Annual Report for the year
ended 31 December 2015
Stock Code HILS
Mission Statement
“To deliver sustainable profitable growth
through the supply of Infrastructure Products
and Galvanizing Services.”
Hill & Smith Holdings PLC
Annual Report for the year ended 31 December 2015
1
Contents
Strategic Report
Group Highlights
Chairman’s Statement
Operational and Financial Review
3
4
6
16 Measuring Our Performance
Business Model and Strategy
18
Risk Management and Assurance
29
Principal Risks and Uncertainties
32
Corporate Responsibility
38
Governance Report
Chairman’s Introduction to Governance
51
52 Board of Directors
54 Governance Report
61 Audit Committee Report
66 Remuneration Committee Report
67 Directors’ Remuneration Report
81 Directors’ Report (other statutory information)
84 Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
86
88 Group Financial Statements
130 Company Financial Statements
142 Five Year Summary
Shareholder Information
144 Financial Calendar
145 Shareholder Information
146 Principal Group Businesses
149 Directors, Contacts and Advisors
Front Cover Images
Top - Yellow Creek Bridge, near Loysbury, Pennsylvania - designed
by E.T. Techtonics, Inc. and manufactured by Creative Pultrusions,
Inc.
Middle - Pipework fabrications immediately after dipping at the
Joseph Ash Walsall site.
Bottom - Zoneguard installation on the A14.
Left - Brifen Wire Rope VRS covering over 180km of the Saudi
Southern Border with Yemen.
Below - Asset MASS on the Heysham to M6 link.
2
Sculpture by Mattthew Lane Sanderson and galvanized by Joseph Ash, ‘Conduct’ stands outside the chapel forecourt of Solihull School, West Midlands.
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Group Highlights
•
•
Record revenue and underlying earnings performance.
Improved returns across all divisions driven by strong end markets and active portfolio management.
• Underlying profit before taxation up by 15% to £53.0m.
•
Four acquisitions completed during the year.
• Another strong cash generation performance with net debt at £91.5m.
•
Proposed final dividend of 13.6p.
2015
2014
Change %
Revenue
£467.5m
£454.7m
Underlying operating profit*
£56.0m
£49.2m
+3
+14
Revenue
£467.5m
up 3%
10.8%
+120bps
Underlying operating margin*
Underlying profit before tax*
Profit before tax
Underlying earnings per share*
Earnings per share
Dividend per share
12.0%
£53.0m
£33.2m
51.7p
30.9p
20.7p
Net debt
£91.5m
£96.0m
£46.0m
£36.9m
45.0p
35.1p
18.0p
+15
-10
+15
-12
+15
2015
2014
2013
2012
2011
£467.5m
£454.7m
£444.5m
£440.7m
£406.2m
Underlying operating profit
Underlying earnings per share
Dividend per share
£56.0m
up 14%
2015
2014
2013
2012
2011
51.7p
up 15%
20.7p
up 15%
£56.0m
2015
51.7p
2015
£49.2m
£44.5m
£44.0m
£41.5m
2014
2013
2012
2011
45.0p
40.4p
38.8p
2014
2013
2012
34.5p
2011
13.2p
(proposed)
20.7p
18.0p
16.0p
15.0p
* All underlying profit and EPS measures exclude certain non-trading items, which are defined in note 3 on page 101. References to underlying profit measures throughout this report are made
on this basis, and, in the opinion of the Directors, aid the understanding of the underlying business performance.
Strategic Reportwww.hsholdings.com | Stock Code HILS 4
Chairman’s Statement
“
I am delighted to
report a successive
year of record
performance by the
Group in 2015.
“
Bill Whiteley
Chairman
Overview
I am delighted to report a successive year of record performance
by the Group in 2015. In an increasingly uncertain macro-economic
environment, our focused strategy of developing businesses in
international markets and with market leading positions has
delivered good organic revenue and profit growth and improved
returns on the capital entrusted to us.
In 2015, our reported revenues increased by 3% to £467.5m
(2014: £454.7m), also by 3% at constant currency. Underlying
operating profit increased by 14% to £56.0m (2014: £49.2m), or 12%
at constant currency. Improvements in operating margins across all
our divisions contributed to the strong performance.
Continuation of our strategy of active portfolio management resulted
in us completing four acquisitions during 2015 for an aggregate cash
consideration of £16.6m (with a further £0.5m deferred):
›
›
›
›
In April, we acquired Novia Associates, Inc. (‘Novia’), a vibration
and seismic control manufacturer in New Hampshire, USA.
Novia will extend the product offering of our US pipe supports
business.
In November, we acquired the trade and certain assets of Tegrel
Limited (‘Tegrel’). Tegrel designs, manufactures and supplies a
range of aluminium enclosures used predominantly in the UK
highway and rail markets. Tegrel has long been a supplier to the
Group’s Variable Message Sign (‘VMS’) business and has been
integrated into the existing VMS operation.
In November, we acquired Premier Galvanizing Limited
(‘Premier’), a privately owned galvanizer with two plants located
in Hull and Corby, UK. The acquisition will afford Premier the
opportunity to enhance its service offering to galvanize longer
structural steel products.
In December, we acquired Bowater Doors Limited (‘Bowater’).
Bowater produces composite doors for the UK new build and
replacement door market and has subsequently been merged
into our Birtley building products business in Newcastle.
Post the year end, in January 2016 we acquired the trade and
assets of E.T. Techtonics, Inc. (‘ETT’), a leader in the design and
construction of composite bridges. ETT will trade as a division of our
US composites business, Creative Pultrusions.
We welcome the employees of the acquired companies to the Group
and are excited about the opportunities the expanded businesses can
deliver.
In furtherance of our strategic objectives, today we have announced
the proposed restructuring of our non-US pipe supports operations.
Regrettably, market forces are such that we no longer see the
business being able to meet the Group’s financial return metrics
over a reasonable time horizon. Therefore, we have announced the
plan to engage in a consultation process regarding the closure of,
and our exit from, our manufacturing sites in the UK and Thailand
and also our sales office in China. To the extent possible, work
will be transferred to our Indian manufacturing facility, which will
become our centre of excellence for the manufacture of pipe support
products. It is expected that we will seek a buyer for the Indian
business once the restructuring is completed.
Performance highlights
The Board is pleased with the Company’s financial performance for
2015, the highlights of which are shown below:
Change %
2015
2014
Reported
Constant
currency
Revenue
£467.5m £454.7m
+ 3
+ 3
Underlying(1):
Operating profit
£56.0m
£49.2m
+ 14
Profit before tax
£53.0m
£46.0m
+ 15
Earnings per share
51.7p
45.0p
+ 15
+ 12
+ 13
+13
(1) Underlying profit and EPS measures exclude certain non-trading items, which are as
defined in the “Group Accounting Policies” on page 93 and detailed in note 3 to the Financial
Statements.
Dividends
In view of the strong performance the Board is recommending a final
dividend of 13.6p per share (2014: 11.6p per share) making a total
dividend for the year of 20.7p per share (2014: 18.0p per share), an
increase of 15% on the prior year. Underlying dividend cover remains
a healthy 2.5 times (2014: 2.5 times).
We continue to perform at a level that enables us to maintain a
progressive dividend policy which has resulted in thirteen years of
uninterrupted dividend growth. The final dividend, if approved, will be
paid on 1 July 2016 to those shareholders on the register at the close
of business on 27 May 2016.
Strategic Reportwww.hsholdings.com | Stock Code HILS 5
AGM
We will hold our AGM on 17 May 2016 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.
People
Good results can only be delivered through the efforts and dedication
of a loyal and strong workforce. On behalf of the Board, I would like
to thank our employees for their continued hard work and for rising
to the challenges and opportunities they meet.
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 over 80% of revenue and
90% of underlying operating profit from its UK and US operations, the
Group principally operates in niche infrastructure markets where the
overall outlook remains positive.
Our US galvanizing plants have enjoyed a good start to the new year
helped by favourable weather conditions and we anticipate another
strong outcome. The performance of the US, together with the UK
galvanizing business, is expected to more than offset any potential
weakness from our French operations, where economic conditions
remain difficult.
In Utilities, notwithstanding a slower start to the year, our UK and US
activities are well placed to continue to benefit from the significant
investment going into the ageing infrastructure of those countries.
The proposed restructuring of our loss-making non-US Pipe Support
operations will also improve Utilities profitability.
In the UK, the implementation of the Department of Transport’s Road
Investment Strategy is progressing well and is entering the second
year of the initial five year plan, which provides certainty of funding
through to 2020/21. We therefore have confidence that the Group’s
road product portfolio will continue to benefit from the increased
investment in the UK road infrastructure.
Overall, although some markets remain challenging, 2016 is again
expected to be a year of good progress.
Bill Whiteley
Chairman
9 March 2016
Set out below is our five year dividend per share track record, growth
of which is at the heart of our strategic objectives.
2015 20.7p
(proposed)
2014 18.0p
2013 16.0p
2012 15.0p
2011 13.2p
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 2009 to 31 December 2015. Over the period the
Board is pleased with the progress made, but we remain focused on
further improvement through the implementation of our strategy.
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Hill & Smith
FTSE SmallCap
FTSE All-Share
Governance and the Board
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 set out explanations of our business
model, strategy, viability statement, 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.
It is the responsibility of every Board to ensure that there is an
appropriate succession planning process in place across the business,
including the Board of Directors. During the year, both the Board
and the Nomination Committee reviewed their plans for succession
planning. Clive Snowdon, currently Senior Independent Director and
Chair of the Remuneration Committee, joined the Board in May 2007
and has provided invaluable counsel in the transformation of the
Group during his tenure. Clive will retire at the 2016 AGM in May and
a search is underway for his replacement. Clive leaves us with our
thanks and best wishes for the future.
Strategic Reportwww.hsholdings.com | Stock Code HILS
6
Operational and Financial Review
Mark Pegler
Group Finance Director
Derek Muir
Group Chief Executive
2015 overview
The Group delivered another strong performance in 2015 with
record revenue generation and underlying profitability. Despite the
uncertain economic conditions, trading in our key markets remained
positive and we delivered strong year-on-year underlying profit
growth ahead of our earlier expectations. Infrastructure Products
performed well, with both Utilities and Roads increasing profitability.
A strong performance from Galvanizing in the USA and UK more than
offset continued weakness in France.
Our strategy of international diversity and the strength of our
businesses within their respective markets continues to underpin our
performance. Our USA and UK operations grew strongly on the back
of increasing infrastructure investment in our chosen end markets.
Our UK operations now generate 47% of Group underlying operating
profit, while our USA based businesses now account for 45% of Group
underlying operating profit compared to 41% in the prior year. Both
economies and the markets in which we operate continue to have a
positive outlook for 2016 and beyond.
Reported revenue for the year increased by 3% to £467.5m
(2014: £454.7m). Adjusting for adverse currency impacts of £0.5m
and a net decrease in revenue of £2.6m from acquisitions and
disposals, revenue improved by £15.9m, an organic increase of 3%.
Underlying operating margin improved by 120bps to 12.0%
(2014: 10.8%). Underlying operating profit increased by 14% to
£56.0m (2014: £49.2m) including favourable currency impacts of
£0.9m, with acquisitions/disposals contributing £1.0m. The organic
improvement in underlying operating profit was 10%. Underlying
profit before taxation was 15% higher at £53.0m (2014: £46.0m).
Infrastructure Products
Revenue
Underlying operating profit
Underlying operating margin %
£m
2015
2014
325.5
322.9
+/-
%
+1
26.5
8.1
22.5
+18
7.0
Constant
Currency
%
+1
+16
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 2015 the
division accounted for 70% (2014: 71%) of the Group’s revenue and
47% (2014: 46%) of the Group’s underlying operating profit.
Overall revenues increased marginally to £325.5m (2014: £322.9m)
including a £0.8m positive impact from exchange rate movements.
Organic revenue growth was £5.1m, or 2% at constant currency.
Underlying operating profit was £26.5m (2014: £22.5m), an increase
of £4.0m, with a positive currency translation impact of £0.3m.
Underlying operating margin improved to 8.1% (2014: 7.0%).
Roads
Revenue
Underlying operating profit
Underlying operating margin %
£m
2015
2014
131.6
127.7
16.0
12.2
13.3
10.4
+/-
%
+3
+20
Constant
Currency
%
+7
+21
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 29%
(2014: 27%) of the Group’s underlying operating profit, and 28%
(2014: 28%) of revenues in 2015.
Revenues increased by 3% to £131.6m (2014: £127.7m). Underlying
operating profit of £16.0m was £2.7m higher than the prior year
(2014: £13.3m). There were no material net effects from acquisitions
and currency movements.
UK
In December 2014, the UK Government published its Road
Investment Strategy (‘RIS’) setting out investment plans in the
UK road network through to 2020/21. Subsequently, in April
2015, Highways England was formed (previously the Highways
Agency) as a Government owned company with the objective of
delivering the transformational investment plan in the nation’s
strategic road network. The RIS aims to provide certainty of road
investment funding over the period 2015/16 to 2020/21, improve the
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 are at the core of the Group’s
product offering in the UK. Overall, the implementation of the RIS
progressed as planned in the first half of the year but slowed in the
second half, as three Smart Motorway and other programmes were
delayed into 2016. Pleasingly, the Smart Motorway programmes are
now underway and we have commenced supply of our temporary
safety barrier.
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Demand for permanent and temporary safety barriers was very
strong in the first half of the year. However, as expected, the
utilisation of the temporary safety barrier rental fleet was lower in
the second half as Smart Motorway projects were delayed. Utilisation
rates are expected to increase throughout 2016 as further Smart
Motorway programmes commence. Good performances were
achieved from our BEBO concrete structures and our UK bridge
parapet products. Both business units entered 2016 with a strong
backlog and we expect further improvement during the year. Our
Brifen wire rope safety fence system had a strong second half
shipping a large 180km project to the Middle East. At the end of 2015
we secured an additional order of 200km to supply the second phase
of the project, which will be shipped in the first quarter of 2016. As
part of our continuing investment in product testing, we successfully
tested a high containment anti-terrorist perimeter fence to achieve
minimal penetration. The product was launched in the second half
and early signs are encouraging, with two projects protecting power
stations completed, also in the Middle East.
The integration of Variable Message Signs (‘VMS’), acquired in July
2014, was successfully completed and the combined organisation
is able to provide a wider and more competitive product offering
to support Highways England in its roll out of the Smart Motorway
programme. Product development initiatives have added to our
offering and include remote control roadworks taper signs. The
business delivered an excellent performance in 2015 and entered
2016 with a strong backlog. In November, we purchased for minimal
consideration the trade and assets of one of VMS’s major suppliers,
Tegrel, which manufactures the aluminium enclosures for the
variable message signs. This business has been integrated into VMS,
vertically integrating our supply chain and increasing our capacity to
satisfy the growing demand from Highways England and Transport
Scotland.
Despite the completion of a number of our PFI projects, our lighting
column business delivered an exceptional result with profitability
ahead of 2014. The strategy of diversifying both products and
markets continues to deliver significant benefits. We will however
see completion of the remaining PFIs in 2016 and therefore expect
volumes to reduce.
Non-UK
Our Scandinavian business enjoyed a good year with profitability
ahead of 2014 despite adverse currency movements impacting on
the competitiveness of safety barrier products imported from the
UK. The outlook for the Scandinavian market remains favourable and
during the year we expanded our temporary safety barrier rental
fleet to further enhance the product offering. We continue to look at
opportunities to strengthen the range of products.
