Stock Code: HILS
www.hsholdings.com
2014
Annual Report for the year
ended 31 December 2014
Mission Statement
“To deliver sustainable profitable growth
through the supply of Infrastructure
Products and Galvanizing Services.”
V&S’s galvanized steel framework on the Capital Wheel, located on the Potomac River, Oxon Hill just outside Washington DC, USA.
Hill & Smith Holdings PLC Annual Report 2014
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Contents
Strategic Report
At a Glance
2014 Performance
Chairman’s Statement
Business Model, Strategy and Case Studies
2
4
6
8
12 Measuring Our Performance
Risk Management and Assurance
14
Principal Risks and Uncertainties
17
24 Operational and Financial Review
33
Corporate Responsibility
Governance Report
Chairman’s Introduction to Governance
43
44 Board of Directors
46 Governance Report
54 Audit Committee Report
58 Remuneration Committee Report
59 Directors’ Remuneration Report
72 Directors’ Report (other statutory information)
75 Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
78
80 Group Financial Statements
121 Company Financial Statements
129 Five Year Summary
Shareholder Information
132 Financial Calendar
133 Shareholder Information
134 Principal Group Businesses
137 Directors, Contacts and Advisors
‘Rise’, galvanized by Joseph Ash, stands just over 6m high. The sculpture is made from
thousands of galvanized steel plates and is sited at Meadowside Square, at the Glasgow
Harbour development next to the River Clyde.
See further information online at hsholdings.com
Front Cover Images
Top - VMS’s signs on the M42.
Middle - Fencing pales emerging from molten zinc at Joseph Ash’s Bilston plant.
Bottom - Zoneguard barrier manufactured and galvanized at our site in Telford.
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.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
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, Norway,
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 facilities for pipe supports and the Hill
& Smith infrastructure products business.
Sweden – location of ATA, the road safety barrier and signage
business.
Norway – a division 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 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 2014
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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, Norway,
Sweden, Thailand, the UK and the USA.
›
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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% (2013: 71%) of the Group’s revenue and 46%
(2013: 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.
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Geographical diversity - France 10 plants; UK 8 plants; USA 7
plants.
Strong market positions in the chosen territories and with a
reputation for service and quality.
Accounts for 29% (2013: 29%) of the Group’s revenue and 54%
(2013: 57%) of the Group’s underlying* operating profit.
Total volume of production from all plants 457,000 tonnes in
2014, up 7% (2013: 426,000).
2014 Revenue of £454.7m - by segment
2014 Underlying* operating profit of £49.2m - by segment
Infrastructure - 71%
Roads - 28%
Utilities - 43%
Galvanizing - 29%
Infrastructure - 46%
Roads - 27%
Utilities - 19%
Galvanizing - 54%
Percentage of 2014 revenue £454.7m
shown by end market geography
Percentage of 2014 underlying* operating profit £49.2m
shown by location of the operating site
UK - 48%
Europe - 21%
N America - 25%
M East - 2%
Asia - 3%
ROW - 1%
UK - 44%
Europe - 15%
N America - 41%
* 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 90.
References to an underlying profit measure throughout this Annual Report are made on this basis.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
2014 Performance
International
profits 56%
of total
Underlying
profit before
tax £46.0m
up 11.7%
Dividend
increased
by 12.5%
Asset International’s M.A.S.S. (Multi Application Safety System) providing carriage and footway safety solutions for the multi-billion pound Manchester Metrolink.
Underlying earnings per share increased by 11.4% Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
2014
2013
Change %
Revenue
£454.7m £444.5m
+ 2.3
Underlying operating profit
£49.2m
£44.5m
+ 10.6
Underlying operating margin
10.8%
10.0%
+ 80 bps
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Underlying profit before tax
£46.0m
£41.2m
Profit before tax
£36.9m
£30.6m
Underlying earnings per share
45.0p
40.4p
Dividend per share
18.0p
16.0p
Net debt
£96.0m
£87.2m
+ 11.7
+ 20.6
+ 11.4
+ 12.5
Revenue
£454.7m
up 2.3%
Underlying
operating profit
Underlying
earnings per share
Dividend per
share
£49.2m
up 10.6%
45.0p
up 11.4%
18.0p
up 12.5%
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6
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Chairman’s Statement
“I am pleased to report
a record performance for
the Group in 2014.”
Bill Whiteley
Chairman
Overview
I am pleased to report a record performance for the Group in 2014.
The international diversity and strength of our businesses within their
respective markets, together with strategic and operational actions
taken in the year, have led to good organic revenue and profit growth
and improved returns. Against a backdrop of difficult European
market conditions and headwinds created by adverse movements in
exchange rates, the business has delivered an outstanding result.
In 2014 our reported revenues increased by 2% to £454.7m
(2013: £444.5m) or by 5% at constant currency. Underlying operating
profit increased to £49.2m (2013: £44.5m), an improvement of 11%
or 15% at constant currency. All our divisions have contributed to the
increase in profits, which is testament to the strong positions that we
hold in the markets in which we operate.
During 2014 we made capital investments at double the normal rate
to take advantage of the growing markets both in the USA and the
UK, where a total of 85% of our profits are now generated. These
investments, which will drive future organic growth, include:
›
›
Completion of the new V&S Galvanizing plant in Memphis,
Tennessee, USA, strategically located on a major intersection
leading to the south and north-east to provide galvanizing
services to the steel fabricators in the Memphis area; and
Manufacture of an additional 95km of temporary road safety
barriers to fulfil anticipated demand following the planned
significant increase in investment in the UK road network over
the next five years.
As part of our strategy of active portfolio management the following
actions were taken during the year:
›
In July we acquired Variable Message Signs Limited to
complement and strengthen our product and service offering
to the UK Highways Agency. The acquired business will be
integrated with our existing message sign business, Techspan,
to create the UK market leader in this sector. Consolidation of
our leading UK market positions remains a core feature of our
acquisition strategy.
›
In August we disposed of our interests in the non-core
operations of Bromford Iron & Steel and JA Envirotanks, both
of which were unable to deliver the returns that we target from
our businesses, and in December we announced the closure
of our UK galvanizing plant in Hereford. Our strategy is to hold
strong positions in our chosen markets and we will dispose of, or
restructure, underperforming businesses where necessary.
Earlier in the year we successfully completed an ‘amend and extend’
debt refinancing, extending our key debt financing facility through
to 2019 on more favourable terms. The facility affords us significant
headroom to continue to pursue our strategic growth objectives.
Performance highlights
The Board is pleased with the Company’s financial performance for
2014, the highlights of which are shown below:
Change %
2014
2013
Reported
Constant
currency
£454.7m £444.5m
+ 2
+ 5
Revenue
Underlying(1):
Operating profit
£49.2m
£44.5m
+ 11
+ 15
Profit before tax
£46.0m
£41.2m
+ 12
Earnings per share
45.0p
40.4p
+ 11
+16
+16
(1) 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 90.
Dividends
In view of the strong performance the Board is recommending a final
dividend of 11.6p per share (2013: 10.0p per share) making a total
dividend for the year of 18.0p per share (2013: 16.0p per share) an
increase of 12.5%.
We continue to perform at a level that enables us to maintain a
progressive dividend policy and which has resulted in twelve years of
uninterrupted dividend growth. Underlying dividend cover remains a
healthy 2.5 times (2013: 2.5 times). The final dividend, if approved,
will be paid on 3 July 2015 to those shareholders on the register at
the close of business on 29 May 2015.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
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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 explanations of our
business model, strategy, risk management and activities of the
Board and its Committees. We also discuss within our Corporate
Responsibility report how our businesses are encouraged to
contribute within the communities in which they operate.
We trust that you will find this information helpful in understanding
how we can, and do, achieve increased value for our shareholders.
AGM
We will hold our AGM on 14 May 2015 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.
Outlook
The Group benefits from the industrial and geographical spread of its
markets and businesses, which not only provide a resilient base, but
also opportunities for growth. Generating three quarters of revenue
and 85% of underlying operating profit from its UK and US operations,
the Group principally operates in industrial markets where the overall
economic outlook remains favourable.
Notwithstanding severe weather conditions experienced in north
east USA early in 2015, galvanizing volumes are expected to benefit
from both the strong US economy and commencement of production
at our new plant in Memphis, which we opened at the end of 2014.
Together with the UK galvanizing operations, the US and UK are
expected to more than offset any potential weakness from our French
operations, where economic conditions remain challenging.
With the exception of a weaker Pipe Supports order book, activity
levels in the Utilities division remain healthy and, in our UK and US
niche market sectors, the outlook is positive. The immediate outlook
for Pipe Supports remains difficult, with the lower demand levels
currently being experienced, partly as a result of lower oil prices,
exacerbated by the recent poor US weather conditions. The longer
term market dynamics in the pipe supports arena remain positive.
The announcement by the UK government of its Road Investment
Strategy in late 2014, sets out its largest ever investment plan in
the UK strategic road network up to and including 2020/21. The
Group’s roads product portfolio is ideally placed to benefit from the
investment plans and demand to date has been strong. Accordingly,
we have confidence in the short and medium term growth prospects
for our UK roads business.
Overall, although some markets remain challenging, 2015 is again
expected to be a year of good growth. Beyond 2015, the prospects
for our infrastructure and galvanizing businesses are encouraging and
we are well positioned to continue to deliver sustainable growth and
shareholder value.
Bill Whiteley
Chairman
10 March 2015
Set out below is our five year dividend per share track record, growth
in which is at the heart of our strategic objective.
(proposed)
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Total shareholder return
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 All-Share,
for the period 1 January 2012 to 31 December 2014. Over the period
the Board is pleased with the progress made but we remain focused
on further improvement through implementation of our strategy.
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31 Dec 14
Hill & Smith
FTSE SmallCap
FTSE All-Share
The Board
During 2014 the Board reviewed its succession plans and its
composition. In December I was delighted to welcome Annette
Kelleher to the Board as a Non-executive Director. Annette is the
Group Human Resources Director for Johnson Matthey PLC and
a member of its group management committee. Her depth of
experience will give us a fresh perspective as we develop our presence
in the global infrastructure and galvanizing markets.
After ten successful years with the Group, John Humphreys decided to
retire from his position as Group Company Secretary on 31 December
2014. John had dedicated himself to the service of the Group and I
would like to take this opportunity to thank him for his steadfast and
longstanding commitment. His ability to provide well-considered
counsel to both the main Board and subsidiary Directors has been
invaluable. John has been succeeded by Alex Henderson, formerly
Company Secretary at Halfords Group plc.
8
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
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
Organic revenue growth
Geographic diversification
Business
model
Target returns and leverage
Sustainable
profitable
growth
Superior
returns to
shareholders
Active portfolio management
Entrepreneurial culture
Strategy in action 2014
Completion of £16m investment in an
additional 95kms of temporary road safety
barrier, bringing our total fleet to 265kms.
Disposal of Bromford Iron & Steel Company
Limited, JA Envirotanks and Staco Redman, all
non-core operations.
Completion of our £9.4m investment in a new
V&S Galvanizing plant in Memphis, Tennessee,
USA, with further expansion investment being
reviewed in 2015.
Acquisition of Variable Message Signs Limited
and planned integration with Techspan, to
support the Highways Agency with its signage
requirements.
Completion of the integration of Telford
based Access Design business into Lionweld
Kennedy, Middlesbrough.
Opportunities have been identified in the
renewable energy sector for our Weholite large
diameter pipes.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
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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 2014
we took the decision to dispose of Bromford Iron & Steel Company
Limited, JA Envirotanks and Staco Redman and also to close our
galvanizing plant in Hereford.
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 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 allows 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 from a distance effectively.
In 2014, to further our strategy in the key area of road transport
infrastructure, we acquired the trade and assets of Variable Message
Signs Limited (‘VMS’) on 11 July 2014 for £0.3m. VMS, an established
operator in this field, faced financial constraints due to the current
hiatus in demand. The acquisition of VMS, and its subsequent
integration with Techspan, will allow the Group to support the
Highways Agency with its signage requirements in its roll-out of
Smart Motorways over the next five to ten years.
We continue to actively manage our corporate portfolio through
the acquisition of targets that match our strategic objectives and
meet our targeted operating returns and through the disposal, or
rationalisation, of operations that are either non-core to our market
strategy, incapable of achieving our target returns, or insufficiently
cash generative.
Entrepreneurial culture
We encourage an entrepreneurial culture in our businesses 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 2015
›
Selective acquisitions to consolidate our market position or
increase our geographical representation.
›
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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.
The Strategic Report on pages 2 to 39 has been approved by the
Board of Directors on 10 March 2015.
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.
For 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.
For Roads, in the UK, demand for permanent and temporary barriers
has been strong as the Highways Agency implements the UK
Government sponsored Road Investment Strategy. In December
2014 the UK Government published its plan to invest £15.2bn in over
100 schemes across the road network between 2015 and 2021,
upgrading the nation’s road transport infrastructure - specifically,
conversion of existing highways to the Smart Motorways scheme.
Given the anticipated demand to fulfil the documented programme,
we invested a total of £16m to increase our temporary barrier fleet by
95 kilometres, bringing our total temporary barrier fleet to circa 265
kilometres.
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 in November 2014 we opened our seventh US galvanizing
plant in Memphis, Tennessee. We also believe that there are potential
consolidation opportunities in the UK and France.
Geographic diversification
In 2013 operating profit from manufacturing plants located overseas
reached 67%. This reduced in 2014 with 56% 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
developing opportunities in our major developed markets, together
with the performance of our businesses in emerging markets.
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.
Target operating margin for business units 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 at a subsidiary
level. At a Group level we monitor our performance using return on
invested capital (‘ROIC’), see page 13.
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.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Case Studies
Acquisition of Variable Message Signs Limited
In July 2014 we acquired VMS, the market leader in variable message signs, who specialise in the design, manufacture and installation of a
comprehensive range of LED based light technology solutions to the UK highway and rail markets.
During 2014, VMS supplied over 200 signs and signals to the Highways Agency’s M25 Smart Motorways - All Lane Running project. This is the
Highways Agency’s latest initiative to provide capacity improvements to the English strategic roads network by utilising technology and is
a feature of their current strategy for existing and new road schemes. VMS’ work scope included the design, manufacture, installation and
commissioning of signs and signals and was completed on time and to budget.
As part of VMS’ involvement in the rail market it has recently worked with Network Rail to adopt its rail signs. This has allowed Network Rail to
achieve cost savings, whilst maintaining high levels of safety and performance. This new system of support structures and lightweight signals
achieved full Network Rail approval in March 2014.
Hill & Smith Holdings PLC Annual Report 2014
11
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Largest ever Weholite Modular Tank
Asset International Ltd invested in a new machine enabling them to produce their trademark Weholite large diameter HDPE pipes as flat panels.
The new product, known as Weholite Modular, can be used to construct combined stormwater overflow control chambers, pumping stations, flow
control chambers, ventilation chambers, retention tanks and other strategic water management products. Individual chambers are designed and
manufactured according to customer specifications to include hatches, pipe supports, ladders and more, whilst taking into account traffic loads,
groundwater pressure and soil loads.
This new technology was utilised to deliver a large Weholite Modular tank to Anglian Water’s Cambridge Water Recycling Centre, to form part of
the inter-process pumping for the plant’s ongoing £21 million upgrade.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Measuring Our Performance
The Board has adopted certain financial and non-financial key performance indicators (‘KPIs’). 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 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.
2014 performance
Total growth
Organic growth
Up 80 bps
11.4% growth
%
7
4
.
%
3
2
.
%
9
0
.
0%
%
3
3
-
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12
10
8
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8
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1
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%
0
0
1
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38
35
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2014
2013
2014
2013
2014
2013
2014
Comment
Organic revenue growth of 4.7% was
achieved across all segments but
particularly in Roads, reflecting demand
in the UK for the Group’s temporary
barrier fleet. Total growth was
marginally lower as a result of foreign
exchange headwinds and strategic
disposals.
The Group’s underlying operating profit
of £49.2m represents a 10.8% return on
sales, an 80bps improvement on prior
year. Utilities delivered an improved
margin performance while Galvanizing
Services margins remained strong,
particularly in the US.
The Group’s UEPS for 2014 is 45.0p, an
increase of 11.4% compared with 2013.
Key factors were the contribution from
organic revenue growth and the increase
in underlying operating margins. There
were no significant interest or tax
impacts year on year.
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
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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 in which 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 benchmarkings.
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 42%
Up 1%
Up 10.0%
%
3
9
%
1
5
%
6
1
%
5
1
9
3
4
9
9
3
CO2e emissions
down 10.4%
6
0
4
5
9
,
0
2
5
5
8
,
2013
2014
2013
2014
2013
2014
2013
2014
The Group achieved an underlying
cash conversion rate of 51% in 2014
(2013: 93%). Capital expenditure
of £35.9m represents a multiple of
depreciation and amortisation of 2.4
times (2013: 1.5 times) as the Group
invested in significant capital projects
in Roads and Galvanizing Services
during the year. Working capital
remained steady at around 14% of
annualised sales.
The Group aims to achieve ROIC
that exceeds the Group’s weighted
average cost of capital (currently
c.11% on a pre-tax basis), with a
target return of 17.5%. In 2014 the
Group achieved ROIC of 16% (2013:
15%), the improvement largely
reflecting increases in underlying
operating margins during the year.
During 2014 we saw an increase in the
number of reported accidents. This
increase mainly resulted from a better
understanding of safety behaviours
and reportable accidents within our
Infrastructure businesses, both in the
UK and USA. Accidents reported within
our Galvanizing businesses were down
10.9%. For more details see page 37.
We continue to improve and
refine our monitoring and
management of CO2e emissions.
In 2014 we were able to
compare emissions across the
Group for the first time and
we were pleased to see that
Group-wide initiatives that had
been put in place resulted in a
10.4% fall in our greenhouse gas
emissions. More information can
be found on pages 33 and 34.
14
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Risk Management and Assurance
The Group’s risk management and internal controls structure is
organised under a system which includes, but is not limited to:
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An annual process of preparing business plans and budgets,
supported by a risk assessment undertaken at the local
level which is then reviewed and supplemented by senior
management inputs.
The maintenance of a Group risk register, under the control of
the Group Risk & Compliance Counsel.
A monthly process of subsidiary management team meetings
which ensures discussion on operating performance and
reporting on opportunities and risks affecting the subsidiary.
Any resultant actions are considered at the subsidiary level.
Reports on operating performance and risk are also submitted
to the Chief Executive Officer and Group Finance Director by the
subsidiary businesses in accordance with the Group’s reporting
protocol.
Regular Director visits to Group companies which occur on a
scheduled, rotational basis and open access to the subsidiary
board meetings is encouraged.
The Group finance function carries out regular commercial and
operating site reviews of Group companies on a cyclical basis.
The purpose of these reviews is to ensure each subsidiary has
implemented sound commercial and operating controls in
respect of its operations. As part of the review, key risks are
identified including: sales management, credit management,
contracts management, project management, procurement
and supply chain management. A summary of all key findings is
presented to the Audit Committee on a regular basis.
The Group finance function also carries out regular financial
reviews to ensure that the Group subsidiaries are implementing
appropriate financial controls. These reviews include an analysis
of the integrity of the financial statements and reported
performance of the subsidiary business. Reports to the Board
and Audit Committee are provided in respect to any significant
matters.
Subsidiary financial results and forecasts are reviewed monthly
by the Group finance function. Monthly key performance metrics,
for example; operating margins, return on capital employed
and sales order intake information are also monitored using the
financial reporting system. The financial reporting framework
is designed to anticipate potential risks and prepare and
implement mitigation strategies as appropriate.
The Group treasury function operates within a framework of
Board-approved treasury policies and procedures. Regular
compliance reviews are carried out at both a Group and
subsidiary level and the treasury function itself is subject to
both internal and external audit reviews on a periodic basis. The
Group Finance Director receives a monthly report on treasury
activities, including a summary of compliance with policies,
whilst the overall indebtedness of the Group is monitored on a
daily basis against both subsidiary cash flow forecasts and the
Group’s available financing facilities.
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The Chief Executive Officer, Group Finance Director, Group
Financial Controller and the Group Risk & Compliance Counsel
report to the Audit Committee on all aspects of internal
control on four occasions throughout the year, although
there is additional dialogue and updates provided to the
Audit Committee throughout the year. In addition, the Board
receives regular reports from the Audit Committee Chairman.
This information and reporting is used to undertake periodic
reviews of the progress of risk management initiatives and is
built into the Group review of the operation of the risk assurance
programme and internal controls which, from 2013 have, and
will continue to take place annually.
An updated and more formalised version of the Group’s
delegation of authorities structure was implemented during
2014, which now serves to define ownership and a framework
within which the Group’s entrepreneurial subsidiaries can
engage balanced and effective risk management.
A Group policy manual was produced during 2014 which
combines and enhances existing policies and procedures
and sets out the duties and responsibilities of all employees
within the Group in the context of law and regulation, human
resources, finance and treasury, ethics and compliance and
operational controls. The directors of each Group subsidiary
undertake an annual self-certification as to their continued
compliance with such Group initiatives, policies and internal
controls contained within the Group policy manual. Updates and
new policies will be added as necessary.
The Group continues to operate a whistleblowing hotline and
email account, which operate anonymously. This hotline acts to
emphasise and support the Group’s commitment to compliance
and desire to uphold scrupulous business practices. Each call/
email is investigated thoroughly and fairly. Follow-up actions are
agreed in full consultation with the Board and continue to be
reported until resolved.
Strengthening of risk assurance programme in 2014
The Board continues to evaluate the appropriateness of the Group’s
risk management programme and, during 2014, supported a
holistic review in order to ensure that the controls deployed remain
appropriate and effective.
The risk assurance process was also strengthened in 2014 by further
embedding the staged risk management process (see diagram
opposite) and building a health check into the mitigation measures
so that the progress of mitigation initiatives is quantifiable and can
be periodically reviewed and redesigned if no longer appropriate or
effective.
Hill & Smith Holdings PLC Annual Report 2014
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Governance Report
Financial Statements
Shareholder Information
Risk management process
The risk management process operated in 2014 is as follows:
Stage 1
Identification of Risk
Group Management
(identify strategic risk)
Subsidiary Business
(identify specific risk)
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Stage 2
Risk Analysis and Categorisation
Stage 3
Design and Implementation of Risk
Mitigation and Monitoring
Risk mitigation
health check
Stage 4
Review and Report
(Audit Committee and Board)
Risk mitigation
health check
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 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Risk Management and Assurance continued
2015 risk management and control
Additional layers of assurance will be built into the risk management
process for the 2015 reporting year such that the Audit Committee
will be able to track the pace and progress of risk mitigation
initiatives, utilising standardised project management formats. These
formats will serve to enhance ownership, accountability, prioritisation
and resource allocation in risk management across the Group and
will greatly assist the Board to further embed its chosen risk appetite
and risk management culture.
Subsidiary businesses will be encouraged by the Board to further
develop their management of risk to underpin their decision-making
for driving the Group strategy and business objectives. The current
programme of incentives will be assessed during 2015 to ensure that
they remain appropriately aligned to support the chosen culture,
without adversely affecting the Group’s entrepreneurial drive and
spirit.
The activity undertaken by the Group in 2014 has enhanced the
Group’s state of readiness for the Financial Reporting Council’s (‘FRC’)
updates to the UK Corporate Governance Code. These enhanced
risk reporting obligations for 2015 are being addressed through
the holistic review and improvement activities undertaken in 2014,
together with the use of new tools and formats in risk management
and reporting such as the diagram below, which tracks the progress
of risk management projects.
Principal risks and uncertainties
The principal risks and uncertainties applicable to the Group in 2014
are shown in the table opposite.
0 %
M i t i g a t i o n
R e d u c i n g r i s k t h r o u g h
i m p l e m e n t i n g m i t i g a t i o n
i n i t i a t i v e s
1 0 0 %
Lo w
I m p a c t
M e d
H i g h
Legal &
Regulatory
Operational
Human
Factors
Risk &
Compliance
Commercial
& Financial
Economic
Organic revenue growth
Target returns and leverage
Active portfolio management
Entrepreneurial culture
Geographic diversification
Sustainable business
Principal Risks and Uncertainties
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
Risk and potential
impact
Mitigation
Link to
strategy
Economic
Managing the impact
of those risks which
we cannot eliminate
or mitigate at source;
e.g. global market
conditions.
Overall market or selective geographical
conditions deteriorate or there is a
reduction in demand leading to a
decline in Government and private
sector confidence and spending,
affecting Group financial performance.
› Diversification into new markets and territories.
›
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Close relationship between Group and subsidiary management.
Expansion into new export markets.
Intra-Group co-operation, leveraging the Group global footprint.
Contracts negotiated with customers on a Group wide basis
leveraging Group size and synergies between Group companies.
Volatility in raw materials markets
pressurise Group margins and impact
Group financial performance.
›
Implementation of Group procurement standards requiring dual
sourcing and robust due diligence of supply chain partners.
› Hedging against raw material price volatility where appropriate.
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Contractual protections sought against raw material fluctuation
impacts.
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Competitive pressure puts downward
force on revenue growth, market
positioning and profitability.
›
Implementation of procurement standards to help manage cost
creep.
› Ongoing subsidiary quality assurance improvement initiatives.
›
Product differentiation through product quality, delivery
performance, reliability and professional customer service.
Product development and geographical expansion initiatives
used to surpass present competitor reach.
›
Human
Resources
Recognising the
importance of
recruitment, talent
management,
employee
engagement
and employee
management to our
Group.
A loss of key staff and a failure to
implement effective succession
planning could lead to a loss of
expertise, impacting technical and
financial performance.
› Development and implementation of a Group succession
planning model, driven by the Group Chief Executive.
Implementation of contractual protections and retentions in
employment contracts.
›
› Group policy supporting the training and development of its
employees.
A failure to recruit employees who
have the relevant skills, experience and
attributes could impact the Group’s
ability to achieve its optimum growth
potential.
›
Competitive remuneration, benefits and incentive plans offered
to employees and regularly benchmarked.
› Development of a recruitment process including competency
requirements and skills gap analysis.
Value based culture.
›
The geographical spread of
management and the appointment
of new management teams could
compromise effective communication
and responsiveness impacting the
Group’s strategic goals.
› Use of internal communications systems, e.g. Group intranet.
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Regular international conferences held at the subsidiary level.
› A formal delegation of authorities structure has enhanced
ownership and control, whilst encouraging entrepreneurial drive
and spirit.
18
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Strategic Report
Principal Risks and Uncertainties continued
Risk and potential
impact
Mitigation
Link to
strategy
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.
Active portfolio management is a key
tenet of the Group’s strategy and as
such, if the management of our merger
and acquisitions activity, integrations
and business restructuring is ineffective,
the Group may not meet its strategic
and business goals and financial
performance targets.
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Comprehensive and structured due diligence protocols are
deployed in respect of investigating target businesses and
contractual assurances are sought from sellers to mitigate any
identified issues or risks.
Employment contract terms and conditions are aligned post-
integration between Group employees and new employees,
facilitating smooth integration.
