2013
Annual Report for the year
ended 31 December 2013
Mission Statement
“To deliver sustainable profitable
growth through the supply of
Infrastructure Products and
Galvanizing Services.”
Hill & Smith Holdings PLC Annual Report 2013
1
Contents
Strategic Report
At a Glance
2013 Performance
Chairman’s Statement
Business Model, Strategy and Case Studies
2
4
6
8
12 Measuring Our Performance
Risk Management
14
Principal Risks and Uncertainties
16
20 Operational and Financial Review
29
Corporate Social Responsibility
Governance Report
Chairman’s Introduction
37
38 Board of Directors
40 Governance Report
46 Audit Committee Report
49 Remuneration Committee Report
50 Directors’ Remuneration Report
64 Directors’ Report (other statutory information)
67 Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
70
72 Group Financial Statements
111 Company Financial Statements
119 Five Year Summary
Shareholder Information
121 Financial Calendar
122 Shareholder Information
123 Principal Group Businesses
126 Directors, Contacts and Advisors
Bergen pipe supports used in the Freedom Tower, New York City and steel structure to
the outer area of the upper floors galvanized by V&S Galvanizing.
See further information online at hsholdings.com
Front Cover Images
Top. Creative Pultrusions’ composite sheet piling supplied to restore and protect the Long Beach Boardwalk following
damage suffered from Superstorm Sandy.
Middle. Energy absorbing permanent and temporary steel barrier, Zoneguard, installed on the A14, Kettering.
Bottom. 3m diameter Asset Weholite outfall at London Docklands. The first 60m long pipe string being lowered into
the water ready for towing to the submersion site.
Forward Looking 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 uncertainties that are inherent in
any forward looking statement which could cause actual results to differ from those currently anticipated.
2
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
At a Glance
We are an international group with leading positions in the supply
of infrastructure products and galvanizing services to global
markets. Through a focus on strong positions in niche markets we
aim to consistently deliver strong returns and shareholder value.
We operate from facilities in Australia, France, India, Sweden,
Thailand, the UK and the USA.
Australia – office in Queensland for the development of our
wire rope and safety barrier products.
France – the base of France Galva and Conimast where we
have ten galvanizing plants and a lighting column business.
India – manufacturing facility for pipe supports and offices
for development of our Hill & Smith infrastructure products
business.
Sweden – location of ATA, the road safety barrier and signage
business.
Thailand – location of the major part of our pipe supports
manufacturing capability, where we have plants near
Bangkok.
UK – head office and various group site locations covering our
main infrastructure products businesses and network of UK
galvanizing plants.
USA – our V&S galvanizing and utilities plants are situated
on the east coast along with the Bergen and Carpenter &
Paterson pipe supports businesses and the glass reinforced
composite profiles business, Creative Pultrusions.
Hill & Smith Holdings PLC Annual Report 2013
3
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Infrastructure Products
Galvanizing Services
For the core markets of Roads and Utilities – supplying products and
services such as permanent and temporary road safety barriers,
fencing, industrial platforms and flooring, street lighting columns,
bridge parapets, glass reinforced composite railway platforms and
flood prevention barriers, variable road messaging solutions, traffic
data collection systems, plastic drainage pipes and pipe supports for
the power and liquefied natural gas markets, energy grid components
and security fencing.
Operating from subsidiaries in Australia, France, India, Sweden,
Thailand, the UK and the USA.
›
›
›
Operating in international territories with the prospect of
sustained long term investment in infrastructure.
Focused on engineered products for the roads and utilities
markets.
Accounts for 71% (2012: 73%) of the group’s revenue and 43%
(2012: 43%) of the group’s underlying* operating profit.
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 the USA.
›
›
›
›
Geographical diversity - France 10 plants; UK 9 plants; USA 6
plants.
Strong market positions in the chosen territories and with a
reputation for service and quality.
Accounts for 29% (2012: 27%) of the group’s revenue and 57%
(2012: 57%) of the group’s underlying* operating profit.
Total volume of production from all plants 426,000 tonnes in
2013, up 4.2%.
2013 Revenue of £444.5m - by segment
2013 Underlying* Operating Profit of £44.5m - by segment
Infrastructure - 71%
Roads - 25%
Utilities - 46%
Galvanizing - 29%
Infrastructure - 43%
Roads - 26%
Utilities - 17%
Galvanizing - 57%
Percentage of 2013 revenue £444.5m
shown by end market geography
Percentage of 2013 underlying* operating profit
£44.5m shown by location of the operating site
UK - 46%
Europe - 23%
N America - 25%
M East - 2%
Asia - 3%
ROW - 1%
UK - 33%
Europe - 21%
N America - 46%
* All underlying profit measures exclude certain non-operational items, which are as defined in the section of the financial statements headed “group accounting policies” on page 82.
References to an underlying profit measure throughout this annual report are made on this basis.
4
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
2013 Performance
International
profits now
67% of
total profits
Underlying
profit before
tax £41.2m
up 2%
Dividend
increased
by 6.7%
Underlying
earnings
per share
increased by
4.1%
Hill & Smith Holdings PLC Annual Report 2013
5
Strategic Report
Governance Report
Financial Statements
Shareholder Information
2013
2012
Change %
Revenue
£444.5m £440.7m
Underlying operating profit
£44.5m
£44.0m
Underlying operating margin
10.0%
10.0%
+ 0.9
+ 1.1
-
Underlying profit before tax
£41.2m
£40.4m
+ 2.0
Profit before tax
£30.6m
£35.2m
- 13.1
Underlying earnings per share
Dividend per share
40.4p
16.0p
38.8p
15.0p
Net debt
£87.2m
£86.8m
+ 4.1
+ 6.7
- 0.5
Revenue
£444.5m
up 0.9%
Underlying
operating profit
Dividend per
share
Underlying
earnings per share
£44.5m
up 1.1%
16.0p
up 6.7%
40.4p
up 4.1%
.
m
7
0
4
4
£
.
m
5
4
4
4
£
.
m
7
9
8
3
£
.
m
2
4
7
3
£
.
m
2
6
0
4
£
.
m
0
7
4
£
.
m
9
5
4
£
.
m
0
4
4
£
.
m
5
4
4
£
.
m
5
1
4
£
(proposed)
.
p
0
6
1
.
p
0
5
1
.
p
3
8
3
.
p
0
9
3
.
p
5
4
3
.
p
4
0
4
.
p
8
8
3
.
p
7
2
1
.
p
2
3
1
.
p
5
1
1
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
2009
2010
2011
2012
2013
6
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Chairman’s Statement
“During 2013 we continued to
make investments and implement
operational changes to drive
future growth.”
Bill Whiteley
Chairman
Overview
I am pleased to report that 2013 has produced a strong performance
in the context of continued challenging economic conditions and
competitive markets. The results for 2013 are evidence of the quality
and resilience of the group’s businesses and, coupled with the
strategic and operational actions taken in the year, its prospects for
future growth.
During 2013 we continued to make investments and implement
operational changes to drive future growth, the highlights of which
were:
›
›
›
›
the acquisition of Medway Galvanising in the UK, which has
already contributed in excess of our expectations;
completion of the new V&S Galvanizing plant in Columbus, Ohio,
USA, to provide more efficient galvanizing capacity for our US
business;
restructuring of the UK industrial flooring business and
further investment in Lionweld Kennedy Flooring’s site at
Middlesbrough; and
rationalisation of the pipe supports operations, with the closure
of the facility in China, enabling us to leverage the cost benefits
arising from the expansion of the production facility in India.
Performance highlights
2013
2012 % change
Revenue
£444.5m £440.7m
Underlying operating profit
£44.5m
£44.0m
Underlying profit before tax
£41.2m
£40.4m
Underlying earnings per share
40.4p
38.8p
+ 0.9
+ 1.1
+ 2.0
+ 4.1
Further commentary on these results and the performance of each
division is contained in the operational and finance review sections on
pages 20 to 27.
Dividends
In view of the strong performance, the board is recommending a final
dividend of 10.0p per share (2012: 9.2p per share) making a total
dividend for the year of 16.0p per share (2012: 15.0p per share) an
increase of 6.7%.
We continue to perform at levels that enable us to maintain a
progressive dividend policy that has increased dividend payments by
an average of 10% in each of the last five years. Underlying dividend
cover is a healthy 2.5 times (2012: 2.6 times). The final dividend, if
approved, will be paid on 4 July 2014 to those shareholders on the
register at the close of business on 30 May 2014.
Set out below is our five year track record of dividends which is at the
heart of our strategic objective.
Full year dividends (pence per share)
16.0
(proposed)
15.0
13.2
12.7
11.5
2009
2010
2011
2012
2013
Hill & Smith Holdings PLC Annual Report 2013
7
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Total shareholder return (2009 - 2013)
In addition to our progressive dividend policy, we also strive to deliver increased shareholder value, as demonstrated from the graphs below.
These graphs show the total shareholder return performance of the group against that for the FTSE SmallCap and FTSE AllShare, for the period
1 January 2009 to 31 December 2013. Over the period the board is pleased with the progress made but we remain focused on further
improvement through implementation of our strategy.
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
350
300
250
200
150
100
50
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Source: Datastream
Hill & Smith
FTSE Small Cap
Governance
Honest, open and accountable management of our businesses is
key to the effective governance of the group, which underpins our
strategy and the sustainability of our performance.
In this year’s annual report we have set out further explanations of
our business model, strategy, risk management and activities of the
board and its committees. We trust that you will find these helpful in
understanding how we can, and do, achieve increased value for our
shareholders.
Remuneration incentive schemes
The rules of the group’s Executive Share Option Scheme (‘ESOS’) and
the all-employee Save as You Earn Scheme (‘SAYE’) expire in May
2015 and those for the Long Term Incentive Plan (‘LTIP’) expire in
May 2017. However, with the introduction of the binding vote on
directors’ remuneration policy, the remuneration committee is keen
to ensure that its remuneration arrangements are up to date, reflect
best practice and are appropriate for the ensuing three years for
which the policy vote will apply. We have therefore decided to seek
shareholder approval for new sets of rules to govern the ESOS, SAYE
and LTIP, at the 2014 AGM. The rules will be broadly similar to those
already in place but will be updated to ensure that they include the
most current governance provisions and best practice (for example,
the new rules will include clawback provisions and a more specific
policy around leavers). The proposed new rules are summarised in the
notice for the AGM.
AGM
We hold our AGM on 14 May 2014 and it is an excellent opportunity
for shareholders to meet the board and certain senior executives
of the group. If you are able to attend my colleagues and I will be
delighted to see you.
John Silk - Life President
We were saddened to hear of the loss of John Silk, who died on
31 December 2013, aged 89. John served as a director on the
board, became Chairman and was Life President. John was highly
regarded, not only in the local legal profession but also as a shrewd,
knowledgeable businessman, known for his integrity and down to
earth style. John will be missed by many people involved with Hill &
Smith and we wish to pay tribute to his contribution to the company
and to John Silk ‘the gentleman’.
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
350
300
250
200
150
100
50
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Hill & Smith
FTSE All Share
Outlook
Encouragingly, despite the extreme weather in the north east of the
US and in the UK, the momentum of stronger trading, seen in the
second half of 2013, has continued in the first two months of 2014.
Galvanizing volumes to date are ahead of 2013 in all geographies
although we remain mindful of the continued challenging economic
climate in France. The order book in the Utilities division remains
healthy and we expect margins to improve through recovery in both
Bergen Pipe Supports and Access Industrial Flooring, following the
actions taken in 2013.
The UK Government announced a new vision for its strategic road
network in June 2013 and as a result the Highways Agency unveiled
its largest upgrade of the road network, which includes a £10.7bn
investment for twenty-seven new schemes. Accordingly, we have
confidence in the short and medium term growth prospects for our
UK Roads businesses.
We expect good constant currency revenue and profit growth with
group margins slightly ahead of 2013 levels, although our reported
results are likely to be impacted by recent adverse foreign currency
movements. The overall prospects for our infrastructure products and
galvanizing businesses are encouraging as we see signs of increased
activity and future capital spend. This, along with the board’s
ambition to grow and develop through investing in the markets we
know, selective acquisitions and new products and technologies,
gives the board confidence in achieving sustainable growth and
shareholder value.
Bill Whiteley
Chairman
11 March 2014
8
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Business Model and Strategy
Business model
To hold leading positions in the niche markets of infrastructure and galvanizing, diversified over different
geographies, with a focus on service, margins and product development.
Strategic drivers
Business
model
Organic revenue growth
Geographic diversification
Target returns and leverage
Active portfolio management
Entrepreneurial culture
Sustainable
profitable
growth
Strategy in action 2013
›
In depth review of strategy in 2013.
› Acquisition of Medway Galvanising and
disposal of London site.
›
›
Integration of 2012 acquisition of Expamet,
continuing to deliver improved ROS and ROCE.
Closure of Access Design site in Telford and
development of ‘super site’ at Lionweld
Kennedy Flooring in Middlesbrough.
› New V&S Galvanizing plant at Columbus, Ohio,
USA. Further investment in another new US
plant commenced Q4 2013.
›
›
Leveraging of products, with Zoneguard
temporary barrier being rented in the UK and
sold in Australia.
Rationalisation of pipe supports manufacturing
in China and expansion of production in India.
Hill & Smith Holdings PLC Annual Report 2013
9
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Strategy Implementation
Balanced profitable growth
Our strategy is to deliver sustainable profitable growth through
the supply of Infrastructure Products and Galvanizing Services. Our
objective is to achieve at least mid single-digit organic revenue
growth which, combined with selective acquisitions, will deliver
growth in earnings per share. A strong focus on cash generation
supports this growth strategy and enables a progressive dividend
policy.
In the Infrastructure Products division, our focus is on businesses
which supply into the Utilities and Roads markets, both of which enjoy
long term growth dynamics. Our businesses have niche positions,
high margins and provide us with access to global markets.
In Utilities, our focus is on the power generation, oil and gas and
water sectors, capitalising primarily on the growing demand for
new power generation in emerging markets and the replacement of
ageing infrastructure in developed economies.
In Roads, we will continue to strengthen our position as an
international supplier of road safety products into markets with
strong infrastructure spend and regulatory controls, leveraging our
products developed to European and US standards. An excellent
example of this is Zoneguard, our own developed temporary road
barrier which is now in use in the UK and Australia (see page 11). As
a result of the UK Government’s recent announcement on its vision
for the strategic road network, the Highways Agency has unveiled
a £10.7bn investment in twenty-seven new schemes. This funding
certainty has enabled us, as part of the HA supply chain, to commit
to £8m of capital expenditure for additional Zoneguard temporary
road barrier which will increase our rental fleet and utilisation for the
foreseeable future.
In the Galvanizing Services division, which serves external customers
as well as our own Infrastructure Products businesses, we are focused
on our existing geographies of the UK, USA and France. Growth will
be achieved through increasing our geographical footprint in the
USA and through potential consolidation opportunities in the UK and
France.
Geographic diversification
Our target was for operating profit, from manufacturing plants
located overseas, to reach 75% by 2013 and then to remain at or
close to this level. This target fell short in 2013 with 67% of operating
profits coming from overseas, mainly as a result of improvements
in UK profitability. Our overall geographic mix will be dictated by a
focus on further growth in emerging markets, whilst recognising that
opportunities still exist in our major developed markets of the UK,
France and USA.
UK Government spend is now at 10% of group revenue compared to
11% in 2012.
Our objective is to operate with an efficient balance sheet by
maintaining debt at between 1.5 and 2.0 times EBITDA, which in
turn allows us to complement balanced organic growth with value
enhancing acquisitions, such as Medway Galvanising, which was
acquired on 30 April 2013.
Active portfolio management
Our strategic objective is to develop more substantial businesses
in each of our chosen sectors through both organic and acquisitive
growth. Consequently, this leads us to continually examine the
smaller and lower performing units within the portfolio, along with
rationalisation of production facilities and business transfers. In 2013
we took the decision to close the manufacturing plant in China, for
our pipe supports business, and to move that capacity to India, where
our new factory has a more cost effective production capability.
We also closed the industrial steel flooring platform and hand rail
business of Access Design, located at Telford. The business has been
transferred to our site in Middlesbrough, where we have invested
in new production space and machinery to develop our already
successful Lionweld Kennedy Flooring business, which we acquired in
2004.
Our acquisition strategy is to buy businesses in markets we
understand through our existing activities. The majority of targets are
likely to be privately owned. We will also look at acquiring distressed
businesses in the UK which complement our existing operations and
therefore enable us to consolidate our market position. This in turn
will allow us, in some instances, to develop our smaller business
units into larger and more effective businesses within their markets.
Overseas acquisitions must have a high quality management team
in place and a proven earnings stream as it is more demanding to
manage distressed businesses effectively, from a distance.
We will continue to dispose of or rationalise operations that are
either non-core to the market strategy set out above, or incapable of
achieving our target returns, or insufficiently cash generative.
Entrepreneurial culture
We encourage an entrepreneurial culture in our business through a
decentralised management structure. We provide our management
teams the freedom to run and grow their own businesses supported
by the resources available through being part of a larger group, whilst
adhering to the levels of governance and controls appropriate for
a quoted company. This culture ensures that decisions are made
close to the market and that our businesses are agile and responsive
to changes in their competitive environment and through the
international spread of the group, opportunities are identified and
taken, through group collaboration.
Priorities in 2014
›
Selective acquisitions to consolidate our market position or
increase our geographical representation.
Target returns and leverage
Operating margins are an integral measure of the group’s success
and one which we will continue to drive for improvement through
product mix and value-added customer-focused solutions, as well as
high levels of operational efficiency.
›
›
Investing in increased capacity and product development to
capture potential opportunities.
Continuation of the structural and operational improvements in
both Infrastructure Products and Galvanizing Services.
Our target operating margin for a business unit is 10%, although
a lower margin profile may be acceptable if that business’ return
on capital employed (ROCE) is above 20%. A period of grace will be
granted to business units which can demonstrate a plan for margin
improvement to the targeted level. We aim to create value by
consistently exceeding this 20% benchmark for ROCE.
10
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Case Studies
Acquisition of Medway Galvanising
On 30 April 2013 the group acquired the UK based Medway Galvanising Company Limited which operates a large plant in Kent, for an enterprise
value of £6.4m, representing an EBITDA multiple of 4.4 times. Medway has a strong tradition in customer service for galvanizing, powder coating
and shot blasting. This acquisition enabled us to offer our existing customers enhanced service packages throughout the South East of England
and facilitated the closure of our existing galvanizing plant in Poplar, East London. The site at Poplar was subsequently sold for £2.5m.
The above is an example of our portfolio management strategy, namely growing our business through acquisition and rationalising an existing
operation to leverage increased profitability and the generation of cash.
Medway Crematorium showing the ornate galvanized window structure.
Hill & Smith Holdings PLC Annual Report 2013
11
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Zoneguard temporary road barrier
Zoneguard on the A14 Kettering Bypass widening. Over 11,000m was installed over five nights, and after several phased changes over the coming
months, it will be on hire for over a year. Demand for temporary road barriers in the UK market is forecast to increase throughout 2014, and Asset
International VRS is producing Zoneguard barrier at the Hill & Smith barrier plant to meet the market requirements.
Zoneguard temporary road barrier on the A14 Kettering Bypass.
12
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Measuring Our Performance
The board has adopted certain financial and non-financial key performance indicators. Other similar performance indicators are used at subsidiary
business level and adapted to suit the diversity and variety of the group’s operations.
The group uses a number of performance indicators to measure operational and financial activity in the business. Most of these are monitored
and reviewed on a weekly or monthly basis. A comprehensive monthly management accounts pack, including profit and loss statements and
key ratios, is prepared for each business. In addition, every managing director in the group submits a monthly report which is the basis of regular
operational meetings.
The key performance indicators (KPIs) below are used as measures of the longer-term health of the business and for monitoring progress in the
implementation of the group’s strategy.
KPIs
Link to our
strategy
Total revenue
growth
Underlying
operating profit
margin
Underlying
earnings per share
(UEPS) growth
The group’s core strategy is to deliver
sustainable profitable growth. This is
achieved with the target of mid-single
digit organic revenue growth and
selective acquisitions.
In line with its strategy of delivering
balanced profitable growth, the group
reviews underlying operating margins to
assess returns achieved on revenues.
The group considers UEPS growth to
be its key indicator of the profitable
growth of the group. Achieving UEPS
growth enables the group to maintain its
progressive dividend policy.
KPI definition
Annual % growth in total revenue.
Annual % organic growth in revenue.
Underlying operating profit as a % of
total revenue.
Underlying profit after tax for the year
divided by weighted average number of
ordinary shares.
2013 performance
Total Growth
Organic growth
Margin - no change
2013: 4.1% growth
%
4
7
.
%
5
8
.
0%
%
9
0
.
%
3
3
-
.
%
0
0
1
.
%
0
0
1
.
.
p
8
8
3
.
p
4
0
4
2012
2013
2012
2013
2012
2013
2012
2013
Comment
Whilst organic revenues declined by
3.3% principally as a result of lower
revenues in Utilities, total revenues grew
by 0.9% reflecting the contribution of
current and prior year acquisitions and
favourable currency movements.
The group’s underlying operating profit
of £44.5m represents a 10.0% return on
revenue, in line with the prior year. An
improved performance in Roads offset a
reduction in Utilities, while Galvanizing
continued to return a strong margin.
The group’s UEPS for 2013 was 40.4p, an
increase of 4.1% compared with 2012
(12.5% growth). The key contributors
to this growth were the increase in
underlying operating profit and the
reduction in the group’s underlying
effective tax rate to 24% (2012: 26%).
Hill & Smith Holdings PLC Annual Report 2013
13
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Free cash flow
Return on invested
capital (ROIC)
Health and safety
CO2e emissions
The group monitors free cash flow
performance to ensure that its profits
generate sufficient cash to support its
acquisition strategy and to maintain
progressive dividend payments.
The group targets ROIC to ensure
it maintains an efficient balance
sheet and that its operations, both
existing and acquired, enhance
shareholder value.
The health and safety performance
of each subsidiary is key to our
management of the group as a
responsible employer and to our
reputation in the markets we
operate.
Cost reductions and greater
efficiency, improve not only our
operating margins but also the
sustainability of our operations.
Underlying free cash flow divided by
underlying operating profit.
Underlying operating profit divided
by average invested capital.
Number of accidents.
Audit scores and bench markings.
Underlying free cash flow is defined
as operating cash flow less capital
expenditure.
Invested capital is defined as
net assets excluding current and
deferred tax, net debt, retirement
benefit obligations and derivative
financial instruments.
Carbon usage comparison year
on year and over a three year
programme.
Down 8%
No change
Up 15.7%
CO2e emissions (UK)
up 4.8%
%
1
0
1
%
3
9
%
5
1
%
5
1
9
9
3
5
4
3
2
0
8
0
3
,
3
9
2
2
3
,
2012
2013
2012
2013
2012
2013
2012
2013
The group achieved an underlying
cash conversion rate of 93% in
2013 (2012: 101%). Working capital
reduced by £1.9m over the course of
the year and now represents 13.9%
of annualised sales, down from
14.7% at December 2012. Capital
expenditure of £22.1m represents
a multiple of depreciation and
amortisation of 1.5 times (2012: 1.3
times) as the group continues to
invest in projects providing growth
opportunities.
The group aims to achieve ROIC
that exceeds the group’s weighted
average cost of capital (currently
c.9% on a pre-tax basis), with a
target return of 17.5%. In 2013 the
group achieved ROIC of 15%, in line
with 2012.
During 2013 we saw an increase in
the number of reported accidents.
This increase mainly resulted from
improved reporting, an increase in
minor accidents and the acquisition
of Medway Galvanising. Our scored
audit performance continued
to improve and will benefit the
achievement of reducing both the
number and severity of accidents
in 2014.
Page 33 contains further details.
We continue to improve and
refine our monitoring and
management of CO2e emissions
for the group and to target
reductions, where possible.
Further details of our performance
for 2013 and our plans for 2014,
including our overseas operations,
are contained in the corporate
social responsibility report on
pages 29 to 34.
14
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Risk Management
Approach to risk
During the year the board considered the nature and extent of the
risks it was willing to tolerate (on a managed basis) whilst pursuing
its strategic goals. In addition, the board also reviewed the existing
internal statement of principal risks and uncertainties which are set
out on pages 16 to 19.
Structure and control
To improve control we have adopted a short chain of command and
relatively flat organisational structure. The group chief executive and
group financial director hold monthly meetings/video calls with their
direct reports. Their rewards are aligned with the strategy through
incentives to achieve budget and personal targets.
The board also regularly reviews the financial and other KPIs
mentioned on page 12 and 13.
Governance
Effective governance is key to sustaining our performance. Our well-
established policies and processes support our operations worldwide
and as a minimum, we construct our policies to adhere to local legal
requirements and in many cases exceed them.
Those responsible for governance, audit and risk and compliance
functions provide the audit committee and board with visibility
and understanding of the group’s key risks and risk management
capabilities. This governance activity also provides assurance over the
quality of the group’s internal control and management of key risks,
in line with a plan agreed by the audit committee.
Through this activity:
›
›
›
areas for enhancement of risk management and internal
controls are identified;
action plans to deliver such enhancements are devised; and
delivery is monitored by management and the board and/or the
audit committee.
As part of this ongoing process of enhancement, existing policies
and procedures are reviewed and where considered appropriate,
amended and new policies and procedures are designed and
implemented.
Assurance
The board considers that the information it receives is sufficient to
enable it to review the effectiveness of the group’s risk management
and internal controls, which manage and aim to mitigate, to
the fullest extent possible, the risk of not achieving business
or governance objectives. Whilst they cannot provide absolute
assurance, the board believe they provide appropriate assurance
against material misstatement or material loss.
Process
Effective and measured risk management is an essential discipline
for running our business efficiently, implementing the strategy
successfully and ensuring the sustainability of the group. We have
appropriate processes to monitor and control the performance
and risks within each business unit and which align to our strategy.
Such processes, and the policies which underpin them, are designed
to ensure compliance with the legal and regulatory requirements
of each territory we are represented in. The graphic opposite and
on page 15, illustrates our approach to risk identification and
management.
All business units and the executive management are required
to maintain a process to ensure key risks are identified, recorded
evaluated and managed appropriately. This process is also
applied to major business decisions or initiatives, such as capital
expenditure, systems implementations, new product development,
subsidiary business interaction, rationalisation or significant business
strategy implementation. Additional risk management activity
is focused directly towards operational risks within the business,
including matters such as health and safety, product quality and
environmental risk management.
Review by the group’s risk & compliance counsel of specific
areas of the group’s operations, selected in consultation with
the audit committee, serves to identify risks and support the
implementation of control measures at the local level, whilst
ensuring they are monitored as part of the group’s overarching risk
management programme. The results of these local reviews and
the implementation of associated control measures and mitigations
are discussed with the chairman of the audit committee and
subsequently presented to, and approved by the audit committee.
Risk management
Risk management and internal control processes encompass activity
to mitigate risks which might materialise in the following categories:
Economic
Managing the impact of those risks which we cannot eliminate or
mitigate at source; e.g. global market conditions.
Commercial and Financial
Mitigating internal and external commercial and financial trading risks
in our day to day business activities.
Operational
Ensuring that we take all necessary steps to manage risk in our
manufacturing plants and our installation activity both in our facilities
and in the field.
Legal and Regulatory
Ensuring compliance with the laws and regulations which govern the
operations in the territories in which we operate.
Human Resources
Recognising the importance of recruitment, talent management,
employee engagement and employee management to our group.
Legal &
Regulatory
Operational
Human
Factors
Risk &
Compliance
Commercial
& Financial
Economic
Hill & Smith Holdings PLC Annual Report 2013
15
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Risk management process
The risk management process deployed by the group includes the steps detailed in the diagram below. The risks applicable to the group are
identified through a combination of group management team and subsidiary business inputs. The risks are categorised in accordance with the
graphic below and explanations on page 16 to 19. Once categorised, risks are subjected to individual assessment and tailored control measures
are developed. This could include the board adapting the group’s strategy or the design of business specific control and mitigation measures,
where risks are specific to a subsidiary business. These bespoke control and mitigation measures are implemented and monitored to ensure that,
where necessary, appropriate adjustment is deployed and the risks moderated. The output of the process is periodic review and reporting to both
the board and audit committee, of the possible risk to each business and to the group’s strategy.
Stage 1
identification of risk
Group management
(identify strategic risk)
Subsidiary business
(identify specific risk)
Stage 2
risk analysis and categorisation
Stage 3
design and implementation of risk
mitigation and monitoring
Stage 4
review and report
(audit committee and board)
updated risk register
presented to the audit
committee and the board
twice a year
Stage 5
monitor risk and review mitigation
adjustment to mitigation
fed into the board or
individual business units
16
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Organic revenue growth
Target returns and leverage
Active portfolio management
Entrepreneurial culture
Geographic diversification
Sustainable business
Principal Risks and Uncertainties
Our risk assurance programme is a rolling programme designed to be forward-looking in the identification, management and mitigation of
business risks that could impact the group’s performance, reputation and value. It is not possible to completely eliminate risks and, therefore,
the risk assurance programme we deploy strives to mitigate risks to tolerable levels in the context of the markets, jurisdictions and business
environments in which we operate.
Principal
economic
risks
Economic
conditions
Our measured
response to overall
economic conditions
and market growth.
Potential
impact
The risk of uncertainty,
changes in confidence
and growth trends of the
economy leading to a
decline in demand and
reduction of Government
and industry spending
patterns, affecting group
financial performance.
Competition
The effect of a
greater number of
competitors offering
differentiated
products, prices,
service and quality.
The risk that competitive
pressures could lead to
the group not converting
opportunities into sales
or otherwise adversely
affecting financial
performance.
Mitigation and assurance
Relevance to
strategy
The group is diversifying into new markets and new territories.
›
› Ongoing monitoring and reviewing of the timing of funding is undertaken
in conjunction with responding to market conditions, led by Government
Policy.
› Ongoing investigations into the prospects for group exporting opportunities
›
›
›
are underway.
Intra-group interaction is under regular evaluation, including identifying
opportunities to leverage the global footprint of the group.
The group is diversifying into new markets and new territories.
The effectiveness of the sales and marketing functions at subsidiary level
are regularly reviewed.
› Ongoing investigations into the prospects for group exporting opportunities
›
›
›
are underway.
Intra-group interaction is under regular evaluation, including identifying
opportunities to leverage the global footprint of the group.
Subsidiary businesses regularly review the effectiveness of their quality
management systems and instigate improvements where necessary.
The group continues to invest in updating and expanding its products
portfolio.
› Group–wide procurement standards have been implemented to assist in
cost optimisation and greater supply chain control.
Principal
human
resources
risks
Potential
impact
Mitigation and assurance
Relevance to
strategy
Talent Recruitment
and Retention
The importance
of recruiting and
retaining the most
capable employees.
Were the group unable to
recruit suitably qualified
and skilled personnel and
to retain them, business
plans and strategic goals
could be compromised.
›
›
›
›
The group offers competitive remuneration packages to all employees.
Contractual protections are implemented for employee retention and post
termination circumstances.
Regular reviews of salaries, benefits and incentives are undertaken and
competitively benchmarked.
Succession planning is encouraged at both the group and subsidiary
business levels.
Hill & Smith Holdings PLC Annual Report 2013
17
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Principal
operational
risks
Potential
impact
Mitigation and assurance
Relevance to
strategy
Business
Interruption
Moderating
the impact
of a natural
catastrophe or
failure of a key
facility on our
performance.
Products
Minimising the
effect of product
issues, product
approvals
or product
development.
Information
Technology
Systems
Assessing the
suitability of
existing systems
for anticipated
operational or
strategic activities.
Geographical
Span
Leveraging the
benefit of the
geographical
diversity of our
operations.
The risk of a permanent
or a temporary cessation
in activity caused by
full or partial loss of a
key manufacturing site
or warehouse of the
group, as a result of a
natural catastrophe or
for any other reason. An
inability or interruption
of our supply capability
could cause customer
dissatisfaction, adverse
impacts on financial
performance and
reputation.
In the event that the
group’s products fail or
fail to attract customer
approval the potential
impact would be
customer dissatisfaction
and/or contractual
claims resulting in
re-work, which will
ultimately affect
financial performance
and cause reputational
loss and damage.
The risk of a failure
to undertake product
developments is
that growth could
stagnate and the group
suffer from a loss of
opportunity.
The risk that the IT
systems of subsidiary
businesses may be
outdated or unsuitable
for envisaged activities,
leading to financial
performance impacts.
Remote management
and control of
international operations
together with the variety
of jurisdictional risks,
which are specific to
such locations, resulting
in operational risk which
could impact successful
delivery of the strategy.
›
›
›
›
›
Subsidiary businesses undertake business continuity planning which will
be strengthened by group wide initiatives in the forthcoming year.
Subsidiary businesses implement local health, safety and environmental
controls, which are monitored by regular group health and safety
committee meetings and an external specialist.
Subsidiary businesses are encouraged to communicate on an intra-group
basis in order that geographically proximate businesses may support one
another in the event of business disruption.