In France our lighting column business performed well and despite
the competitive marketplace and subdued demand, we were able to
increase our market share. Investment in automation has enabled
us to reduce operational costs and we are on target to become the
lowest cost, fully integrated producer of lighting columns in France.
In our other international businesses we are working hard to
introduce our tried and tested products into new markets by
promoting their benefits through lower cost and efficient installation.
These products, including Brifen wire rope safety fence and
Zoneguard, our temporary safety barrier, are taking longer to gain
penetration than we initially envisaged. With further approvals
gained in the USA market and an expanded, more focused sales
organisation, we expect Zoneguard to return a stronger performance
in 2016. In India, after a difficult period pre and post national
elections, project funding now appears to be forthcoming in the
roads market and we anticipate an increase in momentum in the
market for wire rope during the coming year. Pleasing progress
has been made in Australia where, despite the weakness of the
Australian Dollar hindering competitiveness, we have captured
a number of orders including a supply contract for 19km of our
Zoneguard temporary safety barrier to a major project in Sydney.
We expect an improved performance from our international roads
businesses in 2016.
Overall, the demand for our products, both in the UK and overseas,
remains encouraging and 2016 is expected to be a year of further
progress in our respective markets.
Utilities
Revenue
Underlying operating profit
Underlying operating margin %
£m
2015
2014
193.9
195.2
10.5
5.4
9.2
4.7
+/-
%
-1
+14
Constant
Currency
%
-3
+9
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% (2014: 19%)
of the Group’s underlying operating profit and 41% (2014: 43%) of
revenues.
Revenues fell to £193.9m (2014: £195.2m), but after adjusting
for disposals in the prior year and currency impacts, reflected an
organic improvement of £1.8m or 1% primarily due to a stronger
performance from our UK utilities businesses. Underlying operating
profit increased by £1.3m to £10.5m (2014: £9.2m), a constant
currency growth of 9%. Underlying margins improved 70bps to 5.4%
(2014: 4.7%).
Creative Pultrusions, our composites company in the USA, delivered
a robust performance by increasing sales of its waterfront protection
products and its own electrical distribution products of GRP Poles
and Crossarms. OEM customer volumes were lower year on year
however profitability remained at prior year levels on a higher margin
product mix. Development of new products continues to be the focus
and in January 2016 we completed the acquisition of the trade and
assets of E.T. Techtonics, Inc. (‘ETT’), a leading designer of composite
bridges for pedestrian, equestrian and light vehicle applications. The
company has a patented design and has engineered and installed
over 700 walkway systems using their PRESTEK® system. Cash
consideration of $1.8m was paid at acquisition with a further $0.2m
due in 2016. ETT will be integrated into the Creative Pultrusions
business and furthers our strategy of enhancing our product offering
to end users within infrastructure markets.
Our USA based transmission structures and substation utility business
entered 2015 with an improved backlog for larger substation
structures. Stronger revenues were experienced throughout the year,
notably from our customers within framework agreements, which
now account for 50% of our revenue. Increased penetration in our
packaging work, supplying both structural galvanized steel structures
together with the required electrical components, also improved
profitability. The order backlog remains healthy, although revenues
are expected to be marginally lower than 2015 as lower material
prices work their way through the pricing structure in framework
agreements.
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Operational and Financial Review (continued)
Our pipe supports business in the USA experienced disruption in the
first quarter due to poor weather conditions in the north east. During
the year the market improved for engineered products and we signed
a Master Product Agreement with Bechtel Power for the supply
of engineered pipe supports for their combined cycle gas plants.
Three projects are currently under construction and we enter 2016
with a strengthened backlog. The industrial pipe hanger business
remains very competitive with lower margins experienced across
our network of branches. Construction activity in the major cities is
encouraging, which should result in increased demand in 2016 for
our products. On 30 April 2015 the Group completed the acquisition
of Novia Associates, Inc. (‘Novia’), a vibration and seismic control
manufacturer located in New Hampshire, USA for a net consideration
of £1.8m. Novia will extend the product offering of our US pipe
supports business and, having been successfully integrated, has
performed well in the period since acquisition.
Outside the US, our Indian business gained traction with new
leadership and we supplied engineered pipe supports and hanger
rods for Larsen & Toubro and Doosan on multi-boiler coal-fired
power stations, resulting in a successful year. During the year we
won further work for our Thailand plant from India for the supply of
cryogenic pipe supports for large LNG terminals in Dahej and Mundra
in the Gujarat province. The outlook in India remains strong with
a large programme to build both coal and gas fired power plants
together with LNG receiving terminals. Our pipe supports businesses
in Thailand and the UK entered the year with a lower order backlog
than we would usually expect, due to our Japanese EPC framework
customers completing power projects for which we had already
supplied pipe supports in the previous year. After a disappointing
first half performance, we entered the second half with an improved
order book and expectations of a significant improvement in
profitability. However, with the fall in oil and gas pricing, the wider
power and energy market continued to be challenging and order
intake has been weaker than expected, both in terms of volume
and pricing. Consequently, the UK and Thailand based businesses
performed below our expectations in the second half of the year
incurring further losses. The outlook for our markets outside India
is expected to remain challenging over a reasonable time horizon.
Following a strategic review of the business we have announced our
plan to engage in a consultation process regarding the closure of,
and our exit from, our manufacturing sites in the UK and Thailand
and also our sales office in China. To the extent possible, work
will be transferred to our Indian manufacturing facility, which
will become the centre of excellence for the manufacture of pipe
support products. Following completion of the restructuring, it is
expected that the Group will seek a buyer for the Indian business.
A non-underlying restructuring charge of approximately £10m will
be reported in the 2016 results of which cash costs (after realisation
of property and working capital) are expected to be in the region of
£4m.
In the UK our utilities businesses have performed strongly year on
year due to increased infrastructure spending. The industrial flooring
operation successfully completed a number of projects for new
train maintenance depots and this work is set to continue into 2016
helping to offset the lower activity from oil and gas projects in the
North Sea. Demand for our products in new Energy from Waste and
Biomass plants increased in the period and the demand for these
plants is increasing. AMP6 had a slow first year despite increased
bidding activity, however it is expected that the second year of the
five year programme, which starts in April 2016, will see the award
and supply of a number of projects for galvanized steel handrails,
flooring and walkway bridges.
Our plastic pipe business benefitted throughout the year from strong
demand in the UK housing sector for storm attenuation tanks for the
flood alleviation market. Enquiry levels for AMP6 were at record levels,
however few orders were placed in the first year of the plan. Recent
record levels of rainfall and increased flooding should result in this
market gaining momentum over the next year or so. Efficiency gains
within the business and capital expenditure on automated fabrication
equipment allowed us to increase productivity and improve returns.
The business is well placed for future growth.
The Birtley and Expamet range of building products continued to
perform ahead of our expectations with increased penetration of
both brands to independent builders and national merchants. Focus
to improve efficiencies within the composite residential door business
increased our throughput by over 50%, which satisfied the increased
demand from the major housebuilders. As part of our strategy to
supply composite doors to the retail and social housing sectors,
in December we acquired the Bowater Doors business from the
VEKA Group for a cash consideration of £0.3m. The Bowater brand
is synonymous with the national direct-to-consumer sector and
manufacturing has been transferred to the Birtley door factory in the
north east. This acquisition is part of the vision to become a major
supplier of residential doors across all sectors of the industry.
Our solar frame business had another successful year despite the
abandonment of the UK Renewable Obligation scheme for projects
over 5MW at the end of March 2015. Given the phase out of the tax
incentives, we do not anticipate much activity after the end of March
2016.
Ongoing investment in the UK rail network and the protection of
critical infrastructure sites has provided higher volumes for our
security fencing operation. The innovative product development of
high security fencing over the past few years is now leading to our
systems being specified by a number of utilities, who are reviewing
their perimeter security in light of the increased terrorist threats
both in the UK and overseas. During the year we completed a large
contract to supply 6km of fencing to increase border security in
Calais, France.
Galvanizing Services
Revenue
Underlying operating profit
Underlying operating margin %
£m
2015
2014
142.0
131.8
29.5
20.8
26.7
20.3
+/-
%
+8
+10
Constant
Currency
%
+9
+8
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 30% (2014: 29%) of the
Group’s revenue and 53% (2014: 54%) of the Group’s underlying
operating profit.
Reported revenue increased by 8% to £142.0m (2014: £131.8m),
with growth at constant currency at 9%. Underlying operating profit
improved to £29.5m (2013: £26.7m), a constant currency growth of
8%. Underlying operating margins remained strong and improved
by 50bps to 20.8% (2014: 20.3%) despite the adverse zinc pricing
impact in Sterling and Euro of a stronger US Dollar. Overall galvanizing
volumes were 3% ahead of 2014 principally as a result of a strong
performance in the USA.
Strategic Reportwww.hsholdings.com | Stock Code HILS 9
UK
Our galvanizing businesses are located on ten sites, four of which are
strategically adjacent to our Infrastructure Products manufacturing
facilities.
Overall volumes were down 6% year on year with the principal driver
being our decision to close our Hereford plant, the smaller of our
two structural steel galvanizing plants. The closure was completed
to plan and, encouragingly, we retained a higher proportion of the
existing customer base than expected. Structural steel customers
are now serviced from our Chesterfield plant where we have invested
significantly to expand and upgrade our facilities. Excluding the
impact of the Hereford plant closure, volumes were similar to the
prior year. The lower cost base more than offset the reduced volumes
resulting in profitability ahead of last year. Further investment is
underway at our Medway and Walsall plants in order to create
additional capacity and improve operational efficiency.
On 25 November, we acquired Premier Galvanizing Limited (‘Premier’)
for a net cash consideration of £15.0m. Purchased from private
shareholders, Premier has two plants located in Hull and Corby,
areas not covered by our existing plant network. With a reputation
for quality and service in its local areas Premier will now be able to
add structural steel galvanizing to its service offering. Trading since
acquisition has been in line with our expectations.
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.
Volumes for the year were 29% higher year on year. Adjusting for
the new plant in Memphis, underlying volumes from the existing
plants were up 15%. Bridge and highway products are a key volume
underpin and therefore it was pleasing to see in December 2015
a new $305bn five-year highway bill approved. The first long term
surface transportation bill funded for longer than two years in as
many decades will provide funding for the repair of the ageing
infrastructure in the USA. The alternative energy market remains
strong, notably solar products. It was anticipated that 2016 would
be the final year of substantial investment in the industry, however
a five-year extension to the tax credit regime should see investment
remain at 2016 levels through to 2021.
Our new plant in Memphis, Tennessee had its first full year of trading
and experienced a steady increase in production volumes throughout
the year resulting in a profitable second half. We now have an
established and growing customer base and we look forward to
further developing the business this year.
France
France Galva has ten strategically located galvanizing plants each
serving a local market. We act as a key part of the manufacturing
supply chain in those markets and have delivered a high level of
service and quality to maintain our position as market leaders.
The business continues to perform well in a difficult economic
climate. Volumes fell 9% year on year but due to action in flexing
the cost base taken early by the highly experienced team, we were
able to minimise the effect on profitability. The large structural
steel galvanizing plants in the north of the country experienced
a significant downturn in volumes whilst the smaller, jobbing
galvanizing plants in the south continued to perform well in the
environment. We plan to reorganise one of our structural plants
to become a jobbing plant early in the new year to improve the
efficiency of this plant and our structural steel bath located nearby.
Welding taking place at
our Varley & Gulliver site,
Birmingham.
Strategic Reportwww.hsholdings.com | Stock Code HILS 10
Case Study
Title
Asset provide tank for housing development in Greater Manchester
“The Kings Grange
project demonstrates the
versatility of our Weholite
product and how it can
be effectively used as a
solution for managing
excess storm water.”
Asset International Ltd, the UK’s leading water management
solutions company, has provided residential developer, Taylor
Wimpey, with a storm water attenuation tank for its new Kings
Grange housing development in Audenshaw, Greater Manchester.
The bespoke modular design, provided by Asset International,
utilised large diameter Weholite pipes to suit the site requirements
in order to create a massive attenuation tank, one of the largest the
company has ever supplied within the United Utilities region, for a
housing development.
The tank will be used to help reduce peak flow, caused by heavy
rainfall, at the housing development by restricting the flow of excess
water before releasing it gradually via an outfall back into the
ground. This will provide invaluable protection for the site.
The installation consisted of three 3.5m diameter pipes, which
were each 36.5m in length, connected at each end with a factory
manufactured manifold, creating a total capacity of 1,551m3
(approximately 1m litres). Asset’s British made 3.5 metre diameter
pipes are the largest of their kind in the world.
The attenuation tank will provide protection to the 200 new homes
at the Taylor Wimpey Audenshaw site, which is located five miles
from Manchester city centre.
Find out more about the company at xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Find out more about the company at: www.weholite.co.uk
“
Lupta pore latur aut et
es rem erumenduci si
accuptam quo occupta
quae lautem quunto
modis nis millore
scipsam fugia que di
cus etur rehenderit,
qui te volorempore
nonserrovit magnis
quia coruntem.
“
Strategic Reportwww.hsholdings.com | Stock Code HILS 11
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 2015 the Group achieved an underlying cash conversion
rate of 100% (2014: 51%, or 95% excluding major capital projects).
Over the past seven years the Group has achieved an average rate of
over 90%.
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, while a sound balance sheet provides a platform to take
advantage of future growth opportunities.
Group net debt at 31 December 2015 was £91.5m, representing
a year on year reduction of £4.9m before adverse exchange
rate movements of £0.4m. The Group’s net debt includes 19%
denominated in US Dollars and 11% denominated in Euros which act
as a hedge against the net asset investments in overseas businesses.
Change in net debt
Operating profit
Depreciation and amortisation*
Working capital movement
Pensions and provisions
Other items
Operating cash flow
Tax paid
Interest paid (net)
Capital expenditure
Sale of fixed assets
Free cash flow
Dividends
Acquisitions
Disposals
Amortisation of refinancing costs
Net issue of shares
Change in net debt
Opening net debt
Exchange
Closing net debt
2015
£m
37.3
18.0
(2.5)
(3.3)
16.6
66.1
(12.6)
(3.0)
(16.0)
1.2
35.7
(14.1)
(16.6)
-
(0.4)
0.3
4.9
(96.0)
(0.4)
(91.5)
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)
* includes £1.6m (2014: £2.1m) in respect of acquisition intangibles.
The Group’s principal debt facility consists of a headline £210m
multicurrency revolving credit agreement maturing in April 2019,
providing the Group with significant headroom against its expected
future funding requirements.
Financial review
Income statement phasing
2015
Revenue £m
Underlying operating profit £m
Margin %
2014
Revenue £m
Underlying operating profit £m
Margin %
First
half
Second
half
Full
year
233.0
234.5
467.5
26.3
11.3
29.7
12.7
56.0
12.0
223.8
230.9
454.7
22.5
10.1
26.7
11.6
49.2
10.8
The phasing of revenue and to a greater extent underlying operating
profit was again second half weighted in 2015, principally reflecting
the continuing broad improvement in economic conditions in the
US, together with a normal degree of seasonality across the Group’s
portfolio of businesses.