Formal Board level approvals are required in accordance with
the Group’s delegation of authority structure for any acquisitive
activity.
› A standardised and proven 100 Day Integration Plan is followed
post-acquisition to streamline the integration process.
A failure to manage our property
portfolio effectively, in the context of
site planning regulations and controls
which could lead to production
downtime and reduce our potential
for increased income generation.
Downtime caused by plant failure or
natural catastrophe could suppress
performance on an extended basis.
Insufficient investment in research
and development, restricting organic
growth and geographical diversification
ultimately resulting in the longer term
financial goals being compromised.
Regulatory and customer approvals
can delay the introduction of products
which are developed by the Group,
ultimately resulting in the short to
medium term financial goals being
compromised.
Product failures or defects caused by
production or quality failures can lead
to claims for loss and damage, adverse
customer perceptions, reputational and
financial consequences for the Group.
Inadequate and weak IT systems can
affect the Group’s financial performance
and its ability to be responsive to its
customers.
The Group’s property portfolio age,
its management of its leasehold
obligations and the requirement
to meet all environmental controls
could lead to enhanced, operational
and strategic costs impacting Group
financial performance.
›
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› Ongoing subsidiary site assessment of future space and
efficiency requirements and related investment in additional
capacity or equipment.
Subsidiary businesses are strengthening business continuity
plans to ensure that they are equipped to handle business
continuity events, including leveraging their proximity to other
Group subsidiaries and working with the IT steering committee
to mitigate systems downtime risks.
Subsidiary businesses implement local health, safety and
environmental controls which are monitored by health and
safety committee meetings and an external specialist.
Subsidiary discretion to engage in research and development
activities, subject to budgetary constraints.
Robust quality controls in place.
›
› Dedicated quality compliance resources in most affected
subsidiaries who have conducted research and implemented
controls to ensure responsiveness to regulator and customer
approvals information requests and audits.
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Regulatory approvals, testing and accreditations obtained.
Rigorous quality control protocols are fully implemented and
enhanced whenever possible.
Policies in respect of handling product failures have been
strengthened.
Contractual controls help mitigate the economic impacts.
Insurance cover is provided globally by insurers of repute.
Litigation is managed by external legal specialists from
reputable firms.
The Group’s IT steering committee reviews IT systems capability,
suitability and integrity on a regular basis.
The capital expenditure process is used to test the suitability of
proposed IT system enhancements.
IT Policies are included in the Group policy manual.
External specialists are employed to periodically assess the use
and state of repair of buildings at Group operating sites.
› Group liaison with specialists on individual property
management matters and strategic management of the
portfolio.
Organic revenue growth
Target returns and leverage
Active portfolio management
Entrepreneurial culture
Geographic diversification
Sustainable business
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
Risk and potential
impact
Mitigation
Link to
strategy
The size of the Group’s available
customer base, together with the risk
of losing key customers or significant
worsening of contractual terms
could result in Group financial under
performance.
Products and geographical markets diversification.
›
› Ongoing monitoring of the timing and trends in government
funding for road and infrastructure spending are undertaken.
› Generation of contractual guidance and precedent
documentation to preserve contractual terms.
Contracts reviewed under the delegation of authorities structure.
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Commercial
& Financial
Mitigating internal
and external
commercial and
financial trading risks
in our day to day
business activities.
An inability to collect cash in
accordance with customer payment
terms, obtain credit insurance or an
increase in anticipated bad debts would
result in an inability to plan financially
with any certainty and achieve the
Group’s financial ambitions.
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Subsidiary cash management is monitored by the Group finance
function.
Standardisation of payment terms.
The delegation of authorities process results in contractual
payment terms being centrally reviewed and approved.
Credit ratings agencies continue to be used as a source of risk
assessment and credit insurance is effectively deployed.
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The Group’s ability to ensure it does
not accept unduly onerous contractual
commitments is central to its
commercial risk management and to
mitigate the risks of poor performance
due to factors within or outside of its
control. This, together with ineffective
contracts management post award,
could pressurise margins and increase
liabilities ultimately impacting the
Group’s financial performance and
reputation.
Poor management of a reducing pool of
subcontractors could lead to quality and
cost implications for the Group, increase
Group risks and ultimately lead to a
reduction in performance.
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 and liquidity
risks and foreign exchange volatility. The
Group operates in a range of different
jurisdictions, political and fiscal regimes,
which present operating and cultural
risks.
Greater expectations for undertaking
activities in the marketplace that are
not our core areas of competence.
›
Contract precedents and guidance have been produced.
› Advice in respect to contractual risk is available to the Group,
together with legal, commercial and financial support from the
central team.
The operation of the delegation of authorities process requires
Group senior management and/or executive approval for the
execution of material contracts.
Certain of the Group’s subsidiaries have appointed dedicated
quantity surveyors and contracts managers to control their
projects.
Implementation of Group procurement standards requiring dual
sourcing and robust due diligence of supply chain partners.
Robust contractual protections sought.
›
› Dedicated procurement functions at subsidiary level.
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From a transactional perspective, Group companies operate
a common set of reporting policies and procedures. An
internal audit programme underpins compliance and further
requirements are communicated via the Group intranet and
directly to the 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.
Enhanced third party due diligence, including requiring all third
parties to obtain appropriate insurance cover.
Recruitment of appropriate expertise.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Principal Risks and Uncertainties continued
Risk and potential
impact
Mitigation
Link to
strategy
Legal &
Regulatory
Ensuring compliance
with the laws
and regulations
which govern the
operations in the
territories in which
we operate.
The impact of regulatory changes
such as green initiatives (including
carbon footprint results) acts to create
additional process steps, enhanced
procurement requirements and
increases costs and administrative
effort, ultimately impacting margins.
This could also result in the non-
achievement of Group environmental
aspirations.
›
These requirements are managed by specialists through agreed
Group initiatives including: economies of bulk purchasing, site
usage monitoring and reporting, energy market intelligence and
carbon commitment management.
The dilution of the Group’s valuable
intellectual property can result in lost
earnings, particularly via the copying of
product in the Asia-Pacific region.
A violation of competition/anti-trust
laws could result in downtime, fines,
penalties and adverse reputational
consequences for the Group by both
customers and investors. There may
also be personal consequences for the
Group’s Directors.
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› Use of patent attorneys with global remit.
› Use of in-region IPR specialist legal advice.
›
Central IPR register and management of renewals, authorised
uses and assignments.
Contractual protections obtained to protect Group IPR where
possible.
The Group Code of Business Conduct requires that the Group
conducts its business in an open, vigorous and competitive
fashion.
Competition compliance manual implemented by each Group
subsidiary.
› Online competition training and testing undertaken globally by
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›
all key employees, including the Board.
Simulated dawn raids are undertaken to audit subsidiary
compliance.
Competition assessments are included in material contract
reviews.
The Group has a whistleblowing hotline and email to allow
employees to raise concerns in confidence, or anonymity if
preferred.
› A direct reporting relationship between the Group Risk &
Compliance Counsel and the Chief Executive and Audit
Committee emphasises the commitment to further
strengthening the Group’s compliance culture.
A violation of international import
and export non-compliance (including
trading, restricted parties and
sanctioned countries compliance) can
result in the denial of export privileges,
the imposition of fines and penalties,
diverted management time and
personal implications for the violators
together with adverse implications for
Group financial performance, facilities
and reputation.
›
›
The Group Code of Business Conduct requires that the Group
must trade in accordance with all valid international economic
sanctions and legal requirements for the import and export of
goods, technology and services.
Restricted party screening software and procedures have been
globally implemented by the Group.
› An International Trade Compliance Policy was issued in response
to the changing legislative and financing landscape surrounding
sanctions.
Central analysis and advice is provided in respect to the
administration of trade with both routine and less routine
countries and territories.
›
A violation of health, safety and
environmental laws and regulations
or the impact of health, safety and
environmental accidents and incidents
affects employees, communities
and operations and impacts Group
reputation and financial performance.
Robust health and safety policies and procedures are deployed.
›
› Use of the health and safety cloud monitoring and reporting
›
framework.
Retention of an external health, safety and environmental
consultant.
› Open relationship with regulatory bodies.
› Health and safety committee monitoring.
› A culture of zero tolerance in respect of health and safety
violations is promoted by the Board.
Organic revenue growth
Target returns and leverage
Active portfolio management
Entrepreneurial culture
Geographic diversification
Sustainable business
Hill & Smith Holdings PLC Annual Report 2014
21
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Risk and potential
impact
Mitigation
Link to
strategy
Legal &
Regulatory
Ensuring compliance
with the laws
and regulations
which govern the
operations in the
territories in which
we operate.
Were any member of the Group to
commit a violation of Anti-Bribery &
Corruption laws, (including breach by
a commercial intermediary appointed
by the Group, such as an agent or
distributor), the resultant consequences
could include fines, adverse publicity,
claims from customers, loss of
management time and personal
consequences for those found to be
in violation of the same, ultimately
impacting Group financial performance
and conformance with its strategic
plans.
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›
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The Group Code of Business Conduct requires that the Group
apply the Group’s Anti-Bribery & Corruption Policy and expressly
prohibits improper payments in all business dealings, in every
country around the world.
The Group Gifts and Entertainment policy was updated during
the year.
Rolling programme of online anti-bribery and corruption training
and testing undertaken by new employees.
› A commercial intermediaries protocol was developed and
deployed in the context of the appointment of third party
representatives e.g. agents.
The Group has a whistleblowing hotline and email to allow
employees to raise concerns in confidence, or anonymity if
preferred.
›
› A direct reporting relationship between the Group Risk &
Compliance Counsel and the Chief Executive and Audit
Committee emphasises the commitment to further
strengthening the Group’s compliance culture.
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Board confirmation of principal risks and uncertainties
The Board has overall responsibility for the Group’s risk management programme including implementing and monitoring:
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Operational, financial and compliance internal controls;
Ensuring that the current management process remains a suitable means of establishing the correct risk culture; and
Ensuring that the Group’s risk profile is managed and controlled.
The principal risks and uncertainties facing the Group are set out in the table on pages 17 to 21 and include detail as to how those risks are being
effectively managed to accord with the Group’s risk appetite, as established by the Board.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
France Galva were given the job of galvanizing the metal framework for the new Bordeaux stadium, France and supplied product during 2013 and the early part of 2014. The stadium,
which is due to be finished in April 2015, has a capacity of 43,000 seats, will be the new home of FC Girondins de Bordeaux and is set to host 5 matches of the UEFA Euro 2016.
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
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Design fabrication and installation of a multi-flight staircase to the digester tanks for the
Mogden sewage treatment works.
Steel platform with a GRP pultruded flooring section, ready for despatch and installation on
an oil and gas rig.
Working directly with Burntisland Fabrications (Bifab), who deliver solutions for offshore energy industries, Lionweld Kennedy supplied steel gratings and welded barrier handrails as a
secondary metalwork package for the Cygnus AUQ Topside Platform. The Cygnus field is the largest discovery in the southern North Sea in 25 years, 150km off the coast of Lincolnshire.
24
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Operational and Financial Review
Derek Muir
Group Chief Executive
Mark Pegler
Group Finance Director
2014 overview
2014 has been another good year for the Group resulting in record
revenue generation and profitability. Following a good first half
performance, trading conditions in many of our end markets
continued to improve throughout the second half which, together
with the implementation of strategic initiatives to increase returns,
have delivered strong year on year profit growth. Infrastructure
Products performed ahead of our expectations with both Roads and
Utilities increasing year on year profitability. A strong performance
from Galvanizing in the USA and UK more than offset any weakness
in France.
The international diversity and strength of our businesses within
their respective markets continues to underpin our performance. Our
USA operations contributed 41% of the underlying operating profit,
marginally below that in the prior year principally due to the improved
performance of our UK operations as spend in the wider economy
and within our niche sectors improved. The UK based businesses
generated 44% of underlying operating profit compared to 33%
in the prior year. Together these two geographic regions represent
around 85% of our underlying operating profit. Both economies, and
the markets in which we operate, have a strong outlook for 2015 and
beyond.
Reported revenue for the year increased by 2% to £454.7m (2013:
£444.5m). Adjusting for adverse currency impacts of £13.3m and net
revenue of £2.7m from acquisitions and disposals, underlying revenue
improved by £20.8m, an organic increase of 5%. Underlying operating
margin improved by 80bps to 10.8% (2013: 10.0%). Underlying
operating profit increased by 11% to £49.2m (2013: £44.5m) despite
unfavourable exchange impacts of £1.7m, with acquisitions/disposals
contributing £1.0m. The organic improvement in underlying operating
profit was 13%. Underlying profit before taxation was 12% higher at
£46.0m (2013: £41.2m).
Infrastructure Products
Revenue
Underlying operating profit
Underlying operating margin %
£m
2014
2013
322.9
316.9
+/-
%
+2
22.5
7.0
19.1
+18
6.0
Constant
Currency
%
+5
+21
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 2014 the division
accounted for 71% (2013: 71%) of the Group’s revenue and 46%
(2013: 43%) of the Group’s underlying operating profit.
Overall revenues increased marginally to £322.9m (2013: £316.9m)
despite an £8.5m negative impact from exchange rate movements.
Organic revenue growth was £15.0m, or 5% at constant currency.
Underlying operating profit was £22.5m (2013: £19.1m), an increase
of £3.4m, with an adverse currency translation impact of £0.5m.
Underlying operating margin improved to 7.0% (2013: 6.0%).
Roads
Revenue
Underlying operating profit
Underlying operating margin %
£m
2014
2013
127.7
114.0
13.3
10.4
11.7
10.3
+/-
%
+12
+14
Constant
Currency
%
+15
+16
Our Roads division designs, manufactures and installs temporary
and permanent safety products for the roads market together with
intelligent transport systems (ITS) which collect data and provide
information to road users. We principally serve the UK market, with
an international presence in selected geographies with a growing
demand for tested safety products. Roads represents 27% of the
Group’s underlying operating profit, and 28% of revenues in 2014.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Revenues increased by 12% to £127.7m (2013: £114.0m). Underlying operating profit of £13.3m was £1.6m higher than the prior year (2013:
£11.7m) due to the investment in, and higher utilisation of, our temporary safety barrier fleet in the UK. There were no material net effects from
acquisitions and currency movements.
UK
In December 2014, the Department for Transport published their long awaited Road Investment Strategy (‘RIS’). Recognising that the UK has
suffered from insufficient and inconsistent investment, the transformational investment plan sets out the short and longer term vision for the UK
strategic road network. The RIS aims to provide certainty of road investment funding over the period 2015/16 to 2020/21, improve connectivity
and condition of the existing network and, importantly, increase capacity, with projects that will deliver 1,300 additional lane miles. The focus
of the drive to add capacity will be additional ‘Smart’, or managed motorways, which is at the core of the Group’s product offering in the UK.
Significant additional funding is forecast to deliver on the strategy with a total of £15.2bn of spend for the five year period 2015/16 to 2020/2021.
The December announcement contained significant additional expenditure over and above that previously announced. Legislation to create the
Strategic Highways Company (previously the Highways Agency) to oversee and deliver the RIS will be put to the UK parliament in April 2015.
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4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
m
£
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
Actual spend to date
Budget
Forecast previously announced
RIS spend
Demand for permanent and temporary safety barriers in the year was strong as the Highways Agency commenced implementation of the RIS.
Conversations with the Highways Agency over the past eighteen months, together with our market leading position and pre commitments now
contained in the RIS, gave us the confidence to invest a total of £16m in additional rental fleet of Zoneguard, our temporary steel safety barrier,
increasing the size of our fleet by 95km to 265km. Utilisation of the additional barrier was in line with our expectations.
During the year there was increased demand for our traditional permanent safety barrier and our bridge parapet product, as a number of new
projects started construction. We enter 2015 with strong order backlogs and a good pipeline of enquiries.
In our Technology business, we won a framework agreement with Transport Scotland to supply between £5m and £10m of variable message
signs over the next four years. The lower demand levels experienced in the first half of the year improved as we progressed through the second
half although contracts were smaller in size than in the prior year. Profitability improved in the second half such that overall performance was
modestly below prior year. To further our strategy in this key area we acquired the trade and assets of Variable Message Signs Limited (‘VMS’)
on 11 July 2014 for £0.3m. An established operator in this field, VMS had faced financial constraints due to the current hiatus in demand.
The acquisition of VMS, and its subsequent integration with Techspan, will allow the Group to support the Highways Agency with its signage
requirements in its roll-out of Smart Motorways as set out in the RIS. The combined businesses, now called Variable Message Signs, have supplied
a significant number of the signs currently on the UK roads network. The combination of the businesses plus improving enquiry levels will result in
a stronger performance in 2015.
In December we shipped 280 units, the largest single order, of our BlackCat traffic monitoring equipment for a project in Lithuania to enable the
classification of traffic flows. This order demonstrates the high quality of our equipment, which has been designed for worldwide application.
During the year we launched EvoX, our new three-lane automatic number plate recognition (ANPR) camera, designed for the high end tolling and
security markets.
Our lighting column business in the UK achieved record profitability for the second year running, however two of the five PFI projects were
completed at the end of 2014 and therefore we expect a reduction in volumes in 2015. The general lighting market is showing signs of recovery,
especially in the housing market, and the increased spend on highways over the next five years will help to offset the completion of the PFI
projects.
Non-UK
In France, the local mayoral elections predictably resulted in lower spend from local councils. Since the elections we have seen an improvement in
the volumes, however the marketplace remains very competitive due to over capacity and subdued demand.
Our Scandinavian business enjoyed another successful year despite adverse movements in exchange rates impacting local trading margins on
products purchased from the UK. Despite the adverse exchange rate, products imported from the UK increased by 230% to £3.4m, predominantly
our permanent steel safety barrier.
26
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Strategic Report
Operational and Financial Review continued
Sales of Zoneguard to local distributors in the USA demonstrated
increased levels of acceptance of our product in key states and
produced a solid result. Focus is now on generating more sales leads
in new states to grow the business.
Our fledgling businesses in India and Australia provide an outlet
for our tested suite of products, principally Brifen wire rope and
Zoneguard. Australia started to gain some traction with a key
customer and improved its profitability year on year. In India, the
market remains uncertain following national elections in the first
half and performance was below the exceptional first full year of
operation in 2013.
Utilities
Revenue
Underlying operating profit
Underlying operating margin %
£m
2014
2013
195.2
202.9
9.2
4.7
7.4
3.6
+/-
%
-4
+24
Constant
Currency
%
-1
+30
Our Utilities division provides industrial flooring, plastic drainage
pipes, security fencing and steel products for energy creation markets
across the Globe. 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. Utilities represents 19% of the Group’s underlying
operating profit, and 43% of revenues.
Revenues fell to £195.2m (2013: £202.9m), but after adjusting for
disposals and currency impacts, reflected an organic improvement of
£2.4m primarily due to a stronger performance from our UK utilities
businesses. Underlying operating profit increased by £1.8m to £9.2m
(2013: £7.4m), constant currency growth of 30%. Underlying margins
improved 110bps to 4.7% (2013: 3.6%).
Creative Pultrusions, our composites company in the USA, entered
2014 with a strong backlog in orders across all product sectors
including OEM customers. During 2014 we saw growing acceptance
of our waterfront sheet piling and fender pile products, used in
coastal and pier protection in waterways projects around the New
York area, where a number of new bridges are being constructed.
Strong organic revenue growth resulted in profits well ahead of 2013.
This improved profitability was offset by a lower contribution from our
USA based transmission structures and substation business. A late
start to the construction season, following poor weather conditions
in the first quarter, led to delayed shipments in the first half of 2014.
The second half returned to more normal levels and we start 2015
with an encouraging order backlog. The investment in the USA power
grid is set to continue throughout the decade as renewables and
gas fired power stations are connected to the grid. During 2014 we
secured three framework agreements from US utility companies with
their requirements being called off on a regular basis. These types of
agreement now represent a healthy 40% of our total revenue.
Our pipe supports business in the USA also experienced a slow start
to 2014 following the poor weather conditions. Order backlog picked
up in the second and third quarters where we supplied pipe supports
to new ethylene, fertilizer and a number of gas fired combined cycle
power plants. The industrial pipe hanger business had a stronger
second half and is benefiting from bridge building projects where
pipework is suspended under the bridge structure. The bridge
replacement programme benefits our composites, galvanizing and
pipe supports businesses and sustains our core strategy of supplying
products and services to infrastructure projects.
Outside of the US, Pipe Supports saw an improvement in profitability
on the previous year with a strengthening of our operational
management teams in both the UK and Thailand. The power
generation market in India gained traction in the second half of
2014 and we are currently working on large projects for multi-boiler
units for Larsen & Toubro and Doosan, and with one of our Japanese
customers for the supply of cryogenic pipe supports for a large LNG
terminal in Dahej, Gujarat. The order backlog gives good coverage
for the first half of 2015 for our Indian facility. Our other Japanese
EPC framework customers are currently completing power projects
in Taiwan/Japan, for which we supplied pipe supports last year,
and therefore it is likely to be later in 2015 before we commence
production of the next tranche of projects. This has resulted in us
entering 2015 with a lower order backlog in Thailand and the UK than
we would usually expect. We are also conscious of the impact falling
oil prices may have on future demand for new projects in the Middle
East, along with capex budgets across the wider oil and gas sector.
As part of our strategy to rationalise the number of operating sites
in the UK, we relocated and successfully integrated our Telford
based Access Design business to the Lionweld Kennedy site in
Middlesbrough. Benefits of a single site operation were realised with
a strong improvement in the profitability of the Industrial Flooring
group. During the year we were successful in supplying handrail
and flooring products to new Crossrail train depots, offshore wind
platforms and to our largest contract for the supply and installation
of staircases and landing platforms for the main shaft in the Lee
Valley Outfall project in London. As part of our capital investment
programme, a new high speed automated forged welding machine
was installed to produce industrial grating meeting European
Standards and to increase our capacity and product range. We enter
2015 with a good order book including a large contract for the supply
of flooring to a second platform for AMEC-Tekfen-Azfen in the Shah
Deniz field in Azerbaijan.
The supply of our plastic pipe products to AMP5 was completed in the
early part of 2014 and although enquiries for storm attenuation tanks
for the flood alleviation market were at record levels, only a small
number turned into orders. In contrast, housing market enquiries
were strong and orders improved in the second half of the year. One
notable change in the housing attenuation tank market is the size of
tanks, which have increased by around 50% in volume to compensate
for higher rainfall and an increased risk of flooding. We start 2015
with a good order backlog and enquiry levels well ahead of 2014.
Birtley and Expamet continue to perform ahead of expectations
with the synergies of offering both brands to the local independent
builders’ merchants, as well as to national merchants, proving very
successful. The business has benefitted from the increased demand
for new build homes which is set to continue in 2015.
As part of our continuous product application development
programme, we have been seeking out new markets for the use of
our Weholite large diameter plastic pipe. In the renewable energy
sector anaerobic digestion, for the food and agricultural markets, was
identified as a suitable opportunity. In the final quarter of the year we
secured a large order of £0.4m for the supply of sixteen storage tanks
with a further two projects of a similar size being secured for the first
half of 2015. This again demonstrates the entrepreneurial strength
within the Group.
Our solar frame business had its most successful year as the demand
for large scale UK solar frames increased in the south of England.
We had expected volumes to reduce at the end of March 2015 as
the Renewables Obligation scheme was to be scrapped for projects
over 5MW, however the grace period for installation of these larger
schemes has now been extended for a further year to March 2016,
which should result in similar volumes for 2015.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
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Financial Statements
Shareholder Information
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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 macro-economic environment in France remains challenging
and thus the business performed very credibly in reporting volumes
in line with the prior year. The first half of the year was buoyed by
completion of the Bordeaux Stadium project ahead of the 2016
European Football Championship and overall volumes were 3%
ahead of the prior year. An absence of large projects in the second
half of the year resulted in volumes 4% below prior year. Increased
competition from non-domestic galvanizers resulted in lower overall
market pricing and although we did not lose market share our
profitability was marginally lower year on year.
The business, a market leader run by a highly experienced team,
continues to perform well in a difficult market with a focus on price
and cost management pending an improvement in the French and
wider European economies.
UK
Our galvanizing businesses are located on eight sites, four of
which are strategically adjacent to our Infrastructure Products
manufacturing facilities.
Overall, volumes improved by 9% year on year with the strong 17%
growth experienced in the first half reducing to 1% in the second
half of the year as the business faced much tougher comparatives
given the improving economy. Growth in the first half of the year
was supported by the inclusion of Medway volumes in the period
January to April given the acquisition in the prior year on 30 April. The
additional four months of trading contributed 6% of the 17% first
half reported growth. Our own internally generated volumes from the
Roads and Utilities businesses were strong throughout the year. Our
focus on targeting higher margins resulted in a significant increase in
profitability. Contributions from the Arkinstall transaction (December
2013), the full year impact of the Medway acquisition and a strategy
of winning and servicing smaller customers outside of our normal
geographic areas all assisted in increasing margins.
In furtherance of our strategy of active portfolio management,
on 1 December we announced the closure of our galvanizing site
in Hereford. In need of substantial capital expenditure to upgrade
the facility, market volumes and the financial returns available
could not justify the investment. The cost of closure, amounting
to £2.9m, has been included in non-underlying items. Production
ceased on 6 February 2015. A reasonable proportion of the volume
will be absorbed into our other structural steel galvanizing facility in
Chesterfield.
Our security fencing business experienced improved market
conditions as demand for our Stronguard product increased to
protect power stations, railways and sites of critical infrastructure.
Additional demand from the solar farm market also contributed to
year on year growth. During the year we acquired plant, equipment
and inventory from the receiver of one of the largest manufacturers
of palisade fencing who had entered administration. The assets were
absorbed into our own facility which resulted in improved efficiency
and profitability on the higher volumes. These proactive measures
further endorse our strategy of consolidating the local market to
improve returns on sales and invested capital.
Galvanizing Services
Revenue
Underlying operating profit
Underlying operating margin %
£m
2014
2013
131.8
127.6
26.7
20.3
25.4
19.8
Constant
Currency
%
+7
+10
+/-
%
+3
+5
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% (2013: 29%) of the
Group’s revenue and 54% (2013: 57%) of the Group’s underlying
operating profit.
Reported revenue increased by 3% to £131.8m (2013: £127.6m),
although growth at constant currency was 7%. Underlying operating
profit improved to £26.7m (2013: £25.4m), constant currency growth
of 10%. Underlying operating margins remained strong and improved
to 20.3% (2013: 19.8%) despite a rising zinc commodity price and the
adverse zinc pricing impact in Sterling and Euro of a stronger US$.
Overall galvanizing volumes were 7% ahead of 2013 principally as a
result of improved economic conditions in the USA and UK.
USA
Located in the north east of the country, Voigt & Schweitzer are the
market leader with seven plants offering local services and extensive
support to fabricators and product manufacturers involved in
highways, construction, utilities and transportation.
Overall volumes for the year were 14% higher with second half
production particularly strong at 25% year on year growth,
significantly ahead of the first half which returned growth of 3%.
