dividend for the year of 12.7 pence per share, up 10.4%
Revenue
£374.2m
-4.0%
Underlying operating
profit*
£45.9m
-2.3%
Underlying profit
before tax*
£42.2m
m
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Underlying earnings
per share*
39.0p
+1.8%
Basic earnings
per share
32.0p
-11.8%
Dividend
per share
12.7p
+10.4%
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* Underlying profit measures exclude non-underlying items which represent business reorganisation costs, acquisition related expenses, property items, amortisation of
acquisition intangibles, impairments, gains on disposals of available for sale financial assets, change in the value of financial instruments and net financing returns on
pension obligations. References to an underlying profit measure throughout this Annual Report are defined on this basis.
20073-04 Hill&Smith_AR_FRNT.indd 1
01
18/03/2011 16:23:30
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Chairman’s Statement
Bill Whiteley
Chairman
Overview
I am pleased to report that despite the challenging trading conditions
the Group delivered a resilient earnings performance and strong
cashflow in 2010. This performance, from markets that experienced
varying levels of demand, is a testimony to our strategy of having a
Group with a diversity of products and geographical representation in
markets with growth potential. Evidence of this strategy is the
generation of 55% of our underlying operating profit from our
overseas operations and, during the year, utilising our existing
knowledge and expertise to develop our business in China and India.
The Galvanizing Services operations in France, USA and the UK had
mixed fortunes as demand levels varied during the year. Overall,
margins remained strong with the lower cost base and careful
management of raw material costs, contributing to an exceptional
performance.
We continued our strong management of cash and working capital
with net debt at 31 December 2010 having been reduced to £70.6m
(2009: £87.6m) an improvement of £17.0m.
Dividends
Reflecting the Board’s confidence in the resilience of the results and
the importance of dividends as part of total shareholder returns, the
Directors intend to recommend a final dividend of 7.5p per share
(2009: 6.8p), making a total dividend for the year of 12.7p (2009:
11.5p), an increase of 10.4%. The final dividend, if approved, will be
paid on 8 July 2011 to those shareholders on the register at close of
business on 3 June 2011.
Our progressive dividend policy has increased our dividend payments
by an average of 15.3% in each of the last five years. Underlying
dividend cover remains a healthy 3.1 times (2009: 3.3 times).
The uncertainty over the UK Government spending review impacted
the performance of the infrastructure roads businesses and whilst the
Managed Motorway Projects are still proceeding, it will be at a slower
rate than previously experienced.
Employees
On behalf of the Board I would like to thank all our employees for
their contribution to the achievement of another successful year for
the Group.
Demand in the utilities market for our pipe supports products started
the year slower than anticipated but picked up in the fourth quarter,
with the momentum carrying through into the new financial year.
We have taken steps to rationalise the number of sites in our
industrial flooring operation, in the galvanizing services business in
the UK and in the utility fabrication businesses in the USA. These
actions, together with similar actions taken in 2009, leave us with a
lower cost base but still well positioned to maximise profitability from
future increases in demand.
Financial Highlights
Revenue for the year decreased by 4.0% to £374.2m (2009: £389.7m)
reflecting the lower levels of demand and the disposal of a non-core
business in December 2009.
We achieved an underlying profit before tax of £42.2m (2009:
£42.2m) which was an excellent outcome for the year in the context
of the challenging economic conditions our businesses faced.
Basic earnings per share fell by 11.8% to 32.0p (2009: 36.3p)
however, underlying earnings per share increased by 1.8% to 39.0p
(2009: 38.3p). Our underlying earnings per share has now grown by a
compound average rate in excess of 16% over the past five years.
Prospects
As expected, trading in the first two months of the year has
continued to be challenging. However, we have recently seen a strong
order intake in our utilities businesses and, therefore, our views of the
overall results for the full year remain unchanged.
In the medium to longer term, we remain confident that our business
model and strategy for international expansion will continue to deliver
attractive growth and value. We will continue to seek out profitable
long term growth opportunities where we can leverage our scale and
expertise. We are therefore delighted to also announce today the
acquisition of a North American pipes supports business, The
Paterson Group, Inc., which not only gives us a well established
presence in the US nuclear and thermal power generation market but,
when combined with our existing pipe supports businesses, creates a
leading global player in this niche market.
The Group is lean, well financed, has excellent positions in its core
markets of Infrastructure Products and Galvanizing Services, and a
clear focus on further expansion in international markets with clear
long term growth dynamics.
Bill Whiteley
Chairman
9 March 2011
02
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Varley & Gulliver’s parapet for the HQ building Al Raha Beach, Abu Dhabi.
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03
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Business Review
Derek Muir
Chief Executive
Mark Pegler
Group Finance Director
2010 Performance
The Group again delivered a robust performance in generally
challenging economic conditions.
The first half benefitted from UK Government fiscal stimulus, whilst
the second half was more challenging in the UK due to the
uncertainty created around the Comprehensive Spending Review in
October. Second half trading was stronger in our overseas markets
and as a result of a better than expected final two months in our
overseas galvanizing businesses, underlying profit before tax was
maintained at the prior year level and marginally ahead of that
indicated in the Interim Management Statement of 11 November
2010. Overseas operations now account for 55% of total underlying
operating profit.
Revenue decreased by 4.0% to £374.2m (2009: £389.7m) of which
1.8% was due to the disposal of a non-core business in the prior year.
Increased revenues in Galvanizing Services were offset by lower
revenues in Infrastructure Products. Underlying operating profit of
£45.9m was marginally below the prior year (2009: £47.0m),
reflecting record profits from Galvanizing Services, a lower
contribution from Infrastructure Products and Building and
Construction Products broadly unchanged. Underlying operating
margins improved 20 basis points to 12.3% (2009: 12.1%) a reflection
of our cost reduction initiatives implemented in both 2009 and 2010.
There was no material impact from exchange movements.
Underlying profit before taxation was unchanged at £42.2m (2009:
£42.2m) and profit before taxation was £35.3m (2009: £39.7m).
Group Strategy
These resilient results, in the face of challenging trading conditions,
demonstrate the benefits of the way in which we have continued to
reshape and grow the Group internationally and at the same time
strengthen its financial position.
The Group continues to create and exploit niche positions for
Infrastructure Products, which together with the Galvanizing Services
division, gives us strong international presence in the core businesses
of roads and utilities. Long term growth in these businesses is being
driven by a combination of infrastructure spending, energy
consumption and regulatory change.
The Group’s geographical footprint has been progressively broadened
with operations in the UK, France, USA, Thailand and China, and a
developing position in India. As a result 55% of underlying operating
profit in 2010 was generated by operations outside of the UK
(compared to 2% four years ago). The benefits of the recent
04
investment in our US Galvanizing Services businesses are showing
through with strong trading in this market.
Our pipe supports facility in China, commissioned in 2009 to serve
the fast growing utilities market, contributed to profit in 2010 and we
are now in the process of commissioning a plant in India, again to
serve an emerging market.
Major Acquisitions
The acquisition of The Paterson Group, announced today, further
strengthens our strategy to create a global pipe supports business.
This acquisition not only allows the Group access to the North
American markets but more importantly one of its businesses,
Bergen-Power Pipe Supports, Inc., has significant experience in the
nuclear pipe supports market and has an ASME nuclear certification.
Bergen has supplied nuclear pipe supports to 49 of the 104 nuclear
plants in the USA over the past 50 years. This acquisition, combined
with our current ability to manufacture in China, Thailand and the UK,
will allow us to fully leverage the potential of the increasing demand
for nuclear and thermal power generation pipe supports throughout
the world.
The strength of our balance sheet allows us to continue to pursue
acquisition opportunities which bring new products and technologies
to the Group, further strengthen our market positions and extend our
geographic footprint. Our focus is on businesses that fit with our
strategy for operating in markets where the right macro growth
dynamics exist for our Infrastructure Products and Galvanizing
Services.
Operational Review
Infrastructure Products
The division is focused on supplying engineered products to the roads
and utilities markets in geographies where there is long term
investment in infrastructure. In 2010, the division accounted for
50.9% (2009: 52.0%) of the Group’s revenue and 42.7% (2009:
52.2%) of the Group’s underlying operating profit.
Revenues decreased by 5.9% to £190.5m (2009: £202.5m). Margins
declined by 180 basis points to 10.3% (2009: 12.1%) due to reduced
volume, as customer capital expenditure plans were put on hold in
2009 and 2010. Underlying operating profit decreased by 20.0% to
£19.6m (2009: £24.5m).
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Roads
The UK roads programme generated strong demand in the first
half, through the Highways Agency Managed Motorway
Programme and additional fiscal stimulus spend. The second half
was more challenging due to the uncertainty created around the
Comprehensive Spending Review where projects previously
planned were either put on hold, spread over a longer period or
cancelled.
The outcome of the Comprehensive Spending Review in October
confirmed a marked reduction in spending on new road projects
in the UK. We were however, pleased to see confirmation that the
Managed Motorway Programme will proceed, albeit on a more
protracted timescale, with the first scheme starting in the final
quarter of 2011.
During the year rental of Varioguard, our temporary barrier,
achieved record utilisation levels. This will continue in 2011 as our
product is deployed in large quantities on the M25 widening and
on the M1 J10-13 around Luton.
Our permanent vehicle restraint systems: Flexbeam, Brifen and
VGAN had another excellent year, both in the UK and in the
export markets of Scandinavia and the Middle East. We continue
to explore markets where there is strong forecast infrastructure
spend and a necessity to upgrade existing road networks as we
develop and test new vehicle restraint products to satisfy
European and American Standards, which are widely recognised
around the world.
Our lighting column operation in France had an encouraging year
with increased volumes and benefitted from our investment in
automated manufacture contributing to greater profitability.
With over 65% of columns now requiring a secondary coating we
are further investing in a new powder coating plant on the
Conimast site in Saint Florentin. This will enable us to coat both
our own production and external work from our galvanizing
customers.
In the UK our lighting column operation commenced the supply
of the Surrey, South Coast and Coventry PFI’s, all of which have
secured long term business and offset the reduction in local
authority spending experienced in the second half.
We continue to make progress in the USA with Zoneguard, our
temporary steel vehicle restraint system. In a number of key states
such as Pennsylvania, where a large road construction programme
is planned, Zoneguard has been given approval for use on
construction projects. Throughout the year we increased our
rental fleet as high utilisation was experienced during the
construction season of May to November.
Utilities
The requirement for new power generation in emerging
economies and the replacement of infrastructure in developed
countries provides us with a great platform for the Group’s
infrastructure businesses to supply the utilities market.
The Group’s pipe supports business supplies large industrial pipe
supports for petrochemical, gas, coal and nuclear power plants
around the world. Combining this existing established business
with the recent acquisition of The Paterson Group, Inc. and
related companies will enable us to become a global leading
supplier in this marketplace.
In 2010 the pipe supports business started the year with a lower
order book, due to the reduction of new major project awards in
2009; consequently the first half produced lower revenue and
profitability, compared with the same period in 2009. However,
the business delivered an excellent performance in the third
quarter and by the end of 2010 orders for 2011 were back at peak
2007/08 levels. Current orders include pipe hangers for a number
of power plants in India and cryogenic pipe supports for a new
LNG plant in Singapore. The investment in China moved into
profit in 2010 and enters 2011 with a robust level of orders. The
order intake for India now stands at £9m as we enter the first
phase of construction for our new manufacturing facility in Sri,
north of Chennai.
The UK water industry’s AMP5 (Asset Management Programme)
started slowly in April, but gained momentum giving us a strong
order book as we enter 2011, including a £1.8m contract to
supply pipework for Crossness sewage treatment works in
London. The requirement for storm water attenuation for new
housing developments increased in 2010 and whilst not back to
2008 levels, signs are encouraging as the need to prevent
flooding is a high priority for the water authorities.
In the USA our utilities fabrication business experienced lower
demand levels resulting in revenue and profitability being
substantially below the prior year. Notwithstanding a slight
recovery in the fourth quarter we have taken the decision to
rationalise the business onto two sites, closing a third site in
Alabama. This rationalisation gives us a leaner operation and we
are encouraged by the trading and order book in the first two
months of 2011.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Business Review
Galvanizing Services
Offering corrosion protection services to the steel fabrication industry
with multi-plant facilities in three countries, Galvanizing Services now
accounts for 30.8% (2009: 29.0%) of the Group’s revenue and more
significantly 54.5% (2009: 45.5%) of the Group’s underlying
operating profit.
Revenues at constant currency increased 3.6% to £115.4m (2009:
£113.2m). Underlying operating profit at constant currency improved
19.0% to £25.0m (2009: £21.4m) resulting in an improved operating
margin of 21.7% (2009: 18.9%).
Overall galvanizing volumes were broadly in line with 2009, with the
first half showing favourable uplifts in France and the UK, offset by
weaker demand in USA. This position reversed in the second half as
the USA provided a strong finish to the year.
Overall, margins remained strong, with the overseas plants in
particular benefitting from the strong supply chain management,
lower operational cost management and ongoing efficiency
initiatives.
USA
Located in the North East of the country, we are the market leader
with six plants offering local services and extensive support to
fabricators and manufacturers of highway bridges, construction,
utilities, OEM and the transportation markets.
Volumes were up 6.9% year on year despite a slow start in the first
half of 2010 (down 5.3%). However, from May the demand improved
and the second half produced volumes up by 19.8%. Raw material
cost increases were carefully managed and as volumes increased the
operating efficiency gain improved profitability. Our recent investment
in the Delaware and Taunton plants, which have shown the most
improvement in 2010, demonstrated the benefit of investment in new
modern plants that produce high quality product, high levels of
service and operating efficiency. This market continues to provide
further opportunity for growth as more infrastructure projects
convert from painting to the longer lasting cost effective solution of
galvanizing.
France
The business has ten strategically located galvanizing plants serving
each local market. As part of the manufacturing supply chain, we
have delivered high levels of service and quality to maintain our
position as market leaders.
Volumes in 2010 were similar to those for 2009, and despite the
increased zinc prices, the business achieved a level of profitability in
line with the excellent performance for 2009.
Investments in two powder coating paint facilities at our existing
plants were approved and are currently being constructed to become
operational in the second half of 2011. This will give us the ability to
offer the options of powder coating and galvanizing services to our
customers.
UK
Our UK galvanizing business is located on nine sites, four of which are
strategically adjacent to our steel fabrication facilities.
Year on year, volumes were down 3.8%, driven by lower construction
activity in the final quarter, which was affected by the bad weather in
December. This was further exacerbated by the overall reduction in
construction projects.
As part of the ongoing cost management programme we closed a
galvanizing facility in Oldbury in June, with production being
transferred to a sister plant in Telford.
Building and Construction Products
This is our smallest division, accounting for 18.3% (2009: 19.0%) of
Group revenue and 2.8% (2009: 2.3%) of underlying operating
profit. The division supplies roofing systems, safety handrails and
flooring, lintels and residential doors for a range of UK construction
projects, including housing, schools and industrial buildings.
Revenues were £68.3m, £1.4m ahead of the prior year, after adjusting
for the disposal of Ash & Lacy Perforators Limited (sold in December
2009). Underlying operating profit of £1.3m was slightly ahead of
2009 in spite of the reduced demand and profitability in the industrial
flooring business. In December we completed a rationalisation of the
manufacturing sites producing industrial flooring by closing the facility
at Tipton and moving production to our plant in Middlesbrough. The
lower operational cost base that this rationalisation provides is
expected to improve profitability on similar volumes.
Recovery in the housing market provided additional volumes for the
steel lintel and residential door business which combined with the
lower operating costs, increased profitability.
06
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Financial Review
Cash generation and financing
Continued focus on cash generation and its management was
again evident in 2010 with some £51.7m of cash generated from
operations (2009: £71.0m). Working capital was tightly managed,
in spite of marginally higher investment and significantly higher
zinc and steel raw material costs. Capital expenditure at £15.2m
(2009: £11.7m) was more reflective of the expected run rate and
represents a multiple of depreciation and amortisation of 1.1
times (2009: 0.8 times). The Group continues to invest in organic
growth opportunities where returns exceed internal benchmarks.
The cash generation during the year resulted in Group net debt at
31 December 2010 being £70.6m, a reduction of £17.0m against
31 December 2009 (£87.6m). 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 £0.7m due to exchange rate
movements.
Change in Net Debt
Operating profit
Depreciation & 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
Purchase own shares
Acquisitions and disposals
Net issue of shares
Change in net debt
Opening net debt
Exchange
Closing net debt
2010
£m
39.6
15.0
(1.3)
(2.3)
0.7
51.7
(9.4)
(3.4)
(15.2)
0.9
24.6
(8.8)
(0.4)
0.1
0.4
16.3
(87.6)
0.7
(70.6)
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
(146.2)
11.7
(87.6)
* Includes £0.9m (2009: £0.9m) in respect of acquisition intangibles.
At the year end the Group had committed debt facilities available
of £154.9m and a further £26.6m in overdrafts and other on
demand facilities. Subsequent to the year end, £24.0m of the on
demand facilities have been converted to committed facilities,
expiring March 2012. The conversion was undertaken at minimal
cost to the Group. 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 2010
amounted to £128.4m. The facility amortises throughout its
existence with £21.3m falling due for repayment in 2011. The
Group has already commenced negotiations with carefully
selected providers of new debt facilities in order to replace the
principal facility which, as noted above, expires in June 2012.