Further initiatives will be implemented in the forthcoming year to
strengthen business continuity resources and planning across the group,
including working with our insurers on recovery plans and individual
selective site surveyors.
Preparing and reviewing the effectiveness of individual business
interruption plans through the group’s IT steering committee.
›
›
› Accreditations, regulatory approvals and testing are undertaken by the
group in order to reach the desired quality and performance standards.
Comprehensive quality management systems are in place across the
group which are bolstered by insurances obtained from reputable insurers.
The subsidiary businesses invest in new product development and where
product improvements are not essential, the subsidiary businesses
investigate opportunities to diversify into new markets and jurisdictions.
Protocols are in place to ensure an effective and prompt response to
product or trading issues which may affect the group’s reputation or
future business relationship.
Evaluation of risk of new projects pre-commitment and review of
contractual terms to understand and mitigate risk.
›
›
›
›
›
›
›
›
IT systems capability, suitability and integrity reviews have been initiated
through the group’s IT steering committee.
The capital expenditure process will be used to test the integrity and
suitability of proposed IT systems in relation to cost and capabilities.
Certain IT policies have been implemented, serving to control and manage
IT changes and upgrades.
Further initiatives will be implemented in the forthcoming year to
strengthen business continuity resources and planning across the group.
Subsidiary businesses are encouraged to act in an entrepreneurial manner
with central support for key legal, financial and strategic developments
and initiatives. Businesses are able to seek support from the centre in
respect of their local issues.
Further strengthening of the central team, regular site visits by the group
management team and a group internal intranet facility help to enhance
cohesion of the group’s management and its effectiveness.
› No undue reliance is placed on specific subsidiary businesses, customers
or projects.
18
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Organic revenue growth
Target returns and leverage
Active portfolio management
Entrepreneurial culture
Geographic diversification
Sustainable business
Principal Risks and Uncertainties continued
Principal
commercial
/ financial
risks
Supply Chain
Managing the
influence of the
escalation of
supply chain costs,
supplier contractual
performance and
ethics on our
performance.
Potential
impact
Increases in raw
materials affect group
purchasing costs and
pressurise margins and
competitiveness. The
concern that group
contractual performance
with its customers is
adversely affected by poor
supplier performance and
ethical standards.
Acquisitions
Our management of
businesses acquired
to complement and
enhance the group
portfolio.
Acquired businesses do not
perform as expected or
integration is more difficult
than anticipated.
Pension Deficit
The controls we
deploy in respect of
pensions funding
and management
to safeguard
group financial
performance.
Treasury Risks
The sensible
management of
changes in liquidity,
foreign exchange
and the taxation
position of the
group.
Capital that would
otherwise be available
for investment is tied up
in funding liabilities and
making good the deficit.
Factors outside the
group’s control such as
mortality rates, interest
and inflationary pressures
may lead to increases in
the deficit and therefore,
group contributions.
Future investment projects
and the growth in foreign
earnings for the group are
adversely affected.
The group is affected by
the short term risk that its
earnings may be impacted
by certain financial risks
e.g. credit risk, liquidity
risk and foreign exchange
volatility.
The group operates
in a range of different
jurisdictions, political
and fiscal regimes which
present operating and
cultural risks.
Mitigation and assurance
Relevance to
strategy
› Group–wide procurement standards have been implemented to assist in
cost optimisation and greater supply chain control including credit, financial
resilience and contractual controls.
Financial resilience checks are required to be undertaken on suppliers of key
materials/components and services.
›
› A group delegation of authorities structure requires group management
›
›
review and approval of strategic procurement contracts.
Subsidiary businesses are required to ensure multi-sourcing of key materials/
components, wherever practicable, to reduce over reliance on any key
suppliers.
Key initiatives are planned for the forthcoming year to further enhance
contractual control structures to mitigate the impact of raw material cost
escalation, supplier delivery and quality controls and supplier’s ethical
standards.
› Due diligence protocols are deployed to investigate target businesses
effectively.
› Appropriate contractual assurances are sought from the seller to reflect
›
shortcomings identified in the due diligence process.
The group offers competitive remuneration, benefits and incentive packages
to all employees and the salaries of employees in acquired businesses
are appropriately aligned. This measure helps to mitigate any material
integration issues by ensuring continuity of personnel throughout the
transition.
› Quarterly reporting to the board of invested asset performance and
dialogue with Trustees in respect of the investment strategy.
› Management and scheduling of deficit funding in line with the Trustees
›
›
›
›
›
›
›
›
requirements.
Reduction in liabilities, stemming from the cessation of future accrual for
the UK executive scheme from 2012 has assisted to reduce the risk profile
related to pensions.
Final salary pension scheme is in maturity, thus steadily reducing risks.
Reviewing the appropriateness of the asset investment strategy in the
context of a mature scheme.
From a transactional perspective, group companies operate a common set
of financial reporting policies and procedures. An internal audit programme
underpins compliance in this respect and further requirements are
communicated via the group intranet and directly to financial professionals
around the group.
The group benefits from centralised cash and banking controls and the
group financial controller acts to govern and monitor all financial controls
applicable across the group.
Periodic reviews and assessments are undertaken in relation to foreign
exchange risk from a translation perspective.
Regular monitoring of tax developments in relevant jurisdictions assists to
ensure that the group utilises the most appropriate tax structures.
Specialist and/or local independent tax advice is sought as appropriate from
reputable accounting practices.
Hill & Smith Holdings PLC Annual Report 2013
19
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Potential
impact
Mitigation and assurance
Relevance to
strategy
A failure to adequately
control environmental,
health or safety
risks could have an
adverse effect on
group employees and
operations. This could
lead to a reduction
in organic growth,
market share, financial
performance and the
group’s reputation as a
whole.
A failure to comply with
the various laws and
regulations affecting the
span of our international
operations could
have both financial
and reputational
consequences for the
group. The management
of group risks and our
continued compliance
with international laws
and regulations is central
to future investment and
shareholder support.
› A group-wide health, safety and environmental programme controls the
standards applicable to the group which includes policies and procedures.
An external resource is retained to ensure subsidiary businesses are able
to seek specialist assistance with health, safety and environmental issues
relevant to their businesses.
› Monthly reports are provided to the board of the Health and Safety
Management of the group including accident statistics and ranked audit
performances against the target benchmark.
› A group ‘safety cloud’ system was implemented in 2012 which is serving
to ensure centralised monitoring and assurance, not only to highlight
issues but to ensure corrective actions are implemented to the extent and
standard required.
› Maintenance of bespoke insurance arrangements for costs associated with
any employers’ liability.
› Appointment of a group risk & compliance counsel with a direct reporting
responsibility to the group chief executive and audit committee chairman.
›
› A new group Code of Business Conduct was launched during the year
demonstrating the group’s commitment towards its compliance
responsibilities.
Policies, process manuals, business process development, online and in-
person training programmes and a focus on certain compliance and legal
risks have been deployed.
Internal and external legal and compliance controls and resources have
been made available to the group businesses.
Further strengthening, through information and training on the policies
for anti-bribery and corruption, competition law, gifts and entertainment,
whistleblowing and restricted parties screening protocols.
›
›
› A compliance hotline has been created to encourage the reporting of
›
concerns from around the group.
Compliance initiatives reach employees directly through use of the global
group intranet facility and risk and compliance communications including
policies, guidance and reports, which are periodically issued.
Principal
legal and
regulatory
risks
Health, Safety
and Environment
Emphasising
the importance
of safeguarding
the welfare of
our employees,
representatives
and visitors to
our facilities and
minimising the
environmental
impact of our
operations.
Compliance
Ensuring
compliance
with the laws
and regulations
applicable in the
jurisdictions in
which we operate.
20
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Operational and Financial Review
Derek Muir
Group Chief Executive
Mark Pegler
Group Finance Director
2013 overview
The overall performance of the group for 2013 was in line with the
outlook statement given at the time of our interim results in August
2013 and reiterated in our November 2013 interim management
statement.
After a subdued first half performance, due to a lack of large
projects, the group achieved a record earnings performance in the
second half of the year. Underlying operating profits were split 45%
H1 (2012: 52%) and 55% H2 (2012: 48%). Overall Infrastructure
Products delivered a similar result to last year, with the Roads division
performing above our expectations, while the Utilities division was
disappointing. Galvanizing Services performance was marginally
below the prior year due to a weaker market in France, partially offset
by a stronger performance in the UK, which included the acquisition
of Medway Galvanising.
The international diversity and strength of our businesses within
their respective markets allowed us to deliver a robust performance
despite the challenging economic environments seen globally.
Profits from USA operations represented 46% of underlying operating
profits (2012: 50%) and in total 67% of profits were generated from
operations outside the UK, which was lower than the previous year
(2012: 76%) due to an improved performance in a number of our UK
business units.
Revenue for the year increased by 1% to £444.5m (2012: £440.7m).
Adjusting for beneficial currency impacts of £6.1m and revenue of
£12.6m arising from acquisitions, underlying revenue fell by £14.9m.
Underlying operating margin was constant at 10.0% (2012: 10.0%).
Underlying operating profit increased by 1% to £44.5m (2012:
£44.0m) with acquisitions and currency movements accounting for
£1.1m and £1.0m respectively. Underlying profit before taxation was
2% higher at £41.2m (2012: £40.4m).
Infrastructure Products
Revenue
£316.9m
down 1%
Underlying operating profit
£19.1m
up 2%
.
m
8
9
1
3
£
.
m
9
6
1
3
£
.
m
7
8
1
£
.
m
1
9
1
£
2012
2013
2012
2013
The division is focused on supplying engineered products to the Roads
and Utilities markets in geographies where there is a prospect of
sustained long term investment in infrastructure. In 2013 the division
accounted for 71% (2012: 73%) of the group’s revenue and 43%
(2012: 43%) of the group’s underlying operating profit.
Revenues fell by 1% to £316.9m (2012: £319.8m). Underlying
margins improved by 20 basis points to 6.0% (2012: 5.8%) due to a
stronger margin in Roads offset by a weaker margin in Utilities.
Hill & Smith Holdings PLC Annual Report 2013
21
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Utilities
Revenue
£202.9m
down 1%
Underlying operating profit
£7.4m
down 45%
.
m
7
5
0
2
£
.
m
9
2
0
2
£
.
m
4
3
1
£
m
4
7
£
.
2012
2013
2012
2013
The requirements for new power generation in emerging economies
and replacement of ageing infrastructure in developed countries,
provide excellent opportunities for the group’s utilities businesses.
Revenues fell to £202.9m (2012: £205.7m) which, after adjusting for
acquisitions and currency impacts, reflected an organic decline of
£11.8m primarily due to a combination of lower revenues in Bergen
Pipe Supports, the large contracts in Creative Pultrusions in 2012 not
being repeated in 2013, and the actions taken to reduce our exposure
in UK contracting. Underlying operating profit fell by £6.0m to £7.4m
(2012: £13.4m) with acquisitions contributing £0.4m and currency
movements £0.2m.
Our USA based transmission structures and substation business
performed well due to the continuing demand for upgrades and the
connection to the USA power grid of renewables projects. This market
remains robust and we have good visibility on demand and a strong
order book as we enter 2014.
Creative Pultrusions, our US based composites company, whilst
lacking the one-off ballistic panel order it enjoyed in 2012, was
successful in supplying piling for coastal protection to the Statue of
Liberty, New York and the Boardwalk at Long Beach, New Jersey as
part of the rebuilding taking place in the aftermath of Superstorm
Sandy. In the second half we delivered coverboard projects for the
new metros in Hawaii and San Francisco. We entered 2014 with
a good order backlog and strong pipeline of potential projects for
our piling and rail products. We are also experiencing an upturn in
enquiries from our OEM customers for custom pultruded products.
Bergen Pipe Supports is the largest business within the Utilities
division, with a global manufacturing footprint. Bergen designs and
manufactures large industrial pipe supports for gas, coal and nuclear
power plants and petrochemical installations around the world.
Our manufacturing plants in the USA saw levels of enquiries for gas
fired power stations improve in the second half of 2013 after a slow
start to the year. We were also successful in delivering the supports
on two gas fired power stations in the final quarter and enter 2014
with an improving order book. The spin-off from shale, oil and gas is
not only creating a market for natural gas fired power stations but
also LNG terminals, petrochemical and fertilizer plants.
Our pipe supports business in the rest of the world entered 2013 with
a strong order book buoyed by emerging power demand. However,
capacity constraints in Thailand forced some larger projects to be
manufactured in the UK facility thus increasing costs and depressing
margins in the first half of the year. We entered the second half with
a reduced order book for delivery in the final quarter of 2013, versus
that for the prior year, which although disappointing has allowed us
to begin to put systems in place to achieve operational improvements
across the pipe supports group.
During the final quarter we closed our Chinese facility to consolidate
our production capabilities, reduce site overheads and improve overall
profitability. The group’s manufacturing plant in Chennai, India,
achieved the ISO 9001:2008 quality assurance standard. This ensures
and promotes quality assurance to business recognised standards
and stamps a mark of distinctive quality on the group’s product.
Power projects for the Indian market were supplied in the second
half, with encouraging levels of order intake in the fourth quarter.
During the year we signed global supply agreements with METSO for
the supply of supports for power plants and paper mills, and with JGC
for the supply of cryogenic supports. We enter 2014 with an order
book for engineered pipe supports of £15m (2013: £16m).
The UK water industry Asset Management Programme (AMP5), now
in its fourth year, saw the completion of interconnecting pipework
for a number of sewage treatment plants in the first half of 2013.
The second half saw delivery of the £2m Lee Valley sewer outfall
project, using 3.0m diameter pipes sunk to the seabed of the Thames.
Enquiries for large AMP5 flood alleviation tanks were strong in the
second half and we expect a surge of orders in 2014 as problems
associated with the recent flooding begin to be addressed. Demand
for storm attenuation tanks for use in the housing market also
looks encouraging for the foreseeable future as the housing sector
continues to recover and as the focus on flood risk increases.
Access Design, which manufactures and installs secondary steelwork
and industrial flooring and handrails for AMP5, was downsized
earlier in the year to reduce exposure to the highly competitive UK
contracting arena. As we progressed through the year the volume
of work won with higher margins was not enough to sustain the
business on a standalone site in Telford. The decision was therefore
made to transfer all production and manufacturing activity to the
main manufacturing site at Lionweld Kennedy in Middlesbrough. This
business continues to flourish in the manufacture and supply only, of
industrial flooring and handrails, with further investment at the site in
a new open steel flooring machine, designed to service the growing
offshore refurbishment market and to increase export opportunities.
Whilst the decision to close the Telford site was not taken lightly,
the actions further demonstrate our commitment to active portfolio
management to improve return on sales and capital invested. The
transfer was completed at the end of February 2014 and since the
end of 2013 we have successfully won a number of projects for
Crossrail for flooring and handrail platforms in train maintenance
depots.
Acquired in May 2012, Expamet Building Systems based in Hartlepool,
which supplies expanded metal products through builders’ merchants
and DIY retailers, has been successfully integrated into Birtley Building
Products. The combination of Birtley and Expamet has seen increased
demand for its products as the housing sector recovers. The enlarged
business had a record year and trading continues to exceed our
expectations.
Bromford Iron & Steel, our specialist steel rolling mill, had a
disappointing year due to subdued demand and a less favourable
exchange rate.
22
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Operational and Financial Review continued
Roads
Revenue
£114.0m
0% change
Underlying operating profit
£11.7m
up 121%
.
m
1
4
1
1
£
.
m
0
4
1
1
£
.
m
7
1
1
£
m
3
5
£
.
2012
2013
2012
2013
Our Roads division designs, manufactures and supplies temporary
and permanent safety products for the roads market, with an
increasing international presence.
Revenues were unchanged at £114.0m (2012: £114.1m) representing
36% of the Infrastructure Products segment. Underlying operating
profit of £11.7m was £6.4m higher than prior year (2012: £5.3m) due
to improving returns in our growing international businesses, better
utilisation of our Varioguard product in the UK and the impact of
the onerous gantry contracts on the prior year results. There was no
material effect from currency movements.
In 2013 our traditional UK roads market for permanent and
temporary road restraint systems returned to more normalised levels
and Varioguard utilisation increased in the second half as the roads
programme started to regain momentum.
In June 2013 the UK Government announced additions to the
strategic roads programme with schemes scheduled to start in 2015.
Schemes announced previously are now on track to start in 2014 and
as a result the group made a £4m investment to increase its rental
stock of Zoneguard by 25km, which has been manufactured locally
at our factory in the West Midlands. The first project of 11km for the
A14 upgrade was installed in January 2014 and due to the level of
demand we have committed to a further 25km (£4m investment)
which will be available for the second half of 2014.
In the USA we made progress in identifying and appointing
distributors for the Zoneguard product in States where full approval
has been granted. Sales to these distributors have enabled them to
develop local rental markets and, when required, cross-hire additional
Zoneguard from our rental fleet. We continue to benefit from the
two-year USA Roads Bill put in place at the end of 2012 and achieved
record utilisation (90%) of our rental fleet in the year.
Approval for Zoneguard in Australia was granted and an agreement
has been signed with a long-term partner for supply to the Australian
market. The first shipments took place in the second half of 2013. This
is part of our strategy to strengthen our position as an international
supplier of tested road safety products to geographies where there is
an increased requirement for safety.
ATA, our Swedish roads business acquired in 2011, had a strong
performance in 2013 as they established themselves as suppliers of
our fully tested European Standard highway products from the UK.
They also made progress in Norway where we established a branch of
ATA to further penetrate the Scandinavian market.
During 2013 we were approved to supply the Brifen wire rope
safety barriers to the Indian market and subsequently opened a
manufacturing facility near Delhi. The demand for road safety in the
region is increasing, especially on the new toll road projects and we
had an excellent second half, shipping over 132km of product. Our
order book is encouraging for 2014 and after a long approval process
momentum is building in what looks to be an exciting market.
Our lighting column business in the UK achieved record profitability as
the five previously won PFI projects entered their main construction
phases. Whilst the local authority market remained challenging, the
housing market is showing signs of recovery.
In France, market conditions remained challenging throughout the
year but we saw an improvement in the second half from higher
value specification work. We also completed the investment in a new
automated press and from Q2 2014 we will be seeing the benefits of
lower manufacturing costs.
Techspan, our electronic signage business, won a £7.4m four-
year agreement for the supply of ancillary equipment for roadside
furniture to the Highways Agency. We continued to win contracts
for the supply of signs to the Highways Agency in England and
Northern Ireland, which led to a reasonable performance in the
year. We anticipate there will be increased requirements for signs
for the next phase of managed motorway schemes in the second
half of 2014. We secured a large contract from Transport for Wales
to provide journey time and data collection using both our EVO8
ANPR (automatic number plate recognition) camera and our Black
CAT classifier, further demonstrating the compatibility of our product
range to collect and combine vital information for management
of the road networks. We are continuing our investment in next
generation cameras to be used in road tolling and data collection.
Hill & Smith Holdings PLC Annual Report 2013
23
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Construction of an identical plant at a new site is now underway and
is on track for completion in 2014. The new location will provide local
fabricators with galvanizing services on their doorstep and encourage
engineers and architects to move from painting to galvanizing.
This is part of the organic growth strategy for the USA and will be
complemented with selective acquisitions.
France
France Galva has ten strategically located galvanizing plants each
serving a local market. We act as a key part of the manufacturing
supply chain in those markets and have delivered a high level of
service and quality to maintain our position as market leaders.
The business experienced a slow start to the year and by the end
of the first quarter volumes were down 14% on the same period in
2012. Since then we have been encouraged by volumes despite the
completion of a large one off contract for galvanizing transmission
and lighting poles which ended in June 2013. In the second half
volumes were assisted by the structural steel for the new Bordeaux
Stadium. The market remains challenging due to the economic and
political climate.
On 17 September 2013, Yves Delot, the President of France Galva, was
awarded the medal of a Knight in the National Order of Merit, for 40
years of service to the galvanizing industry in France.
UK
Our galvanizing businesses are located on nine sites, four of which are
strategically adjacent to our Infrastructure Products manufacturing
facilities.
On 30 April 2013 the group acquired Medway Galvanising Company
Limited, which operates a large plant in Kent, for an enterprise value
of £6.4m representing an EBITDA multiple of 4.4 times. Medway
has a strong tradition in service for galvanizing, powder coating
and shotblasting. As part of our ongoing strategy to optimise our
UK network we closed and sold our East London site located near
the Olympic Park in July for a cash consideration of £2.5m. This
acquisition and restructuring allows us to offer our existing customers
an enhanced service throughout the South East of England and to
date we have seen Medway performing above our expectations.
On 17 December 2013 we purchased certain assets from Arkinstall
Galvanizers for £0.4m, resulting in the closure of their Tividale plant
in the West Midlands. Production has been transferred to our nearby
Walsall plant and we will continue to build on their well-established
collection and delivery service similar to Medway, allowing us to
service geographies outside our existing network.
UK volumes improved by 18%, compared to 2012, with Medway
contributing 6% of the volume increase. The rest of the UK saw
volumes increase by 12% due to stronger demand from infrastructure
projects and an improvement in our own internal volumes.
In December 2013 we upgraded our largest plant in Chesterfield,
replacing the existing galvanizing bath with a longer, more efficient
bath for structural projects such as multi-storey car parks and power
stations.
Galvanizing Services
Revenue
£127.6m
up 6%
Underlying operating profit
£25.4m
0% change
.
m
6
7
2
1
£
.
m
9
0
2
1
£
.
m
3
5
2
£
.
m
4
5
2
£
2012
2013
2012
2013
The Galvanizing Services division offers corrosion protection services
to the steel fabrication industry with multi-plant facilities in the UK,
France and USA. The division accounts for 29% (2012: 27%) of the
group’s revenue and 57% (2012: 57%) of the group’s underlying
operating profit.
At constant currency, revenues increased 3% to £127.6m (2012:
£120.9m) whilst operating profit was marginally higher at £25.4m
(2012: £25.3m) resulting in an overall margin of 19.8% (2012: 20.9%).
Overall galvanizing volumes were 4% ahead of 2012 due to the
acquisition of Medway Galvanising and an improvement in the UK
structural steel market.
USA
Located in the North East of the country, Voigt & Schweitzer are the
market leader with six plants offering local services and extensive
support to fabricators and product manufacturers involved in
highways, construction, utilities and transportation. In 2013 they
were presented with the Hot Dip Galvanizing Excellence Award along
with three project Excellence awards by the American Galvanizers
Association.
Volumes fell 3% year on year, primarily due to lower volumes of
power transmission poles and temporary bridges through one of our
plants. This changed the mix towards smaller, higher margin projects
and together with operational efficiencies and a stable zinc price
we were able to maintain our profitability, despite the reduction in
volume.
The construction of our new plant in Columbus, Ohio was completed
on time, within budget and was fully operational in the second
quarter of 2013. The additional capacity and increased kettle
dimensions allowed us to attract a number of new customers
throughout the second half of 2013. This led to a return on our
investment ahead of our expectations and the efficient layout and
operation of the plant results in a 50% increase in annual capacity
compared with the 40% previously estimated.
24
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Operational and Financial Review continued
“The construction of our new plant in
Columbus, Ohio was completed on time,
within budget and was fully operational in
the second quarter of 2013.”
New galvanized gates at our Voigt & Schweitzer plant in Columbus, Ohio following the investment to increase capacity and capability.
Hill & Smith Holdings PLC Annual Report 2013
25
Strategic Report
Governance Report
Financial Statements
Shareholder Information
The group’s strong underlying operating cash flow provides the funds
to invest in growth, both organic and acquisitive, to service debt,
pension and tax obligations and to maintain a growing dividend
stream, whilst a sound balance sheet provides a platform to take
advantage of future growth opportunities.
Underlying operating
cash flow
Capital investment
Acquisitions & Restructuring
Interest
Tax
Pension deficit
Dividends
Other
Group net debt at 31 December 2013 was £87.2m, representing a
year on year improvement of £0.2m before adverse exchange rate
movements of £0.6m. The group’s net debt remains principally
denominated in US Dollars and Euros which act as a hedge against
the net asset investments in overseas businesses.
Change in net debt
Operating profit
Depreciation and amortisation*
Working capital movement
Pensions and provisions
Other items
Operating cash flow
Tax paid
Interest paid (net)
Capital expenditure
Sale of fixed assets
Free cash flow
Dividends
Acquisitions
Net issue of shares
Change in net debt
Opening net debt
Exchange
Closing net debt
2013
£m
34.5
16.9
1.9
0.4
0.5
54.2
(15.3)
(3.4)
(22.1)
3.0
16.4
(11.6)
(6.6)
2.0
0.2
(86.8)
(0.6)
(87.2)
2012
£m
39.2
16.4
3.7
(2.0)
1.1
58.4
(11.6)
(4.3)
(18.3)
0.5
24.7
(10.2)
(0.5)
0.5
14.5
(103.8)
2.5
(86.8)
* includes £2.2m (2012: £2.4m) in respect of acquisition intangibles.
Financial review
Income statement phasing
2013
Revenue £m
Underlying operating profit £m
Margin %
2012
Revenue £m
Underlying operating profit £m
Margin %
First
half
Second
half
Full
year
221.6
222.9
444.5
20.2
9.1
24.3
10.9
44.5
10.0
223.8
216.9
440.7
22.7
10.1
21.3
9.8
44.0
10.0
Revenue of £444.5m was £3.8m or 1% ahead of the prior year with
acquisitions completed during both 2012 and 2013 contributing
£12.6m additional revenue and £1.1m underlying operating profit.
The translation impact arising from changes in exchange rates,
principally the US Dollar and Euro, increased total revenue by £6.1m
and underlying operating profit by £1.0m. Organically, revenue
and operating profit declined by £14.9m and £1.6m respectively.
Further details of the performance of the group are provided in the
operational review.
As expected, in contrast with the first half weighted results in 2012,
the phasing of revenue and to a greater extent underlying operating
profit was more second half biased in 2013, principally reflecting the
impact of the London Olympic Games on the group’s Roads activity
in H2 2012 and generally improving economic conditions across the
geographies in which the group operates.
Cash generation and financing
The group again demonstrated its cash generating abilities with
strong operating cash flow of £54.2m (2012: £58.4m), including a
reduction in working capital of £1.9m (2012: £3.7m reduction). The
impact on working capital of zinc and steel commodity prices year on
year was not material. Working capital as a percentage of annualised
sales improved to 13.9% from 14.7% at December 2012, reflecting
a further underlying reduction of c.£3.5m (2012: £3.5m) taking into
account the higher revenues. Debtor days were unchanged from the
prior year at 61 days.
Capital expenditure at £22.1m (2012: £18.3m) represents a multiple
of depreciation and amortisation of 1.5 times (2012: 1.3 times).
During the year the group completed the construction of the new
build galvanizing facility in Columbus, Ohio, with cash spend in the
period of £3.5m, and expended £1.7m on construction of Zoneguard
to increase its UK temporary barrier rental fleet. Other significant
items of expenditure included £1.0m on the development of the
Industrial Flooring manufacturing facility in Middlesbrough and £1.4m
of site expansion and equipment upgrades for the French galvanizing
and lighting column operations, in furtherance of the group’s organic
growth plans. The group continues to invest in organic growth
opportunities where returns exceed internal benchmarks.
The group measures its operating cash flow performance based on
its underlying cash conversion rate, defined as the ratio of underlying
operating cash flow less capital expenditure to underlying operating
profit. In 2013 the group achieved an underlying cash conversion rate
of 93% (2012: 101%) and over the past five years has achieved an
average rate of 98% despite a number of major capital projects being
undertaken during that time.
26
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Operational and Financial Review continued
The group’s principal debt facility consists of a headline £210m five-
year multicurrency revolving credit agreement. The facility, provided
on competitive terms, is funded by a syndicate of five leading banks
and expires in April 2016.
Maturity profile of debt facilities
On demand
2014-2015
2016
2013
£m
£16.4m
£1.3m
£210.9m
On demand
2013-2015
2016
2012
£m
£15.7m
£3.1m
£211.5m
Current debt facilities afford the group significant certainty in terms
of its funding requirements for the foreseeable future. At the year end
the group had committed debt facilities available of £212.2m and a
further £16.4m in overdrafts and other on-demand facilities.
The principal debt facility is subject to covenants which are tested
semi-annually on 30 June and 31 December. The covenants
require that the ratio of EBITDA (adjusted profit before interest, tax,
depreciation and amortisation as defined in the facility agreement) to
net interest costs exceeds 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 2013 were:
Interest Cover
Net debt to EBITDA
Covenant
Actual
17.7 times > 4.0 times
1.5 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 available to the group provide significant
headroom against its expected funding requirements.
Net finance costs
Underlying net cash interest:
Bank loans / overdrafts
Finance leases / other
Non cash:
Net pension interest
2013
£m
2012
£m
3.4
0.2
3.2
0.1
3.3
0.6
3.9
3.6
0.4
4.0
Net financing costs were broadly in line with prior year at £3.9m
(2012: £4.0m). The net cost from pension fund financing under
IAS19 was £0.6m (2012: £0.4m), the increase of £0.2m reflecting
the impact of the revisions to IAS19 adopted during the year which
require a net interest cost to be calculated on the net defined benefit
liability. Given its non-cash nature the pension interest charge
continues to be treated as ‘non-underlying’ in the consolidated
income statement and, given the immateriality of the impact of
the changes to IAS 19 on the group’s results, the group has not
restated the prior year comparatives. The underlying cash element
of net financing costs decreased by £0.3m to £3.3m (2012: £3.6m),
as a result of lower levels of average net debt during the year and
marginal reductions in bank interest rates. Underlying operating profit
covered net cash interest 13.5 times (2012: 12.2 times).
The group has approximately 38% (2012: 39%) of its gross debt of
£97.2m at fixed interest rates, either through interest rate swaps or
finance leases. Interest rate swaps are predominantly denominated
in US Dollars, with smaller tranches of Sterling and Euros, and closely
reflect the group’s debt profile.
Return on invested capital (ROIC)
The group aims to maintain ROIC above its pre-tax weighted average
cost of capital (currently 9%), with a target return of 17.5%. In 2013,
ROIC was maintained at 15% (2012: 15%). The group measures
ROIC as the ratio of underlying operating profit to average invested
capital. Invested capital is defined as net assets excluding current and
deferred tax, net debt, retirement benefit obligations and derivative
financial instruments.
Exchange rates
Given its international operations and markets, the group is exposed
to movements in exchange rates when translating the results of
international operations into Sterling. Retranslating 2012 revenue and
underlying operating profit using 2013 average exchange rates would
have increased the prior year revenue and underlying operating profit
by £6.1m and £1.0m respectively. The continued strength of Sterling
experienced since the end of 2013 will continue to have an impact
on the translation of overseas earnings in 2014. Retranslating 2013
revenue and underlying operating profit using exchange rates at 3
March 2013 (inter alia £1 = US$1.67 and £1 = €1.21) would decrease
the prior year revenue and underlying operating profit by £12.7m
and £1.7m respectively. For US Dollar, a 1 cent movement results in a
£135,000 adjustment to underlying operating profit and for the Euro,
an £80,000 adjustment.
Non-underlying items
The total non-underlying items charged to operating profit in the
consolidated income statement amounted to £10.0m (2012: £4.8m)
and were made up of the following:
›
›
›
›
Business reorganisation costs of £9.2m (2012: £0.8m) –
principally relating to redundancies and other costs associated
with site restructuring, of which £2.7m were cash costs in the
year and a further £4.5m are expected to be spent in 2014. The
charge also includes asset impairments of £1.8m;
Non-cash amortisation of acquired intangible fixed assets of
£2.2m (2012: £2.4m);
Acquisition related expenses of £0.4m (2012: £0.8m) – costs
associated with acquisitions expensed to the consolidated
income statement in accordance with IFRS3 (Revised); and
Profits on sale of properties of £1.8m (2012: £nil).
Non-underlying items in 2012 included:
›
›
A curtailment loss of £0.4m arising from the UK defined benefit
pension scheme ceasing future accruals in November 2012; and
Losses of £0.4m in respect of the fair value of forward foreign
currency contracts.
The cash impact of the above items was an outflow of £3.1m (2012:
£0.9m) with a further £4.5m expected to be spent in 2014. The non-
cash element therefore amounted to £2.4m. The directors continue
to believe that the classification of these items as “non-underlying”
aids the understanding of the underlying business performance.
Hill & Smith Holdings PLC Annual Report 2013
27
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Acquisitions
On 30 April 2013 the group acquired the share capital of Medway
Galvanising Company Limited, a single site galvanizing and powder
coating business operating in Kent, UK for consideration of £6.4m
in cash. As part of the group’s ongoing strategy of optimising its UK
network, our galvanizing plant in East London was closed in July 2013
and the site sold for cash consideration of £2.5m.
In December 2013 the group acquired the trade and certain assets
of Arkinstall Galvanizing Limited for cash consideration of £0.4m. This
small bolt-on acquisition will complement the group’s existing UK
galvanizing activities.