Weather patterns were a significant contributor to the phasing, with
the poor weather in the north east in the early part of the year being
compensated for by favourable conditions toward the year end. Key
markets including bridge & highway, alternative energy and OEM
equipment all performed ahead of expectations which, together
with our focus on productivity and business improvement initiatives,
returned a record result for the operation.
The construction of our seventh plant, strategically located in
Memphis, Tennessee was completed on schedule at a cost of £9.4m
and the plant commenced production at the end of November. Built
to our own proven design, production has started satisfactorily and
we are building our reputation and customer base in this regionalised
market. Early performance has been in line with expectations and we
remain excited about the longer term opportunities this investment
will afford.
28
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Operational and Financial Review continued
“The Group’s strong underlying
operating cash flow provides the
funds to invest in growth.”
Tapered down end section of the Zoneguard product, H&S Inc.
Financial review
Income statement phasing
2014
Revenue £m
Underlying operating profit £m
Margin %
2013
Revenue £m
Underlying operating profit £m
Margin %
First
half
Second
half
Full
year
223.8
230.9
454.7
22.5
10.1
26.7
11.6
49.2
10.8
221.6
222.9
444.5
20.2
9.1
24.3
10.9
44.5
10.0
Reported revenue of £454.7m was £10.2m or 2% ahead of the
prior year, with acquisitions and disposals completed during both
2013 and 2014 contributing a net £2.7m additional revenue and
£1.0m underlying operating profit. The translation impact arising
from changes in exchange rates, principally the US Dollar and Euro,
reduced total revenue by £13.3m and underlying operating profit
by £1.7m. At constant exchange rates, organic revenue growth was
£20.8m and underlying operating profit growth was £5.4m, or 5%
and 13% respectively. Further details of the performance of the Group
are provided in the Operational Review.
The phasing of revenue and to a greater extent underlying operating
profit was again second half biased in 2014, principally reflecting the
growing levels of demand in the UK Roads market and the generally
improving economic conditions in the US, together with a normal
degree of seasonality.
Cash generation and financing
The Group again demonstrated its cash generating abilities with
strong operating cash flow of £53.7m (2013: £54.2m), despite an
increase in working capital of £5.1m (2013: £1.9m reduction). The
overall impact on working capital of zinc and steel commodity prices
year on year was not material. Working capital as a percentage of
annualised sales held steady at 13.9% at 31 December 2014 (2013:
13.9%). Debtor days were unchanged from the prior year at 61 days.
Capital expenditure at £35.9m (2013: £22.1m) represents a multiple
of depreciation and amortisation of 2.4 times (2013: 1.5 times). As
previously reported, the Group has made a significant investment
in its UK temporary road safety barrier fleet with a total cash spend
of £14.3m during the year, and has completed the construction
of its new galvanizing facility in Memphis, USA at a cost in the
year of £7.4m. Other significant items of expenditure included
£1.5m on further development and equipment for the Industrial
Flooring manufacturing facility in Middlesbrough following the
closure and relocation of the Telford operation in 2013, and £1.2m
of development expenditure in relation to the Group’s suite of
products for the UK roads market. Whilst the Group expects capital
investment to fall to more normalised levels in 2015, it continues to
invest in organic growth opportunities where returns exceed internal
benchmarks and its cost of capital.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
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 2014 the Group achieved an underlying cash conversion
rate of 51% (2013: 93%). Excluding the strategic investments in UK
temporary road safety barrier and the Memphis galvanizing plant
during the year, underlying cash conversion was 95%. Over the past
six years the Group has achieved an average rate of 90% despite a
number of other major capital projects being undertaken during that
time.
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.
Group net debt at 31 December 2014 was £96.0m, representing
a year on year increase of £8.5m before adverse exchange
rate movements of £0.3m. The Group’s net debt includes 23%
denominated in US Dollars and 13% denominated in Euros which act
as a hedge against the net asset investments in overseas businesses.
Change in net debt
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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
Disposals
Amortisation of refinancing costs
Net issue of shares
Change in net debt
Opening net debt
Exchange
Closing net debt
2014
£m
41.1
17.2
(5.1)
(5.5)
6.0
53.7
(9.3)
(3.2)
(35.9)
0.7
6.0
(12.4)
(0.2)
0.5
(0.3)
(2.1)
(8.5)
(87.2)
(0.3)
(96.0)
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)
* includes £2.1m (2013: £2.2m) in respect of acquisition intangibles.
The Group’s principal debt facility consists of a headline £210m
multicurrency revolving credit agreement. In May 2014 the Group
extended the term of the then-existing facility from April 2016 to
April 2019, providing the Group with significant headroom against
its expected future funding requirements for an additional three
years, whilst also taking advantage of favourable market conditions
to reduce costs and amend key terms. Costs associated with the
amendment of £1.5m were deducted from the carrying value of the
loans and will be amortised over the life of the facility, as required by
accounting standards.
30
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Strategic Report
Operational and Financial Review continued
Maturity profile of debt facilities
On demand
2015-2016
2017-2019
2014
£9.3m
£1.3m
On demand
2014-2015
£212.9m
2016
2013
£16.4m
£1.3m
£210.9m
At the year end the Group had committed debt facilities available of
£214.2m and a further £9.3m 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 2014 were:
Interest Cover
Net debt to EBITDA
Actual
Covenant
20.6 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 for the
foreseeable future.
Net finance costs
Underlying net cash interest:
Bank loans / overdrafts
Finance leases / other
Non cash:
Net pension interest
Costs of refinancing
2014
£m
2013
£m
3.1
0.1
0.7
0.3
3.2
1.0
4.2
3.2
0.1
0.6
-
3.3
0.6
3.9
Net financing costs were marginally higher than prior year at £4.2m
(2013: £3.9m). The net cost from pension fund financing under IAS19
was £0.7m (2013: £0.6m), the increase of £0.1m reflecting the higher
net pension deficit at the end of 2013 compared with 2012. Given its
non-cash nature the pension interest charge continues to be treated
as ‘non-underlying’ in the Consolidated Income Statement. Non-
underlying financing costs also include £0.3m relating to the Group’s
amendment of the terms of its principal banking facilities during
the year, reflecting the amortisation of the costs capitalised against
the loans in accordance with IAS39. The underlying cash element
of net financing costs decreased by £0.1m to £3.2m (2013: £3.3m),
as a result of marginal reductions in bank interest rates. Underlying
operating profit covered net cash interest 15.4 times (2013: 13.5
times).
The Group has approximately 26% (2013: 38%) of its gross debt of
£102.7m at fixed interest rates, either through interest rate swaps or
finance leases. Interest rate swaps are predominantly denominated
in US Dollars, with a smaller tranche of Euros. The Sterling swap
held at 31 December 2013 was terminated in 2014 as part of the
amendment to the principal debt facility.
Return on invested capital (ROIC)
The Group aims to maintain ROIC above its pre-tax weighted average
cost of capital (currently c.11%), with a target return of 17.5%. In
2014, ROIC increased to 16% (2013: 15%) largely as a result of
improvements in underlying operating margins and active portfolio
management, including the disposal and restructuring of under-
performing businesses. 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, and therefore includes goodwill and other acquired
intangible assets.
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 2013 revenue
and underlying operating profit using 2014 average exchange rates
would have reduced the prior year revenue and underlying operating
profit by £13.3m and £1.7m respectively. Exchange rates continue
to move in line with worldwide events and currency flows and hence
are inherently difficult to predict. Movements in exchange rates will
continue to have an impact on the translation of overseas earnings
in 2015. Retranslating 2014 revenue and underlying operating profit
using exchange rates at 3 March 2015 (inter alia £1 = US$1.54 and
£1 = €1.37) would increase the revenue and underlying operating
profit by £2.1m and £0.8m respectively. For US Dollar, a 1 cent
movement results in a £140,000 adjustment to underlying operating
profit and for the Euro, a £60,000 adjustment.
Non-underlying items
The total non-underlying items charged to operating profit in the
Consolidated Income Statement amounted to £8.1m (2013: £10.0m)
and were made up of the following:
Business reorganisation costs
Losses on sale of subsidiaries
Amortisation of acquisition
intangibles
Acquisition expenses
Profit on sale of properties
Income
statement
charge
£m
Cash in
the year
£m
(2.6)
(3.7)
(2.1)
(0.1)
0.4
(8.1)
(0.6)
0.5
-
(0.1)
0.4
0.2
Future
cash
£m
(1.5)
0.5
-
-
-
Non-
cash
£m
(0.5)
(4.7)
(2.1)
-
-
(1.0)
(7.3)
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Business reorganisation costs of £2.6m (2013: £9.2m) principally
relate to redundancies and other costs associated with site
restructuring. The charge is net of a release of £0.9m of
unutilised provisions relating to prior year site closures following
the favourable settlement of previously estimated exposures.
The charge also includes asset impairments of £1.4m;
Losses on disposal of subsidiaries of £3.7m (2013: £nil) represent
the net losses arising from the disposal of the Group’s interests
in the non-core businesses of Staco Redman, Bromford Iron &
Steel and JA Envirotanks during the year, further details of which
are set out below;
Non-cash amortisation of acquired intangible fixed assets was
£2.1m (2013: £2.2m);
Acquisition related expenses of £0.1m (2013: £0.4m) reflect
costs associated with acquisitions expensed to the Consolidated
Income Statement in accordance with IFRS3 (Revised); and
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Shareholder Information
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Profits on sale of properties during the year were £0.4m (2013:
£1.8m).
The net cash impact of the above items was an inflow of £0.2m
(2013: outflow of £3.1m) with a further £1.0m net spend expected
in 2015. The non-cash element therefore amounted to £7.3m. The
Directors continue to believe that the classification of these items as
‘non-underlying’ aids the understanding of the underlying business
performance.
Tax
The Group’s tax charge for the year was £9.6m (2013: £7.6m). The
underlying effective tax rate for the Group was 24% (2013: 24%),
which is lower than the weighted average mix of tax rates in the
jurisdictions in which the Group operates following the successful
conclusion of tax uncertainties related to prior years and the resultant
provision release. Cash tax paid of £9.3m (2013: £15.3m), although
broadly in line with the income statement charge, benefitted
from advanced capital allowances in connection with the Group’s
investment in the new Memphis galvanizing plant in the USA. Cash
tax paid in the prior year included the cash settlement of certain one-
off deferred tax liabilities in France.
The Group’s net deferred tax liability is £7.6m (2013: £9.5m). An
£8.5m (2013: £8.7m) deferred tax liability is provided in respect of
brand names and customer relationships acquired. A further £1.5m
(2013: £1.9m) 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 11% to 45.0p (2013: 40.4p), with organic growth
in revenue and improvements in underlying operating profit margins
more than compensating for the adverse movements in exchange
rates. The diluted UEPS was 44.4p (2013: 39.8p). Basic earnings per
share was 35.1p (2013: 29.6p). The weighted average number of
shares in issue was 77.8m (2013: 77.6m) with the diluted number of
shares at 78.8m (2013: 78.6m) 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 2014 was
£21.1m, marginally higher than the £20.2m reported at 31 December
2013. The impact of a reduction in the discount rate, in line with
falling bond yields in the latter part of the year, was largely offset by
reductions in inflation assumptions and an improvement of £5.6m 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. In common with many other
UK companies, the Schemes are mature having significantly more
pensioners and deferred pensioners than active participating
members. 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 IAS19 deficit of the
Schemes as at 31 December 2014 was £17.7m (2013: £17.6m). 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.
Deficit contributions of £3.6m in 2014 include an additional £1.1m
crystallising on cessation of trade in businesses sold or closed. The
date of the next triennial review is 5 April 2015. The Group is actively
engaged in dialogue with the Trustees with respect to management,
funding and investment strategy.
Acquisitions
On 11 July 2014 the Group acquired the trade and certain assets of
Variable Message Signs Limited, a manufacturer and distributor of
electronic variable message signs for the UK road and rail markets, for
£0.3m including costs and the assumption of outstanding debt. The
business will be merged with the Group’s existing variable message
sign business, Techspan Systems, to create the UK market leader in
this sector. The combined business will be known as Variable Message
Signs.
Disposals
On 18 August 2014 the Group disposed of its interests in the non-core
businesses of Bromford Iron & Steel Company Limited, a producer
of rolled steel, and JA Envirotanks, a small niche market supplier of
storage tanks for industrial applications. Total consideration was
£1.3m, of which £0.5m is deferred for a period of up to two years,
resulting in a loss on disposal of £3.8m.
On 23 April 2014 the Group disposed of its interest in Staco Redman
Limited, a small producer of steel floor grating, for a consideration of
£0.3m resulting in a profit on disposal of £0.1m.
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 Finance
Director.
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
Mark Pegler
Group Finance Director
10 March 2015
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Strategic Report
Creative Pultrusions supplied 113 GRP fender piles for the replacement of the Boca Grande North Swing Bridge Fender System in Florida, USA.
Welding taking place at our Bergen Pipe Supports business in India.
Exterior glass panel cladding installed by Berry Systems on the new Banbury railway station multi-storey car park. Berry also supplied and installed capping panels, soffits, internal
perforated metal infill panels, link bridge security and access gate, rail side security mesh and their vehicle safety barriers, with anti-climb mesh and integral pedestrian handrail.
Corporate Responsibility
Board level responsibility and accountability
The Group continues to be committed to delivering its strategic
objectives in an ethical and responsible manner.
Derek Muir, Chief Executive, is the director responsible for the
corporate responsibility (‘CR’) performance of the Group and is
supported by the operating directors in achieving compliance with
Group policies, primarily through:
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Communication across the businesses;
Implementation of supporting principles; and
Monitoring performance and improvements.
Our operating directors, supported by the Group’s employees,
are encouraged to contribute positively to the communities and
environment in which we do business. We recognise that acting
responsibly in all our operations, towards our employees and all other
stakeholders, not only benefits them but also allows us to deliver
sustainable profit growth and through it, shareholder value.
CR initiatives in 2014
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Reduction in water, waste and energy consumption.
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Further commitment to packaging reduction.
To collect and monitor landfill waste data and to identify
opportunities for recycling.
Development of the audit programme to include environmental
issues.
Extension of the Safety Cloud to include international sites.
To improve the collection of water usage data and develop
water management programmes.
Further improvement in the management of site safety and
accident reduction.
CR responsibility drivers
Sustaining the environment
Our people
Other stakeholders
Community
Sustaining the environment
Managing the environment around our businesses and monitoring
the effect they have on the local communities and on our staff is
important to the Group. We do this by measuring the use of energy
and water; monitoring waste disposal and by implementing policies
and procedures around how we operate our business. During 2014
the Group developed a system of monitoring waste, water usage and
recycling within the manufacturing businesses.
Energy
The Group operates an Energy Policy, which can be found in the
CSR section on the website. Each Group company has appointed an
Energy Champion and employees are encouraged to report all energy
savings and recycling ideas to their local Energy Champion.
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Financial Statements
Shareholder Information
Our UK operations are committed to working towards compliance
with the ISO 14001:2004 standard, awarded to companies that
operate to an accepted environmental government standard. Part of
this process involves the UK operations carrying out an independent
environmental audit programme. This will continue to operate for
2015, with companies continuing to monitor their environmental
impact on an on-going basis.
During 2015 the Group are due to launch an online Energy Forum, to
allow all Energy Champions to share their ideas collectively within the
Group. This forum will meet to discuss energy efficiency schemes and
ideas, which will be adopted across all Group companies.
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.
To demonstrate this commitment to reducing greenhouse gas
emissions we participate in the Carbon Disclosure Project (‘CDP’)
Climate Change Programme, disclosing our annual emissions. The
Climate Change Score showed an improvement rising from 51E for
2013 to 65E in 2014. Emissions will continue to be disclosed through
the Climate Change Programme.
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The Group reports on its UK greenhouse gas emissions in compliance
with the Companies Act 2006 (Strategic Report and Directors’ Report)
Regulations 2013; Defra Environmental Guidelines (‘DEG’) updated in
June 2014; and the UK government conversion factors for company
reporting, which set the rules measuring UK data. In respect of our
overseas companies we utilise data provided by the International
Energy Agency (‘IEA’).
The GHG emissions, reported in the following tables, are for scopes 1,
2 and 3 of the DEG, as defined below. Data reporting for scope 3 has
been reported for waste sent to landfill and water consumption as
actuals.
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:
Scope 3:
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 directly to the
electricity usage, but are beyond the Group’s direct control.
Indirect emissions that an organisation causes to occur,
but does not control. This includes emissions attributed to
the use of water, waste disposal to landfill, emissions from
transport by aircraft, train and in vehicles owned by other
parties including those used for commuting by staff, or
emissions from outsourced activities and from the supply
chain.
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Strategic Report
Corporate Responsibility continued
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 turnover.
Subsidiary emissions comparison
UK
emissions
Overseas
emissions
Total
emissions
Group total emissions by
scope for 2014
Scope 1 (tCO2e)
Scope 2 (tCO2e)
tCO2e
Total turnover (£m)*
IR
19,690
12,754
32,444
244.2
0.13
* Turnover based on geographical area of manufacture.
Global emissions comparison
Group emissions comparison 2013 - 2014
Scope 1 (tCO2e)
Scope 2 (tCO2e)
tCO2e(1)
Total turnover (£m)
IR
42,103
10,973
53,076
210.5
0.25
2014
61,793
23,727
85,520
454.7
0.19
61,793
23,727
85,520
454.7
0.19
2013
72,859
22,547
95,406
444.5
0.21
Going forward the UK Government has responded to Article 8 of
the EU Energy Efficiency Directive by introducing an Energy Savings
Opportunity Scheme (‘ESOS’). Article 8 calls for mandatory energy
audits in areas of significant energy consumption. During 2015 these
audits will cover UK sites that consume at least 90% of our total
energy use. Saving opportunities identified will be shared across
other Group companies in France, the US, Canada, Sweden, India and
Thailand.
Water consumption
The Group has undertaken a review of the water usage throughout
its UK companies, having used the services of CMR Consultants Ltd
(‘CMR’), a professional energy consultancy company, to carry out the
surveys.
CMR have identified how water is currently being used, what steps
can be taken to use water more efficiently and how businesses can
improve the monitoring of their water usage. This information will be
shared across the Group through the energy forum.
During the year our UK businesses consumed 45.8k cubic metres.
We will continue to monitor water usage on an on-going basis
throughout 2015, to ensure that water saving steps identified in
CMR’s surveys lead to lower consumption and economic savings.
Where possible Group companies investigate improvements within
the manufacturing process to avoid the use of water, or alternatively
to use pre-used water to carry out the process. Medway Galvanising
has achieved this and now uses pre-used water in its rinse process.
Other initiatives include the adoption of rainwater harvesters in
many areas of the Group. This project is to be extended as a potential
savings opportunity to other Group businesses, where it is viable and
safe to install such systems.
The aim is to further reduce water usage within the manufacturing
businesses and it has been recognised that where rainwater is
harvested, there has been a reduction in water usage, in addition to
increased environmental sustainability and economic benefits.
Our objective for 2015 will be to continue to improve water efficiency,
resource sustainability and cost saving.
Waste management
The UK operations of the Group comply with the Producer
Responsibility Obligations (Packaging Waste) Regulations 2007
(as amended). This means they are fully aware of their legal
and environmental responsibilities to help reduce the amount of
packaging going to landfill and encourages reductions, recycling and
recovering of packaging material. By securing evidence of recycling
through its compliance scheme, Wastepack, the Group is contributing
towards meeting the recycling and recovery targets set by Defra, as
part of the European Union Directive.
Waste management data has been collected from all UK sites,
enabling us to identify waste by-products, with a view to lowering
waste output and developing new opportunities to improve the
manufacturing processes.
Wherever possible, these waste products are sold to be reused in
other manufacturing processes, avoiding the need to use virgin
material. For example, Asset Weholite use the waste disposal services
of an operator, who turn its plastic, paper and food waste into new
plastic, recyclable plastic pellets and alternative bio-energy sources.
Waste sent to landfill is continually reviewed by all companies and
during the year opportunities for improvement were identified to
reduce waste sent to landfill sites, using expert waste disposal
companies.
UK generated waste
Liquid waste
Recycled waste
Waste to landfill
Total
5,181 litres
14,765 tonnes
170 tonnes
14,935 tonnes
Environment-based policies
The Group’s environment-based policies covering the environment
and energy can be found in the CSR section on our website.
People
We know that to be a business that successfully delivers its business
model we need to employ and retain the right quality of staff and
provide them with a safe and pleasant environment in which to work.
Training and development
We provide the appropriate resources and support to maintain
the standards of performance and conduct expected by our
employees. 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.
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Governance Report
Financial Statements
Shareholder Information
Employees are provided with a range of development opportunities, including:
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Compliance with the Bribery Act, international competition and the Group’s CBC;
Training for a specific management or supervisory role;
Support with education, leading to a professional or academic qualification;
Health and safety training; and
Programmes to provide the enhancement of the employees’ knowledge and skill for their positions, together with the provision of knowledge
and skills for new procedures or standards.
Guidance is through each employee’s immediate line management and the delivery of training is provided through internal resources,
predominantly in the work place. External providers are used where required.
Reward and involvement
Share ownership is encouraged by the Group through the 2005 Employee Sharesave Scheme, which currently has circa 375 UK employees
participating.
Employees are encouraged to communicate through the Group’s website and intranet site. Group communication is also effected through the
development of centralised programmes.
Diversity and inclusion
The charts below show the number of male and female employees throughout the Group, including the main Board, senior management and all
other employees.
Number of PLC Board Directors:
Male & Female split
Number of subsidiary Directors:
Male & Female split
Male 5
Female 1
Male 74
Female 3
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Number of senior managers in
the Group:
Male & Female split
Male 196
Female 24
Number of employees in the
Group:
Male & Female split
Male 3,156
Female 331
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. A culture in which all employees have the opportunity to develop to their fullest potential
is encouraged, and this also meets the needs of the Group.
The Group is committed to equal opportunities, employing a diverse range of people throughout Group operations and a commitment to fairness
and equal opportunity is central to the Group’s employment policy.
A statement on equal opportunities, discrimination and diversity policy was issued by the Group’s Board of Directors in 2014. The Group will
continue to commit to these and update policies for the future.
The Group has a policy of non-discrimination and it does not tolerate bullying or harassment. The policy promotes the operation of these
principles and offers a whistleblowing hotline for use by employees if they feel they have suffered from adverse behaviours.
During the year the Group published its updated statement on diversity. This ensures that employees 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. Full consideration is provided to all applications of employment from disabled persons, where that person can meet the job
requirements. In the event of an existing employee becoming disabled, where practicable, the Group will provide continued employment.
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Strategic Report
Corporate Responsibility continued
Health and safety
The Group is committed to ensuring a safe working environment is upheld, and maintains a system of control and monitoring of health and safety
issues.
This system is directed by an external health and safety consultant and managed through dedicated health and safety representatives within
the Group, who meet at quarterly safety forums (within the UK subsidiaries), to discuss health and safety issues. Guidance documents (e.g.
health and safety standards) are produced, with key risks and hazard registers being kept. Documentation is maintained through the safety cloud
management system, an online database which is used to track accident reporting and compliance issues. Bulletins, alerts and safety issues are
communicated through this management system.
External audits are carried out under the Group’s audit programme. This is further supported by nominated subsidiary directors completing a
quarterly health and safety self-assessment.
2014 health and safety objectives
Objective
Result achieved
The continuation of the external audit
programme, with current levels to be
maintained or improved, as appropriate.
The programme of auditing UK operations continued for all sites during 2014. The average
weighted score rating remained the same as 2013 and showed that, considering the nature of
some site risks, a consistent performance is being achieved.
Further roll out of the Safety Cloud to all
remaining non-UK sites not using it.
Implementation of the occupational health
strategy through a new module on the Safety
Cloud.
Some improvements were identified for the US sites, audited in 2013; action plans have been
implemented and progress continues to be made.
Our Swedish operations were re-audited in 2014 and showed a 13% improvement in the overall
weighted rating.
Audits of site installation and construction related works continued with a good level of
performance against the Construction Industry Training Board (‘CITB’) HSE audit tool.
There have been further discussions with our non-UK operations regarding the refinement of
the Safety Cloud to suit their local operations and regulatory requirements. Towards the end
of 2014, our sites in Sweden began to populate the Safety Cloud and it is intended that during
2015 further work will be undertaken to encompass other non-UK operations on the Safety
Cloud.
Sites are now able to clearly map the occupational health requirements for employees. This
mapping exercise on the Safety Cloud started during 2014 and has helped to ensure the right
level of medical surveillance and health monitoring is established. We have worked with a
number of our external health providers who are now able to record the results of their health
monitoring regimes on the system.
To carry out environmental compliance
audits.
For our UK operations, we have completed our review of environmental compliance across our
sites. The results were encouraging and in general terms, environmental compliance was seen
to be of a high standard. All sites are working towards improvement, which will address any
issues raised through the environmental compliance audits.
To review the PLC health and safety
management standards to ensure they are
applicable on a global scale.
The PLC’s health and safety management standards are based on OHSAS 18001, the global
standard for the management of occupational safety and health. They have been reviewed and
remain relevant to our global operations.
Health and safety achievements in 2014
Group companies continue to work actively to effectively manage health and safety. This is evidenced in 2014 by the following initiatives:
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Hill & Smith, Mallatite, France Galva and Asset VRS maintained their OHSAS 18001 certification;
Techspan Systems expanded their OHSAS 18001 certification to include CA Traffic;
Joseph Ash Galvanizing started a longer term OHSAS 18001 implementation initiative across the Joseph Ash group, with their Bilston site
attaining the standard in late 2014;
Joseph Ash Galvanizing and Lionweld Kennedy were awarded a RoSPA Gold Medal;
A number of subsidiaries continued to maintain their Achillies supplier HSE accreditation; and
Medway Galvanising, who joined the Group in 2013, have significantly reduced their accident injury rate through better awareness, training
and monitoring of work practices.
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Shareholder Information
Accident rates
As a Group, we continue to focus on the open and active reporting of accidents and incidents. Over the last four years, we have been working
hard to ensure that all sites have an effective incident reporting regime in place. Reporting to the Group via the Safety Cloud has helped UK sites
implement a consistent approach and by using this system, safety alerts and bulletins are quickly circulated following any adverse incidents.
During 2014 we received 439 accident reports, compared to 399 in 2013, from all subsidiaries. This increase represents the results from an
improved reporting regime from our sites. Our employees also have a greater understanding of the need for better safety behaviours within their
business and the necessity to report all incidents, however minor. We believe that this ‘safer’ attitude amongst staff accounts for the year-on-year
increase in the overall total number of reports. We also recognise the need for improved comparative data based on total number of employees/
hours worked across the Group, and we continue to capture and analyse data in this format.
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Total accidents 2011 - 2014
Total accidents by division
9
3
4
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
8
6
2
1
7
1
Infrastructure
Galvanizing
2011
2012
2013
2014
2011
2012
2013
2014
As we encourage staff to work safely, adopt safe behaviours and investigate reported incidents, sites are beginning to understand the root causes
of accidents. Where injuries have occurred through employee errors or omissions, we are trying to achieve practical solutions which overcome
some of the ‘human error’ aspects of many workplace injuries.