Reported revenue of £467.5m was £12.8m or 3% ahead of the prior
year, with acquisitions and disposals completed during both 2014
and 2015 resulting in a net revenue reduction of £2.6m but a £1.0m
benefit to underlying operating profit. The translation impact arising
from changes in exchange rates, principally the US Dollar and Euro,
reduced total revenue by £0.5m, but increased underlying operating
profit by £0.9m. At constant exchange rates, organic revenue growth
was £15.9m and underlying operating profit growth was £4.9m, or
3% and 10% respectively. Further details of the performance of the
Group are provided in the Operational Review.
£m
2014
Acquisitions/disposals
Currency
Organic growth
2015
Revenue
454.7
(2.6)
(0.5)
15.9
467.5
Underlying
operating profit
49.2
1.0
0.9
4.9
56.0
Cash generation and financing
The Group again demonstrated its cash generating abilities with
strong operating cash flow of £66.1m (2014: £53.7m), despite a
marginal increase in working capital of £2.5m (2014: £5.1m). The
overall impact on working capital of zinc and steel commodity
prices year-on-year was not material, in part due to the impact of a
strengthening US Dollar on Dollar denominated zinc prices. Working
capital as a percentage of annualised sales increased marginally to
14.3% at 31 December 2015 (2014: 13.9%). Debtor days were 62
days (2014: 61 days).
Capital expenditure at £16.0m (2014: £35.9m) represents a multiple
of depreciation and amortisation of 1.0 times (2014: 2.4 times), a
more normal level of spend following the significant investments
in the prior year on our UK temporary road safety barrier fleet
and the construction of our new galvanizing facility in Memphis,
USA. Significant items of expenditure in the current year included
£1.6m on the upgrade and expansion of our UK Galvanizing site at
Chesterfield and £1.4m on completion of the Memphis plant. The
Group continues to invest in organic growth opportunities where
returns exceed internal benchmarks and its cost of capital.
Strategic Reportwww.hsholdings.com | Stock Code HILS 12
Operational and Financial Review (continued)
Maturity profile of debt facilities
On demand
2016-2017
2018-2019
2015
£10.2m
£0.6m
On demand
2015-2016
2014
£9.3m
£1.3m
£214.8m
2017-2019
£212.9m
At the year end the Group had committed debt facilities available of
£215.4m and a further £10.2m in overdrafts and other on-demand
facilities.
The principal debt facility is subject to covenants which are tested
biannually 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 2015 were:
Interest Cover
Net debt to EBITDA
Actual
25.0 times
1.2 times
Covenant
> 4.0 times
< 3.0 times
Appropriate monitoring procedures are in place to ensure continuing
compliance with banking covenants and, based on our current
estimates, we expect to comply with the covenants 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
2015
£m
2014
£m
3.0
-
0.7
0.4
3.1
0.1
0.7
0.3
3.2
1.0
4.2
3.0
1.1
4.1
Net financing costs were marginally lower than prior year at £4.1m
(2014: £4.2m). The net cost from pension fund financing under
IAS19 was £0.7m (2014: £0.7m) which, given its non-cash nature,
continues to be treated as ‘non-underlying’ in the Consolidated
Income Statement. Non-underlying financing costs also include
£0.4m relating to the Group’s amendment of the terms of its
principal banking facilities in 2014, reflecting the amortisation of the
costs capitalised against the loans in accordance with IAS39. The
underlying cash element of net financing costs decreased by £0.2m
to £3.0m (2014: £3.2m), as a result of lower levels of average net
debt during the year. Underlying operating profit covered net cash
interest 18.7 times (2014: 15.4 times).
The Group has approximately 26% (2014: 26%) of its gross debt of
£104.4m 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.
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
2015, ROIC increased to 18% (2014: 16%) largely as a result of
improvements in underlying operating margins, tight control over
working capital and capital investment outflows, and the
full-year impact of the disposal and restructuring of underperforming
businesses in 2014. 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 2014 revenue
and underlying operating profit using 2015 average exchange rates
would have reduced the prior year revenue by £0.5m but increased
underlying operating profit by £0.9m, the movements reflecting
the net impact of Sterling’s appreciation against the Euro and
depreciation against the US Dollar. Exchange rates continue to move
in line with worldwide events and currency flows and hence are
inherently difficult to predict, but will continue to have an impact
on the translation of overseas earnings in 2016. Retranslating 2015
revenue and underlying operating profit using exchange rates at
3 March 2016 (inter alia £1 = $1.39 and £1 = €1.27) would increase
the revenue and underlying operating profit by £18.2m (4%) and
£3.2m (6%) respectively. For US Dollar, a 1 cent movement results
in a £900,000 and £180,000 adjustment to revenue and underlying
operating profit respectively. For the Euro, a 1 cent movement results
in a £400,000 and £35,000 adjustment to revenue and underlying
operating profit respectively
Non-underlying items
The total non-underlying items charged to operating profit in the
Consolidated Income Statement amounted to £18.7m (2014: £8.1m)
and were made up of the following:
Impairment of acquisition
intangibles
Amortisation of acquisition
intangibles
Acquisition expenses
Business reorganisation costs
Losses on sale of properties
Income
statement
charge
£m
Cash in
the year
£m
Future
cash
£m
Non-
cash
£m
(15.7)
(1.6)
(1.0)
(0.3)
(0.1)
(18.7)
-
-
(1.0)
(0.5)
0.4
(1.1)
-
-
-
-
-
-
(15.7)
(1.6)
-
0.2
(0.5)
(17.6)
›
The impairment charge of £15.7m (2014: £nil) represents a
full impairment of the goodwill and acquired intangible assets
relating to the Group’s acquisition of The Paterson Group in
March 2011. Despite an improvement in performance in 2015,
results remain below expectations and, overall, the business
continues to generate levels of profitability that are significantly
below those anticipated at acquisition, largely driven by changes
in the US power generation market, including the hiatus in
nuclear spend, and the ongoing impact of low oil prices. As a
result, an impairment review was performed during the year
resulting in a full impairment of the goodwill and remaining
book value of acquired intangible assets;
Strategic Reportwww.hsholdings.com | Stock Code HILS
13
›
›
›
›
Non-cash amortisation of acquired intangible fixed assets was
£1.6m (2014: £2.1m);
Acquisition related expenses of £1.0m (2014: £0.1m) reflect
costs associated with acquisitions expensed to the Consolidated
Income Statement in accordance with IFRS3 (Revised);
Business reorganisation costs of £0.3m (2014: £2.6m) principally
relate to redundancies and other costs associated with site
restructuring. The charge includes a net release of £0.2m of
provisions relating to prior year site closures following the
favourable settlement of previously estimated exposures; and
Losses on sale of properties during the year were £0.1m (2014:
profit of £0.4m).
The net cash impact of the above items was an outflow of £1.1m
(2014: inflow of £0.2m) with the non-cash element therefore
amounting to £17.6m. 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 £9.1m (2014: £9.6m). The
underlying effective tax rate for the Group was 23.8% (2014: 24.0%),
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 was £12.6m (2014: £9.3m),
with the lower spend in the prior year benefitting from advanced
capital allowances in connection with the Group’s investment in the
new Memphis galvanizing plant in the USA.
The Group’s net deferred tax liability is £7.9m (2014: £7.6m). A £7.0m
(2014: £8.5m) deferred tax liability is provided in respect of brand
names and customer relationships acquired, the reduction in the
year largely reflecting the impairment charges made in respect of
The Paterson Group. A further £1.2m (2014: £1.5m) 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 15% to 51.7p (2014: 45.0p), driven by
organic revenue growth in the Group’s core markets and continuing
improvements in underlying operating profit margins. The diluted
UEPS was 51.3p (2014: 44.4p). Basic earnings per share was 30.9p
(2014: 35.1p). The weighted average number of shares in issue was
78.1m (2014: 77.8m) with the diluted number of shares at 78.8m
(2014: 78.8m) adjusted for the outstanding number of dilutive share
options.
Pensions
The Group operates a number of defined contribution and defined
benefit pension plans in the UK, the USA and France. The IAS19 deficit
of the defined benefit plans as at 31 December 2015 was £14.6m,
significantly lower than the £21.1m reported at 31 December 2014.
The impact of an increase in the discount rate, in line with improving
bond yields towards the end of the year, was only partly offset by
marginal increases in inflation assumptions.
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 2015 was £11.1m (2014: £17.7m). The
Group is actively engaged in dialogue with the Schemes’ Trustees in
regard to management, funding and investment strategy, and has
recently completed negotiations with the Trustees regarding the
triennial valuation dated 5 April 2015, agreeing deficit recovery plans
that require cash contributions amounting to £2.3m for a further five
years to 5 April 2020. The date of the next triennial review is 5 April
2018.
Acquisitions
The Group completed the acquisition of Premier Galvanizing Limited
on 25 November 2015 for a net cash consideration of £15.0m.
Intangible assets arising on the acquisition comprise goodwill of
£7.1m, the brand name of £0.9m and customer relationships of
£7.0m. The acquired business, based in Corby and Hull, will broaden
the Group’s geographical representation in the UK galvanizing
market.
The Group also completed three smaller acquisitions during the year:
›
›
›
In April 2015 we acquired Novia Associates, Inc., a US-based
business operating in a similar market to our US pipe supports
operations, for a net consideration of £1.8m including £0.2m
deferred until 2016.
In November 2015 we acquired the trade and certain net assets
of Tegrel Limited, a supplier to our existing variable message
signs business. Consideration for this acquisition was minimal
given Tegrel’s distressed financial situation.
In December 2015 we acquired Bowater Doors Limited, a
UK-based business that will complement our existing building
products business in Newcastle, for a consideration of £0.3m.
The integration of the acquisitions into the Group has proceeded to
plan and trading has been in line with expectations.
The level of headroom that the Group maintains in its principal
banking facilities enables us to continue to seek opportunities for
acquisitive growth where potential returns exceed the Group’s
benchmark performance targets.
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.
Strategic Reportwww.hsholdings.com | Stock Code HILS 14
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.
Viability statement
In accordance with the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three year period, taking
into account the Group’s current position and the potential impact of the principal risks and uncertainties set out on pages 32 to 37. In making
this statement, the Board is satisfied that the Group operates an effective risk management process and confirms that it has conducted a robust
assessment of the principal risks, known and emerging, facing the Group. This includes those that would threaten its strategic objectives, its
business as usual state, its business model, and its future performance, solvency or liquidity.
The Group has a three-year strategic planning cycle and the Directors have determined that this constitutes an appropriate period over which to
provide the Board’s viability statement as it is also aligned to the planning processes across all of our subsidiary companies. The output of this
strategic planning cycle is used to analyse the adequacy of the Group’s funding facilities, which includes an analysis of sensitivity to business risks
such as changes in profit growth and working capital. The Group has further stress tested the future plans by assessing the potential financial
impact of the Group’s principal risks and has concluded that these risks, either individually or collectively, are unlikely to threaten its viability in
this context.
In particular the Board, cognisant that 47% of underlying profits are generated by its UK operations (an additional 45% from US operations), has
considered the risk of a reduction in UK Government spending and is satisfied that the Department of Transport’s Road Investment Strategy
2015–2020/21 and the Government’s National Infrastructure Plan 2014–2021 provide some stability of funding over the period that this viability
statement covers and gives our UK businesses confidence in the future, notwithstanding decisions made in respect of the EU Referendum.
The Group’s three distinct segments, all with diverse geographic markets, assist in reducing the risk of regional economic challenge and sector
specific issues. With 30 subsidiaries operating from 52 sites around the world and with no reliance on any one customer, each company is able to
respond flexibly to issues that affect it. This flexibility, together with the capacity of local management to adjust their own pricing structure and
cost bases as market conditions or prospects change, protects the Group’s viability in the face of adverse economic conditions and/or political
uncertainty.
The Group currently has committed credit facilities in place until April 2019, thus covering the period of this statement, which provides substantial
headroom above existing and forecast funding requirements. In making their assessment of viability, the Board noted the Group’s current strong
financial position and its demonstrably cash generative model, which has delivered an average underlying cash conversion rate of over 90% over
the past seven years.
Based on a review of the Group’s current strategic plan; its financial arrangements through to April 2019; its cash flow requirements over the
next three years; its principal risks and uncertainties; and consideration of emerging risks, the Board has a reasonable expectation that the Group
will be able to continue to operate and meets its liabilities as they fall due over the next three year period. Whilst the Directors have no reason
to believe the Group will not be viable over a longer period, given the inherent uncertainty involved we believe this presents users of the Annual
Report with a reasonable degree of confidence whilst still providing a longer-term perspective.
Derek Muir
Group Chief Executive
Mark Pegler
Group Finance Director
9 March 2016
Strategic Reportwww.hsholdings.com | Stock Code HILS
15
Barkers Engineering secured orders for over 6,000m of their SecureGuard358 fencing increasing border security in and around Calais and centred on the Eurotunnel hub.
Strategic Reportwww.hsholdings.com | Stock Code HILS 16
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.
2015 performance
Total growth
Organic growth
Up 120bps
15% growth
%
8
2
.
%
3
2
.
%
7
4
.
%
5
3
.
%
0
2
1
.
%
8
0
1
.
.
p
7
1
5
.
p
0
5
4
2014
2015
2014
2015
2014
2015
2014
2015
Comment
Organic revenue growth in 2015 was
3.5%, with all segments delivering
improvements and Galvanizing Services
in particular benefiting from strength of
performance in the US. Total growth was
marginally lower as a result of the effect
of prior year business disposals.
The Group’s underlying operating profit
of £56.0m represents a 12.0% return
on sales, a 120bps improvement on
prior year. The improvement is driven
by a combination of strength in core
markets and the benefits of strategic
investments and divestments in the
prior year.
The Group’s UEPS for 2015 is 51.7p,
an increase of 15% compared with
2014. 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.
Strategic Reportwww.hsholdings.com | Stock Code HILS 17
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.
Up 49ppts
Up 190bps
Down 23%
Down 6%
%
0
0
1
%
1
5
%
8
7
1
.
%
9
5
1
.
9
3
4
7
3
3
2
5
9
6
8
,
2
5
3
1
8
,
2014
2015
2014
2015
2014
2015
2014
2015
The Group achieved an underlying
cash conversion rate of 100% in 2015
(2014: 51%). Capital expenditure
of £16.0m represents a multiple of
depreciation and amortisation of
1.0 times (2014: 2.4 times), a more
normal level of spend following
significant prior year investments in
UK temporary road safety barrier and
US Galvanizing capacity.
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 2015
the Group achieved ROIC of 17.8%
(2014: 15.9%), the improvement
largely reflecting increases in
underlying operating margins
during the year and the benefits of
strategic actions taken.
For 2015 the Group received 337
injury reports from all subsidiaries
during the year. This is our lowest
level of such reports for five years. It
is encouraging to note that initiatives
have been in place to ensure all
injuries are reported and that
notwithstanding this, we have seen a
decrease in the number of injuries by
23% compared to 2014.
Following a 10.4% reduction
in CO2e emissions in 2014, the
Group continued to improve
its management of these
emissions throughout 2015.
This included the collection of
scope 3 emissions from water
and waste which had previously
been included in scope 1-2. Our
emissions fell a further 6% in
2015. See page 39 for details.
Strategic Reportwww.hsholdings.com | Stock Code HILS 18
Business Model and Strategy
Our Business model
We seek to deliver superior shareholder returns by holding leading positions in the niche markets of infrastructure and galvanizing, diversified over
different geographies, with a focus on service, margins and product development.