Treasury management
All treasury activities are co-ordinated through a central treasury
function, the purpose of which is to manage the financial risks of the
group and to secure short and long term funding at the minimum
cost to the group. It operates within a framework of clearly defined
board-approved policies and procedures, including permissible
funding and hedging instruments, exposure limits and a system
of authorities for the approval and execution of transactions. It
operates on a cost centre basis and is not permitted to make use
of financial instruments or other derivatives other than to hedge
identified exposures of the group. Speculative use of such instruments
or derivatives is not permitted. Liquidity, interest rate, currency and
other financial risk exposures are monitored weekly. The overall
indebtedness of the group is reported on a daily basis to the chief
executive and the finance director. The group treasury function is
subject to an annual internal and external review of controls.
Going concern
The directors have assessed the future funding requirements of
the group and the company and compared them to the level of
committed available borrowing facilities. The assessment included
a review of both divisional and group financial forecasts, financial
instruments and hedging arrangements, for the 15 months from
the balance sheet date. Major assumptions have been compared
to external reference points such as infrastructure spend forecasts
across our chosen market sectors, Government spending plans on
road infrastructure, zinc, steel price and economic growth forecasts.
The forecasts show that the group will have sufficient headroom
in the foreseeable future and the likelihood of breaching banking
covenants in this period is considered to be remote.
Having undertaken this work, the directors are of the opinion that the
group has adequate committed resources to fund its operations for
the foreseeable future and so determine that it is appropriate for the
financial statements to be prepared on a going concern basis.
Derek Muir
Group Chief Executive
11 March 2014
Mark Pegler
Group Finance Director
Tax
The group’s tax charge for the year was £7.6m (2012: £9.1m). The
underlying effective tax rate for the group was 24% (2012: 26%),
the decrease reflecting reductions in the UK corporation tax rate,
changes in geographical profit mix and the beneficial impact of prior
year credit following the satisfactory resolution with local taxation
authorities of certain historical tax matters. The international nature
of our operations does mean that the mix of profits in a particular
year can impact the group’s effective rate of tax. Cash tax paid
of £15.3m (2012: £11.6m) is higher than the income statement
charge due to the resolution of the historical matters and the cash
settlement of certain one-off deferred tax liabilities in France during
the year. Tax paid is expected to revert to more normal levels in 2014.
The group’s net deferred tax liability is £9.5m (2012: £11.2m). An
£8.7m (2012: £9.2m) deferred tax liability is provided in respect of
brand names and customer relationships acquired. A further £1.9m
(2012: £2.0m) is provided on the fair value revaluation of French
properties acquired as part of the Zinkinvent acquisition in 2007.
These liabilities do not represent future cash tax payments and will
unwind as the brand names, customer relationships and properties
are amortised.
Earnings per share
The board believes that underlying earnings per share (UEPS) gives
the best reflection of performance in the year as it strips out the
impact of non-underlying items, essentially one off non-trading items
and acquisition intangible amortisation. UEPS for the period under
review increased by 4% to 40.4p (2012: 38.8p), reflecting growth in
underlying operating profit and the reduction in the effective tax rate.
The diluted UEPS was 39.8p (2012: 38.5p). Basic earnings per share
was 29.6p (2012: 33.9p). The weighted average number of shares in
issue was 77.6m (2012: 77.0m) with the diluted number of shares at
78.6m (2012: 77.8m) adjusted for the outstanding number of dilutive
share options.
Pensions
The group operates a number of defined contribution and defined
benefit pension plans in the UK, the USA and France. The IAS19
deficit of the defined benefit plans as at 31 December 2013 was
£20.2m compared with £16.3m at 31 December 2012. The impact
of increases in future inflation assumptions outweighed a marginal
increase in the discount rate resulting in an increase in scheme
liabilities of £5.1m, offset by improvement of £1.2m in underlying
asset values.
The Hill & Smith Executive Pension Scheme and the Hill & Smith
Pension Scheme (the ‘Schemes’) remain the largest employee benefit
obligations within the group. The IAS19 deficit of the Schemes as
at 31 December 2013 was £17.6m (2012: £13.8m). In common
with many other UK companies, the Schemes are mature having
significantly more pensioners and deferred pensioners than active
participating members. The group has agreed deficit recovery plans
in place that require cash contributions over and above the current
service accrual amounting to £2.5m for the three years to April 2016,
followed by payments of £2.3m for a further seven years. The date of
the next triennial review is 5 April 2015. The Schemes are closed to
new members, with future accruals ceasing in the Executive Scheme
in December 2011 and in the Main Scheme in November 2012. The
group is actively engaged in dialogue with the Trustees with respect
to management, funding and investment strategy.
28
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Creative Pultrusions fender piling for the New Jersey Water Authority.
Welding of industrial flooring at our Lionweld Kennedy Flooring business, Middlesbrough.
700m of Berry parking barrier at the Tele2 arena, the new multi-purpose stadium in Stockholm.
Corporate Social Responsibility
Board level responsibility and accountability
The group is committed to delivering its strategic objectives in an
ethical and responsible manner.
Derek Muir, the Chief Executive, is the director primarily responsible
for the corporate social responsibility performance of the group
and is supported by the operating company directors in achieving
compliance with the group’s policies, primarily through;
›
›
communication across the businesses;
implementation of supporting principles; and
› monitoring performance and improvements.
Our employees play their part in contributing to the achievement of
our objectives and are encouraged to make suggestions to improve
performance.
Key initiatives undertaken in 2013
›
Launch of energy policy and principle of energy champions;
›
›
›
›
›
›
Successfully assessed to Carbon Trust standards;
Code of Business Conduct (CBC) launched;
Introduction of group procurement standards;
Launch of guidance and operating manual on international
competition law;
Group safety audit format extended to Sweden and the USA;
Introduction of the ‘Safety Cloud’ IT system to Sweden and the
USA.
CSR responsibility drivers
The environment
Group policies
Our people
Health & safety
The environment
Throughout 2013 the board has continued to monitor carbon dioxide
(CO2) emissions and energy consumption. This monitoring process
was extended to include all vehicle emissions, (private or company),
generated as a result of travel on company business. For 2014,
the group is developing a reporting and monitoring programme to
improve the management of water usage and to identify further
waste recycling opportunities.
During the year the group was successfully assessed by the Carbon
Trust in relation to our 2012 energy performance data, which
confirmed the reductions achieved in our energy usage and fuel
consumption.
Hill & Smith Holdings PLC Annual Report 2013
29
Strategic Report
Governance Report
Financial Statements
Shareholder Information
To support these measures, the group launched an energy policy,
which requires each company within the group to appoint an ‘energy
champion’, responsible for identifying improvements in energy, fuel,
natural resource consumption and waste management.
Employees are encouraged to report all energy saving and recycling
ideas to their energy champion.
Where practical, the group uses recycled water in its manufacturing
processes. Whilst not currently possible in all areas of the business,
our new Columbus, Ohio galvanising plant recycles rinsed water as
part of the manufacturing process.
The UK operations of the group comply with the Producer
Responsibility Obligations (Packaging Waste) Regulations 2007
(as amended). This means that they are fully aware of its legal
and environmental responsibilities to help reduce the amount of
packaging going to landfill and encourage reduction, recycling and
recovery of packaging materials. By securing evidence of recycling
through its compliance scheme Wastepack, it is contributing towards
meeting the recycling and recovery targets set by Defra as part of the
original EU Directive.
In 2013, our Asset International operation in Newport, Wales installed
solar photo voltaic roof tiles, designed to generate solar energy for
use in the manufacturing process. These tiles have successfully
provided a carbon friendly and energy efficient electricity generation
system that now provides 12% more electricity than originally
anticipated (see photograph on page 35).
The group has recently built an extension to its Lionweld Kennedy
industrial flooring factory in Middlesbrough, which was designed with
energy saving environmental factors such as:
›
›
›
heating input controls that ensure the energy used is kept to an
optimum level;
roof lights providing a higher degree of natural daylight and
triple skinned for insulation; and
external lighting using low energy LED floodlights operated by
photocells and a time clock.
Greenhouse Gas Emissions (GHG)
The group recognises the importance of monitoring its greenhouse
gas emissions, with the aim of continuing its programme of cost
effective, environmentally friendly energy management, to create
long term value for shareholders.
The reporting structure
The group has previously reported on energy usage across its UK
businesses as part of its strategic business improvement process. This
reporting requirement was extended to the overseas operations in
2013, expanding the scope of reporting and improving the coverage
of the data available, with the objective of identifying new energy
management opportunities.
The group has reported in line with the Defra Environmental
Guidelines (‘DEG’) updated in June 2013 and the UK Government
conversion factors for company reporting which set the rules for
measuring UK data. The group is required to report on the greenhouse
gas emissions in compliance with the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations 2013.
The group has reported the greenhouse gas emissions, for the
overseas operations, against the 2012 International Energy Agency
(‘IEA’) data, as the IEA figures for 2013 are not available for the time
of reporting for the 2013 year. The 2013 overseas subsidiary data will
be used as base data for reporting against future years.
30
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Corporate Social Responsibility continued
The GHG emissions reported in the tables below are for scopes 1 and
2 of the DEG as defined below. Although scope 3* has been defined,
this has not been reported on in 2013, as water usage and landfill
data is being collected as from 2014 and the group currently has no
data for, or control over, the emissions produced by third parties.
Sustainability (GHG)
The group considers its relationships with its customers, suppliers and
communities to be of particular importance to its business and this
is evidenced by the reputation the group has for its business ethics,
integrity and fairness in all its dealings.
Scope 1: Direct emissions - these include all emissions that an
organisation directly causes or controls from combustion
of fossil fuels and emissions of HFC’s (hydrofluorocarbons)
previously used in refrigeration units.
Scope 2:
Indirect emissions - these are generated by imported
utilities, such as electricity. Emissions from electricity
transmission losses, which consist of transportation and
distribution losses, would normally be reported under
scope 3. For our reporting these have been included in
scope 2, as “indirect” as they relate to electricity usage
beyond the groups direct control.
*Scope 3: Indirect emissions that an organisation causes to occur, but
does not control. This includes water use, waste disposal to
landfill, emissions from transport in vehicles owned by other
parties and private vehicles used for commuting by staff, or
emissions from outsourced activities and from the supply
chain.
Measurement of the 2013 Data
For both the UK and overseas data the group has decided to measure
the GHG emissions using the group total turnover as the intensity
ratio (‘IR’).
The IR is measured as: the total tonnage of emissions stated as
carbon dioxide equivalent (CO2e) per £1,000 of turnover.
Global emissions comparison
Group total emissions by
scope for 2013
Scope 1 (tCO2e)
Scope 2 (tCO2e)
tCO2e
Total turnover (£’000)
UK
emissions
20,018
12,275
32,293
Overseas
emissions
52,841
10,272
63,113
Total
emissions
72,859
22,547
95,406
247,903
219,887
467,790
IR
0.13
0.29
0.20
Emissions comparison by UK sites
UK group emissions
comparison 2011 - 2013
Scope 1 (tCO2e)
Scope 2 (tCO2e)
tCO2e
Total turnover (£’000)
2011
17,032
11,028
28,060
2012
18,759
12,043
30,802
2013
20,018
12,275
32,293
235,930
244,211
247,903
IR
0.12
0.13
0.13
Comparing the increased total turnover to the IR movement for the
period from 2012 to 2013, there was no increase in the overall GHG
tonnage used, demonstrating improvement in energy management
across the UK portfolio. We are focused on reducing the IR as much
as possible and are working with the Carbon Trust and the Carbon
Disclosure Project to identify further improvements.
Supply chain partners are selected on the basis that the business
operates on similar values to the group. This benefits the business, as
it promotes and maintains stable long term relationships to deliver
continued improvement, increasing the business performance and
viable environmental benefits.
During the year the group implemented a set of procurement
standards for its purchasing activity in order to ensure that it
mitigates risks stemming from its supply chain. At the same time
economies of scale were reviewed relevant to the size and scope of
the group. Designed by supply chain professionals from the group’s
subsidiary businesses, the procurement standards seek to implement
best practice, as minimum standards, commercial risk mitigation,
ethical standards and screening for conflict minerals.
The group has continued, throughout 2013, to reinforce its anti-
bribery and corruption training programme. The training covers
the UK Bribery Act, including scenarios and implications of non-
compliance. This anti-bribery compliance requirement is extended to
all suppliers as part of the supply chain due diligence, engagement
and contractual process.
Policies
During the summer of 2013, the group launched a new Code of
Business Conduct (CBC). The CBC is designed to ensure that as a
group, all subsidiary companies act ethically, honestly, with integrity
and in a legally compliant manner in their business activities. The
CBC applies to everyone who is engaged by the group round the
world, whether they are employees or third parties acting on behalf
of the group. The CBC presides over areas such as health and safety,
fair honest and ethical business practice, gifts and entertainment,
conducting international business, protection of individuals,
resources and assets. At high level, it summarises the group’s legal
and compliance responsibilities in areas such as anti-bribery and
corruption, export laws and regulations and international fair and
open competition. The CBC also extends to, inter alia, the handling
and minimisation of conflicts of interest and the protection of the
group’s intellectual property rights.
The CBC is accessible on the Hill & Smith group intranet for those
engaged or employed by the group and on the company website, for
public and shareholder review and assurance.
Non-compliance with the CBC (and all other group policies) is
taken very seriously and the use of a revised whistleblowing policy
and compliance hotline was introduced during the year. Both the
whistleblowing policy and the hotline are to be used to refer concerns
about breaches of the CBC and any other group policy to the group
risk & compliance counsel (in confidence) with the assurance that
issues will be investigated and resolved in accordance with the
principles of the CBC. Such matters may be dealt with in a manner
that ensures anonymity.
Hill & Smith Holdings PLC Annual Report 2013
31
Strategic Report
Governance Report
Financial Statements
Shareholder Information
The group’s written policy states that if any employee has reasonable grounds to believe that the group’s CBC is being breached by any person or
group of people, he or she is able to contact the group risk & compliance counsel with full details, or if necessary, the company secretary or the
chairman of the audit committee.
The CBC is not designed to supersede detailed group policies which have been implemented to date, rather to supplement and summarise the
group’s compliance initiatives and the relevant assurances implemented in respect of the group’s key corporate, legal and social responsibilities.
People
The group provides the appropriate training, resources and support to maintain the standards of performance and conduct expected. This is
achieved through training and career development opportunities to help promote a forward thinking, proactive and creative working environment,
that will engage and motivate employees.
Diversity and inclusion
Our policies, practices and regulations for recruitment, training and career development promote equality of opportunity, while being appropriate
for the relevant market sector and country of operation. Our aim is to encourage a culture in which all employees have the opportunity to develop
fully according to their individual abilities and the needs of the group.
The group are committed to equal opportunities and employing a diverse range of people. Fairness and equal opportunity are core to the group’s
employment policy. The group’s board of directors issued a statement on equal opportunities, discrimination and diversity policy in 2013. The
group has a policy of non-discrimination and it does not tolerate bullying or harassment. The policy promotes the operation of these principles in
all aspects of the group’s business activities, in respect of visitors, clients, customers, suppliers, former staff members and existing employees of
the group. This policy governs the actions of employees in:
›
›
›
›
›
their roles and responsibilities;
recruitment and selection;
staff training, promotion and disciplinary procedures;
disability discrimination; and
consequences for non-compliance of the policy.
The group published its updated statement on diversity and is committed to ensure that:
›
›
the company’s workforce is as diverse as possible;
it has access to a wide labour market; and
› members of the workforce are recruited on merit, regardless of age, disability, marital or civil partner status, pregnancy, race, colour,
nationality, ethnicity or national origin, religion or belief, gender or sexual orientation.
The charts below, and over the page, show the number of men and women throughout the group, at the main PLC and subsidiary board levels
and those at senior manager level. At the main PLC board level, all current board members are male.
Total workforce
Global workforce (numbers)
Global workforce (percentage)
Male 3,273
Female 342
Male 91%
Female 9%
32
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Corporate Social Responsibility continued
Total directors and senior
managers (numbers):
Male & Female split
Male 242
Female 26
Number of PLC and subsidiary
board directors:
Male & Female split
Male 61
Female 4
Total directors and senior
managers (percentage):
Male & Female split
Male 90%
Female 10%
Number of senior managers in
the group:
Male & Female split
Male 181
Female 22
The group gives full consideration to applications for employment
from disabled persons where the requirements of the job can be
adequately fulfilled by that employee. In the event of an existing
employee becoming disabled, continuing employment will be
provided wherever practicable.
Involvement and reward
Effective communication is encouraged within the group through
the subsidiary company management, the group’s website and its
intranet site, along with the development of centralised programmes.
The group encourages employee share ownership through the 2005
Employee Sharesave Scheme which currently has circa 250 UK
employees participating, 45 of whom contribute at the maximum
permitted by the HMRC.
Training 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 and
skills for each employee’s current position;
programmes relating to the provision of knowledge and skills for
new procedures or standards;
programmes with a specific management or supervisory focus;
support with programmes leading to a professional or academic
qualification; and
programmes for compliance with the Bribery Act, international
competition and the group’s CBC.
The group recognises that normally the main training method will be
through each employee’s immediate line management, with most
training carried out in the workplace. Training is primarily delivered
through internal resources with assistance from external providers as
and when required.
Health and safety
The group is committed to ensuring a safe working environment and
maintains a system of control and monitoring of health and safety
issues through:
›
›
›
›
›
›
›
an externally managed audit programme for its operating sites;
quarterly safety forum meetings (for the UK based companies),
attended by senior health and safety staff within the UK;
a set of PLC guidance documents, comprising of health and
safety management standards, the A-Z of key risks and hazard
registers;
continual development and improvement of the ‘safety
cloud’ management system, which helps track a number of
compliance areas;
requirements for nominated subsidiary directors to complete a
quarterly health and safety self-assessment;
communication of health and safety issues through regular
publications, such as bulletins and alerts published via the safety
cloud IT systems; and
sharing of best practice across the group.
Health and safety achievements
The group companies work actively to effectively manage health and
safety, evidenced by the following initiatives:
›
›
›
›
›
Hill & Smith Limited attained certification to the OHSAS 18001:
2007 (Occupational Health and Safety Management System);
Mallatite Ltd, France Galva and Asset Varioguard (VRS)
maintained their OHSAS 18001 certification;
Techspan Systems and Asset Weholite formally started their
OHSAS 18001 accreditations;
Techspan Systems became a member of the British Safety
Council; and
the RoSPA Gold Medal was awarded to Lionweld Kennedy.
Hill & Smith Holdings PLC Annual Report 2013
33
Strategic Report
Governance Report
Financial Statements
Shareholder Information
The health and safety objectives for 2013 were:
Objective
Result achieved
Extension of the ‘safety cloud’ IT system to
overseas subsidiaries and implementation of
a full audit on overseas subsidiaries.
The Swedish subsidiary and three US sites were audited, with a view to aligning all sites with
the UK safety standards. The ‘safety cloud’ was extended to those US and Swedish companies
visited as part of the audit process.
To reach a 5% improvement in the UK
weighted average and audit score for health
and safety performance.
The UK average weighted score achieved for 2013 improved by 10%, bringing the level of
improvement since the inception of the measures in 2010, to almost 50%.
In addition, the group undertook reviews of site installation and construction related work.
A high level of compliance was achieved, with an average of 79% when judged against the
Construction Industry Training Board (CITB) HSES audit tool.
Implementation of the group strategy for
occupational health.
Following a review of the occupational health provision in the UK, the subsidiary companies are
now using providers who have attained the nationally recognised SEQOH (Safe Effective Quality
Occupational Health) standards. A set of standard occupational health requirements has been
agreed.
Health and safety governance review.
A review was undertaken at group level, of the health and safety performance during the past
four years, with a view to ensuring long term sustainability of improved management. The
outcome of the review was to focus resources in the areas of environmental controls, recent
acquisitions and extension of the ‘safety cloud’ IT system.
Accident rates
The objective for 2013 was to lower the accident rate and achieve a 10% year on year reduction.
There were 399 accident reports from all subsidiaries during the year, which is a 15.6% increase; reflecting the acquisitions in the UK of Expamet
and Medway Galvanising and an increased regime of reporting through use of the ‘safety cloud’ IT system.
Total accidents 2011 - 2013
Total accidents by division
9
9
3
0
5
3
5
4
3
8
1
2
3
0
2
7
0
2
2
9
1
2
3
1
2
4
1
Infrastructure
Galvanizing
2011
2012
2013
2011
2012
2013
Whilst we have improved the effectiveness of our safety management over the last five years (as demonstrated by the audit score improvement),
we have acquired businesses that are transitioning to the standard achieved by our established operations. Over time the existing systems and
management will ensure that we not only reduce the overall number of accidents, but we also minimise their severity. Some of the earlier work
carried out in 2010 and 2011 produced a significant impact in the accident reduction rates, which is harder to replicate as the improvements
plateau out. Our challenge is to ensure, through the auditing work, that we continue to strive for further reductions and where possible,
elimination of risk to our employees, contractors and visitors.
2014 health and safety objectives
›
The continuation of the external audit programme, with current performance levels to be maintained or improved as appropriate;
›
›
›
›
Further roll out of the ‘safety cloud’ to all remaining non-UK sites;
Implementation of the occupational health strategy through a new module on the ‘safety cloud’;
To carry out environmental compliance audits; and
To review the PLC health and safety standards to ensure they are applicable on a global scale.
34
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Strategic Report
Corporate Social Responsibility continued
Community
Although the group does not have a programme in place for
charitable works, it actively encourages its operational companies to
participate in the local community.
Contributions are supported in areas of education, enterprise, health,
welfare and the environment.
›
›
›
›
In the interests of promoting education, our lighting column
subsidiary in France, invited technical college students to visit
their production workshops. The aim of the visits were to allow
the students to explore the vocations available in the galvanising
industry, in a leading European company.
Ten employees from Asset International took part in Cardiff’s
annual “Men’s Health, Survival of the Fittest” 10k race, to raise
money for the Aneurin Bevan Local Health Board’s premature
baby ward. The money raised help to investigate the causes
of sickness in new born babies and finance research into the
prevention, treatment and cures for neonatal illnesses.
V&S Galvanizing coated the metal sculpture for the Steel
Workers Memorial at the new World Trade Centre in New York.
Creative Pultrusions in the US contributed to schools and
charities in the local area. During 2013, the company supported
the local schools Youth Softball team.
CSR priorities for 2014
›
Reduction in water, waste and energy consumption.
›
›
›
›
›
›
›
Further commitment to packaging reduction.
To collect and monitor landfill waste data and to identify
opportunities for recycling.
Extension of environmental audits.
Extension of the environmental audit programme.
Extension of the ‘safety cloud’ to include international audits.
To improve the collection of water usage data and develop
water management programmes.
To further improve upon the management of site safety and
continue with our historic achievement of accident reduction, in
terms of number and severity.
Strategic report
The strategic report, outlined on pages 2 to 34, incorporates the
chairman’s statement, strategic review and performance review.
By order of the board
John Humphreys
Company Secretary
11 March 2014
Hill & Smith Holdings PLC Annual Report 2013
35
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Solar panel installation at our Asset Weholite factory, Newport, South Wales, referred to on page 29.
36
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Governance Report
Chairman’s Introduction
Board of Directors
37
38
40 Governance Report
46 Audit Committee Report
49
50
64 Directors’ Report (other statutory information)
67
Remuneration Committee Report
Directors’ Remuneration Report
Directors’ Responsibilities
See further information online at hsholdings.com
Hill & Smith Holdings PLC Annual Report 2013
37
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Chairman’s Introduction to Governance
Bill Whiteley
Chairman
Dear shareholder,
This section of the annual report sets out how we approach governance and the implementation of our principles and compliance with formal
governance codes.
Good governance is about managing the business effectively and in a way that is honest, open and accountable. It is key to the delivery of the
group’s strategy and sustained generation of shareholder value.
The board, has ultimate responsibility for the group’s performance and for overseeing the management of risk. As chairman, it is my role to
provide the leadership to enable the board to discharge its responsibilities effectively. Such effectiveness is normally assessed internally and, set
out on pages 14 to 15, are the results of that assessment.
Clive Snowdon, Senior Independent Director and Chairman of the Remuneration Committee reports in his introduction on page 49, the approach
taken to executive remuneration and the work carried out during the year on this high profile topic.
The board has a responsibility to lead the way and in particular, for ensuring that all employees and everyone associated with the group are aware
of their responsibility to act lawfully and conduct themselves in accordance with high standards of business integrity. Following the introduction
of our anti-bribery and corruption policy and its implementation across the group, we have built on that work, by launching our code of business
conduct and through our newly appointed Group Risk & Compliance Counsel, Kathy Senter, an international competition manual, supported by
online training.
I look forward to meeting you at our annual general meeting on Wednesday 14 May 2014.
Bill Whiteley
Chairman
11 March 2014
38
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Board of Directors
(4)
(2)
(1)
(3)
(5)
Name
Position
Length of service on the board
as at 11 March 2014
Independent
Committee
membership
W H Whiteley (1)
Chairman and Non-executive
4 years and 3 months
D W Muir (2) Group Chief Executive
7 years and 7 months
M Pegler (3) Group Finance Director
6 years
J F Lennox (4) Non-executive
4 years and 10 months
C J Snowdon* (5) Non-executive
6 years and 10 months
-
-
A R N (c)
N
-
A (c) R N
A R (c) N
A = Audit Committee
R = Remuneration Committee
N = Nomination Committee
(c) = Chairman of Committee
* Senior Independent Director
Hill & Smith Holdings PLC Annual Report 2013
39
Strategic Report
Governance Report
Financial Statements
Shareholder Information
W H Whiteley BSc, FCMA
Chairman and Non-executive
Bill, aged 65, 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. He is Chairman of Spirax Sarco Engineering plc, Brammer plc and Chairman of the Nomination Committee.
D W Muir BSc, C Eng, MICE
Group Chief Executive
Derek, aged 53, joined the company in 1988. He was appointed to the board in 2006 and served as Group Managing Director of the core
Infrastructure Products segment from 2001. Derek has been a Senior Manager within the Hill & Smith group for over 25 years, having been
managing director of Hill & Smith Limited, one of the group’s principal subsidiaries since 1998.
M Pegler BCom, FCA
Group Finance Director
Mark, aged 45, 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.
J F Lennox CA
Independent Non-executive
Jock, aged 57, joined the board in May 2009. He is a Non-executive Director of A&J Mucklow Group plc, Dixons Retail plc, EnQuest PLC and Oxford
Instruments plc. He is Chairman of the Trustees of the Tall Ships Youth Trust. 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
Senior Independent Non-executive
Clive, aged 60, joined the board in May 2007. He is Executive Chairman of Shimtech Industries Group Limited and Chairman of the Midlands
Aerospace Alliance. He retired from Umeco plc in June 2011 having been Chief Executive since April 1997. Clive is the Senior Independent Director
and Chairman of the Remuneration Committee.
40
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Governance Report
Governance structure - Board of Directors
W H Whiteley - Chairman and Non-executive
D W Muir - Group Chief Executive
M Pegler - Group Finance Director
J F Lennox - Non-executive
C J Snowdon - Non-executive
Company Secretary - J C Humphreys
Audit Committee
Remuneration Committee
Nomination Committee
The audit committee has responsibility
for planning and reviewing the company’s
interim and preliminary reports and accounts,
its internal controls and risk management
assurance.
The remuneration committee is responsible
for the policy for the remuneration of
executive directors, company secretary and
senior executives and its implementation.
The nomination committee has responsibilty
for assisting the board with succession
planning and with the selection of a new
director or chairman.
Chairman
J F Lennox
Other members
C J Snowdon
W H Whiteley
Secretary
J C Humphreys
Chairman
C J Snowdon
Other members
J F Lennox
W H Whiteley
Secretary
J C Humphreys
Chairman
W H Whiteley
Other members
J F Lennox
D W Muir
C J Snowdon
Secretary
J C Humphreys
Statement of compliance
As required by the Listing Rules of the Financial Conduct Authority, our
governance report explains how the group has applied the principles
and complied with the provisions of the UK Corporate Governance
Code 2010 (the Code).
We have satisfied the requirements of the Code in 2013 and up to the
date of approval of the annual report.
The new UK Corporate Governance Code 2012 applied to the group
from 1 January 2013 and we have reported under this code in this
year’s annual report.
Other statutory and regulatory disclosures can be found on pages 64
to 67.
Governance framework
The Hill & Smith Holdings PLC group consists of the company and
the principal subsidiary companies, listed on pages 123 to 125
and operates in seven different countries. The group’s businesses
are directly supervised by local operating boards and monitored
at divisional level. The two executive directors of the board review
divisional and individual operating company performance and
regularly liaise with selected senior executives and subsidiary
company directors. The group has a structure of monthly subsidiary
company board meetings (which are attended by the two executive
directors) and regular liaison across divisions to ensure, where
appropriate, consistent application of governance, operational
procedures and group policies and practices. The two executive
directors are accountable to the board for the divisional and
subsidiary company governance and controls.
Each of the three committees of the board comprise the non-
executive directors and non-executive chairman and each committee
reports to the board.
Hill & Smith Holdings PLC Annual Report 2013
41
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Board of directors - composition of the board
› W H Whiteley (Chairman and Non-executive) - independent on
appointment
›
›
D W Muir (Group Chief Executive) and M Pegler (Group Finance
Director) - executive directors
C J Snowdon (Senior Independent Director) and J F Lennox -
both independent non-executive directors
The Code provides that the independent non-executive directors
should comprise at least half of the board, excluding the chairman.
The biographies of the directors of the board are shown on page 39
along with any significant other commitments and appointments
they may have.
The directors are experienced and influential individuals from varied
commercial industries, professional backgrounds and international
involvement. Their diverse and balanced mix of skills and business
experience are key elements to the effective functioning of the board
and its committees, ensuring that matters are fully and effectively
debated and challenged and that no individual or group dominates
the board’s decision-making processes.
Board balance
Independence
Taking into account the provisions of the Code, the board has
determined that during the year under review none of the non-
executive directors has any relationship or circumstance which would
affect their performance and the board considers all of the non-
executive directors to be independent in character and judgement.
Chairman
There is a clear division of responsibilities between the chairman
and the chief executive which is set out in writing. The chairman is
responsible for the leadership and effective working of the board. The
small size of the board ensures all directors contribute fully to the
discussions and decisions of the board. The chairman drives the board
agenda and determines how the board should use the time available
to it during board meetings.
Chief Executive
The chief executive is responsible for the management of the
company, executing the group’s strategy and development, meeting
financial objectives, implementing policies and maintaining controls.
The executive directors provide information to the board via their
regular written reports and the presentation of proposals for board
approval.
Support
The board is supported by the company secretary who, under
the direction of the chairman, ensures good communication and
information flows between board members. The company secretary
is also responsible for assisting the chairman in all matters relating
to corporate governance, including the board evaluation process.
Directors are able to take independent professional advice, when
necessary, at the company’s expense.
From time to time, other members of the management team attend
board meetings to present annual budgets, updates and proposals
relating to their areas of responsibility and reporting on regulatory
compliance, risk management and internal controls.
The PLC directors and management of the group businesses are also
supported by the central function which includes; risk management,
treasury, taxation, acquisitions and corporate development.
Director’s terms and conditions
The service agreements and letters of appointment for the executive
directors and non-executive directors respectively, are detailed on
pages 55 and 56 of the directors remuneration report.
Annual re-election of directors
The board has noted that the Code recommends that all directors
of FTSE 350 companies should be subject to annual re-election.
Accordingly, the board has implemented annual re-election of all
directors with effect from the annual general meeting of 16 May
2012 and all re-elections are now on an annual basis.
How the board operates
The board manages the overall control of the company’s affairs with
reference to a formal schedule of matters reserved to the board for
decision, including the review and approval of key policies.
In particular the board makes decisions, reviews and approves:
›
›
›
›
›
›
›
›
›
›
group strategy and operating plans;
business development, including acquisitions and
disinvestments, major investments and disposals;
risk management;
financial reporting and audit, including announcements for year
end and interim results and interim management systems;
taxation;
financing and treasury;
corporate governance;
compliance with laws, regulations and the company’s code of
business conduct;
corporate sustainability and responsibility, ethics, health and
safety, the environment; and
pension benefits and liabilities.
In addition to the normal business associated with the above, during
2013 the board reviewed and approved the following:
›
›
›
›
›
›
›
›
›
›
›
the schedule of matters reserved for the board;
board policies on expenses, raising concerns, taking professional
advice and executive director’s serving on other boards;
Group Risk & Compliance Counsel appointment (Mrs Kathy
Senter);
group policies manual;
code of business conduct;
delegated authority levels;
international competition compliance policy and manual;
updated whistleblowing policy;
diversity and equal opportunities policy;
parent company guarantees; and
closure of plants in China (pipe supports) and Telford, UK
(industrial flooring business).
42
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Governance Report continued
The board has established processes designed to help maximise its performance. These processes operate from a framework of:
Operation of
the board
Strategic
focus
Board
information
Board
knowledge
›
›
›
›
›
›
›
›
›
›
›
›
›
›
Board meetings are scheduled to ensure adequate time for discussion of each agenda item.
Board discussions are held allowing for questions, scrutiny and constructive challenge where appropriate.