As well as managing the health and safety environment within the Group, we actively audit sites to ensure compliance and risk management. As
our audit programme enters its fifth year, we are seeing that across many areas, key safety risks are being well managed. As one would expect
however, due to the operational nature of our site activities, as we audit to a greater depth, more ‘fine tuning’ of our existing controls is being
identified.
Occupational health
In the UK, we have had a number of reported cases of Hand Arm Vibration Syndrome, which whilst being dealt with locally on the site, has
highlighted that there is need for further monitoring and assessment of work practices. In response to these kinds of risks an Occupational Health
Strategy has been piloted across our UK sites and is being implemented through a new module on the Safety Cloud. The number of external
health providers has been reviewed and reduced to a core of key competent providers, most of whom are working towards accreditation to the
UK’s Safe Effective Quality Occupational Health Service standard.
2015 health and safety objectives
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Introduction of a safety culture assessment tool to enable a more positive measure of health and safety performance across our operations.
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The continuation of the external audit programme, with current levels to be maintained or improved, as appropriate.
Further roll out of the Safety Cloud to the remaining non-UK sites and further development of the Safety Cloud to enable us to pilot a ‘Safer
Driving’ initiative.
Realigning ‘health’ requirements with ‘safety’ requirements to ensure that for those hazards which create a direct health concern,
appropriate controls and monitoring arrangements are in place.
Using information from the ongoing environmental compliance audit programme, and developing a set of environmental management
standards to help assist sites address their environmental risks in a consistent manner.
People-based policies
The Group’s people-based policies can be found in the CSR section on our website.
38
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
Ethics
The Company sources components, materials and services for its
manufacturing processes from a number of countries. We appreciate
that there are local and national differences in standards in
relation to many aspects of the manufacturing and wider business
environment. However, we also recognise that there are a number of
minimum standards that must be achieved by all. We are involved in
many countries around the world where cross-board activity is not
unusual. In 2014, to support the global contracting-nature of our
businesses, we introduced denied parties compliance software to all
Group subsidiaries. This allows Group companies to screen all actual
and prospective customers to ensure they are not on any worldwide,
EU or UK sanctions lists and to take appropriate action and advice as
necessary. All Group companies are expected to screen potential new
customers before accepting any orders.
Policies
The policies that govern our dealings with suppliers and customers
can be found in the CSR section on our website.
Society and community
The Group does not have a group-wide programme in place to
support specific charities or communities, rather, all subsidiaries
are actively encouraged to support their local communities. Such
activities range from the active support of local sports teams, to local
and national charities, and helping with the process of supporting
art and sculpture, through to providing material to build municipal
buildings. Some examples during the year were:
›
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ATA, based in Sweden, supported both the local women’s
football team, Bollstanas and an ice hockey team, Vasby.
Barkers Engineering provided galvanized steel section
construction materials to the Community Sutherland Project
to build a municipal shelter at the main entrance of their
community centre. This has provided support to a number of
local organisations that have used the building.
Corporate Responsibility continued
Other stakeholders
We place high standards of behaviour on ourselves, our suppliers and
customers and consider our relationships with these stakeholders to
be of particular importance to our business. This is evidenced by the
reputation the Group has for its business ethics, integrity and fairness
in its dealings.
Supply chain partners are selected on the basis that the business
operates similar values to the Group. This benefits the business, as
it promotes and maintains stable long-term relationships to deliver
continued improvement, increasing business performance, viable
environmental benefits and sustainable long-term growth.
During 2014 the Group continued to use the procurement standards
for its purchasing activity that had been implemented in 2013, in
order to ensure that it mitigates risks stemming from its supply chain.
The standards ensure the Group maintains best practice in all areas
of the supply chain, for example, commercial risk mitigation, ethical
standards and denied party screening.
Code of Business Conduct
The Group has implemented a Code of Business Conduct (‘CBC’). This
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 worldwide to all those
employed within the Group and to all third parties engaged by the
Group, acting on behalf of the Group.
The CBC governs health and safety, fair honest and ethical business
practice, gifts and entertainment, conducting international business,
protection of individuals, resources and assets. At its top 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 further covers the
handling and minimisation of conflicts of interest and the protection
of the Group’s intellectual property rights.
The CBC can be obtained 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 any Group policy is taken very seriously.
Concerns can be reported to the Group Risk & Compliance Counsel
or via a compliance hotline, which is operated in conjunction with a
whistleblowing policy, approved annually by the Audit Committee.
This policy also gives 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.
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 behavioural
standards, as well as to give the relevant assurances in respect of the
Group’s key corporate, legal and social responsibilities.
Hill & Smith Holdings PLC Annual Report 2014
39
Strategic Report
Governance Report
Financial Statements
Shareholder Information
›
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Asset International contributed a number of their large diameter
plastic Weholite pipes to an award winning garden designer for
use at The RHS Royal Hampton Court Palace Flower Show. The
garden was created by designer Katerina Rafaj and explored the
idea of gluttony, as part of the show’s wider ‘Seven Deadly Sins’
theme. The garden was entered into the ‘Conceptual Garden’
category, where it won gold. The design highlights the huge
amount of food that is being consumed, and wasted, every day
in the UK, through the use of eye-catching oversized sculptures
of tinned goods, created from Weholite’s large diameter pipes.
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Hill & Smith Ltd sponsored Sutton Coldfield Rugby Football Club
Under 15’s.
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CR priorities for 2015
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Extension of the Safety Cloud management system to include
international audits.
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Continued improvement to health and safety performance.
Further identification of waste and water management
efficiency schemes.
To carry out the ESOS surveys in the UK.
Greater efficiency on energy savings.
Improvement in the environmental and sustainability policy.
Continued commitment to waste packaging reduction
throughout the Group.
Creative Pultrusions, Inc. participated in the Annual Easter Seals
Softball fundraising event in August 2014. The CP team (who
have played in the tournament for four years, and included
employees, family and friends) won the event.
40
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Strategic Report
V&S Galvanizing’s new plant north of Memphis, Tennessee, USA. The new facility features one of the largest galvanizing kettles in North America.
Hill & Smith Holdings PLC Annual Report 2014
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Shareholder Information
Governance Report
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Chairman’s Introduction to Governance
Board of Directors
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46 Governance Report
54 Audit Committee Report
58
59
72 Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
75
Remuneration Committee Report
Directors’ Remuneration Report
See further information online at hsholdings.com
42
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Galvanizing by Galva Gaillard (part of France Galva) at the 3 Valleys Savoie ski resort in the French Alps.
Hill & Smith Holdings PLC Annual Report 2014
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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 (see pages 14 to 16). As Chairman,
it is my role to provide leadership to enable the Board to discharge its responsibilities effectively. Such effectiveness is normally assessed internally
and, set out on pages 48 to 49 , are the results of that assessment.
Clive Snowdon, Senior Independent Director and Chairman of the Remuneration Committee reports in his introduction on page 58, the approach
taken to executive remuneration and the work carried out during the year on this high profile topic.
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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 the Code of Business Conduct, an international competition law manual and relevant online training, we have also introduced
denied parties screening software across the Group during 2014.
I look forward to meeting you at our Annual General Meeting on Thursday 14 May 2015.
Bill Whiteley
Chairman
10 March 2015
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Board of Directors
W H Whiteley BSc, FCMA
Chairman and Non-executive (66)
Bill 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.
Appointed to the Board
1 January 2010
Committee Membership
Nomination (c)
D W Muir BSc, C Eng, MICE
Group Chief Executive (54)
Derek joined the Company in 1988 and was appointed to the Board in 2006.
He served as Group Managing Director of the core Infrastructure Products
segment from 2001 and has been a Senior Manager within the Hill & Smith
group for over 27 years, having first been a Managing Director of Hill & Smith
Limited, one of the Group’s principal subsidiaries.
Appointed to the Board
21 August 2006
Committee Membership
Nomination
M Pegler BCom, FCA
Group Finance Director (46)
Mark joined the Company as Finance Director designate on 7 January
2008 and was appointed to the Board on 11 March 2008. He 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.
Appointed to the Board
11 March 2008
Committee Membership
n/a
Hill & Smith Holdings PLC Annual Report 2014
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Governance Report
Financial Statements
Shareholder Information
J F Lennox CA, LLB
Independent Non-executive (58)
Jock is a Non-executive Director of A&J Mucklow Group plc, Dixons Carphone
PLC and EnQuest PLC. He is also Senior Independent Director at Oxford
Instruments plc and 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.
Appointed to the Board
12 May 2009
Committee Membership
Audit (c), Remuneration and Nomination
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C J Snowdon BA, FCA
Senior Independent Non-executive (61)
Clive is an Executive Chairman of Shimtech Industries Group Limited,
Chairman of the Midlands Aerospace Alliance and Trustee of the Stratford
Town Trust. Clive 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.
Appointed to the Board
11 May 2007
Committee Membership
Audit, Remuneration (c), Nomination
A M Kelleher MSc, BA
Non-executive (48)
Annette has broad senior management experience in the international
industrials sector and is currently Group Human Resources Director of
Johnson Matthey PLC, as well as a Trustee of the Johnson Matthey Pension
Scheme. Prior to joining Johnson Matthey PLC, she held a number of senior
human resource roles in Pilkington and NSG Group. From 2006 to 2009,
Annette was an independent director of Tribunal Services, part of the UK’s
Ministry of Justice.
Appointed to the Board
1 December 2014
Committee Membership
Audit, Remuneration, Nomination
46
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Governance Report
Statement of compliance with UK Corporate Governance Code
The UK Corporate Governance Code published by the Financial
Reporting Council in September 2012 applies to the Group and is
available on the FRC website at www.frc.org.uk. The revised UK
Corporate Governance code published in September 2014 applies to
reporting periods beginning after 1 October 2014 and as such the
Board will report against the provisions of the revised code in its next
Annual Report.
The Board confirms that for the period ended 31 December
2014 it complied fully with the requirements of the UK Corporate
Governance Code 2012 (the ‘Code’) and this report outlines how we
have complied with the five main principles of the Code: leadership,
effectiveness, accountablity, remuneration and relations with
shareholders.
Leadership
Details of the Group’s business model and strategy can be found on
pages 8 and 9.
Leadership framework
The Hill & Smith Holdings PLC Group consists of the Company and
the principal subsidiary companies, listed on pages 134 to 136,
and operates in eight 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.
The Board is collectively responsible for ensuring that the business
acts in the best interests of the Group to deliver sustainable
profitable growth through the supply of Infrastructure Products and
Galvanizing Services; generating sustainable value for shareholders,
whilst preserving the interests of its customers, employees and
other stakeholders. The main facets of this responsibility comprise:
consideration of the long-term direction and strategy of the
Company; the values and standards within the business; subsidiary
company management performance; resources; risk management
and internal controls.
Board structure
During 2014 the Board constituted three Board committees as
described below and each committee reports to the Board.
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 and Senior Independent Director
A M Kelleher - Non-executive
Company Secretary - J C Humphreys (retired 31 Dec 2014)
C A Henderson (appt 1 Jan 2015)
Audit Committee
Remuneration Committee
Nomination Committee
The Audit Committee has responsibility
for planning and reviewing the Company’s
interim and preliminary results and the
annual reports and accounts, its internal
controls and results on the annual risk
management assurance.
The Remuneration Committee is responsible
for the design, approval and implementation
of the Company’s remuneration policy in
relation to Executive Directors, Company
Secretary and senior executives.
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
Chairman
C J Snowdon
Chairman
W H Whiteley
Other members
C J Snowdon
W H Whiteley (res. 16 Dec 2014)
A M Kelleher (app. 16 Dec 2014)
Other members
J F Lennox
W H Whiteley (res. 16 Dec 2014)
A M Kelleher (app. 16 Dec 2014)
Other members
J F Lennox
D W Muir
C J Snowdon
A M Kelleher (app. 16 Dec 2014)
Secretary
J C Humphreys
Secretary
J C Humphreys
Secretary
J C Humphreys
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Chairman and Chief Executive
There is a clear division of responsibilities between the Chairman and
the Chief Executive which is set out in writing and available at
www.hsholdings.com. 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.
The Chairman drives the Board agenda and determines how the
Board should use the time available to it during Board meetings. 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.
Board support
The Board is supported by the Company Secretary who, under
the direction of the Chairman, ensures that 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 Directors and management of the Group businesses are also
supported by the central function which includes risk management,
treasury, taxation, acquisitions and corporate development.
Conflicts
The Companies Act 2006 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 conflicted with
the interests of the Company, other than those that may arise from
Directors’ other appointments, as disclosed in their biographies on
page 44.
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.
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The Code provides that at least half the Board, excluding the
Chairman, should comprise the Non-executive Directors and that for
smaller companies(1) there should be at least two independent Non-
executive Directors. As the Board comprises;
› W H Whiteley (Chairman and Non-executive) - independent on
appointment;
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D W Muir (Group Chief Executive) and M Pegler (Group Finance
Director) - Executive Directors;
C J Snowdon (Senior Independent Director); and
J F Lennox and A M Kelleher - both independent Non-executive
Directors;
the Board confirms its adherence to the Code in this respect.
(1) A small company is one that is below the FTSE 350 throughout the year immediately
prior to the reporting year.
Directors’ terms and conditions
The service agreements and letters of appointment for the Executive
Directors and Non-executive Directors respectively, are detailed on
pages 65 and 66 of the Directors’ Remuneration Report.
Board meeting attendance
During the year attendance by Directors at Board and Committee
meetings was as follows:
Board
Audit
Nomination
Remuneration
Bill Whiteley (1)
Derek Muir
Mark Pegler
Jock Lennox
Clive Snowdon
Annette Kelleher (2)
Total meetings
9
9
9
9
9
1
9
5
5*
5*
5
5
1
5
4
4
1*
4
4
1
4
4
3*(3)
1*(3)
4
4
1
4
* indicates attendance of whole or part of the meeting by invitation.
(1) In line with best practice W H Whitely resigned from the Audit and Remuneration
Committees on 16 December 2014 and attended the meetings on that date by invitation.
(2) A M Kelleher was appointed to the Board on 1 December 2014, and to the three other
Board Committees on 16 December 2014.
(3) Neither of the Executive Directors is present when elements of their remuneration are
being discussed.
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.
The Chief Executive maintains a programme of visits to the Group’s
subsidiary businesses, throughout the world. The Group Finance
Director, Mark Pegler regularly visits the US and France and in 2014
also visted ATA, Sweden.
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Hill & Smith Holdings PLC Annual Report 2014
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Governance Report
Governance Report continued
Effectiveness
How the Board operates
The Board manages the overall control of the Group’s affairs with
reference to a formal schedule of matters reserved for the Board for
decision, including the review and approval of key policies.
In particular the Board makes decisions, reviews and approves:
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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 trading updates;
Taxation;
Financing and treasury;
Corporate governance;
Compliance with laws, regulations and the Company’s Code of
Business Conduct (‘CBC’);
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
2014 and up to the date of this report, the Board reviewed and
approved the following:
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The schedule of matters reserved for the Board;
Group Delegated Authorities;
Group Company Secretary appointment;
Group policy manual;
International competition compliance and online training;
Diversity and equal opportunities policy;
A three-year extension to the Group’s banking facilities;
Group tax strategy and policy;
New rules for the Hill & Smith Long-Term Incentive Plan,
Executive Share Option Scheme and Sharesave scheme; and
Corporate activity including the sale of Bromford Iron & Steel
and JA Envirotanks, the purchase of Variable Message Signs and
the closure of Joseph Ash’s Hereford galvanizing plant.
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
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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 five 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, if
considered appropriate.
All Directors have open access to the Group’s key advisors, senior management and the Company Secretary.
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
Skills and competencies
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 matters are fully and effectively
debated and challenged and no individual or group dominates the
Board’s decision-making processes.
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.
The biographies of the Directors of the Board are shown on page 44,
along with any significant other commitments and appointments
they may have.
Training and advice
All Directors are provided with the opportunity and are 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.
Evaluation of the performance of the Board
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.
When not facilitating an external evaluation, a bespoke online
questionnaire is used to conduct an internal Board evaluation. In
2013 the evaluation concluded that the areas identified as requiring
more Board time in 2014 were:
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How the Board measures its aims and objectives;
How the Board operates;
The monitoring and communication of strategic risks;
The increased application of risk management throughout the
organisation;
The further development of the levels of assurance, from the
internal audit processes; and
The development of the policy on diversity throughout the
organisation and at Board level.
The Board have responded to these matters by:
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Agreeing KPIs;
Ensuring the right balance of ‘altitude’ strategy discussions and
‘detailed’ business as usual discussions;
Strengthening the risk assurance process in 2014 by embedding
a staged risk management process of monitoring and mitigation
initiatives;
Continuing to evaluate the appropriateness of the Group’s risk
management programme and in 2014 introduced a holistic
approach to ensure mitigation was appropriate and effective.
The Board have introduced a new risk management process in
January 2015 in response to the guidance on Risk Management
issued in September 2014;
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Confirming, via the Audit Committee, that a plan of commercial
and operating reviews has been approved. This will ensure that
all subsidiaries are audited by the Group’s internal audit function
or external providers over a two year period; and
Communicating across the Group a policy on Equal
Opportunities, Discrimination & Diversity and in December 2014
the Group appointed its first female Non-executive Director.
The 2014 evaluation focused on the following factors:
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Leadership – strategy, performance and talent;
Board composition;
Board dynamics and behaviour; and
Board processes, including shareholder communications.
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 demonstrated that desired
improvements identified in 2013 had been implemented, including
improved risk management processes, a focus on commercial,
financial and compliance auditing of subsidiaries and policies on
equal opportunities and diversity.
The 2014 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
2015 were:
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Development of managerial capability at subsidiary business
level;
Succession planning; and
Increased KPI reporting.
Following this internal evaluation the Chairman met with each
Director, on a one-to-one basis, to consider the effectiveness of the
evaluation process and its conclusions. The Chairman also met with
the Non-executive Directors in the absence of the Executive Directors
to discuss the performance of the Executive Directors and the Non-
executive Directors, led by the Senior Independent Director, met in
the absence of the Chairman to review his performance.
Appointments to the Board
Annette Kelleher was appointed as Non-executive Director on
1 December 2014. Korn Ferry were engaged by the Company to
conduct a search for a suitable candidate and shortlisted several
individuals. Feedback from these meetings was then given to
the Chairman. The Nomination Committee subsequently met to
discuss the potential appointment. The Board had requested that
an individual with international human resources experience be
recruited, and the Committee, in considering this requirement and the
existing balance of skills, knowledge and experience on the Board, the
merit and capabilities of the candidates and the time they were able
to devote to the role in order to promote the success of the Company,
recommended the appointment of Annette to the Board.
Following her appointment Annette met with the Executive Directors
and Group Company Secretary and visited major companies within
the Group’s UK-based Roads, Utilities and Galvanizing businesses as
part of her induction.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Governance Report continued
Annual re-election of Directors
In compliance with the Code and the Company’s Articles of
Association, Directors retire at every AGM and, 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 Nomination
Committee, taking account of the results of the Board evaluation
referred to on this page.
fundamental to achieving corporate objectives. An ongoing process
for identifying, evaluating and managing the significant risks faced
by the Group and assessing the effectiveness of related controls has
been established by the Board to ensure an acceptable risk/reward
profile across the Group.
The process has been in place throughout 2014, and up to the date of
approving the Annual Report and Financial Statements, and the key
elements of this process are:
Following the formal evaluation of the performance of the Board
in 2014, Annette Kelleher is being proposed for election and the
other Directors for re-election at the 2015 AGM. Biographies for each
Director can be found on page 44 and 45.
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A comprehensive system of monthly reporting from key
executives, identifying performance against budget;
Analysis of variances, major business issues, key performance
indicators and regular forecasting;
› Well-defined policies governing appraisal and approval of capital
expenditure and treasury operations;
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Regular meetings to identify and discuss key risks and
mitigations with a broad sample of the senior management
team and the Executive Directors;
Review of the corporate risk register in terms of completeness
and accuracy with the senior management team and the
Executive Directors;
Audit Committee discussion of the corporate risk register and the
risk management system with subsequent reports to the Board;
and
The introduction, in January 2015, of a new risk management
process in response to the guidance on risk management issued
in September 2014.
Our process for identifying, evaluating and managing the significant
risks faced by the Group and assessing the effectiveness of related
controls routinely identifies areas for improvement, but the Board
has neither identified nor been advised of any failings or weaknesses
which it has determined to be material or significant. The Board
considered its appetite for risk, determining that the risks and
mitigating actions were appropriate to the level of risk that was both
acceptable to, and incumbent within, a business of our size.
More information on the Group’s key risks and uncertainties is shown
on page 17 to 21.
The Remuneration Committee
Please see the Remuneration Committee Chairman’s letter to
shareholders on page 58.
Remuneration Committee composition
During the year the Committee comprised the Non-executive Director
and Senior Independent Director Clive Snowdon as Chairman, Jock
Lennox Non-executive Director, the Group Chairman Bill Whiteley
(who resigned from the Committee on 16 December 2014) and
Annette Kelleher (appointed to the Committee on 16 December
2014). The Committee met four times in the financial period under
review, with all members of the Committee being present on each
occasion.
Principal activities
The role of the Remuneration Committee, and details of how it
implements the Company’s Remuneration Policy, is set out on pages
58 to 67. A brief summary of the Company’s Remuneration Policy,
approved at last years’ AGM, can be found on pages 67 to 71.
Accountability
Committees of the Board
The Board has three Committees - Audit, Nomination 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 54 and 58 respectively. A report on the Nomination
Committee is given below. With the exception of the Chairman, each
of the Non-executive Directors are members of each Committee.
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
Please see the Audit Committee Chairman’s letter to shareholders on
page 54.
Audit Committee composition
During the year the Committee comprised Jock Lennox as Chairman,
the Non-executive Director and Senior Independent Director Clive
Snowdon, the Group Chairman Bill Whiteley (who resigned from the
Committee on 16 December 2014) and Annette Kelleher (appointed
to the Committee on 16 December 2014). The Committee met five
times in the financial period under review, with all members of the
Committee being present on each occasion. The Chief Executive,
Finance Director, Group Risk & Compliance Counsel and Group
Financial Controller attend by invitation.
Jock Lennox was 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.
Principal activities
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 54 to 57.
Internal control and risk management
Overall responsibility for the system of internal control, reviewing its
effectiveness and ensuring that there is a process to identify, evaluate
and manage any significant risks that may affect the achievement of
the Group’s strategic objectives lies, with the Board.
The Board and the Audit Committee have reviewed the effectiveness
of the Group’s risk management and internal control systems in
accordance with the Code for the period ended 31 December 2014,
and up to the date of approving the Annual Report and Financial
Statements. The risk management and internal control system is
designed to manage, rather than eliminate, the risk of failing to
achieve business objectives and can provide only reasonable, and
not absolute, assurance against material misstatement or loss. The
assessment and control of risk are considered by the Board to be
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
The Nomination Committee
Dear Shareholder,
During 2014 the Committee has considered Board diversity and
effectiveness. The Group’s overall approach to diversity is that we aim
to reflect the business operation of the companies with the Group.
We do not have specific diversity targets and appointments are made,
with reference to our Diversity Policy, on merit and against objective
criteria.
The Board’s effectiveness continues to be evaluated annually and
more details of the process followed can be found on page 49.
Bill Whiteley
Chairman, Nomination Committee
10 March 2015
Nomination Committee composition
The Committee comprises the Group’s Chairman Bill Whiteley as
Committee Chairman, the Non-executive Directors Clive Snowdon,
Jock Lennox and Annette Kelleher (appointed on 16 December 2014),
and the Group Chief Executive, Derek Muir. The Committee met four
times in the financial period under review with all members of the
Committee being present on each occasion.
Principal activities
During the year, and the period up to the date of this report, the
Committee considered:
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Board succession and diversity - recognising that Clive Snowdon
had served in excess of six years, and in order to ensure
succession and refreshing of the Board, the Committee engaged
Korn Ferry to recruit a new Non-executive Director. This resulted
in the Committee recommending to the Board the appointment
of the Company’s first female Non-executive Director.
Board best practice - recommending that the Chairman
of the Company should not be a member of the Audit and
Remuneration Committees.
Board evaluation - a summary of the process and key matters
arising from the 2014 Board evaluation, led by the Chairman and
internally facilitated by the Company Secretary, is contained on
page 49.
The role of the Nomination Committee is to assist 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 is sustained over the long term.
All Non-executive Directors, including the Chairman and the Group
Finance Director, were selected through externally facilitated
recruitments. All Non-executive Directors are independent, as is 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. Having appointed its first female Non-executive
Director in 2014, the Committee will continue to monitor any need
to make any further changes to the composition of the Board, in
the context of the Company’s UK-based strategy and international
expansion of the Group.
Following an initial three-year term, the terms of Non-executive
Directors are reviewed annually, in line with their annual retirement at
the AGM. The letters of appointment for the Non-executive Directors
are available for inspection at the Company’s registered office and the
AGM.
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Date of appointment
Length of service at
31 December 2014
Bill Whiteley
1 January 2010
5 years
Clive Snowdon
11 May 2007
7 years 7 months
Jock Lennox
12 May 2009
5 years 7 months
Annette Kelleher
1 December 2014
1 month
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.
More information on the Nomination Committee’s terms of reference
can be found on the Company’s website.
Relations with shareholders
The Board is managing the Group ultimately on behalf of its
shareholders and it undertakes this responsibility in such a way to
maximise shareholder value over the long-term and to advance the
interests of all of the Group’s stakeholders. In this respect:
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The Chief Executive Officer and Group Finance Director meet with
institutional shareholder representatives regularly during the
year, including days at Birtley Group, Lionweld Kennedy Flooring,
Hill & Smith and Joseph Ash, 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 AGM are published
as soon as the time required for their printing allows, 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 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 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, trading updates 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.
52
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Governance Report continued
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
introduced training and education programmes for employees,
relating to compliance within each market and how we expect our
business to be conducted. Our revised CBC issued in 2013 is supported
by a set of global policies issued through the Group intranet and
internal communications.
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 and 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.
The Group has also implemented a set of procurement standards,
which seeks to ensure that the Group and its subsidiaries mitigate
any risk stemming from its supply chain and is able to leverage the
economies of scale a group of its size, composition and structure can
hope to expect.
The enhanced anti-bribery and corruption policies, the procedures
for gifts and entertainment and related guidelines issued in previous
years, 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 2013 and this continued
into 2014, where we undertook a review of our subsidiaries’
knowledge of competition law. The outcome indicated a good
awareness of competition law across the subsidiaries, together with
adherence to the Group’s compliance policies.
During 2014, in continued support of the Group’s compliance and
ethics programme we introduced denied parties compliance software
to all Group subsidiaries. This allows companies to screen all actual
and prospective customers to ensure they are not on any worldwide,
EU or UK sanctions lists and to take appropriate action and advice as
necessary.