Whilst the margin applicable to any new facility is expected to be
marginally above the current cost, the availability of finance on
favourable terms is not expected to be an issue.
The principal debt facility is subject to covenants which are tested
semi-annually on 30 June and 31 December. The covenants
require 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 2010
were:
Interest Cover
Net debt to EBITDA
Actual
16.2 times
1.2 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 its disposal provide significant
headroom against the Group’s expected funding requirements.
Finance costs
Net financing costs fell by £0.9m to £4.3m, principally reflecting
lower levels of average net debt and lower interest margins
resulting from stronger covenant ratios. The net cost from pension
fund financing under IAS19 was £0.6m (2009: £0.5m) 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 £3.7m (2009: £4.8m). Underlying operating
profit covered net cash interest 12.4 times (2009: 9.8 times).
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Business Review
The Group has approximately 59% of its gross debt of £97.6m at
fixed interest rates, either through interest rate swaps or finance
leases. The interest rate swaps have expiry dates in 2011-2015 and
further details are contained in Note 19 to the Financial Statements.
Exchange rates
Given the increasingly diverse nature of its geographical footprint the
Group is exposed to movements in exchange rates when translating
the results of international operations into Sterling. However, during
2010 the translational benefit of the appreciation of the US Dollar was
broadly offset by the depreciation of the Euro against Sterling
resulting in a minimal impact year on year. Retranslating 2009
revenue and underlying operating profit using 2010 average exchange
rates would have reduced the prior year results by £1.3m and £0.1m
respectively.
Tax
The Group’s tax charge for the year was £10.7m (2009: £12.2m). The
underlying effective tax rate for the Group was 29% compared to
31% for 2009 reflecting improvements in the Group’s legal and
financing structure. The international nature of our operations does
mean that the mix of profits in a particular year can impact the
effective rate of tax that we pay.
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.
Non-Underlying Items
The total non-underlying items charged to operating profit in the
Consolidated Income Statement amounted to £6.3m (2009: £2.1m)
and were made up of the following:
• Business reorganisation costs £5.7m (2009: £1.8m) – principally
relating to the closure of three manufacturing plants, two in the
UK and one in the USA, and other redundancy costs. Included is
an asset impairment charge of £0.4m. Cash costs of £2.2m were
incurred in 2010 with a further £2.2m expected to be expended
over the period 2011–2014. In total, some 193 people left the
Group due to business reorganisation in 2010.
• Release of environmental provisions £1.3m (2009: £nil) – a review
of environmental issues and provisions principally relating to the
2007 acquisition of Zinkinvent GmbH identified that the Group
was carrying provisions for potential issues which have either been
remedied or for which spend is expected to be less than that
originally provided for.
• Amortisation of acquired intangible fixed assets £0.9m (2009:
£0.9m) – the charge relates to the non-cash amortisation of
intangible assets arising from acquisitions. There were no material
acquisitions during 2010 and, as a result, there was no change
compared to 2009.
• Acquisition related expenses £1.0m (2009: £nil) – costs associated
with acquisitions (whether aborted, completed or on-going)
expensed to the Consolidated Income Statement following
adoption of IFRS3 (Revised) during 2010.
The Group has agreed deficit recovery plans in place that require cash
contributions over and above the current service accrual amounting to
£1.9m for the three years to April 2013, followed by payments of
£2.3m for a further seven years. The date of the next triennial review
is 5 April 2012.
The IAS19 deficit at 31 December 2010 for the Group’s defined
benefit plans was £10.9m, down from £16.7m in the prior year. The
decrease principally reflects employer deficit contributions together
with increased investment returns offset by more onerous mortality
assumptions. No account has been taken of the change in inflation
assumption moving to CPI from RPI. The expected impact of the
change is to reduce liabilities, and therefore the IAS19 deficit, in the
order of c. £1.0m. The change will be reflected in the 2011
Consolidated Financial Statements.
Small Acquisitions
The Group made two small bolt-on acquisitions during the year. In
July, the Group acquired the trade and certain assets of Ascolit
Limited (In Administration) from the Administrator for a consideration
of £0.2m, including deferred consideration of up to £0.1m. The
business was absorbed into Ash & Lacy Building Systems Limited. In
December we acquired all the shares of MB Tech Limited (and
subsidiary) for an initial cash consideration of £0.2m. Further deferred
consideration up to £0.3m will fall due within two years on the
achievement of certain agreed revenue and margin targets. The
business of MB Tech has been absorbed into the Group’s UK flooring
business based in Middlesbrough.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
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Outlook
As reported in our Interim Management Statement in November
2010, the current trading environment and outlook for 2011 remains
mixed.
The Group is lean, well financed, has excellent positions in its core
markets of Infrastructure Products and Galvanizing Services, and a
clear focus on further expansion in international markets with clear
long term growth dynamics.
Overall, volumes in Galvanizing are at similar levels to 2010. There are
signs of sustained underlying improvement in the USA but to date
this has been offset by the reduced volumes experienced in the UK.
Derek Muir
Group Chief Executive
Mark Pegler
Group Finance Director
9 March 2011
In our utilities business, order intake has improved strongly since
November, driven by significant contract wins in India and China. The
US utilities market also shows signs of recovery and there are healthy
levels of activity associated with the UK water industry’s latest AMP5
(Asset Management Plan) programme. The order book for our
utilities business bodes well for the future and benefits are expected
to start materialising in the second half.
In November, the UK Government reaffirmed its commitment to the
Managed Motorway Programme, but on a more protracted
timescale. As previously stated this delay means that our UK roads
infrastructure business will have a slower year in 2011. We are,
however, well positioned on these programmes, which represent an
excellent medium term opportunity.
Our Building and Construction businesses will benefit from any
continued recovery in their markets and from the operating plant
rationalisation undertaken in 2010.
As expected, trading in the first two months of the year has
continued to be challenging. However, we have recently seen a
strong order intake in our utilities businesses and, therefore, our
views of the overall results for the full year remain unchanged.
In the medium to longer term, we remain confident that our business
model and strategy for international expansion will continue to
deliver attractive growth and value. We will continue to seek out
profitable long term growth opportunities where we can leverage
our scale and expertise. We were therefore delighted to announce
the acquisition of a North American pipes supports business, The
Paterson Group, Inc., which not only gives us a well established
presence in the US nuclear and thermal power generation market
but, when combined with our existing pipe supports businesses,
creates a leading global player in this niche market.
09
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Our Divisions
Infrastructure Products
For the core markets of roads and utilities — 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 and industrial buildings.
All plants are based in the UK.
Group Business mix
Revenue
Underlying operating profit
Infrastructure Products £190.5m
Infrastructure Products £19.6m
Galvanizing Services £115.4m
Galvanizing Services £25.0m
Building and Construction Products £68.3m
Building and Construction Products £1.3m
Revenue
2010 £374.2m
Underlying
operating
profit
2010 £45.9m
10
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Protective rain screen cladding system (Ashtec™) installed by Berry Systems and supplied by its sister company, Ash & Lacy Building
Systems Ltd, for the Eastside car park, Millenium Point, Birmingham.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Cutting edge robotic welding station comprising four robots, two manipulators and one welder at our lighting column manufacturer
Conimast, based in Saint Florentin, France. This robotic equipment will enable one welding operation every two minutes (previously 12
minutes).
12
Key Performance Indicators
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
The Board 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
In line with our strategy to produce increased profitability and shareholder return, the aim is to increase revenue each year through a
combination of price, volume, organic growth and acquisition.
In 2010, our Group revenue fell by 4.0% to £374.2m, primarily as a result of lower volumes and the sale of a non-core business in
December 2009.
Underlying operating margin
This represents the Group’s underlying operating profit divided by Group revenue. In 2010 the underlying operating margin was 12.3%
compared to 12.1% in the previous year.
Profitability
The Group measures profitability KPIs at all levels. The final results for 2010 matched the 2009 underlying profit before tax of £42.2m and
achieved an increase in underlying earnings per share of 1.8%.
Net cash from operating activities
The Company actively monitors working capital levels in all its operations. In 2010 the Group generated free cash flow of £51.7m
(2009: £71.0m).
Health and safety
The health and safety performance of each subsidiary is monitored and reviewed at each monthly Group Board meeting and at each monthly
subsidiary meeting. The number of reported accidents is monitored each month and appropriate action taken. In 2010 we achieved a 19.9%
year on year reduction in the number of accidents.
The new weighted scoring system introduced in 2009, for benchmarking and targeting an overall improvement in health and safety
performance resulted in an overall improvement of 4.4% compared to our longer term target of 10.0%.
Sustainability
We continue to track our performance on CO2 emission reduction. Further details of our achievement for 2010 and our plans for 2011 are
contained in the Corporate Social Responsibility Report on pages 19 and 20.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Principal Risks and Uncertainties
Our risk management processes are designed to be forward-looking in the identification,
management and mitigation of business risks that could impact the Group’s short and long term
performance and value. The processes will not eliminate risks but rather mitigate them to an
acceptable level within the context of the business environment in which we operate.
Principal Risks/Uncertainties
How we mitigate that risk
Market customer related
The impact of a general economic downturn that leads to a
reduction in customer demand and production volumes.
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.
Forward looking indicators are regularly reviewed to identify
deteriorating market conditions. The cost base is reduced as
required and there is a management structure in place to enable a
rapid response to changing circumstances.
We have a diversified portfolio of products and services to various
markets and maintain a key account management programme
for major customers on a global basis. In addition we continue
to increase our capabilities to service customers in emerging
markets.
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 significant 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.
Comprehensive quality control procedures are backed up by an
appropriate level of insurance cover through a major insurer.
Environmental 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. Although we believe
that our operations are in compliance with current regulations,
we cannot eliminate the risk of all accidents or non-compliance.
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.
14
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Principal Risks/Uncertainties
How we mitigate that risk
Human resources
Future success will depend, to a large degree, on the ability of the
Group to attract and retain skilled and qualified personnel.
Acquisitions
The Group is an active acquirer. Acquisitions can involve risks
that might have a material impact on the Group’s financial
performance and reputation.
Policies and processes are reviewed and maintained to manage
the risks relating to our employees. As part of these policies the
Group seeks to offer competitive rates of pay and review salaries
annually. Benchmarking of pay rates is undertaken along with
performance appraisals and training programmes.
Comprehensive due diligence is carried out prior to
the completion of an acquisition and, where practical,
representations, warranties and indemnities are obtained
from vendors. A post acquisition review of the integration and
performance is undertaken.
Business conduct risks
The Group operates in a number of different territories and a
potential breach in the area of ethical behaviour could impact the
Group’s reputation or image.
Our reputation with our stakeholders is fundamental to the
continued success of the Group and we mitigate reputational
risks through various means, including:
Financial risks
The Group is exposed to a number of financial risks including
credit risk, liquidity risk and market risks.
• Our Code of Business Ethics and Whistleblowing Policy.
• Our systems of internal control and risk management.
The Group’s Code of Business Ethics and Anti-Corruption Policy
are further described in the Corporate Social Responsibility
section of this Report.
Financial risks are managed at a Group level and a fuller
description and explanation of how they are managed is
described in Note 19 and on pages 67 to 72 of the Financial
Statements contained in this Report.
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15
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Key Resources and Contractual Relationships
The Group has built up significant resources and benefits from contractual and other relationships
with multiple stakeholders, employees and joint venture partners. These have been established over
many years to support the Group’s competitive positioning in the key markets which it serves.
As described below, no one contractual or other relationship is considered essential to the business of
the Group as a whole. In accordance with its vision, aim and strategic priorities, the Group continues
to invest in the areas noted below to maintain its market positions.
Commercial relationships, market position and reputation
Companies within the Group are generally ranked highly in their chosen market segments. The Group’s businesses have developed
close working relationships with many of their customers and suppliers, including Government bodies, and work in collaboration
with them to develop new products.
None of the Group’s customers or suppliers are individually essential to the business of the Group as a whole. Notwithstanding this,
the Group devotes significant resources to ensure these relationships continue to operate satisfactorily.
Employees
One of our strategic priorities is ‘finding, keeping and developing the right people’. Many employees stay with the Company for their
whole careers. We place great emphasis on recruitment, training and retention.
Succession plans are in place covering key management and technical roles and as such no individual employee is considered
essential to the business of the Group as a whole.
The Hill & Smith Holdings PLC Directors’ contracts are referred to on page 39 and are available for inspection prior to the Annual
General Meeting and at the Company’s registered office.
Research and development, patents and intellectual property
The Group’s operating divisions use their extensive knowledge base, to develop new products and services to meet customer needs
and to differentiate themselves in the markets they serve.
The Group benefits from technological know how and other forms of intellectual property and supports the development and
manufacture of new products and services to meet customer needs. No one single patent is considered essential to the business of
the Group as a whole.
Manufacturing capabilities
Over many years the Group has invested heavily in manufacturing capacity, galvanizing facilities and technology to develop its
capability to serve its chosen markets. In recent years the Group has developed and extended its manufacturing presence and
capabilities in China and plans to do so in India to meet customer needs in both local and global markets. This investment supports
the Group strategy.
Banking and other financial relationships
Details of significant banking and other relationships are referred to on page 28 in the Directors’ Report. However, no one banking
relationship is considered to be essential to the performance and value of the Company.
16
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Hot dip galvanizing of poles at Joseph Ash’s unique long bath facility at its Chesterfield plant.
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17
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Corporate Social Responsibility
Corporate Social Responsibility
The Board is committed to Corporate Responsibility and the need to
take proper account of the impact the Group has on the environment,
its employees and the treatment of customers and shareholders. We
continue to retain our FTSE4Good accreditation, an important
independent recognition of our corporate responsibility standards.
Our Aim
To make the principles of Corporate Social Responsibility (CSR) part of
the business and to ensure high standards of corporate behaviour are
maintained throughout the Group. This will be demonstrated by
measured improvements in our CSR performance and 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 have continued to operate KPIs covering carbon (CO2 ) emissions,
energy consumption and health and safety as the principal monitors
and drivers of our CSR performance.
Priorities for 2010
In our last Annual Report we identified the following priorities:
• Review of our main CSR initiatives and KPIs
Our approach to CSR is to consider and acknowledge our
responsibilities to a wide range of stakeholders as an integral part
of the way we conduct our business. To this end, we reviewed
how our existing initiatives and drivers fitted into our everyday
activities and the Group’s strategic performance and direction.
This has led us to a framework of four elements that will form the
core of our CSR activities going forward:
— Environment
— Workplace
— Marketplace
— Community
Future reporting will therefore be based upon:
Core
Element
CSR Measure
Objective
Environment Minimise our
environmental impact
Workplace
Develop an effective and
competent workforce
Marketplace
Provide a safe working
environment
Improve our interaction
with customers
Improve our interaction
with suppliers
(KPIs)
CO2 emissions
Waste
Net energy usage
Carbon footprint
Employee motivation
Employee retention
Training days
Accident rates
Lost time
Customer
satisfaction
Debtor days
Engagement with our
suppliers
Creditor days
Community
Increasing involvement
with and investment in
our communities
Employee involvement
Community investment
Charitable giving
Rationale for selection, method of calculation and link to our
strategy will be factored into our reporting to complement the
base data of actual and target performance.
18
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Improvements in the average weighted scored
performance internal benchmarking
During the year the remaining scheduled visits under the UK
health and safety independent audit programme was
completed and a new cycle of auditing undertaken. This
enabled us to set and compare the internal benchmarking
performance. Overall a 4.4% improvement was achieved in the
benchmark (the overall average weighted score from the
audits). Further progress will be made as the audit
recommendations on improvement are implemented.
Our target is to see a 10% reduction, year on year, in the
overall average weighted score calculated from each site’s
scored audit. As the programme gathers momentum we are
confident this is a realistic and achievable target.
Environment
The Group recognises that its activities have a potential impact on
the environment. The Group ensures that all its companies are
charged with compliance with its Environmental Policy and any
local requirements in relation to the environment. The policy
requires high standards of operation at all sites and is driven by
the need to continuously improve the management of potential
risks to the environment associated with our activities.
Throughout 2010 we have continued to focus on the three key
areas that we believe are the most pertinent to the management
of our environmental responsibilities. The three key areas are:
• Reducing energy usage and CO2 emissions
• Managing waste and the use of natural resources
• Vehicle fleet efficiency and reducing carbon emissions
CO2 Emissions and energy management
The Group’s UK operating units have continued to work with
external energy consultants and to liaise with the Carbon Trust on
the reduction in CO2 emissions. Our three year programme, that
began in 2008, has yielded the following reductions in CO2
emissions:
2008: 17%
2009: 9%
2010: 2%
Our target was a 5% year on year reduction.
• New policies for Health and Safety, Whistleblowing and
•
Code of Business Operations
During the year we issued new policies for Health and Safety,
Whistleblowing and an Anti-Bribery and Corruption policy to
supplement the existing Business Operation policy. All these
policies are available on our website www.hsholdings.com
(Investor Relations then CSR Policies) and on our recently
upgraded intranet site. In readiness for the full
implementation of the Bribery Act 2010 we have drafted new
Group policies for governing our relationships with third
parties and agents and how we handle gifts and
entertainment.
• New three year plan for energy, CO2 emissions and
Carbon Reduction Commitment (“CRC”)
Our new plan targets a 5% year on year reduction for each
year in the period 2011 to 2013.