People
Finance
Suppliers
Customers
Shareholders
Inputs
Generate
Deliver
Maximise
Our ability to achieve our
goals requires inputs from key
resources such as employees,
finance, suppliers, customers, and
shareholders - see page 20.
Generating growth from our
existing operations and monitoring
lower performing Group businesses
to ensure overall growth targets
are maintained - see page 24.
Delivering growth by acquiring
sustainable businesses around the
world in markets that are identical
or complement our existing
activities - see page 24.
Management encourages
an entrepreneurial culture at
business unit level, ensuring
businesses are agile, responsive
and competitive - see page 25.
Business Activities
Value Creation
Business Activities (cont)
Capture
By targeting returns at each individual
Sustainable profitable growth provides
Through sustainable profitable growth, cash
business unit the Board ensures that revenue
opportunities for our strategic partners to
generation and a progressive dividend policy
growth is achieved which flows through to
benefit from the longer-term strategies
the Company provides beneficial investment
sustainable profits - see page 25.
applied by the Board - see page 26.
opportunities for shareholders - see page 27.
Strategic Reportwww.hsholdings.com | Stock Code HILS 19
Sustainable
profitable
growth
Superior
returns to
shareholders
Revenue Growth &
Targeted Returns
Geographical
Diversification
Entrepreneurial
Management
Portfolio
Management
Inputs
Generate
Deliver
Maximise
Our ability to achieve our
Generating growth from our
Delivering growth by acquiring
Management encourages
goals requires inputs from key
existing operations and monitoring
sustainable businesses around the
an entrepreneurial culture at
resources such as employees,
lower performing Group businesses
world in markets that are identical
business unit level, ensuring
finance, suppliers, customers, and
to ensure overall growth targets
or complement our existing
shareholders - see page 20.
are maintained - see page 24.
activities - see page 24.
businesses are agile, responsive
and competitive - see page 25.
Business Activities
Business Activities (cont)
Capture
Value Creation
By targeting returns at each individual
business unit the Board ensures that revenue
growth is achieved which flows through to
sustainable profits - see page 25.
Sustainable profitable growth provides
opportunities for our strategic partners to
benefit from the longer-term strategies
applied by the Board - see page 26.
Through sustainable profitable growth, cash
generation and a progressive dividend policy
the Company provides beneficial investment
opportunities for shareholders - see page 27.
Strategic Reportwww.hsholdings.com | Stock Code HILS 20
Our Business Model Inputs
Human Resources
Our Group businesses employ people local to those businesses, and the success of each business is reliant on the quality of
management and employees. We aim to ensure that each business is resourced with a capable, engaged and productive workforce
working in such a way as to ensure the health, safety and well-being of all employees.
Finance
The Group is supported by a group of banks, led by Barclays Bank plc, which has a presence in the countries in which the Group
operates, with a principal debt facility consisting of a headline £210m multi-currency revolving credit agreement. This provides the
Group with sufficient headroom against expected future funding requirements and, together with the Group’s ability to generate
cash, provides the funds to invest in growth, both organic and acquisitive, to service pensions and tax obligations and to maintain a
growing dividend stream.
Customers
Across our business units we have a wide range of customers from the very large to the very small, from Government agencies
to schools. Our companies win business on the strength of their people and the quality of their products and services, building up
professional relationships with customers who frequently place repeat business with us as we work in partnership to meet their
needs.
Suppliers
Our businesses are spread across four continents in which we have access to many different types of suppliers. Where possible, our
companies support their local economies in sourcing raw materials, whilst at the same time ensuring that they receive good quality
products and reasonable prices.
Shareholders
The Group has c. 2,700 shareholders, with private individuals accounting for 60%. The Company is justifiably proud of the fact that it
is supported by so many individuals, whilst at the same time acknowledging that 92% of the Group’s shares are held by institutions,
who have been and remain supportive of the Group. Our shareholders provide us with the capital and support to continue our
strategy.
Galvanizing by V&S Galvanizing on the structural frame of The Pyramid Residential Building, Manhattan, New York City, USA.
Strategic Reportwww.hsholdings.com | Stock Code HILS 2121
www.hsholdings.com | Stock Code HILS
22
Our Business Model
Market Place
Hill & Smith Holdings PLC is an international group of companies with leading positions in the provision of galvanizing services and the design,
manufacture and supply of infrastructure products. Our success is driven by our strategy of innovation, product development, portfolio
management and international expansion, alongside a highly entrepreneurial management culture.
Supplying to and located in global markets, the Group serves customers from facilities in the Australia, France, India, Scandinavia, Thailand, the
UK and the USA, building an increasing presence in international markets, where countries are upgrading or improving their infrastructure as
their economies grow. A key feature of the Group’s chosen markets is the influence of heightened levels of regulation and health and safety
considerations on development and growth. All our products are designed to strict specifications and tested according to applicable standards.
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.
UK – head office and
various locations
covering our main
infrastructure
products businesses
and a network of UK
galvanizing plants.
Sweden – location of
ATA, the road safety
barrier and signage
business.
Thailand – location
of the major part of
our pipe supports
manufacturing
capability, where
we have plants near
Bangkok.
France – the base of France Galva
and Conimast where we have ten
galvanizing plants and a lighting
column business.
Norway – a
division of ATA,
the road safety
barrier and
signage business.
India – manufacturing
facilities for pipe
supports and the Hill
& Smith infrastructure
products business.
Australia – office in
Queensland for the
development of our wire
rope and safety barrier
products.
Percentage of 2015 revenue £467.5m
shown by end market geography
Percentage of 2015 underlying operating profit £56.0m
shown by location of the operating site
UK - 50%
Europe - 16%
N America - 29%
Asia and M East - 4%
ROW - 1%
UK - 47%
N America - 45%
Europe and ROW - 8%
Strategic Reportwww.hsholdings.com | Stock Code HILS 23
Infrastructure Products
In our 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.
Roads
Our Roads businesses design, manufacture and supply products, including permanent and temporary road safety barriers, variable message
signs, traffic data collection systems, car parking solutions, street lighting columns and bridge parapets.
Utilities
Our Utilities businesses design, manufacture and supply products and services, including security fencing, industrial platforms and flooring, glass
reinforced composite railway platforms and flood prevention barriers, plastic drainage pipes, energy grid components and pipe supports for the
power and liquefied natural gas markets.
Our Infrastructure businesses operate in Australia, France, India, Norway, Sweden, Thailand, the UK and the USA.
Revenue
£325.5m up 0.8%
2015
2014
Key Events in 2015
See our Business Model on page 24 to 26.
Underlying operating profit
£26.5m up 17.8%
£325.5m
£322.9m
2015
2014
£26.5m
£22.5m
Galvanizing Services
In the Galvanizing Services division, which serves external customers as well as our own Infrastructure Products division, we provide corrosion
protection services in the form of zinc and other coatings to both external customers and Group companies in a wide range of industrial and
commercial applications including fencing, lighting columns, structural steelwork, bridges, electricity substations and other products for the
agricultural, recreational, infrastructure and construction markets.
We are focused in three major geographies with long established plants: 10 in the UK, 10 in France and 7 in the USA.
Our latest plant was opened in November 2014 in Memphis, Tennessee, USA.
Key Events in 2015
See our Business Model on page 24 to 26.
Revenue
£142.0m up 7.7%
Underlying operating profit
£29.5m up 10.5%
2015
2014
£142.0m
£131.8m
2015
2014
£29.5m
£26.7m
Strategic Reportwww.hsholdings.com | Stock Code HILS 24
Our Business Model
Strategy: Generate and Deliver
Generate
Generating growth through our existing operations and active portfolio management.
Strategy
Our objective is to achieve at least mid single-digit organic revenue growth by developing substantial businesses in each of our
chosen sectors through both organic and acquisitive revenue 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.
Key activities
We continue to actively manage our corporate portfolio and dispose of or rationalise operations that are non-core to our market strategy,
incapable of achieving our target returns, or insufficiently cash generative.
Key events in 2015
›
Closure of Joseph Ash, Hereford completed.
›
›
US galvanizing volumes up 15%, excluding new plants.
UK Government’s Road Investment Strategy progressing as envisaged.
Deliver
Delivering growth through geographical diversification – acquiring businesses around the world that complement or supplement our
existing activities.
Strategy
Our acquisition strategy is to buy businesses in markets we understand through our existing activities. Our objective is to identify
opportunities in our major developed markets of the UK, France and USA, whilst recognising that there is further potential in
emerging markets. Our overall geographic mix will be dictated by developing these opportunities together with the performance of our
businesses in emerging markets.
Key activities
The majority of our acquisition 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 will allow us, in some instances, to
develop our smaller business units into larger and more effective businesses within their markets. Overseas acquisitions must have a high quality
management team in place and a proven earnings stream as it is more demanding to manage businesses from a distance effectively.
Key events in 2015
›
Purchase of Premier Galvanizing Ltd, with plants in Hull & Corby (25 November 2015).
›
›
›
Purchase of Bowater Doors Ltd, for integration into Birtley Group Ltd (7 December 2015).
Purchase of Novia Associates, Inc. of Salem, New Hampshire, USA for integration into our Carpenter & Paterson business (30 April 2015).
Purchase of Tegrel Ltd, for integration into VMS (11 November 2015).
Asset Weholite’s outlet manifold being put into position in Barrow, Bristol.
Strategic Reportwww.hsholdings.com | Stock Code HILS 25
Our Business Model
Strategy: Maximise and Capture
Maximise
Maximising growth via a highly entrepreneurial management structure.
Strategy
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.
Key activities
We have 30 subsidiaries operating from 52 sites in 8 countries. Each subsidiary is managed by its local board of directors who are all empowered
to operate their businesses in accordance with Group-approved policies and delegated authority. This management 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 businesses, opportunities are identified and taken through Group collaboration.
Key events in 2015
›
VMS acquisition successfully integrated; order book encouraging.
›
›
›
Creative Pultrusions, Inc. increased sales of its waterfront protection products and its own electrical distribution products of GRP poles and
crossarms.
180km of Brifen Wire Rope safety fence system installed in the Middle East.
Innovative product development into high security fencing now leading to the systems being specified by a number of utilty companies.
Capture
Capturing the growth in revenues and returns.
Strategy
Capturing sustainable profitable growth through the supply of Infrastructure Products and Galvanizing Services from business
units that are focused on profitable growth. Operating margins are an integral measure of the Group’s success and one which
we continue to drive for improvement through product mix and value-added customer-focused solutions, as well as high levels of operational
efficiency. 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.
Key activities
Our target operating margin for a business unit is 10%, although a lower margin profile may be acceptable if that business’ Return on Capital
Employed (‘ROCE’) is above 20%. A period of grace will be granted to business units which can demonstrate a plan for margin improvement
to the targeted level. We aim to create value by consistently exceeding this 20% benchmark for ROCE at an individual business unit level. At a
Group level capital returns are assessed by measuring Return on Invested Capital (‘ROIC’), where invested capital includes acquired goodwill and
intangible assets in order to take into account the amounts invested in acquired businesses. The Group’s target ROIC is 17.5%.
Key events in 2015
Underlying operating margins
Infrastructure Products
Utilities
Roads
Galvanizing
Group
2015
8.1%
5.4%
12.2%
20.8%
12.0%
Target range %
ROIC
8 – 11
7 – 11
9 – 13
18 – 21
10 - 13
Infrastructure Products
Utilities
Roads
Galvanizing
Group
2015
17.4%
13.1%
22.1%
18.2%
17.8%
CA Traffic’s 136 Evo8 ANPR camera, mounted on a traffic signal near the Angel of the North, Tyne and Wear.
Strategic Reportwww.hsholdings.com | Stock Code HILS 26
Our Business Model
Sustainable Profitable Growth: Value Creation
Strategic Focus
To create long-term sustainable profitable growth and through this growth create value for all stakeholders.
Strategy
We aim to combine organic revenue growth with selective acquisitions, thereby delivering growth in earnings per share. A strong focus on cash
generation supports this growth strategy and enables a progressive dividend policy.
Key activities
We address long-term markets by focusing on markets driven by Government spend on infrastructure, particularly with strong regulatory
and health and safety dynamics, and by growing demand for power generation in emerging markets and the replacement of ageing power
infrastructure in developed economies. By encouraging a decentralised management structure we incentivise and enable the operators of our
businesses to respond to opportunities and challenges in their markets supported by the resources of a larger group.
In order to be truly sustainable we must grow revenues and profits, whilst focusing on customer service, margins, product development,
and whilst enhancing our relationships with other stakeholders, including our employees, our suppliers and the communities in which we
operate, whilst at the same time being aware of the effect our operations have on the environment. More details can be found in our Corporate
Responsibility Report on pages 38 to 46.
Key events in 2015
›
Underlying operating profit in our Infrastructure Roads division up 23.0% largely due to UK Government’s Road Investment Strategy.
›
›
Research and development spend up 14.3%.
UEPS up 15%. UEPS growth is considered to be a key indicator of the profitable growth of the Group.
Underlying earnings per share (pence)
60
50
40
30
20
10
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Opportunities for growth
›
US and UK galvanizing market opportunities through organic growth, plant investment and acquisition. The Group acquired the business of
Premier Galvanizing Ltd, in the UK, for £15m in November 2015.
›
›
›
›
Highways England announced in December 2014 a £15.2bn investment in the British road network, in particular the introduction of Smart
Motorways throughout England.
In the UK the Government’s National Infrastructure Plan 2014–2021 will see £466bn of public and private investment, in water, rail, power,
energy, housing and offshore.
In the US the Group are securing new products and services. In April 2015 we acquired Novia Associates, Inc., experts in vibration isolation
and seismic restraints, integrating the business into its existing Carpenter & Paterson business and in January 2016 we acquired E.T.
Techtonics, Inc., a leader in the design of composite bridges. This business will trade as a division of our US composites business, Creative
Pultrusions, Inc.
In December 2015, the new $305bn five-year highway bill was approved, which will provide funding for the repair of the ageing
infrastructure in the USA.
Priorities in 2016
›
Selective acquisitions to consolidate our market position or increase our geographical representation.
›
›
Investing in an increased capacity and product development to capture potential opportunities.
Continuation of the structures and operational improvements in both Infrastructure Products and Galvanizing.
Strategic Reportwww.hsholdings.com | Stock Code HILS 27
Our Business Model
Our Investment Proposition
Strategic Focus
We believe in providing superior shareholder returns by doing business in the right way in markets where we have global expertise.
Strategy
We are an international group with leading positions in the supply of Infrastructure Products and Galvanizing Services and we aim to deliver
strong returns and sustainable value through a focus on strong positions in niche markets.
Investment Proposition KPIs
A Globally Organised Group
We have leading positions in the niche markets of Infrastructure
Products and Galvanizing Services, diversified over different
geographies with a focus on service, margins and innovative
product development.
30 subsidiaries
52 sites
8 countries
Organic & Acquisitive Growth
We aim to deliver consistent organic growth complemented by
regular, value enhancing acquisitions in markets that supplement
or complement our existing operations.
Organic revenue growth 3.5%
3 UK acquisitions
1 US acquisition
Strong Operating Free Cash Flow
Our focus on underlying cash conversion and a disciplined
approach to each business unit’s return on capital employed. Over
the past seven years the Group has achieved an average rate
of over 90% (the ratio of underlying operating cash less capital
expenditure to underlying operating profit).