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.
On behalf of the Board
Bill Whiteley
Chairman
10 March 2015
Asset Zoneguard on A14 Morgan Sindall contra flow works N2 W2 system.
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Asset International’s BEBO T94 installed on the Heysham to M6 link Milestone Canal Bridge. This is the largest precast over-filled arch constructed in the world.
Constant effort pipe supports supplied to the Sadara petrochemical project in Saudi Arabia.
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Audit Committee Report
Jock Lennox
Chairman, Audit Committee
Dear Shareholder
During the year the Audit Committee has built upon the risk
management process that was implemented, paying particular
attention to guidance issued during the year to focus the Board on
the Group’s principal risks. The Committee also reconsidered the
Group’s approach to internal controls; introducing a new risk-based
approach to the audits of its subsidiaries that included the self-
assessment, by the subsidiaries, of compliance with Group policies
and a more in-depth investigation by the internal audit team, into
each company’s approach to the internal control environment around
its commercial and operating risks.
This Audit Committee report explains how the Committee has
discharged its responsibilities, and takes into account the specific
areas of:
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Primary areas of judgement considered by the Committee in
relation to the 2014 accounts;
Internal controls;
Risk management;
Assessment of effectiveness of external audit; and
› Whistleblowing.
I trust you find this report helpful as an insight into the activities
undertaken on your behalf. I should be delighted to answer questions
that you might have and I look forward to seeing you at our AGM in
May 2015.
Jock Lennox
Chairman, Audit Committee
10 March 2015
Joseph Ash galvanized these steel horses by artist Andy Scott. There were five horses in total - a stallion and four galloping horses - ranging from 2.5 to 3.5 metres tall and were
galvanized at the Telford plant. Due to their complex shapes and intricate forms, they were handled extremely carefully and dipped in their entirety to ensure an even galvanized coating.
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Shareholder Information
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Composition and responsibilities of the Committee
Composition
During the year the Audit Committee consisted of Jock Lennox as
Chairman, Clive Snowdon, Bill Whiteley (resigned on 16 December
2014), and Annette Kelleher (appointed on 16 December 2014).
Having been a former partner of Ernst & Young, Jock Lennox is
considered by the Board to have recent and relevant financial
experience and so the requisite experience to Chair the Committee.
The Committee meets according to the requirements of the
Company’s financial calendar and during 2014 met on five occasions;
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 January, September and December
to review risk and the Board’s appetite for risk, review the internal
audit activities and reports and the internal audit plan for the year
ahead.
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 47.
Each meeting allows time for the Committee to speak with
the external auditors without the presence of the Executive
management.
As the Audit Committee Chairman, Jock maintains regular contact
with the external audit partner outside of Committee meetings and
without the management of the business present. In these meetings
a wide range of matters are discussed, including the change in
financial reporting and governance landscape, the Company’s
readiness to accommodate these developments, the external
auditor’s approach to auditing activities, especially outside the UK,
and the robustness of our assurance approach generally.
Responsibilities
To ensure governance and control over the Group’s financial reporting
and risk management processes with assurance provided by internal
activities and external auditors by:
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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
Financial Statements, 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;
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; and
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Reviewing and approving of the Group’s whistleblowing policy
and subsequent consideration of any matters raised.
The Committee’s terms of reference can be found on the Company’s
website.
Primary areas of judgement considered by the Committee in
relation to the 2014 accounts
In order to discharge its responsibility to consider accounting and
financial reporting integrity, the Committee carefully considers key
judgments applied in the preparation of the Consolidated Financial
Statements which are set out on pages 80 to pages 120. The
Committee’s review included consideration of the following key
accounting judgements:
Valuation of goodwill and indefinite life assets
The value of goodwill and indefinite life assets amounts to £110.5m
at 31 December 2014. 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 uncertain economic conditions around the
world 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. The Committee also
considers management’s assessment of the sensitivities to these
assumptions and the impact that those sensitivities may have, and
also considers the disclosures made in respect of sensitivities in note
10 to the Financial Statements on page 101. Business plans are
signed off by the Board and assessment models are reviewed as part
of the audit, for which the external auditor, KPMG, provides reporting
to the Committee.
Defined benefit pension scheme valuation
Net defined benefit pension obligations under IAS19 amount to
£21.1m at 31 December 2014. 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 & Customs and other tax authorities in other
jurisdictions. Judgements have been made by management following
discussion with the Group’s tax advisers and internal review. The
Committee has reviewed the analysis behind these judgements and
confirms its agreement that the Group’s tax provisions are adequate.
Internal controls
The Committee considered a revised internal audit approach in 2014
and approved a plan that replaced internal audit peer reviews with
subsidiary level commercial and operating reviews. The plan was
assessed on the basis of providing responses to some of the key
risks faced by the Group, as identified on the Group’s risk register.
Subsidiary businesses were required to self-assess their compliance
with Group-wide policies; these assessments were validated by
a combination of external auditor and internal auditor activity.
The internal audit team took a more risk-based approach to the
internal control environment. This included contract and project
management, procurement and supply chain management, sales
and credit management, compliance and financial reporting, thus
giving the Committee a balanced overview across the Group, taking
into account the level of risk and previous coverage. At meetings
throughout the year, progress against this plan was reviewed.
Additional areas of review were added to the plan as required, where
circumstances gave rise to an increased level of risk.
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Hill & Smith Holdings PLC Annual Report 2014
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Governance Report
Audit Committee Report continued
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 were provided at the request of
the Committee and for the period covered by this report the following
were considered.
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The control environment at Medway Galvanising Ltd (acquired
April 2013);
Foreign currency hedging arrangements;
Project-based capital expenditure; and
Commercial and financial management of the operations based
in Thailand and India.
Risk management
The risk management process is reviewed throughout the year by
the Committee to ensure that it is set up to deliver appropriate risk
management across the Group. During the year the risk management
improvements made in 2013 were further consolidated with
new anti-bribery and corruption processes around commercial
intermediaries being introduced; the roll out of online competition law
training and live testing of compliance and the introduction of denied
party screening procedures.
The publication, in September 2014, by the Financial Reporting
Council (‘FRC’) of their Guidance on Risk Management, Internal
Control and related Financial Business Reporting will focus the Board’s
attention on the Group’s ‘principal’ risks and the risk management
process has been updated further to reflect the broader scope of
these new requirements introduced in 2015.
The Committee believe that these improvements will further
strengthen the way that the business understands and manages risk.
In addition, the Committee monitors the key risks on the corporate
risk register throughout the year. A detailed report is provided to the
Committee from the Group Risk & Compliance Counsel, monitoring
the movements in major risks and providing updates 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 17 to 21.
Assessment of effectiveness of external audit
There are a number of areas that the Committee considers in relation
to the external auditor: performance in discharging the audit and
interim review of the financial statements; independence and
objectivity; and reappointment and remuneration.
External auditor performance
The external auditor, KPMG, provided the Committee with their plan
for undertaking the 2014 year end audit during the Committee
meeting in September 2014. This highlighted the proposed approach
and scope of the audit for the coming year, which was similar to 2013
and identified the key issues in detail. The Committee debated, and
appropriately challenged, the basis for these areas 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 included a detailed assessment compiled
from the individual businesses and head office finance team feedback
and covered, amongst other things:
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The calibre of the external auditor including size, resources,
geographical representation and reputation;
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The external audit team in terms of the requisite skills,
professional and industry knowledge;
The scope of the external audit to adequately address the
financial reporting risks facing the Company and 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 Committee debates this feedback and concluded that KPMG
had continued to deliver an effective external audit of the Group’s
financial controls, performance reporting and risk identification and
management.
The external auditor prepared a detailed report of their findings
in respect of the 2014 audit. The Committee discussed the issues
raised in the report, particularly in relation to the areas highlighted
at the meeting in March 2015. A similar discussion of the external
auditor’s report, following their informal review, is undertaken by the
Committee at the half year. 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 Group’s auditors since 1999, having been
appointed following a competitive tender process. The external
auditors are required to rotate the lead partner every five years. Such
changes are carefully planned to ensure business continuity without
undue risk or inefficiency. The partner responsible for the Group audit
completes his fifth year in the year ending 31 December 2015.
The comply-or-explain provision in the UK Corporate Governance
Code has effectively been superseded by the UK Competition
Commission’s final report and recent developments in Europe. EU
legislation requires mandatory rotation of audit firms every ten
years, extendable, if there is a tender process, up to 20 years. The
transitional rules under the EU legislation will require an initial change
of audit firm no later than for the 31 December 2024 year-end audit.
The Competition Commission had previously proposed mandatory
audit tenders at least every ten years with different transitional rules,
but has now announced a delay in its implementation programme to
consider fully the implications of the EU rules on its proposals. There
is therefore uncertainty as to whether the Group will be required to
tender the audit prior to 2024.
Until this uncertainty is resolved, the Committee will continue to
consider annually the need to tender the audit for audit quality or
independence reasons. There are no contractual obligations in place
that restrict our choice of statutory auditor.
The Group has a policy whereby, before any former employee of the
external auditor may be employed by the Group, careful consideration
is given to whether the independence of the auditor will be adversely
affected and approval of the Audit Committee is required.
Hill & Smith Holdings PLC Annual Report 2014
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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 review forms part of the terms
of reference of the Committee and will be reviewed again in 2015 in
light of the aforementioned EU directive. Included within the current
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 approval, by the Group Finance Director, of
expenditure below £50,000 and above that figure, approval by 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 cost effective, for non-audit
services to be provided by the external auditor, 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.
During 2014, there were fees of £34,000 (2013: £200,000) paid to the
auditor for non-audit services. The fees paid covered due diligence on
acquired businesses and aborted acquisition costs £6,000
(2013: £171,000), pension advice £7,000 (2013: £19,000) and an
interim review £21,000, which this year included additional work in
respect of India and Thailand (2013: £10,000). Audit fees for 2014
were c.£600,000, representing a 1:18 ratio between non-audit and
audit fees (2013: 1:3). Further details of these amounts are included
in note 6 of the accounts.
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 CBC
is being breached by any person or group of people, he/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.
During the year the Committee received nine individual reports from
the Group Risk & Compliance Counsel on matters reported under the
Group’s whistleblowing policy. The incidents were reported through
the whistleblowing helpline and related to individual employment
terms or working relationships with other employees and were
resolved by local management.
Fair, balanced and understandable
As part of the governance process with the Company, the Committee,
at the request of the Board, has considered whether, in its opinion,
the 2014 Annual Report and Accounts is fair, balanced and
understandable and whether it provides the information necessary
for shareholders to assess the Group’s performance, business model
and strategy.
Prior to recommending to the Board that they were able to sign
the Annual Report and Accounts the Committee reviewed a report
received from the management responsible for the preparation of
the Annual Report detailing how the report was fair, balanced and
understandable.
The document was fair: In that the information given represents the
whole story of the business’ record performance in 2014 and does
not mislead the reader by excluding appropriate bad news. That the
disclosures of the Company’s business segments and key messages
are consistently delivered throughout the document, KPIs are clear
and appropriate and linked to both the Company’s strategy and
remuneration incentives.
The document was balanced: In that it was a suitable document
to inform both existing and prospective shareholders about the
financial and non-financial performance of the business, with the
messages delivered in the Directors’ Report, including the Operating
and Financial Review and the Financial Statements being balanced
and consistent and that the report set out a detailed and fair
representation of the Company’s activities and performance and
that certain matters have been identified and discussed between
management, the Audit Committee and KPMG in order to correctly
disclose the performance, controls and prospects of the Group.
Finally the document was understandable: In that it allows
shareholders to follow the whole story of the Company’s financial
and non-financial performance in 2014 and allows them to get a
clear and understandable picture of the Company’s key drivers and
business operations.
Following the review, the Committee confirmed that the Annual
Report was fair, balanced and understandable.
Summary
We aim to continue to develop responsibilities for financial reporting
and the related governance and assurance. We are aware that under
section 2.2 of the Corporate Governance Code 2014 in respect of
2015 we will be required to make a broader statement about the
Company’s viability, based on a robust assessment of the Company’s
principal risks and the Company’s current position. We will continue
to make improvements to our risk management processes and
approach to our internal control environment in order to comply with
this code.
Jock Lennox
Independent Non-executive Director
Chairman, Audit Committee
10 March 2015
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Remuneration Committee Report
Clive Snowdon
Chairman, Remuneration Committee
Dear Shareholder,
On behalf of the Board I am pleased to present the Company’s
Annual Remuneration Report. This report shows how the Company’s
Remuneration Policy, approved by members at last year’s AGM, was
applied throughout 2014.
Remuneration policy
The Company’s Remuneration Policy was put before members at our
AGM in May 2014 and I’m pleased to report that it was approved by
97.73% of our shareholders. During the year, the Committee reviewed
the remuneration arrangements and the approved Remuneration
Policy and concluded that its policy continued to be appropriate.
Performance
Our Remuneration Policy, whilst providing a fair and stable framework
for Executive remuneration, is designed to have a significant
proportion of Executive pay linked to achievement of demanding
performance targets. The Company has performed strongly in 2014,
despite there being challenging market conditions in some of the
economies in which we operate. Underlying profit before tax was up
11.7% year-on-year and the annual growth in underlying earnings
per share (‘UEPS’) was 11.4%.
These two measures together with underlying operating margins and
internal return on capital (‘ROC’) are the performance conditions used
to determine any awards under the Annual Bonus scheme and each
is weighted equally.
During the year the Company has performed well against these
measures, exceeding all the targets set. Growth in UEPS was 11.4%,
profit before tax of £46.0m, an underlying operating margin of 10.8%
and internal return on capital (‘ROC’) of 14.5%. The Remuneration
Committee was satisfied that this performance reflected the
underlying performance of the Company and the maximum bonus of
100% of salary vested.
A new Long-Term Incentive Plan was introduced in 2014, and
cognisant of shareholder concerns it was introduced with 25%
of the award vesting at median Total Shareholder Return (‘TSR’)
performance as opposed to 30% on historic plans. The Committee
remains of the opinion that these types of plan incentivise Executive
Directors to achieve high returns for shareholders over a three-year
period.
The strong results in 2014 have contributed to the Company’s
performance over the last three years (to 31 December 2014); with
underlying profit before tax increasing 23.0%, UEPS rising by 30.4%
and the Company’s share price gaining 331.5p, an increase of 132%;
resulting in 92.7% of the LTIP 2012 award vesting as shares.
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31 Dec 14
Hill & Smith
FTSE SmallCap
FTSE All-Share
Annual Remuneration 2015
The Committee approved base salary increases of 3% in December
2014 for the Executive Directors, which is in line with the increase
awarded to the wider group population and is considered by the
Committee to be appropriate and in line with the Group’s 2014
performance. For completeness there has been no change in the
quantum of the annual bonus or LTIP in 2015.
The activities of the Committee during 2014, including deliberating
on the LTIP and annual bonus performance conditions, are outlined
on page 59. Throughout the year, and to the date of this report,
the Committee has maintained dialogue with its advisors, Deloitte,
particularly in relation to remuneration guidance issued in the revised
UK Corporate Governance Code. The Committee will continue to
discuss such changing governance matters, but remains of the belief
that the current approved Remuneration Policy ensures a continued
alignment of business strategy, Executive remuneration and
shareholder value.
I trust you find this report helpful as an insight into the activities
undertaken on your behalf. I should be delighted to answer questions
that you might have and I look forward to seeing you at our AGM in
May 2015.
Clive Snowdon
Senior Independent Non-executive Director
Chairman, Remuneration Committee
10 March 2015
Hill & Smith Holdings PLC Annual Report 2014
59
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Directors’ Remuneration Report
Policy and strategy
The Company’s strategy is explained in detail on pages 8 to 39. The Company’s Remuneration Policy, which can be found in summary form on
pages 68 to 71, and in complete form on the Company’s website, was approved at the Annual General Meeting (‘AGM’) on 14 May 2014, permits
the payment of base salary, benefits and pension to help recruit and retain Executive Directors. Additional variable amounts of pay in respect
of annual bonuses and Long-Term Incentive Plans (‘LTIP’) are made to reward achievement of the annual financial and/or strategic business
objectives and the achievement of higher returns for shareholders in the longer term, as indicated below.
Strategic drivers
Measured by annual bonus targets of:
Organic revenue
growth
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.
UEPS
Geographical
diversification
The international diversity of the markets in which we operate
continues to underpin our performance.
Budgeted profit
Target returns
and leverage
Operating margins are an integral measure of the Group’s success.
Our target operating margin for a business unit is 10%, although a
lower margin profile may be acceptable if the business’ return on
capital employed is above 20%.
ROC(1)
Operating margins
Active portfolio
management
Our strategic objective is to develop more sustainable businesses in
each of our chosen sectors through organic and acquisitive growth.
Budgeted profit
Entrepreneurial
culture
We encourage an entrepreneurial culture in our businesses ensuring
that they are agile and responsive to changes in their competitive
environment.
Budgeted profit
ROC(1)
Operating margins
Sustainable profit
growth
Our objective is to deliver balanced profitable growth through both
organic and acquisition opportunities.
UEPS
Leads to:
Measured by Long-Term
Incentive Plan targets of:
Shareholder
value
50% of any award is based
on growth in the absolute
UEPS that is in excess of
RPI, over the three-year
performance period;
and
50% of the award is based
on TSR performance over
the three-year performance
period relative to the FTSE
SmallCap.
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(1) ROC represents an internal return on capital calculated as return on average invested capital at cost, adjusted for property ownership.
The extent to which payments and awards have been made under the Annual Bonus and LTIP arrangements can be found on pages 60 and 62.
Committee activity
The Committee
During the year, and the period to the date of this report, the Remuneration Committee (the ‘Committee’) consisted of Clive Snowdon, Chairman,
together with Jock Lennox, Bill Whiteley and Annette Kelleher, (who joined the Committee on 16 December 2014) following her appointment as
a Non-executive Director on 1 December 2014. All members of the Committee are Non-executive Directors of the Company and are regarded as
independent. They do not participate in any form of performance related pay or pension arrangements. In line with best practice, Bill Whiteley
stepped down from the Committee on 16 December 2014.
During this time the Committee:
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Approved the continued approach to Executive Directors’ shareholding and the retention of at least 25% of any vesting LTIP award;
Reviewed the Company’s Remuneration Policy approved by shareholders at the AGM in May 2014, and was satisfied that it remains
appropriate;
Adopted new rules for the Company’s LTIP, Executive Share Option Scheme (‘ESOS’) and the Sharesave Scheme approved by shareholders at
the Company’s AGM in 2014;
Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2011, confirming that 100% of the Total
Shareholder Return (‘TSR’) portion of the original award would vest and none of the UEPS portion of the original award would vest;
Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2012, confirming that 100% of the TSR portion
and 85.4% of the UEPS portion of the original award would vest;
Approved grants under the Company’s LTIP;
Reviewed the base salaries of the Executive Directors and approved a 3% increase, with effect from 1 January 2015. This was in line with the
increase elsewhere in the Group.
Approved the annual bonus calculation and payment for the financial years 2013 and 2014 and the performance measure and targets for
2015;
Reviewed and approved the Company’s Annual Remuneration Report for inclusion in the Company’s 2014 Annual Report and Accounts; and
Considered and approved the Committee’s terms of reference.
60
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Directors’ Remuneration Report continued
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.
Advisors
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 were appointed by the Committee and provided share scheme advice, pension advice and corporation tax advice to the Group. Their fees
for providing remuneration advice to the Committee amounted to £11,500 for the year ended 31 December 2014. The Committee assesses from
time to time whether this appointment remains appropriate or should be put out to tender and takes into account the Remuneration Consultants
Group Code of Conduct when reviewing Deloitte’s ongoing appointment. The Chief Executive Officer and Finance Director also attended
Remuneration Committee meetings to provide advice and respond to specific questions, but are not in attendance when their own remuneration
is discussed. The Company Secretary acts as Secretary to the Remuneration Committee.
Statement of voting at the 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 Policy Report and Annual Remuneration Report at the Company’s
AGM held on 14 May 2014.
% of votes
Remuneration Policy Report
Annual Remuneration Report
For
97.73%
99.36%
Against
2.00%
0.38%
329,276 votes were withheld in relation to this resolution (<0.5%)
22,204 votes were withheld in relation to this resolution (<0.5%)
Withheld votes
The following parts of the Remuneration Report are subject to audit, other than elements explaining the application of the policy for 2015
How the Remuneration Policy was implemented in 2014 – Executive Directors
Single remuneration figure for 2014
D W Muir
M Pegler
Total
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
451,000
288,500
739,500
58,360
20,400
78,760
451,000
288,500
739,500
Single remuneration figure for 2013
D W Muir
M Pegler
Total
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
438,000
280,000
718,000
49,773
19,800
69,573
71,832
45,920
117,752
(1) The amount of base salary received in the year.
LTIP (due in respect of
performance period
ended 2014)(4)
761,628
485,650
1,247,278
LTIP (due in respect of
performance period
ended 2013)(5)
414,800
268,335
683,135
Pension
112,750
72,125
184,875
Pension
109,500
70,000
179,500
Total ‘Single
Figure’ 2014
1,834,738
1,155,175
2,989,913
Total ‘Single
Figure’ 2013
1,083,905
684,055
1,767,960
(2) The taxable value of benefits that can be received in the year: membership of the Company’s healthcare scheme, income protection scheme, personal accident insurance, car (or cash
allowance), ill health and life assurance. A total of £31,461 (2013: £23,563) was paid to D W Muir in the form of subsistence which is subject to PAYE and NIC deduction.
(3) Annual Bonus is the value of the bonus earned in respect of the financial period under review. A description of how the bonus pay-out was determined can be found on page 62.
(4) For the year ended 31 December 2014 the growth in UEPS over the three year performance period commencing 1 January 2012 and ending 31 December 2014 was 30.4%, 22.8 ppts above
RPI growth for the same period, therefore 85.4% of this portion of the LTIP award vests. The Company’s TSR was positioned in the upper quartile relative to the FTSE SmallCap for the same
period and consequently 100% of this portion of the LTIP award vests. This resulted in a total of 92.7% of the LTIP vesting in March 2015, giving D W Muir the benefit of 115,959 shares and
M Pegler the benefit of 73,941 shares. The face value of the vested shares is based on the closing share price of 594.0p/share as at 6 March 2015. The value of dividends receivable in respect of
vesting LTIPs was for D W Muir £54,955 and for M Pegler £35,042, which in both cases was taken in Company shares (12,261 shares for D W Muir and 7,818 shares for
M Pegler).
(5) 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 was taken in Company shares
(8,052 shares for D W Muir and 5,140 shares for M Pegler).
Hill & Smith Holdings PLC Annual Report 2014
61
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Salary
Basic 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
previous benchmarking exercises, the current performance of the Company and the levels of pay increases 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
2014 base salary
2015 base salary
£451,000
£288,500
£464,500
£297,200
Increase
3.0%
3.0%
In approving these salary increases the Committee also took into account the overall performance of the Group, the continued development of
the international scale of the Group and the management of the Group’s net debt.
Benefits
The taxable value of benefits that can be received during the year are: membership of the Company’s healthcare scheme, income protection
scheme, personal accident insurance, car (or cash allowance), ill health and life assurance. D W Muir receives an amount for subsistence which is
subject to PAYE and NIC deductions.
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.
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The details of D W Muir’s pension accrued in the defined benefit scheme are shown below:
Accrued pension at 31 December 2014
Transfer value of accrued pension at 31 December 2014
Change in accrued pension of 2013 excluding increase for inflation
Normal retirement date
£126,297
£3,470,000
nil
6 July 2020
The increase in the transfer value calculated for D W Muir (£2,829,000 as at 31 December 2013) is a result of changes in financial conditions over
the period from 31 December 2013 to 31 December 2014. The 0.8% reduction in corporate bond yields has had the largest impact, slightly offset
by the reduction in market expectations of inflation.
As noted last year in the 2013 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. D W Muir has not had any further benefit accrual within the defined benefit scheme in 2014. Any
inflationary increases that have occurred over the year are in line with statutory requirements and these increases have already:
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Been accrued by D W Muir;
Been funded for in the executive defined benefit scheme; and
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 six years were:
Year Ending
31/12/2014
31/12/2013
31/12/2012
31/12/2011
31/12/2010
31/12/2009
Pension input amount
£000s
nil
nil
nil
99
26
67
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, 31 December 2013 and 31 December 2014 are £nil.
62
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Directors’ Remuneration Report continued
D W Muir receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary amounting to £112,750 for the year ended
31 December 2014 (2013: £109,500).
M Pegler receives a payment of 25% of his base salary as a defined contribution to his own private pension arrangement amounting to £72,125
for the year ended 31 December 2014 (2013: £70,000).
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.
2014 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. The Remuneration Committee is aware that some shareholders wish
to see detailed retrospective disclosure of bonus targets, however the Committee considers this inappropriate given that such disclosure would
provide information relating to the Company’s approach to annual budgeting. The targets of underlying profit before tax (‘PBT’), UEPS, operating
margins and returns on capital are based on commercially sensitive information that the Board believes could negatively impact the Company’s
competitive position by providing competitors with insight into our business plans and expectations, resulting in significant risk to future
profitability and shareholder value. The Committee will however, 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 the performance delivered. The performance conditions for the year ended 31 December 2014
that applied in equal measure and the actuals achieved were:
Growth in UEPS
Budgeted underlying profit before tax
Underlying operating margins
Achievement of budgeted internal ROC
Maximum pay out per
performance measure
Actual performance
Actual pay out per
performance measure
25%
25%
25%
25%
11.4%
£46.0m
10.8%
14.5%
25.0%
25.0%
25.0%
25.0%
The Remuneration Committee considers that these performance measures continue to reflect the Group’s strategy and the direction for 2015.
Long-Term Incentive Plans
The Hill & Smith Long-Term Incentive Plans 2007 and 2014 provide for the grant of conditional share awards. No new awards will be made under
the 2007 LTIP rules and, in line with the approved Remuneration Policy, any future awards will be made under the 2014 LTIP rules. Awards are
generally made to Executive Directors, and senior members of the Company’s management team, at the discretion of the Committee, 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 manager, in respect of any financial year, is 100% of that Director’s or
employee’s base salary. An additional award of up to £30,000 can be made under the tax advantaged part of the Hill & Smith Executive Share
Option Scheme 2014 (‘ESOS’) and to the extent these option awards are exercised at a gain, the LTIP awards will be forfeited to the same value to
ensure the total pre-tax value delivered remains unchanged. Awards are not pensionable and may not generally be assigned or transferred.
Awards vesting in respect of the three-year performance period ended 31 December 2014, which were granted under the 2007 LTIP rules, are
subject to the following performance conditions:
Firstly, 50% of the award is based on growth in the 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 two points.
Absolute UEPS growth
over three years
less than RPI + 10%
RPI + 10%*
RPI + 25%*
Secondly, 50% of the award is based on TSR performance over the three-year performance period relative to the FTSE SmallCap.