• Further improvements of management of our waste
A number of our operations have introduced initiatives such as
new working practices to lower the rejection and rework rates
thereby reducing scrap metal, processes for the re-use of
cardboard, plastics and glass and closer liaison with our third
party agency on the reduction of packaging materials and
associated levies.
We are using one UK operation to run a pilot waste
management scheme before considering its application to the
whole Group in 2011.
• Achievement of a 10% annual reduction in the number
of accidents
We finished the year with a 19.9% decrease in the number of
accidents occurring at our sites. By division, the achievement
was as follows:
Infrastructure Products
Galvanizing Services
Building and Construction Products
% Decrease
year on year
12.7
14.2
32.8
The majority of our operations saw improvements as the
effects and benefits of the rolling health and safety audit
programme in the UK came through. This programme is being
used to structure an internal benchmarking, monitoring and
targeted improvement of health and safety performance with
the actions being utilised, as appropriate, throughout the
Group.
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19
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Corporate Social Responsibility
We have a new plan in place to build on the progress of the last three
years, with the following objectives and targets:
Health and Safety
At the start of the year we identified five key actions:
• 2011 to 2013 – a 5% year on year reduction in CO2 emissions
• Award of the Carbon Trust Gold Standard
• Resources - we appointed an external health and safety
consultancy to assist us with a number of Group initiatives.
The new three year plan also covers the actions necessary for the
Company to deal with the UK Government’s Climate Change Levy
(“CCL”). We have appointed external energy experts to assist over
the next three years in the management of the CCL and our planned
CO2 emission reduction in order to reduce our levy exposure and
achieve our CSR objective. The scope of the work has necessitated
the establishment of a Group Energy Committee which meets four
times a year to review strategy, policy, indentify key drivers, training
and awareness requirements and monitor performance against stated
targets. Other actions include the sharing of information on energy
usage and management, using the Group’s intranet site.
• Standards - the use of a standards register by all our operations,
covering an A-Z of key risks.
• Reporting - refinement of current reporting of raw data and
management information.
• Communication - development of regular health and safety forums
for our safety personnel, training and sharing of information,
including a safety alert system for the intranet.
• Procurement - a sharing of information to facilitate economics of
scale for materials and services.
Waste Reduction
Having assessed the need for an overall strategy we have left in place
the individual local management policies and initiatives as the Group’s
diverse geographical and product activities generate the need for
local solutions to the issues of waste generation and recycling. We are
however, evaluating the recycling of materials (cardboard, paper and
plastic) compared to the quantity sent to landfill sites.
At our UK lighting column manufacturer (Mallatite Ltd) based in
Chesterfield, we have implemented a “Whole Life Cycle” policy with
the emphasis on a product development programme to reduce waste
and cost. This product development programme is aimed at reducing
the economic production cost and whole life carbon cost. The
initiative is a direct result of Mallatite’s achievements in obtaining
ISO9001, ISO14001 and OHSAS18001 accreditation.
Vehicle Fleet
We continue to manage the fleet with the same focus upon existing
and the introduction of new initiatives that deliver lower energy
usage and reduced CO2 emissions. Since reporting the initiatives
undertaken in 2009 we have also commenced evaluation and trialling
of the use of hybrid vehicles for part of our commercial fleet.
Business in the Community
Throughout the Group our businesses continued their engagement
with local communities with involvement in a variety of different
projects and initiatives. Such projects range from support and
sponsorship given to local schools, charitable donations through
voluntary fund raising and inter-action with trade associations and
universities. Our businesses are actively encouraged to contribute to
their local communities.
20
Considerable progress was made during the year on the
implementation of these key actions and the programme has been
rolled forward into the current year. This key action programme has
been signed off by the Board who receive monthly updates on
progress. During the year the Board reviewed and re-issued its Group
Health and Safety Policy.
Underpinning the above is the UK’s rolling audit programme and
related weighted scoring benchmark management system that
enables us to monitor and set performance improvement. We are
continuing with our challenge of a 10% year on year reduction in the
number of accidents and have also set a target of a 20%
improvement in the overall average weighted scored performance
score arising from the UK audit programme.
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.
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
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 operating businesses, management
and employees on all matters affecting the welfare of the
business including regular senior management visits to operating
units.
The Group has policies and procedures in place to comply with
the appropriate requirements of the Data Protection Act.
Employee involvement and reward
Effective communication is encouraged within the Group through
the subsidiary company management, the Group’s website and
recently upgraded intranet site, along with the development of
centralised briefings and training programmes.
The Group encourages employee share ownership through the
2005 Employee ShareSave Scheme which currently has 405
employees participating, many contributing at the maximum
permitted contribution level.
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 Group provide a range of training and development
opportunities to employees, including:
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. At the Head Office of the Group
we held twelve training courses ranging from personal
development to major incident management.
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 review and where
appropriate, improvement, in health and safety performance.
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 Forum meetings.
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 has
been reviewed with the assistance of external advice and through
the internal audit function actions taken to improve
communication, understanding and implementation.
In tandem with the above review we issued an Anti-Corruption
Policy and pending the outcome of further deliberations by the
UK Government on the full implementation of the Bribery Act
2010, we have developed supporting policies on Gifts and
Entertainment and Dealings with Third Parties.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Corporate Social Responsibility
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. The Whistleblowing Policy and
Procedure was reviewed during the year and re-issued.
Supply chain
Our policy on the management of human rights, working conditions
and the environment in relation to the supply chain, is 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 wherever practicable comply with the
following requirements:
• compliance with appropriate legislation;
• compliance with the Group’s Code of Business Operation;
• provision of a safe and competent workforce employed in
accordance with industry best practice;
• acknowledgement of our Anti-Corruption policy;
• 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.
We continue to monitor compliance and the actions taken by
subsidiaries to improve the standards laid down.
22
Priorities for 2011:
• Continuation of the development of our
KPIs and CSR reporting format.
•
Implementation of our new policies on Gifts
and Entertainment and Dealings with Third
Parties.
•
Implementation of a new three year plan for
energy, CO2 emissions and CCL management.
• Progression of waste management monitoring
and recycling.
• Achievement of 10% annual reduction in the
number of accidents.
•
Improvement of 20% in the overall average
weighted scored performance arising from
the UK health and safety audit programme.
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
Pipe Supports constant effort supports installed on a hydrogen reformer in Spain.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Board of Directors
Pictured from left to right:
J F Lennox
M Pegler
D W Muir
W H Whiteley
C J Snowdon
Committees
Audit Committee
Remuneration Committee
Messrs Lennox (Chairman), Snowdon
and Whiteley
Messrs Snowdon (Chairman), Lennox
and Whiteley
Nominations Committee
Messrs Whiteley (Chairman), Lennox,
Muir and Snowdon
Company Secretary
J C Humphreys FCIS
24
Directors’ Biographies Governance
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
10
W H Whiteley BSc, FCMA
Chairman and Non-Executive
J F Lennox CA
Non-Executive
Bill, aged 62, 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.
Jock, aged 54, joined the Board in May 2009. He is
a Non-Executive Director of A&J Mucklow Group
plc, EnQuest plc and Oxford Instruments plc. He is
a member of the Advisory Board of Alchemy and
on the Council of the Institute of Chartered
Accountants of Scotland. 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.
C J Snowdon BA, FCA
Non-Executive
Clive, aged 57, 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 and Chairman of the
Remuneration Committee.
D W Muir BSc, C Eng, MICE
Group Chief Executive
Derek, aged 50, joined the Board on 21 August
2006. He has been a senior manager within the Hill
& Smith Group for 23 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, FCA
Group Finance Director
Mark, aged 42, 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.
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25
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Directors’ Report
The Directors present their 50th Annual Report together with the Financial Statements for the year ended 31 December 2010.
Principal activities
During 2010 the principal activities of the Group comprised the manufacture and supply of:
Infrastructure Products
•
• Galvanizing Services
• Building and Construction Products
Pages 4 to 10 contain further details of these three areas of the business and the subsidiaries operating within them are set out on
pages 92 and 93.
Business review
A review of the development and performance of the business of the Group during the financial year ended 31 December 2010,
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 20 and 21).
Results
The Group profit before taxation for the year, from continuing operations, amounted to £35.3m (2009: £39.7m). Group revenue at
£374.2m was 4.0% lower than the prior year, mainly as a result of lower volumes and the disposal of a non-core business in December
2009. Operating profit at £39.6m (2009: £44.9m) was 11.8% below 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 and 56.
Dividends
The Directors recommend the payment of a final dividend of 7.5p per Ordinary Share (2009: 6.8p per Ordinary Share) which, together
with the interim dividend of 5.2p per Ordinary Share (2009: 4.7p per Ordinary Share) paid on 6 January 2011, makes a total distribution
for the year of 12.7p per Ordinary Share (2009: 11.5p per Ordinary Share). Subject to shareholders approving this recommendation at
the Annual General Meeting, the final dividend will be paid on 8 July 2011 to shareholders on the register at the close of business on
3 June 2011. The latest date for receipt of Dividend Re-investment Plan elections is 17 June 2011.
Post-balance sheet events
On the 8 March 2011 the Group entered into an agreement to acquire all the shares in a North American based group of companies,
The Paterson Group, Inc. and its related companies (together “TPG”), which will be classified in the Infrastructure Products segment.
Further details are contained in Note 25 on page 81.
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
The Company’s ordinary shares are listed on the Main Market
of the London Stock Exchange.
Class
Single class of ordinary shares of 25p each
New ordinary shares issued during the year
Employee share schemes
1995 Save As You Earn Scheme
2005 ShareSave Scheme
2005 Executive Share Option Scheme
Total new ordinary shares issued
778,325
3,579
30,646
812,550
Rights & Obligations
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 20 on page 73 and 74 of the Group Financial Statements.
26
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 2010 Annual General Meeting and will be limited by the Resolution to be put to the 2011
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 2011, 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
Charles Stanley Stockbrokers
Legal & General Assurance Group Plc and Legal & General Investment Management Limited
Brewin Dolphin Stockbrokers
BlackRock
Directors
The Directors who served during the year ended 31 December 2010 and to the current date are as follows:
Number of
Ordinary
Shares
% of Issued
Share Capital
6,270,636
5,685,405
4,136,126
3,975,625
2,705,941
2,400,324
8.15
7.39
5.38
5.17
3.52
3.12
Name
J F Lennox(*)
H C Marshall(*)
D W Muir
M Pegler
C J Snowdon(*)
W H Whiteley(*)
(*) Non-Executive Directors
Date of Appointment
12 May 2009
2 November 2000
21 August 2006
11 March 2008
11 May 2007
1 January 2010
Date of Resignation/
Retirement
7 May 2010
AGM Re-election
AGM Election
7 May 2010
7 May 2010
7 May 2010
Biographical details of the Directors are shown on page 25. Details of the Directors’ service contracts and letters of engagement are set
out in the Directors’ Remuneration Report on pages 39.
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 Directors retiring by rotation at the forthcoming Annual General Meeting are D W Muir and M Pegler who being eligible, offer
themselves for re-election. The Board recommends to shareholders the re-election of D W Muir and M Pegler.
Directors’ interests
The table below shows the beneficial interests as at the beginning of the year and as at 31 December 2010 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 and the 2005 ShareSave
Scheme, are not included in the table below but are shown in the Directors’ Remuneration Report on pages 40 and 41.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Directors’ Report
None of the Directors has a beneficial interest in the shares of any of the Company’s subsidiaries.
Current Directors
J F Lennox
D W Muir
M Pegler
C J Snowdon
W H Whiteley
Former Directors
H C Marshall (retired 7 May 2010)
Beneficial interest
in Ordinary Shares
at 1 Jan 2010
(or appointment date)
2,500
40,834
4,000
25,000
3,000
78,624
Change to
beneficial interest
–
45,151
5,000
8,930
8,350
Beneficial interest
in Ordinary Shares
at 31 Dec 2010
(or retirement date)
2,500
85,985
9,000
33,930
11,350
–
78,624
There were no changes in the beneficial interests of the Directors in the Company’s Ordinary Shares between 31 December 2010 and
the date of this report.
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 Board continues to operate the procedures adopted following the introduction of the statutory Directors’ duty to avoid conflicts of
interest and these procedures have operated effectively during the year. The Board 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 19 on pages 67 to 72.
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 Directors’ Remuneration Report on page 39.
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 £1.2m (2009: £0.7m) on research and development.
Political and charitable donations
Charitable donations amounting to £33,000 (2009: £35,000) were made in the year principally to local charities serving the
communities in which the Group operates. There were no political contributions.
Employment policies
Details of the Group’s Employment Policies are set out on pages 20 to 21.
28
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 72 days (2009: 75 days).
The Company’s average credit period was 39 days
(2009: 38 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.
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 Thursday 12 May 2011 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 90.
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 2011
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
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 35 to 41 provide a description of how
the main supporting principles of corporate governance have been applied within the Company during 2010.
The Board has noted and is aware of the recent changes in corporate governance; in particular the UK Corporate Governance Code
(which will apply to the 2011 financial year). The Board will seek to comply with the new code where it determines that to do so would
be beneficial to the Company and its stakeholders. In particular, the Board is aware of the recommendation that all directors of FTSE
350 companies should be subject to annual re-election. The Company is not a constituent member of the FTSE 350 and therefore does
not need to comply with this recommendation. However, the Board intends to fully consider, during the forthcoming year, whether
adoption of the recommendation would be beneficial to the long term governance of the Group as a whole.
You can find out more about our approach to corporate governance by accessing the following documents online at
www.hsholdings.com:
• Terms of Reference for the Audit, Remuneration and Nomination Committees
• Corporate Social Responsibility Policies (inc. Health & Safety)
• Business Operating Policy (Ethics)
• Whistleblowing Policy and Procedure
• Anti-Corruption Policy
Compliance with the Combined Code
In the opinion of the Directors, the Company has throughout 2010 complied with Section 1 of the 2008 FRC Combined Code on
Corporate Governance (the “Code”). This Corporate Governance Report together with the Directors’ Remuneration Report provides the
information shareholders need to evaluate how the Company has applied the principles of corporate governance.
Composition of the Board
As from 1 January 2010 the composition of the Board comprised four Non-Executive Directors (W H Whiteley, Chairman, H C Marshall,
Senior Independent Director, C J Snowdon and J F Lennox) and two Executive Directors (D W Muir and M Pegler). Following the
retirement of H C Marshall on 7 May 2010, the Board comprised three Non-Executive Directors.
The Board is fully satisfied that both C J Snowdon and J F Lennox are independent in character and judgement and that there are no
circumstances or relationships which are likely to affect their character and judgement. In relation to the size of the Company and the
Board, the Directors are satisfied that W H Whiteley’s membership of both the Audit and Remuneration Committees represents a
practical solution.
The Directors and the Board
Directors
Position
W H Whiteley
D W Muir
H C Marshall
M Pegler
C J Snowdon
J F Lennox
Chairman
Chief Executive
Non-Executive Director (retired 7 May 2010)
Finance Director
Non-Executive Director (Senior Independent Director)
Non-Executive Director
Biographical details of all the Directors are set out on page 25.
No of years on
the Board
Independent
(as determined
by the
Code/Board)
Audit
Committee
Nominations
Committee
Remuneration
Committee
1
4
9
3
3
1
Yes
No
No
No
Yes
Yes
Yes
No
Yes
No
Yes
Yes
Yes
Yes
Yes
No
Yes
Yes
Yes
No
Yes
No
Yes
Yes
There is a clear division of responsibilities between the Chairman and the Chief Executive. The Chairman is responsible for the
leadership and effective working of the Board and ensures that each Director, in particular the Non-Executive Directors, is able to make
an effective contribution to the Board. The Chief Executive is responsible for the management of the Company, implementing policies
and strategies determined by the Board.
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 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.
30
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 36 to 41 of the Directors’
Remuneration Report, which refers to Executive Directors’ service contracts and Non-Executive Directors’ letters of engagement.
Copies are available for inspection at the Company’s registered office and will be available for inspection at the forthcoming Annual
General Meeting to be held on 12 May 2011. 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.
D W Muir and M Pegler are the Directors retiring by rotation at the forthcoming Annual General Meeting of the Company and, being
eligible, offer themselves for re-election. The Board and the Nominations Committee support the re-election of both D W Muir and
M Pegler having assessed their performance, value to the Board and ability to continue to operate as Directors.
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.
The role of the Board and its effectiveness
The Board is responsible to the Company’s shareholders for:
• strategic direction
• financial performance and monitoring
• resource allocation
• risk management
• governance and internal controls
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
• accounting policies
• capital expenditure
• acquisitions
• disposals
• financing
• treasury
The Board adopts an annual timetable and agenda programme to ensure significant matters are given appropriate consideration and
sufficient time for debate. The Board normally meets between eight and 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 Board has formally delegated specific responsibilities to Board Committees, including the Audit, Remuneration and Nomination
Committees. The terms of reference for each of these Committees are available on the Company’s website or on request from the
Company Secretary. The Board also appoints Committees to approve specific projects or matters as deemed necessary.
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
J F Lennox
H C Marshall (retired May 2010)
D W Muir
M Pegler
C J Snowdon
W H Whiteley
PLC Board
(10 meetings)
Audit
Committee
(4 meetings)
Remuneration
Committee
(6 meetings)
Nominations
Committee
(0 meetings)
10
5
10
10
10
10
4
1
-
-
4
4
6
3
-
-
6
6
-
-
-
-
-
-
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Corporate Governance
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 three Non-Executive Directors against the
criteria set out in the Combined Code the Board considers all of
them to be independent. All three 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. The Board remain satisfied with W H
Whiteley’s membership of the Audit and Remuneration
Committees in terms of independence and practicality given the
size of the Board and its Committees.