Full debate allows decisions to be taken by consensus (although any dissenting views would be minuted accordingly).
› Other members of senior group management regularly attend and give presentations at board meetings.
› Local managers may also attend when matters of particular significance or country relevance are proposed or being
reviewed.
The development of strategy is led by the chief executive officer together with the group finance director and with input,
challenge, examination and ongoing testing from the non-executive directors.
Group strategy is regularly addressed by the board, with strategic matters being reviewed and updated as appropriate
at each main meeting. In addition, the board holds at least one annual strategy meeting. The board has particular
responsibility for ensuring that the business strategies proposed are fully discussed and critically reviewed.
The executive directors and members of the senior management team draw on the collective experience of the board.
Comprehensive reporting packs are provided to the board, which are designed to be clear, accurate and analytical, whilst
avoiding excessive and unnecessary information.
Reporting packs are normally distributed electronically three working days in advance of board meetings, enabling
them to be as up-to-date as possible, whilst allowing sufficient time for their review and consideration in advance of the
meeting.
Clarification or amplification of reports or proposals are sought in advance of, or at, meetings as appropriate.
Management accounts with commentary are distributed to the board on a monthly basis.
The board regularly reviews its appetite for and the management of risk in the context of the strategy and the periodic
review of the group risk register.
The chief executive officer and group finance director have a programme of visits to the group’s business locations to
review the operations and performance and to engage and support local management.
In the financial year, at least one Hill & Smith Holdings PLC board meeting is held at the operational site of a subsidiary.
All directors have open access to the group’s key advisors, senior management and the company secretary.
Board meeting attendance
During the year attendance by directors at board and committee meetings was as follows:
Board
Audit
Remuneration
Nomination
Total meetings
Overall attendance %
Bill Whiteley
Derek Muir
Jock Lennox
Mark Pegler
Clive Snowdon
8
8
8
8
8
3
3
3
3
3
4
-
4
-
4
1
-*
1
-
1
16
11
16
11
16
100
100
100
100
100
* Derek Muir was not invited to attend.
All directors of the board attended the AGM and the strategy meetings.
The non-executive directors meet independently without the chairman present and also meet with the chairman, independent of management.
Chief Executive, Derek Muir, regularly visits the group’s operations in all the territories in which it operates. The Group Finance Director, Mark Pegler,
also spent time with the local management of both group businesses in India in addition to his regular visits to the US and France with Chief
Executive, Derek Muir.
In June 2013 the board visited two operating sites in the UK. The Senior Independent Director, Clive Snowdon, visited the pipe supports operation
in Thailand.
Hill & Smith Holdings PLC Annual Report 2013
43
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Training and advice
All directors are provided with the opportunity and encouraged
to attend regular training to ensure they are kept up to date on
relevant legal developments or changes, best practice and changes
to commercial and financial risks. Typical training experience for
directors includes attendance at seminars, forums, conferences and
working groups, as well as the provision of information from the
company secretary. In order to fulfil their duties, procedures are in
place for directors to seek both independent advice and the advice
and services of the company secretary.
Conflicts
The Companies Act sets out directors’ general duties concerning
conflicts of interest and related matters. The board has agreed an
approach and adopted guidelines for dealing with conflicts of interest
and has added responsibility for authorising conflicts of interest under
the schedule of matters reserved for the board. The board confirmed
that it was not aware of any situations that may or did conflict with
the interests of the company, other than those that may arise from
directors’ other appointments, as disclosed in their biographies on
page 39.
In accordance with the articles, the board authorised the company
secretary to receive notifications of conflicts of interest on behalf of
the board and to make recommendations as to whether the relevant
matters should be authorised by the board. The company has
complied with these procedures.
Committees of the board
The board has three committees - audit, nominations and
remuneration. The composition, responsibilities and activities of
each of these committees are described below. In addition, both the
audit and remuneration committee chairman have given separate
reports on pages 46 and 49 respectively. A report on the nominations
committee is given below. Each of the non-executive directors is a
member of each of the committees. Hill & Smith Holdings PLC is not
in the FTSE 350 and therefore is permitted to have two independent
non-executive directors and a chairman, who was independent
on appointment, as a member of both its audit and remuneration
committees. This position continues to be kept under review by the
board.
The company secretary acts as secretary to all of these committees.
The terms of reference of the committees are available on the
company’s website at www.hsholdings.com.
The Audit Committee
Jock Lennox has been designated as the member of the audit
committee with recent and relevant financial experience, being a
chartered accountant and former partner of Ernst & Young. He is also
chair of the audit committees of Oxford Instruments plc, EnQuest PLC
and A&J Mucklow Group plc and is a member of the audit committee
for Dixons Retail plc.
The role of the audit committee and details of its work during the
year are contained in the audit committee chairman’s report on
pages 46 to 48. The members of the committee are set out on page
46. The chief executive, finance director, group risk & compliance
counsel and financial controller attend by invitation.
Evaluation of the performance of the board
Main elements of the 2013 questionnaire issued to each director:
The board recognises that a performance evaluation is important
to optimise board effectiveness and that the evaluation should be
appropriate to both the size of the board and the company. Through
a bespoke online questionnaire an internal board evaluation was
conducted covering the following factors:
›
establishment and role of the board;
› membership, skills, appointment and training;
›
leadership;
› meetings, contribution and internal relationships and interaction;
›
›
›
›
›
›
strategic aims, objectives and risks;
risk management, measurement and culture;
procedures;
diversity;
data quality, use and assurance; and
communication with stakeholders.
The evaluation was facilitated by the company secretary, under the
direction of the chairman, with subsequent interviews undertaken by
the chairman, on a one to one basis.
The results of the evaluation reports demonstrated improvements
in areas identified in 2012, including devoting more board time to
discussing strategic matters and risk management. An increased
amount of board time was devoted this year to strategic matters,
including a strategy session between the board and senior
management and presentations from senior subsidiary management.
The 2013 evaluation process concluded that the board and its
committees remain effective in fulfilling their responsibilities
appropriately and that each director continues to demonstrate a
valuable contribution. Areas identified as requiring more board time in
2014 were:
›
›
›
›
›
›
How the board measures its aims and objectives.
How the board operates.
The monitoring and communication of strategic risks.
The further development of the levels of assurance, from the
internal audit processes.
The increased application of risk management throughout the
organisation.
The development of the policy on diversity throughout the
organisation and at board level.
Meetings and discussions
›
The chairman and non-executive directors met in the absence
of the executive directors to discuss the performance of the
executive directors.
›
›
The non-executive directors, led by the senior independent
director, met in the absence of the chairman to review his
performance.
Follow up by the chairman with each director, on a one to
one basis, the effectiveness of the evaluation process and its
conclusions.
44
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Governance Report continued
The Nomination Committee
Composition of the committee
› W H Whiteley (Chairman)
›
›
C J Snowdon and J F Lennox
D W Muir (Chief Executive)
Role of the nomination committee
The committee assists the board in the key areas of board
composition, performance, succession planning and recruitment.
Having the appropriate range of high calibre directors on our board is
key to determining and achieving the group’s strategic objectives and
ensuring that success can be sustained over the long term.
Meetings
The committee met on one occasion during the year. The attendance
of that meeting was:
Names
W H Whiteley
C J Snowdon
J F Lennox
D W Muir (was not invited to attend)
Attendance 2013 Meeting
1
1
1
-
Appointment of new directors
All of the non-executive directors, including the chairman and the
group finance director, were selected through externally facilitated
recruitments. All non-executive directors are independent, as was
the chairman on appointment (although not counted as such under
the Code following appointment). The board believes this has created
an effective group of executive and non-executive directors able to
provide the required range of skills, knowledge and experience to
ensure development of the group, implementation of its strategy
and sound governance. The committee has continued to monitor
any need to make changes to the composition of the board, in the
context of the international expansion of the group, and does not
anticipate any in the short term.
Following initial three-year terms, the terms of non-executive
directors are reviewed annually, in line with their annual retirement
at the Annual General Meeting (‘AGM’). The letters of appointment
for the non-executive directors are available for inspection at the
company’s registered office and the AGM.
Non-executive directors’ letters of appointment set out the time
commitments normally required. Such time commitments can
involve peaks of activity at particular times and all directors are
expected to be flexible in managing these. Any significant changes
to their other commitments are notified to the board before they
arise. The board remains satisfied as to the time availability and
commitment of the non-executive directors.
Re-election of directors
All directors retire at every AGM. If deemed appropriate by the board,
directors are proposed for re-appointment by shareholders at the
forthcoming AGM. In reaching its decision to propose re-election,
the board acts on the advice of the nominations committee, taking
account of the results of the board evaluation commented upon on
page 43.
Following the formal evaluation of the performance of the board in
2013, all directors are being proposed for re-election at the 2014
AGM. Biographies for each director can be found on page 39.
Succession planning
The committee continues to develop its succession planning for the
executive and non-executive directors and the senior management
in the group. This includes encouragement and facilitation of the
development of each individual as well as career progression as
opportunities arise. For each executive director, the board encourages
the appointment of one outside, non-executive directorship.
Succession planning is reviewed at each meeting of the committee.
Board and employee diversity
Diversity within our board is key to maximising its effectiveness and
the success of the business.
Gender is just one element of diversity, which the board continues to
keep under review.
Board evaluation
A summary of the process and key matters arising from the 2013
board evaluation, led by the chairman and internally facilitated by the
company secretary, is contained on page 43.
The Remuneration Committee
The role of the remuneration committee and details of the group’s
policy and how it implements that policy, are set out on pages
49 to 63.
The members of the committee are set out on page 40. The chief
executive attends part of the meeting by invitation but does not
participate in discussion about his own remuneration.
Compliance and ethics programme
The group is committed to conducting its business activities
responsibly, ethically and in accordance with the laws and regulations
applicable to the jurisdictions in which we operate. The board has
training and education programmes for employees, relating to
compliance within each market and how we expect our business
to be conducted. Our recently revised code of business conduct is
supported by a set of global policies issued through a group intranet
and internal communications.
During the summer of 2013, the group launched a new Code of
Business Conduct (the ‘CBC’). The CBC is designed to ensure that as a
group, all subsidiary companies act ethically, honestly, with integrity
and in a legally compliant manner in their business activities.
The CBC applies to everyone who is engaged by the group anywhere
in the world, whether they are employees or third parties.
The CBC presides over areas such as health and safety, fair honest
and ethical business practice, gifts and entertainment, conducting
international business, protection of individuals, resources and assets
and at a high level summarises the group’s legal and compliance
responsibilities in areas such as anti-bribery and corruption, export
laws and regulations and international fair and open competition.
The CBC also extends to, inter alia, the handling and minimisation
of conflicts of interest and the protection of the group’s valuable
intellectual property rights.
The CBC is accessible on the Hill & Smith group intranet for those
engaged by the group and on the company website
www.hsholdings.com for public and shareholder review and
assurance.
A compliance hotline was launched during the year, facilitated by an
internal promotional poster campaign entitled “If you think its wrong,
you can put a stop to it!” (Whistleblow). Any calls to the compliance
hotline are received in confidence by the group risk & compliance
counsel who investigates the issue raised, as appropriate, implements
corrective action or mitigation strategies and escalates the matter to
the audit committee on a summarised basis.
Hill & Smith Holdings PLC Annual Report 2013
45
Strategic Report
Governance Report
Financial Statements
Shareholder Information
The enhanced anti-bribery and corruption policies, the procedures for
gifts and entertainment and related guidelines issued in the previous
year, continue to be applied with consistency and diligence.
In order to bolster the group’s policy on conducting international
business as set out in the CBC, the group launched an international
competition law compliance policy manual and developed a
complementary training programme during the last quarter of
the year. This programme of compliance activity seeks to ensure
adherence to the group’s commitment to conduct its business in an
“open, vigorous and competitive fashion”. Additional information and
controls have been introduced to provide further assurance in respect
of marketplace conduct, contractual relationships and acquisitive
activity.
The group has also implemented a set of procurement standards
in its purchasing activity during the year in order to ensure that it
mitigates any risk stemming from its supply chain and leverages the
economies of scale a group of its size, composition and structure can
hope to generate.
As in previous years, each business is required to certify its
compliance with the policies issued by the group during the year and
in particular with the CBC.
Dialogue with shareholders
The board is managing the group ultimately on behalf of its
shareholders and it undertakes this responsibility in such a way so as
to maximise shareholder value over the long term and to advance
the interests of all of the group’s stakeholders. In this respect:
›
The chief executive officer and group finance director meet
with institutional shareholder representatives regularly during
the year to discuss strategic and other issues as well as to give
presentations on the group’s results.
›
›
›
›
›
The board receives reports from the company’s brokers and
financial public relations agency on feedback from institutional
shareholders following the executive directors’ presentations.
The chairman of the remuneration committee consults with
major shareholders before any significant changes in executive
remuneration are implemented, the results of which are
reported to the remuneration committee.
The company’s annual report and notice of annual general
meeting (AGM) are published as soon as the time required for
their printing allows, so as to provide the maximum time in
advance of the AGM for feedback, which is shared with the board
of directors.
A presentation is given to shareholders attending the company’s
AGM at which shareholder participation is encouraged. All
directors are usually present and questions and feedback are
invited.
Proxy votes of shareholders for the AGM are tabulated
independently by the company’s registrars, provided at the AGM
and published on the website shortly after the conclusion of that
meeting.
All directors are able and available to meet with shareholders
to discuss matters and can be contacted through the company
secretary. 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, management statements and
interim and annual reports are posted on the company’s website
together with details of major contracts and projects, key financial
and shareholder information, governance, statements, group policies
and corporate and organisational structure.
On behalf of the board
Bill Whiteley
Chairman
11 March 2014
Flexbeam N2W4 on the A45 outside Birmingham Airport.
46
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Audit Committee Report
Jock Lennox
Chairman, Audit Committee
Composition of the committee
The members of the committee are:
›
›
J F Lennox (Chairman)
C J Snowdon
› W H Whiteley
Role
To ensure governance and control over the group’s financial reporting
and risk management processes with assurance provided by internal
activities and external auditors.
Responsibilities
›
Reviewing financial results announcements, associated financial
statements and any significant financial reporting issues and
judgements, which they may contain;
›
›
›
›
›
›
Advising the board on whether the annual report and accounts,
taken as a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to assess the
company’s performance, business model, strategy and risks;
Ensuring compliance with applicable accounting standards
and reviewing the appropriateness of accounting policies and
practices in place;
Assessing the adequacy of the internal control environment and
the processes in place to monitor this, including reviewing the
performance of the internal audit activity;
Reviewing both the key risks and risk management processes, in
the context of proportionality and the adequacy of the actions
being taken to reduce the risk exposure of the group;
Overseeing the relationship with the external auditors, reviewing
their performance and advising the board on their appointment
and remuneration; and
Ensuring appropriate safeguards are in place for individuals
to raise issues with the board where a breach of conduct or
compliance, including any financial reporting irregularity, is
suspected.
Meetings
The committee meets at least three times a year; in March and
August to consider the annual report and financial statements and
the interim results report, respectively, together with the external
audit findings, and in December to review the activities of the
previous year and the plan for the year ahead. At each meeting the
performance and findings of the internal audit activity and the most
recent key risks are reviewed.
Attendees at each of the meetings are the committee’s members
as well as, by invitation, the group chief executive, the group finance
director, the group financial controller, the group risk & compliance
counsel and the external auditor, KPMG. A record of the meeting
attendance by committee members is set out on page 42.
Each meeting allows time for the committee to speak with
the external auditors without the presence of the executive
management.
Main activities during the year
The committee supports the board in carrying out its responsibilities
in relation to financial reporting, risk management and assessing
internal controls. It also reviews the effectiveness of the company’s
internal audit processes and manages the relationship with the
external auditor.
Committee meetings usually take place just prior to a board meeting,
where a report is given to the board on the activity of the committee
and matters of particular relevance to the board.
Following the revision to the Code, which applies to financial
years commencing on or after 1 October 2012, the board asked
the committee to advise them on whether the annual report and
accounts, taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to assess the
company’s performance, business model and strategy.
The committee’s terms of reference have been amended to reflect
this and can be found on our website at www.hsholdings.com
(Investor Relations/Responsibilities/Committees).
The committee undertook the following activities during the course of
the year to discharge its responsibilities:
Financial Reporting
The role of the committee in relation to financial reporting is to review
the half year and annual financial statements to ensure they are
appropriate. The review is carried out with both management and the
external auditor, focussing on whether:
›
›
›
The annual report and financial statements represent a
fair, balanced and understandable view of information for
shareholders;
Material areas of significant judgement have been given due
consideration by management and reviewed with external
auditors;
The application of acceptable accounting policies and practices
is consistent across the group;
Hill & Smith Holdings PLC Annual Report 2013
47
Strategic Report
Governance Report
Financial Statements
Shareholder Information
›
›
Clarity of disclosures and compliance with financial reporting
standards is acceptable; and
Any correspondence from regulators has been received in
relation to our financial reporting.
The review is based on reporting by the group finance director and
his team, as well as reports from the external auditor, based on the
outcomes of their half year review and annual audit.
Primary areas of judgement considered by the committee in
relation to the 2013 accounts
Valuation of goodwill and indefinite life assets
The value of goodwill and indefinite life assets amounts to £109.6m
at 31 December 2013. The review of such assets is based on a
calculation of value in use, using cash flow projections based on
financial budgets prepared by senior management and approved by
the board of directors. The challenging economic conditions in the
UK and Europe, in particular, increase the risk of impairment and the
committee addresses this by receiving reports from management
outlining the basis for assumptions used for cash generating units.
Business plans are signed off by the board and assessment models
are reviewed as part of the audit, for which the external auditor,
KPMG provide reporting to the committee.
Defined benefit pension scheme valuation
Net defined benefit pension obligations under IAS19 amount to
£20.2m at 31 December 2013. The committee reviews benchmarks
and assumptions that are provided by the group’s actuaries and
used to value the pension liabilities for the group’s defined benefit
schemes. The underlying assumptions based on market conditions
and the characteristics of the schemes are reviewed by management
and the external auditors and reported on to the committee.
Taxation
Assessment of judgements made in relation to uncertain tax
positions, regarding the outcome of negotiations with and enquiries
from HM Revenues & Customers and other tax authorities in other
jurisdictions. Judgements have been made following discussion with
the group’s tax advisers and internal review.
Internal controls
The committee agreed the audit plan to be undertaken by the
internal audit peer reviews. Prior to the start of the year and during
each of the meetings throughout the year, progress against this
plan was reviewed. The plan was assessed on the basis of providing
appropriate coverage over the internal control environment and to
give the committee a balanced overview across the group, taking
into account the level of risk and previous coverage. Additional areas
of review were added to the plan as required where circumstances
gave rise to an increased level of risk and any changes to the agreed
audit plan were agreed by the committee. The committee received
an update from the group financial controller at each meeting
summarising the findings of the internal audits undertaken and
the progress made against actions agreed from previous audits.
Detailed updates on specific areas are provided at the request of the
committee and for the period covered by this report the following
were considered.
›
›
›
›
Contracting activities in the industrial flooring business;
Control improvements for specific areas of the supply chain;
Costing and margin controls for the pipe supports operation in
Thailand; and
Financial management of the operations based in India.
Risk management
The risk management process is reviewed annually by the committee
to ensure that it is set up to deliver appropriate risk management
across the group. During the year the risk management process was
further developed, and improvements to the identification and review
of major risks were implemented by the newly appointed group’s
risk & compliance counsel. Since joining, the group risk & compliance
counsel has put in place further reinforcement of the group’s anti-
bribery and corruption procedures and training, as well as completing
the roll out of training for supply chain management and issue of a
compliance manual on international competition regulations.
The committee believe that these improvements will further
strengthen the way that the business understands and manages risk.
In addition, the committee reviewed the key risks on the corporate
risk register at the time of each meeting. A detailed report was
provided to the committee from the group risk & compliance counsel,
showing movements in major risks and an update on risk mitigation
activity undertaken in relation to those risks. A summary of the key
risks and uncertainties to which the business is exposed, can be found
on pages 16 to 19.
Assessment of effectiveness of external audit
There are a number of areas that the committee considers in relation
to the external auditors: their performance in discharging the audit
and interim review of the financial statements, their independence
and objectivity and their reappointment and remuneration.
External auditor performance
The external auditors, KPMG, provided the committee with their plan
for undertaking the year end audit at the committee meeting in
December 2013. This highlighted the proposed approach and scope
of the audit for the coming year and identified the key areas of audit,
including the audit approach for these areas in some detail. The
committee reviewed and appropriately challenged the basis for these
before agreeing the proposed approach and scope of the external
audit.
During the year the committee considered a report from the
group finance director on the effectiveness of the performance
of the external auditor. This report was compiled from a detailed
assessment covering, amongst other things:
›
›
›
›
›
The calibre of the external auditor including size, resources,
geographical representation and reputation;
The external audit team in terms of the requisite skills,
professional and industry knowledge;
The scope of the external audit to adequately address all the
financial reporting risks facing the company and all of the key
operations;
The approach taken in assessing the adequacy of management
representations; and
Communication and interface with internal audit activities and
the audit committee on matters affecting critical accounting
policies and treatment, governance and risk management.
The conclusion drawn from that assessment was that KPMG had
continued to deliver an effective external audit of the group’s
financial controls, performance reporting and risk identification and
management.
48
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
During 2013, there were fees of £190,000 paid to the auditors for
non-audit services. The fees paid covered aborted acquisition costs
(£113k), due diligence on acquired businesses (£58k), pension advice
(£19k) and review of interim report (£10k). Further details of the
amounts paid are included in note 6 of the accounts.
As the audit committee chairman, I have regular contact with the
external audit partner outside of committee meetings and without
the management of the business present. In such meetings a wide
range of matters are discussed including the change in financial
reporting and governance landscape, the company’s readiness to
accommodate such developments, the external auditor’s approach
to auditing activities, especially outside the UK and the robustness of
our assurance approach generally.
Whistleblowing
The group has a written policy which states that if any employee in
the group has reasonable grounds to believe that the group’s code of
business conduct is being breached by any person or group of people,
he or she is able to contact the group risk & compliance counsel with
full details, or if necessary the company secretary or the chairman of
the audit committee.
The committee received two individual reports from the group
risk & compliance counsel on matters reported under the group’s
whistleblowing policy. The incidents reported through the
whistleblowing helpline related to individual employment terms or
working relationships with other employees and were resolved.
Summary
We aim to keep in step with the continuing development of our
responsibilities for financial reporting and the related governance and
assurance. Further change will impact us when the recently proposed
changes by the EU, regarding the appointment of external auditors
and the range of permissible services provided by them, is finalised
in the UK. We will consider how best to amend our approach and
policies when the way ahead becomes clearer.
Jock Lennox
Independent Non-executive Director
Chairman, Audit Committee
11 March 2014
Audit Committee Report continued
The external auditors prepared a detailed report of their audit findings
at the year end, which they were invited to take the committee
through at the meeting in March. The findings were reviewed and
discussed in detail by the committee, particularly in relation to the
areas highlighted. A similar review of the external auditors’ report of
their findings at the half year review is undertaken by the committee.
As part of this review the committee question and challenge the
work undertaken, the findings and the key assumptions made, with
particular attention to the areas of audit risk identified.
Auditor independence and rotation
The auditor confirmed its policies on ensuring audit independence
and provided the committee with a report on their own audit and
quality procedures. This report was reviewed during the period
under review and the committee remained satisfied of the auditor’s
independence and with the rotation of the external audit personnel,
which complied with the professional guidelines.
KPMG have been the company’s auditors since 1999 and during
that time the external audit has not been formally tendered. The
committee noted that the external auditor is required to rotate the
lead audit partner every five years with the current lead audit partner
starting in 2011. Whilst the group does not consider it necessary to
have a policy for rotation of external audit firms, the committee will
evaluate the merits of tendering the audit at the time of the lead
audit partner rotation. The committee will continue to regularly
consider this in accordance with the audit tendering provisions in the
Code. In reaching its positive recommendation to the board for the
annual re-appointment of KPMG Audit Plc, the committee reviewed,
as part of its terms of reference, the external auditors’ performance
and effectiveness in the past year. In connection with a general
reorganisation of KPMG’s UK Audit business, our auditors, KPMG, have
informed us that they wish to transfer the appointment as statutory
auditor from KPMG Audit Plc to KPMG LLP. The committee has
recommended to the board that KPMG LLP be appointed as auditor
of the company commencing with the 2014 financial year and their
proposed fees be authorised.
The group has a policy whereby, before any former employee
of the external auditors may be employed by the group, careful
consideration be given to whether the independence of the auditor
will be adversely affected and approval of the audit committee is
required.
As part of the standard committee agenda, a review of the group’s
policy on the use of the external auditor to carry out non-audit
services was undertaken. This policy is reviewed annually and such
review forms part of the terms of reference of the committee. The
current policy is consistent with the ethical standards recommended
by the accounting practices board. Included within the policy are
activities which the external auditor cannot undertake, such as: those
for compiling accounting records, certain aspects of internal audit,
IT consultancy and advice to the remuneration committee. For any
non-audit services which are not excluded under the policy, the policy
provides for approval by the group finance director of any expenditure
below the level of £50,000 and above that figure, approval of the
audit committee chairman. A report is also submitted to the audit
committee of any non-audit services carried out by the external
auditor, irrespective of value.
Where the committee believes it is more cost effective for the
external auditor to be engaged, for non-audit services, that are
not excluded, such as those relating to merger and acquisition due
diligence work, it will consider the engagement of the external
auditor, subject to application of the principles of the policy, including
the financial limits.
Hill & Smith Holdings PLC Annual Report 2013
49
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Remuneration Committee Report
Clive Snowdon
Chairman, Remuneration Committee
Dear Shareholder,
On behalf of the board I am pleased to present our Directors’
Remuneration Report for 2013, which sets out the remuneration
policy for the directors and the amounts earned in respect of the year
ended 31 December 2013.
We have continued to monitor our executive remuneration policy to
take account of evolving market practice and we remain committed
to a responsible approach to executive pay. At the same time we have
worked to ensure that a fair and stable framework is maintained, so
as to avoid making unnecessary and frequent changes.
Our remuneration policy is designed to have a significant proportion
of executive pay linked to achievement of demanding performance
targets. Accordingly, whilst the group’s results in 2013 were as
anticipated in the November 2013 interim management statement,
the more demanding performance targets for the annual bonus and
part of the Long Term Incentive Plan (LTIP) awards were not fully
achieved, as can be seen from this report on remuneration on page
57.
During the year the committee, who membership and meetings are
set out on pages 40 and 42 respectively, met on four occasions for
the purposes of:
›
›
›
›
Developing the remuneration policy for the executive directors of
the company and senior executives within the group, including a
complete review of the current arrangements. The remuneration
committee were advised by Deloitte on this revised policy, which
is subject to approval by shareholders at the annual general
meeting in May 2014. Consultation was also undertaken with
our major shareholders.
Considering the review of the base salaries of the executive
directors. An increase in base salaries of 3% was awarded, with
effect from 1 January 2014, which was in line with the range of
increases in base pay awarded to employees across the group.
Confirming bonuses of 16.4% of salary to the executive directors
in respect of the financial year 2013 to reflect achievement of
underlying profit before tax of £41.2m and underlying earnings
per share growth of 4.10%.
Considering the vesting of the LTIPs awarded in 2010, none of
which vested.
›
Ensuring the incentive performance targets for 2014 remain
appropriate and aligned to the group’s strategy and act as an
incentive, for executive directors, to deliver sustained business
performance. As a result the remuneration committee resolved
to make the following minor amendments to the performance
targets for the 2014 annual bonus and the 2014 LTIP award:
-
-
To provide a closer alignment to strategy and a more
rounded assessment of group performance, the annual
bonus metrics are to be extended to include operating
margins and return on capital (in addition to the existing
budgeted underlying profit before tax and underlying
earnings per share growth metrics).
The 2014 LTIP performance metrics will continue to
be growth in underlying earnings per share and total
shareholder return relative to the FTSE Small Cap, with each
having an equal weighting. However, given the increasing
international representation of the group businesses the
committee considers that the linking of earnings per share
performance targets to UK inflation (RPI) is no longer
appropriate. In setting the earnings per share targets the
remuneration committee, having taken into account the
forecasts and market expectations for the group, believes
that the proposed targets are sufficiently challenging
and provide suitably stretching performance conditions,
without encouraging excessive risk.
-
In keeping with best practice, the level of vesting at
threshold performance, for both the earnings per share and
total shareholder return elements, will be set at 25% of the
maximum opportunity for each of these elements.
›
Reviewing and updating the rules for the 2007 LTIP, 2005
Executive Share Option Scheme and 2005 SAYE Scheme.
Further details of this review and the new proposed schemes
are contained in the notice of the company’s annual general
meeting.
The existing policy and fundamental structure of remuneration
remains largely unchanged and the overall quantum of the incentives
has not changed. We believe this ensures a continued alignment to
business strategy and encourages the creation of shareholder value.
Clive Snowdon
Senior Independent Non-executive Director
Chairman, Remuneration Committee
11 March 2014
50
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report
This report complies with the Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 and the 2010 UK
Corporate Governance Code. New regulations have come into effect which impact the presentation and disclosure of directors’ remuneration,
and the layout of this report reflects those new regulations. This report is, therefore, presented in two sections: the directors’ remuneration policy
report and the annual report on remuneration. The directors’ remuneration policy report sets out the forward-looking remuneration policy that
will be subject to a binding vote at the annual general meeting (AGM). The annual report on remuneration provides details on the amounts earned
in respect of the year ended 31 December 2013 and how the directors’ remuneration policy will be operated for the year commencing 1 January
2014 and will be subject to an advisory vote at the AGM.
Directors’ remuneration policy report (not audited)
This part of the report sets out, in tabular form, the directors’ remuneration policy, which, subject to shareholder approval at the 2014 AGM, shall
take binding effect from the date of that meeting. The policy has been determined by the company’s remuneration committee. Information on
how the remuneration committee intends to implement the policy for the current financial year is set out in the annual report on remuneration.
Directors’ remuneration policy table
Purpose and link to
strategy
Operation
Base salary
Help recruit and
retain executive
directors.
Provides fixed
remuneration for the
executive directors,
which reflects
the individual’s
experience and
the size and scope
of the executive’s
responsibilities.
Normally reviewed annually and fixed for twelve
months.
Salaries are determined by the Remuneration
Committee taking into account a range of factors,
including but not limited to:
›
›
›
›
›
the size and scope of the role;
individual and group performance;
average change in broader workforce salary;
total organisational salary budgets; and
pay levels for comparable roles in companies of
a similar size and complexity.
However, increases may be above this level in
certain circumstances. Any salary increases may be
implemented over such time as the remuneration
committee deems appropriate.
Benefits
Help recruit and
retain executive
directors.
Ensures the
overall package is
competitive.
Participation in
the SAYE scheme
promotes staff
alignment within the
group and a sense of
ownership.
Executive directors are entitled to a range of benefits,
including but not limited to, membership of the
group’s healthcare scheme, personal accident
insurance, ill health, life assurance and car (or
equivalent cash allowance).
Other benefits may be provided based on individual
circumstances. Such benefits may include but are not
limited to expatriate, housing or relocation allowances.
The SAYE scheme is a HM Revenue & Customs
approved monthly savings scheme facilitating the
purchase of shares at a discount up to a maximum of
20%.
Maximum opportunity
Performance metrics
Not applicable.
Not applicable.
Ordinarily salary increases
will not exceed the range
of salary increases to other
employees in the group.
However, salary increases
may be above this level in
certain circumstances as
required, for example, to
reflect:
›
increase in scope or
responsibility;
performance in
role; or
an executive director
being moved to
market positioning
over time.
›
›
No maximum salary
opportunity has been set
out in this policy report to
avoid setting expectations
for executive directors.
The base salaries effective
as at 1 January 2014 are
shown on page 54.
Whilst the remuneration
committee has not set an
absolute maximum on the
level of benefits executive
directors receive, the value
of benefits is set at a level
which the remuneration
committee considers is
appropriately positioned
against companies of a
similar size and complexity
in the relevant market and
at rates competitive in the
area of life, accident and
health insurance.
SAYE scheme contribution
as permitted in accordance
with the relevant
legislation and HMRC rules.
Hill & Smith Holdings PLC Annual Report 2013
51
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Pension
Help recruit and
retain executive
directors.
To provide
competitive post-
retirement benefits
and reward sustained
contribution to the
performance of the
group.
The group may make payment either into a defined
contribution plan or as a separate cash allowance.
Group contributions are determined as a percentage of
base salary and set at a level which the remuneration
committee considers to be appropriately positioned
against comparable roles in companies of a similar
size and complexity.
Annual bonus
Rewards the
achievement of
annual financial and/
or strategic business
objectives.
Performance measures and targets are reviewed and
set annually by the remuneration committee.
Bonus pay-out is determined by the remuneration
committee after the relevant year end, based on
audited performance against those targets.
The remuneration committee has the discretion
to amend the bonus pay-out should any formulaic
outputs not produce a fair result for either the
executive director or the company, taking account of
overall business performance.