2015: 100%
2014: 95%(1)
Progressive Dividend
We have increased dividend payments by a compound annual
growth rate of 12.5% since 2006.
)
e
c
n
e
p
K
U
n
i
(
s
d
n
e
d
v
D
i
i
25.00
20.00
15.00
10.00
5.00
-
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Increased Shareholder Value
In the last six years our total shareholder return has consistently
outperformed the FTSE All-Share.
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
550
500
450
400
350
300
250
200
150
100
50
(1) Excluding strategic investments in UK temporary road safety barrier and the Memphis galvanizing plant.
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Hill & Smith
FTSE SmallCap
FTSE All-Share
Strategic Reportwww.hsholdings.com | Stock Code HILS
28
Case Study
Zoneguard
Hill & Smith Inc., founded in 2008, is the manufacturer and supplier of the Zoneguard® steel barrier system in the
United States. Since its establishment, Hill & Smith, Inc. has contributed to the continued development of the steel
barrier market in America, gaining approval for Zoneguard® in nearly 40 states and attaining projects in 23 states.
Manufactured and galvanized in Ohio, Zoneguard® is the only temporary steel barrier to be successfully tested to MASH
(Manual for Assessing Safety Hardware) crash test standards. Impending US regulations will require portable barriers to
meet MASH standards, providing Zoneguard® with a competitive advantage in the marketplace. Hill & Smith Inc. offers
Zoneguard® for both purchase and hire throughout the country.
“Zoneguard saved at least two lives
and a serious injury.”
In Hill & Smith Inc.’s eight year history, Zoneguard® has proven its effectiveness as a life-saving
positive protection device on multiple occasions.
On the morning of 16 September 2015, a construction crew for Indiana-based contractor
Pioneer Associates Inc. was working behind Zoneguard® while completing a bridge deck
overlay project on County Road 28 over Interstate 69, near Fort Wayne, Indiana. Two
workers were on a temporary scaffold that was positioned only a few feet from the barrier
and another worker was nearby.
At around 8 o’clock, the driver of a fully loaded dump truck (approximately 60,000-
70,000 pounds) lost control of his vehicle and came barrelling towards the work
zone. Startled by the loud sound of a collision, the workers gripped the scaffold
and prepared for the worst. Fortunately, when they looked around to survey the
scene, they witnessed the now damaged dump truck halting to a stop on the
road’s shoulder and the Zoneguard® barrier system largely unaffected and still
safely positioned between them and the nearby travel lanes.
Fortunately, Zoneguard® had been installed in its Minimum Deflection
System anchoring configuration, which limited the deflection to mere
inches at the point of impact.
Zoneguard® had performed quite convincingly. Pioneer Associates
was truly thankful, as Project Manager Aaron Jones shared,
“Zoneguard saved at least two lives and a serious injury today.”
Find out more about the company
at www.hillandsmith.com
Images
Top - Crash testing taking place during
the year.
Bottom - Damaged Zoneguard
immediately following the accident.
Strategic Reportwww.hsholdings.com | Stock Code HILS 29
Risk Management and Assurance
Risk Management and Assurance
The Group benefits from operating a risk management system
that is integrated into its daily business activities. The Group’s
risk management and internal controls structure were enhanced
during 2015 and these enhancements serve to ensure that
Group risks are managed appropriately and within acceptable
parameters. As part of the process, the Directors have carried out
an assessment of the principal risks and uncertainties facing the
Group, including those that would threaten its business model,
future performance, solvency or liquidity.
The Group’s system of internal controls includes, but is not limited to
the following:
›
›
›
A new Risk Assessment process was implemented across
the Group in 2015, following discussion with, and input
from, external advisors. This process requires all subsidiaries
to identify and assess risks attributable to themselves; to
develop mitigation strategies and to report to the Group Risk &
Compliance Counsel on the status of these strategies.
An annual process of preparing business plans and budgets, at
subsidiary level, which is then reviewed and supplemented by
Executive management inputs.
A Risk Committee was formed in 2015 comprising the Group
Risk & Compliance Counsel, the Group Financial Controller, the
Group Company Secretary and the Group’s Director of Corporate
Development. Subsidiary Managing Directors are invited to
attend meetings on a rotational basis. The Committee meets
every six months to regulate the treatment and classification
of Group risks and to moderate the preparation of the Group’s
principal risks and uncertainties by the Group Risk & Compliance
Counsel. The minutes of Risk Committee meetings are circulated
to the Chairman of the Audit Committee and the Executive
Directors, and the output of the Risk Committee is discussed at
meetings of the Audit Committee.
›
The maintenance of a Group Risk Register, under the control of
the Group Risk & Compliance Counsel.
› A monthly process of subsidiary management team meetings,
attended on a scheduled, rotational basis by the Executive
Directors, ensures discussion on operating performance and
reporting on opportunities and risks affecting the subsidiary. Any
resultant actions are considered at the subsidiary level. Monthly
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.
›
›
The Group finance function carries out 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, and
procurement and supply chain management. A summary of all
key findings is presented to the Audit Committee on a regular
basis and followed up by the Group finance function.
The Group finance function also carries out 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 of 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. The Group Finance Director receives a monthly
report on treasury activities, including a summary of compliance
with Group 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.
The Group commissioned an external assessment of the
effectiveness of its treasury function during the year which
concluded that its activities were appropriate and that key
controls were operating effectively.
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
at every one of the Audit Committee meetings. There is also
informal dialogue with the Audit Committee Chairman who
reports regularly to the Board on all matters that are discussed
during the year.
An updated and more formalised version of the Group’s
delegation of authorities matrix structure was implemented
during 2014. Throughout 2015 it continued to serve to define
both task ownership and a framework within which the Group’s
entrepreneurial subsidiaries can undertake business whilst
ensuring the effectiveness of its risk management initiatives.
A Group policy manual was collated during 2014 and has
continued to be embedded during 2015 – combining and
enhancing existing policies and procedures, setting 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. Updates and new
policies are 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 trusted business practices. Each call/email
is investigated thoroughly and fairly. The Board is updated
in respect of the types of events reported and the overall
completion status of investigations.
Strengthening of the risk assurance programme in 2015
The Board continues to evaluate the appropriateness of the
Group’s risk management programme. Following the 2014 review
of the Group’s risk management process and in order to meet the
requirements of the Financial Reporting Council’s updates to the UK
Corporate Governance Code, the Board supported the roll out of a
new Risk Assessment process for the Group during 2015, as described
above. Further details about the enhancements to the Group risk
management programme which took place in 2015 can be found on
page 30 and 31.
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30
Risk Management and Assurance (continued)
Risk management process
The risk management process operated in 2015 is as follows:
Stage 1
Identification of Risk
Group Management
(identify strategic risk)
Subsidiary Business
(identify specific risk)
Stage 2
Risk Analysis and Categorisation
Stage 3
Design and Implementation of Risk
Mitigation and Monitoring
Ongoing assessment of
existing and new risks
Risk mitigation
health check
Stage 4
Review and Moderate by Risk
Committee
Report to 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
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Embedding effective risk management
The Board continues to evaluate the appropriateness of the Group’s
risk management programme and, during 2015, supported the roll
out of an enhanced risk assessment process, stemming from the
findings of the 2014 review of the Group’s risk management system.
Consequently, additional layers of assurance have been built into the
risk management process during the 2015 reporting year such that
the Audit Committee is now able to monitor and track the pace and
progress of risk mitigation initiatives, utilising a new, standardised
risk assessment tool. The new process serves to enhance ownership,
accountability, prioritisation and resource allocation in risk
management activity across the Group and has proved to assist
the Board to further embed its chosen risk appetite and to instil an
appropriate culture across the Group.
The new Group risk assessment tools were devised and launched
with the assistance of external risk management experts. The
purpose of the new tools is to collate risk information in such a way
as to enable the leaders of the Group’s subsidiary businesses to
identify, mitigate and monitor the risks affecting their day-to-day
business activities in a more formal and structured manner, whilst
also providing the Board with enhanced visibility of such risks and
associated mitigations. The result has been to better equip the
Board to monitor and to influence the subsidiaries’ approach to
risk management as it deems appropriate, in line with its own risk
appetite.
During the summer, the Executive Directors and the Audit Committee
sponsored a meeting of all UK senior management on the subject
of Corporate Governance, risk management and compliance. For a
full day, the UK business leaders undertook training and participated
in workshops where they discussed, identified, considered and
articulated both current, known risks and emerging areas of risk
affecting both their subsidiary businesses and the Group as a
whole. International group business leaders had the opportunity to
contribute and participate in the same manner via dedicated web
based Corporate Governance, risk management and compliance
sessions.
Group risk information is now gathered centrally using the new
standardised risk assessment tool on a six monthly basis from:
›
›
›
Each Group subsidiary business;
Executive Directors; and
Senior Group Management via the new Group Risk Committee.
Risks are assessed in the context of their type and extent and
subsidiary businesses are required to estimate the probability of such
risks materialising and the size of any impact, were such risks to
occur. Central to the Group’s improved risk management programme
is the requirement for each subsidiary business to identify the key
mitigation activities that they are adopting in the mitigation and
management of each identified risk. On a six monthly basis each
subsidiary business updates the status of their risk mitigation and
management initiatives demonstrating the pace of and progress
being made in risk reduction and management.
Progress in risk mitigation, as well as the appearance of any new
areas of risk, are monitored regularly by the local management
board and the Executive Directors, at six monthly intervals by the Risk
Committee and by the Audit Committee at each Audit Committee
meeting.
Sources of assurance and monitoring
In consolidating the Group risks on a six monthly basis, the Group
Risk & Compliance Counsel seeks confirmation from the subsidiary
businesses as to the treatment of risks that they have identified
and these are then validated by the Risk Committee. The Executive
Directors undertake a review of the principal risks and contribute
any additional risks as appropriate, both before and after validation
by the Risk Committee, thus ensuring that principal risks and
uncertainties are also identified at a Group level.
The launch of the new Risk Assessment process and accompanying
tools, together with the newly formed Risk Committee have
standardised the method of subsidiary contribution to the Group risk
management process. The result is more robust and meaningful risk
management information and greater visibility for the Board of the
Group’s overall and subsidiary risk profile. This in turn has provided
greater assurance to the Board.
Culture and behaviours
The implementation of the new Risk Assessment process, has helped
to nurture an enhanced focus on risk management throughout the
Group without diminishing entrepreneurial spirit. It is this balance
which is fundamental to the Group’s strategy and business model.
Through the Board’s oversight, the Remuneration Committee
considers that it has sufficient insight into the Group’s activity,
such that the exercise of its discretion in the award of incentives
and benefits serves to foster an enhanced focus on effective risk
management.
Principal risks and uncertainties
Following review and analysis by the newly formed Risk Committee,
the Executive Directors and the Board, the principal risks and
uncertainties have been debated and moderated and are set out in
the following table on pages 32 to 37.
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Principal Risks and Uncertainties
Principal Risks and Uncertainties
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.
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 are
used to surpass present competitor reach.
›
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.
› New product development.
›
›
›
›
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
reduce availability and increase cost of
raw materials putting Group margins
under pressure and impacting Group
financial performance.
› Use of Group procurement standards requiring dual sourcing and
robust due diligence of supply chain partners.
› Hedging against raw material price volatility where appropriate.
›
Contractual protections sought against raw material fluctuation
impacts.
Foreign exchange rates could impact
Group financial performance by
potentially eroding commercial margins
› At the inception of contracts involving foreign currency cash
flows, the Group uses derivative instruments including forward
currency contracts to mitigate the risk of subsequent movements
in foreign exchange rates.
**Global economic events, profound
social instability or failure of national
governance in any of the territories in
which we operate impacting our ability
to manufacture and ultimately our
financial performance.
› Diversification into new markets and territories.
›
Pursuing opportunities in the private sector.
› Maintaining close relationships with Government agencies.
** Identified, by the enhanced risk assessment process, as a new risk in 2015.
Portfolio management
Target returns and leverage
Geographic diversification
Entrepreneurial culture
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33
Human
Resources
Recognising the
importance of
recruitment, talent
management,
employee
engagement
and employee
management to our
Group.
Risk and potential
impact
Mitigation
Link to
strategy
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.
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.
A failure to manage our property
portfolio effectively, could lead to
production downtime and reduce
our potential for increased income
generation. Production capability and
capacity restrictions could reduce our
ability to meet demand. Downtime
caused by plant failure, loss of utilities
or natural catastrophe could suppress
performance on an extended basis.
Insufficient investment in research
and development and/or a failure to
innovate 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.
›
›
›
› Use of internal communications systems, e.g. Group intranet.
›
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.
Entrepreneurship is encouraged as a key tenet of the Group’s
business strategy and the adoption of a singular business culture
is, therefore, not always possible and flexibility in the Group’s
management style is favoured instead.
The Group Code of Business Conduct establishes core behaviours
expected of all staff.
›
›
› 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.
Board consideration of emerging risks including seeking external
specialist support and internal identification of emerging risks at
both the subsidiary and Group level. Both the onset of the risk
and the potential opportunities it may generate for the Group
are being considered.
› Acquisition of new subsidiary businesses which have advanced
IT solutions and could be applied Group-wide.
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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.
›
›
›
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.
Inadequate and weak IT systems can
affect the Group’s financial performance
and its ability to be responsive to its
customers.
Supply chain failures through
performance, cost and/or solvency
issues could destabilise production
capability and ultimately lead to a
reduction in sales performance.
›
›
›
›
The Group’s IT Steering Committee reviews IT systems capability,
suitability and integrity on a regular basis.
The capital expenditure approval process is used to test the
suitability of proposed IT system enhancements.
IT policies are included in the Group policy manual.
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.
›
Regular interaction with key suppliers helps maintain
relationships and understand supplier capacity, performance
and financial status.
**Project delay or cancellation (internal
or external factors) including a
reduction in government spending,
inclement weather or a delay in the
new product approvals process.
› Diversification into new markets and territories.
›
Pursuing opportunities in the private sector.
› Maintaining close relationships with customers.
** Identified, by the enhanced risk assessment process, as a new risk in 2015.
Portfolio management
Target returns and leverage
Geographic diversification
Entrepreneurial culture
Strategic Reportwww.hsholdings.com | Stock Code HILS
35
Risk and potential
impact
Mitigation
Link to
strategy
Commercial
& Financial
Mitigating internal
and external
commercial and
financial trading risks
in our day to day
business activities.
The cost of remediating product failures
or defects caused by production or
quality issues can lead to claims for
loss and damage, adverse customer
perceptions, reputational and financial
consequences for the Group.
›
›
›
›
›
›
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 size of the Group’s available
customer base, together with the
risk of losing key customers, changes
in customer buying behaviours 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.
› Generation of contractual guidance and precedent
documentation to preserve contractual terms.
Contracts reviewed under the delegation of authorities structure.
›
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.
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.
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.
›
›
›
›
›
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.
Contract precedents and guidance have been produced and
new standard terms produced for certain subsidiary businesses.
Further work ongoing in this sphere during 2016.
› 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 Director approval
for the execution of material contracts.
Roll out of contracts training in the UK and US during 2015,
further training to be held during 2016.
Certain of the Group’s subsidiaries have appointed dedicated
quantity surveyors and contracts managers to control their
projects.
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.
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.