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.
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 the individual Committee
Chairman and agrees any actions to be taken. An evaluation
exercise was undertaken in December 2010 of the Board, Audit
Committee and Remuneration Committee. Areas of improvement
to the effectiveness of the Board and its two main Committees
have been identified and individual plans for action in 2011 are
being finalised.
Committees of the Board
The Board has three Committees, as follows:
Audit Committee
The Audit Committee consists of three Non-Executive Directors
and is chaired by J F Lennox. Executive Directors are invited to
attend as necessary. In view of the current number of members
and size of the Company, the Directors are satisfied with W H
Whiteley’s appointment to the Committee.
The objectives of the Audit Committee have been confirmed in its
terms of reference as:
• ensuring the integrity of the Group’s Financial Statements;
• reviewing and monitoring the Group’s internal control
systems;
• overseeing the effectiveness of the Group’s internal audit
activity;
• overseeing the Group’s relationship with its external auditors;
• ensuring that Group reporting complies in all respects with
relevant statutory and required financial reporting standards,
including corporate governance disclosures; and
• reviewing the Group’s risk management.
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. The
Committee met four times in the year (three in 2009). During the
year the Committee commissioned an external report on the level
of risk assurance and this is currently under consideration by the
Board for development of an action programme in 2011.
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. During the year, the Committee Chairman has
carried out an evaluation of the Company’s external auditor
KPMG Audit Plc, and reviewed the effectiveness. The review
concluded that the external auditors were performing their
functions effectively and the Committee recommended to the
Board that they be re-appointed.
Policies concerning the employment of former employees of the
external auditor and the use of the external auditor to perform
non-audit services have been adopted.
In regard to the latter, the Committee believes that there are
certain non-audit services where it is cost effective for the
external auditor to be used. These primarily include merger and
acquisition due diligence work and 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. Previously the Company and
Pension Trustees had engaged KPMG Pensions to act as actuary
and administrator of its defined benefits and defined contribution
pension arrangements. Towards the end of the year the
Company and the Trustees of the Hill & Smith Pension Scheme
reviewed and competitively tendered the actuarial and
administration services provided to the defined benefits section
32
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
of the Group’s pension arrangements. A decision has been taken
to appoint Deloitte LLP Pensions to act as actuary and
administrator, with effect from April 2011, in place of KPMG
Pensions. The Legal & General have been appointed as
administrators of the defined contribution pension arrangements.
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.
The Board has an approved standard engagement letter for
Non-Executive appointments to the Board, including expected
time commitments, a fee structure and a programme for the
induction of new Directors.
The Committee did not have cause to meet formally during the
year but held informal discussions on matters relating to the
Board and Committee evaluation exercise undertaken in
December 2010.
Remuneration Committee
The membership of the Remuneration Committee comprises
three Non-Executive Directors and is chaired by C J Snowdon and
D W Muir is invited to attend meetings as necessary.
Under its terms of reference, the Remuneration Committee is
responsible for:
• 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;
• 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;
• assessing how the Company should comply with established
best practice in Directors’ remuneration.
The Terms of Reference for the Committee were reviewed during
the year. The Committee met six times in the year (five times
in 2009).
Full details of the role, policies and activities of the Remuneration
Committee are set out in the Directors’ Remuneration Report on
pages 35 to 41.
Nominations Committee
The Nominations Committee comprises the 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:
• ensuring that the size and composition of the Board is
appropriate for the needs of the Group;
• selecting the most suitable candidate or candidates for
appointment to the Board;
• overseeing succession planning for the Board.
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.
Risk Management Process
In common with other international businesses, the Group is
exposed to a number of potential risks which may have a material
effect on its reputation and financial or operational performance
including product liability, credit risk, reliance on customers’
commitments and other usual commercial risks. We have a wide
portfolio of products and operate in a number of market sectors.
It is not possible to identify or anticipate every risk that may affect
us, or the materiality of that risk. However, there are established
control procedures in place to manage such risks, including
production quality control, management and financial control
procedures and insurance with reliable insurers, which are
considered appropriate to the risk involved and the marketplace
in which the exposure arises. The Board has overall responsibility
for risk management and internal controls, supported by the
Audit Committee.
There is an embedded process for monitoring and managing risks
through the cycle of monthly financial and operational reporting
procedures and meetings which are attended by the Group Chief
Executive and Group Finance Director. These reporting
procedures and meetings, couple to the systems of internal,
control are designed to identify and assess the significant risks
which the Group faces and to manage them appropriately.
Group internal controls are reviewed through a series of internal
audits in line with an annual plan approved by the Audit
Committee. After each site visit, a report is prepared and
presented to the local entity and divisional management and to
Audit Committee.
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
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33
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Corporate Governance
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:
• 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;
• Group guidance and policy documentation for the preparation
of financial and management information;
• monitoring of the financial performance of operating
companies and divisions through analysis of regular financial
and management reports;
• continuous direct contact with operating companies and
divisional management and attendance at monthly subsidiary
board meetings;
• consolidated reports and independent commentaries are
prepared and submitted to the Board for review at formal
monthly Board meetings;
• 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;
• clearly defined policies and controls for capital expenditure
that include annual budgets, appraisal and review procedures;
• 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;
• programming internal audit work to take account of the risk
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. During the year the performance of the internal
audit function was reviewed as part of the report commissioned
by the Audit Committee on risk assurance.
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.
34
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.
The policy was reviewed and updated in October 2010.
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.
The Treasury 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 19 on pages 67 to
72 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
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 the
resolutions at the forthcoming Annual General Meeting.
In January 2011 the Remuneration Committee consulted with
major shareholders on the proposed amendments to the
performance criteria for Executive Director’s Annual Bonus and
the 2007 Long Term Incentive Plan.
Further details are contained in the Directors’ Remuneration
Report on page 36 to 41.
Directors’ Remuneration Report
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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.
Key activities during the year
During the year the Committee:
• reviewed the remuneration policy and determined the
appropriate individual remuneration packages of Executive
Directors and certain other agreed Senior Executives;
As required, a resolution to approve the report will be proposed
at the Annual General Meeting on 12 May 2011.
• determined the fees for the Chairman;
• determined final annual bonus payments for Executive
PART 1 – (Not subject to Audit)
Remuneration Committee (the “Committee”)
Membership
The members of the Committee during the year were C J
Snowdon (Chairman), J F Lennox, H C Marshall (retired 7 May
2010) and W H Whiteley. 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. In view of the size of the
Company the Board is satisfied with W H Whiteley’s appointment
to the Remuneration Committee.
Meetings
The Committee met six 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
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 33 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). These terms of reference were reviewed
during the year.
The responsibilities of the Committee include:
• reviewing and recommending the remuneration policy for
Executive Directors and certain other agreed Senior Executives,
for the Board to approve;
• within this policy, agreeing the individual remuneration
packages;
• approving the design of, and determining targets for, any
Directors and certain other agreed Senior Executives for the
2009 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);
• considered and approved the vesting of awards made in 2007
under the Company’s 2007 Long Term Incentive Plan, for the
Chief Executive and one Senior Executive;
• approved the Directors’ Remuneration Report which was
included in the 2009 Annual Report;
• reviewed the level of incentive and performance criteria for
the 2011 bonus arrangements for the Executive Directors;
• reviewed the performance criteria for future awards under the
Company’s 2007 Long Term Incentive Plan.
Advisers
To the extent required the Committee used the external services
of Deloitte LLP as its principal external adviser during 2010 on
matters relating to performance related pay and vesting of
awards made under the Company’s Long Term Incentive Plan.
Separately during the year Deloitte LLP also provided ongoing
taxation advice and other non-audit services to the Company.
The Chief Executive also gave advice and recommendations 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.
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;
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:
• 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;
• 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.
• total rewards should be set to be fair and attractive;
• appropriate elements of the remuneration package should be
designed to reinforce the link between performance and
reward.
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.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Directors’ Remuneration Report
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. Such a review, undertaken during the year, resulted in revised performance criteria for future Executive
Director bonus and LTIP awards as set out on pages 37 to 38. Consultation with major shareholders, the ABI and RREV, on these new
arrangements was undertaken by the Committee.
Summary of Executive Directors’ remuneration arrangements
Component
Purpose
Application
Delivery/Criteria
Base salary
Market competitive
Reflect skills and
experience
Performance
related bonus
Incentivise the
attainment of
corporate targets
Payable monthly
Pensionable and
used for pension
contributions
Paid annually
Non-pensionable
External benchmarking review of appropriate salary levels and
review of performance, experience and related factors.
Based on a combination of Underlying Profit Before Tax
performance and UEPS* growth over one financial year.
Maximum bonus opportunity for both Chief Executive and
Finance Director is 100% of base salary.
2007 Long
Term Incentive
Plan (LTIP)
Incentivise growth in
earnings per share
over a three year
period
Discretionary annual
grant of conditional
share awards
Maximum award is
100% of salary
Non-pensionable
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 TSR growth relative to the FTSE SmallCap.
Pension
Provision of
competitive post-
retirement benefits
Chief Executive
– Hill & Smith
Executive
Pension Scheme
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).
Finance Director
– Pension
contribution
A contribution of 25% of base salary to a private pension
arrangement.
Notes: UEPS (Underlying Earnings Per Share)
See page 37 for details of ‘Other Benefits’ provided.
36
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 considered by the Committee to
be appropriate and in line with the policy on incentivisation.
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.
A 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.
Performance related remuneration
Cash bonus
Executive Directors are eligible for an annual performance related
cash bonus. The Committee is committed to only paying
maximum bonuses in circumstances where stretching
performance targets have been satisfied. For the financial year
2010 the cash bonus arrangements are based upon achievement
of growth in the UEPS. For 2011 however, the Committee
decided, after consultation with major shareholders, to introduce
a new metric of underlying profit before tax to provide a more
appropriate balance of incentive between before and after tax
profit. Accordingly, effective from 1 January 2011 the basis for
the payment of any bonus is determined by reference to a
combination of achievement of levels of underlying profit before
tax and in the growth of the underlying earnings per share over
one financial year of the Company. The weighting between the
two performance measures of profit achievement and UEPS
growth, for the 2011 financial year, is as follows:
• 70% of the bonus judged against achievement of underlying
profit before tax
• 30% of the bonus judged against achievement of underlying
earnings per share growth
For 2012 and subsequent financial years the weighting will move
to 50% for underlying profit before tax achievement and 50%
for underlying earnings per share growth.
Following this comprehensive exercise the Committee did not
carry out a further benchmarking exercise for the 1 January 2010
salary review. Awards were made of a 6.7% salary increase for
the Chief Executive and a 6.25% increase for the Finance
Director. In making these awards the Committee took into
account the factors of performance in a challenging economic
climate, management of the Company’s net debt and the
additional experience gained in developing an international
Group.
Bonuses are subject to a clawback provision for material errors or
the misstatement of results or information coming to light, which
had it been known, would have affected the award decision. The
bonus arrangement does not have any deferred element and
bonus payments are not pensionable.
For the financial year ended 31 December 2010 the Bonus
arrangements are determined by reference to the growth in UEPS
only.
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 41 gives details of the changes in the
value of D W Muir’s accrued pensions during 2010.
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.
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.
Awards to the Chief Executive and Finance Director were made
on 31 March 2010. The value of the shares subject to the award
was equal to 100% of the Chief Executive’s salary and 100% of
the Finance Director’s salary.
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37
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Directors’ Remuneration Report
For awards made prior to 1 January 2011 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.
The Committee has recently reviewed the performance conditions and, after consultation with major shareholders, made certain
minor changes for any awards made from 1 January 2011. These minor changes comprise more appropriate “target” and “stretch”
performance figures for that half of the award dependent upon absolute growth in UEPS and a move away from the FTSE All Share
EPS growth measure to one based upon TSR for the relative growth measure. Both changes are seen by the Committee as more
appropriate in the current economic climate and avoid any practical difficulties in compiling the FTSE All Share EPS comparator.
For current outstanding awards, half is based on the Company’s absolute UEPS performance against prescribed targets which are
determined by the Committee at the time each award is granted. The Committee set a target 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 target and
stretch points of 20% and 45% respectively. These measures continue to apply to all current outstanding awards.
For any awards made as from 1 January 2011 the absolute UEPS growth measures (i.e. target and stretch) will be amended to:
• 10% plus RPI (in substitution of 20% “target”)
• 25% plus RPI (in substitution of 45% “stretch”)
Straight line vesting will continue to apply between these two points.
The Committee believes that the new absolute UEPS targets are appropriate to incentivise the Executive Directors to develop the UEPS
in line with the business plan.
For current outstanding awards, the remaining half 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). However, for awards made after 1 January 2011 the
relative growth measure will be based upon TSR for the Company compared to that for the FTSE SmallCap and not UEPS. The ranking
of the Company’s UEPS or TSR performance over the performance period determines the vesting for this proportion of the award, as
per the vesting schedule shown in the table below:
For Awards made prior to 1 Jan 2011
For Awards made after Jan 2011
UEPS performance of the Company compared to EPS of FTSE All-Share index
Below median
Between median and upper quartile
Between upper quartile and 100th percentile
Vesting
Percentage
0%
50%
100%
TSR performance compared to the FTSE SmallCap TSR performance
Below median
At the median
At the upper quartile
Vesting
Percentage
0%
30%
100%
No straight line vesting between the median and upper quartile
Between the median and upper quartile on a straight line basis
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 either
the FTSE All-Share index or as from 1 January 2011 the TSR for the FTSE SmallCap.
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.
Further details of subsisting awards to Executive Directors are shown in the table on page 40.
Vesting of LTIP in 2010 for awards made in 2007
In March 2010 the Committee considered the performance conditions applicable to the initial awards under the 2007 Long Term
Incentive Plan, made in 2007, and approved full vesting of the awards as a result of achievement of both the absolute (50% of the
awards) and relative (remaining 50% of the awards) UEPS growth performance conditions which allow full vesting. As a result
D W Muir was issued with 67,791 shares and received a payment of £15,863 (to which PAYE and NIC was applied) in respect of the
dividends due on the shares as from the date of the award.
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 9%, over the same period.
38
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
No awards were made to Executive Directors under this scheme
in 2010. For options outstanding under the 2005 Executive Share
Option Scheme see the table on page 41.
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.
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 20% below the market price.
Executive Directors participated in the scheme in 2010 and details
are contained in the table on page 41 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 is the preference of the Board
to satisfy awards through the market purchase of shares rather
than the issue and allotment 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.
Current service agreements as at the date of this Report:
Executive Director
Date of Service Contract
D W Muir
M Pegler
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
Apart from the above, there are no special provisions in the
Executive Directors’ service contracts for compensation for loss of
office.
Shareholding guidelines
The Committee has established a shareholding guideline for the
2007 Long Term Incentive Plan under which it is expected that
Executive Directors retain half of any shares which vest for awards
made from 2008 onwards, and for awards made from 1 January
2011, as much of their shares that vest until they reach 100% of
their salary as equivalent shareholding.
Policy on external appointments
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.
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.
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 graphs shows the TSR performance of the
Company over the five year period to 1 January 2011 compared
against the FTSE All-Share Index and FTSE Small Cap Index.
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39
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Directors’ Remuneration Report
Hill & Smith vs FTSE All Share (ex Investment Trust)
Hill & Smith vs FTSE Small Cap (ex Investment Trust)
250
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Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
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Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Hill & Smith
FTSE All Share (ex. Inv. Trusts)
Hill & Smith
FTSE Small Cap (ex. Inv. Trusts)
PART 2 – (Subject to Audit)
Directors’ emoluments in 2010
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 2010 was £1.0m (2009: £1.5m). The
remuneration of individual Directors is set out below.
Performance
Related
Bonus
£000
Value of
benefits
£000
Directors
D W Muir
M Pegler
J F Lennox
C J Snowdon
W H Whiteley
Former Directors
H C Marshall (retired 7 May 2010)
R E Richardson (retired 12 May 2009)
D L Grove (retired 31 December 2009)
Total
Salary/fees
£000
400
255
44
43
120
18
880
54
34
–
–
–
–
88
Total
2010
£000
509
307
44
43
120
55*
18
–
–
–
–
18
Total
2009
£000
750
481
23
41
42
18
130
73
1,041
1,485
* A total of £31,000 was paid to D W Muir in the form of subsistence which is subject to PAYE and NIC deduction.
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 2010, in shares that are the subject of awards under the LTIP are shown below:
Executive Director
Award Date
number of shares
At 1 Jan 2010
Awarded in 2010
number of shares
Vested in 2010
At 31 Dec 2010
numberof shares
number of shares
D W Muir
Total D W Muir
M Pegler
Total M Pegler
02 Jul 2007*
14 Mar 2008†
25 Mar 2009‡
31 Mar 2010§
14 Mar 2008†
25 Mar 2009‡
31 Mar 2010§
67,791
99,849
75,000
242,640
60,514
75,000
135,514
117,879
117,879
75,148
75,148
67,791
67,791
–
99,849
75,000
117,879
292,728
60,514
75,000
75,148
–
210,662
Performance
period
3 years from
1 Jan 2007
1 Jan 2008
1 Jan 2009
1 Jan 2010
Vesting date
1 Jan 2010
1 Jan 2011
1 Jan 2012
1 Jan 2013
1 Jan 2008
1 Jan 2009
1 Jan 2010
1 Jan 2011
1 Jan 2012
1 Jan 2013
* The share price as calculated on 2 July 2007 in accordance with the LTIP rules was 369p.