Below threshold
Threshold
Maximum
* Straight line vesting will apply between these two points.
Company TSR relative
to FTSE SmallCap
Below median
Median*
Upper quartile*
Vesting amount
0%
0%
100%
Vesting amount
0%
30%
100%
Hill & Smith Holdings PLC Annual Report 2014
63
Strategic Report
Governance Report
Financial Statements
Shareholder Information
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 the FTSE SmallCap index.
Based on TSR performance in the three-year performance period ended 31 December 2014, Hill and Smith’s TSR performance was within the
upper quartile of the comparator group and therefore 100% of the portion of the TSR element of the award is expected to vest. UEPS growth over
the same period was 22.8 ppts above RPI and therefore 85.4% of the UEPS element of the award is expected to vest.
The following parts of the Remuneration Report are not subject to audit
TSR performance graph
The following graphs shows the TSR performance of the Company since 2012, against the FTSE SmallCap index and the FTSE All-Share index. TSR
was calculated by reference to the growth in share price, as adjusted for reinvested dividends.
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01 Jan 13
01 Jan 14
31 Dec 14
50
01 Jan 12
01 Jan 13
01 Jan 14
31 Dec 14
Hill & Smith
FTSE SmallCap
Hill & Smith
FTSE All-Share
The following parts of the Remuneration Report are subject to audit, other than elements explaining the application of the policy for 2015
Share awards granted during the year
During the year the Committee approved awards to the Executive Directors under the LTIP 2014 rules as follows:
Date of award
Type of award
Number of
shares
Maximum face value
of award
Threshold vesting (%
of target award)
D W Muir
M Pegler
20 May 2014
nil cost option
80,752
£451,000
20 May 2014
nil cost option
51,656
£288,500
25%
25%
Performance period
1 January 2014 –
31 December 2016
1 January 2014 –
31 December 2016
Both D W Muir and M Pegler also received market value options up to a maximum of £30,000, which were granted under the tax-advantaged
part of the ESOS, and subject to the same performance conditions as the LTIP award. The ESOS options have an exercise price of 558.5p per
share (being the market value on the date of grant). If the ESOS option is exercised at a gain then LTIP awards will be forfeited to the same
value to ensure that the total pre-tax value delivered to participants remains unchanged. Once vested the options are exercisable until the tenth
anniversary of the date of grant.
Following changes to the Company’s Remuneration Policy, approved at the AGM in May 2014, the LTIP 2014 performance conditions will continue
to be growth in UEPS and TSR, relative to the FTSE SmallCap (and will continue to have an equal weighting). In setting the absolute 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. The performance conditions for the awards granted in 2014 in respect of the three-year performance
period ending 31 December 2016 are:
Vesting amount
0% Vesting
25% Vesting
Maximum vesting
* Straight line vesting will apply between these two points.
Absolute UEPS growth
over three years
Less than 15%
15%*
30%*
TSR
Below median
Median*
Upper quartile*
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Directors’ Remuneration Report continued
Statement of Executive Directors’ shareholding and interest in shares
Executive
Type
D W Muir
M Pegler
Shares(1)
Market value options(2)
SAYE options(3)
Shares(1)
Market value options(2)
SAYE options(3)
Owned
outright
143,742
n/a
n/a
51,398
n/a
n/a
Vested but
unexercised
Subject to
performance conditions
Not subject to
performance conditions
Total as at
31 December 2014
Unvested
n/a
-
-
n/a
-
-
303,538(4)
5,371
n/a
193,873(4)
5,371
n/a
n/a
-
9,415
n/a
-
6,322
447,280
5,371
9,415
245,271
5,371
6,322
(1) 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. See table below.
(2) The Market Value options were granted under the tax-advantaged part of the ESOS and subject to the same performance conditions as the LTIP award. The ESOS options have an exercise price
of 558.5p per share (being the market value on the date of grant). If the ESOS option is exercised at a gain then LTIP awards will be forfeited to the same value to ensure that the total pre-tax
value delivered to participants remains unchanged. Once vested the options are exercisable until the tenth anniversary of the date of grant.
(3) A breakdown of SAYE awards is provided below.
(4) On 6 March 2015 the Remuneration Committee approved the vesting of 92.7% of the 2012 LTIP award, being 115,959 and 73,941 for D W Muir and M Pegler respectively.
Shareholding guidelines
Shareholding requirement
Current shareholding as at 31 December 2014
Current value (based on share price on 31 December 2014)
Current % of salary
D W Muir
100%
143,742
£833,704
185%
M Pegler
100%
51,398
£298,108
103%
These figures include those of their spouse or civil partner and infant children, or stepchildren, as required by Section 822 of the Companies Act
2006. At the date of this report, D W Muir and M Pegler held an additional 67,956 and 43,332 shares respectively, being the net amount of shares
vested on 6 March 2015 in respect of the 2012 LTIP award.
Share options
The interests of Directors, who served during 2014, in options for ordinary shares in the Company, granted under the 2005 sharesave scheme,
together with options granted and exercised during 2014, are included in the following table:
Executive
D W Muir
M Pegler
Grant Price
Awards held 31
December 2013
Granted during
the year
Exercised during
the year
Awards held 31
December 2014
Period that option is exercisable
From To
2.38
3.55
4.29
3.55
4.29
4,855
1,064
-
4,225
-
-
-
3,496
-
2,097
-
-
-
-
-
4,855
1 January 2016
1 July 2016
1,064
1 June 2018
1 December 2018
3,496
1 August 2019
1 February 2020
4,225
1 June 2018
1 December 2018
2,097
1 August 2017
1 February 2018
Spend on pay
The Committee is aware of the importance of pay across the Group in delivering the Group’s strategy and of shareholders’ views on Executive
remuneration.
The following parts of the Remuneration Report are not subject to audit
Changes in remuneration of the Chief Executive Officer compared to the wider workforce
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
Chief Executive Officer
Wider Workforce
3.0%
17.2%
527.9%
3.3%
-
30.2%
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 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Relative importance of spend on pay
Dividends paid in respect of the financial year
Overall spend on pay
2014
£14.0m
£119.6m
2013
£12.4m
£116.0m
% change
12.9
3.1
Chief Executive remuneration pay compared to performance
The following graphs show the TSR performance of the Company over the six year period to 1 January 2015 compared to the FTSE All-Share and
FTSE SmallCap Index. The FTSE SmallCap Index has been chosen as the comparator group in order to illustrate the Company’s TSR performance
against broad equity indices of similar UK companies.
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400
350
300
250
200
150
100
50
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t
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400
350
300
250
200
150
100
50
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Hill & Smith
FTSE SmallCap
Hill & Smith
FTSE All-Share
The following table summarises the Chief Executive’s single figure for the past six years and outlines the proportion of annual bonus paid as a
percentage of the maximum opportunity and the proportion of LTIP awards vesting as a percentage of the maximum opportunity. The annual
bonus is shown based on the year to which performance related and the LTIP is shown for the last year of the performance period.
Chief Executive’s single figure (£’000)
Annual bonus (% of maximum)
LTIP vesting (% of maximum number of shares)
2009
1,059
95
100
2010
851
14
100
2011
690
30
-
2012
941
85
-
2013
1,084
16
50
2014
1,835
100
92.7
Outside appointments
Executive Directors may accept one external appointment as a Non-executive Director of another company and retain any related fees paid to
them, provided that such external appointment is not considered by the Board to prevent or reduce the ability of the Executive Director to perform
their 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.
Service contracts and loss of office payments
The Company’s policy in relation to contractual terms on termination, and any payments made, is that they should be fair to the individual, the
Company and shareholders. In the case of termination by the Company the Director will be given twelve months’ notice, including where there
is a change of control. The Director will give not less than six months’ notice, except where there is a change of control when it will be ninety
days. Where a Director receives a payment in lieu of notice this will include 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. More details can be found in the Company’s Remuneration Policy on the website.
The following parts of the Remuneration Report are subject to audit, other than elements explaining the application of the policy for 2015
Loss of office payments
There were no payments made to past Directors during the year ended 31 December 2014.
Payments to former Directors
There were no payments made to past Directors during the period in respect of services provided to the Company as a Director.
Transaction with Directors
There were no material transactions between the Group and the Directors during 2014.
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Governance Report
Directors’ Remuneration Report continued
How the Remuneration Policy was implemented in 2014 – Non-executive Directors
Non-executive Director single figure comparison £000’s
Director
Role
W H Whiteley
Chairman
C J Snowdon(1)
Senior Independent Director and
Remuneration Committee Chairman
J F Lennox(2)
Audit Committee Chairman
A M Kelleher(3)
NED
Total
Board Fees
135,000
49,600
49,000
3,625
237,225
Taxable
Benefits
Annual
Bonus
LTIP
Pension
Total ‘Single
Figure’ 2014
Total ‘Single
Figure’ 2013
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
135,000
131,000
49,600
48,150
49,000
47,550
3,625
-
237,225
226,700
(1) Clive Snowdon received a base fee of £43,500 plus an additional £1,600 as the Senior Independent Director and £4,500 as Chairman of the Remuneration Committee.
(2) Jock Lennox received a base fee of £43,500 plus an additional £5,500 as Chairman of the Audit Committee.
(3) Annette Kelleher was appointed to the Board on 1 December 2014 and received 1/12th of the base £43,500 fee.
The Non-executive Directors do not have service contracts, only letters of appointment, 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 and 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 shareholding
Director
W H Whiteley
C J Snowdon
J F Lennox
A M Kelleher
2014
22,100
28,930
5,000
-
2013
22,100
38,930
5,000
-
These figures include those of their spouses, civil partners and infant children, or stepchildren, as required by Section 822 of the Companies Act
2006. There was no change in these beneficial interests between the 31 December 2014 and 10 March 2015. The Non-executive Directors do not
hold any share awards or share options.
Non-executive Directors do not have a shareholding guideline but they are encouraged to buy shares in the Company.
The following parts of the Remuneration Report are not subject to audit
How the Remuneration Policy will be implemented for 2015 – Executive Directors
Salary
Base salaries were reviewed in December 2014 and as from 1 January 2015 will be as follows:
Chief Executive
Finance Director
£464,500
£297,200
This represents an increase of 3% which is in line with the increase to other employees within the Group. Salaries will next be reviewed in
December 2015 for the financial year 2016.
Annual bonus
The annual bonus opportunity for 2015 will remain unchanged as follows:
Chief Executive
Finance Director
›
›
›
›
Maximum opportunity of 100% of base salary
Paid in cash
Maximum opportunity of 100% of base salary
Paid in cash
The Remuneration Committee is aware that some shareholders wish to see detailed retrospective disclosure of bonus targets, however the
Committee considers this inappropriate given that such disclosure would provide information relating to the Company’s approach to annual
budgeting. The Committe can however, disclose that for the 2015 financial year the annual bonus targets will be equally weighted towards;
›
›
›
›
Growth in UEPS;
Budgeted profit;
Operating margins; and
Return on capital;
The Remuneration Committee will determine an appropriate performance range for each measure used.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Share plans
Following shareholder approval at the 2014 AGM the Company has adopted three share plans: The Hill & Smith Sharesave Scheme; the Hill & Smith
Executive Share Option Scheme (‘ESOS’), a market value share option plan; and the Hill & Smith Long-term Incentive Plan (‘LTIP’).
For the Executive Directors’ the Committee intends to continue to grant awards under the LTIP of 100% of base salary. For awards to be made in
2015 in respect of the performance period 1 January 2015 – 31 December 2017 the performance conditions remain as:
Vesting amount
0% Vesting
25% Vesting
Maximum vesting
* Straight line vesting will apply between these two points.
Absolute UEPS growth over three years
Less than 15%
15%*
30%*
TSR
Below median
Median*
Upper quartile*
For the avoidance of doubt the TSR performance condition will remain as threshold vesting for median performance against the FTSE SmallCap
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.
Benefits
The Company will continue to provide benefits of membership of the Company’s healthcare scheme, income protection scheme, personal
accident insurance, car (or cash allowance), ill health and life assurance.
Pensions
The Company will continue to make a cash payment to Derek Muir in lieu of pension contributions, equal to 25% of his base salary and a payment
to Mark Pegler of 25% of his base salary as a defined contribution into his own private pension arrangement.
How the Remuneration Policy will be implemented for 2015 – Non-executive Directors
Fees
The fees of Non-executive Directors shall be reviewed regularly to ensure they are in line with the market and so the Company can attract and
retain individuals of the highest calibre. Any change to these fees will be approved by the Board as a whole, following a recommendation from the
Chief Executive. In December 2014 the Board approved a 3% increase in all fees as from 1 January 2015.
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Chairman
Non-executive Director
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
Clive Snowdon
Senior Independent Non-executive Director
Chairman, Remuneration Committee
10 March 2015
2014
£135,000
£43,500
£1,600
£5,500
£4,500
2015
£139,000
£44,800
£1,675
£5,650
£4,625
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Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Governance Report
Directors’ Remuneration Report continued
Remuneration policy
The Company’s Remuneration Policy was placed before members at the Company’s AGM held on 11 May 2014 and was approved by 97.73% of
shareholders. The Policy, set out in tabular form, is replicated below. It does not form part of the Annual Remuneration Report and will not be
subject to a vote at the Company’s AGM on 14 May 2015.
Operation
Maximum opportunity
Performance metrics
Base salary
Benefits
Purpose and link
to strategy
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.
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%.
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.
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 2014
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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.
The Group may make payment either into a
defined contribution plan or as a separate cash
allowance.
Contribution rates (or cash
allowances) are up to a maximum
of 25% of base salary.
Not applicable.
To provide
competitive
post-retirement
benefits and
reward sustained
contribution to the
performance of
the Group.
Rewards the
achievement
of annual
financial and/or
strategic business
objectives.
Annual bonus
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.
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.
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.
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The maximum bonus opportunity is
up to 100% of base salary.
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.
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Governance Report
Directors’ Remuneration Report continued
Long-Term
Incentive
Plan (‘LTIP’)
Purpose and link
to strategy
Incentivises
Executive
Directors to
achieve higher
returns for
shareholders over
a longer time
frame.
A claw back
applies to
unvested awards
enabling the
Company to
mitigate risk.
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’.
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:
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.
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 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Maximum opportunity
Performance metrics
Not applicable.
Not applicable.
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.
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Purpose and link
to strategy
Operation
Shareholding
guidelines
Chairman
and Non-
executive
Director fees
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.
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.
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.
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Stock Code: HILS
Governance Report
Directors’ Report (other statutory information)
Principal activities and strategic report
The Company acts as a holding company to all the Group’s
subsidiaries.
Details of the results for the year are shown on the Consolidated
Income Statement on page 80 and the business segment information
is given on pages 91 to 92.
During 2014 the principal activities of the Group comprised the
manufacture and supply of:
-
-
Infrastructure Products (Roads and Utilities)
Galvanizing Services
Pages 2 to 31 contain further details of these areas of the business
and the principal subsidiaries operating within them are set out on
pages 134 to 136.
The Chairman’s Statement and the Directors’ 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 39.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2014
comprises sections of the Annual Report referred to under ‘Strategic
Report’, and ‘Governance Report’, and are incorporated into the
Directors’ Report by reference.
Results
The Group profit before taxation for the year amounted to £36.9m
(2013: £30.6m). Group revenue at £454.7m was 2.3% higher than the
prior year. Operating profit at £41.1m was 19.1% higher than for the
previous year (2013: £34.5m).
Dividends
The Directors recommend the payment of a final dividend of 11.6p
per ordinary share (2013: 10.0p per ordinary share) which, together
with the interim dividend of 6.4p per ordinary share (2013: 6.0p per
ordinary share) paid on 6 January 2015, makes a total distribution for
the year of 18.0p per ordinary share (2013: 16.0p per ordinary share).
Subject to shareholders approving this recommendation at the AGM,
the final dividend will be paid on 3 July 2015 to shareholders on the
register at the close of business on 29 May 2015. The latest date for
receipt of Dividend Re-investment Plan elections is 12 June 2015.
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.
Share capital summary
Exchange trade
Class
Issued share capital 1 January 2014
Total new ordinary shares issued during the year
Issued share capital 31 December 2014
Rights and obligations
The Company’s ordinary shares are listed on the Main Market of the London Stock Exchange
Single class of ordinary shares of 25p each
77,767,837
104,683
77,872,520
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 21 on pages 112 and 113 of the Group Financial Statements.
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Shareholder Information
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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 AGM and shall then be eligible for 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 of 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 detailed in
note 20 on pages 106 to 112.
Research and development
During the year, the Group spent a total of £1.4m (2013: £1.2m) on
research and development.
Political and charitable donations
Charitable donations amounting to £30,000 (2013: £27,000) 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 available on the
Company’s website.
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 65.
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 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 2014 AGM and will be limited by the
resolution to be put to the 2015 AGM. 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 AGM’s on 14 clear
days notice was approved at the AGM on 14 May 2014 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 AGM or 15 August 2015.
Substantial shareholdings
As at 31 December 2014, the Company had been notified in
accordance with Rule 5 of the Disclosure and Transparency Rules of
the Financial Conduct Authority of the following voting rights of the
Company:
Number of
ordinary shares
% of issued
share capital
4,943,914
4,673,310
4,457,100
3,779,675
3,360,297
6.35
6.00
5.72
4.85
4.32
3.45
3.33
3.09
Shareholder
Henderson Global Investors
Charles Stanley, Stockbrokers
Schroder Investment Managers
Unicorn Asset Management
Blackrock
Legal & General Investment Management
2,682,715
F&C Asset Management
NFU Mutual
2,596,121
2,405,496
During the period from 31 December 2014 to 9 March 2015 Schroder
Investment Management notified the Company that their holding
had fallen to 2.31%.
Directors
The names of the Directors of the Company who served throughout
the year, including brief biographies, are set out on pages 44 and 45.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith
Holdings PLC as at 31 December 2014 are set out in page 64 and 66.
74
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
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.
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 2014
There were no material events since 31 December 2014 to report.
Annual General Meeting
The Annual General Meeting of the Company will be held at
11.00 a.m. on Thursday 14 May 2015 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 132.
By order of the Board
Alex Henderson
Company Secretary
10 March 2015
Hill & Smith Holdings PLC Annual Report 2014
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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.
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
We confirm that to the best of our knowledge:
›
›
The 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 the undertakings included in the consolidation
taken as a whole; and
The Strategic Report includes a fair review of the development
and performance of the business and the position of the issuer
and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties they face.
We consider the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s position and
performance, business model and strategy.
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By order of the Board
Alex Henderson
Company Secretary
10 March 2015
76
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Governance Report
Created by Conimast and the Cobalt light design agency (Lyon), the Tree Light is a stunning light that fits perfectly into its urban environment.
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
Financial Statements
Independent Auditor’s Report
Group Financial Statements
78
80
121 Company Financial Statements
129 Five Year Summary
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
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 2014 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 2014 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 Group audit were as follows:
Valuation of goodwill and indefinite life intangible assets (£110.5m)
Refer to page 55 (Audit Committee Report), page 85 (Accounting
Policy) and pages 98 to 101 (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 Statement of Financial Position 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 appraisal 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, with particular focus on the CGUs with lower levels of
headroom, principally, The Paterson Group and Conimast, 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 and indefinite life intangible
assets.
UK post retirement benefits obligation (gross liabilities £86.3 million,
net liability £17.7 million)
Refer to page 55 (Audit Committee Report), page 85 (Accounting
Policy) and pages 114 to 119 (Financial Disclosures).
The risk
The valuation of the UK post-retirement benefit obligation involves
the selection of appropriate actuarial assumptions, most notably the
discount rate applied to scheme liabilities, interest rates and mortality
rates. The selection of these assumptions is inherently subjective,
particularly in light of current macroeconomic volatility. Furthermore,
small changes in the 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 23).
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 £2.2m, determined with reference to a benchmark of Group
profit before taxation, normalised to exclude non-underlying items as
discussed in note 3, of £46.0m, of which it represents 4.8%.
We report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £110,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s 53 reporting components, we subjected 36 to audits
for Group reporting purposes.
Hill & Smith Holdings PLC Annual Report 2014
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Shareholder Information
Underlying Group
profit before tax
£46.0m
Group
materiality
£2.2m
£2.2m
Whole
financial
statements
materiality
£1.7m
Maximum
component
materiality
Misstatements
reported to
the Audit
Committee
£110k
These audits covered 89.7% of total Group revenue; 90.7% of
underlying Group profit before taxation; and 97.0% of total Group
assets.
The remaining 10.3% of total Group revenue, 9.3% of Group profit
before tax and 3.0% of total Group assets is represented by 17
reporting components, none of which individually represented more
than 5% of any of total Group revenue, Group profit before tax or
total Group assets. For these remaining components, we performed
analysis at an aggregated Group level to re-examine our assessment
that there were no significant risks of material misstatement within
these.
The Group audit team instructed component auditors as to the
significant areas to be covered, including the relevant risks detailed
above and the information to be reported back. The Group audit team
approved the component materialities, which ranged from £0.1m to
£1.7m, having regard to the mix of size and risk profile of the Group
across the components. The work on 7 of the 53 components was
performed by component auditors and the rest by the Group audit
team.
Telephone conference meetings were held with all of the component
auditors. At these meetings, the findings reported to the Group audit
team were discussed in more detail, and any further work required by
the Group audit team was then performed by the component auditor.
3.
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 Directors’
Report for the financial year for which the Financial Statements
are prepared is consistent with the Financial Statements.
4. 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
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 75, in relation to going
concern;
the part of the Corporate Governance Statement on pages 41 to
74 relating to the Company’s compliance with the ten provisions
of the 2012 UK Corporate Governance Code specified for our
review.
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 75, 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/auditscopeukco2014a, 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 LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
10 March 2015
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Year ended 31 December 2014
Consolidated Income Statement
Revenue
Trading profit
Amortisation of acquisition intangibles
Business reorganisation costs
Loss on disposal of subsidiaries
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
2014
Non-
underlying*
£m
-
-
(2.1)
(2.6)
(3.7)
(0.1)
0.4
(8.1)
-
(1.0)
(9.1)
1.5
Underlying
£m
454.7
49.2
-
-
-
-
-
49.2
0.5
(3.7)
46.0
(11.1)
Total
£m
Underlying
£m
454.7
444.5
49.2
(2.1)
(2.6)
(3.7)
(0.1)
0.4
41.1
0.5
(4.7)
36.9
(9.6)
44.5
-
-
-
-
-
44.5
0.7
(4.0)
41.2
(9.9)
2013
Non-
underlying*
£m
-
-
(2.2)
(9.2)
-
(0.4)
1.8
(10.0)
-
(0.6)
(10.6)
2.3
Total
£m
444.5
44.5
(2.2)
(9.2)
-
(0.4)
1.8
34.5
0.7
(4.6)
30.6
(7.6)
34.9
(7.6)
27.3
31.3
(8.3)
23.0
45.0p
44.4p
40.4p
39.8p
35.1p
34.7p
6.4p
11.6p
18.0p
29.6p
29.2p
6.0p
10.0p
16.0p
Notes
1, 2
3
3
3
3
3
1, 2
5
5
7
8
8
9
9
9
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 90.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Year ended 31 December 2014
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
23
7
2014
£m
27.3
1.2
(0.1)
(0.1)
0.3
-
(3.6)
0.8
(1.5)
25.8
2013
£m
23.0
(1.6)
(0.7)
-
0.4
(0.1)
(5.8)
0.4
(7.4)
15.6
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Year ended 31 December 2014
Consolidated Statement of Financial Position
Non-current assets
Intangible assets
Property, plant and equipment
Other receivables
Current assets
Assets held for sale
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other liabilities
Current tax liabilities
Provisions for liabilities and charges
Interest bearing borrowings
Net current assets
Non-current liabilities
Other liabilities
Provisions for liabilities and charges
Deferred tax liability
Retirement benefit obligation
Interest bearing borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Translation reserve
Hedge reserve
Retained earnings
Total equity
Approved by the Board of Directors on 10 March 2015 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Notes
2014
£m
2013
£m
10
11
12
14
15
16
1
17
19
17
18
19
13
23
18
1
1
21
126.1
128.7
0.3
255.1
1.5
57.9
92.7
6.7
158.8
413.9
(87.7)
(8.9)
(1.4)
(1.1)
(99.1)
59.7
(0.2)
(2.8)
(7.6)
(21.1)
(101.6)
(133.3)
(232.4)
181.5
19.5
31.7
4.5
0.9
(0.4)
125.3
181.5
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
Company Number: 671474
Hill & Smith Holdings PLC Annual Report 2014
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Governance Report
Financial Statements
Shareholder Information
Year ended 31 December 2014
Consolidated Statement of Changes in Equity
Notes
Share
capital
£m
19.3
Share
premium
£m
29.6
Other
reserves†
£m
4.5
Translation
reserves
£m
2.1
Hedge
reserves
£m
(0.9)
Retained
earnings
£m
107.8
Total
equity
£m
162.4
23.0
(7.4)
-
(2.3)
-
0.3
23.0
(5.4)
At 1 January 2013
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
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
Satisfaction of long term incentive payments
Own shares acquired by employee benefit
trust
Tax taken directly to the Consolidated
Statement of Changes in Equity
Shares issued
At 31 December 2014
-
-
-
-
-
-
-
-
-
-
0.1
19.4
1.9
31.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.5
0.2
31.7
9
21
7
21
9
21
7
21
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11.6)
(11.6)
0.4
0.3
-
0.4
0.3
2.0
4.5
(0.2)
(0.6)
114.5
169.1
-
-
-
-
-
-
-
-
-
1.1
-
0.2
27.3
(2.8)
27.3
(1.5)
-
-
-
-
-
-
-
-
-
-
-
-
(12.4)
(12.4)
0.9
(1.0)
0.9
(1.0)
(1.4)
(1.4)
0.2
-
0.2
0.3
4.5
0.9
(0.4)
125.3
181.5
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† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2013: £0.2m) capital redemption reserve.
During the year the Group purchased 230,000 of its own shares, which are held in an employee benefit trust for the purposes of settling awards
granted to employees under equity-settled share based payment plans. The cost of these shares, amounting to £1.4m, is included within retained
earnings at 31 December 2014.
84
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Year ended 31 December 2014
Consolidated Statement of Cash Flows
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payments
Loss on disposal of subsidiaries
Gain on disposal of non-current assets
Depreciation
Amortisation of intangible assets
Impairment of non-current assets
Operating cash flow before movement in working capital
(Increase)/decrease in inventories
Increase in receivables
Increase in payables
(Decrease)/increase 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
Disposals of subsidiaries
Net cash used in investing activities
Issue of new shares
Purchase of shares for employee benefit trust
Dividends paid
Costs associated with refinancing of revolving credit facility
New loans and borrowings
Repayment of loans and borrowings
Repayment of obligations under finance leases
Net cash used in financing activities
Net (decrease)/increase in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
Notes
5
1, 2
4, 21
3
6
6, 11
6, 10
6, 10, 11
10
21
9
16
2014
£m
1.2
3.7
(0.3)
14.2
3.0
1.4
(4.3)
(2.7)
1.9
(5.5)
0.5
0.7
(34.6)
(1.3)
-
0.5
0.3
(2.4)
(12.4)
(1.5)
39.2
(32.7)
(0.3)
£m
36.9
4.2
41.1
23.2
64.3
(10.6)
53.7
(9.3)
(3.7)
40.7
(34.2)
(9.8)
(3.3)
10.0
-
6.7
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
Hill & Smith Holdings PLC Annual Report 2014
85
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Group Accounting Policies
Hill & Smith Holdings PLC is a company incorporated in the UK.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer.