Contribution rates (or cash
allowances) are up to a
maximum of 25% of base
salary.
The company closed,
with effect from October
2011, its defined benefits
pension scheme to any
future accrual. D W Muir,
who is a deferred member,
continues to receive
benefits only in accordance
with the terms of the
scheme.
The maximum bonus
opportunity is up to 100%
of base salary.
Not applicable.
The bonus will be based on the
achievement of targets related
to key business objectives, with
the performance measures and
respective annual weightings,
dependent on the group’s strategic
priorities.
The performance measures
will include at least two of the
following:
›
growth in underlying earnings
per share (‘UEPS’);
budgeted profit;
operating margins;
return on capital; or
other performance metrics
that the remuneration
committee considers
appropriate.
›
›
›
›
At least 50% of the bonus will be
based on EPS and budgeted profit.
The remuneration committee
will determine an appropriate
performance range for each
measure used.
Below the threshold level of EPS
performance 0% of maximum
opportunity will pay-out and
a straight line entitlement will
usually apply between this and the
maximum performance.
Up to 60% of the maximum
opportunity will be earned for
target performance and 100% for
maximum performance. There
is usually straight line vesting
between these performance
points. For all other measures, at
a threshold level of performance
up to 25% of the maximum
opportunity will be earned.
52
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report continued
Purpose and link to
strategy
Operation
Maximum opportunity
Performance metrics
Awards vest subject to the
achievement of performance
measures assessed over more than
one financial year (normally three
years). The performance measures
are reviewed annually to ensure
they remain relevant and aligned
to the group’s strategy.
Performance measures will be
based on financial measures and/
or share price growth related
measures.
For 2014, the performance
measures and weightings will be:
›
50% based on EPS
performance; and
50% based on relative total
shareholder return (TSR).
›
For achievement of the threshold
level of performance (the
minimum level of performance for
vesting to occur) up to 25% of the
maximum opportunity will vest for
each element.
For achievement of maximum
performance 100% of the
maximum opportunity will vest;
there is straight line vesting
between the performance points of
25% and 100%.
Where an option under the ESOS
is granted as part of an approved
LTIP award, the same performance
condition applies to the ESOS
option as applies to the LTIP award.
The annual LTIP maximum
opportunity is 100% of
base salary in respect of
each financial year.
Shares subject to an
approved option granted
as part of an approved
LTIP award are not taken
into account for the
purposes of this limit
because, as referred to
in the column under the
heading “Operation”,
either (i) the unapproved
LTIP option is scaled back
at exercise to reflect the
gain made on the exercise
of the approved option;
or (ii) the full value of the
award is reflected in the
unapproved option and
“linked award”.
Long Term
Incentive
Plan (‘LTIP’)
Incentivises executive
directors to achieve
higher returns for
shareholders over a
longer time frame.
The remuneration committee plans to make long term
incentive awards under the new 2014 LTIP which will
be put to shareholders for approval at the 2014 annual
general meeting. The key features of the new 2014
LTIP are noted below:
A claw back applies
to unvested awards
enabling the
company to mitigate
risk.
The remuneration committee may grant awards over
conditional share awards, nil cost share options or
forfeitable shares or such other form as has the same
economic effect.
Awards are typically granted annually and vesting is
subject to achievement of performance measures
normally over at least three years.
LTIP awards may vest early on a change of control
(or other relevant events) subject to the satisfaction
of performance conditions and pro-rating for time,
although the remuneration committee has discretion
to increase the extent of vesting having due regard to
performance over the period to vesting. LTIP awards
may also vest early in ‘good leaver’ circumstances (as
shown on page 55).
At its discretion the remuneration committee may
award dividend equivalents to reflect dividends that
would have been paid over the vesting period on
shares that vest. This dividend payment may be in the
form of additional shares or a cash payment equal to
the value of those additional shares.
LTIP awards and vesting are subject to a claw
back provision such that, at the discretion of the
remuneration committee, unvested awards may lapse
for material errors or the misstatement of results or
information coming to light which, had it been known,
would have affected the award or vesting decision or
reputational damage to the group.
The remuneration committee may at its discretion
structure awards as approved LTIP awards comprising
both an HMRC approved option granted under
the Executive Share Option Scheme (‘ESOS’) and
an LTIP award. Approved LTIP awards enable the
participant and the company to benefit from HMRC
approved option tax treatment in respect of part
of the award, without increasing the pre-tax value
delivered to participants. The approved LTIP awards
may be structured either as an approved option for
the part of the award up to the HMRC limit (currently
£30,000) with an unapproved option for the balance
and a ‘linked award’ to fund the exercise price of the
approved option OR as an approved option and an
LTIP award with the vesting of the LTIP award scaled
back to take account of any gain made on exercise
of the ESOS option. Other than to enable the grant
of £30,000 in value of the HMRC approved options as
an approved LTIP award, the company will not grant
awards to executive directors under both the ESOS and
LTIP in the same grant period.
Hill & Smith Holdings PLC Annual Report 2013
53
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Operation
Maximum opportunity
Performance metrics
Each executive director is required to hold shares
acquired through the LTIP until the value of their total
shareholding is equal to their annual base salary.
Not applicable.
Not applicable.
Fees are reviewed periodically and are determined by
the board.
The fee structure is as follows:
›
›
the chairman is paid a single consolidated fee;
the non-executive directors are paid a basic
fee plus additional fees for chairmanship of a
committee;
the senior independent director also receives an
additional fee in respect of this role; and
fees may be paid wholly or partly in shares.
›
›
The non-executive directors do not participate in
any of the group’s share incentive plans nor do they
receive any pension contributions. Non-executive
directors may be eligible to benefits such as the use of
secretarial support, travel costs or other benefits that
may be appropriate.
Fees are subject to an
overall cap as set out in
the company’s Articles of
Association.
Fees are based on the
time commitment and
responsibilities of the role.
Fees are appropriately
positioned against
comparable roles in
companies of a similar
size and complexity in the
relevant market.
Shareholding
guidelines
Chairman and
non-executive
director fees
Purpose and link to
strategy
Promotes alignment
to shareholders
interests and share
ownership
Sole element of non-
executive director
remuneration
are fees, set at a
level that reflects
market conditions
and sufficient to
attract individuals
with appropriate
knowledge and
experience.
Differences in the group’s policy for the remuneration of employees
generally
The group aims to provide a remuneration package that is market
competitive in the employee’s jurisdiction of employment and which:
›
›
›
is appropriate to attract, retain, motivate and reward, without
paying more than necessary;
is fairly and consistently applied; and
includes an element of incentive to share in the financial
success of the group through: annual bonuses, based upon
the performance of individual business units; executive share
options; and a UK SAYE scheme, all of which are aligned to the
strategic objectives and performance of the group.
Explanation of chosen performance measures and how targets are set
Performance measures have been selected that reflect the group’s
strategy. Stretching performance targets are set each year for
the annual bonus and LTIP awards. In setting these stretching
performance targets the remuneration committee will take into
account a number of different reference points such as the group’s
business plans and strategy. The remuneration committee considers
that underlying EPS and profit before tax are closely aligned to
the group’s key performance metrics and, in conjunction with the
other annual bonus performance metrics, provides a balanced
measurement of performance that encourages sustainable growth.
The EPS and TSR performance conditions attaching to the LTIP align
management’s objectives to those of shareholders and rewards
for the delivery of year on year growth and delivery of value to
shareholders. For the relative TSR performance condition there will
be no vesting for performance below median compared to the
comparator group.
The remuneration committee retains the discretion to adjust the
performance targets and measures where it considers it appropriate
to do so. For example, to reflect changes in the structure of the
business and to assess performance on a fair and consistent basis
from year to year.
In accordance with the scheme rules awards may be adjusted in the
event of a variation of capital.
54
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report continued
Illustrative performance scenarios for 2014 (all £000’s)
Chief Executive (CEO)
Finance Director (FD)
Base salary 1 January 2014
451
288
Benefits
50
20
Pension
113
72
Total fixed
614
380
Chief Executive - Derek Muir
Finance Director - Mark Pegler
LTIP
Annual Bonus
Total Fixed
s
0
0
0
£
/
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
£2,000
£1,500
£1,000
£500
£0
£998
11%
26%
63%
£614
100%
£1,516
29%
29%
42%
Minimum
In line with
expectations
Maximum
LTIP
Annual Bonus
Total Fixed
s
0
0
0
£
/
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
£2,000
£1,500
£1,000
£500
£0
£625
12%
28%
60%
£956
30%
30%
40%
In line with
expectations
Maximum
£380
100%
Minimum
The illustrative performance charts above are based on the proposed remuneration policy as set out on pages 50 to 53. In developing the
scenarios, the following assumptions have been made:
Minimum (£000’s)
CEO - 614
FD - 380
Consists of total fixed pay – i.e. base salary, benefits and pension.
›
›
›
1 January 2014.
Base salary is the salary effective at 1 January 2014.
Taxable benefits as per single figure table.
Pension contribution is based on the policy set out in the future policy table and on the base salary effective at
In-line with
expectations (£000’s)
CEO - 998
FD - 625
Consists of:
›
›
›
Total fixed pay, as set out above.
Annual bonus pays out at 60% of maximum for target performance (i.e. 60% of base salary based on a maximum
potential of 100% of base salary).
LTIP pays out at 25% of maximum for threshold vesting (i.e. 25% of base salary based on a usual maximum of
100% of base salary).
Maximum (£000’s)
CEO - 1,516
FD - 956
Consists of:
›
›
›
Total fixed pay, as set out above.
Full pay-out of annual bonus – i.e. up to 100% of base salary.
Full vesting of LTIP awards – i.e. up to 100% of base salary.
Approach to recruitment remuneration
The objective of this policy is to allow the remuneration committee to offer remuneration packages which:
›
›
›
facilitates the recruitment of individuals of sufficient calibre to develop and deliver our business strategy and create shareholder value;
offers a remuneration package that reflects the key principles of the group’s wider remuneration philosophy; and
seeks to ensure that arrangements are in the best interests of the group and not to pay more than is appropriate.
Typically the individual will be transitioned onto a remuneration package that is consistent with the policy set out in the table above. However, the
remuneration committee retains the discretion to make remuneration decisions or include other remuneration components or awards which are
outside the policy elements set out on pages 50 to 56 where it considers it necessary. In determining appropriate remuneration arrangements the
remuneration committee will consider:
›
›
›
›
the quantum of the package on offer compared to that of similar positions in the market;
the structure of the remuneration package;
the experience of the candidate; and
the interests of the company and its shareholders.
Hill & Smith Holdings PLC Annual Report 2013
55
Strategic Report
Governance Report
Financial Statements
Shareholder Information
The following elements may also be considered by the remuneration committee for inclusion in a recruitment package for an executive director:
Compensation for forfeited
awards on leaving a previous
employer
Initial incentive awards
The remuneration committee may make awards on hiring an external candidate to compensate the
candidate for the forfeiture of any award entered into with a previous employer. In determining any such
‘buy-out’ the remuneration committee will consider all the relevant factors including the likelihood of the
awards vesting should the external candidate have remained in their previous employment, the form in
which they were granted (e.g. share or shares) and the time over which they would have vested. Generally,
buy-out awards will be made on a comparable basis to those forfeited.
The remuneration committee would seek to implement any buy-out awards in line with the company’s
remuneration framework, so far as practical. Where considered appropriate, buy-out awards will be subject
to forfeiture or claw back on early departure.
Subject to the overall maximum variable remuneration limit set out below and to the overall LTIP plan
limits set-out under the policy elements on page 52, incentive awards may be granted within the first
twelve months of appointment above the normal maximum annual award opportunity set out on
page 52. The remuneration committee will ensure that any such awards are linked to the achievement
of appropriate and challenging performance targets and will be forfeited if performance or continued
employment conditions are not achieved.
Maximum variable remuneration
(excluding buy-out awards)
The maximum level of variable remuneration which may be awarded is 200% of base salary, (consisting of
100% annual bonus and 100% LTIP).
Service contracts
The remuneration committee’s policy is for service contracts for new executive directors to be capable of
termination by giving twelve months’ notice and up to twelve months’ notice from the executive director.
In connection with the recruitment of an executive director, the remuneration committee may rely on exemption 9.4.2, of the Stock Exchange
Listing Rules which permits the making of a long term incentive scheme award to facilitate, in exceptional circumstances, the recruitment of
a director. Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to
continue according to the original terms. Where necessary, the group will pay appropriate relocation costs and the remuneration committee will
seek to ensure that no more than necessary is paid.
Fees payable to a newly appointed chairman or non-executive director will be in line with the fee policy in place at the time of appointment.
Service contracts and loss of office payments
The policy on executive director service contract and payment for loss of office is summarised below:
Notice period for termination
by the company
Notice period for termination
by the employee
Within ninety days of a
change of control
Payment in lieu of notice
Other incentives
Twelve months.
Not less than six months.
By the company – twelve months.
By the executive director – ninety days.
Base salary and benefits, to which the executive director is entitled to (including any bonus accrued up until
the date of termination – not withstanding that the date of termination may be prior to the date the bonus is
actually paid).
The remuneration committee also has discretion to incorporate payments under the performance-linked
elements of the package under ‘good leaver’ scenarios, this may include:
›
If the executive director leaves during the annual bonus performance year, a payment may be made at
the remuneration committee’s discretion. Typically for ‘good leavers’, bonus amounts (as determined by
the remuneration committee) will be pro-rated for time in service up to the termination, be subject to
performance and paid at the usual time;
The vesting of share based awards will be governed by the rules of the relevant incentive plan, as approved
by shareholders.
• Under the current LTIP, the provisions for ‘good leavers’ provide that awards will vest at the end of the
normal vesting period but the remuneration committee has discretion to accelerate vesting to the date
of cessation of employment. If accelerated to the date of cessation of employment vesting will take
account of performance over the period to the date of cessation of employment and will be subject
to pro-rating for time (although the remuneration committee has discretion to increase the extent of
vesting having due regard to performance over the period to vesting).
‘Good leaver’ scenarios are death, injury, ill-health, redundancy, the executive director being employed
by a company or undertaking which ceases to be part of the Hill & Smith group, or any other
circumstance that the remuneration committee deems appropriate.
•
Other than in ‘good leaver’ scenarios described above, no pay-outs will be made under the performance
linked awards.
› Where a buy-out award is to be made under Stock Exchange Listing Rule 9.4.2. then the leaver provisions
would be determined at the time of the grant.
›
›
56
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report continued
Statement of consideration of shareholder views
The company is committed to ongoing dialogue and seeks
shareholder views ahead of making significant changes to its
remuneration policies. In this regard the remuneration committee
has consulted with major shareholders over the proposed changes to
the LTIP performance measures for 2014.
Annual report on remuneration
Remuneration philosophy
The remuneration policy is designed to be in line with the company’s
fundamental principles of fairness, being competitive and having the
right calibre of employee to deliver the company’s corporate strategy.
Accordingly, the company sets out to provide fair and competitive
remuneration to all its employees and which is appropriate to the
business environment and markets it operates in. To achieve this, the
remuneration packages are based on the following principles:
›
›
total rewards should be set to be fair and attractive; and
appropriate elements of the remuneration package should be
designed to reinforce the link between performance and reward.
The remuneration policy is designed to ensure that executive
directors are provided with sufficient remuneration to motivate each
individual, together with appropriate incentives that are aligned
to strategy and encourage enhanced performance. The group
operates in increasingly competitive international markets and for
it to continue to compete successfully, it is essential that the level
of remuneration and benefits offered for leadership roles achieves
the objectives of attraction, retention, motivation, performance and
reward.
Appointments for 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. Discretion is retained to terminate with or without due
notice or paying any payment in lieu of notice dependent on what is
considered to be in the best interests of the company in the particular
circumstances.
Where the remuneration committee retains discretion, as outlined
above, it will be used to provide flexibility in certain situations, taking
into account the particular circumstance of the directors departure
and recent performance of the company.
Statement of considerations elsewhere in the company
When setting the policy for directors’ remuneration, the remuneration
committee has regard to the pay and employment conditions
elsewhere within the group, although employees are not formally
consulted on directors’ remuneration policy. This includes
consideration of:
›
›
›
›
›
salary increases for the general employee population;
overall spend on annual bonus;
participation levels in the annual bonus, long term incentive and
share option plans;
company-wide benefits (including pension) offerings; and
any other relevant factors as determined by the remuneration
committee.
The remuneration committee takes into account ad-hoc information
as provided to it from time to time, including advice from appropriate
remuneration consultants.
Discretion and existing contractual arrangements
The remuneration committee reserves the right to make any
remuneration payments and payments for loss of office,
notwithstanding that they are not in line with the policy, set out
above, where the terms of the payment were agreed:
(i) before the policy came into effect; or
(ii) at a time when the relevant individual was not a director of the
company and, in the opinion of the remuneration committee, the
payment was not in consideration for the individual becoming a
director of the company.
For these purposes ‘payments’ includes the remuneration committee
satisfying awards of variable remuneration and, in relation to an
award over shares, the terms of the payment as ‘agreed’ at the time
the award is granted. For the avoidance of doubt, the remuneration
committee’s discretion includes discretion to determine, in
accordance with the rules of the current LTIP, the extent to which
awards under that plan may vest in the event of a change of control
or in a ‘good leaver’ circumstance.
The remuneration committee may make minor changes to this policy,
which do not have a material advantage to directors, to aid in its
operation or implementation without seeking shareholder approval
but taking into account the interests of shareholders.
Hill & Smith Holdings PLC Annual Report 2013
57
Strategic Report
Governance Report
Financial Statements
Shareholder Information
The following parts of the remuneration report are subject to audit, other than the elements explaining the application of the remuneration
policy for 2014.
Single total figure of remuneration
The tables below reports the total remuneration receivable in respect of qualifying services by each director during the periods:
Executive Directors
Year ended 31 December 2013 - £000’s
D W Muir
M Pegler
Total
salary
438
280
Year ended 31 December 2012 - £000’s
D W Muir
M Pegler
Total
salary
425
271
Non-executive Directors
Year ended 31 December 2013 - £000’s
Taxable
benefits
50
20
Taxable
benefits
49
19
Annual
incentive
72
46
Annual
incentive
361
230
Long term
incentives
Pension related
benefits
415
267
109
70
Long term
incentives
Pension related
benefits
0
0
106
68
W H Whiteley
C J Snowdon
J F Lennox
Total
salary
131
48
48
Taxable
benefits
Annual
incentive
Long term
incentives
Pension related
benefits
0
0
0
0
0
0
0
0
0
0
0
0
Year ended 31 December 2012 - £000’s
W H Whiteley
C J Snowdon
J F Lennox
Total
salary
127
47
46
Taxable
benefits
Annual
incentive
Long term
incentives
Pension related
benefits
0
0
0
0
0
0
0
0
0
0
0
0
The figures in the single figure table above are derived from the following:
Total
1,084
683
Total
941
588
Total
131
48
48
Total
127
47
46
Total Salary
and Fees
Taxable
Benefits
Pension
Annual
Bonus
Long Term
Incentives
(including
SAYE)
The amount of salary / fees received in the year.
The taxable value of benefits received in the year. These are membership of the company’s healthcare scheme, income
protection scheme, personal accident insurance, car (or cash allowance), ill health and life assurance.
The pension figure represents the cash value of pension contributions received by the executive directors.
This includes the company’s contributions to the defined contribution pension scheme and any salary supplement in lieu of a
company pension contribution.
Annual bonus is the value of the bonus earned in respect of the year. A description of performance against which the bonus
pay-out was determined is provided on page 58.
Long term incentives includes the value of LTIP awards that vest in respect of the financial period.
For the year ended 31 December 2012 comparative figures, the LTIP awards in respect of the performance period commencing
on 1 January 2010 and ending on 31 December 2012 lapsed in full.
For the year ended 31 December 2013 the growth in UEPS over the three year performance period commencing 1 January
2011 and ending 31 December 2013 was 3.6% and the company’s TSR was positioned in the upper quartile relative to the FTSE
SmallCap for the same period. Therefore, 50% of the total LTIP award of 18 March 2011 vested, giving D W Muir the benefit
of 68,495 shares and M Pegler the benefit of 43,724 shares, both 50 per cent of the total award. The face value of the vested
shares is based on the closing share price of 540.50p/share at the vesting date 10 March 2014. The value of dividends receivable
in respect of vesting LTIPs was for D W Muir £30,079 and for M Pegler £19,201, which in both cases is being taken in company
shares (8,052 shares for D W Muir and 5,140 shares for M Pegler).
Using IFRS2 accounting standards, a value of £1k for D W Muir and £4k for M Pegler has been ascribed to the benefit of the 2005
SAYE grants made in the period and detailed on page 62.
58
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report continued
Individual elements of remuneration
Base salary and fees
Basic annual salaries for executive directors are reviewed by the
committee on an annual basis or when a material change of
responsibility occurs. The remuneration committee does not however
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.
During the period under review the committee reviewed the salaries
of the executive directors and other senior executives in the context
of the previous benchmarking exercises, the current performance of
the company and the levels of pay increases to be applied throughout
what is now a large group of international businesses. This approach
is consistent with that taken in prior years. Accordingly, the following
salary increases have applied to the executive directors which are in
line with the wider workforce:
D W Muir
M Pegler
2013
base salary
£000’s
438
280
2014
base salary
£000’s
451
288
Increase
3.0%
3.0%
In making these awards the committee also took into account the
overall performance of the group, in a challenging economic climate,
the continued development of the international scale of the group
and the management of the group’s net debt.
The non-executive directors do not have service contracts and fees
for non-executive directors are determined by the executive directors
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 in relation to the
determination of their fees.
The non-executive directors are not eligible for performance related
bonuses or the grant of awards under any group incentive scheme.
No pension contributions are made on their behalf.
Non-executive director fees
Basic fee
Additional fee for:
2013
£
2014
£
42,250 43,500
- Chairmanship of the Remuneration Committee
4,300
4,500
- Chairmanship of the Audit Committee
5,300
5,500
- Senior Independent Non-executive Director
1,600
1,600
Fees to be paid to the chairman in 2014 will be £135,000 an increase
of 3.05% from £131,000 in 2013. He does not receive any additional
fees for committee memberships.
Annual bonus
Executive directors are eligible for an annual performance related
cash bonus, designed to pay the maximum of 100% of base salary
only in circumstances where stretching performance targets have
been satisfied.
Whilst the remuneration committee is aware that some shareholders
wish to see detailed retrospective disclosure of bonus targets,
it considers this inappropriate given that such disclosure would
provide information relating to the company’s approach to annual
budgeting. The PBT and UEPS targets are based on commercially
sensitive information that the board believes could negatively impact
the company’s competitive position by providing our competitors
with insight into our business plans and expectations, resulting in
significant risk to future profitability and shareholder value. However,
the committee will review this annually, and may disclose some
details on a retrospective basis where it considers it appropriate to do
so.
We are committed to providing as much information as we are able
to, in order to assist our investors in understanding how our incentive
payouts relate to performance delivered. The following table sets out
the bonus pay-out to the executive directors for 2013 and how this
reflects PBT and UEPS performance for the year.
Underlying PBT
£41.2m
UEPS growth
4%
Bonus pay-out as a
percentage of salary
16.4%
Annual bonus in 2014
For 2014 the following performance conditions for the annual bonus
will apply in equal measure:
›
›
›
›
Growth in UEPS;
Budgeted underlying profit before tax;
Improvement in operating margin; and
Achievement of budgeted return on capital.
The remuneration committee considers that these performance
measures reflect the group’s strategy and direction for 2014. The
remuneration committee considers that the actual annual bonus
targets are commercially sensitive and should therefore remain
confidential to the group. They provide our competitors with insight
into our business plans, expectations and our strategic actions.
However, the remuneration committee will continue to disclose how
the bonus pay-out delivered relates to performance against the
targets on retrospective basis.
Long Term Incentive Plan (LTIP)
The Hill & Smith 2007 LTIP provides for the grant of conditional
share awards. The remuneration committee is keen to ensure that
its remuneration arrangements are appropriate, up to date and
reflect best practice for the duration of the remuneration policy. It is
therefore seeking approval for a new set of plan rules to govern the
LTIP. The rules will be broadly similar to those already in place but are
updated to ensure they include best practice in terms of corporate
governance. A summary of these rules has been provided with notice
of AGM.
Under the 2007 and proposed 2014 LTIPs, awards are generally made
to executive directors on an annual basis with the level of vesting
determined by reference to stretching performance conditions. Under
normal circumstances the maximum market value of shares pursuant
to an award to any director or senior 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.
Hill & Smith Holdings PLC Annual Report 2013
59
Strategic Report
Governance Report
Financial Statements
Shareholder Information
LTIP awards/vestings 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/vesting decision or reputational damage to the group.
Awards vesting in respect of the year ended 31 December 2013
The vesting performance criteria for LTIP awards granted in 2011 and which vest in 2013 are as follows:
1.
50% of the award based on the growth in absolute UEPS that is in excess of RPI, over the three year performance period.
Below threshold
Threshold
Maximum
* Straight line vesting will apply between these points.
Absolute UEPS growth
Less than RPI + 10%
RPI + 10%*
RPI + 25%*
2.
50% based on the TSR performance over the three year performance period relative to the FTSE SmallCap.
Below threshold
Threshold
Maximum
* Straight line vesting will apply between these points.
Company TSR relative to the FTSE SmallCap
Below median
Median*
Upper quartile*
Vesting
amount
0%
0%
100%
Vesting
amount
0%
30%
100%
The committee determined that the measurement of relative growth for half of the award would complement the absolute growth targets to
ensure that an award could only fully vest if the group’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 group’s performance over the three year performance period to 31 December 2013 and expected vesting is shown in the table below:
Growth in absolute UEPS (50%)
From RPI + 10%* to RPI + 25%*
Required
performance
Actual
performance
3.6%
TSR relative to FTSE SmallCap (50%)
At the median 30%*
Upper quartile
For Upper Quartile 100%* of maximum
Total vesting
* Straight line vesting will apply between these points.
% of award
vesting
nil
50%
50%
Awards granted during the year ended 31 December 2013
In respect of the period ended 31 December 2013 the following LTIP awards were granted:
D W Muir
M Pegler
Type of award
Maximum
opportunity
LTIP
LTIP
100% of salary
100% of salary
Number
of shares
97,695
62,453
Face value
at grant*,
£000’s
438
280
% of award
vesting at threshold
Performance
period
15%
15%
1 Jan 13 - 31 Dec 15
*Face value based on the average mid-market price for the three trading days prior to the award date of 18 March 2013 (448.33p).
The performance conditions for these LTIP awards are the same as those applying to the January 2011 LTIP awards and are described above.
60
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report continued
Awards for the year ending 31 December 2014
It is intended that LTIP awards for 2014 will be made under the
2014 LTIP rules being put to shareholders for approval at the AGM.
The rules are broadly similar to those already in place but have been
updated to ensure that they reflect best practice and good corporate
governance that has emerged since the last set of plan rules were
adopted. A summary of the new rules are set out in the notice of
AGM.
The 2014 LTIP performance conditions will continue to be growth
in UEPS and total shareholder return relative to the FTSE Small Cap
(and will continue to have an equal weighting). However, given the
increasing internationality of Hill & Smith’s business the committee
considers that the linking of UEPS performance targets to UK
inflation (RPI) is no longer appropriate. In setting the UEPS targets
the committee has taken into consideration forecasts and market
expectations for the group and considers that the proposed targets
are sufficiently challenging and provide an appropriate balance
between setting suitably stretching performance conditions to act as
an appropriate incentive for the executives and to deliver sustained
business performance, without encouraging excessive risk.
The committee will continue to monitor these targets to ensure
they remain appropriately stretching and executives only receive
substantial reward for significant out performance. As set out below,
we are proposing to use targets based on growth in absolute UEPS
over a three year period for 2014 awards onwards:
Below threshold
Threshold
Maximum
Absolute UEPS growth
over three years
Less than 15%
15%
30%
Vesting
amount
0%
25%
100%
(straight line vesting between these points)
For the avoidance of doubt the TSR performance condition will remain
as threshold vesting for median performance against the FTSE Small
Cap and maximum vesting for upper quartile performance. In line
with best practice, the level of vesting at threshold performance
for both the UEPS and TSR elements will be aligned at 25% of the
maximum opportunity for each element. No changes are proposed
to the normal maximum incentive opportunity which will remain at
100% of salary.
It is intended that the 2014 LTIP awards will be structured as
approved LTIP awards comprising both an HMRC approved option
granted under the Executive Share Option Scheme (‘ESOS’) and
an LTIP award with the vesting of the LTIP award scaled back to
take account of any gain made on exercise of the ESOS option. The
performance conditions set out above will apply to both the approved
ESOS option and the LTIP award. Approved LTIP awards enable the
participant and the group to benefit from HMRC approved option tax
treatment in respect of part of the award, without increasing the pre-
tax value delivered to participants.
2005 Sharesave Scheme
The 2005 sharesave scheme is open to all UK 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. The executive
directors were granted options under the 2005 Sharesave Scheme in
2013 at a share price of 355p/share - see table on page 62. D W Muir
exercised an option over 1,328 SAYE shares with an exercise price of
318p during the year ended 31 December 2013.
The Sharesave Scheme will expire in 2015 and, similarly to the LTIP,
the remuneration committee is seeking approval for a set of rules to
govern the Sharesave Scheme at the 2014 AGM. A summary of the
proposed rules has been provided in the notice of AGM.
Total pension entitlements
Under his pension arrangement, as an active member, D W Muir’s
pension benefit was 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.
Following cessation of his defined benefit scheme active membership
(and future accrual) D W Muir has, with effect from 1 November 2011,
been in receipt of a salary supplement of 25% of his basic salary in
lieu of any form of pension contribution and as compensation for his
becoming a deferred member of the defined benefit scheme. D W
Muir’s deferred pension is subject to statutory increases in line with
inflation.
The details of D W Muir’s pension accrued in the defined benefit
scheme are shown below:
Accrued pension at 31 December 2013
Transfer value of accrued pension at 31 December
2013
Change in accrued pension of 2013 excluding
increase for inflation
Normal retirement date
£126,297
£2,829,000
£nil
6 July 2020
The increase in the transfer value calculated for D W Muir (from
£2,559k as at 31 December 2012) is a result of changes in financial
conditions over the period from 31 December 2012 to 31 December
2013, with the increase in market expectations of inflation (serving
to increase the transfer value) being larger than the increase in
corporate bond yields over the period (serving to reduce the transfer
value).
As noted last year for the 2012 year end accounts, D W Muir had
ceased benefit accrual in 2011 and had then received a cash
supplement amount in lieu of company pension contributions. As
such, D W Muir has not had any further benefit accrual within the
defined benefit scheme in 2013. Any inflationary increases that have
occurred over the year are in line with statutory requirements and as
such, these increases have:
›
›
›
already been accrued by D W Muir;
already been funded for in the executive defined benefit
scheme; and
already had the associated cost of accrual reported in the
group’s accounts in previous years under IAS19.
The pension input amounts relating to D W Muir’s membership of the
executive scheme over the last three years were:
Year ending
31/12/2009
31/12/2010
31/12/2011
Pension input amount
£000s
67
26
99
As D W Muir ceased accrual in the executive scheme during 2011, the
pension input amount in respect of the scheme for the years ending
31 December 2012 and 31 December 2013 are £nil.
Hill & Smith Holdings PLC Annual Report 2013
61
Strategic Report
Governance Report
Financial Statements
Shareholder Information
D W Muir receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary (£109,500 for the year ended 31 December
2013).
M Pegler receives a payment of 25% of his base salary as a defined contribution to his own private pension arrangement (£70,000 for the year
ended 31 December 2013).
Other than as stated above, there are no other pension arrangements in place for executive directors.
The remuneration committee intends to operate the same pension provision for 2014 that was operated in 2013.
Payments to past directors
There were no payments made to past directors during the period in respect of services provided to the company as a director.
Payments for loss of office
There were no payments made to past directors during the year ended 31 December 2013.
Transaction with directors
There were no material transactions between the group and the directors during 2013.
Statement of directors’ shareholding and share interests (number of shares)
Executive
D W Muir
M Pegler
Type
Shares
Market value options
SAYE options
Shares
Market value options
SAYE options
Non-executive
W H Whiteley
C J Snowdon
J F Lennox
Shares
Shares
Shares
Owned
outright
117,656
n/a
n/a
25,500
n/a
n/a
22,100
38,930
5,000
Vested but
unexercised
n/a
-
-
n/a
-
-
n/a
n/a
n/a
Unvested
Subject to
performance
conditions
359,776
-
n/a
229,665
-
n/a
n/a
n/a
n/a
Not subject to
performance
conditions
Total as at
31 December
2013
n/a
-
5,919
n/a
-
4,225
n/a
n/a
n/a
477,432
-
5,919
255,165
-
4,225
22,100
38,930
5,000
To provide alignment with shareholders’ interests and to promote share ownership, each executive director is required to hold shares acquired
through the LTIP until the value of their total shareholding is equal to their annual salary. As at 31 December 2013, D W Muir held 138% of his
base salary in shares and M Pegler held 47% of his base salary (both, based on the share price as at 31 December 2013 and base salaries at 1
January 2014).