† 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.
§ The share price as calculated on 31 March 2010 in accordance with the LTIP rules was 339p.
40
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Share options
The interests of Directors, and of former Directors who served during 2010, in options to subscribe for Ordinary Shares in the Company,
which include options granted under the 2005 Executive Share Option Plan and the 2005 ShareSave Scheme, together with options
granted and exercised during 2010, are included in the following table:
At 1 Jan 2010
number of shares
Grant price
Granted in 2010
number of shares
Exercised in 2010
numberof shares
At 31 Dec 2010
Dates from
number of shares
which exercisable
Latest
expiry date
D W Muir
2005 Exec Share Option Plan
2005 ShareSave Scheme
1995 SAYE Scheme
M Pegler
2005 ShareSave Scheme
78,114
1,328
12,360
205p
318p
100p
78,114
1,328
4 Oct 2008 4 Oct 2015
1 Jul 2013
1 Jan 2013
1 Jul 2010
1 Jan 2010
12,360
3,902
246p
3,902
1 Dec 2011 1 Jun 2012
Apart from the LTIP awards made to D W Muir and M Pegler on 31 March 2010 no further options or awards were made to Directors.
During 2010, the mid market price of Ordinary Shares in the Company ranged from 235p to 377p. The mid market price of an Ordinary
Share on 31 December 2010 was 308p.
Pensions
Defined benefits earned by Directors
Age at period end
Accrued benefit at 31 December 2010
Increase in accrued benefits
Decrease in accrued benefits (after allowing for inflation)
Transfer value of accrued benefits at 1 January 2010
Transfer value of accrued benefits at 31 December 2010
D W Muir
50
£117,155 pa
£3,154 pa
£2,318 pa
£1,425,140
£1,597,601
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 2010 has been calculated on the basis set by the Trustees of the Hill & Smith Executive Pension
Scheme having taken actuarial advice.
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 £63,750 to M Pegler’s private pension arrangement in 2010.
Transactions with Directors
There were no material transactions between the Company and the Directors during 2010.
Clive Snowdon
Chairman, Remuneration Committee
9 March 2011
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41
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
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:
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).
• 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 2011
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:
• select suitable accounting policies and then apply them
consistently;
• make judgements and estimates that are reasonable and
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; and
• 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
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Opinion on other matters prescribed by the Companies Act
2006
In our opinion:
• 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 33 and 34 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.
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:
• 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
• we have not received all the information and explanations we
require for our audit; or
• a Corporate Governance Statement has not been prepared by
the Company.
Under the Listing Rules we are required to review:
• the Directors’ Statement, set out on page 29, in relation to
going concern; and
• the part of the Corporate Governance Report beginning on
page 30 relating to the Company’s compliance with the nine
provisions of the June 2008 Combined Code specified for our
review.
• certain elements of the report to shareholders by the Board on
Directors’ Remuneration.
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 2011
Independent Auditor’s Report
to the members of Hill & Smith Holdings PLC
We have audited the Financial Statements of Hill & Smith
Holdings PLC for the year ended 31 December 2010 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).
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, and express an opinion on, 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/private.cfm.
Opinion on Financial Statements
In our opinion:
• 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 2010 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.
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43
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Consolidated Income Statement
Year ended 31 December 2010
Revenue
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
Attributable to:
Equity holders of the parent
Minority interest
Profit for the year
Basic earnings per share
Diluted earnings per share
Dividend per share – Interim
Dividend per share – Final proposed
Total
2010
Non-
Underlying*
£m
Underlying
£m
Total
£m
Underlying
£m
2009
Non-
Underlying*
£m
Total
£m
374.2
–
374.2
389.7
–
389.7
Notes
1,2
(1.0)
(0.9)
(4.4)
–
–
(6.3)
3.4
(4.0)
(6.9)
1.5
(5.4)
45.9
–
–
–
–
45.9
0.6
(4.3)
42.2
(12.2)
30.0
39.0p
47.0
–
–
–
–
47.0
0.7
(5.5)
42.2
(13.2)
29.0
38.3p
44.9
(0.9)
(4.4)
–
–
39.6
4.0
(8.3)
35.3
(10.7)
24.6
24.6
–
24.6
32.0p
31.7p
5.2p
7.5p
12.7p
(0.5)
(0.9)
(1.8)
1.0
0.1
(2.1)
3.4
(3.8)
(2.5)
1.0
(1.5)
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
36.3p
35.9p
4.7p
6.8p
11.5p
6
3
3
3
1,2
5
5
7
8
8
9
9
9
* Non-Underlying items represent business reorganisation costs, acquisition related expenses, 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
Consolidated Statement of Comprehensive Income
Year ended 31 December 2010
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 gain/(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
22
7
2010
£m
24.6
0.3
1.1
(0.3)
–
–
4.6
(1.4)
4.3
28.9
28.9
–
28.9
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
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45
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Consolidated Balance Sheet
As at 31 December 2010
Non-current assets
Intangible assets
Property, plant and equipment
Other receivables
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other liabilities
Current tax liabilities
Provisions for liabilities and charges
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
Total equity
Approved by the Board of Directors on 9 March 2011 and signed on its behalf by:
Notes
2010
£m
2009
£m
10
11
14
13
14
15
1
16
18
16
17
18
12
22
17
1
1
20
109.7
102.9
–
212.6
46.4
74.9
27.0
148.3
360.9
(72.2)
(7.6)
(0.8)
(27.0)
109.8
105.1
1.1
216.0
43.8
76.8
41.1
161.7
377.7
(74.7)
(8.3)
–
(31.2)
(107.6)
(114.2)
40.7
47.5
(0.2)
(3.6)
(15.9)
(10.9)
(70.6)
(101.2)
(208.8)
152.1
19.2
29.1
4.5
6.6
(0.9)
93.6
(0.2)
(5.0)
(12.7)
(16.7)
(97.5)
(132.1)
(246.3)
131.4
19.0
28.5
4.5
5.2
(0.6)
74.8
152.1
131.4
D W Muir
Director
M Pegler
Director
46
Consolidated Statement of Changes in Equity
Year ended 31 December 2010
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Notes
Share
capital
£m
18.9
–
Share
premium
£m
27.9
–
Other
reserves†
£m
4.5
–
Hedge
reserve
£m
Retained
earnings
£m
At 1 January 2009
Profit for the year
Other 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
At 31 December 2009
Profit for the year
Other comprehensive
income for the year
Dividends
Credit to equity of share-
based payments
Satisfaction of long term
incentive plan
Shares issued
At 31 December 2010
9
20
7
20
9
20
20
20
–
–
–
–
–
0.1
19.0
–
–
–
–
–
0.2
19.2
–
–
–
–
–
0.6
28.5
–
–
–
–
–
0.6
29.1
Translation
reserves
£m
9.2
–
(4.0)
–
–
–
–
–
5.2
–
1.4
–
–
–
–
–
–
–
–
–
–
4.5
–
–
–
–
–
–
–
–
(0.6)
–
–
–
–
–
(0.6)
–
(0.3)
–
–
–
–
57.7
27.5
(3.9)
(7.5)
–
0.5
0.5
–
74.8
24.6
3.2
(8.8)
0.2
(0.4)
–
93.6
4.5
6.6
(0.9)
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2009: £0.2m) capital redemption reserve.
Minority
interest
£m
2.1
–
(0.3)
–
(1.8)
–
–
–
–
–
–
–
–
–
–
–
Total
equity
£m
120.3
27.5
(8.8)
(7.5)
(1.8)
0.5
0.5
0.7
131.4
24.6
4.3
(8.8)
0.2
(0.4)
0.8
152.1
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47
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Consolidated Statement of Cash Flows
Year ended 31 December 2010
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payments
Loss on disposal of subsidiaries
Gain on disposal of available for sale financial assets
Loss/(gain) on disposal of non-current assets
Depreciation
Amortisation of intangible assets
Impairment of non-current assets
Operating cash flow before movement in working capital
(Increase)/decrease in inventories
Decrease in receivables
Decrease 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
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
(Payment)/refund in respect of acquisitions of subsidiaries
Net cash used in investing activities
Issue of new shares
Purchase of shares for the employee benefit trust
Dividends paid
New loans raised
Repayment of loans
Repayment of obligations under finance leases
Net cash used in financing activities
Net (decrease)/increase in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
2010
Notes
£m
0.2
–
–
0.1
12.9
2.1
0.4
(3.2)
2.8
(0.9)
(2.3)
0.7
0.9
(13.5)
(1.3)
–
–
0.3
(0.2)
0.8
(0.4)
(8.8)
14.0
(41.0)
(4.0)
5
1,2
4,20
3
3
6
6,11
6,10
6,10,11
3
3
10
20
9
15
£m
35.3
4.3
39.6
15.7
55.3
(3.6)
51.7
(9.4)
(4.1)
38.2
2009
£m
£m
39.7
5.2
44.9
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
15.5
60.4
10.6
71.0
(9.6)
(4.4)
57.0
(13.1)
(2.0)
0.7
–
(7.5)
16.2
(43.2)
(4.9)
(39.4)
(14.3)
41.1
0.2
27.0
(38.7)
16.3
25.9
(1.1)
41.1
48
Group Accounting Policies
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 82 to 89.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group
Financial Statements.
Judgements 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 23.
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 9. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are
described in the Business Review on pages 7 and 8. In addition, Note 19 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 2010
In 2010 the following standards had been endorsed by the EU, became effective and therefore were adopted by the Group:
IFRS3 (Revised) – Business Combinations
IAS27 (Revised) – Consolidated and separate Financial Statements
•
•
• Amendment to IFRS2 – Group cash settled share-based payment transactions
•
• Annual Improvement Projects to IFRS’s
IFRIC16 – Hedges of a net investment in a Foreign Operation
The Annual Improvement Project to IFRS’s provides a vehicle for making non-urgent but necessary amendments to IFRS’s. Amendments
to a number of standards have been adopted.
The adoption of IFRS3 (Revised) - Business Combinations has resulted in a total of £1.0m being expensed in the Consolidated Income
Statement which would previously have been capitalised as part of the investment cost when business acquisitions are completed. The
impact has been included as a Non-Underlying item in the Consolidated Income Statement. The revised standard is only applicable
prospectively for acquisitions after 1 January 2010.
The adoption of the other standards, amendments and interpretations has not had a material impact on the Group’s Financial
Statements.
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49
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
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:
IAS24 (Revised) – Related Party Transactions (effective for annual periods beginning on or after 1 January 2011)
•
• Amendments to IFRIC14 – Prepayments of a minimum funding requirement (effective for annual periods beginning on or after
1 January 2011)
IFRIC19 – Extinguishing Financial Liabilities with Equity Insurers (effective for annual periods beginning on or after 1 July 2010)
•
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
IFRS3 has been revised and acquisition costs cannot be capitalised for investments made on or after 1 January 2010, acquisitions prior
to this date have had these costs included with the purchase consideration and as such the goodwill on acquisition of subsidiaries
comprises the excess of this fair value of the purchase consideration 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.
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
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.
50
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Financial instruments
Financial assets and liabilities are recognised on the Group’s Balance Sheet when the Group becomes 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:
• 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.
• 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.
• 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.
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.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Group Accounting Policies
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 = EUR)
Sterling to US Dollar (£1 = USD)
Sterling to Thai Bhat (£1 = THB)
Sterling to Yuan (£1 = CNY)
2010
2009
Average
Closing
Average
Closing
1.17
1.54
48.83
10.43
1.17
1.57
47.00
10.32
1.12
1.57
53.72
10.72
1.13
1.61
53.87
11.02
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.
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.
52
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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.
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.
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53
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Group Accounting Policies
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.
54
Notes to the Consolidated Financial Statements
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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. A description of the activities of each segment is included in the Business Review on pages 4 to 6 and page 10.
Income Statement
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
2010
2009
Revenue
£m
Result
£m
result*
£m
Revenue
£m
Result
£m
Underlying
Underlying
result*
£m
190.5
115.4
68.3
374.2
202.5
113.2
74.0
389.7
18.2
23.7
(2.3)
39.6
(4.3)
35.3
(10.7)
24.6
19.6
25.0
1.3
45.9
(3.7)
42.2
(12.2)
30.0
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
* 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, who is the Chief Executive. The Result columns are included as additional information.
Infrastructure Products provided £0.2m (2009: £0.7m) revenues to Building and Construction Products. Galvanizing Services provided
£6.2m (2009: £4.8m) revenues to Infrastructure Products and £1.7m (2009: £1.8m) revenues to Building and Construction Products.
Building and Construction Products provided £0.8m (2009: £0.5m) revenues to Infrastructure Products. These internal revenues, along
with revenues generated from within their own segments, have been eliminated on consolidation.
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
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total Group
Property, plant and equipment (Note 11)
Intangible assets (Note 10)
Total Group
2010
2009
Total
assets
£m
Total
liabilities
£m
Total
assets
£m
Total
liabilities
£m
101.3
195.9
36.7
333.9
–
–
27.0
360.9
(28.1)
(26.5)
(19.6)
(74.2)
(23.5)
(13.5)
(97.6)
(208.8)
152.1
109.7
193.2
33.7
336.6
–
–
41.1
377.7
(35.4)
(24.6)
(14.9)
(74.9)
(21.0)
(21.7)
(128.7)
(246.3)
131.4
2010
2009
Impairment
losses,
amortisation
and
depreciation
£m
Capital
expenditure
£m
Impairment
losses,
amortisation
and
depreciation
£m
Capital
expenditure
£m
6.6
6.2
0.4
13.2
11.9
1.3
13.2
7.1
6.3
2.0
15.4
13.3
2.1
15.4
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
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55
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
1. Segmental information continued
Geographical 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 geographic location.
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
(Loss)/profit on sale of non-current assets
Other operating income
Operating profit
56
2010
£m
2009
£m
207.9
85.9
61.0
5.9
6.3
7.2
374.2
207.5
93.8
59.0
12.3
9.5
7.6
389.7
2010
£m
2009
£m
162.8
92.3
96.4
9.4
360.9
189.0
93.3
87.6
7.8
377.7
2010
£m
3.9
5.3
3.7
0.3
2009
£m
7.3
2.0
3.9
0.5
13.2
13.7
2010
£m
2009
£m
374.2
(248.1)
126.1
(20.2)
(66.9)
(0.1)
0.7
39.6
389.7
(262.0)
127.7
(20.0)
(63.5)
0.1
0.6
44.9
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
3. Non-Underlying items
Non-Underlying items included in operating profit comprise the following:
• Business reorganisation costs of £5.7m (2009: £1.2m), principally relating to the closure of three manufacturing plants, two in the
UK and one in the USA, and other redundancy costs. Included is an asset impairment charge of £0.4m.
• Release of environmental provisions of £1.3m (2009: £nil). A review of environmental issues and provisions principally relating to the
2007 acquisition of Zinkinvent GmbH identified that the Group was carrying provisions for potential issues which have either been
remedied or for which spend is expected to be lower than that originally provided for.
• Amortisation of acquired intangible fixed assets of £0.9m (2009: £0.9m).
• Acquisition related expenses of £1.0m (2009: £nil), which prior to revisions to IFRS3, adopted for the first time in 2010, would have
been capitalised upon the successful acquisition of the target investment.
Non-Underlying items in 2009 also include asset impairments of £0.5m, a gain of £0.1m on the sale of land, a gain of £1.0m on
disposal of available for sale financial assets, which realised net cash of £4.9m and a loss of £0.6m on disposal of Ash & Lacy
Perforators Limited, which realised net cash of £0.7m.
Amounts included within financial income and expense represent the net financing return on pension obligations of £0.6m
(2009: £0.5m).
4. 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
2010
2009
1,297
1,254
497
3,048
1,316
1,294
622
3,232
£m
£m
73.7
0.2
13.1
2.3
89.3
76.6
0.5
13.4
2.2
92.7
Details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 36 to 41.
5. Net financing costs
Underlying
£m
Non-
Underlying
£m
2010
£m
Underlying
£m
Non-
Underlying
£m
2009
£m
Interest on bank deposits
Change in fair value of financial assets and liabilities
Expected return on pension scheme assets (Note 22)
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
Expected interest cost on pension scheme obligations (Note 22)
Financial expense
Net financing costs
0.6
–
–
–
0.6
3.8
0.4
0.1
4.3
–
4.3
3.7
–
–
3.4
3.4
3.4
–
–
–
–
4.0
4.0
0.6
0.6
–
3.4
3.4
4.0
3.8
0.4
0.1
4.3
4.0
8.3
4.3
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
0.4
0.7
0.1
3.3
3.4
4.1
4.8
0.5
0.2
5.5
3.8
9.3
5.2
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57
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
6. 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
Loss on disposal of non-current assets
Income Statement credits
Profit on disposal of non-current 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
Services relating to corporate finance transactions
Other services
Valuation and actuarial services
Hill & Smith Holdings PLC pension schemes
Valuation and actuarial services
Other services – pension administration
2010
£m
2009
£m
10.8
2.1
10.6
2.4
1.6
4.9
0.3
0.9
1.2
–
0.4
0.1
–
–
7.8
0.1
1.5
4.4
0.2
0.9
1.0
0.1
0.5
–
0.1
0.1
5.6
0.2
2010
£m
2009
£m
0.1
0.4
0.4
0.1
–
1.0
0.1
0.3
0.4
0.1
0.4
–
0.1
0.1
0.7
0.2
0.3
0.5
A description of the work of the Audit Committee is set out in the Corporate Governance Report on pages 32 and 33 and includes an
explanation of how auditor objectivity and independence is safeguarded when non audit services are provided by the Auditor.