›
›
›
›
›
›
›
Strategic Reportwww.hsholdings.com | Stock Code HILS 36
Principal Risks and Uncertainties (continued)
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.
Insufficient Intellectual Property Rights
(‘IPR’) monitoring could lead to a loss of
brand protection, patent protection and
increase competitive pressures.
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.
› 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.
›
› Monitoring of IP registrations to ensure consistent protection.
›
›
The Group Code of Business Conduct (‘CBC’) 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
›
›
›
all key employees, including the Board.
Simulated dawn raids are undertaken each year 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 anonymously 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 CBC 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 - see page 42.
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.
Strategic Reportwww.hsholdings.com | Stock Code HILS 37
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.
Non-compliance with employment
laws.
›
›
The Group CBC 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 & Entertainment policy tightly controls how we
give or receive business gifts, entertainment and hospitality.
› A rolling programme of online anti-bribery and corruption
training and testing is undertaken by new employees.
› A commercial intermediaries protocol operates in the context of
the appointment of third party representatives e.g. agents and
distributors.
The Group has a whistleblowing hotline and email to allow
employees to raise concerns in confidence, or anonymously 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.
› Group policies on employees’ rights in the workplace.
›
The Group CBC requires that the Group comply with local laws
including employment laws and regulations.
› All subsidiary businesses have access to local, dedicated
employment law expertise.
› Whistleblowing hotline allows for reporting of potential non-
compliance with local employment laws.
** Fraudulent conduct by employees or
external parties.
›
›
The Group CBC continues to be the central focus for setting out
ethical behaviours.
Close monitoring by the Group finance team of monthly financial
information.
› Whistleblowing hotline allows for reporting of potential
fraudulent conduct by employees.
** Identified, by the enhanced risk assessment process, as a new risk in 2015.
Board confirmation of principal risks and uncertainties
The Board is satisfied that the Group operates an effective risk management process and confirms that it has conducted a robust assessment
of the principal risks facing the Group. It considers that the risks identified in the above table correctly summarise the principal risks and
uncertainties facing the Group together with the remediation and mitigation activities that are being used to address such risks.
The Board has overall responsibility for the Group’s risk management programme including implementing and monitoring the following:
›
›
›
›
Operational, financial and compliance internal controls;
Ensuring that the current risk management process remains a suitable means of establishing the correct risk culture;
Ensuring that the Group’s risk profile is managed and controlled; and
Ensuring that there is consideration as to how much risk the Group is willing to take in pursuit of the strategic objectives and ensuring that
such risks are managed appropriately and within acceptable parameters.
The principal risks and uncertainties facing the Group, set out above, include detail as to how these risks are being effectively managed to accord
with the Group’s risk appetite, as established by the Board. This appetite being the amount of risk that the Board is willing to take in pursuit of its
strategic objectives as outlined on pages 18 to 27.
Portfolio management
Target returns and leverage
Geographic diversification
Entrepreneurial culture
Strategic Reportwww.hsholdings.com | Stock Code HILS
38
Corporate Responsibility
Hill & Smith’s ultimate goal is to generate value for our shareholders.
We recognise however, that to be successful in achieving our strategy
of sustainable profitable growth it is essential that we act responsibly
in all our businesses and towards all people who are stakeholders
in them: Our employees, our customers and suppliers and the
communities in which we operate.
The Group is committed to implementing the correct policies and
procedures relating to the sustainability of the environment and to
the successful delivery of an effective health and safety system, as
well as ensuring that the people connected with the Group behave
in the right way, complying with all local legal and regulatory
requirements.
Board level responsibility
Derek Muir, the 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
the Group’s policies, primarily through:
›
›
›
Communication across the businesses;
Implementation of supporting principles; and
Monitoring performance and improvements.
Our operating Directors are supported in this by the Group’s
employees, who are encouraged to contribute positively to the
communities and environment in which we do business.
Sustainability and the environment
The Group places a high priority on meeting its environmental
sustainability responsibilities within the geographies in which it
operates. Each business has an appointed ‘Energy Champion’ who is
responsible for ensuring that the Group’s policies on energy and the
environment are promoted throughout its operations. All employees
are encouraged to report energy savings and recycling ideas to their
local energy champion.
In 2015, the Group has continued to measure its water and
energy usage and monitor the disposal of its waste products,
paying particular attention to the recycling of materials. Different
geographies have different attitudes to waste disposal and recycling
and the Group is committed to seeking ways to motivate its
businesses to adopt an environmentally-friendly approach to these
activities. In the UK we utilise the services of CMR Consultants (‘CMR’)
an independent energy management consultancy who help to
collect, collate and verify the data.
The Group contributes information and data to the Carbon
Development Project a programme designed to tackle climate
change and as a result of work we have done over the last two years
we have improved our ranking by 29 places.
A programme of environmental audits is carried out on a regular
cycle, by an independent third-party, to monitor individual company
performance and to assist the Group in reducing its environmental
impact on an ongoing basis. In addition, during the year our
UK-based Group companies conducted energy audits at their
premises, in accordance with the Energy Saving Opportunities
Scheme.
Recommendations were made following these audits and we plan
to use an internal quarterly Energy Forum to review and implement
the recommendations throughout the Group. This Forum will be used
to develop actions to identify energy savings opportunities; to drive
forward their implementation; and to act as centre for excellence for
energy, environmental and other CR initiatives.
Perimeter and ramp barriers, installed by Berry Systems, for the new multi-storey car park at Terminal 2, London Heathrow Airport.
Strategic Reportwww.hsholdings.com | Stock Code HILS 39
Our UK operations are also committed to working towards compliance with the ISO 14002:2004 standard, which is awarded to companies that
operate to an accepted environmental government standard. A programme of audits has been agreed for our UK businesses, some of which were
completed during 2015. These will continue throughout 2016, with companies continuing to monitor their environmental impact on a day-to-day
basis.
In France, France Galva supported the “Let’s save water” campaign run by the Rhone, Mediterranée and Corse Water Agency. A water treatment
system was built to ensure that rain water contaminated with metals and other materials did not reach the river system. The system delivers
protection for the wider environment and the local community - see page 41 for further details.
In the UK, the Group introduced and promoted the Cycle2Work programme, run in conjunction with Halfords, which encouraged employees to
purchase bicycles to be used as an alternative transport to work rather than carbon based fuel alternatives.
Green house gas (‘GHG’) emissions
The Group’s GHG emissions continue to be constantly monitored, so that we can improve upon our use of energy, water, recyclable and
non-recyclable resources, ensuring long-term environmental and business sustainability and creating long-term value for shareholders and other
stakeholders.
We recognise that our business can have a direct and indirect effect upon the environment. The data provided below illustrates how our carbon
footprint is created by our businesses, allowing us to monitor the impact of our operations on the environment and make improvements where
feasible.
Group total emissions by scope
UK emissions
Overseas emissions
Total emissions
Change %
Gas and oil usage
12,697.8
15,623.5
38,791.2
38,111.8
51,489.0
53,735.3
2015
2014
2015
2014
2015
2014
Commercial and
business miles driven
Purchased electricity
Water and waste
Total tCO2e
Total turnover (£’m)
Intensity Ratio
3,401.3
9,785.0
233.2
3,366.8
14,855.4
-
3,725.4
13,361.7
256.9
3,991.2
10,972.8
-
7,126.7
23,146.7
490.1
7,358.0
25,858.2
-
26,117.3
33,845.7
56,135.2
53,075.8
82,252.5
86,951.5
245.4
0.11
244.2
0.14
221.1
0.25
210.5
0.25
467.5
0.18
454.7
0.19
-5.9
-3.1
-10.5
n/a
-6.4
-10.5
For 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.
Strategic Reportwww.hsholdings.com | Stock Code HILS 40
Corporate Responsibility (continued)
Water consumption
During the year, the recommendations identified by CMR during the 2014 UK water audits, contributed a 2,840m3 reduction in our overall water
consumption. These recommendations included urinal controls, waste water abatement and leak repairs. The Group will continue to closely
monitor water usage in 2016 and explore further opportunities for water savings throughout the year through the Energy Forum’s quarterly
meetings.
In the past the Group has only been able to report water consumption for its UK operations. New reporting requirements were put in place in
2015 covering both UK and overseas sites and we are now able to disclose Group-wide water consumption data. In the 2016 report we will
provide comparative figures.
Group water usage
Commodity
UK water usage
Overseas water usage
Total usage
2015 volume
27,681 m3
59,239 m3
86,920 m3
Waste management
During the year the Group significantly improved its management and reporting of waste disposal at its UK sites and introduced the same
practices into certain non-UK sites where such activities were commercially viable. The information received will be reviewed to determine how
waste output can be reduced or recycled and to identify new opportunities to improve our manufacturing processes.
This collation of data has not only enabled us to improve the recycling opportunities presented to the Group, but also to lower waste output.
Waste quantities
Commodity
Liquid waste
Acidic waste
Waste to landfill
Recycled waste
Total waste (inc. landfill)
UK volume
Overseas volume
(ltrs) 2015
56,992
(ltrs) 2015
20,303
3,776,000
2,630,280
1,065
11,625
12,690
1,126
13,161
14,287
The waste taken to landfill in the UK and the US is 8.4% and 7.9% respectively, of the total waste created by operations in those geographies.
The Group discourages waste to landfill, using expert waste disposal companies to dispose of such waste and to recycle it wherever possible. For
example, some of our plastic waste is recycled into new products and alternative bio-energy sources and a large proportion of our waste acid is
reprocessed and recycled into other waste treatment processes.
Within the UK, the Group comply with the Producer Obligations (Packaging Waste) Regulations 2007 (as amended) in compliance with the
European Union Directive. The Group provides evidence to Wastepack, an organisation that provides confirmation to the UK government that the
Group is continuing to meet UK recycling and recovery standards set by Defra.
Strategic Reportwww.hsholdings.com | Stock Code HILS Case Study
France Galva protects the environment
France Galva has invested in a rainwater treatment plant at its Plan
d’Organ factory, near the Durance river, in the Department
Bouches-du-Rhône, to remove any impurities that may be absorbed
as rain collects on the site.
This is the culmination of two years of work in response to the EU
Framework Directive on Water, which establishes a Europe-wide
approach to the implementation of water management measures
for inland surface waters, transitional waters, coastal waters and
groundwater with the aim to improve the overall quality of European
water bodies. It sets ambitious targets to improve overall water
quality and the removal of contaminants is part of this overall plan.
The work was supported by Agence de l’eau Rhône-Méditerranée et
Corse, the regional water agency.
Fatuga El Mesaoudi, Specialist Operations Manager, Economic
Activities - Agence de l’eau Rhône-Méditerranée et Corse tells us
about the project.
Find out more about the company at www.galva.fr
41
“Rainwater discharge from the France Galva site at Plan d’Organ
could have polluted the water in the Durance River. This rainwater
would mainly be contaminated with zinc, but with other trace metals
present and France Galva therefore had to recover it, store it, and
treat it before it could be discharged. The project was a two-part
process which began in 2013. Firstly, it was necessary to ensure
that there was no contaminated discharge at all and this was done
by arranging for the site’s five outlet points to be directed into one
and then into a newly installed waste water storage tank. The next
step which commenced in 2014 was for France Galva to build the
treatment plant for this waste water. The Rhône Méditerranée et
Corse water agency was able to support these two investments
with a €110,000 subsidy as part of its tenth “Let’s save water”
programme, aiming to prevent accidental pollution, and specifically
the treatment of rain water. This type of action lets us eliminate the
discharge of these contaminated waters into the Durance River and
satisfies the water quality improvement objectives defined in the
European Framework Directive.”
How does it work?
›
The rainwater is stored in tanks.
›
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›
›
It is pumped towards a coagulation and neutralisation tank,
where it is treated with soda.
The water then passes into a flocculation tank.
The water treated in this way precipitates into the decanter to
create two phases. A solid phase, which is the sludge that falls
to the bottom of the decanter. And a liquid phase, at the top,
consisting of the treated water, which is non-polluting and will
be discharged safely into the environment.
The sludge is then evacuated into another storage tank, and is
later emptied out and treated by a specialist service provider.
Strategic Reportwww.hsholdings.com | Stock Code HILS 42
Corporate Responsibility (continued)
Health and safety
The Group is committed to ensuring that its employees have a safe working environment and a system of control and monitoring of health and
safety issues. Sites continue to work alongside Three Spires Safety Ltd, our external health and safety consultant.
This health and safety control system includes third-party support, regular audits and a reporting suite that is supported by dedicated health and
safety representatives within the Group. In the UK, these representatives meet at quarterly safety forums to discuss health and safety issues and
best practices. The reporting suite or ‘Safety Cloud’ is an online database management system, which is used as a tool to track accident reports
and compliance issues and it also functions as a central communication tool, containing safety bulletins, alerts and various safety messages.
Guidance documents relating to health and safety standards are also made available.
Part of the management process involves a continuous programme of external audits, run on a global basis, having been extended to the USA
and Sweden in 2015. The process is supported throughout the subsidiary businesses, with a quarterly health and safety self-assessment being
carried out by a nominated subsidiary director.
Summary of health and safety objectives and achievements in 2015
Introduction of a safety culture assessment tool to
enable a more positive measure of health and safety
performance across our operations.
A safety culture tool has been acquired and an advertising campaign agreed to
encourage a high rate of completed surveys. The full survey is being rolled out
initially across our UK sites in the first part of 2016, with overseas sites to follow.
The continuation of the external audit programme,
with current levels to be maintained or improved, as
appropriate.
The UK audit programme has continued with the average weighted score being
maintained at the level it was for 2014. Three US sites were also audited. Action
plans have been drawn up to address identified improvements.
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.
Discussions have been held with the US subsidiaries as to how the Safety Cloud
can be integrated alongside other IT solutions for HR reporting.
The Safer Driving initiative for the UK has been agreed and following some further
development work will be launched in early 2016 via the Safety Cloud.
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.
The Safety Cloud is now formally tracking occupational health requirements
for operatives. A number of sites have also reviewed their arrangements for
controlling hand arm vibration. The drugs and alcohol initiative within Joseph Ash
continues to be effectively monitored.
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.
The audit programme for the UK sites has continued and are now being
reassessed in a second cycle of visits. A number of sites continue to maintain ISO
14001 certification.
Our Group companies work actively to effectively manage health and safety, evidenced by the following initiatives:
›
›
›
›
›
›
›
Attainment of OHSAS 18001 certification by Hill & Smith Ltd, Variable Message Signs, Mallatite Ltd, France Galva and Asset Varioguard (VRS);
Joseph Ash successfully extended their OHSAS 18001 certification with another two sites due to follow in 2016. Asset Weholite have
formally started their OHSAS 18001 certification programme, due to be completed in early 2016;
Joseph Ash and Lionweld Kennedy were, once again, awarded RoSPA Gold Medals in recognition of their safety performance;
A number of subsidiaries continued to maintain their Achilles supplier HSE UK accreditation, a national registration scheme allowing
companies to pre-qualify for work to carry out infrastructure projects;
V&S Galvanizing continue to operate their observation and recognition programme, which rewards operatives who have demonstrated a
high level of safety behaviours;
Joseph Ash have been working with a nationally recognised training company to help promote safer lifting and manual handling through
a DVD and a ‘train the trainer’ programme, recognising that musculo-skeletal injuries (back injury, muscle strains etc.) pose a risk to many
physically demanding jobs; and
Asset Weholite has fully reviewed its controls over hand arm vibration associated with the fabrication of plastic pipes. With significant
investments in automation of the cutting process, this has dramatically reduced exposure levels, as well as leading to other improvements
in quality of work, reduction in waste and higher volumes. The site is particularly proud of the way in which everyone has come together to
come up with solutions to a difficult and complex issue.