2007 long term incentive plan (LTIP)
The interests of directors at 31 December 2013, in shares that are the subject of awards under the LTIP are shown below:
Directors
D W Muir
Total D W Muir
M Pegler
Total M Pegler
Award Date
31 Mar 2010§
18 Mar 2011*
21 Mar 2012¥
18 Mar 2013‡
31 Mar 2010§
18 Mar 2011*
21 Mar 2012¥
18 Mar 2013‡
At
1 Jan 2013
number of
shares
117,879
136,990
125,091
379,960
75,148
87,448
79,764
242,360
Awarded
in 2013
number
of shares
97,695
97,965
62,453
62,453
Lapsed in
2013
(117,879)
(117,879)
(75,148)
At
31 Dec 2013
number
of shares
-
136,990
125,091
97,695
359,776
-
87,448
79,764
62,453
Performance
period
3 years from
1 Jan 2010
1 Jan 2011
1 Jan 2012
1 Jan 2013
Vesting
date
1 Jan 2013
1 Jan 2014
1 Jan 2015
1 Jan 2016
1 Jan 2010
1 Jan 2011
1 Jan 2012
1 Jan 2013
1 Jan 2013
1 Jan 2014
1 Jan 2015
1 Jan 2016
(75,148)
229,665
§ The share price as calculated on 31 March 2010 in accordance with the LTIP rules was 339p.
* The share price as calculated on 18 March 2011 in accordance with the LTIP rules was 300.75p.
¥The share price as calculated on 21 March 2012 in accordance with the LTIP rules was 339.75p.
‡ The share price as calculated on 18 March 2013 in accordance with the LTIP rules was 448.33p.
62
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Remuneration Report continued
Share options
The interests of directors, who served during 2013, in options for ordinary shares in the company, granted under the 2005 sharesave scheme,
together with options granted and exercised during 2013, are included in the following table:
D W Muir
2005 ShareSave Scheme
Total D W Muir
M Pegler
2005 ShareSave Scheme
Total M Pegler
At
1 Jan 2013
number
of shares
Grant price
1,328
4,855
-
6,183
-
-
318p
238p
355p
355p
Granted
in 2013
number
of shares
-
-
1,064
1,064
4,225
4,225
Exercised
in 2013
number
of shares
At
31 Dec 2013
number
of shares
Dates
from which
exercisable
Latest
expiry date
(1,328)
-
1 Jan 2013
1 Jul 2013
-
(1,328)
-
-
4,855
1,064
5,919
4,225
4,225
1 Jan 2016
1 Jul 2016
1 Jun 2018
1 Dec 2018
1 Jun 2018
1 Dec 2018
On 2 January 2013, D W Muir exercised options to subscribe for 1,328 new ordinary shares at a price of 318p per share.
The following sections of the Annual Report on Remuneration are not subject to audit.
Performance graph and table
The following graphs show the TSR performance of the company over the five year period to 1 January 2014 compared to the FTSE All-Share and
FTSE Small Cap Index, respectively (both excluding Investment Trusts ‘IT’). The FTSE All Share and FTSE SmallCap Indices have been chosen as
comparator groups in order to illustrate the company’s TSR performance against broad equity market indices of similar UK companies.
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
350
300
250
200
150
100
50
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Hill & Smith
FTSE Small Cap
Chief Executive Officer Remuneration for previous five years
2013
2012
2011
2010
2009
Total single figure
remuneration
£000s
1,084
941
690
851
1,059
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
350
300
250
200
150
100
50
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Hill & Smith
FTSE All Share
Annual bonus pay-out
(% of maximum opportunity)
LTIP vesting
(% of maximum number of shares)
16%
85%
30%
14%
95%
50%
0%
0%
100%
100%
Percentage change in Chief Executive Officer Remuneration - 2012 to 2013
The table below sets out in relation to salary, taxable benefits and annual bonus the percentage increase in pay for D W Muir compared to the
wider workforce.
Percentage increase
Salary
Taxable benefits
Annual bonus (negative)
CEO
3.0%
2.0%
(80%)
Wide workforce
3.0%
-
(55%)
For salary purposes the comparator grouping was taken as all senior executives in the group, including senior finance executives. The bonus figures
were taken from those senior executives operating on similar incentivised arrangements and capable of influencing the group’s performance, as
well as their own individual businesses’ performance.
Hill & Smith Holdings PLC Annual Report 2013
63
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Relative importance of spend on pay
The following table sets out the percentage change in dividends and the overall expenditure on pay (as a whole across the organisation).
Dividends
Overall expenditure on pay
*Dividends payable in respect of the year ending 31 December 2012
** Dividends payable in respect of the year ending 31 December 2013
2012
£000’s
£11,600*
£110,400
2013
£000’s
£12,400**
£116,000
% change
7%
5%
Policy on external appointments
Executive directors may accept one external appointment as a non-executive director of other companies and retain any related fees paid to
them provided always that such external appointment is not considered by the board to prevent or reduce the ability of the executive director
to perform his role to the required standard. Such appointments are seen as a way in which executive directors 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.
Consideration by directors of matters relating to directors’ remuneration
The remuneration committee is responsible for:
›
Reviewing and recommending the remuneration policy for executive directors and certain other agreed senior executives;
› Within this policy, agreeing the individual remuneration packages;
›
›
›
›
Approving the design of, and determining targets for, any performance incentive pay schemes operated by the group for the executive
directors and certain other agreed senior executives and approving the total payments made under such schemes;
Reviewing and recommending the design of, and any changes to, all share incentive plans for approval by the board and shareholders;
Reviewing the terms and conditions to be included in the service agreements for executive directors and certain other agreed senior
executives; and
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 group. In so doing the committee ensures that failure is not
rewarded and the duty to mitigate loss is fully recognised.
Members: C J Snowdon (Chairman); J F Lennox; W H Whiteley
All members of the committee are non-executive directors of the holding 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 classification of the group as a non-FTSE 350 constituent the
board remains satisfied that W H Whiteley’s appointment to the remuneration committee is necessary but continues to keep this under review.
The terms of reference for the remuneration committee can be found at the group’s website www.hsholdings.com.
No director or executive plays a part in any discussion about his own remuneration.
Advisers: Deloitte LLP
Deloitte LLP is retained to provide independent advice to the remuneration committee as required. Deloitte is a member of the Remuneration
Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the
UK. Deloitte’s fees for providing remuneration advice to the committee amounted to £18,050 for the year ended 31 December 2013. The
committee assesses from time to time whether this appointment remains appropriate or should be put out to tender and took into account the
Remuneration Consultants Group Code of Conduct when reviewing the ongoing appointment of Deloitte. Deloitte was appointed by the committee
and has provided share scheme advice, pension advice and corporation tax advice to the group. The Chief Executive Officer, D W Muir, also attends
remuneration committee meetings to provide advice and respond to specific questions, but is not in attendance when his own remuneration is
discussed. The Company Secretary, John Humphreys, acts as secretary to the remuneration committee.
Statement of voting at last AGM
The group remains committed to on-going shareholder dialogue and takes an active interest in voting outcomes. The following table sets out
actual voting in respect of the resolution to approve the directors’ remuneration report at the company’s annual general meeting on 15 May 2013.
Resolution
Approve remuneration report
Votes for
53,813,035
% of vote
98%
Votes against
1,021,013
% of vote
Votes withheld
2%
6,000
C J Snowdon
Senior Independent Non-executive Director
Chairman of the Remuneration Committee
11 March 2014
64
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Report (other statutory information)
Dividends
The directors recommend the payment of a final dividend of 10.0p
per ordinary share (2012: 9.2p per ordinary share) which, together
with the interim dividend of 6.0p per ordinary share (2012: 5.8p per
ordinary share) paid on 7 January 2014, makes a total distribution for
the year of 16.0p per ordinary share (2012: 15.0p per ordinary share).
Subject to shareholders approving this recommendation at the
annual general meeting, the final dividend will be paid on
4 July 2014 to shareholders on the register at the close of business on
30 May 2014. The latest date for receipt of Dividend Re-investment
Plan elections is 13 June 2014.
Share capital
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.
No shares were held in treasury.
Principal activities and strategic report
The company acts as a holding company to all the group’s
subsidiaries.
During 2013 the principal activities of the group comprised the
manufacture and supply of:
-
-
Infrastructure Products (Roads and Utilities)
Galvanizing Services
Pages 2 to 27 contain further details of these areas of the business
and the principal subsidiaries operating within them are set out on
pages 123 to 125.
The chairman’s statement and the director’s strategic report include:
›
›
›
›
an analysis of the development and performance of the
company’s business during the financial year;
key performance indicators used to measure the group’s
performance;
the position of the company’s business at the end of the
financial year;
a description of the principal risks and uncertainties faced by the
group; and
› main trends and factors likely to affect the future development,
performance and position of the company’s business.
Future development
An indication of likely future developments in the group is given in the
strategic report on pages 2 to 34.
Statement on corporate governance
The directors’ report for Hill & Smith Holdings PLC for the year ended
31 December 2013 comprises these pages and the sections of the
annual report referred to under ‘strategic report’, and ‘governance
report’, which are incorporated into the directors’ report by reference.
Results
The group profit before taxation for the year amounted to £30.6m
(2012: £35.2m). Group revenue at £444.5m was 0.9% higher than the
prior year. Operating profit at £34.5m was 13.6% lower than for the
previous year (2012: £39.2m).
Details of the results for the year are shown on the consolidated
income statement on page 72 and the business segment information
is given on pages 83 to 84.
Share capital summary
Exchange trade
Class
Issued share capital 1 January 2013
The company’s ordinary shares are listed on the Main Market of the London Stock Exchange
Single class of ordinary shares of 25p each
Total new ordinary shares issued during the year
2005 sharesave scheme and 2005 executive share option scheme
Issued share capital 31 December 2013
Rights and 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
Further details can be found in note 20 on pages 102 and 103 of the group financial statements.
77,135,343
632,494
77,767,837
Hill & Smith Holdings PLC Annual Report 2013
65
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Appointment and replacement of directors
The appointment and replacement of directors of the company is
governed by its articles of association, the UK Corporate Governance
Code, the Companies Acts and related legislation. Directors can be
appointed by ordinary resolution at a general meeting or by the
board. If a director is appointed by the board, such director will hold
office until the next annual general meeting and shall then be eligible
for re-election at that meeting.
Conflicts
Under the Companies Act 2006 and the provisions of the company’s
articles of association, the board is required to consider potential
conflicts of interest. The company has established formal procedures
for the disclosure and review of any conflicts, or potential conflicts,
of interest which the directors may have and for the authorisation of
such conflict matters by the board. To this end the board considers
and, if appropriate, authorises any conflicts, or potential conflicts, of
interest as they arise and reviews any such authorisation annually.
New directors are required to declare any conflicts, or potential
conflicts, of interest to the board at the first board meeting after
his or her appointment. The board believes that the procedures
established to deal with conflicts or interests are operating effectively.
Directors’ and officers’ liability
The company maintains an appropriate level of directors’ and officers’
insurance whereby directors are indemnified against liabilities to third
parties to the extent permitted by the Companies Act 2006.
Financial instruments
The financial risk management objectives and policies are as detailed
in note 19 on pages 96 to 102.
Research and development
During the year, the group spent a total of £1.2m (2012: £1.2m) on
research and development.
Political and charitable donations
Charitable donations amounting to £27,000 (2012: £37,000) 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 31
and 32.
Change of control/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 55.
The group has a multi-currency revolving credit 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.
All of the company’s share schemes contain provisions relating to a
change in control. Outstanding options and awards normally vest and
become exercisable on a change of control subject to the satisfaction
of any performance conditions at that time.
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.
Accordingly the following resolutions are to be put to the members of
the company at the company’s annual general meeting (AGM) each
year:
›
›
The authority for making market purchases of shares greater
than 5% of the company’s then issued share capital is limited
by the resolution of the 2013 annual general meeting and
will be limited by the resolution to be put to the 2014 annual
general meeting. The prices to be paid for such purchases
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.
The Companies (Shareholders’ Rights) Regulations 2009
provide that a company can reduce the notice period for
calling meetings to the shorter period of 14 clear days on
two conditions: firstly that the company offers a facility for
shareholders to vote by electronic means and secondly that
there is an annual resolution of shareholders approving such
reduction in the required minimum notice period. Approval
to the calling of general meetings other than annual general
meetings on 14 clear days notice was approved at the AGM on
15 May 2013 to assist the company in conducting its business
and subject to any necessary matters being put to shareholders
promptly. This approval remains effective until the earlier of the
company’s next following annual general meeting or 15 August
2014.
Substantial shareholdings
As at 11 March 2014, the company had been notified of the following
holdings of voting rights in shares under Rule 5 of the Disclosure and
Transparency Rules of the Financial Services Authority, based upon an
issued share capital of 77,783,345 shares.
Shareholder
F&C Asset Management
Henderson Global Investors
Charles Stanley, Stockbrokers
JO Hambro Capital Management
Number of
ordinary shares
% of issued
share capital
5,160,579
4,965,001
4,735,567
4,027,585
6.63
6.38
6.09
5.18
3.81
Legal & General Investment Management
2,962,267
Directors
The names of the directors of the company who served throughout
the year, including brief biographies, are set out on page 39.
Directors’ interests
The interests of the directors in the share capital of Hill & Smith
Holdings PLC as at 31 December 2013 are set out in page 61.
66
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Directors’ Report (other statutory information) continued
The directors consider that there are no contractual or other
arrangements, such as those with major suppliers, which are likely
to materially influence, directly or indirectly, the performance of
the business and its values. Furthermore, there are no contracts of
significance subsisting during the financial year between any group
undertaking and a controlling shareholder or in which a director is or
was materially interested.
Independent auditor
In connection with a general reorganisation of KPMG’s UK Audit
business, our auditors, KPMG, have informed us that they wish to
transfer the appointment as statutory auditor from KPMG Audit Plc to
KPMG LLP. KPMG Audit Plc have indicated that they will not stand for
reappointment at our 2014 AGM, however KPMG LLP will seek election
at the AGM.
A resolution to appoint KPMG LLP as the company’s auditors will be
put to the forthcoming AGM.
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;
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 has established that the company’s auditors are aware of that
information.
Events since 31 December 2013
There were no material events since 31 December 2013 to report.
Annual General Meeting
The annual general meeting of the company will be held at
11.00 a.m. on Wednesday 14 May 2014 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 and is also
available on the company’s website at www.hsholdings.com.
Other important dates can be found in the financial calendar on
page 121.
By order of the board
John Humphreys
Company Secretary
11 March 2014
Hill & Smith Holdings PLC Annual Report 2013
67
Strategic Report
Governance Report
Financial Statements
Shareholder Information
In respect of the annual report and the financial statements
Statement of Directors’ Responsibilities
The directors are responsible for preparing the annual report and the
group and parent company financial statements in accordance with
applicable law and regulations.
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).
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 strategic report, 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.
Responsibility statement of the directors in respect of the annual
financial report and the UK corporate governance code
We confirm that to the best of our knowledge:
›
›
the group and parent company financial statements, prepared in
accordance 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; and
the board considers that Hill & Smith Holdings PLC applies the
principles and provisions of the UK Corporate Governance code
maintained by the Financial Reporting Council, as described
in the Corporate Governance sections on pages 40 to 66, and
has complied with its provisions. The board further considers
that the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group’s performance, business model
and strategy.
By order of the board
John Humphreys
Company Secretary
11 March 2014
68
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Governance Report
Structural steelwork at Hengrove Park Leisure Centre, Bristol, galvanized by Joseph Ash.
Hill & Smith Holdings PLC Annual Report 2013
69
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Financial Statements
Independent Auditor’s Report
Group Financial Statements
70
72
111 Company Financial Statements
119 Five Year Summary
See further information online at hsholdings.com
70
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
To the members of Hill & Smith Holdings PLC
Independent Auditor’s Report
Opinions and conclusions arising from our audit
1. Our opinion on the financial statements is unmodified
We have audited the financial statements of Hill & Smith Holdings
Plc for the year ended 31 December 2013 which comprise the
consolidated income statement, the consolidated statement of
comprehensive income, the consolidated and company balance
sheets, the consolidated statement of changes in equity, the
consolidated statement of cash flows, the company reconciliation
of movements in shareholders’ funds and the related notes. 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 2013 and of the group’s profit for the year then
ended;
the group financial statements have been properly prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union;
the parent company financial statements have been properly
prepared in accordance with UK Accounting Standards; and
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.
2. Our assessment of risks of material misstatement
In arriving at our audit opinion above on the group financial
statements the risks of material misstatement that had the greatest
effect on our audit were as follows:
Valuation of goodwill and indefinite life intangible assets (£109.6 m)
Refer to page 46 (audit committee report), page 77 (accounting
policy) and pages 89 to 91 (financial disclosures).
The risk
The value of goodwill and indefinite life intangible assets is
dependent on the future profitability and cash flows of the various
Cash Generating Units (‘CGU’) within the group with the key
external influences being global investment in power generation,
infrastructure expenditure and industrial activity in the group’s
various markets. An impairment assessment of goodwill and
indefinite life intangible assets is carried out annually and when there
is an indicator of impairment using a net present value of forecast
earnings of the cash generating unit. The value in use of each CGU
is calculated using entity specific assumptions around discount
rates, growth rates and cash flow forecasts. Given the relative size
of the goodwill and indefinite life intangible assets balance in the
consolidated balance sheet and inherent uncertainty involved
in forecasting and discounting future cash flows, relatively small
changes in these assumptions could give rise to material changes in
the assessment of the carrying value of goodwill.
Our response
Our procedures included among others, assessing through
consideration of our business understanding and broader audit
procedures whether any trigger events had arisen which would
indicate a possible impairment of intangible assets, considering
the recoverable amounts of the group’s CGUs by critically assessing
the key assumptions applied by the group in determining the
recoverable amounts of these CGUs. In particular, we evaluated
the appropriateness and year-on-year consistency of underlying
assumptions in determining the cash flows including considering the
appropriateness of the growth assumptions applied with reference
to historical forecasting accuracy, comparison of forecast cash flows
to those currently being achieved by the CGU’s, and challenging the
group where such future cash flows are significantly higher than
current levels or do not reflect known or probable changes in business
environment. We also challenged, including review by our own
specialists, the key inputs used in the calculation of the discount rates
used by the group, including comparisons with external data sources
and comparator group data. We performed our own sensitivity
analysis, including a reasonably possible reduction in assumed
growth rates and cash flows to compare to the sensitivity analysis
prepared by the group. We also assessed whether the group’s
disclosures (see note 10) about the sensitivity of the outcome of the
impairment assessment to changes in key assumptions appropriately
reflected the risks inherent in the valuation of goodwill.
Post retirement benefits obligation (Gross liabilities £85.9 million, net
liability £20.2 million)
Refer to page 46 (audit committee report), page 77 (accounting
policy) and pages 104 to 109 (financial disclosures).
The risk
Significant estimates are made in valuing the group’s UK and French
post-retirement defined benefit schemes and small changes in
assumptions and estimates used to value the group’s net pension
deficit could have a significant effect on the results and financial
position of the group.
Our response
In this area our audit procedures included, among others, agreement
of scheme assets back to external supporting documentation. With
the support of our own actuarial specialists, we then challenged
the key assumptions applied to the data to determine the group’s
net deficit, being the discount rate, inflation rate and mortality/life
expectancy. This included a comparison of these key assumptions
against externally derived data. We also considered the adequacy of
the group’s disclosures (see note 22).
3. Our application of materiality and an overview of the scope of
our audit
The materiality for the group financial statements as a whole was set
at £2.1m. This has been determined with reference to a benchmark
of group profit before taxation which we consider to be one of the
principal considerations for members of the company in assessing
the financial performance of the group. Materiality represents
6.8% of group profit before tax and 5.1% of group profit before tax
adjusted for the non-underlying items identified on the Group Income
Statement and explained in note 3.
We agreed with the audit committee to report to it all corrected and
uncorrected misstatements we identified through our audit with a
value in excess of £75,000 in addition to other audit misstatements
below that threshold that we believe warranted reporting on
qualitative grounds.
Audits for group reporting purposes were performed by component
auditors at the key reporting components in the following countries:
France, United States, Thailand, Sweden, Germany and Belgium and
by the group audit team in the United Kingdom. In addition, specified
audit procedures were performed by the group audit team on a
component in the United States. These group procedures covered
96% of total group revenue; 89% of group profit before taxation; and
83% of total group assets. The segment disclosures in note 1 set out
the individual significance of a specific country.
The audits undertaken for group reporting purposes at the key
reporting components of the group were all performed to materiality
levels set by, or agreed with, the group audit team. These materiality
levels were set individually for each component and ranged from
£0.1m to £1.6m.
Hill & Smith Holdings PLC Annual Report 2013
71
Strategic Report
Governance Report
Financial Statements
Shareholder Information
›
›
›
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.
Under the Listing Rules we are required to review:
›
›
the directors’ statement, set out on page 67, in relation to going
concern;
the part of the corporate governance statement on pages
36 to 66 relating to the company’s compliance with the nine
provisions of the 2010 UK Corporate Governance Code specified
for our review; and
We have nothing to report in respect of the above responsibilities.
Scope of report and responsibilities
As explained more fully in the directors’ responsibilities statement, set
out on page 67, the directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true
and fair view. A description of the scope of an audit of accounts is
provided on the Financial Reporting Council’s website at www.frc.org.
uk/auditscopeukprivate. This report is made solely to the company’s
members as a body and subject to important explanations and
disclaimers regarding our responsibilities, published on our website at
www.kpmg.com/uk/auditscopeukco2013a, which are incorporated
into this report as if set out in full and should be read to provide
an understanding of the purpose of this report, the work we have
undertaken and the basis of our opinions.
Michael Steventon (Senior Statutory Auditor)
for and on behalf of KPMG Audit Plc, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
11 March 2014
Underlying group
profit before tax
£41.2m
Group
materiality
£2.1m
£2.1m
Whole
financial
statements
materiality
£1.6m
Maximum
component
materiality
Misstatements
reported to the
audit committee
£75k
Detailed audit instructions were sent to all the auditors in these
locations. These instructions covered the significant audit areas that
should be covered by these audits (which included the relevant risks
of material misstatement detailed above) and set out the information
required to be reported back to the group audit team. The group audit
team attended audit completion meetings in France and the United
States. Telephone meetings were also held with the auditors at
these locations and the majority of the other locations that were not
physically visited.
4. Our opinion on other matters prescribed by the Companies Act
2006 is unmodified
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 strategic report and the directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements.
5. We have nothing to report on in respect of the matters on which
we are required to report by exception
Under ISAs (UK and Ireland) we are required to report to you if, based
on the knowledge we acquired during our audit, we have identified
other information in the annual report that contains a material
inconsistency with either that knowledge or the financial statements,
a material misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
›
›
we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the group’s performance, business model
and strategy; or
the audit committee report does not appropriately address
matters communicated by us to the audit committee.
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
72
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Year ended 31 December 2013
Consolidated Income Statement
Revenue
Trading profit
Amortisation of acquisition intangibles
Business reorganisation costs
Acquisition costs
Profit on sale of properties
Operating profit
Financial income
Financial expense
Profit before taxation
Taxation
Profit for the year attributable to owners of the
parent
Basic earnings per share
Diluted earnings per share
Dividend per share – Interim
Dividend per share – Final proposed
Total
Underlying
£m
444.5
44.5
-
-
-
-
44.5
0.7
(4.0)
41.2
(9.9)
31.3
40.4p
39.8p
Notes
1, 2
3
3
3
3
1, 2
5
5
7
8
8
9
9
9
2013
Non-
underlying*
£m
Total
£m
Underlying
£m
2012
Non-
underlying*
£m
Total
£m
-
-
(2.2)
(9.2)
(0.4)
1.8
(10.0)
-
(0.6)
(10.6)
2.3
(8.3)
444.5
440.7
-
440.7
44.5
(2.2)
(9.2)
(0.4)
1.8
34.5
0.7
(4.6)
30.6
(7.6)
23.0
29.6p
29.2p
6.0p
10.0p
16.0p
(0.8)
(2.4)
(0.8)
(0.8)
-
(4.8)
3.1
(3.5)
(5.2)
1.4
(3.8)
44.0
-
-
-
-
44.0
0.8
(4.4)
40.4
(10.5)
29.9
38.8p
38.5p
43.2
(2.4)
(0.8)
(0.8)
-
39.2
3.9
(7.9)
35.2
(9.1)
26.1
33.9p
33.6p
5.8p
9.2p
15.0p
* The group’s definition of non-underlying items is included in the principal accounting policies on page 82.
Hill & Smith Holdings PLC Annual Report 2013
73
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Year ended 31 December 2013
Consolidated Statement of Comprehensive Income
Profit for the year
Items that may be reclassified subsequently to profit or loss
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
Transfers to the income statement on cash flow hedges
Taxation on items that may be reclassified to profit or loss
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive income for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
22
7
2013
£m
23.0
(1.6)
(0.7)
-
0.4
(0.1)
(5.8)
0.4
(7.4)
15.6
2012
£m
26.1
(6.4)
2.8
(0.8)
0.3
0.1
(0.9)
(0.2)
(5.1)
21.0
74
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Year ended 31 December 2013
Consolidated Balance Sheet
Non-current assets
Intangible assets
Property, plant and equipment
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
Notes
2013
£m
2012
£m
10
11
13
14
15
1
16
18
16
17
18
12
22
17
1
1
20
126.7
111.9
238.6
55.1
91.2
10.0
156.3
394.9
(85.0)
(7.5)
(3.5)
(0.8)
(96.8)
59.5
(0.1)
(2.8)
(9.5)
(20.2)
(96.4)
(129.0)
(225.8)
169.1
19.4
31.5
4.5
(0.2)
(0.6)
114.5
169.1
124.8
106.8
231.6
57.8
88.7
8.9
155.4
387.0
(84.2)
(13.7)
(0.5)
(2.0)
(100.4)
55.0
(0.2)
(2.8)
(11.2)
(16.3)
(93.7)
(124.2)
(224.6)
162.4
19.3
29.6
4.5
2.1
(0.9)
107.8
162.4
Approved by the board of directors on 11 March 2014 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
Hill & Smith Holdings PLC Annual Report 2013
75
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Year ended 31 December 2013
Consolidated Statement of Changes in Equity
At 1 January 2012
Comprehensive income
Profit for the year
Other comprehensive income for the year
Transactions with owners recognised
directly in equity
Dividends
Credit to equity of share-based payments
Tax taken directly to the consolidated
statement of changes in equity
Shares issued
At 31 December 2012
Comprehensive income
Profit for the year
Other comprehensive income for the year
Transactions with owners recognised
directly in equity
Dividends
Credit to equity of share-based payments
Tax taken directly to the consolidated
statement of changes in equity
Shares issued
At 31 December 2013
Notes
Share
capital
£m
19.2
Share
premium
£m
29.2
Other
reserves†
£m
4.5
Translation
reserves
£m
5.7
Hedge
reserves
£m
(0.5)
Retained
earnings
£m
92.5
Total
equity
£m
150.6
26.1
(5.1)
-
(3.6)
-
(0.4)
26.1
(1.1)
-
-
-
-
-
-
-
-
-
-
0.1
19.3
0.4
29.6
-
-
-
-
-
-
-
-
-
-
0.1
19.4
1.9
31.5
9
20
7
20
9
20
7
20
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(10.2)
(10.2)
0.3
0.2
-
0.3
0.2
0.5
4.5
2.1
(0.9)
107.8
162.4
-
-
-
-
-
-
-
(2.3)
-
0.3
23.0
(5.4)
23.0
(7.4)
-
-
-
-
-
-
-
-
(11.6)
(11.6)
0.4
0.3
-
0.4
0.3
2.0
4.5
(0.2)
(0.6)
114.5
169.1
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2012: £0.2m) capital redemption reserve.
76
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Year ended 31 December 2013
Consolidated Statement of Cash Flows
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payments
Movement in fair value of forward currency contracts
(Gain)/loss on disposal of non-current assets
Depreciation
Amortisation of intangible assets
Impairment of non-current assets
Operating cash flow before movement in working capital
Decrease/(increase) in inventories
(Increase)/decrease in receivables
Increase in payables
Increase/(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
Acquisitions of subsidiaries
Net cash used in investing activities
Issue of new shares
Dividends paid
New loans and borrowings
Repayment of loans and borrowings
Repayment of obligations under finance leases
Net cash used in financing activities
Net increase/(decrease) in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
Notes
5
1, 2
4, 20
3
6
6, 11
6, 10
6, 10, 11
10
20
9
15
2013
£m
0.5
-
(1.8)
13.6
3.3
1.8
2.7
(1.3)
0.5
0.4
0.7
3.0
(21.0)
(1.1)
(6.6)
2.0
(11.6)
34.2
(31.7)
(1.5)
£m
30.6
3.9
34.5
17.4
51.9
2.3
54.2
(15.3)
(4.1)
34.8
(25.0)
(8.6)
1.2
8.9
(0.1)
10.0
2012
£m
0.3
0.4
0.1
12.8
3.6
0.3
(0.6)
0.6
3.7
(2.0)
0.8
0.5
(17.5)
(0.8)
(0.5)
0.5
(10.2)
19.1
(33.4)
(3.6)
£m
35.2
4.0
39.2
17.5
56.7
1.7
58.4
(11.6)
(5.1)
41.7
(17.5)
(27.6)
(3.4)
12.7
(0.4)
8.9
Hill & Smith Holdings PLC Annual Report 2013
77
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Group Accounting Policies
Hill & Smith Holdings PLC is a company incorporated in the UK.
The group considers a company a subsidiary when it holds more than 50% of the shares and voting rights, so that it has the power to govern the
operating and financial policies of that entity so as to obtain benefits from its activities. The group considers a company to be an associate when it
holds more than 20% of the shares and voting rights and is able to significantly influence the decisions of that entity.
The group financial statements consolidate the company and its subsidiaries, proportionately consolidate any jointly controlled entities and equity
account the group’s interest in associates. The parent company financial statements present information about the company as a separate entity
and not about the group.
The group financial statements have been prepared and approved by the directors in accordance with International Financial Reporting Standards,
as adopted by the EU (‘Adopted IFRSs’). The company has elected to prepare its parent company financial statements in accordance with UK
GAAP; these are presented on pages 111 to 118.
The accounting policies set out below have, unless otherwise stated, been applied consistently in 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
strategic report on pages 20 to 27. The financial position of the group, its cash flows, liquidity position and borrowing facilities are described in the
strategic report on pages 25 to 27. 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 multi-
currency agreement with a value of £208.8m at 31 December 2013, expiring in April 2016. 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 financial statements.
New IFRS standards and interpretations adopted during 2013
In 2013 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the group:
›
›
›
›
Amendments to IAS 1 Presentation of items of Other Comprehensive Income
Amendments to IAS 19 Employee Benefits
Amendments to IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities
IFRS 13 Fair Value Measurement
The amendment to IAS 19 ‘Employee benefits’ makes changes to the recognition and measurement of the defined benefit pension expense and
termination benefits and disclosures relating to all employee benefits. The interest cost and expected return on scheme liabilities and assets used
in the previous version of IAS 19 have been replaced with a ‘net interest’ amount which is calculated by applying a discount rate to the net defined
benefit obligation. This amendment has a corresponding impact on actuarial gains and losses recognised in the statement of comprehensive
income, with no overall change to the net retirement benefit liability in the balance sheet. Comparative information has not been restated for the
effect of the retrospective application of the amendment to IAS 19 since the impact on the group’s results is not material.
The adoption of the other standards and amendments has not had a material impact on the group’s financial statements.
78
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
New IFRS standards, amendments and interpretations not adopted
The IASB and IFRIC have issued additional standards and amendments which are effective for periods starting after the date of these financial
statements. The following standards and amendments have not yet been adopted by the group:
›
›
›
›
›
›
›
IAS 27 (2011) Separate Financial Statements (effective for annual periods beginning on or after 1 January 2014)
IAS 28 (2011) Investments in Associates and Joint Ventures (effective for annual periods beginning on or after 1 January 2014)
Amendments to IAS 32 Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities (effective for annual periods
beginning on or after 1 January 2014)
Amendments to IAS 36 Impairment of Assets - Recoverable amount disclosures for non-financial assets (effective for annual periods
beginning on or after 1 January 2014)
IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2014)
IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2014)
IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2014)
None of the standards above are expected to have a material impact on the group.
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 was revised in 2010 such that 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.
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.
Certain US brands are considered to have an indefinite life and therefore are 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.
Hill & Smith Holdings PLC Annual Report 2013
79
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Group Accounting Policies continued
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 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. 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.
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.
80
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
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 Swedish Krona (£1 = SEK)
2013
2012
Average
1.18
1.56
48.09
10.19
Closing
1.20
1.65
54.13
10.59
Average
1.23
1.59
49.25
10.73
Closing
1.23
1.62
49.46
10.52
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.
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.