58
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
7. Taxation
Current tax
UK corporation tax
Adjustments in respect of prior periods
Overseas tax at prevailing local rates
Deferred tax (Note 12)
Current year
Adjustments in respect of prior periods
Overseas tax at prevailing local rates
Effect of change in tax rate
Tax on profit in the Income Statement
Current tax
Relating to foreign exchange
Relating to share-based payments
Deferred tax (Note 12)
Relating to defined benefit pension schemes
Relating to financial instruments
Tax on items taken directly to other comprehensive income
Current tax
Relating to share-based payments
Deferred tax (Note 12)
Relating to share-based payments
Tax taken directly to the Consolidated Statement of Changes in Equity
2010
£m
2009
£m
3.5
(0.7)
6.3
9.1
0.2
(0.6)
2.2
(0.2)
10.7
–
–
–
1.5
(0.1)
1.4
5.0
(1.8)
7.9
11.1
(0.2)
0.7
0.6
–
12.2
0.1
(0.1)
–
(1.6)
(0.2)
(1.8)
(0.4)
–
0.4
–
(0.5)
(0.5)
The tax charge in the Consolidated Income Statement for the period is higher (2009: higher) than the standard rate of corporation tax
in the UK. The differences are explained below:
Profit before taxation
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 28.0%
Expenses not deductible for tax purposes
Capital profits less losses and write downs not subject to tax
Overseas profits taxed at higher/(lower) rates
Overseas losses not relieved
Withholding taxes
Deferred tax benefit of future reductions in UK corporation tax rates
Adjustments in respect of previous periods
Tax charge
2010
£m
35.3
9.9
0.7
–
1.5
–
0.1
(0.2)
(1.3)
10.7
2009
£m
39.7
11.1
0.5
(0.3)
1.7
0.1
0.2
–
(1.1)
12.2
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59
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
8. Earnings per share
The weighted average number of Ordinary Shares in issue during the year was 76.9m (2009: 75.8m), diluted for the effects of the
outstanding dilutive share options 77.6m (2009: 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
Non-Underlying items*
Underlying earnings
Diluted earnings
Non-Underlying items*
Underlying diluted earnings
2010
2009
Pence
per share
32.0
7.0
39.0
31.7
7.0
38.7
£m
24.6
5.4
30.0
24.6
5.4
30.0
Pence
per share
36.3
2.0
38.3
35.9
2.0
37.9
£m
27.5
1.5
29.0
27.5
1.5
29.0
* Non-Underlying items as defined on the Consolidated Income Statement.
9. Dividends
Dividends paid in the year were the prior year’s interim dividend of £3.5m (2009: £3.2m) and the final dividend of £5.3m (2009:
£4.3m). 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
2010
2009
Pence
per share
5.2
7.5
12.7
£m
4.0
5.8
9.8
Pence
per share
4.7
6.8
11.5
£m
3.5
5.3
8.8
60
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Goodwill
£m
Brands
£m
Customer lists
£m
Capitalised
development
costs
£m
Licences
£m
Total
£m
99.7
(5.9)
–
0.1
(1.9)
92.0
–
0.3
–
92.3
1.9
–
(1.9)
–
–
–
–
–
–
97.8
92.0
92.3
13.8
(1.3)
–
–
–
12.5
–
–
–
12.5
0.4
–
–
–
0.3
0.7
–
0.3
1.0
13.4
11.8
11.5
3.2
(0.3)
–
–
–
2.9
–
0.4
–
3.3
0.7
(0.1)
–
–
0.6
1.2
–
0.6
1.8
2.5
1.7
1.5
6.6
–
0.1
0.5
–
7.2
–
–
0.9
8.1
1.9
–
–
0.1
1.0
3.0
–
1.2
4.2
4.7
4.2
3.9
0.3
–
–
–
–
0.3
–
–
0.4
0.7
0.1
–
–
–
0.1
0.2
–
–
0.2
0.2
0.1
0.5
123.6
(7.5)
0.1
0.6
(1.9)
114.9
–
0.7
1.3
116.9
5.0
(0.1)
(1.9)
0.1
2.0
5.1
–
2.1
7.2
118.6
109.8
109.7
10. Intangible assets
Cost
At 1 January 2009
Exchange adjustments
Additions internal
Additions external
Disposal of subsidiaries
At 31 December 2009
Exchange adjustments
Acquisitions
Additions external
At 31 December 2010
Amortisation and impairment losses
At 1 January 2009
Exchange adjustments
Disposal of subsidiaries
Impairment losses
Amortisation charge for the year
At 31 December 2009
Exchange adjustments
Amortisation charge for the year
At 31 December 2010
Carrying values
At 1 January 2009
At 31 December 2009
At 31 December 2010
2010
Goodwill of £0.3m and customer lists of £0.3m arose on the acquisition of 100% of the issued share capital of MB Tech Limited (and
subsidiary) in December and customer lists of £0.1m arose on the acquisition of the trade and certain assets of Ascolit Limited (In
Administration) in July. Goodwill arises on these acquisitions due primarily to the assembled workforce, technical expertise, knowhow,
market share and geographical advantages afforded to the Group through these acquisitions. Details of the acquisitions are provided in
the table on the next page.
2009
During the year the Group received a refund of consideration previously paid of £0.7m (Note 15) 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 12) in respect of
deferred tax on the intangible fixed assets of Creative Pultrusions, Inc. was also made, but no prior year adjustment in respect of the
latter was made on the grounds of materiality.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
10. Intangible assets continued
Details of acquisitions are shown below:
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Deferred consideration
Cash and cash equivalents received in the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Post acquisition profit/(loss) for the year included in the Group’s Consolidated Income Statement
MB Tech and
Ascolit pre
acquisition
carrying
amount
£m
Policy
alignment and
provisional
fair value
adjustments
£m
–
0.1
0.2
0.3
0.1
0.7
(0.6)
–
(0.6)
0.1
0.4
–
–
–
–
0.4
–
(0.1)
(0.1)
0.3
Total
£m
0.4
0.1
0.2
0.3
0.1
1.1
(0.6)
(0.1)
(0.7)
0.4
0.7
0.3
0.7
(0.4)
(0.1)
0.2
–
Policy alignment and provisional fair value adjustments principally relate to harmonisation with Group IFRS accounting policies,
including the application of fair values on acquisition.
If the above acquisitions had been made on 1 January 2010, it is estimated that the results of the Group for the year would have been
revenue of £375.7m and profit of £24.7m.
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
2010
£m
2009
£m
29.1
21.7
14.3
27.2
92.3
29.7
21.1
14.3
26.9
92.0
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 £6.5m (2009: £6.3m), 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 which 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.
The initial measurements of the post tax and pre tax weighted average costs of capital were respectively 8.14% and 11.31%
(2009: 8.09% and 11.24%). 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:
• Galvanizing Services – France: 13.89% and 1.0% (2009: 16.82% and 1.0%)
• Galvanizing Services – USA: 15.86% and 1.0% (2009: 18.26% and 1.0%)
• Joseph Ash Limited: 12.69% and 1.0% (2009: 15.37% and 1.0%)
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Annual Report and Accounts 201010
Hill & Smith Holdings PLC
10. Intangible assets continued
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.
11. Property, plant and equipment
Cost
At 1 January 2009
Exchange adjustments
Disposal of subsidiaries
Additions
Disposals
At 31 December 2009
Exchange adjustments
Acquisitions
Additions
Disposals
At 31 December 2010
Depreciation and impairment losses
At 1 January 2009
Exchange adjustments
Disposal of subsidiaries
Disposals
Charge for the year
Impairment provision
At 31 December 2009
Exchange adjustments
Disposals
Charge for the year
Impairment provision
At 31 December 2010
Carrying values
At 1 January 2009
At 31 December 2009
At 31 December 2010
Land and
buildings
£m
Plant,
machinery
and vehicles
£m
59.0
(4.5)
–
1.5
(0.2)
55.8
–
–
1.5
(0.7)
56.6
4.3
(0.3)
–
–
2.3
–
6.3
(0.1)
(0.3)
2.2
–
8.1
54.7
49.5
48.5
121.7
(2.8)
(10.3)
11.5
(2.0)
118.1
–
0.1
10.4
(3.6)
125.0
62.8
(0.5)
(9.2)
(1.7)
10.7
0.4
62.5
–
(3.0)
10.7
0.4
70.6
58.9
55.6
54.4
Total
£m
180.7
(7.3)
(10.3)
13.0
(2.2)
173.9
–
0.1
11.9
(4.3)
181.6
67.1
(0.8)
(9.2)
(1.7)
13.0
0.4
68.8
(0.1)
(3.3)
12.9
0.4
78.7
113.6
105.1
102.9
The gross book value of land and buildings includes freehold land of £11.5m (2009: £11.4m).
Included in the carrying value of plant, machinery and vehicles is £11.4m (2009: £13.5m) 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 £28.4m (2009: £26.3m) and accumulated
depreciation of £11.9m (2009: £9.4m).
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63
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
12. Deferred taxation
At 1 January 2009
Exchange adjustments
Fair value adjustment
Credited/(charged) for the year in the Consolidated Income
Statement (Note 7)
Credited/(charged) for the year in the Consolidated Statement of
Comprehensive Income (Note 7)
Credited for the year in the Consolidated Statement of Changes
in Equity (Note 7)
At 31 December 2009
Exchange adjustments
Acquisitions (Note 10)
Credited/(charged) for the year in the Consolidated Income
Intangible
assets
£m
Property,
plant and
equipment
£m
Inventories
£m
(5.2)
0.5
(0.7)
0.1
–
–
(5.3)
–
(0.1)
(9.6)
0.6
–
(1.2)
–
–
(10.2)
0.1
–
(3.1)
0.2
–
0.9
–
–
(2.0)
0.1
–
Retirement
obligation
£m
2.7
–
–
0.5
1.6
–
4.8
–
–
Other timing
differences
£m
0.7
–
–
Total
£m
(14.5)
1.3
(0.7)
(1.4)
(1.1)
0.2
0.5
–
0.1
–
1.8
0.5
(12.7)
0.3
(0.1)
Statement (Note 7)
0.3
0.1
(0.2)
(0.3)
(1.5)
(1.6)
(Charged)/credited for the year in the Consolidated
Statement of Comprehensive Income (Note 7)
Charged for the year in the Consolidated Statement of
Changes in Equity (Note 7)
At 31 December 2010
–
–
–
–
–
–
(5.1)
(10.0)
(2.1)
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
(1.5)
0.1
(1.4)
–
3.0
(0.4)
(1.7)
2010
£m
0.1
(16.0)
(15.9)
(0.4)
(15.9)
2009
£m
1.7
(14.4)
(12.7)
No deferred tax asset has been recognised in respect of tax losses of £17.5m (2009: £14.1m) as their future use is uncertain. There is no
time limit on the carrying forward of these losses.
A deferred tax charge of £nil (2009: £0.1m) has been made resulting from a change during 2008 in the UK tax legislation preventing
the recoverability of Industrial Buildings Allowances.
Finance (No 2) Act 2010 was enacted in the period and included a reduction in the main rate of corporation tax from 28% to 27% with
effect from 1 April 2011. The deferred tax liability provided at the Balance Sheet date has therefore been recalculated at 27% on the
basis that it will materially reverse after 1 April 2011. This recomputation has had no overall impact on the deferred tax liability, this is
because a credit of £0.2m has been recognised in the Consolidated Income Statement and a corresponding charge of £0.2m directly in
equity.
The Government has also indicated that it intends to enact further reductions in the main rate of corporation tax of 1% per annum,
reducing the rate to 24% by 1 April 2014. These tax rate reductions had not been substantively enacted at the Balance Sheet date and
therefore have not been reflected in the Financial Statements. The effect of any such changes on deferred tax balances will be
accounted for in the period in which any such changes are enacted.
13. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2010
£m
27.4
5.2
13.8
46.4
2009
£m
24.1
7.6
12.1
43.8
The amount of inventories expensed to the Consolidated Income Statement in the year was £238.2m (2009: £251.0m). The value of
inventories written down and expensed in the Consolidated Income Statement during the year amounted to £0.3m (2009: £0.3m). The
amount of inventories held at fair value less cost to sell included in the above was £0.8m (2009: £nil).
64
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Hill & Smith Holdings PLC
2010
£m
2009
£m
–
1.1
67.6
1.1
5.3
0.9
74.9
70.5
–
4.0
2.3
76.8
14. Trade and other receivables
Other non-current receivables
Deferred consideration
Trade and other current receivables
Trade receivables
Deferred consideration
Prepayments and accrued income
Other receivables
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 £0.4m (2009: £0.6m).
15. 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 16)
Amounts due after more than one year (Note 17)
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
Capital expenditure
Proceeds on disposal of non-current assets
Free cash flow
Dividends paid (Note 9)
Purchase of shares for the employee benefit trust (Note 20)
Disposals (see below)
Acquisitions (Note 10)
Issue of new shares (Note 20)
Net debt decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
Disposals
Disposal of subsidiaries (Note 3)
Disposal of available for sale financial assets (Note 3)
Deferred consideration received in respect of disposals
Total
2010
£m
2009
£m
23.0
4.0
27.0
(27.0)
(70.6)
(70.6)
39.6
15.7
55.3
(1.3)
(2.3)
51.7
(9.4)
(3.4)
(15.2)
0.9
24.6
(8.8)
(0.4)
0.3
(0.2)
0.8
16.3
0.7
(87.6)
(70.6)
–
–
0.3
0.3
30.1
11.0
41.1
(31.2)
(97.5)
(87.6)
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
11.7
(146.2)
(87.6)
0.7
4.9
0.8
6.4
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65
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
16. Current liabilities
Interest bearing loans and borrowings (Note 15)
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 and deferred income
Fair value derivatives
Other payables
17. Non-current liabilities
Interest bearing loans and borrowings (Note 15)
Long term borrowings
Finance lease and hire purchase obligations
Other non-current liabilities
Deferred government grants
2010
£m
2009
£m
21.7
3.7
1.6
27.0
44.2
9.0
14.0
1.1
3.9
72.2
17.8
3.9
9.5
31.2
44.3
10.0
15.6
0.7
4.1
74.7
2010
£m
2009
£m
65.4
5.2
70.6
88.8
8.7
97.5
0.2
0.2
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
2010
Minimum
lease
payment
£m
Effective
interest rate
%
Principal
£m
Effective
interest rate
%
4.33
4.33
4.64
4.1
3.7
1.7
5.4
9.5
8.9
0.6
4.36
4.41
4.40
3.7
3.5
1.7
5.2
8.9
2009
Minimum
lease
payment
£m
4.4
4.3
4.9
9.2
13.6
12.6
1.0
Principal
£m
3.9
4.0
4.7
8.7
12.6
The unsecured bank borrowings carry a rate of interest of 1.25% above LIBOR/EURIBOR subject to a ratchet as defined in the facility
agreement. In the USA bank borrowings that are not fixed (Note 19) 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
Property
related
£m
Other
regulatory
£m
4.9
(0.3)
–
4.6
(0.1)
(1.0)
1.8
(1.3)
4.0
1.8
(0.2)
(1.2)
0.4
–
(0.1)
0.1
–
0.4
2010
£m
0.8
3.6
4.4
Total
£m
6.7
(0.5)
(1.2)
5.0
(0.1)
(1.1)
1.9
(1.3)
4.4
2009
£m
–
5.0
5.0
18. Provisions for liabilities and charges
At 1 January 2009
Exchange adjustments
Utilised during the year
At 31 December 2009
Exchange adjustments
Utilised during the year
Charged to Consolidated Income Statement
Released to Consolidated Income Statement
At 31 December 2010
Amounts due within one year
Amounts due after more than one year
Property provisions of £4.6m at 31 December 2009 related to environmental and dilapidation costs associated with certain of the
Group’s properties. During the year £1.0m of these provisions have been utilised. Following a review of the Group’s remaining
obligations in relation to the properties acquired with Zinkinvent GmbH in 2007, £1.3m has been released to the Consolidated Income
Statement and included in Non-Underlying items (see Note 3). Additional property provisions of £1.8m were charged during the year
following the closure of two of the Group’s manufacturing plants (see Note 3).
The Group has sought expert valuations in relation to its property provisions where appropriate, although there are factors outside of
the Group’s control that give rise to uncertainties surrounding these matters. The Group does not expect to be reimbursed for any of
the future costs.
Other regulatory provisions principally relate to warranty issues.
19. 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.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
19. Financial instruments continued
The Group’s UK companies represent the majority of the trade receivable at 31 December 2010 with 61.9% (2009: 66.7%) and
currently the only geographical region that does not insure their trade receivables is the USA, which represents 13.5% (2009: 9.9%) 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 2010 and 2009, no guarantees were outstanding.