Strategic Reportwww.hsholdings.com | Stock Code HILS 43
Progress and accident rates
As a Group, we continue to focus on the open and active reporting of any accidents and incidents. The importance of near miss reporting has
been discussed as part of the UK’s health and safety forum agenda and sites are being encouraged to have an open and honest culture towards
reporting these types of events.
Over the last four years, we have been working hard to ensure that each site has an effective incident reporting regime in place. The use of
the Safety Cloud as a repository for accident reports has helped the UK sites to implement a more consistent approach and contributed to the
improved reporting of incidents to the Group Board.
Total accidents 2011 - 2015
Total accidents by division
Infrastructure
Galvanizing
2015
2014
2013
2012
2011
337
2015
200
2012
203
439
2015
137
2012
142
399
345
350
2014
2014
2013
2013
268
2011
218
171
2011
132
207
192
For 2015 the Group received 337 injury reports from subsidiaries during the year. This is our lowest level of such reports for five years. It is
encouraging to note that initiatives have been in place to ensure all injuries are reported and that notwithstanding this, we have seen a decrease
in the number of injuries by 23% compared to 2014. Where incidents have occurred, sites adopt a thorough investigation process to identify
underlying causes and to ensure action plans to address any improvements are put in place.
Recognising the importance of promoting good health to our employees as well as good safety, an occupational health strategy is now being
implemented across our UK sites using the Safety Cloud. This is helping to identify, at an earlier stage, any situations where intervention is
required. We continue to ensure that our occupational health providers work towards the UK’s Safe Effective Quality Occupational Health Service
(‘SEQUOSH’) certification standard.
The health and safety audit programme has also shown that sites continue to demonstrate a high level of health and safety management.
Many sites are now addressing some of the more behavioural/employee related matters through awareness, near miss reporting and training
programmes.
2016 health and safety objectives
In the forthcoming year, our efforts in promoting a safe and secure workplace will continue with specific focus on:
›
›
›
›
The introduction of a safety culture assessment tool to enable a more positive measure of health and safety performance across our
operations. Collation of the data to enable local initiatives and improvements plans is to be set up;
The continuation of the external audit programme, with current levels to be maintained or improved, as appropriate;
A drive to encourage better reporting of near misses and non-injury related events and initiatives which recognise employees who go ‘above
and beyond’ normal safe practices; and
A review of the way accident data is collated to provide a more meaningful measure based on employment ratios.
Strategic Reportwww.hsholdings.com | Stock Code HILS 44
Corporate Responsibility (continued)
Our people
Employees
The Group recognises the need for successful businesses to
deliver a good service and product and this can only be done by
developing, supporting and maintaining the right staff to provide
this. Appropriate resources and support to maintain the required
standards of performance and conduct expected of employees are
provided. This is only achieved through the provision of training and
career development opportunities, promoting a forward thinking,
proactive and creative working environment to engage and motivate
employees. A culture of employees being able to develop to their
fullest potential is adopted across the business.
Engagement and opportunity is provided through:
›
›
›
›
›
›
›
Offering share ownership within the Group through the
Employee Sharesave Schemes, which currently has circa 460
employees participating;
Support with education, leading to recognised professional and
academic qualifications;
Health and safety training;
Anti-bribery, international competition and the Group’s Code of
Business Conduct (‘CBC’) training;
Opportunities to enhance individual knowledge and skill
required for the employee’s position, which includes new
procedures and policies;
Communication through the Group’s website and intranet site;
and
Management development opportunities provided by the
Institute of Directors.
Diversity and inclusion
The Group is committed to equal opportunities and fairness and
to policies, practices and regulations for promotion of equal
opportunities in recruitment, training and career development. As the
Group has a global presence, these are appropriate for the local areas
of operation. This includes a no tolerance approach to discrimination,
bullying and harassment. All our policies promote the principles
of fairness and equal opportunities and if these are not followed,
employees can use the whistleblowing hotline to report adverse
behaviours.
The current policy on diversity can be found on the CR section of the
website.
As at 31 December 2015, the Group-wide split of male and female
employees are shown in the charts opposite.
Number of PLC Board
Directors:
Male & Female split
Male 5
Female 1
Number of other
Directors:
Male & Female split
Male 68
Female 3
Number of senior
managers in the Group:
Male & Female split
Male 192
Female 25
Number of employees in
the Group:
Male & Female split
Male 3,671
Female 351
Strategic Reportwww.hsholdings.com | Stock Code HILS 45
Behaving correctly
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 including export controls and
economic sanctions and competition/antitrust legislation. Our CBC
sets down the guidelines by which we expect our business to be
conducted and this is supported by a set of global policies issued
through the Group intranet and internal communications.
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 the handling and minimisation of conflicts
of interest and the protection of the Group’s valuable intellectual
property rights.
The Group’s written policy states that if any employee has reasonable
grounds to believe that the Group’s CBC policy or internal Group policy
is not being adhered to by any person or group of people, he or she
is able to contact Senior Management, the Group Risk & Compliance
Counsel or, if necessary, the Company Secretary or the Chairman
of the Audit Committee. Should individuals wish to raise concerns
anonymously they are able to do so via a compliance hotline and
email facility (the ‘Reporting System’). The Reporting System is
operated in conjunction with a whistleblowing policy annually
approved by the Audit Committee. The policy gives assurance that
issues will be investigated and resolved in accordance with the
principles of the CBC.
The CBC is designed to ensure that as a Group, all subsidiary
companies act ethically, honestly, with integrity and in a legally
compliant manner, in their business activities and applies to everyone
who is engaged by the Group anywhere in the world, whether
they are employees or third parties. Consequently, as part of the
CBC the Group has 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. During 2016 these will be revisited in the light of the
Modern Slavery Act 2015.
The CBC is not designed to supersede detailed Group policies but
rather to supplement and summarise the Group’s compliance
initiatives, its behavioural and ethical standards, as well as to give the
relevant assurances in respect of the Group’s key corporate, legal and
social responsibilities.
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.
Human rights
The Group is committed to treating all people, whether employed
directly by the Group or its subsidiaries or employed in its supply
chain fairly and equitably and we are committed to upholding their
human rights. The Group recognises all individuals’ basic human
rights and is committed to respecting the Universal Declaration
for Human Rights in the design of diversity practice and its ethical
approach to employees, suppliers and customers. The Group and
all its worldwide subsidiaries respect the human rights of all those
working for or with us, and of the people in the communities where
we operate. We will not knowingly do business with companies,
organisations or individuals that we believe are not working to at
least basic human rights standards. Our Group companies will also
comply with all applicable wage and working-time laws and other
laws or regulations affecting the employer/employee relationship
and the workplace.
We oppose the exploitation of all workers, particularly children and
young people and we will not tolerate forced labour, or labour which
involves physical, verbal or psychological harassment or intimidation
of any kind and we will not employ child labour in any of our
operations. Nor will we permit the exploitation of, or discrimination
against, any vulnerable group. We support fair and reasonable
rewards for workers, with wages reflecting local norms and they
must meet or exceed any legal minimum wage levels.
The Board is aware of the Modern Slavery Act 2015 and is committed
to taking the necessary steps to ensure that slavery and human
trafficking are not taking place in our Group businesses and to gaining
the same level of transparency within our supply chain. We shall
report further on these activities in our next Annual Report.
The Group is also committed to maintaining a safe and productive
environment, free from harassment in which all individuals are
treated with respect and dignity and we expect all our employees
and individuals that work on our sites to follow our health and safety
policies and procedures and be free from substance abuse at all
times.
Regulatory compliance
The Group deploys an Anti-Bribery & Corruption Programme which
includes policies, training and due diligence of all third parties with
whom the Group engages. The provision and receipt of gifts and
entertainment is tolerated within considered parameters which
align with the Group’s legal obligations. Procedures and controls are
deployed to monitor such activity across the Group.
The Group benefits from a Competition Law compliance programme
which includes a manual, on-line training and auditing via simulated
dawn raids, to which the whole Group is subject. The programme is
based on requirements of UK law with local adaptations applied to
non-UK businesses.
The Group continues to operate a Sanctioned Countries Policy in
line with its legal and financial obligations using Restricted Party
Screening software. Additional protocols have also been provided to
certain subsidiaries to ensure they meet all international obligations
when trading in sensitive geographical areas.
Strategic Reportwww.hsholdings.com | Stock Code HILS 46
Procurement controls
The Group is further developing its procurement systems to enhance
and embed best practices in purchasing activity and during 2016
will also be looking at how the Modern Slavery Act impacts upon its
supply chain.
Community
Although the Group does not have a Group-wide programme in place
to support specific charities or communities, it remains committed
to encouraging its local Group subsidiary companies to fully engage
with their local communities. The Group values its relationship with
the local stakeholders and the support it receives from them.
During the year, support has been given to the Breast Cancer ‘Wear
it Pink’ campaign, the Three Peak Challenge on behalf of the British
Heart Foundation, the Macmillan cancer charity and Comic Relief.
Employees have also raised funds for local charities including Autism
Puzzles, the Cystic Fibrosis Trust, the Geoff Thomas Leukaemia
Foundation and Butterfly Giving, a charity aimed at research projects
specifically aimed at teenage cancer.
Company activities in the UK included staff at Birtley Group Ltd
participating in a charity bike ride raising funds for the charity
Cash For Kids, which supports local children who are disabled,
disadvantaged or suffering abuse or neglect. Riders and two support
vehicles left Birtley’s site destined for South Shields docks. They took
the ferry to North Shields to pick up the coastal route to Bamburgh –
a total ride distance of around 70 miles raising £1,000 for the charity.
In the USA two of our Carpenter & Paterson staff, based at our Saddle
Brook branch took part in the 1st annual ‘Tunnel to Tower Climb’
challenge and both completed the 90 story (2,066 steps) climb in
less than 40 minutes. The challenge is in memory of two FDNY first
responders who were killed on 9/11 trying to rescue people from the
World Trade Center. The $740 raised will go towards building
high-tech homes for veterans of war. The charity has built 30 homes
for veterans, with over 40 more under construction.
In addition, some of the Group’s products have been used in a rhino
rescue project in Africa. Asset International supplied a number of its
large diameter Weholite plastic pipes to the Mpumalanga Tourism
and Parks Agency in South Africa, a governmental organisation
responsible for preserving nature reserves within the Mpumalanga
region. The current rhino population on the southern side of Loskop
Dam Nature Reserve is stranded due to a dam wall that was raised
many years ago. As a result of years of grazing and the limited
management of animal numbers, the southern side has become
over grazed, thereby putting pressure on the rhinos that cannot swim
across river to find better grazing. The plastic pipes were used to
create a raft that could transport the stranded and starving rhinos
across the dam to food and safety.
Strategic Reportwww.hsholdings.com | Stock Code HILS 47
Case Study
Birmingham New Street Redevelopment
Established in 1857, Joseph Ash operated from a single plant in Birmingham. Now with eight plants
across the country, the company provides steel finishing services to all types of customers and
companies, many of which service the UK rail industry. Core services include galvanizing, spin galvanizing,
shot blasting and powder coating, enhancing the appearance and prolonging the life of steel fabrications.
Joseph Ash Galvanizing is a complete
one-stop-shop steel finishing service.
One recent project was the redevelopment of Birmingham New Street, which was in progress for
five years. The first part of the £550 million redevelopment opened in April 2013 and the final part,
which makes the station three and a half times bigger than before, opened in September 2015.
The project, commissioned by Network Rail, with support from Birmingham City Council, has
improved the old station with a modern façade and much more space on the concourse and
platforms for the 35 million passengers that use it every year.
Joseph Ash Galvanizing worked on the massive redevelopment, galvanizing different
pieces of structural steel that range from large beam and column fabrications, to
smaller ancillary steelwork and fittings. The project is especially significant for Joseph
Ash Galvanizing due to its roots in Birmingham and the West Midlands.
With almost 60 years of service under its belt, a railway project that contains
steel that Joseph Ash has treated is never far away.
Find out more about the company at:
www.josephash.co.uk
Top - A spiral staircase being dipped into the
galvanizing bath.
Bottom - Birmingham New Street station, built
with steel galvanized by Joseph Ash.
Strategic Reportwww.hsholdings.com | Stock Code HILS 4848
Strategic Reportwww.hsholdings.com | Stock Code HILS 49
49
Governance
Report
Governance Report
Chairman’s Introduction to Governance
51
52 Board of Directors
54 Governance Report
61 Audit Committee Report
66 Remuneration Committee Report
67 Directors’ Remuneration Report
81 Directors’ Report (other statutory information)
84 Statement of Directors’ Responsibilities
Images
Above - Asset VRS’s M.A.S.S. (Multi Application Safety System) on the 4.8km Heysham to M6 link.
Left - The new dynamic LED toll price sign by VMS, on the A5/A460 junction near the M6 Toll.
See further information at hsholdings.com
5050
Jones of Oswestry’s bespoke drainage, made from stainless steel and totalling 55m in length, creates a dynamic focal point to the landscape at Arena Square, Wembley.
Governance Reportwww.hsholdings.com | Stock Code HILS Chairman’s Introduction to Governance
51
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.
The Board is collectively responsible for upholding high standards of corporate governance and this means managing the business effectively and
in a way that is honest, transparent and accountable. This transparency is key to the delivery of the Group’s strategy and value creation for our
shareholders.
The Board has ultimate responsibility for the Group’s performance and for overseeing the management of risk, and in 2015 following the
introduction of the FRC’s updates to the UK Corporate Governance Code we have implemented an improved Group-wide risk assessment process.
This is set out on pages 29 to 31.
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 56 to 58, are the results of that assessment.
Clive Snowdon, Senior Independent Director and Chairman of the Remuneration Committee reports in his introduction on page 66, the approach
taken to executive remuneration and the work carried out during the year on this high profile topic.
The Board has a responsibility to lead the way and in particular, for ensuring that all employees and everyone associated with the Group are
aware of their responsibility to act lawfully and conduct themselves in accordance with high standards of business integrity. Our Code of Business
Conduct sets out our standards and is required reading for everyone working for, or on behalf of the Group. It includes instructions not only on
how we expect business to be conducted with the local, national and international supply chain but also on how we interact with the people that
we employee and that work within our supply chain, including their human rights (see page 45) and their safety (see page 22).
I look forward to meeting you at our Annual General Meeting on Tuesday 17 May 2016.
Bill Whiteley
Chairman
9 March 2016
Governance Reportwww.hsholdings.com | Stock Code HILS 52
Board of Directors
W H Whiteley BSc, FCMA
Chairman and Non-executive (67)
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, CEng, MICE
Group Chief Executive (55)
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 28 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 (47)
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
Governance Reportwww.hsholdings.com | Stock Code HILS 53
J F Lennox LLB, CA
Independent Non-executive (59)
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
C J Snowdon BA, FCA
Senior Independent Non-executive (62)
Clive is Chairman of the Midlands Aerospace Alliance and Trustee of the
Stratford Town Trust. He is also the Aerospace Industrial advisor to Cooper
Parry Corporate Finance. Clive retired from Umeco plc in June 2011 having
been Chief Executive since April 1997 and ceased to be Executive Chairman
of Shimtech Industries Group Limited in May 2015, when the business
was sold. 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 (49)
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
Governance Reportwww.hsholdings.com | Stock Code HILS 54
Governance Report
Statement of compliance with UK Corporate Governance Code
The UK Corporate Governance Code published by the Financial
Reporting Council in September 2014 applies to the Group and the
Board confirms that for the period ended 31 December 2015 it
complied fully with the requirements of the UK Corporate Governance
Code 2014 (the ‘Code’). This report outlines how we have complied
with the five main principles of the Code: leadership, effectiveness,
accountability, remuneration and relations with shareholders.