Hill & Smith Holdings PLC Annual Report 2013
81
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Group Accounting Policies continued
Revenue
Revenue from the sale of goods and services 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.
Contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as
incurred unless they create an asset related to future contract activity. The stage of completion is assessed by reference to work performed. When
the outcome of a contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely
to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.
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 interest cost on the net defined benefit obligations is included 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 where vesting is based on non-market
conditions, while a Monte Carlo Simulation is used where vesting is based on market conditions. 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.
The fair value of amounts payable to employees in respect of share appreciation rights settled in cash is recognised as an employee expense and
corresponding increase in liabilities. The fair value of the liability is remeasured at each reporting date and spread over the period during which
employees become unconditionally entitled to the payment.
Financial income and expense
Financial income comprises interest income on funds invested 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, interest cost on net pension scheme obligations, unwinding of discounts, losses on
the fair value of financial assets and liabilities at fair value through profit or loss, the interest expense component of finance lease payments and
financial expenses related to refinancing. All borrowing costs are recognised in the consolidated income statement using the effective interest
method with the exception of those meeting the criteria for capitalisation set out in IAS 23.
82
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Non-underlying items
Non-underlying items are non-trading items disclosed separately in the consolidated income statement where the quantum, nature or volatility of
such items would otherwise distort the underlying trading performance of the group. The following are included by the group in its assessment of
non-underlying items:
›
›
›
›
›
›
›
›
Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued
operations.
Amortisation of intangible fixed assets arising on acquisitions.
Expenses associated with acquisitions.
Impairment charges in respect of tangible or intangible fixed assets.
Changes in the fair value of derivative financial instruments.
Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material changes
in the terms of the schemes.
Net financing costs or returns on defined benefit pension obligations.
Costs incurred as part of significant refinancing activities.
The tax effect of the above is also included.
Details in respect of the non-underlying items recognised in the current and prior year are set out in note 3 to the financial statements.
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 either recognised in other comprehensive income or directly 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 recognised as a liability in the period in which they are approved by the company’s shareholders.
Hill & Smith Holdings PLC Annual Report 2013
83
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements
1. Segmental information
Business segment analysis
The group has three reportable segments which are Infrastructure Products - Roads, Infrastructure Products - Utilities and Galvanizing Services.
Several operating segments that have similar economic characteristics have been aggregated into these reporting segments. A description of the
activities of each of these segments is included in the group “At a Glance” on page 3.
The acquisitions detailed in note 10 fall into the Galvanizing Services segment.
Income Statement
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
Revenue
£m
202.9
114.0
316.9
127.6
444.5
2013
2012
Revenue
£m
205.7
114.1
319.8
120.9
440.7
Result
£m
(2.0)
11.2
9.2
25.3
34.5
(3.9)
30.6
(7.6)
23.0
Underlying
result*
£m
7.4
11.7
19.1
25.4
44.5
(3.3)
41.2
(9.9)
31.3
Result
£m
10.2
4.3
14.5
24.7
39.2
(4.0)
35.2
(9.1)
26.1
Underlying
result*
£m
13.4
5.3
18.7
25.3
44.0
(3.6)
40.4
(10.5)
29.9
* Underlying result is stated before non-underlying items as defined in the accounting policies on page 82, 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.
Galvanizing Services provided £5.0m (2012: £4.1m) revenues to Infrastructure Products - Roads and £1.6m (2012: £1.8m) revenues to
Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £2.2m (2012: £1.9m) revenues to Infrastructure Products - Roads.
These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.
Balance Sheet
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total segment assets/(liabilities)
Taxes
Provisions and retirement benefits
Net debt
Total group
Net assets
2013
2012
Total
assets
£m
127.1
60.7
187.8
197.1
384.9
-
-
10.0
394.9
Total
liabilities
£m
(39.5)
(19.7)
(59.2)
(25.9)
(85.1)
(17.0)
(26.5)
(97.2)
(225.8)
169.1
Total
assets
£m
134.7
56.8
191.5
186.6
378.1
-
-
8.9
387.0
Total
liabilities
£m
(39.9)
(18.1)
(58.0)
(26.4)
(84.4)
(24.9)
(19.6)
(95.7)
(224.6)
162.4
84
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
1. Segmental information continued
Capital expenditure and amortisation/depreciation
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total group
Property, plant and equipment (note 11)
Intangible assets (note 10)
Total group
Geographical analysis
Revenue (irrespective of origin)
UK
Rest of Europe
North America
The Middle East
Asia
Rest of World
Total
Total assets
UK
Rest of Europe
North America
Asia
Rest of World
Total group
Capital expenditure
UK
Rest of Europe
North America
Asia
Total group
2013
2012
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
6.2
7.1
13.3
8.3
21.6
20.5
1.1
21.6
5.6
5.6
11.2
7.5
18.7
15.3
3.4
18.7
5.5
3.4
8.9
10.6
19.5
18.7
0.8
19.5
4.2
6.2
10.4
6.3
16.7
12.8
3.9
16.7
2012
£m
197.6
101.5
114.4
9.3
10.3
7.6
440.7
2012
£m
138.1
98.7
134.5
15.0
0.7
387.0
2012
£m
5.6
4.2
7.9
1.8
19.5
2013
£m
205.9
101.2
113.2
8.2
12.7
3.3
444.5
2013
£m
146.1
102.5
131.3
13.5
1.5
394.9
2013
£m
9.9
5.0
6.1
0.6
21.6
Hill & Smith Holdings PLC Annual Report 2013
85
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
2. Operating profit
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Loss on disposal and impairment of non-current assets
Other operating income
Operating profit
3. Non-underlying items
Non-underlying items included in operating profit comprise the following:
2013
£m
444.5
(297.7)
146.8
(22.3)
(91.1)
-
1.1
34.5
2012
£m
440.7
(297.5)
143.2
(20.3)
(84.7)
(0.1)
1.1
39.2
›
›
›
›
Business reorganisation costs of £9.2m (2012: £0.8m) – principally relating to redundancies and other costs associated with site closures,
including the Access Design site at Telford and the Pipe Supports facility in China. The net costs include asset impairment charges of £1.8m
(2012: £0.3m).
Amortisation of acquired intangible fixed assets of £2.2m (2012: £2.4m).
Acquisition expenses of £0.4m (2012: £0.8m) relating to acquisitions made by the group during the year.
Profits on disposal of properties of £1.8m (2012: £nil).
The net costs in 2012 also included a loss of £0.4m in respect of the group’s UK defined benefit pension obligations following changes to the
terms of the scheme, and a loss of £0.4m in respect of movements in the fair value of forward foreign currency contracts.
Non-underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.6m (2012: £0.4m).
4. Employees
The average number of people employed by the group during the year
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
The aggregate remuneration for the year
Wages and salaries
Share-based payments
Social security costs
Pension costs
2013
No.
1,674
564
2,238
1,377
3,615
2012
No .
1,831
563
2,394
1,258
3,652
£m
£m
96.2
0.5
16.9
2.4
116.0
91.5
0.3
16.3
2.3
110.4
Details of the directors’ remuneration and share interests are given in the directors’ remuneration report on pages 49 to 63.
86
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
5. Net financing costs
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
Total interest expense
Expected interest cost on pension scheme obligations (note
22)
Interest cost on net pension scheme deficit (note 22)
Financial expense
Net financing costs
Underlying
£m
Non-
underlying
£m
0.7
-
-
-
0.7
3.9
0.1
4.0
-
-
4.0
3.3
-
-
-
-
-
-
-
-
-
0.6
0.6
0.6
2013
£m
0.7
-
-
-
0.7
3.9
0.1
4.0
-
0.6
4.6
3.9
Underlying
£m
0.8
-
-
-
0.8
4.2
0.2
4.4
-
-
4.4
3.6
Non-
underlying
£m
-
-
3.1
3.1
3.1
-
-
-
3.5
-
3.5
0.4
Following the adoption of the amendments to IAS19 during the year (see note 1), the net interest cost in respect of defined benefit pension
obligations is shown separately for the year ended 31 December 2013. The comparatives have not been restated.
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 losses
Loss on disposal of non-current assets
Income statement credits
Profit on disposal of non-current assets
Grants receivable
Rental income
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
2013
£m
13.1
0.5
2.3
3.3
0.3
2.2
1.0
0.1
1.8
-
1.8
0.1
6.4
£m
0.1
0.5
0.2
0.8
2012
£m
0.8
-
3.1
3.1
3.9
4.2
0.2
4.4
3.5
-
7.9
4.0
2012
£m
11.7
1.1
2.2
3.7
0.4
2.4
1.1
0.1
0.3
0.1
-
-
7.0
£m
0.1
0.5
-
0.6
A description of the work of the audit committee is set out in the audit committee report on pages 46 and 48 and includes an explanation of how
auditor objectivity and independence is safeguarded when non audit services are provided by the auditor.
Hill & Smith Holdings PLC Annual Report 2013
87
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
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 consolidated income statement
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
2013
£m
2.0
(2.7)
9.8
9.1
0.1
-
(1.0)
(0.6)
7.6
(0.4)
0.1
(0.3)
(0.2)
(0.1)
(0.3)
2012
£m
1.8
(0.8)
13.4
14.4
(0.4)
(1.1)
(3.3)
(0.5)
9.1
0.2
(0.1)
0.1
-
(0.2)
(0.2)
The tax charge in the consolidated income statement for the period is higher (2012: 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 effective rate of corporation tax in the UK of 23.25% (2012: 24.5%)
Expenses not deductible for tax purposes
Capital profits less losses and write downs not subject to tax
Utilisation of brought forward tax losses not recognised
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 prior periods
Tax charge
2013
£m
30.6
7.1
1.8
(0.8)
(0.7)
3.1
0.2
0.2
(0.6)
(2.7)
7.6
2012
£m
35.2
8.6
0.1
(1.3)
-
3.6
0.3
0.2
(0.5)
(1.9)
9.1
88
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was 77.6m (2012: 77.0m), diluted for the effects of the outstanding
dilutive share options 78.6m (2012: 77.8m). 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
* Non-underlying items as detailed in note 3.
2013
Pence
per share
29.6
10.8
40.4
29.2
10.6
39.8
£m
23.0
8.3
31.3
23.0
8.3
31.3
2012
Pence
per share
33.9
4.9
38.8
33.6
4.9
38.5
£m
26.1
3.8
29.9
26.1
3.8
29.9
9. Dividends
Dividends paid in the year were the prior year’s interim dividend of £4.5m (2012: £4.2m) and the final dividend of £7.1m (2012: £6.0m). 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 final dividend for the current year, subject to shareholder approval:
Equity shares
Interim
Final
Total
2013
Pence
per share
6.0
10.0
16.0
£m
4.7
7.8
12.5
2012
Pence
per share
5.8
9.2
15.0
£m
4.5
7.1
11.6
Hill & Smith Holdings PLC Annual Report 2013
89
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
10. Intangible assets
Cost
At 1 January 2012
Exchange adjustments
Acquisitions
Additions
At 31 December 2012
Exchange adjustments
Acquisitions
Additions
At 31 December 2013
Amortisation and impairment losses
At 1 January 2012
Exchange adjustments
Amortisation charge for the year
Impairment
At 31 December 2012
Exchange adjustments
Amortisation charge for the year
Impairment
At 31 December 2013
Carrying values
At 1 January 2012
At 31 December 2012
At 31 December 2013
Goodwill
£m
Brands
£m
Customer
lists
£m
Capitalised
development
costs
£m
Licences
£m
Total
£m
98.9
(2.3)
-
-
96.6
(0.2)
3.4
-
99.8
-
-
-
-
-
-
-
-
-
98.9
96.6
99.8
18.7
(0.7)
-
-
18.0
(0.1)
0.8
-
18.7
1.4
(0.1)
0.4
-
1.7
-
0.4
-
2.1
17.3
16.3
16.6
13.4
(0.3)
0.1
-
13.2
(0.2)
0.3
-
13.3
3.6
(0.1)
2.0
-
5.5
(0.2)
1.8
-
7.1
9.8
7.7
6.2
8.8
-
-
0.8
9.6
-
-
0.9
10.5
5.4
-
1.1
0.3
6.8
-
1.0
0.1
7.9
3.4
2.8
2.6
1.7
141.5
-
-
-
(3.3)
0.1
0.8
1.7
139.1
-
-
0.2
1.9
0.2
-
0.1
-
0.3
-
0.1
-
0.4
1.5
1.4
1.5
(0.5)
4.5
1.1
144.2
10.6
(0.2)
3.6
0.3
14.3
(0.2)
3.3
0.1
17.5
130.9
124.8
126.7
90
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
10. Intangible assets continued
2013
On 30 April 2013 the group acquired the issued share capital of Medway Galvanising Company Limited and on 10 December 2013 the group
acquired the trade and certain assets of Arkinstall Galvanizing Limited. Details of these acquisitions are as follows:
Medway Galvanising Company Limited and Arkinstall Galvanizing Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current interest bearing liabilities
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Cash and cash equivalents received in the business
Net cash consideration shown in the consolidated statement of cash flows
Pre acquisition
carrying amount
£m
Policy
alignment and
fair value
adjustments
£m
-
2.7
0.5
1.5
0.2
4.9
(0.2)
(0.9)
(0.1)
(1.2)
3.7
1.1
(1.2)
(0.1)
-
-
(0.2)
-
-
(0.1)
(0.1)
(0.3)
Total
£m
1.1
1.5
0.4
1.5
0.2
4.7
(0.2)
(0.9)
(0.2)
(1.3)
3.4
6.8
3.4
6.8
(0.2)
6.6
Brands and customer relationships have been recognised as specific intangible assets as a result of these acquisitions. Policy alignment and fair
value adjustments principally relate to harmonisation with group IFRS accounting policies, including the provisional application of fair values
on acquisition. The goodwill arising on the Medway acquisition primarily represents the assembled workforce, market share and geographical
advantages afforded to the group.
Post acquisition the acquired businesses have contributed £5.2m revenue and £0.7m operating profit, which are included in the group’s
consolidated income statement. If the acquisitions had been made on 1 January 2013 the group’s results for the year would have shown revenue
of £447.9m and underlying operating profit of £45.0m.
Hill & Smith Holdings PLC Annual Report 2013
91
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
10. Intangible assets continued
Cash generating units with significant amounts of goodwill
Galvanizing Services - France
Galvanizing Services - USA
Galvanizing Services - UK
The Paterson Group
Other cash generating units with no individually significant value
2013
£m
22.9
20.6
17.7
7.6
31.0
99.8
2012
£m
22.5
21.0
14.3
7.7
31.1
96.6
Goodwill impairment reviews 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 certain US brand names of £9.8m (2012: £10.0m), which are the group’s only other
indefinite life intangible assets, 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, strategic plan cash flow information for the following two years and an average growth rate of 3% applied
subsequently based on a prudent management estimate for revenue and associated cost growth. Budgets and strategic plans are prepared taking
into account past experience and the group’s overall strategic direction. In respect of cash generating units with significant amounts of goodwill,
the key assumptions applied by the board in determining the budget and strategic plan revenues are, for the Galvanizing businesses, based on the
directors’ estimates of the current outlook for the UK, French and US manufacturing sectors respectively, and for The Paterson Group, based on
the directors’ estimates of the current outlook for the US Power Generation sector. Budget and strategic plan costs are based upon the directors’
past experience of the costs required to support these revenue estimates.
The calculated headroom between value in use and carrying value of each of the cash generating units with significant amounts of goodwill is set
out below, together with the pre-tax discount rates applied.
Galvanizing Services - France
Galvanizing Services - USA
Galvanizing Services - UK
The Paterson Group
2013
Headroom
£m
15.0
95.3
17.6
8.7
Discount
rate
23.8%
19.9%
15.6%
17.7%
2012
Headroom
£m
45.0
101.3
2.2
22.2
Discount
rate
20.4%
13.6%
14.0%
11.8%
Pre-tax discount rates of between 10% and 20% are applied in determining the recoverable amounts of other cash generating units. Discount
rates are estimated based on the group’s cost of capital, risk adjusted for individual units’ circumstances.
Other cash generating units with no significant amounts of goodwill principally consist of subsidiaries in the Infrastructure Products - Utilities and
Infrastructure Products - Roads 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.
92
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
11. Property, plant and equipment
Cost
At 1 January 2012
Exchange adjustments
Acquisitions
Additions
Reclassification
Disposals
At 31 December 2012
Exchange adjustments
Acquisitions
Additions
Disposals
At 31 December 2013
Depreciation and impairment losses
At 1 January 2012
Exchange adjustments
Reclassification
Disposals
Charge for the year
At 31 December 2012
Exchange adjustments
Impairment provision
Disposals
Charge for the year
At 31 December 2013
Carrying values
At 1 January 2012
At 31 December 2012
At 31 December 2013
Land and
buildings
£m
Plant, machinery
and vehicles
£m
Total
£m
62.2
(1.8)
-
6.9
-
(0.3)
67.0
(0.4)
0.9
5.8
(0.9)
72.4
10.3
(0.3)
-
(0.2)
2.7
12.5
-
1.3
(0.2)
2.8
16.4
51.9
54.5
56.0
126.2
188.4
(1.4)
0.4
11.8
(1.9)
(2.8)
(3.2)
0.4
18.7
(1.9)
(3.1)
132.3
199.3
(0.4)
0.6
14.7
(2.9)
(0.8)
1.5
20.5
(3.8)
144.3
216.7
73.2
(0.5)
(0.5)
(2.3)
10.1
80.0
(0.3)
0.4
(2.5)
10.8
88.4
53.0
52.3
55.9
83.5
(0.8)
(0.5)
(2.5)
12.8
92.5
(0.3)
1.7
(2.7)
13.6
104.8
104.9
106.8
111.9
The gross book value of land and buildings includes freehold land of £13.1m (2012: £12.0m).
Included in the carrying value of plant, machinery and vehicles is £1.6m (2012: £4.5m) 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 £29.4m (2012: £27.2m) and accumulated depreciation of
£18.9m (2012: £16.6m).
In 2012, assets with a cost of £1.9m and accumulated depreciation of £0.5m were transferred to inventories for future resale.
Hill & Smith Holdings PLC Annual Report 2013
93
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
Property, plant
and equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
Total
£m
12. Deferred taxation
At 1 January 2012
Exchange adjustments
Credited for the year in the consolidated income statement
(note 7)
(Charged)/credited 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 2012
Exchange adjustments
Acquisitions of subsidiaries
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)
Intangible
assets
£m
(10.5)
0.3
1.0
-
-
(9.2)
-
(0.2)
0.7
-
-
(9.1)
0.2
1.4
-
-
(7.5)
-
-
0.7
-
-
(1.2)
(0.1)
1.7
-
-
0.4
-
-
0.7
-
-
At 31 December 2013
(8.7)
(6.8)
1.1
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
4.3
-
-
(0.5)
(17.0)
-
1.2
0.4
5.3
(0.2)
0.1
(0.1)
-
4.1
-
-
0.2
0.2
1.0
(11.2)
-
-
-
(0.2)
1.5
(0.2)
(0.4)
0.4
-
4.3
(0.1)
0.3
0.1
0.1
0.6
(9.5)
2013
£m
1.7
(11.2)
(9.5)
2012
£m
1.0
(12.2)
(11.2)
No deferred tax asset has been recognised in respect of tax losses of £13.5m (2012: £14.5m) as their future use is uncertain. There is no time limit
on the carrying forward of these losses.
The reduction in the UK corporation tax rate from 24% to 23% (effective 1 April 2013) was substantively enacted on 3 July 2012. Further
reductions to 21% (effective 1 April 2014) and to 20% (effective 1 April 2015) were substantively enacted on 2 July 2013. The deferred tax liability
in respect of UK entities has therefore been recalculated at 20% on the basis that it will materially reverse after 1 April 2015.
13. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2013
£m
30.1
6.4
18.6
55.1
2012
£m
28.6
8.9
20.3
57.8
The amount of inventories expensed to the consolidated income statement in the year was £250.3m (2012: £257.1m). The value of inventories
written down and expensed in the consolidated income statement during the year amounted to £nil (2012: £nil). The amount of inventories held
at fair value less cost to sell included in the above was £0.3m (2012: £0.4m).
94
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
14. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
Fair value derivatives
2013
£m
84.4
4.9
1.7
0.2
91.2
The charge to the consolidated income statement in the year in respect of impairment of trade receivables was £0.5m (2012: £0.5m).
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)
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
2013
£m
10.0
-
10.0
(0.8)
(96.4)
(87.2)
34.5
17.4
51.9
1.9
0.4
54.2
(15.3)
(3.4)
(22.1)
3.0
16.4
(11.6)
(6.6)
2.0
0.2
(0.6)
(86.8)
(87.2)
2012
£m
81.9
4.3
2.5
-
88.7
2012
£m
8.8
0.1
8.9
(2.0)
(93.7)
(86.8)
39.2
17.5
56.7
3.7
(2.0)
58.4
(11.6)
(4.3)
(18.3)
0.5
24.7
(10.2)
(0.5)
0.5
14.5
2.5
(103.8)
(86.8)
Hill & Smith Holdings PLC Annual Report 2013
95
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
16. Current liabilities
Interest bearing loans and borrowings
Current portion of long term borrowings
Finance lease and hire purchase obligations
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
Long term borrowings
Finance lease and hire purchase obligations
Other non-current liabilities
Deferred government grants
2013
£m
0.5
0.3
0.8
50.8
10.5
19.9
0.9
2.9
85.0
2013
£m
96.3
0.1
96.4
0.1
2012
£m
0.5
1.5
2.0
50.7
10.9
17.3
1.0
4.3
84.2
2012
£m
93.4
0.3
93.7
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
Principal liability
Finance charges payable on outstanding commitments
Effective
interest
rate %
5.00
5.00
2013
Minimum
lease
payment
£m
0.3
0.1
0.1
0.4
0.4
-
Effective
interest
rate %
3.75
4.75
Principal
£m
0.3
0.1
0.1
0.4
2012
Minimum
lease
payment
£m
1.6
0.3
0.3
1.9
1.8
0.1
Principal
£m
1.5
0.3
0.3
1.8
The unsecured bank borrowings carry a rate of interest of 1.75% above LIBOR/EURIBOR/US LIBOR subject to a ratchet as defined in the facility
agreement. In the USA, borrowings that are not fixed (note 19) are at US 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.
96
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
18. Provisions for liabilities and charges
At 1 January 2012
Utilised during the year
Released to consolidated income statement
At 31 December 2012
Utilised during the year
Charged to consolidated income statement
At 31 December 2013
Amounts due within one year
Amounts due after more than one year
Property
related
£m
4.0
(0.5)
(0.2)
3.3
(0.5)
2.8
5.6
Other
regulatory
£m
-
-
-
-
-
0.7
0.7
2013
£m
3.5
2.8
6.3
Total
£m
4.0
(0.5)
(0.2)
3.3
(0.5)
3.5
6.3
2012
£m
0.5
2.8
3.3
Provisions utilised during the year of £0.5m (2012: £0.5m) reflect cash spend associated with the closure of one of the group’s manufacturing
plants late in 2010. Provisions charged of £3.5m relate to the closure of one of the group’s manufacturing operations in 2013. 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.
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. A programme of peer and third party reviews
is in place to assist the group audit committee with its assessment of the effectiveness of risk management and internal control procedures.
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 and are reviewed regularly. Customers that fail to meet the group’s benchmark
creditworthiness may transact with the group only on a prepayment basis.
Hill & Smith Holdings PLC Annual Report 2013
97
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
19. Financial instruments continued
The group’s UK companies represent the majority of the trade receivable at 31 December 2013 with 62% (2012: 61%) and currently the only
geographical region that does not generally insure trade receivables is North America, which represents 16% (2012: 17%) of the group’s trade
receivables. Subsidiaries in North America have 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 2013 and 2012, 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. As at 31
December 2013 all such debt was covered by cash and cash equivalents netting to £9.2m positive current liquidity (2012: £6.9m).
In 2011 the group refinanced its principal UK revolving credit facility. The facility is a multicurrency revolving credit agreement that expires in
April 2016 and has a value at 31 December 2013 of £208.8m (2012: £209.4m), based on year end exchange rates. 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 £228.6m
(2012: £230.3m).
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 2013 credit exposure including cash deposited did not exceed £4.6m with any single institution (2012: £3.2m).
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, North America 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 of 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 and certain of its UK subsidiaries hold 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 19% (2012: 29%) of
the gross year end Sterling borrowings, 40% (2012: 38%) of the Euro borrowings and 91% (2012: 53%) of the US Dollar borrowings under the
group’s principal UK revolving credit facility. The group also has US Dollar arrangements which are held locally, the notional amounts representing
approximately 10% (2012: 12%) of the local US Dollar year end gross borrowings.
98
Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
19. Financial instruments continued
Country
UK
UK
UK
UK
UK
USA
Financial
instrument
Swap
Swap
Swap
Swap
Swap
Maturity date
1 April 2016
1 April 2016
1 April 2016
1 April 2016
1 April 2016
Swap
1 October 2015
Rate excluding
margin %
2013 Notional
amounts £m
2013 Notional
amounts €m
2013 Notional
amounts $m
1.148
1.130
1.133
1.360
1.544
4.800
-
-
-
10.0
-
-
-
-
-
-
10.0
-
10.0
10.0
10.0
-
-
0.5
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 2013 and 2012, as set out in the business review on page 26.
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.
Designated at fair value
£m
Amortised cost
£m
Total carrying value
£m
Fair value
£m
Cash and cash equivalents
Interest bearing loans due within one year
Interest bearing loans due after more than one year
Derivative assets
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2013
Cash and cash equivalents
Interest bearing loans due within one year
Interest bearing loans due after more than one year
Derivative assets
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2012
-
-
-
0.2
(0.9)
-
-
(0.7)
-
-
-
-
(1.0)
-
-
(1.0)
10.0
(0.8)
(96.4)
-
-
86.1
(73.6)
(74.7)
8.9
(2.0)
(93.7)
-
-
84.4
(72.3)
(74.7)
10.0
(0.8)
(96.4)
0.2
(0.9)
86.1
(73.6)
(75.4)
8.9
(2.0)
(93.7)
-
(1.0)
84.4
(72.3)
(75.7)
10.0
(0.8)
(96.4)
0.2
(0.9)
86.1
(73.6)
(75.4)
8.9
(2.0)
(93.7)
-
(1.0)
84.4
(72.3)
(75.7)
Hill & Smith Holdings PLC Annual Report 2013
99
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
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 assets
Derivative financial liabilities
Total at 31 December 2013
Derivative financial assets
Derivative financial liabilities
Total at 31 December 2012
Level 1
£m
-
-
-
-
-
-
Level 2
£m
0.2
(0.9)
(0.7)
-
(1.0)
(1.0)
Level 3
£m
-
-
-
-
-
-
Total
£m
0.2
(0.9)
(0.7)
-
(1.0)
(1.0)
At 31 December 2013 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 and certain of its UK subsidiaries hold Euro £20.7m (2012: £21.2m) and US Dollar £20.1m (2012: £35.2m) denominated
interest bearing loans, which are predominantly used to fund the group’s European and United States operations and include £40.8m (2012:
£56.4m) designated as a hedge of the net investment in a foreign operation. The foreign currency loss of £0.7m (2012: gain of £2.8m) 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 2013
US Dollar at 31 December 2013
Euro at 31 December 2013
Sterling at 31 December 2012
US Dollar at 31 December 2012
Euro at 31 December 2012
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
1.4
1.2
1.5
1.5
1.2
1.5
2.2
2.2
2.3
3.2
3.2
3.3
100 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
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:
Carrying
amounts
£m
Contractual
cash flows
£m
Due within
one year
£m
Due between
one and
two years
£m
Due between
two and
five years
£m
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
3.0
93.8
0.4
73.6
0.9
(3.0)
(98.4)
(0.5)
(73.6)
(1.2)
Total at 31 December 2013
171.7
(176.7)
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
3.5
90.4
1.8
72.3
1.0
(3.6)
(95.9)
(1.9)
(72.3)
(1.3)
Total at 31 December 2012
169.0
(175.0)
(0.5)
(2.0)
(0.3)
(73.6)
(0.7)
(77.1)
(0.5)
(1.7)
(1.5)
(72.3)
(0.4)
(76.4)
(0.4)
(2.0)
(0.2)
-
(0.4)
(3.0)
(0.5)
(1.7)
(0.4)
-
(0.4)
(3.0)
(0.7)
(94.4)
-
-
(0.1)
(95.2)
(0.9)
(92.5)
-
-
(0.5)
(93.9)
The group had the following undrawn committed facilities at 31 December, in respect of which all conditions precedent had been met:
2013
£m
Due after
more than
five years
£m
(1.4)
-
-
-
-
(1.4)
(1.7)
-
-
-
-
(1.7)
2012
£m
Undrawn committed borrowing facilities
Expiring after more than one year
115.0
119.0
(d) Fair values
The gain in the year on the interest rate swaps held by the UK group was £0.3m (2012: loss of £0.4m) 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 (2012: nil).
The fair value of forward currency exchange contracts realised in the consolidated income statement as part of fair value derivatives amounted to
£nil (2012: loss of £0.4m). The fair values of the group’s other financial instruments at 31 December 2013 and 2012 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.
Impairment charges of £1.8m (2012: £0.3m) were recognised in respect of the carrying values of non-current assets, 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
Total
2013
£m
86.1
10.0
96.1
2012
£m
84.4
8.9
93.3
Hill & Smith Holdings PLC Annual Report 2013
101
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
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
North America
Rest of World
Total
Carrying value of trade receivables by business segment
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total
2013
£m
52.4
15.6
13.5
2.9
84.4
2013
£m
40.5
22.2
62.7
21.7
84.4
Impairment losses
The group maintains a substantial level of credit insurance covering the majority of its trade receivables which mitigates against possible
impairment losses, therefore such impairment losses are not significant.
The ageing of trade receivables at the reporting date was:
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
Gross
£m
59.3
13.6
7.7
6.4
87.0
2013
Provisions
£m
(0.1)
(0.1)
(0.7)
(1.7)
(2.6)
Net
£m
59.2
13.5
7.0
4.7
84.4
Gross
£m
58.6
16.0
4.8
4.8
84.2
2012
Provisions
£m
(0.3)
(0.1)
(0.1)
(1.8)
(2.3)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2012
Exchange adjustments
Charged to the consolidated income statement during the year
Utilised during the year
At 31 December 2012
Exchange adjustments
Charged to the consolidated income statement during the year
Utilised during the year
At 31 December 2013
2012
£m
50.3
15.2
13.6
2.8
81.9
2012
£m
40.9
20.5
61.4
20.5
81.9
Net
£m
58.3
15.9
4.7
3.0
81.9
£m
3.0
(0.1)
0.1
(0.7)
2.3
-
0.5
(0.2)
2.6
(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 £0.6m (2012: £0.7m), which would directly impact on the
consolidated income statement.
102 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
19. Financial instruments continued
(f) Sensitivity analysis
›
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 £2.4m (2012: £2.7m) and the impact on equity would have been a gain of £14.9m (2012: £13.1m).
›
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 £2.0m (2012: £2.2m) and the impact on equity would have been a loss of £12.5m (2012: £10.7m).
20. Called up share capital
Allotted, called up and fully paid
77.7m ordinary shares of 25p each (2012: 77.1m)
2013
£m
19.4
2012
£m
19.3
In 2013 the company issued 0.6m shares under its various share option schemes (2012: 0.1m), realising £2.0m (2012: £0.5m).
Options outstanding over the company’s shares
2007 LTIP Award (granted March 2013)*
2007 LTIP Award (granted March 2012)*
2007 LTIP Award (granted March 2011)*
2007 LTIP Award (granted March 2010)*
2005 approved executive share option
scheme (granted October 2005)*
2005 unapproved executive share
option scheme (granted October 2005)*
2007 grant of 2005 approved executive
share option scheme (granted April 2007)*
2007 grant of 2005 unapproved executive
share option scheme (granted April 2007)*
2012 grant of 2005 approved executive share
option scheme (granted April 2012)*
2012 grant of 2005 unapproved
executive share option scheme (granted April
2012)*
2008 grant of 2005 savings related share
option scheme (granted January 2008)*†
2008 grant of 2005 savings related share
option scheme (granted December 2008)*†
2010 grant of 2005 savings related share
option scheme (granted January 2011)*†
2013 grant of 2005 savings related share
option scheme (granted April 2013)*†
Outstanding at the end of the year
Exercisable at the year end
Not exercisable at the year end
Outstanding at the end of the year
* Subject to share-based payments under IFRS2 (see below).
Number
of shares
160,148
263,721
287,779
-
26,146
4,907
2013
Option
price (p)
-
-
-
-
205
205
Number
of shares
-
263,721
287,779
247,546
2012
Option
price (p)
-
-
-
-
Date first exercisable
Expiry date
§
§
§
§
§
§
§
§
40,792
205
4 October 2008
4 October 2015
4,907
205
4 October 2008
4 October 2015
56,852
350
183,551
79,429
350
326,876
116,342
316
125,828
350
350
316
13 April 2010
13 April 2017
13 April 2010
13 April 2017
19 April 2015
19 April 2022
158,658
316
159,172
316
19 April 2015
19 April 2022
-
318
122,599
318
1 January 2013
1 July 2013
15,331
246
134,630
246
1 December 2013
1 June 2014
417,837
238
456,697
238
1 January 2016
1 July 2016
447,363
2,034,513
182,665
1,851,848
2,034,513
355
-
-
1 June 2018 1 December 2018
2,354,098
556,126
1,797,972
2,354,098
† 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 2014 for the
2011 grant, 1 January 2015 for the 2012 grant and 1 January 2016 for the 2013 grant.