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 2010 all such debt was covered by cash and cash equivalents netting to £nil (2009: £9.9m positive current
liquidity). 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 2010 year end exchange rates is as follows:
2011
2012
£m
21.3
60.6
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 £181.5m.
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.
Counterparty risk
A group of relationship banks provides the bulk of the banking services, with pre-approved credit limits set for each institution.
Financial derivatives are entered into with these core banks and the underlying credit exposure to these instruments is included when
considering the credit exposure to the counterparties. At the end of 2010 credit exposure including cash deposited did not exceed
£7.7m with any single institution (2009: £14.4m).
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 shown in the following table. The notional amounts represent approximately 58.1% (2009: 46.5%) of the gross
year end Sterling borrowings, 70.8% (2009: 56.3%) of the Euro borrowings and 52.2% (2009: 44.9%) 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 27.8% (2009: 29.8%) of the local US Dollar year end gross borrowings.
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19. Financial instruments continued
Country
UK
UK
UK
UK
UK
UK
USA
USA
USA
Belgium
Financial
instrument
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Swap
Maturity date
2 January 2012
7 June 2012
7 June 2012
7 June 2012
7 June 2012
7 June 2012
1 February 2011
1 July 2012
1 October 2015
Rate
excluding
margin
%
2010
Notional
amounts
£m
2010
Notional
amounts
€m
2010
Notional
amounts
$m
7.0
16.1
9.1
4.1
4.1
2.230
2.360
2.325
2.550
2.610
2.280
5.700
4.200
4.800
23.3
–
1.3
1.1
Cap
30 March 2011
4.300
0.1
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 2010 and 2009.
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.
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 2010
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
Held for
trading
£m
Amortised
cost
£m
Total carrying
value
£m
Fair value
£m
–
–
–
(1.1)
–
–
(1.1)
–
–
–
(0.7)
–
–
(0.7)
27.0
(27.0)
(70.6)
–
68.5
(62.1)
(64.2)
41.1
(31.2)
(97.5)
–
73.9
(64.0)
(77.7)
27.0
(27.0)
(70.6)
(1.1)
68.5
(62.1)
(65.3)
41.1
(31.2)
(97.5)
(0.7)
73.9
(64.0)
(78.4)
27.0
(27.0)
(70.6)
(1.1)
68.5
(62.1)
(65.3)
41.1
(31.2)
(97.5)
(0.7)
73.9
(64.0)
(78.4)
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69
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
19. 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:
• Level 1: unadjusted quoted prices in active markets for identical assets or liabilities.
• 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.
• Level 3: inputs for the asset or liability that are not based on observable market data.
Derivative financial liabilities
At 31 December 2010
At 31 December 2009
Level 1
£m
Level 2
£m
Level 3
£m
–
–
(1.1)
(0.7)
–
–
Total
£m
(1.1)
(0.7)
At 31 December 2010 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 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 £37.8m (2009: £49.5m) and US Dollar £28.4m (2009: £32.2m) denominated interest bearing loans,
which are predominantly used to fund its European and United States operations and include £66.2m (2009: £81.7m) designated as
a hedge of the net investment in a foreign operation. The foreign currency gain of £1.1m (2009: £10.8m) 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 2010
US Dollar at 31 December 2010
Euro at 31 December 2010
Sterling at 31 December 2009
US Dollar at 31 December 2009
Euro at 31 December 2009
70
Weighted
average
interest rate
%
Weighted
average
period for
which rate
is fixed
Years
3.3
2.5
2.3
3.3
2.5
2.3
1.5
1.6
1.3
1.8
2.5
2.4
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
19. 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 2010
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Bills of exchange
Other liabilities
Derivative liabilities
Total at 31 December 2009
Carrying
amounts
Contractual
cash flows
Due within
one year
Due between
one and
two years
Due between
two and
five years
£m
5.5
81.6
8.9
1.6
71.1
1.1
169.8
6.6
100.0
12.6
9.5
64.0
0.7
193.4
£m
£m
£m
(5.8)
(84.2)
(9.5)
(1.6)
(71.1)
(2.5)
(0.7)
(22.6)
(4.1)
(1.6)
(71.1)
(1.6)
(174.7)
(101.7)
(6.9)
(103.8)
(13.6)
(9.6)
(64.0)
(5.7)
(203.6)
(1.0)
(18.6)
(4.4)
(9.6)
(64.0)
(2.9)
(100.5)
(0.7)
(61.6)
(3.7)
–
–
(0.9)
(66.9)
(0.7)
(22.7)
(4.3)
–
–
(1.8)
(29.5)
£m
(2.1)
–
(1.7)
–
–
–
(3.8)
(2.2)
(62.5)
(4.9)
–
–
(0.8)
(70.4)
Due after
more than
five years
£m
(2.3)
–
–
–
–
–
(2.3)
(3.0)
–
–
–
–
(0.2)
(3.2)
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
2010
£m
2009
£m
58.6
57.4
(d) Fair values
The loss in the year on the interest rate swaps held by the UK Group was £0.3m (2009: £0.6m) 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 £nil (2009: £0.1m). 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 (2009: £nil). The fair values of the Group’s other financial instruments at
31 December 2010 and 2009 were not materially different to their 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 £0.4m (2009: £0.5m) of their carrying values as detailed in Notes 10 and 11.
(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
Loans and receivables
Cash at the end of the year (Note 15)
Total
2010
£m
69.6
27.0
96.6
2009
£m
73.9
41.1
115.0
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71
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
19. Financial instruments continued
At the reporting date the maximum exposure to credit risk for trade receivables, ignoring credit insurance was:
Carrying value of trade receivables by geography
UK
Rest of Europe
USA
Asia
Total (Note 14)
Carrying value of trade receivables by business segment
Infrastructure Products
Galvanizing Services
Building and Construction Products
Total (Note 14)
2010
£m
2009
£m
41.9
14.7
9.2
1.8
67.6
2010
£m
33.3
21.5
12.8
67.6
47.0
15.6
7.0
0.9
70.5
2009
£m
38.4
19.6
12.5
70.5
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:
2010
2009
Gross
£m
Provisions
£m
Net
£m
Gross
£m
Provisions
£m
Net
£m
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
47.0
16.3
5.1
1.4
69.8
(0.3)
(0.7)
(0.2)
(1.0)
(2.2)
46.7
15.6
4.9
0.4
67.6
53.2
13.8
5.0
1.8
73.8
(0.3)
(1.0)
(0.4)
(1.6)
(3.3)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2009
Exchange adjustments
Charged to the Consolidated Income Statement during the year
At 31 December 2009
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2010
52.9
12.8
4.6
0.2
70.5
£m
2.8
(0.1)
0.6
3.3
0.2
(1.3)
2.2
(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:
• 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 £0.5m (2009: £0.4m), which would directly
impact on the Consolidated Income Statement.
• 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 (2009: £1.8m) and the impact directly in equity would have been a gain of £1.1m (2009: £3.4m).
• 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 £1.5m (2009: £1.4m) and the impact directly in equity would have been a loss of £0.9m (2009:
£2.8m).
72
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
20. Called up share capital
Allotted, called up and fully paid
76.9m Ordinary Shares of 25p each (2009: 76.1m)
2010
£m
2009
£m
19.2
19.0
In 2010 the Company issued 0.8m shares under its various share option schemes (2009: 0.5m), realising £0.8m (2009: £0.7m).
The Company purchased shares with a market value of £0.4m (2009: £nil) through an Employee Benefit Trust (EBT) in order to satisfy
the 2007 LTIP Award granted in July 2007. The nominal value of the shares was £0.0m (2009: £nil). No shares are held by the EBT at
the year end.
Options outstanding over the Company’s shares
2010
Option
price (p)
Number
of shares
2009
Option
price (p)
Date first exercisable
Expiry date
2007 LTIP Award (granted March 2010)*
2007 LTIP Award (granted March 2009)*
2007 LTIP Award (granted March 2008)*
2007 LTIP Award (granted July 2007)*
2005 Approved Executive Share Option
Scheme (granted October 2005)*
2005 Non-Approved Executive Share
Number
of shares
247,546
180,000
205,749
–
–
–
–
–
–
180,000
205,749
103,045
107,031
205
136,323
–
–
–
–
205
205
§
§
§
§
§
§
4 October 2008
4 October 2015
4 October 2008
4 October 2015
Option Scheme (granted October 2005)*
68,375
205
84,375
2007 grant of 2005 Approved Executive
Share Option Scheme (granted April
2007)*
2007 grant of 2005 Non-Approved
Executive Share Option Scheme (granted
April 2007)*
2008 grant of 2005 Savings Related Share
Option Scheme (granted January
2008)*†
2008 grant of 2005 Savings Related Share
Option Scheme (granted January
2008)*†
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 January
2005)*†
247,021
350
247,021
350
13 April 2010
13 April 2017
388,979
350
450,979
350
13 April 2010
13 April 2017
72,239
318
81,165
318
1 January 2011
1 July 2011
169,198
318
190,913
318
1 January 2013
1 July 2013
103,139
246
121,396
246
1 December 2011
1 June 2012
185,223
246
222,691
246
1 December 2013
1 June 2014
–
–
778,325
100
1 January 2010
1 July 2010
Outstanding at the end of the year
1,974,500
Exercisable at the year end
Not exercisable at the year end
811,406
1,163,094
Outstanding at the end of the year
1,974,500
2,801,982
220,698
2,581,284
2,801,982
* 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 2011 for the 2008 grant, 1 January 2012 for the 2009 grant and 1 January 2013 for the 2010 grant.
The remaining weighted average life of the outstanding share options is 3 years 2 months (2009: 3 years 4 months).
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73
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
20. Called up share capital continued
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
price (p)
2010
192
0
(95)
(317)
206
Millions
of options
2010
2.8
0.2
(0.8)
(0.2)
2.0
Weighted
average
exercise
price (p)
2009
201
0
(163)
(270)
192
Millions
of options
2009
3.5
0.2
(0.5)
(0.4)
2.8
The weighted average share price on the dates of exercise during the year for the above share options was 308p (2009: 248p), and the
weighted average fair value of options and awards granted in the year was 344p (2009: 133p).
Share-based payments
All option schemes marked as being subject to share-based payments have 2005 to 2010 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.
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 (%)
2010 grant of
2007 LTIP
Award
2009 grant of
2007 LTIP
Award
2008 grant of
2007 LTIP
Award
December
2008 grant of
2005 Savings
Related Share
Option
Scheme
January
2008 grant of
2005 Savings
Related Share
Option
Scheme
2007 grant of
2005 Share
Option
Schemes
2005 grant
of 2005 Share
Option
Schemes
344
339
0
27
3
0.0
1.9
133
154
0
30
3
4.6
2.1
284
330
0
29
3
4.6
3.8
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
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
21. Guarantees and other financial commitments
(a) Guarantees
The Group had no financial guarantee contracts outstanding (2009: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
2010
£m
0.2
2009
£m
0.5
2010
£m
0.2
2009
£m
0.2
74
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
21. Guarantees and other financial commitments continued
(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
2010
2009
Land and
buildings
£m
Other
£m
Land and
buildings
£m
Other
£m
4.9
4.4
11.5
19.6
40.4
1.6
1.4
1.5
–
4.5
4.6
4.6
12.1
23.6
44.9
1.8
1.2
1.4
–
4.4
The Group leases properties, plant, machinery and vehicles for operational purposes. Property leases vary considerably in length up to a
maximum period of 99 years. Plant, machinery and vehicle leases typically run for periods of up to 5 years.
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
2010
2009
Land and
buildings
£m
Other
£m
Land and
buildings
£m
0.9
2.1
1.4
4.4
6.1
2.0
–
8.1
0.7
2.2
1.9
4.8
Other
£m
6.6
3.0
–
9.6
22. 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
56.6
(66.1)
–
(9.5)
0.1
(1.4)
(0.1)
(1.4)
2010
£m
56.7
(67.5)
(0.1)
(10.9)
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)
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 £2.0m (2009: £1.9m), 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.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
22. Pensions continued
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 2010 by a qualified Actuary.
The principal assumptions used by the Actuary
2010
2009
2008
2007
2006
Rate of increase in salaries
Rate of increase in pensions payment
Discount rate
Inflation
Mortality table
3.50%
3.30%
5.60%
3.50%
4.50%
3.00%
5.20%
3.10%
116%120% PA92YOB* PA92YOB* PA92YOB* PA92YOB*
S1PA mc1%
2.70%
2.60%
6.50%
2.70%
4.80%
3.30%
5.70%
3.40%
3.60%
3.40%
5.80%
3.60%
* 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
2010
2009
2008
2007
2006
21.6 years 21.1 years 21.0 years 20.9 years 20.9 years
24.2 years 24.1 years 24.0 years 23.9 years 23.9 years
20.0 years 19.9 years 19.8 years 19.6 years 19.6 years
22.7 years 22.9 years 22.8 years 22.7 years 22.7 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.
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
Hedge funds
Currency funds
Cash
Total fair value of scheme assets
Present value of scheme funded obligations
Retirement benefit obligation
76
Rate of
return
expected
2010
%
7.60
5.00
5.30
8.00
7.60
4.00
6.27
Market
value
2010
£m
19.0
27.2
2.3
5.8
1.9
0.4
56.6
(66.1)
(9.5)
Rate of
return
expected
2009
%
8.00
5.20
5.70
8.00
8.00
4.40
6.49
Rate of
return
expected
2007
%
8.00
5.70
–
5.90
8.00
8.40
4.50
6.92
Rate of
return
expected
2008
%
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
Market
value
2009
£m
16.0
24.9
2.1
5.6
2.3
1.1
52.0
(67.4)
(15.4)
Market
value
2007
£m
21.2
28.5
–
4.8
5.7
2.6
0.8
63.6
(72.2)
(8.6)
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)
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
22. Pensions continued
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.
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
Charge to operating profit
Expected return on pension scheme assets
Expected interest cost on pension scheme obligations
Total charged to profit before tax
Defined
contribution
schemes
£m
1.5
1.5
–
–
1.5
2010
Defined
benefit
schemes
£m
0.5
0.5
(3.4)
3.9
1.0
Defined
contribution
schemes
£m
1.4
1.4
–
–
1.4
Total
£m
2.0
2.0
(3.4)
3.9
2.5
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Current service costs
Expected interest cost
Actuarial (gain)/loss
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
Employer contributions
Employee contributions
Benefits paid
Closing fair value of assets
Actual return on scheme assets
Expected employer contributions in the following year
Defined benefit schemes
Defined contribution schemes
2009
Defined
benefit
schemes
£m
0.5
0.5
(3.3)
3.7
0.9
2010
£m
67.4
0.5
3.9
(2.2)
0.1
(3.6)
66.1
2010
£m
52.0
3.4
2.4
2.3
0.1
(3.6)
56.6
5.8
2.4
1.4
Total
£m
1.9
1.9
(3.3)
3.7
2.3
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
2.7
1.4
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
22. Pensions continued
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
%
4
–
3
7
2010
£m
2.4
–
2.2
4.6
(16.5)
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
%
9
0
(16)
(8)
% of scheme
assets/
liabilities
%
(3)
(1)
5
1
% of scheme
assets/
liabilities
%
(35)
(1)
20
(9)
% of scheme
assets/
liabilities
%
3
1
(2)
2
2009
£m
4.4
0.3
(10.5)
(5.8)
(21.1)
2007
£m
(2.0)
(0.8)
3.4
0.6
(10.0)
2008
£m
(16.2)
(0.7)
11.6
(5.3)
(15.3)
2006
£m
2.0
0.7
(1.2)
1.5
(10.6)
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
£0.1m (2009: £0.2m).
The Consolidated Income Statement for the year includes a pension charge of £0.2m (2009: £0.2m), 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 2010.
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
2010
2009
2008
2007
2.00%
4.60%
2.00%
4.00%
TH 00-02,
TF 00-02
2.00%
5.00%
2.00%
4.50%
TH 00-02,
TF 00-02
2.00% 2.00-3.00%
5.25%
5.50%
2.00%
2.00%
4.50%
4.50%
MR/FR
TG H/F 05
INSEE98 H/F
78
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
22. 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:
Rate of
return
expected
2010
%
Market value
2010
£m
Rate of
return
expected
2009
%
Market value
2009
£m
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
4.00
4.00
4.50
4.50
0.1
0.1
(1.4)
(0.1)
(1.4)
0.2
0.2
(1.4)
(0.1)
(1.3)
Rate of
return
expected
2008
%
4.50
4.50
Market value
2008
£m
Rate of return
expected
2007
%
Market value
2007
£m
4.50
4.50
0.2
0.2
(1.4)
(0.2)
(1.4)
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
Charge to operating profit
Expected interest cost on pension scheme obligations
Total charged to profit before tax
Defined
contribution
schemes
2010
Defined
benefit
schemes
£m
0.1
0.1
–
0.1
£m
0.1
0.1
0.1
0.2
Total
£m
0.2
0.2
0.1
0.3
Change in the present value of the defined benefit obligation
Opening defined benefit obligation
Current service costs
Expected interest cost
Actuarial gain
Benefits paid
Exchange adjustments
Closing defined benefit obligation
Changes in fair values of scheme assets
Opening fair value of assets
Benefits paid
Closing fair value of assets
Actual return on scheme assets
Expected employer contributions in the following year
Defined benefit schemes
Defined contribution schemes
Defined
contribution
schemes
2009
Defined
benefit
schemes
£m
0.2
0.2
–
0.2
£m
–
–
0.1
0.1
2010
£m
1.5
0.1
0.1
–
(0.1)
(0.1)
1.5
2010
£m
0.2
(0.1)
0.1
–
–
0.1
Total
£m
0.2
0.2
0.1
0.3
2009
£m
1.6
–
0.1
(0.1)
–
(0.1)
1.5
2009
£m
0.2
–
0.2
–
–
0.2
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79
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Consolidated Financial Statements
22. Pensions continued
Amounts recognised in the Consolidated Statement of Comprehensive Income
Experienced loss on scheme obligations
Exchange rate adjustment on assets and
liabilities
Amount recognised in the period
Total amount recognised
% of scheme
assets/
liabilities
%
(2)
n/a
% of scheme
assets/
liabilities
%
3
n/a
2010
£m
–
–
–
(0.4)
% of scheme
assets/
liabilities
%
(9)
n/a
2009
£m
–
0.1
0.1
(0.4)
% of scheme
assets/
liabilities
%
0
n/a
2008
£m
(0.1)
(0.3)
(0.4)
(0.5)
2007
£m
–
0.1
0.1
0.1
23. 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 22).