The financial statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the
date that control ceases.
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 121 to 129.
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 24.
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 24 to 31. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the
Strategic Report on pages 29 to 31. In addition, note 20 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 £210.9m at 31 December 2014, expiring in April 2019. 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 2014
In 2014 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
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IFRS 10 Consolidated Financial Statements.
IFRS 11 Joint Arrangements.
IFRS 12 Disclosure of Interests in Other Entities.
IAS 27 (2011) Separate Financial Statements.
IAS 28 (2011) Investments in Associates and Joint Ventures.
The adoption of these standards and amendments has not had a material impact on the Group’s Financial Statements.
The following standards and interpretations which are not yet effective and have not been early adopted by the Group will be adopted in future
accounting periods:
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IFRS 15 ‘Revenue from Contracts with Customers’ (effective 1 January 2017).
IFRS 9 ‘Financial Instruments’ (effective 1 January 2018).
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86
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Group Accounting Policies continued
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:
›
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Amendments to IAS 19 Defined Benefit Plans: Employee Contributions (effective for annual periods beginning on or after 1 February 2015).
Annual Improvements to IFRSs – 2010-2012 Cycle (effective for annual periods beginning on or after 1 February 2015).
None of the standards or amendments 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 year end 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.
Assets held for sale
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing
use, it is available for immediate sale and sale is highly probable within one year. On initial classification as held for sale, non-current assets and
disposal groups are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to the income
statement. The same applies to gains and losses on subsequent remeasurement.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
Financial instruments
Financial assets and liabilities are recognised on the Group’s Consolidated Statement of Financial Position 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:
›
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›
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 year end
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
year end 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.
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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.
88
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Group Accounting Policies continued
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)
2014
2013
Average
1.24
1.65
53.50
11.30
Closing
1.28
1.56
51.32
12.07
Average
1.18
1.56
48.09
10.19
Closing
1.20
1.65
54.13
10.59
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 Consolidated Statement of Financial Position 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 year end 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 year end 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 Consolidated Statement of Financial
Position. 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 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
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. In the Galvanizing Services segment this is generally considered to be on completion
of the galvanizing process when products are made available for customer collection. In the Infrastructure Products segments products are
often bespoke and customer contracts more complex. As such, there are a number of conditions which must be satisfied before revenue can
be recognised. These can include: legal, contractual ownership; passing internal quality control testing; dispatch from manufacturing sites;
installation at customer sites; customer inspection both before and after installation; and/or, ultimately, customer acceptance. Given these
conditions, a greater degree of consideration is given as to whether the terms of sale have been met and whether revenue can be recognised for
each product.
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 Consolidated Statement of Financial Position 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 year end 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.
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90
Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated 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:
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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 year end date, and any adjustments to tax payable in respect of previous years.
Deferred taxation
Deferred tax is provided in full using the Consolidated Statement of Financial Position 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 year end 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 year end 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.
Own shares held by Employee Benefit Trust (‘EBT’)
Transactions of the Group-sponsored EBT are included in the Group Financial Statements. In particular, the Trust’s purchase of shares in the
Company are debited directly to equity.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
1. Segmental information
Business segment analysis
The Group has three reportable segments which are Infrastructure Products - Utilities, Infrastructure Products - Roads and Galvanizing Services.
Several operating segments that have similar economic characteristics have been aggregated into these reporting segments. The Group’s
internal management structure and financial reporting systems differentiate between these segments on the basis of the following economic
characteristics:
›
›
›
The Infrastructure Products - Utilities segment contains a group of businesses supplying products characterised by a degree of engineering
expertise, to public and private customers involved in the construction of facilities serving the Utilities markets or in the maintenance of such
facilities;
The Infrastructure Products - Roads segment contains a group of companies supplying permanent and temporary safety products to
customers involved in the construction or maintenance of national roads infrastructure; and
The Galvanizing Services segment contains a group of companies supplying galvanizing and related materials coating services to companies
in a wide range of markets including construction, agriculture and infrastructure.
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
195.2
127.7
322.9
131.8
454.7
2014
2013
Revenue
£m
202.9
114.0
316.9
127.6
444.5
Result
£m
5.4
12.5
17.9
23.2
41.1
(4.2)
36.9
(9.6)
27.3
Underlying
result*
£m
9.2
13.3
22.5
26.7
49.2
(3.2)
46.0
(11.1)
34.9
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
* Underlying result is stated before non-underlying items as defined in the Accounting Policies on page 90, 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 £5.9m (2013: £5.0m) revenues to Infrastructure Products - Roads and £1.8m (2013: £1.6m) revenues to
Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £3.6m (2013: £2.2m) revenues to Infrastructure Products - Roads.
These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.
Consolidated Statement of Financial Position
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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
2014
2013
Total
assets
£m
115.7
79.1
194.8
212.4
407.2
-
-
6.7
413.9
Total
liabilities
£m
(33.5)
(27.4)
(60.9)
(27.0)
(87.9)
(16.5)
(25.3)
(102.7)
(232.4)
181.5
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
92
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
1. Segmental information continued
Capital expenditure and amortisation/depreciation
2014
2013
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
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)
4.7
17.9
22.6
14.1
36.7
35.4
1.3
36.7
5.0
6.0
11.0
7.6
18.6
15.6
3.0
18.6
6.2
7.1
13.3
8.3
21.6
20.5
1.1
21.6
UK
Rest of Europe
North America
The Middle East
Asia
Rest of World
Total Group
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
5.6
5.6
11.2
7.5
18.7
15.3
3.4
18.7
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
2014
£m
220.4
95.1
113.7
6.4
14.7
4.4
454.7
2014
£m
154.3
95.9
147.2
14.4
2.1
413.9
2014
£m
21.2
4.5
10.7
0.3
36.7
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
2014
£m
454.7
(296.9)
157.8
(22.9)
(95.3)
0.3
1.2
41.1
2013
£m
444.5
(297.7)
146.8
(22.3)
(91.1)
-
1.1
34.5
2. Operating profit
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Gain on disposal of non-current assets
Other operating income
Operating profit
3. Non-underlying items
Non-underlying items included in operating profit comprise the following:
›
›
›
›
›
Business reorganisation costs of £2.6m (2013: £9.2m) – principally relating to redundancies and other net costs associated with site closures
including the Joseph Ash Galvanizing plant at Hereford. The net costs include asset impairment charges of £1.4m (2013: £1.8m).
Amortisation of acquired intangible fixed assets of £2.1m (2013: £2.2m).
Acquisition expenses of £0.1m (2013: £0.4m) relating to acquisitions made by the Group during the year.
Profits on disposal of properties of £0.4m (2013: £1.8m).
A net loss on disposal of subsidiaries of £3.7m. On 23 April 2014 the Group disposed of its 50% interest in the shares of Staco Redman
Limited for a consideration of £0.3m, while on 18 August 2014 the Group disposed of its subsidiary Bromford Iron & Steel Company Limited
and JA Envirotanks, a trading division of Joseph Ash Limited, for a combined consideration of £1.3m. The details of these disposals are set out
below:
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Current liabilities
Deferred tax
Net assets
Consideration:
Cash consideration
Deferred consideration
Less costs to sell
Profit/(loss) on disposal
Staco Redman
Ltd
£m
Bromford Iron &
Steel Co Ltd
£m
JA
Envirotanks
£m
-
-
0.1
0.2
(0.1)
-
0.2
0.3
-
-
0.1
1.8
2.1
1.3
0.1
(1.4)
(0.1)
3.8
0.4
0.5
(0.1)
(3.0)
0.1
0.5
0.9
0.1
(0.5)
-
1.1
0.4
-
(0.1)
(0.8)
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a
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i
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Total
£m
1.9
2.6
2.3
0.4
(2.0)
(0.1)
5.1
1.1
0.5
(0.2)
(3.7)
Non-underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.7m (2013: £0.6m)
and financial expenses associated with refinancing of £0.3m (2013: £nil).
94
Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
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
Total Group
The aggregate remuneration for the year
Wages and salaries
Share-based payments
Social security costs
Pension costs
Details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 58 to 71.
5. Net financing costs
Interest on bank deposits
Financial income
Interest on bank loans and overdrafts
Interest on finance leases and hire purchase contracts
Total interest expense
Financial expenses related to refinancing
Interest cost on net pension scheme deficit (note 23)
Financial expense
Net financing costs
Underlying
£m
Non-
underlying
£m
2014
£m
Underlying
£m
Non-
underlying
£m
0.5
0.5
3.7
-
3.7
-
-
3.7
3.2
-
-
-
-
-
0.3
0.7
1.0
1.0
0.5
0.5
3.7
-
3.7
0.3
0.7
4.7
4.2
0.7
0.7
3.9
0.1
4.0
-
-
4.0
3.3
-
-
-
-
-
-
0.6
0.6
0.6
2014
No.
1,591
662
2,253
1,445
3,698
2013
No.
1,674
564
2,238
1,377
3,615
£m
£m
99.0
1.2
17.0
2.4
119.6
96.2
0.5
16.9
2.4
116.0
2013
£m
0.7
0.7
3.9
0.1
4.0
-
0.6
4.6
3.9
Hill & Smith Holdings PLC Annual Report 2014
95
Strategic Report
Governance Report
Financial Statements
Shareholder Information
2014
£m
14.0
0.2
2.3
3.5
0.2
2.1
0.7
0.2
1.4
0.1
0.4
-
9.8
£m
0.1
0.5
-
0.6
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
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
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 54 and 57 and includes an explanation of how
auditor objectivity and independence is safeguarded when non audit services are provided by the auditor.
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
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 13)
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 13)
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 13)
Relating to share-based payments
Tax taken directly to the Consolidated Statement of Changes in Equity
2014
£m
3.6
(1.8)
8.7
10.5
0.1
(0.9)
(0.1)
-
9.6
(0.8)
-
(0.8)
-
(0.2)
(0.2)
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)
The tax charge in the Consolidated Income Statement for the period is higher (2013: 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 21.5% (2013: 23.25%)
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
2014
£m
36.9
7.9
2.0
(1.6)
(0.1)
3.4
0.4
0.3
-
(2.7)
9.6
2013
£m
30.6
7.1
1.8
(0.8)
(0.7)
3.1
0.2
0.2
(0.6)
(2.7)
7.6
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was 77.8m (2013: 77.6m), diluted for the effects of the outstanding
dilutive share options 78.8m (2013: 78.6m). 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.
2014
Pence
per share
35.1
9.9
45.0
34.7
9.7
44.4
£m
27.3
7.6
34.9
27.3
7.6
34.9
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
9. Dividends
Dividends paid in the year were the prior year’s interim dividend of £4.6m (2013: £4.5m) and the final dividend of £7.8m (2013: £7.1m). Dividends
declared after the year end 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
2014
Pence
per share
6.4
11.6
18.0
£m
5.0
9.0
14.0
2013
Pence
per share
6.0
10.0
16.0
£m
4.6
7.8
12.4
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Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
10. Intangible assets
Cost
At 1 January 2013
Exchange adjustments
Acquisitions
Additions
At 31 December 2013
Exchange adjustments
Acquisitions
Additions
At 31 December 2014
Amortisation and impairment losses
At 1 January 2013
Exchange adjustments
Amortisation charge for the year
Impairment
At 31 December 2013
Exchange adjustments
Amortisation charge for the year
At 31 December 2014
Carrying values
At 1 January 2013
At 31 December 2013
At 31 December 2014
Goodwill
£m
Brands
£m
Customer
lists
£m
Capitalised
development
costs
£m
96.6
(0.2)
3.4
-
99.8
0.3
-
-
18.0
(0.1)
0.8
-
18.7
0.4
0.4
-
13.2
(0.2)
0.3
-
13.3
(0.1)
-
-
100.1
19.5
13.2
-
-
-
-
-
-
-
-
96.6
99.8
100.1
1.7
-
0.4
-
2.1
(0.1)
0.5
2.5
16.3
16.6
17.0
5.5
(0.2)
1.8
-
7.1
0.2
1.6
8.9
7.7
6.2
4.3
9.6
-
-
0.9
10.5
-
0.2
1.2
11.9
6.8
-
1.0
0.1
7.9
-
0.7
8.6
2.8
2.6
3.3
Licences
£m
Total
£m
1.7
139.1
-
-
0.2
1.9
-
-
0.1
2.0
0.3
-
0.1
-
0.4
-
0.2
0.6
1.4
1.5
1.4
(0.5)
4.5
1.1
144.2
0.6
0.6
1.3
146.7
14.3
(0.2)
3.3
0.1
17.5
0.1
3.0
20.6
124.8
126.7
126.1
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
10. Intangible assets continued
2014
On 11 July 2014 the Group acquired the trade and certain net assets of Variable Message Signs Limited. Details of this acquisition are as follows:
Variable Message Signs Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Deferred tax
Total assets
Current interest bearing liabilities
Current liabilities
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
0.2
0.1
0.9
1.3
-
2.5
(0.2)
(2.3)
(2.5)
-
0.4
-
-
-
0.1
0.5
-
(0.5)
(0.5)
-
Total
£m
0.6
0.1
0.9
1.3
0.1
3.0
(0.2)
(2.8)
(3.0)
-
-
-
-
-
-
Brands have been recognised as specific intangible assets as a result of the acquisition. 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 costs of acquiring the business of £0.3m comprise £0.1m of acquisition expenses and the assumption of outstanding debt of £0.2m.
Post acquisition the acquired business has contributed £4.0m revenue and £0.1m operating profit, which are included in the Group’s Consolidated
Income Statement. If the acquisition had been made on 1 January 2014 the Group’s results for the year would have shown revenue of £460.3m
and underlying operating profit of £49.1m.
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100 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
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 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.
Cash generating units with significant amounts of goodwill
Infrastructure Products - Utilities
The Paterson Group
Creative Pultrusions
Others <£5m individually
Infrastructure Products - Roads
Conimast
Others <£5m individually
Galvanizing Services
France
USA
UK
2014
£m
8.0
7.1
5.1
5.0
13.6
21.8
21.8
17.7
100.1
2013
£m
7.6
6.7
4.9
5.3
14.1
22.9
20.6
17.7
99.8
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
10. Intangible assets continued
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 £10.4m (2013: £9.8m), 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 and an average growth rate of 3% applied subsequently based on a prudent management estimate for
revenue and associated cost growth. Budgets are prepared taking into account past experience and the Group’s overall strategic direction.
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.
The Paterson Group
Creative Pultrusions
Conimast
Galvanizing Services - France
Galvanizing Services - USA
Galvanizing Services - UK
2014
Headroom
£m
1.0
22.9
(0.3)
16.3
105.0
29.6
Discount
rate
13.1%
13.0%
12.7%
14.3%
13.5%
12.0%
2013
Headroom
£m
8.7
22.9
(0.2)
15.0
95.3
17.6
Discount
rate
12.6%
12.5%
14.2%
15.7%
13.4%
12.5%
The pre-tax discount rates detailed above equate to post-tax discount rates of between 9.75% and 10.75%, derived from a market participant’s
cost of capital and risk adjusted for individual cash generating units’ circumstances. Similar discount rates are applied in determining the
recoverable amounts of other cash generating units. The discount rates applied in determining headroom in both 2014 and 2013 are broadly
consistent.
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. The sensitivity analysis did not identify any material impairments with the exception of the
goodwill attributed to The Paterson Group and Conimast cash generating units.
The Paterson Group
The key assumptions used in The Paterson Group impairment review relate to the 2015 budgeted cash flows and the future growth rate of 3%
thereafter, as detailed above.
The budget for 2015 assumes growth in the US Power Generation market and increased project wins in the oil and gas-fired sector, such that
budgeted revenues represent a 17% increase on the actual 2014 result and operating margins are budgeted to increase by 3.7% year on year.
A reduction of 4% in the 2015 budgeted cash flows would give rise to an impairment. In the event that budgeted cash flows for 2015 do not
improve from the current year performance and subsequently grow by 3%, a full impairment of the goodwill of £8.0m would arise together with a
further £6.6m impairment in the carrying value of other intangible assets that arose on the acquisition of the business. Alternatively, a long-term
growth rate of 8.7% would need to be assumed in order to support the carrying value of the cash generating unit.
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Conimast
As can be seen in the table above, Conimast has marginal negative headroom based on the current value in use calculations, although this
calculated impairment has not been recognised as the amount is considered not to be material to the Consolidated Financial Statements. Any
further deterioration in the results due to macro-economic factors in the French economy [or any further capital investment] would result in a
greater impairment. A sustained reduction in future cash flows of approximately 30% would result in a full impairment of the goodwill set out
above.
102 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
11. Property, plant and equipment
Cost
At 1 January 2013
Exchange adjustments
Acquisitions
Additions
Disposals
At 31 December 2013
Exchange adjustments
Acquisitions
Disposals of subsidiaries
Additions
Disposals
Transfers to assets held for sale (note 12)
Reclassification
At 31 December 2014
Depreciation and impairment losses
At 1 January 2013
Exchange adjustments
Impairment provision
Disposals
Charge for the year
At 31 December 2013
Exchange adjustments
Impairment provision
Disposals of subsidiaries
Disposals
Transfers to assets held for sale (note 12)
Charge for the year
At 31 December 2014
Carrying values
At 1 January 2013
At 31 December 2013
At 31 December 2014
Land and
buildings
£m
Plant, machinery
and vehicles
£m
Total
£m
67.0
(0.4)
0.9
5.8
(0.9)
72.4
0.5
-
(0.3)
7.7
(0.4)
(3.4)
0.6
77.1
12.5
-
1.3
(0.2)
2.8
16.4
(0.2)
1.1
(0.2)
(0.3)
(1.9)
2.9
17.8
54.5
56.0
59.3
132.3
199.3
(0.4)
0.6
14.7
(2.9)
(0.8)
1.5
20.5
(3.8)
144.3
216.7
-
0.1
(9.7)
27.7
(6.3)
-
(0.6)
155.5
80.0
(0.3)
0.4
(2.5)
10.8
88.4
-
0.3
(7.9)
(6.0)
-
11.3
86.1
52.3
55.9
69.4
0.5
0.1
(10.0)
35.4
(6.7)
(3.4)
-
232.6
92.5
(0.3)
1.7
(2.7)
13.6
104.8
(0.2)
1.4
(8.1)
(6.3)
(1.9)
14.2
103.9
106.8
111.9
128.7
The gross book value of land and buildings includes freehold land of £14.1m (2013: £13.1m).
Included in the carrying value of plant, machinery and vehicles is £0.4m (2013: £1.6m) 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 £39.8m (2013: £29.4m) and accumulated depreciation of
£20.0m (2013: £18.9m).
Hill & Smith Holdings PLC Annual Report 2014
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Financial Statements
Shareholder Information
12. Assets held for sale
Property, plant and equipment
2014
£m
1.5
2013
£m
-
The Group holds a number of properties that are currently being actively marketed for disposal and which have therefore been classified as held
for sale at 31 December 2014. No loss on classification as held for sale was recognised in respect of these properties.
Intangible
assets
£m
Property, plant
and equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
Total
£m
13. Deferred taxation
At 1 January 2013
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)
At 31 December 2013
Exchange adjustments
Acquisitions of subsidiaries
Disposals of subsidiaries
Credited/(charged) for the year in the Consolidated
Income Statement (note 7)
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)
(9.2)
-
(0.2)
0.7
-
-
(8.7)
(0.2)
-
-
0.4
-
-
(7.5)
-
-
0.7
-
-
0.4
-
-
0.7
-
-
(6.8)
1.1
-
-
0.1
0.1
-
-
-
-
-
-
-
At 31 December 2014
(8.5)
(6.6)
0.9
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
4.1
-
-
1.0
(11.2)
-
-
-
(0.2)
(0.2)
(0.4)
1.5
0.4
-
4.3
(0.1)
-
-
(0.1)
0.3
0.1
0.6
0.1
0.1
-
0.1
(9.5)
(0.2)
0.1
0.1
(0.2)
(0.3)
0.9
0.9
0.8
-
4.7
-
0.8
0.2
1.9
0.2
(7.6)
2014
£m
2.5
(10.1)
(7.6)
2013
£m
1.7
(11.2)
(9.5)
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No deferred tax asset has been recognised in respect of tax losses of £16.4m (2013: £13.5m) as their future use is uncertain. There is no time limit
on the carrying forward of these losses.
The reductions in the UK corporation tax rate from 23% to 21% (effective 1 April 2014) and to 20% (effective 1 April 2015) were substantively
enacted on 2 July 2013. The deferred tax balance in respect of UK entities has therefore been calculated at 20% (2013: 20%) on the basis that it
will materially reverse after 1 April 2015.
14. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2014
£m
32.4
6.6
18.9
57.9
2013
£m
30.1
6.4
18.6
55.1
The amount of inventories expensed to the Consolidated Income Statement in the year was £250.1m (2013: £250.3m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £nil (2013: £nil). The amount of inventories held
at fair value less cost to sell included in the above was £nil (2013: £0.3m).
104 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
15. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
Fair value derivatives
2014
£m
85.3
5.6
1.7
0.1
92.7
The charge to the Consolidated Income Statement in the year in respect of impairment of trade receivables was £0.8m (2013: £0.5m).
16. Cash and borrowings
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and bank balances
Call deposits
Cash
Interest bearing loans and borrowings
Amounts due within one year (note 17)
Amounts due after more than one year (note 18)
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)
Disposals (note 3)
Amortisation of costs associated with refinancing revolving credit facilities
Purchase of shares for employee benefit trust
Issue of new shares (note 21)
Net debt (increase)/decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
2014
£m
6.7
-
6.7
(1.1)
(101.6)
(96.0)
41.1
23.2
64.3
(5.1)
(5.5)
53.7
(9.3)
(3.2)
(35.9)
0.7
6.0
(12.4)
(0.2)
0.5
(0.3)
(2.4)
0.3
(8.5)
(0.3)
(87.2)
(96.0)
2013
£m
84.4
4.9
1.7
0.2
91.2
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)
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
2014
£m
1.0
0.1
1.1
49.4
8.9
23.8
0.4
5.2
87.7
2014
£m
101.6
-
101.6
0.2
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
17. 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
18. Non-current liabilities
Interest bearing loans and borrowings
Long term borrowings
Finance lease and hire purchase obligations
Other non-current liabilities
Deferred government grants
In accordance with IAS39, the costs of £1.5m associated with the amendments to the Group’s principal banking facilities during the year have
been deducted from the carrying value of the loans and will be amortised over the life of the facility.
Finance leases and hire purchase obligations and the effective interest rates for the period they mature as at the year end 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
2014
Minimum
lease
payment
£m
0.1
0.1
0.1
0.2
0.1
0.1
Effective
interest
rate %
5.00
5.00
Principal
£m
0.1
-
-
0.1
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Principal
£m
0.3
0.1
0.1
0.4
2013
Minimum
lease
payment
£m
0.3
0.1
0.1
0.4
0.4
-
The unsecured bank borrowings carry a rate of interest of 1.5% above LIBOR/EURIBOR/US LIBOR subject to a ratchet as defined in the facility
agreement. In the USA, borrowings that are not fixed (note 20) 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.
106 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
19. Provisions for liabilities and charges
At 1 January 2013
Utilised during the year
Charged to Consolidated Income Statement
At 31 December 2013
Utilised during the year
Released during the year
Charged to Consolidated Income Statement
At 31 December 2014
Amounts due within one year
Amounts due after more than one year
Property
related
£m
Other
regulatory
£m
3.3
(0.5)
2.8
5.6
(2.2)
(0.7)
0.7
3.4
-
-
0.7
0.7
(0.1)
(0.2)
0.4
0.8
2014
£m
1.4
2.8
4.2
Total
£m
3.3
(0.5)
3.5
6.3
(2.3)
(0.9)
1.1
4.2
2013
£m
3.5
2.8
6.3
Provisions utilised during the year of £2.3m (2013: £0.5m) reflect cash spend associated with the closure of one of the Group’s manufacturing
plants late in 2013. Provisions released of £0.9m (2013: £nil) reflect the amounts previously provided in respect of this closure that are no longer
expected to be required, following a favourable settlement during the year of the exposures identified. Provisions charged of £1.1m (2013: £3.5m)
relate to the closure of one of the Group’s manufacturing operations in 2014. 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.
20. 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 2014
107
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Governance Report
Financial Statements
Shareholder Information
20. Financial instruments continued
The Group’s UK companies represent the majority of the trade receivable at 31 December 2014 with 58% (2013: 62%) and currently the only
geographical region that does not generally insure trade receivables is North America, which represents 20% (2013: 16%) 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 2014 and 2013, 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 2014 all such debt was covered by cash and cash equivalents netting to £5.6m positive current liquidity (2013: £9.2m).
The Group’s principal UK revolving credit facility is a multicurrency agreement with a value at 31 December 2014 of £210.9m (2013: £208.8m),
based on year end exchange rates. In May 2014 the Group extended the term of this facility from April 2016 to April 2019. Along with various
other on demand lines of credit, including bank overdrafts and finance leases, the Group has access to facilities of £223.5m.
(2013: £228.6m).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary course of
business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the
Board.
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 2014 credit exposure including cash deposited did not exceed £2.0m with any single institution (2013: £4.6m).
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.
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The UK Parent Company and certain of its UK subsidiaries hold 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 52% (2013: 40%) of the Euro
borrowings and 80% (2013: 91%) 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 5% (2013: 10%) of the local US Dollar year end gross
borrowings.
Country
UK
UK
UK
UK
USA
Financial
instrument
Swap
Swap
Swap
Swap
Maturity date
1 April 2016
1 April 2016
1 April 2016
1 April 2016
Swap
1 October 2015
Rate excluding
margin %
2014 Notional
amounts €m
2014 Notional
amounts $m
1.148
1.130
1.133
1.544
4.800
-
-
-
10.0
-
10.0
10.0
10.0
-
0.3
108 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
20. Financial instruments continued
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 2014 and 2013, as set out in the Operational and Financial Review on page 30.