The remaining weighted average life of the outstanding share options is 3 years 2 months (2012: 3 years 3 months).
Hill & Smith Holdings PLC Annual Report 2013
103
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
20. Called up share capital continued
The movement and weighted average exercise prices of share options during the year are as follows:
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)
2013
195
247
(319)
(48)
198
Millions
of options
2013
2.4
0.6
(0.6)
(0.4)
2.0
Weighted
average
exercise
price (p)
2012
197
169
(241)
(144)
195
Millions
of options
2012
2.3
0.6
(0.1)
(0.4)
2.4
The weighted average share price on the dates of exercise during the year for the above share options was 461p (2012: 356p), and the weighted
average fair value of options and awards granted in the year was 163p (2012: 145p). The weighted average exercise price of outstanding options
exercisable at the year end was 317p.
Share-based payments
All option schemes marked as being subject to share-based payments have 2005 to 2012 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 where vesting is based on non-market
conditions, or a Monte Carlo Simulation where vesting is based on market conditions. 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 (%)
2013 grant
of 2007 LTIP
Award
2012 grant
of 2007 LTIP
Award
2011 grant
of 2007 LTIP
Award
443/248
337/194
303/171
443
0
29
3
0.0
0.3
337
0
28
3
0.0
0.6
303
0
28
3
0.0
1.6
April 2013
grant of
2005 Savings
Related
Share Option
Scheme
January
2011 grant of
2005 Savings
Related
Share Option
Scheme
December
2008 grant of
2005 Savings
Related Share
Option
Scheme
January
2008 grant of
2005 Savings
Related Share
Option
Scheme
2012 grant of
2005 Share
Option
Schemes
2007 grant of
2005 Share
Option
Schemes
2005 grant
of 2005
Share
Option
Schemes
83
429
355
26
5
3.5
0.7
44
290
238
21
5
4.4
1.6
3/3
51/49
160
246
331
318
28/24
29/25
3/5
4.6
1.8/2.8
3/5
4.6
4.0
41
316
316
28
3
4.2
0.6
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 historical 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 (2012: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
2013
£m
0.5
2013
£m
2.4
2012
£m
0.3
2012
£m
0.4
104 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
21. Guarantees and other financial commitments continued
(c) Operating lease commitments
The total future minimum commitments payable under non-cancellable operating leases are analysed as follows:
Group
Within one year
Between one and two years
Between two and five years
After five years
2013
Land and
buildings
£m
4.3
3.7
9.3
10.6
27.9
Other
£m
2.3
1.8
2.5
-
6.6
2012
Land and
buildings
£m
4.4
4.3
10.0
13.7
32.4
Other
£m
2.2
1.6
1.9
0.1
5.8
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 are analysed as follows:
Group
Within one year
Between one and five years
After five years
2013
Land and
buildings
£m
0.6
1.2
0.5
2.3
Other
£m
6.1
4.0
-
10.1
2012
Land and
buildings
£m
0.6
1.4
0.7
2.7
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
63.1
(80.7)
-
(17.6)
Overseas
£m
2.6
(5.1)
(0.1)
(2.6)
2013
£m
65.7
(85.8)
(0.1)
(20.2)
UK
£m
62.0
(75.8)
-
(13.8)
Overseas
£m
2.5
(4.9)
(0.1)
(2.5)
Other
£m
6.1
4.0
-
10.1
2012
£m
64.5
(80.7)
(0.1)
(16.3)
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,
while 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 within operating profit of £1.6m (2012: £1.7m), which includes the
costs of the defined contribution scheme and the defined benefit scheme.
All actuarial gains and losses are recognised immediately in the consolidated statement of comprehensive income.
Hill & Smith Holdings PLC Annual Report 2013
105
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
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 2012 and was
updated to 31 December 2013 by a qualified actuary.
The principal assumptions used by the actuary
Rate of increase in salaries
Rate of increase in pensions payment
Discount rate
Inflation - RPI
Inflation - CPI
Mortality table
2013
n/a
3.20%
4.30%
3.40%
2.40%
2012
n/a
2.60%
4.20%
2.70%
1.95%
2011
2.00%
2.90%
4.90%
3.00%
2.00%
2010
3.50%
3.30%
5.60%
3.50%
-
2009
3.60%
3.40%
5.80%
3.60%
-
116%120%
S1PACMI2013 1%*
116%120% 116%120% 116%120%
PA92YOB
S1PACMI2011 1%*
S1PAmc1% S1PAmc1%
* With the addition of the short cohort for the Hill & Smith executive pension scheme, approximately 1.4 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
2013
2012
2011
2010
2009
21.7 years
24.1 years
20.7 years
22.9 years
21.8 years
21.6 years
21.6 years
21.1 years
24.3 years
24.2 years
24.2 years
24.1 years
20.8 years
20.0 years
20.0 years
19.9 years
23.0 years
22.7 years
22.7 years
22.9 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 values 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
Market value
2013
£m
Market value
2012
£m
Market value
2011
£m
Market value
2010
£m
Market value
2009
£m
21.7
33.3
1.0
-
-
7.1
63.1
(80.7)
(17.6)
21.7
33.0
1.4
5.5
-
0.4
62.0
(75.8)
(13.8)
16.2
29.5
2.5
5.4
0.9
0.4
54.9
(69.2)
(14.3)
19.0
27.2
2.3
5.8
1.9
0.4
56.6
(66.1)
(9.5)
16.0
24.9
2.1
5.6
2.3
1.1
52.0
(67.4)
(15.4)
106 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
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 profits 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
Expenses
Losses on curtailments and settlements
Charge to operating profit
Expected return on pension scheme assets
Expected interest cost on pension scheme
obligations
Interest on net pension scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2013
Defined
benefit
schemes
£m
1.1
0.4
-
1.5
-
-
-
1.5
-
0.1
-
0.1
-
-
0.5
0.6
Total
£m
1.1
0.5
-
1.6
-
-
0.5
2.1
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Current service costs
Interest cost
Actuarial (gain)/loss arising from:
Financial assumptions
Demographic assumptions
Experience adjustment
Losses on curtailments and settlements
Benefits paid
Closing defined benefit obligations
Defined
contribution
schemes
£m
2012
Defined
benefit
schemes
£m
1.1
-
-
1.1
-
-
-
1.1
0.2
-
0.4
0.6
(2.9)
3.3
-
1.0
2013
£m
75.8
-
3.1
4.8
(0.6)
1.0
-
(3.4)
80.7
Total
£m
1.3
-
0.4
1.7
(2.9)
3.3
-
2.1
2012
£m
69.2
0.2
3.3
5.7
1.0
0.5
0.4
(4.5)
75.8
Hill & Smith Holdings PLC Annual Report 2013
107
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
22. Pensions continued
Changes in fair values of scheme assets
Opening fair value of assets
Interest income
Return on plan assets excluding interest income
Employer 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
2013
£m
62.0
2.6
(0.6)
2.5
(3.4)
63.1
2.0
2.5
1.1
Amounts recognised in the consolidated statement of comprehensive income
Return on plan assets excluding interest income
Experienced loss on scheme obligations
Changes in assumptions underlying the present
value of scheme obligations
Annual amount recognised
Total amount recognised
% of scheme
assets/
liabilities %
2
1
5
8
2013
£m
(0.6)
(1.0)
(4.2)
(5.8)
(31.0)
Difference between actual and expected return on scheme assets
Experienced gain on scheme obligations
Changes in assumptions underlying the present value of scheme obligations
Annual amount recognised
Total amount recognised
% of scheme
assets/
liabilities %
11
1
9
1
% of scheme
assets/
liabilities %
4
-
3
7
% of scheme
assets/
liabilities %
8
-
6
12
% of scheme
assets/
liabilities %
9
-
(16)
(8)
2012
£m
6.7
(0.5)
(6.7)
(0.5)
(25.2)
2010
£m
2.4
-
2.2
4.6
(16.5)
2012
£m
54.9
2.9
6.7
2.0
(4.5)
62.0
9.6
2.5
1.2
2011
£m
(4.3)
-
(3.9)
(8.2)
(24.7)
2009
£m
4.4
0.3
(10.5)
(5.8)
(21.1)
Overseas
In France the group provides certain long term benefits and operates post employment defined benefit plans which provide lump sum benefits at
retirement in accordance with collective labour agreements. Some of those plans are funded with insurance companies.
In the USA Bergen-Power Pipe Supports, Inc. operates a defined benefit pension plan comprising current and deferred pensioners such that no
future benefits accrue.
The group also operates defined contribution plans in a number of other overseas operations. The amount contributed to these plans during the
year was £0.7m (2012: £0.5m).
The consolidated income statement for the year includes a pension charge within operating profit of £0.8m (2012: £0.6m), which includes the
costs of the defined contribution schemes and the defined benefit schemes.
All actuarial gains and losses are recognised immediately in the consolidated statement of comprehensive income.
108 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
22. Pensions continued
Composition of the schemes
The group operates defined benefit schemes in France and the USA. Actuarial valuations of the schemes were carried out by independent
actuaries as at 31 December 2013.
The principal assumptions used by the actuaries
Rate of increase in salaries
Discount rate
Inflation
Mortality table
USA
0.00%
5.25%
0.00%
2013
France
2.00%
3.10%
2.00%
USA
0.00%
4.50%
0.00%
2012
France
2.00%
4.00%
2.00%
2011
France
2.00%
5.00%
2.00%
2010
France
2.00%
4.60%
2.00%
94 GAR
TH 00-02,
94 GAR
TH 00-02,
TH 00-02,
TH 00-02,
Proj. 2002
TF 00-02
Proj. 2002
TF 00-02
TF 00-02
TF 00-02
Assets and liabilities
The fair values of scheme assets, which are not intended to be realised in the short term and may be subject to significant change before they are
realised, and the value of the scheme liabilities, which is derived from cash flow projections over long periods and which is therefore inherently
uncertain, are as follows:
Assets
Cash and other insured fixed interest assets
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
Market
value
2013
£m
2.6
2.6
(5.1)
(0.1)
(2.6)
Market
value
2012
£m
2.5
2.5
(4.9)
(0.1)
(2.5)
Market
value
2011
£m
2.6
2.6
(4.6)
(0.1)
(2.1)
Market
value
2010
£m
Market value
2009
£m
0.1
0.1
(1.4)
(0.1)
(1.4)
0.2
0.2
(1.4)
(0.1)
(1.3)
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
Past service costs
Charge to operating profit
Expected return on pension scheme assets
Expected interest cost on pension scheme
obligations
Interest on net pension scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2013
Defined
benefit
schemes
£m
0.7
-
0.7
-
-
-
0.7
0.1
-
0.1
-
-
0.1
0.2
Defined
contribution
schemes
£m
2012
Defined
benefit
schemes
£m
0.5
-
0.5
-
-
-
0.5
0.1
-
0.1
(0.2)
0.2
-
0.1
Total
£m
0.8
-
0.8
-
-
0.1
0.9
Total
£m
0.6
-
0.6
(0.2)
0.2
-
0.6
Hill & Smith Holdings PLC Annual Report 2013
109
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes to the Consolidated Financial Statements continued
22. Pensions continued
Change in the present value of the defined benefit obligation
Opening defined benefit obligation
Current service costs
Interest cost on scheme obligations
Actuarial losses/(gains) arising from:
Financial assumptions
Experience adjustments
Benefits paid
Exchange adjustments
Closing defined benefit obligation
Changes in fair values of scheme assets
Opening fair value of assets
Return on plan assets excluding interest income
Interest on plan assets
Benefits paid
Exchange adjustments
Closing fair value of assets
Actual return on scheme assets
Expected employer contributions in the following year
Defined benefit schemes
Defined contribution schemes
2013
£m
5.0
0.1
0.2
0.2
-
(0.3)
-
5.2
2013
£m
2.5
0.2
0.1
(0.1)
(0.1)
2.6
0.3
-
0.8
Amounts recognised in the consolidated statement of comprehensive income
Experienced loss on scheme obligations
Return on plan assets excluding interest income
Changes in assumptions underlying the
present value of scheme obligations
Exchange rate adjustment on assets and
liabilities
Amount recognised in the period
Total amount recognised
% of scheme
assets/
liabilities
%
0
7
4
n/a
2013
£m
-
0.2
(0.2)
-
-
(1.0)
Experienced loss on scheme obligations
Changes in assumptions underlying the present value of scheme obligations
Exchange rate adjustment on assets and liabilities
Amount recognised in the period
Total amount recognised
% of scheme
assets/
liabilities
%
2
4
(12)
n/a
% of scheme
assets/
liabilities
%
(2)
-
n/a
% of scheme
assets/
liabilities
%
-
-
(4)
n/a
% of scheme
assets/
liabilities
%
3
-
n/a
2012
£m
0.1
0.1
(0.6)
-
(0.4)
(1.0)
2010
£m
-
-
-
-
(0.4)
2012
£m
4.7
0.1
0.2
0.6
(0.1)
(0.4)
(0.1)
5.0
2012
£m
2.6
0.1
0.2
(0.3)
(0.1)
2.5
0.3
-
0.5
2011
£m
-
-
(0.2)
-
(0.2)
(0.6)
2009
£m
-
-
0.1
0.1
(0.4)
110 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Notes to the Consolidated Financial Statements continued
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 where
vesting is based on non-market conditions or a Monte Carlo simulation where vesting is based on market conditions. Both models make 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 and Carpenter & Paterson brands which have both been successfully trading for over 50 years. Customer
relationships have been valued based on discounted forecast turnover rates and have been deemed to have useful economic lives of between five
and ten years based upon the average expected length of relationships with customers.
Construction contracts
In determining the revenue and costs to be recognised each year for work done on construction contracts, estimates are made in relation to final
out-turn on each contract. On major construction contracts, it is assessed, based on past experience, that their outcome cannot be estimated
reliably during the early stages of the contract, but that costs incurred will be recoverable. Once the outcome can be estimated reliably the
estimates of final out-turn on each contract may include cost contingencies to take account of the specific risks within each contract that have
been identified during the early stages of the contract. Management continually reviews the estimated final out-turn on contracts and makes
adjustments where necessary.
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 50 to 63. 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
2013
£m
0.9
0.2
0.2
0.2
1.5
2012
£m
1.4
0.2
0.2
0.1
1.9
Hill & Smith Holdings PLC Annual Report 2013
111
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes
3
4
5
6, 7
6
7
9
10
10
10
2013
£m
0.2
313.1
313.3
27.1
27.1
(6.6)
(111.3)
(117.9)
(90.8)
222.5
(62.7)
159.8
19.4
31.5
0.2
108.7
159.8
2012
£m
0.1
291.3
291.4
25.3
25.3
(4.5)
(103.0)
(107.5)
(82.2)
209.2
(44.2)
165.0
19.3
29.6
0.2
115.9
165.0
Year ended 31 December 2013
Company Balance Sheet
Fixed assets
Tangible assets
Investments
Current assets
Debtors
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 11 March 2014 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
112 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Year ended 31 December 2013
Company Reconciliation of Movements in Shareholders’ Funds
Profit for the year
Dividends
Credit to equity of share-based payments
Shares issued in the year
Net (decrease)/increase in shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
2013
£m
4.0
(11.6)
0.4
2.0
(5.2)
165.0
159.8
2012
£m
24.6
(10.2)
0.3
0.5
15.2
149.8
165.0
Hill & Smith Holdings PLC Annual Report 2013
113
Strategic Report
Governance Report
Financial Statements
Shareholder Information
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
114 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Company Principal Accounting Policies continued
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 22. 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 recognised as a liability in the period in which they are approved by the company’s shareholders. 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.
Hill & Smith Holdings PLC Annual Report 2013
115
Strategic Report
Governance Report
Financial Statements
Shareholder Information
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
2013
£m
0.1
2012
£m
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 £4.5m (2012: £4.2m) and the final dividend of £7.1m (2012: £6.0m). 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 2012
Additions
At 31 December 2013
Depreciation
At 31 December 2012
Charge for the year
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012
4. Fixed asset investments
Cost
At 31 December 2012
Exchange adjustments
Return on capital
Additions
At 31 December 2013
Provisions
At 31 December 2012
Impairment
At 31 December 2013
Net book value
At 31 December 2013
At 31 December 2012
2013
Pence
per share
6.0
10.0
16.0
2012
Pence
per share
5.8
9.2
15.0
£m
4.7
7.8
12.5
Short leasehold
properties
£m
Plant, machinery
and vehicles
£m
0.1
-
0.1
-
-
-
0.1
0.1
0.3
0.1
0.4
0.3
-
0.3
0.1
-
Shares in
subsidiary
undertakings
£m
Loans to
subsidiary
undertakings
£m
Trade
investments
£m
279.9
(0.2)
(12.5)
34.5
301.7
11.1
-
11.1
290.6
268.8
23.8
-
-
-
23.8
1.3
-
1.3
22.5
22.5
0.8
-
-
-
0.8
0.8
-
0.8
-
-
£m
4.5
7.1
11.6
Total
£m
0.4
0.1
0.5
0.3
-
0.3
0.2
0.1
Total
£m
304.5
(0.2)
(12.5)
34.5
326.3
13.2
-
13.2
313.1
291.3
116 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Notes to the Company Financial Statements continued
4. Fixed asset investments continued
A list of the principal businesses owned by the company is given on pages 123 to 125. All of the company’s subsidiaries are wholly owned.
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
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
Other creditors
Trade creditors
Other taxation and social security
Corporation tax
Accruals and deferred income
Other creditors
Amounts owed to subsidiary undertakings
2013
£m
26.3
0.2
0.4
0.2
27.1
2013
£m
6.6
6.6
1.9
0.1
0.7
2.2
0.3
2012
£m
23.7
0.2
1.3
0.1
25.3
2012
£m
4.5
4.5
1.4
0.1
0.3
2.4
1.2
106.1
111.3
97.6
103.0
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.
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
2013
£m
62.7
62.7
2013
£m
6.6
-
62.7
62.7
69.3
2012
£m
44.2
44.2
2012
£m
4.5
-
44.2
44.2
48.7
Hill & Smith Holdings PLC Annual Report 2013
117
Strategic Report
Governance Report
Financial Statements
Shareholder Information
2013
£m
(0.2)
-
(0.2)
(0.2)
2013
£m
19.4
2012
£m
(0.2)
-
(0.2)
(0.2)
2012
£m
19.3
8. Deferred tax
At 1 January
Credited for the year in the profit and loss account
At 31 December
Other timing differences
9. Called up share capital
Allotted, called up and fully paid
77.7m Ordinary Shares of 25p each (2012: 77.1m)
In 2013 the company issued 0.6m shares under its various share option schemes (2012: 0.1m), realising £2.0m (2012: £0.5m). 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 2012
Profit for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive payments
Shares issued
At 31 December 2012
Profit for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive payments
Shares issued
At 31 December 2013
Share
premium
£m
29.2
Capital
redemption
reserve
£m
0.2
Profit
and loss
account
£m
101.2
24.6
(10.2)
0.3
-
-
115.9
4.0
(11.6)
0.4
-
-
-
-
-
-
-
0.2
-
-
-
-
-
0.2
108.7
-
-
-
-
0.4
29.6
-
-
-
-
1.9
31.5
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 satisfy shares awarded under the long term incentive plan is debited directly to equity.
118 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Financial Statements
Notes to the Company Financial Statements continued
11. Guarantees and other financial commitments
(a) Guarantees
The company had no financial guarantee contracts outstanding (2012: £nil).
The company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2013 was
£47.3m (2012: £68.2m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
Between two and five years
After five years
2013
Land and
buildings
£m
0.1
-
0.1
2012
Land and
buildings
£m
-
0.1
0.1
Other
£m
-
-
-
Other
£m
-
-
-
12. Pensions
The company contributes to two group pension schemes, one providing benefits accruing in the future on a defined benefit basis and a second
scheme providing benefits that are on a defined contribution basis. Details of the schemes and their most recent actuarial valuations are
contained in note 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 £2.6m (2012: £1.8m), of which
additional deficit contributions were £2.5m (2012: £1.8m).
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.
Hill & Smith Holdings PLC Annual Report 2013
119
Strategic Report
Governance Report
Financial Statements
Shareholder Information
2013
£m
444.5
44.5
41.2
169.1
Pence
40.4
16.0
2012
£m
440.7
44.0
40.4
162.4
Pence
38.8
15.0
2011
£m
406.2
41.5
37.4
150.6
Pence
34.5
13.2
2010
£m
374.2
45.9
42.2
152.1
Pence
39.0
12.7
2009
£m
389.7
47.0
42.2
131.4
Pence
38.3
11.5
Five Year Summary
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
120 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Shareholder Information
Shareholder Information
121 Financial Calendar
122 Shareholder Information
123 Principal Group Businesses
126 Directors, Contacts & Advisors
See further information online at hsholdings.com
Financial Calendar
Annual General Meeting 2014
Interim Management Statement
Ex-dividend date for 2013 final dividend
Record date 2013 final dividend
Dividend Reinvestment Plan – last date for election
Final 2013 ordinary dividend payable
Announcement of 2014 interim results
Interim Management Statement
Payment of 2014 interim dividend
Hill & Smith Holdings PLC Annual Report 2013
121
Strategic Report
Governance Report
Financial Statements
Shareholder Information
14 May 2014
14 May 2014
28 May 2014
30 May 2014
13 June 2014
4 July 2014
August 2014
November 2014
January 2015
122 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Shareholder Information
Shareholder Information
Shareholder base
Holdings of ordinary shares at 11 March 2014
Range of Shares
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
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 Wednesday 14 May 2014 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 Control number,
Shareholder Reference number (SRN) 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.
Number of holders
583
377
926
581
36
58
9
23
2,593
Number of holders
1,618
971
4
2,593
%
22.48
14.54
35.71
22.41
1.39
2.23
0.35
0.89
100
%
62.40
37.45
0.15
100
Number of Shares
113,149
294,830
2,383,436
7,838,689
2,696,018
13,659,081
6,380,754
44,417,388
77,783,345
Number of Shares
6,239,492
71,526,302
17,551
77,783,345
2013
6.0
10.0
16.0
›
›
›
2012
5.8
9.2
15.0
2011
5.4
7.8
13.2
2010
5.2
7.5
12.7
Access current and historical market prices.
Access trading graphs.
Add additional shareholdings to your portfolio.
%
0.15
0.38
3.06
10.08
3.47
17.56
8.20
57.10
100
%
8.02
91.96
0.02
100
2009
4.70
6.80
11.50
Share dealing
Share dealing services are available through Computershare Investor
Services PLC. Log on to www.computershare.com/sharedealingcentre
for internet share dealing and for telephone dealing ring
0870 703 0084.
Dividend Reinvestment Plan ‘DRIP’ (Latest date for election is
13 June 2014)
The company offers shareholders the facility to reinvest 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.investorcentre.co.uk.
- Click on “Register” 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 SRN and your postcode,
together with your email address. You will also be asked to
select a user name (ID) and password of your choice.
- Once registered select “Dividend 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.
Hill & Smith Holdings PLC Annual Report 2013
123
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Principal Group Businesses
Infrastructure Products
Asset International Limited
Weholite HDPE structured wall, large
diameter pipes, for use in the water and
construction sectors
Stephenson Street, Newport,
South Wales, NP19 4XH
Tel: +44 (0) 1633 273081
Fax: +44 (0) 1633 290519
sales@assetint.co.uk
www.weholite.co.uk
Asset VRS (D)
(for address see Hill & Smith Limited)
Permanent and temporary solutions
for vehicle restraints
Tel: +44 (0) 1902 499445
Fax: +44 (0) 1902 402104
sales@asset-vrs.co.uk
www.asset-vrs.co.uk
ATA Bygg-och Markprodukter AB*
Road safety barriers and road signage
Incorporated in Sweden
Staffans väg 7, 192 78,
Sollentuna, Sweden
Tel: +46 (0) 8 98 80 70
Fax: +46 (0) 8 29 25 15
ata@ata.se
www.ata.se
Barkers Engineering Limited*
Security solutions and fasteners
Duke Street, Fenton, Stoke-on-Trent,
Staffordshire, ST4 3NS
Tel: +44 (0) 1782 319264
Fax: +44 (0) 1782 599724
sales@barkersfencing.com
www.barkersengineering.com
Bergen Pipe Supports India Private
Limited*
Manufacturer and supply of pipe supports
solutions, including constant and variable
effort supports
Incorporated in India
No.720, Belerica Road, Sector 22,
Sri City DTZ, Varadaiahpalem Manndal
Chittor District, Andhra Pradesh, 517 541
Tel: +91 8576 305 666
swaminathan@pipesupports.com
www.pipesupports.com
Bergen-Power Pipe Supports, Inc.*
Manufacturer and supply of pipe supports
solutions, including constant and variable
effort supports
Incorporated in the USA
484 Galiffa Drive, Donora,
Pennsylvania, 15033, USA
Tel: +1 (724) 379 5212
Fax: +1 (724) 379 9363
bpwoburn@bergenpower.com
www.bergenpower.com
Berry Systems (D)
(for address see Hill & Smith Limited)
Car park and industrial barriers, spring steel
barriers, protection bollards, speed ramps,
handrail panels
Tel: +44 (0) 1902 491100
Fax: +44 (0) 1902 494080
sales@berrysystems.co.uk
www.berrysystems.co.uk
Birtley Building Products Limited*
Galvanized lintels, balconies, structural
fittings for construction and doors
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
Brifen (D)
(for address see Hill & Smith Limited)
Wire rope safety fence vehicle
restraints
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 499419
enq@brifen.co.uk
www.brifen.co.uk
Bristorm (D)
(for address see Hill & Smith Limited)
Anti-terrorist security fencing
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 499419
info@bristorm.com
www.bristorm.com
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
CA Traffic Limited
Traffic monitoring, vehicle activated signs
and automatic number plate recognition
equipment
Griffin Lane, Aylesbury,
Buckinghamshire, HP19 8BP
Tel: +44 (0) 1296 333499
Fax: +44 (0) 1296 333498
sales@c-a.co.uk
www.ca-traffic.com
Carpenter & Paterson, Inc.*
Industrial pipe hangers, metal framing
channel and fasteners
Incorporated in the USA
225 Merrimac Street, Woburn,
Massachusetts, 01801, USA
Tel: +1 (781) 935 2950
Fax: +1 (781) 935 7664
www.carpenterandpaterson.com
Creative Pultrusions, Inc.*
Manufacturer of fibre reinforced composite
profiles
Incorporated in the USA
214 Industrial Lane, Alum Bank,
Pennsylvania, 15521, USA
Tel: +1 (814) 839 4186
Toll-free: # 888-CPI-PULL (274-7855)
Fax: +1 (814) 839 4276
crpul@pultrude.com
www.creativepultrusions.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.
(D) Operating division only, not a limited company
124 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Shareholder Information
Principal Group Businesses continued
Infrastructure Products
Conimast International SAS*
Specialist steel lighting columns,
galvanizing and steel powder coating
Incorporated in France
Z.I. La Sauniere BP70, 89600,
Saint Florentin, France
Tel: +33 (0) 3 86 43 82 00
Fax: +33 (0) 3 86 43 41 08
contact@conimast.fr
www.conimast.fr
Hill & Smith Limited
Highway and off-highway safety barriers,
temporary highway barriers for workzone
protection. Corrugated steel structures
Springvale Business and Industrial Park,
Bilston, Wolverhampton, WV14 0QL
Tel: +44 (0) 1902 499400
Fax: +44 (0) 1902 499419
info@hill-smith.co.uk
www.hill-smith.co.uk
Hill & Smith, Inc.*
Temporary road barrier solutions for
workzone protection
Incorporated in the USA
987 Buckeye Park Road, Columbus,
Ohio, 43207, USA
Tel: +1 (614) 340 6294
Fax: +1 (614) 340 6296
info@hillandsmith.com
www.hillandsmith.com
Hill & Smith Infrastructure Products
India Pvt Limited*
Road safety barrier systems, traffic
monitoring and number plate recognition
systems
Incorporated in India
Plot 8, Sector 8, IMT Manesar,
Gurgaon, Haryana, 122050, India
Tel: +91 124 425 9996
Fax: +91 124 425 9996
enquiries@hsipi.in
www.hsipi.in
Hill & Smith Pty Limited*
Wire rope and fixed safety barriers
Incorporated in Australia
Suite 12 level 12, 37 Bligh St
Sydney NSW 2000, Australia
Tel: +61 (0) 7 3807 8050
Fax: +61 (0) 7 3807 9189
hillandsmith.com.au
JA Envirotanks (D)
Large steel storage tanks
23 Charles Henry Street,
Birmingham, B12 0SP
Tel: +44 (0) 121 622 4661
Fax: +44 (0) 121 622 1402
sales@jaenvirotanks.co.uk
www.jaenvirotanks.com
Lionweld Kennedy Flooring Limited
Open steel flooring, handrailing and
ancillary products
Marsh Road, Middlesbrough, TS1 5JS
Tel: +44 (0) 1642 245151
Fax: +44 (0) 1642 224710
sales@lk-uk.com
www.lk-uk.com
Mallatite Limited
Manufacturer of lighting columns, bespoke
support structures, traffic sign columns,
posts and associated lighting products
Holmewood Industrial Estate, Hardwick
View Road, Holmewood, Chesterfield,
Derbyshire, S42 5SA
Tel: +44 (0) 1246 593280
Fax: +44 (0) 1246 593281
sales@mallatite.co.uk
www.mallatite.co.uk
Pipe Supports Limited*
Manufacturer and supply of pipe supports
solutions, including constant and variable
effort supports
Unit 22, West Stone, Berry Hill Industrial
Estate, Droitwich, Worcestershire, WR9 9AS
Tel: +44 (0) 1905 795500
Fax: +44 (0) 1905 794126
psl@pipesupports.com
www.pipesupports.com
Pipe Supports Asia Limited*
Manufacturer and supply of pipe supports
solutions, including constant and variable
effort support, and cryogenic supports
Incorporated in Thailand
26/5 Moo 9, Soi Rattanaraj,
Bangna-Trad Road. Km 18.2,
Bangchalong, Bangplee, Samut Prakarn,
10540, Thailand
Tel: +66 (2) 312 7685
Fax: +66 (2) 312 7710
psa@pipesupports.com
www.pipesupports.com
Pipe Supports Group Trading
(Jingjiang) Limited*
Materials and components trading
Incorporated in China
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
www.pipesupports.com
Techspan Systems (D)
Variable message signs
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
V&S Utilities**
Electrical utility products and services.
Incorporated in the USA
987 Buckeye Park Road, Columbus,
Ohio, 43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@vsschuler.com
www.vsschuler.com
Varley & Gulliver Limited
Vehicle and pedestrian parapets,
and passive sign supports
57-70 Alfred Street, Sparkbrook,
Birmingham, B12 8JR
Tel: +44 (0) 121 773 2441
Fax: +44 (0) 121 766 6875
sales@v-and-g.co.uk
www.v-and-g.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 Schuler Engineering, V&S Schuler 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
Hill & Smith Holdings PLC Annual Report 2013
125
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Medway Galvanising Company Limited*
Galvanizing and powder coating services
Castle Road, Eurolink Industrial Centre,
Sittingbourne, Kent, ME10 3RN
Tel: +44 (0)1795 479489
Fax: +44 (0)1795 477598
info@medgalv.co.uk
www.medgalv.co.uk
Voigt & Schweitzer LLC*
Galvanizing Services
Incorporated in the USA
987 Buckeye Park Road, Columbus
Ohio, 43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@hotdipgalvanizing.com
www.hotdipgalvanizing.com
Galvanizing Services
France Galva SA*
Galvanizing and powder coaters of steel
Incorporated in France
Z.I. La Sauniere BP70, 89600
Saint Florentin, France
Tel: +33 (0) 3 86 43 82 28
Fax: +33 (0) 3 86 43 82 29
contact@galva.fr
www.francegalva.fr
Joseph Ash Limited*
Galvanizing and powder coating services
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
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.
(D) Operating division only, not a limited company
126 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Shareholder Information
Directors, Contacts & Advisors
Directors
Contacts
Professional Advisors
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
1 Snowhill
Snow Hill Queensway
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
Hill & Smith Holdings PLC Annual Report 2013
127
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Shareholder Notes
128 Hill & Smith Holdings PLC Annual Report 2013
www.hsholdings.com
Shareholder Information
Shareholder Notes
Hill & Smith Holdings PLC
Westhaven House
Arleston Way
Shirley, Solihull
B90 4LH
United Kingdom
Tel: +44 (0) 121 704 7430
Fax: +44 (0) 121 704 7439
www.hsholdings.com
Stock code: HILS