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 10.
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 20.
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 18.
Deferred taxation
Deferred taxation has been estimated using the best information available, including seeking the opinion of independent experts where
applicable (Note 12).
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 10. 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.
80
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
24. 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 35 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
2010
£m
2009
£m
0.8
0.2
0.1
0.1
1.2
1.2
0.2
0.1
0.3
1.8
25. Subsequent events
On 8 March 2011 the Group entered into an agreement to acquire all the shares in a North American based group of companies, The
Paterson Group, Inc. and its related companies (together “TPG”). TPG comprises four trading companies: Bergen-Power Pipe Supports,
Inc.; Carpenter & Paterson, Inc.; Process Pipe Supports Systems, Inc. and PHS Industries, Inc. and will be classified in the Infrastructure
Products Segment.
The cash consideration is $45.0m on a basis free of cash and debt, assuming working capital is consistent with normal levels at
completion.The purchase price will be adjusted dollar for dollar to the extent that actual working capital at completion exceeds or falls
short of the agreed level. Customary representations and warranties have been received from the vendors and the Group is retaining
$5.0m of the purchase consideration which is to be held in an escrow account for a period of up to four years as security against any
potential warranty claims under the sale and purchase agreement. The cash consideration excludes acquisition costs which require
expensing as they are incurred in line with the new requirements of IFRS3 (Revised).
TPG has combined gross assets, based on the last financial statements prepared under local GAAP of $27.6m. The aggregated results
from these financial statements provide revenues of $59.6m and EBITDA of $8.5m. These numbers are stated prior to any policy or fair
value adjustments, which would be principally made to harmonise reporting in line with the Group’s IFRS accounting policies. The
Group is unable to provide all the acquisition information required under IFRS3 (Revised) because TPG has subsidiaries with non
coterminus year end dates and does not prepare consolidated financial statements, which when combined with the proximity of the
date of the agreement to the announcement date of these results, the Group feels that it is not in a position to provide any more
meaningful data at present.
The acquisition will provide an important strategic and geographical extension to the Group’s existing pipe supports activities. Bergen-
Power Pipe Supports, Inc. has significant experience in the nuclear pipe supports market and possesses an ASME nuclear certification,
which will enable the Group to enhance the products and services offered to its customers.
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81
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Company Balance Sheet
As at 31 December 2010
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 2011 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Notes
2010
£m
2009
£m
3
4
5
6,7
6
7
9
10
10
10
0.1
291.3
291.4
103.6
4.0
107.6
0.1
333.3
333.4
72.0
17.4
89.4
(28.9)
(99.7)
(16.7)
(93.6)
(128.6)
(110.3)
(21.0)
270.4
(113.3)
157.1
(20.9)
312.5
(135.9)
176.6
19.2
29.1
0.2
108.6
157.1
19.0
28.5
0.2
128.9
176.6
82
Company Number: 671474
Company Reconciliation of Movements in Shareholders’ Funds
Year ended 31 December 2010
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
(Loss)/profit for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive payments
Shares issued in the year
Net (decrease)/increase in shareholders’ funds
Opening shareholders’ funds as previously reported
Closing shareholders’ funds
2010
£m
(11.3)
(8.8)
0.2
(0.4)
0.8
(19.5)
176.6
157.1
2009
£m
113.9
(7.5)
0.5
–
0.7
107.6
69.0
176.6
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
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. Related party transactions with the Company’s key management personnel are
disclosed in Note 24 to the Group Financial Statements. The Company has adopted the requirements of FRS29 Financial Instruments
Disclosures and has taken the exemption under that standard from disclosure on the grounds that the Group Financial Statements
contain disclosures in compliance with IFRS7.
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 are
therefore 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 19.
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
84
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 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 2010
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
2010
£m
2009
£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 £3.5m (2009: £3.2m) and the final dividend of £5.3m (2009:
£4.3m). 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
3. Tangible fixed assets
Cost or valuation
At 31 December 2009
Additions
At 31 December 2010
Depreciation
At 31 December 2009
Charge for the year
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
4. Fixed asset investments
Cost
At 31 December 2009
Return on capital
Additions
At 31 December 2010
Provisions
At 31 December 2009
Impairment
At 31 December 2010
Net book value
At 31 December 2010
At 31 December 2009
86
2010
2009
Pence
per share
5.2
7.5
12.7
£m
4.0
5.8
9.8
Pence
per share
4.7
6.8
11.5
Short
leasehold
properties
£m
Plant,
machinery
and vehicles
£m
0.1
–
0.1
–
–
–
0.1
0.1
0.2
0.1
0.3
0.2
0.1
0.3
–
–
Shares in
subsidiary
undertakings
£m
Loans to
subsidiary
undertakings
£m
Trade
investments
£m
312.7
(33.8)
1.0
279.9
1.9
9.2
11.1
268.8
310.8
23.8
–
–
23.8
1.3
–
1.3
22.5
22.5
0.8
–
–
0.8
0.8
–
0.8
–
–
£m
3.5
5.3
8.8
Total
£m
0.3
0.1
0.4
0.2
0.1
0.3
0.1
0.1
Total
£m
337.3
(33.8)
1.0
304.5
4.0
9.2
13.2
291.3
333.3
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
4. Fixed asset investments continued
A list of the principal businesses owned by the Company is given on pages 92 and 93. All of the Company’s subsidiaries are wholly
owned.
Additions represent a further investment in an intermediary holding company, Pipe Supports Overseas Limited of £1.0m. The return on
capital relates to dividends received from Zinkinvent GmbH, who’s investment value has been subsequently fair valued and impaired.
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
2010
£m
2009
£m
101.0
1.0
0.2
1.3
0.1
103.6
69.4
0.6
0.2
1.4
0.4
72.0
2010
£m
2009
£m
7.9
21.0
28.9
2.0
0.1
2.1
1.0
94.5
99.7
–
16.7
16.7
1.4
0.1
3.0
0.9
88.2
93.6
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 19 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
2010
£m
53.9
59.4
2009
£m
53.9
82.0
113.3
135.9
2010
£m
2009
£m
28.9
16.7
59.4
–
59.4
88.3
21.2
60.8
82.0
98.7
The bank loans are unsecured and carry a rate of interest of 1.25% above LIBOR/EURIBOR subject to a ratchet as defined in the facility
agreement.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes to the Company Financial Statements
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 (2009: 76.1m)
2010
£m
(0.2)
–
(0.2)
(0.2)
2009
£m
(0.1)
(0.1)
(0.2)
(0.2)
2010
£m
2009
£m
19.2
19.0
In 2010 the Company issued 0.8m shares under its various share option schemes (2009: 0.5m), realising £0.8m (2009: £0.7m). Details
of share options and related share-based payments are contained in Note 20 to the Group Financial Statements.
10. Share premium and reserves
At 1 January 2009
Profit for the year
Dividends
Credit to equity of share-based payments
Shares issued
At 31 December 2009
Loss for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive payments
Shares issued
At 31 December 2010
Share
premium
£m
27.9
–
–
–
0.6
28.5
–
–
–
–
0.6
29.1
Capital
redemption
reserve
£m
0.2
–
–
–
–
0.2
–
–
–
–
–
0.2
Profit and Loss
Account
£m
22.0
113.9
(7.5)
0.5
–
128.9
(11.3)
(8.8)
0.2
(0.4)
–
108.6
Details of share options and related share-based payments are contained in Note 20 to the Group Financial Statements.
Transactions of the Group sponsored Employee Benefit Trust (EBT) are included in the Company Financial Statements. In particular, the
EBT’s purchase of shares in the Company to satsify shares awarded under the Long Term Incentive Plan is debited directly to equity.
Details of the purchase of shares are contained in Note 20 to the Group Financial Statements.
11. Guarantees and other financial commitments
(a) Guarantees
The Company had no financial guarantee contracts outstanding (2009: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December
2010 was £6.3m (2009: £9.1m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
2010
2009
Land and
buildings
£m
0.1
Other
£m
–
Land and
buildings
£m
0.1
Other
£m
–
After five years
88
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
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 22 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 £1.4m (2009: £0.7m), of
which additional deficit contributions were £1.2m (2009: £0.6m), plus £0.4m (2009: £nil) for the reduced liability in deferred defined
benefit pensioners detailed in Note 22 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 22 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 24 to the Group Financial
Statements.
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Five Year Summary
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
2010
£m
374.2
45.9
42.2
152.1
Pence
39.0
12.7
2009
£m
2008
£m
2007
£m
2006
£m
389.7
47.0
42.2
131.4
Pence
38.3
11.5
419.8
47.4
38.9
118.2
Pence
32.2
10.0
329.6
36.9
31.0
99.2
Pence
26.1
8.7
234.6
23.4
19.5
77.0
Pence
21.3
7.2
Financial Calendar
Annual General Meeting 2011
Interim Management Statement
Ex-dividend date for 2010 final dividend
Record date 2010 final dividend
Dividend Reinvestment Plan – last date for election
Final 2010 ordinary dividend payable
Announcement of 2011 interim results
Interim Management Statement
Payment of 2011 interim dividend
12 May 2011
May 2011
1 June 2011
3 June 2011
17 June 2011
8 July 2011
August 2011
November 2011
January 2012
90
Shareholder Information
Shareholder base
Holdings of Ordinary Shares at 8 March 2011
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 – proposed dividends per share
Interim
Final
Total
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Shareholders
Shares
Number
%
Number
%
575
354
981
628
50
73
15
19
109,961
21.33
280,451
13.14
2,576,031
36.40
8,637,302
23.30
1.85
3,563,695
2.71 17,004,214
0.56 10,855,391
0.71 33,868,008
2,695
100
76,895,053
1,833
816
46
2,695
68.01
9,342,897
30.28 66,820,732
731,424
1.71
100 76,895,053
2010
5.2
7.5
2009
4.70
6.80
2008
4.30
5.70
12.7
11.50
10.00
2007
3.60
5.10
8.70
0.14
0.36
3.36
11.23
4.64
22.11
14.12
44.04
100
12.15
86.90
0.95
100
2006
3.00
4.20
7.20
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 Thursday 12 May 2011 at 11.00 a.m. 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:
• View all your holding details for companies registered with
Computershare
• View the market value of your portfolio
• Update your contact address and personal details online
• Access current and historical market prices
• Access trading graphs
• 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 17 June 2011)
The Company offers shareholders the facility to re-invest their
cash dividends to buy more shares in the Company.
• The service allows you to increase your shareholding in an easy
and convenient way.
• 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.
• 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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91
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Principal Group Businesses
Infrastructure Products
Asset International Limited
Large diameter plastic pipes and storm
water attenuation tanks
Conimast International SAS*
Specialist highmast lighting columns
Incorporated in France
JA Envirotanks (D)
Steel storage 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
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
Barkers Engineering Limited*
Fencing, galvanizing, powder coating and
fasteners
Engineered Hanger Systems India
Private Limited
Constant and variable pipe support systems
Incorporated in India
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
93 Kundrathur Road, 1st Floor, Porur,
Chennai, 600116, Tamil Nadu, India
Tel: +91 (44) 248 251 36
psgisales@gmail.com
British Pipe Supports (Jingjiang)
Limited*
Constant and variable pipe support systems
Incorporated in China
Hill & Smith Limited
Highway and off-highway safety barriers,
temporary highway and general workzone
protection systems and corrugated steel
structures
West End of Fuyang Road
South Developing District
Jingjiang City, Jiangsu Province
PRC, 214500, China
Tel: +86 (0) 523 8462 1515
Fax: +86 (0) 523 8462 1536
bps@pipesupports.com.cn
CA Traffic Limited
Traffic counting and classifying equipment
Griffin House, Gatehouse Way,
Aylesbury, Buckinghamshire, HP19 8BP
Tel: +44 (0) 1908 511122
Fax: +44 (0) 1908 511505
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 the USA
214 Industrial Lane, Alum Bank,
Pennsylvania, 15521, USA
Tel: +1 (814) 839 4186
Fax: +1 (814) 839 4276
www.creativepultrusions.com
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
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
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
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 494080
sales@topdeckparking.co.uk
www.topdeckparking.co.uk
Hill & Smith Infrastructure Products
India Private Limited
Highway and off-highway safety barriers,
temporary highway and general workzone
protection systems and corrugated steel
structures
Incorporated in India
335 Udyog Vihar, Phase IV, Gurgaon,
Haryana, 122015, India
Tel: +91 124 438 3721
Fax: +91 124 438 3720
enquiries@hsipi.in
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
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 and the share capital consists of ordinary shares only.
* 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
92
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Infrastructure Products
Pipe Supports Asia Limited*
Constant and variable pipe support systems
Incorporated in Thailand
26/5 Moo 9, Soi Rattanaraj,
Bangna-Trad Road. Km 18.2, Bangchalong,
Bangplee, Samut Prakem, 10540, Thailand
Tel: +66 (2) 312 7685
Fax: +66 (2) 312 7707
psa@pipesupports.com
www.pipesupports.com
Pipe Supports Group Trading
(Jingjiang) Limited*
(for address see British Pipe Supports)
Incorporated in China
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 services.
Incorporated in the 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
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
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
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 and the share capital consists of ordinary shares only.
* 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
93
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Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Directors
Contacts
Professional Advisers
W H Whiteley BSc, FCMA
(Chairman and Non-Executive)
D W Muir BSc, CEng, MICE
(Group Chief Executive)
M Pegler BCom, FCA
(Group Finance Director)
J F Lennox CA
(Non-Executive)
C J Snowdon BA, FCA
(Non-Executive)
Hill & Smith Holdings PLC
Registered Office
Westhaven House
Arleston Way
Shirley, Solihull
West Midlands
B90 4LH
Tel: +44 (0) 121 704 7430
Fax: +44 (0) 121 704 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 and Financial Advisers
Investec Investment Banking
2 Gresham Street
London
EC2V 7QP
Principal Bankers
Barclays Bank Plc
Midlands Corporate Banking Centre
PO Box 3333
15 Colmore Row
Birmingham
B3 2WN
Lawyers
Wragge & Co
55 Colmore Row
Birmingham
B3 2QD
Silks Solicitors
Barclays Bank Chambers
Birmingham Street
Oldbury
B69 4EZ
Financial Public Relations
MHP Communications
60 Great Portland Street
London
W1W 7RT
94
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Asset Weholite HDPE production line manufacturing the largest plastic pipe in the world (3.5m diameter) for the AMP5 market.
95
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Notes
96
Annual Report and Accounts 201010
Hill & Smith Holdings PLC
Hill & Smith Holdings PLC
Annual Report and Accounts 2010
Hill & Smith Holdings PLC
Hill & Smith Holdings PLC is an international group
with leading positions in the supply to global markets
of infrastructure products, galvanizing services and
building and construction products.
It serves its customers from facilities principally in the
UK, France, USA, Thailand and China.
A fire escape galvanized by France Galva for the
Système U retail group head office in France.
Contents
Overview
01
02
Key Financial Highlights
Chairman’s Statement
Review of 2010
04
10
13
14
16
18
Business Review
Our Divisions
Key Performance Indicators
Principal Risks and Uncertainties
Key Resources and Contractual Relationships
Corporate Social Responsibility
Governance
24
26
30
35
42
Board of Directors and Biographies
Directors’ Report
Corporate Governance Report
Directors’ Remuneration Report
Statement of Directors’ Responsibilities
Financial Statements
43
44
82
90
Independent Auditor’s Report
Group Financial Statements
Company Financial Statements
Five Year Summary and Financial Calendar
Information
91
92
94
96
Shareholder Information
Principal Group Businesses
Directors, Contacts and Professional Advisers
Notes
Front Cover in descending order
V&S LLC’s galvanized welded studs on 64’ beams for the Tappanzee Bridge in New York.
Pipe Supports shoe for LNG plant project in Yemen, manufactured by Pipe Supports Asia
Ltd.
Varley & Gulliver parapet for the HQ building Al Raha Beach, Abu Dhabi.
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.
Hill & Smith Holdings PLC
Westhaven House,
Arleston Way,
Shirley, Solihull, B90 4LH
Tel: +44 (0) 121 704 7430
Fax: + 44 (0) 121 704 7439
Hill & Smith Holdings PLC
Annual Report and Accounts for the
year ended 31 December 2010
2010
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www.hsholdings.com