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 2014
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
-
-
-
0.1
(0.4)
-
-
(0.3)
-
-
-
0.2
(0.9)
-
-
(0.7)
6.7
(1.1)
(101.6)
-
-
87.3
(78.4)
(87.1)
10.0
(0.8)
(96.4)
-
-
86.1
(73.6)
(74.7)
6.7
(1.1)
6.7
(1.1)
(101.6)
(101.6)
0.1
(0.4)
87.3
(78.4)
(87.4)
10.0
(0.8)
(96.4)
0.2
(0.9)
86.1
(73.6)
(75.4)
0.1
(0.4)
87.3
(78.4)
(87.4)
10.0
(0.8)
(96.4)
0.2
(0.9)
86.1
(73.6)
(75.4)
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 2014
Derivative financial assets
Derivative financial liabilities
Total at 31 December 2013
Level 1
£m
-
-
-
-
-
-
Level 2
£m
0.1
(0.4)
(0.3)
0.2
(0.9)
(0.7)
Level 3
£m
-
-
-
-
-
-
Total
£m
0.1
(0.4)
(0.3)
0.2
(0.9)
(0.7)
Hill & Smith Holdings PLC Annual Report 2014
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Governance Report
Financial Statements
Shareholder Information
20. Financial instruments continued
At 31 December 2014 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 £15.2m (2013: £20.7m) and US Dollar £24.2m (2013: £20.1m) denominated
interest bearing loans, which are predominantly used to fund the Group’s European and United States operations and include £39.4m
(2013: £40.8m) designated as a hedge of the net investment in a foreign operation. The foreign currency loss of £0.1m (2013: loss of £0.7m) 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 2014
US Dollar at 31 December 2014
Euro at 31 December 2014
Sterling at 31 December 2013
US Dollar at 31 December 2013
Euro at 31 December 2013
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
5.7
1.2
1.5
1.4
1.2
1.5
1.8
1.2
1.3
2.2
2.2
2.3
(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
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
3.2
99.4
0.1
78.4
0.4
(3.2)
(108.5)
(0.1)
(78.4)
(0.4)
Total at 31 December 2014
181.5
(190.6)
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)
(1.0)
(1.9)
(0.1)
(78.4)
(0.4)
(81.8)
(0.5)
(2.0)
(0.3)
(73.6)
(0.7)
(77.1)
(0.2)
(1.9)
-
-
-
(2.1)
(0.4)
(2.0)
(0.2)
-
(0.4)
(3.0)
Due between
two and
five years
£m
(0.8)
(104.7)
-
-
-
(105.5)
(0.7)
(94.4)
-
-
(0.1)
(95.2)
Due after
more than
five years
£m
(1.2)
-
-
-
-
(1.2)
(1.4)
-
-
-
-
(1.4)
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110 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
20. Financial instruments continued
(c) Maturity profile
The Group had the following undrawn committed facilities at 31 December, in respect of which all conditions precedent had been met:
Undrawn committed borrowing facilities
Expiring after more than one year
2014
£m
2013
£m
110.4
115.0
(d) Fair values
The gain in the year on the interest rate swaps held by the UK Group was £0.3m (2013: gain of £0.3m) which is recognised in the Statement of
Comprehensive Income 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 (2013: nil). The fair value of forward currency exchange contracts realised in the Consolidated Income Statement as part
of fair value derivatives amounted to £nil (2013: nil). The fair values of the Group’s other financial instruments at 31 December 2014 and 2013
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 £1.4m (2013: £1.8m) 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
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
2014
£m
87.3
6.7
94.0
2014
£m
49.2
14.9
16.8
4.4
85.3
2014
£m
35.9
25.8
61.7
23.6
85.3
2013
£m
86.1
10.0
96.1
2013
£m
52.4
15.6
13.5
2.9
84.4
2013
£m
40.5
22.2
62.7
21.7
84.4
Hill & Smith Holdings PLC Annual Report 2014
111
Strategic Report
Governance Report
Financial Statements
Shareholder Information
20. Financial instruments continued
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
62.0
14.5
5.8
6.0
88.3
2014
Provisions
£m
(0.1)
(0.1)
(0.4)
(2.4)
(3.0)
Net
£m
61.9
14.4
5.4
3.6
85.3
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)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2013
Exchange adjustments
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2013
Exchange adjustments
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2014
Net
£m
59.2
13.5
7.0
4.7
84.4
£m
2.3
-
0.5
(0.2)
2.6
-
0.8
(0.4)
3.0
(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 £0.8m (2013: £0.6m), which would directly impact on the
Consolidated Income Statement.
Based on a 10% weakening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement would
have been a gain of £2.4m (2013: £2.4m) and the impact on equity would have been a gain of £18.4m (2013: £14.9m).
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 (2013: £2.0m) and the impact on equity would have been a loss of £15.0m (2013: £12.5m).
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www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
21. Called up share capital
Allotted, called up and fully paid
77.9m ordinary shares of 25p each (2013: 77.7m)
2014
£m
19.5
2013
£m
19.4
In 2014 the Company issued 0.2m shares under its various share option schemes (2013: 0.6m), realising £0.3m (2013: £2.0m).
Options outstanding over the Company’s shares
2014 LTIP Award (granted May 2014)*¥
2007 LTIP Award (granted March 2013)*
2007 LTIP Award (granted March 2012)*
2007 LTIP Award (granted March 2011)*
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 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)*†
2014 grant of 2005 Savings Related Share
Option Scheme (granted July 2014)*†
2014 grant of 2005 Savings Related Share
Option Scheme (granted July 2014)*†
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
186,121
160,148
263,721
-
-
-
44,706
62,148
2014
Option
price (p)
-
-
-
-
205
205
350
350
Number
of shares
-
160,148
263,721
287,779
2013
Option
price (p)
-
-
-
-
Date first exercisable
Expiry date
§
§
§
§
§
§
§
§
26,146
205
4 October 2008
4 October 2015
4,907
205
4 October 2008
4 October 2015
56,852
79,429
350
350
316
316
13 April 2010
13 April 2017
13 April 2010
13 April 2017
19 April 2015
19 April 2022
19 April 2015
19 April 2022
97,370
316
116,342
157,630
316
158,658
-
246
15,331
246
1 December 2013
1 June 2014
353,373
238
417,837
238
1 January 2016
1 July 2016
309,953
355
447,363
355
1 June 2018 1 December 2018
173,296
160,447
1,968,913
106,854
1,862,059
1,968,913
429
429
-
-
2,034,513
182,665
1,851,848
2,034,513
-
-
1 August 2017
1 February 2018
1 August 2019
1 February 2020
† 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 2015 for the
2012 grant, 1 January 2016 for the 2013 grant and 1 January 2017 for the 2014 grant.
¥ The 2014 LTIP award includes 16,113 shares under the Group’s 2014 Executive Share Option Scheme that may be awarded to participants in the Long-Term Incentive Plan. Further details are set
out in the Directors’ Remuneration Report on page 62.
The remaining weighted average life of the outstanding share options is 2 years 10 months (2013: 3 years 2 months).
Hill & Smith Holdings PLC Annual Report 2014
113
Strategic Report
Governance Report
Financial Statements
Shareholder Information
21. 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)
2014
198
287
(115)
(210)
232
Millions
of options
2014
2.0
0.6
(0.2)
(0.4)
2.0
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
The weighted average share price on the dates of exercise during the year for the above share options was 543p (2013: 461p), and the weighted
average fair value of options and awards granted in the year was 199p (2013: 163p). The weighted average exercise price of outstanding options
exercisable at the year end was 350p.
Share-based payments
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.
2014 grant
of 2014 LTIP
Award
2013 grant
of 2007 LTIP
Award
2012 grant
of 2007 LTIP
Award
July 2014
grant of
2005 Savings
Related Share
Option
Scheme
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
2012 grant of
2005 Share
Option
Schemes
2007 grant of
2005 Share
Option
Schemes
2005 grant of
2005 Share
Option
Schemes
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 (%)
556/260
443/248
337/194
93/98
556
0
23
3
0
1.1
443
0
29
3
0.0
0.3
337
0
28
3
0.0
0.6
512
429
22/21
3/5
3.1
1.2/2.0
83
429
355
26
5
3.5
0.7
44
290
238
21
5
4.4
1.6
3/3
160
246
28/24
3/5
4.6
1.8/2.8
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:
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Cash-settled
Total expensed during the year
22. Guarantees and other financial commitments
(a) Guarantees
The Group had no financial guarantee contracts outstanding (2013: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
2014
£m
0.9
0.3
1.2
2014
£m
1.5
2013
£m
0.3
0.2
0.5
2013
£m
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114 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
22. 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
2014
Land and
buildings
£m
3.8
3.6
8.9
8.7
25.0
Other
£m
2.2
1.8
2.4
0.1
6.5
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
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
2014
Land and
buildings
£m
0.4
0.9
0.3
1.6
Other
£m
12.8
5.0
-
17.8
2013
Land and
buildings
£m
0.6
1.2
0.5
2.3
23. 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
68.6
(86.3)
-
(17.7)
Overseas
£m
2.7
(5.9)
(0.2)
(3.4)
2014
£m
71.3
(92.2)
(0.2)
(21.1)
UK
£m
63.1
(80.7)
-
(17.6)
Overseas
£m
2.6
(5.1)
(0.1)
(2.6)
Other
£m
6.1
4.0
-
10.1
2013
£m
65.7
(85.8)
(0.1)
(20.2)
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 (2013: £1.6m), 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 2014
115
Strategic Report
Governance Report
Financial Statements
Shareholder Information
23. 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 2014 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
2014
n/a
2.90%
3.50%
3.0%
2.0%
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%
-
116%120%
S1PACM12014 1%*
116%120%
S1PACMI2013 1%*
116%120% 116%120%
116%120%
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
2014
21.9 years
24.4 years
20.9 years
23.1 years
2013
2012
2011
2010
21.7 years
24.1 years
20.7 years
22.9 years
21.8 years
24.3 years
20.8 years
23.0 years
21.6 years
24.2 years
20.0 years
22.7 years
21.6 years
24.2 years
20.0 years
22.7 years
The assumptions have been chosen by the Directors from a range of possible actuarial assumptions which, due to the timescales covered, may
not be borne out in practice.
Assets and liabilities
One scheme holds assets and liabilities in respect of defined contribution benefits which are equal in value and are excluded from the following
figures. The fair 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
2014
£m
Market value
2013
£m
Market value
2012
£m
Market value
2011
£m
Market value
2010
£m
23.1
37.5
1.1
-
-
6.9
68.6
(86.3)
(17.7)
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)
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116 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
23. Pensions continued
Total expense recognised in the Consolidated Income Statement
Current service costs
Expenses
Charge to operating profit
Interest on net pension scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2014
Defined
benefit
schemes
£m
1.1
0.2
1.3
-
1.3
-
0.3
0.3
0.6
0.9
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
0.6
2.2
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Interest cost
Actuarial loss/(gain) arising from:
Financial assumptions
Demographic assumptions
Experience adjustment
Benefits paid
Closing defined benefit obligations
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
2014
£m
80.7
3.3
6.1
-
-
(3.8)
86.3
2014
£m
63.1
2.7
3.1
3.5
(3.8)
68.6
5.8
2.5
1.2
Total
£m
1.1
0.5
1.6
0.5
2.1
2013
£m
75.8
3.1
4.8
(0.6)
1.0
(3.4)
80.7
2013
£m
62.0
2.6
(0.6)
2.5
(3.4)
63.1
2.0
2.5
1.1
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
23. Pensions continued
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 %
4
0
7
3
2014
£m
3.1
-
(6.1)
(3.0)
(34.0)
Return on plan assets excluding interest income
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 %
2
1
5
8
% of scheme
assets/
liabilities %
8
-
6
12
% of scheme
assets/
liabilities %
11
1
9
1
% of scheme
assets/
liabilities %
4
-
3
7
2013
£m
(0.6)
(1.0)
(4.2)
(5.8)
(31.0)
2011
£m
(4.3)
-
(3.9)
(8.2)
(24.7)
2012
£m
6.7
(0.5)
(6.7)
(0.5)
(25.2)
2010
£m
2.4
-
2.2
4.6
(16.5)
The table below shows the sensitivity of the Consolidated Statement of Financial Position to changes in the significant pension assumptions:
Value of funded obligations
Fair value of plan assets
Deficit
Balance at
31 December 2014
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
Life expectancy
(+1 year)
£m
(86.3)
68.6
(17.7)
(87.6)
68.6
(19.0)
(87.3)
68.6
(18.7)
(89.8)
68.6
(21.2)
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 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 (2013: £0.7m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £0.8m (2013: £0.8m), which includes the
costs of the defined contribution schemes and the defined benefit schemes.
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All actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income.
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 2014.
The principal assumptions used by the actuaries
Rate of increase in salaries
Discount rate
Inflation
Mortality table
USA
0.00%
4.75%
0.00%
2014
France
2.00%
2.50%
2.00%
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%
94 GAR
TH 00-02,
94 GAR
TH 00-02,
94 GAR
TH 00-02,
TH 00-02,
Proj. 2002
TF 00-02
Proj. 2002
TF 00-02
Proj. 2002
TF 00-02
TF 00-02
118 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
23. Pensions continued
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
2014
£m
2.7
2.7
(5.9)
(0.2)
(3.4)
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
0.1
0.1
(1.4)
(0.1)
(1.4)
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 year end date.
Total expense recognised in the Consolidated Income Statement
Current service cost
Charge to operating profit
Interest on net pension scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2014
Defined
benefit
schemes
£m
0.7
0.7
-
0.7
0.1
0.1
0.1
0.2
Defined
contribution
schemes
£m
0.7
0.7
-
0.7
Total
£m
0.8
0.8
0.1
0.9
2013
Defined
benefit
schemes
£m
0.1
0.1
0.1
0.2
Change in the present value of the defined benefit obligation
Opening defined benefit obligation
Current service costs
Interest cost on scheme obligations
Actuarial losses 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
2014
£m
5.2
0.1
0.2
0.6
-
(0.1)
0.1
6.1
2014
£m
2.6
-
0.1
(0.1)
0.1
2.7
0.1
-
0.8
Total
£m
0.8
0.8
0.1
0.9
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
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Hill & Smith Holdings PLC Annual Report 2014
119
Strategic Report
Governance Report
Financial Statements
Shareholder Information
23. Pensions continued
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
0
(10)
0
2014
£m
-
-
(0.6)
-
(0.6)
(1.6)
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
% of scheme
assets/
liabilities
%
-
-
(4)
n/a
% of scheme
assets/
liabilities
%
2
4
(12)
n/a
% of scheme
assets/
liabilities
%
(2)
-
n/a
2013
£m
-
0.2
(0.2)
-
-
(1.0)
2011
£m
-
-
(0.2)
-
(0.2)
(0.6)
2012
£m
0.1
0.1
(0.6)
-
(0.4)
(1.0)
2010
£m
-
-
-
-
(0.4)
The Group considers that any reasonable sensitivities applied to the overseas scheme assumptions would not have a material impact on the
Consolidated Statement of Financial Position.
24. 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 year end 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 and pension increases. The factors affecting these assumptions are largely outside the Group’s
control (note 23).
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.
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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 21.
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 19.
Taxation
The assessments made in respect of uncertain tax positions relating to the outcome of negotiations with and enquiries from tax authorities are
made following discussion with the Group’s tax advisers, taking into account past experience.
Deferred taxation has been estimated using the best information available, including seeking the opinion of independent experts where applicable
(note 13).
120 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Consolidated Financial Statements continued
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.
25. 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 58 to 71. 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
2014
£m
1.6
0.2
0.2
0.7
2.7
2013
£m
0.9
0.2
0.2
0.2
1.5
Hill & Smith Holdings PLC Annual Report 2014
121
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Notes
3
4
5
6, 7
6
7
9
10
10
10
2014
£m
0.1
312.5
312.6
35.5
35.5
(7.4)
(110.7)
(118.1)
(82.6)
230.0
(64.1)
165.9
19.5
31.7
0.2
114.5
165.9
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
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Year ended 31 December 2014
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 10 March 2015 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
122 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Year ended 31 December 2014
Company Reconciliation of Movements in Shareholders’ Funds
Profit for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive plans
Own shares acquired by employee benefit trust
Shares issued in the year
Net increase/(decrease) in shareholders’ funds
Opening shareholders’ funds
Closing shareholders’ funds
2014
£m
19.7
(12.4)
0.9
(1.0)
(1.4)
0.3
6.1
159.8
165.9
2013
£m
4.0
(11.6)
0.4
-
-
2.0
(5.2)
165.0
159.8
Hill & Smith Holdings PLC Annual Report 2014
123
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 25 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 year end 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 year end 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 year end 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 year end 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 20.
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
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124 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
Financial Statements
Notes to the Company Financial Statements
Leases
Assets acquired under finance leases are capitalised and the outstanding future lease obligations are shown in creditors. Operating lease rentals
are charged to the Profit and Loss Account on a straight line basis over the period of the lease.
Pension scheme arrangements
The Company participates in the Hill & Smith Executive Pension Scheme and the Hill & Smith Pension Scheme, as described in note 12. As the
Company is unable to identify its share of the Group pension scheme assets in respect of the defined benefit sections on a consistent and
reasonable basis, the schemes are accounted for as if they are defined contribution schemes, as permitted by FRS17. Contributions in respect of
defined contribution schemes are charged to the Profit and Loss Account in the period to which they relate.
Share-based payments
The share option programme allows employees to acquire shares of the Company. The fair value of options granted is 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 year end 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 2014
125
Strategic Report
Governance Report
Financial Statements
Shareholder Information
1. Profit on ordinary activities before taxation
The profit on ordinary activities is stated after charging:
Operating lease rentals – land and buildings
2014
£m
0.1
2013
£m
0.1
Fees paid to KPMG LLP 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 £4.6m (2013: £4.5m) and the final dividend of £7.8m (2013: £7.1m). Dividends
declared after the year end 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 2013
Additions
At 31 December 2014
Depreciation
At 31 December 2013
Charge for the year
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
4. Fixed asset investments
Cost
At 31 December 2013
Exchange adjustments
At 31 December 2014
Provisions
At 31 December 2013
Impairment
At 31 December 2014
Net book value
At 31 December 2014
At 31 December 2013
2014
Pence
per share
6.4
11.6
18.0
2013
Pence
per share
6.0
10.0
16.0
£m
5.0
9.0
14.0
Short leasehold
properties
£m
Plant, machinery
and vehicles
£m
0.1
-
0.1
-
-
-
0.1
0.1
0.4
-
0.4
0.3
0.1
0.4
-
0.1
Shares in
subsidiary
undertakings
£m
Loans to
subsidiary
undertakings
£m
Trade
investments
£m
301.7
(0.6)
301.1
11.1
-
11.1
290.0
290.6
23.8
-
23.8
1.3
-
1.3
22.5
22.5
0.8
-
0.8
0.8
-
0.8
-
-
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£m
4.6
7.8
12.4
Total
£m
0.5
-
0.5
0.3
0.1
0.4
0.1
0.2
Total
£m
326.3
(0.6)
325.7
13.2
-
13.2
312.5
313.1
126 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
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 134 to 136. 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
Corporation tax
Deferred tax (note 8)
Other debtors
Prepayments and accrued income
6. Creditors: amounts falling due within one year
Bank loans and overdrafts (note 7)
Bank overdrafts
Other creditors
Trade creditors
Other taxation and social security
Corporation tax
Accruals and deferred income
Other creditors
Amounts owed to subsidiary undertakings
2014
£m
34.1
0.7
0.3
0.2
0.2
35.5
2014
£m
7.4
7.4
1.3
0.1
-
3.1
0.8
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
105.4
110.7
106.1
111.3
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 20 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
2014
£m
64.1
64.1
2014
£m
7.4
-
64.1
64.1
71.5
2013
£m
62.7
62.7
2013
£m
6.6
-
62.7
62.7
69.3
Hill & Smith Holdings PLC Annual Report 2014
127
Strategic Report
Governance Report
Financial Statements
Shareholder Information
2014
£m
(0.2)
(0.1)
(0.3)
(0.3)
2014
£m
19.5
2013
£m
(0.2)
-
(0.2)
(0.2)
2013
£m
19.4
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
77.9m Ordinary Shares of 25p each (2013: 77.7m)
In 2014 the Company issued 0.2m shares under its various share option schemes (2013: 0.6m), realising £0.3m (2013: £2.0m). Details of share
options and related share-based payments are contained in note 21 to the Group Financial Statements.
10. Share premium and reserves
At 1 January 2013
Profit for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive payments
Shares issued
At 31 December 2013
Profit for the year
Dividends
Credit to equity of share-based payments
Satisfaction of long term incentive payments
Own shares acquired by employee benefit trust
Shares issued
At 31 December 2014
Share
premium
£m
29.6
-
-
-
-
1.9
31.5
-
-
-
-
-
0.2
31.7
Capital
redemption
reserve
£m
0.2
-
-
-
-
-
0.2
-
-
-
-
-
-
Profit
and loss
account
£m
115.9
4.0
(11.6)
0.4
-
-
108.7
19.7
(12.4)
0.9
(1.0)
(1.4)
-
0.2
114.5
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Details of share options and related share-based payments are contained in note 21 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.
128 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
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 (2013: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2014 was
£47.6m (2013: £47.3m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
Between two and five years
After more than five years
2014
Land and
buildings
£m
0.1
-
0.1
2013
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 23 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 (2013: £2.6m), of which
additional deficit contributions were £2.5m (2013: £2.5m).
Full details of the Group schemes are given in note 23 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 25 to the Group Financial Statements.
Hill & Smith Holdings PLC Annual Report 2014
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Strategic Report
Governance Report
Financial Statements
Shareholder Information
2014
£m
454.7
49.2
46.0
181.5
Pence
45.0
18.0
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
Five Year Summary
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
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130 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Financial Statements
Specialists in the design, manufacture and installation of GRP products designed for the rail industry, Access Design’s product on Network Rail’s Wessex Line at Guildford.
Hill & Smith Holdings PLC Annual Report 2014
131
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Governance Report
Financial Statements
Shareholder Information
Shareholder Information
132 Financial Calendar
133 Shareholder Information
134 Principal Group Businesses
137 Directors, Contacts & Advisors
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See further information online at hsholdings.com
132 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Shareholder Information
Financial Calendar
Annual General Meeting 2015
Trading Update
Ex-dividend date for 2014 final dividend
Record date 2014 final dividend
Dividend Reinvestment Plan – last date for election
Final 2014 ordinary dividend payable
Announcement of 2015 interim results
Trading Update
Payment of 2015 interim dividend
14 May 2015
14 May 2015
28 May 2015
29 May 2015
12 June 2015
3 July 2015
August 2015
November 2015
January 2016
Hill & Smith Holdings PLC Annual Report 2014
133
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Shareholder Information
Shareholder base
Holdings of ordinary shares at 9 March 2015
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 Thursday 14 May 2015 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.com 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
603
405
971
552
38
62
14
19
%
22.64
15.20
36.45
20.72
1.43
2.33
0.52
0.71
2,664
100.00
Number of holders
1,595
1,065
4
2,664
%
59.87
39.98
0.15
100.00
Number of Shares
121,371
318,058
2,458,879
7,578,104
2,891,885
14,050,550
10,575,946
39,927,800
77,922,593
Number of Shares
5,884,497
71,994,830
43,266
77,922,593
2014
6.4
11.6
18.0
›
›
›
2013
6.0
10.0
16.0
2012
5.8
9.2
15.0
2011
5.4
7.8
13.2
Access current and historical market prices.
Access trading graphs.
Add additional shareholdings to your portfolio.
%
0.16
0.40
3.16
9.73
3.71
18.03
13.57
51.24
100.00
%
7.55
92.39
0.06
100
2010
5.2
7.5
12.7
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
12 June 2015)
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.
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134 Hill & Smith Holdings PLC Annual Report 2014
www.hsholdings.com
Stock Code: HILS
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@weholite.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, road signage and
traffic safety solutions
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
ATA Hill & Smith AS*
Road safety barriers, road signage and
traffic safety solutions
Incorporated in Norway
Grev Wedels plass 2, 3015 Drammen, Norway
Tel: +44 (0) 32 26 93 00
post@ata.no
www.ata.no
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@barkersengineering.com
www.barkersengineering.com
Bergen Pipe Supports India Private
Limited*
Manufacture 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
bpsi@pipesupports.com
www.pipesupports.com
Bergen Pipe Supports, Inc.*
Manufacture 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.bergenps.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 Group 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@birtleygroup.co.uk
www.birtleygroup.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
sales@hill-smith.co.uk
www.hill-smith.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
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@ca-traffic.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.*
Manufacture 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.
Hill & Smith Holdings PLC Annual Report 2014
135
Strategic Report
Governance Report
Financial Statements
Shareholder Information
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.hshighway.com
Hill & Smith Infrastructure Products
India Pvt Limited*
Road safety barrier systems, traffic
monitoring and number plate recognition
systems
Incorporated in India
Plot 478, 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 temporary safety barriers
Incorporated in Australia
Unit 1, 242 New Cleveland Road,
Tingalpa, QLD 4173, Australia
Tel: +61 (0) 7 3162 6078
hsroads.com.au
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
Manufacture 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*
Manufacture 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*
Manufacture 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
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
Variable Message Signs (D)
Design, manufacture and installation of LED
based light technology solutions
Griffin House, Gatehouse Way,
Aylesbury, Buckinghamshire, HP19 8BP
Tel: +44 (0) 1296 673000
Fax: +44 (0) 1296 673002
Monkton Business Park, Mill Lane, Hebburn,
Tyne and Wear, NE31 2JZ
Tel: +44 (0) 191 423 7070
Fax: +44 (0) 191 423 7071
sales@vmslimited.co.uk
www.vmslimited.co.uk
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
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Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain 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.
136 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Shareholder Information
Principal Group Businesses continued
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
Barkers Engineering Limited*
Galvanizing and power coating services
Duke Street, Fenton, Stoke-on-Trent,
Staffordshire, ST4 3NS
Tel: +44 (0) 1782 319264
Fax: +44 (0) 1782 599724
sales@barkersengineering.com
www.barkersengineering.com
Birtley Group Limited*
Galvanizing services
Mary Avenue, Birtley, County Durham,
DH3 1JF
Tel: +44 (0) 191 410 6631
Fax: +44 (0) 191 410 0650
info@birtleygroup.co.uk
www.birtleygroup.co.uk
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
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
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.
Hill & Smith Holdings PLC Annual Report 2014
137
Strategic Report
Governance Report
Financial Statements
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)
A M Kelleher MSc, BA
(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
Alex Henderson FCIS
Auditors
KPMG Audit Plc
One 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
Two Snowhill
Birmingham
B4 6WR
Silks Solicitors
Barclays Bank Chambers
Birmingham Street
Oldbury
B69 4EZ
Financial Public Relations
MHP Communications
60 Great Portland Street
London
W1W 7RT
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138 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
Shareholder Information
Hill & Smith Solar’s 6.3MW/4 panel rows in a landscape orientation with a post driven foundation. The project is in the village of Blockley, a Cotswolds district of Gloucestershire, UK.
Hill & Smith Solar’s 140kw/2 panel rows in a portrait orientation with double leg and concrete ballast foundation, situated in Grude, Bosnia and Herzegovina.
Hill & Smith Holdings PLC Annual Report 2014
139
Strategic Report
Governance Report
Financial Statements
Shareholder Information
Shareholder Notes
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140 Hill & Smith Holdings PLC Annual Report 2014
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Stock Code: HILS
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
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