Leadership
Details of the Group’s business model and strategy can be found on
pages 18 to 27.
Leadership framework
The Hill & Smith Holdings PLC Group consists of the Company and
the principal subsidiary companies, listed on pages 146 to 148,
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’s subsidiary companies hold monthly board meetings
and these are often attended by the Executive Directors and there
is regular liaison across divisions to ensure, where appropriate,
the consistent application of governance, operational procedures
and Group policies and practices. The two Executive Directors are
accountable to the Board for the operational application of these
controls.
The Board is collectively responsible for ensuring that the business
acts in the best interests of its shareholders and ensures that the
Group delivers 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;
health and safety; risk management and internal controls.
Board structure
During 2015 the Board constituted three Board committees as
described below. Each committee reports to the Board.
W H Whiteley - Chairman
D W Muir - Group Chief Executive
M Pegler - Group Finance Director
J F Lennox - Non-executive Director
C J Snowdon - Non-executive and Senior Independent Director
A M Kelleher - Non-executive Director
Company Secretary - 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 reports and accounts,
its internal controls and risk management
assurance.
The Remuneration Committee is responsible
for creation, approval and implementation of
the Company’s Remuneration Policy in respect
of Executive Directors, Company Secretary
and Senior Executives.
The Nomination Committee has responsibility
for assisting the Board with succession
planning and with the selection of a new
Executive, Non-executive Director or
Chairman.
Chairman
J F Lennox
Other members
C J Snowdon
A M Kelleher
Secretary
C A Henderson
Chairman
C J Snowdon
Other members
J F Lennox
A M Kelleher
Secretary
C A Henderson
Chairman
W H Whiteley
Other members
J F Lennox
D W Muir
C J Snowdon
A M Kelleher
Secretary
C A Henderson
Governance Reportwww.hsholdings.com | Stock Code HILS
55
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) - independent on appointment;
›
›
›
D W Muir (Group Chief Executive) and M Pegler (Group Finance
Director) - Executive Directors;
C J Snowdon (Senior Independent Director); and
J F Lennox 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 73 and 75 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
Derek Muir
Mark Pegler
Jock Lennox
Clive Snowdon
Annette Kelleher
Total meetings
9
9
9
9
9
9
9
4*
4*
4*
4
4
4
4
2
2
1*
2
2
2
2
3*
1*(1)
-
3
3
3
3
* indicates attendance of whole or part of the meeting by invitation.
(1) The Executive Directors are not 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 2015
also visited Thailand and India.
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 pages 52 and 53.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 56
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 on, reviews and approves:
›
›
›
›
›
›
›
›
›
Group strategy and operating plans;
Business development, including acquisitions and divestments,
major investments and disposals;
Risk management;
Financial reporting and audit, including announcements for year
end and interim results and trading updates;
Financing, treasury and taxation;
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 its normal business, which is included in the table
below, the Board reviewed and approved the following, during 2015
and up to the date of this report:
›
›
›
›
›
›
›
›
›
›
›
The schedule of matters reserved for the Board;
The Group’s delegated authority matrix;
Acquisition integration plans;
Anti-bribery & Corruption compliance;
Diversity and equal opportunities policy;
Dividend policy;
Goodwill and Intangible Asset carrying values;
Pension schemes merger;
Pension scheme master trust arrangements;
Viability Statement; and
Corporate activity including the acquisitions of Novia Associates,
Inc., Premier Galvanizing Ltd, Bowater Doors Ltd and Tegrel Ltd.
The Board also received presentations from the management of the
Bergen Pipe Supports Group and the V&S Group as well as visiting the
V&S Galvanizing plant in Columbus, Ohio, USA.
The Board has established processes designed to help maximise its performance. These processes operate from the following framework:
Operation of
the Board
Strategic
focus
Board
information
Board
knowledge
›
›
›
›
›
›
›
›
›
›
›
›
›
›
Board meetings are scheduled to ensure adequate time for discussion of each agenda item.
Board discussions are held allowing for questions, scrutiny and constructive challenge where appropriate.
Full debate allows decisions to be taken by consensus (although any dissenting views would be minuted accordingly).
› Other members of senior group management regularly attend and give presentations at Board meetings.
› Local managers may also attend when matters of particular significance or country relevance are proposed or being
reviewed.
The development of strategy is led by the Chief Executive Officer together with the Group Finance Director, and with
input, challenge, examination and ongoing testing from the Non-executive Directors.
Group strategy is regularly addressed by the Board, with strategic matters being reviewed and updated as appropriate
at each main meeting. In addition, the Board holds at least one annual strategy meeting. The Board has particular
responsibility for ensuring that the business strategies proposed are fully discussed and critically reviewed.
The Executive Directors and members of the senior management team draw on the collective experience of the Board.
Comprehensive reporting packs are provided to the Board, which are designed to be clear, accurate and analytical, whilst
avoiding excessive and unnecessary information.
Reporting packs are normally distributed electronically 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 operational 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.
Governance Reportwww.hsholdings.com | Stock Code HILS 57
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, as shown below, 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.
International
markets
(6)
Marketing
(4)
Mergers &
Acquisitions
(6)
Culture &
Ethics
(6)
Supply
chain
(5)
Human
Resources
(4)
Leadership
(6)
Digital (1)
Health & Safety
(4)
Risk
management
and assurance
(6)
Business
integration
(6)
Financial
Planning
(6)
Strategy
(5)
Operating
performance &
delivery
(6)
Taking into account the provisions of the Code, the Board has
determined that during the year under review none of the
Non-executive Directors had 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 pages
52 and 53, 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.
The 2014 evaluation process concluded that the Board and its
Committees remained effective in fulfilling their responsibilities
appropriately and that each Director continued to demonstrate a
valuable contribution. Areas identified as requiring more Board time
in 2015 were:
›
›
›
Development of managerial capability at subsidiary business
level;
Succession planning; and
Increased KPI reporting.
The Board have responded to these matters by:
›
›
›
Undertaking a comprehensive review of the managerial
capabilities and succession planning at all UK subsidiaries. This
review was supported using external advice;
Identifying succession opportunities at both Non-executive and
Executive Director level; and
Reviewing additional KPIs.
The 2015 evaluation, conducted via an internal questionnaire, focused
on the following factors:
›
›
›
›
›
Leadership – strategy, performance and talent;
Board composition;
Board dynamics and behaviour;
Board processes, including shareholder communications; and
Board skills and experience.
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 progress had been
made on implementing the improvements identified in 2014. KPI
reporting had been increased; succession plans had been identified
across the Group; and plans for the future development of potential
leaders within the Group had been agreed.
The 2015 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 2016 were:
›
›
›
›
Monitoring the development of managerial capability at
subsidiary business level;
A review of the Board’s approach to the Group’s geographical
diversification guidelines;
The Group’s 2017–2019 strategic plan; and
A continual review of the balance of skills and expertise present
on the Board.
Following this internal evaluation, the Chairman will meet with each
Director, on a one-to-one basis, to consider the effectiveness of the
evaluation process and its conclusions. The Chairman will also meet
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,
will meet in the absence of the Chairman to review his performance.
Governance Reportwww.hsholdings.com | Stock Code HILS 58
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 page 57.
Clive Snowdon will not be seeking re-election at the forthcoming
2016 AGM as he will have served on the Board for nine years as at the
date of the AGM. All other Directors will be offering themselves for
re-election at the 2016 AGM. Biographies for each Director can be
found on pages 52 and 53.
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 61 and 66 respectively. A report on the
Nomination Committee is given on page 59. 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 61.
Audit Committee composition
During the year the Committee comprised Jock Lennox as Chairman,
Clive Snowdon and Annette Kelleher. The Committee met four
times in the financial period under review, with all members of
the Committee being present on each occasion. The Group Chief
Executive, Group 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 Dixons Retail plc, Oxford Instruments plc,
EnQuest PLC and A&J Mucklow Group 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 61to 65.
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 2015,
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
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 2015, and up to the date
of approving the Annual Report and Financial Statements, and the
key elements of this process are:
›
›
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;
›
›
›
›
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 2015, of a new Risk Committee to monitor,
validate and report on the group-wide risk assessment process.
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.
More information on the Group’s key risks and uncertainties is shown
on pages 32 to 37.
The Remuneration Committee
Please see the Remuneration Committee Chairman’s letter to
shareholders on page 66.
Remuneration Committee composition
During the year the Committee comprised the Non-executive Director
and Senior Independent Director Clive Snowdon as Chairman, Jock
Lennox and Annette Kelleher. The Committee met on three occasions
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
66 to 76. A brief summary of the Company’s Remuneration Policy,
approved at the Company’s 2014 AGM, can be found on pages 77 to
80.
Governance Reportwww.hsholdings.com | Stock Code HILS 59
The Nomination Committee
Dear Shareholder,
During 2015 the Committee has considered Group and Subsidiary
Management succession planning. In appointing individuals to Board
and senior management positions the Board will consider candidates
on merit and against objective criteria and with due regard for the
benefits of diversity on the Board, including gender. The Group’s
overall approach to diversity is that we aim to reflect the business
operations of the companies within the Group and we do not set
specific diversity targets.
The Board’s effectiveness continues to be evaluated annually and
more details of the process followed can be found on page 57.
Bill Whiteley
Chairman, Nomination Committee
9 March 2016
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, and the Group Chief Executive,
Derek Muir. The Committee met twice 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:
›
›
›
Board succession and diversity - recognising the desire to
maintain the right balance of expertise both at Executive
Director and Non-executive Director level, the Committee
discussed and planned for any forthcoming changes over the
next two years.
Subsidiary management succession and diversity - recognising
the need to develop the capabilities of existing senior and mid-
level management to create a pool of talented managers that
could work across the Group.
Board evaluation - a summary of the process and key matters
arising from the 2015 Board evaluation, led by the Chairman
and internally facilitated by the Company Secretary, is contained
on page 57.
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, as well as 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 (see
page 57) to ensure development of the Group, implementation of
its strategy and sound governance. 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 strategy of geographical
diversification and portfolio management.
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.
Date of appointment
Length of service at
31 December 2015
Bill Whiteley
1 January 2010
6 years
Clive Snowdon
11 May 2007
8 years 7 months
Jock Lennox
12 May 2009
6 years 7 months
Annette Kelleher
1 December 2014
1 year 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 as to
maximise shareholder value over the long-term and to advance the
interests of all of the Group’s stakeholders. In this respect:
›
›
›
›
›
›
›
The Chief Executive Officer and Group Finance Director meet
with institutional shareholder representatives regularly during
the year, including days at Hill & Smith Ltd and Joseph Ash
Ltd, 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.
The Secretary engages with shareholders and the investor
community as and when required.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 60
Governance Report (continued)
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.
On behalf of the Board
Bill Whiteley
Chairman
9 March 2016
E.T. Techtonics, Inc.’s composite bridge at Hopewell Dam - French Creek State Park, Pennsylvania, USA.
Governance Reportwww.hsholdings.com | Stock Code HILS Audit Committee Report
61
Jock Lennox
Chairman, Audit Committee
Dear Shareholder
During the year the Audit Committee has continued to build upon
the risk management processes that was implemented in 2014. A
new risk assessment methodology was implemented across the
Group in 2015, together with the forming of a new Risk Committee
which comprises the Risk & Compliance Counsel, the Group Financial
Controller, the Group Company Secretary and the Group’s Director
of Corporate Development. The Committee also reconsidered the
Group’s approach to internal controls with a view to introducing an
internal audit plan that aligns with the Group’s identification of risks
and mitigating controls, and also assesses conformance against the
compliance and policy initiatives that the Group has issued, together
with a more in-depth investigation by the internal audit team, into
each company’s approach to the internal control environment
around its commercial and procurement risks.
This Audit Committee report explains how the Committee has
discharged its responsibilities, and takes into account the specific
areas of:
›
Primary areas of judgement considered by the Committee in
relation to the 2015 accounts;
›
›
›
Internal controls;
Risk assessment, management and mitigation;
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 any
questions you might have and I look forward to seeing you at our
AGM in May 2016.
Jock Lennox
Chairman, Audit Committee
9 March 2016
Governance Reportwww.hsholdings.com | Stock Code HILS 62
Audit Committee Report (continued)
Composition and responsibilities of the Committee
Composition
During the year the Audit Committee consisted of Jock Lennox as
Chairman, Clive Snowdon and Annette Kelleher. 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 2015 met on four 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 September and December to review the internal audit
activities and reports; approve the internal audit plan for the year
ahead; approve the external auditors’ plan and approve their fees.
Reports on the Group’s principal risks and uncertainties, including
updates on the risk management process were reviewed at each of
the meetings.
Attendees at each of the meetings are the Committee’s members as
well as, by invitation, the Chairman, 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
55.
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 Lennox 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 that they may contain;
Advising the Board on whether the Annual Report and
Financial Statements, taken as a whole, are fair, balanced and
understandable;
Advising the Board on whether it is appropriate to adopt the
going concern basis of accounting in preparing the Group’s
Financial Statements;
Advising the Board on whether, given an assessment of the
Company’s current position and principal risks, the Board can
approve its viability statement;
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;
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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 where any financial reporting irregularity,
is suspected; and
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 2015 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 88 to 129. 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 £107.6m
at 31 December 2015. 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
the 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
particular in respect of France Galva SA, 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.
The calculation of value in use for the goodwill and indefinite life
intangible assets relating to the Group’s acquisition of The Paterson
Group in 2011 indicated that the value in use was not sufficient
to support the carrying values of those assets. Despite a marginal
improvement in performance in 2015, the results remain below
expectations and, overall, the business continues to generate levels
of profitability that are significantly below those anticipated at
acquisition, largely driven by changes in the US power generation
market. Accordingly an impairment charge of £15.7m has been
recognised during the year, comprising £8.2m in respect of goodwill,
£4.0m in respect of indefinite life intangible assets and £3.5m in
respect of other intangible assets that arose on the acquisition.
Defined benefit pension scheme valuation
Net defined benefit pension obligations under IAS19 amount to
£14.6m at 31 December 2015. 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.
Governance Reportwww.hsholdings.com | Stock Code HILS 63
Taxation
Assessment of judgements made in relation to uncertain tax
positions, regarding the outcome of negotiations with and enquiries
from HM Revenue & 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 continued to oversee the revised internal audit
approach adopted in 2014 involving subsidiary level commercial
and operating reviews. During 2015 the internal audit team took a
more risk-based approach to the internal control environment and
expanded its coverage of the Group’s subsidiaries. This included
contract and project management, procurement and supply chain
management, sales and credit management, compliance and
financial reporting. Subsidiary businesses were also required to
self-assess their compliance with Group-wide policies and these
assessments were validated by a combination of external auditor
and internal auditor activity, 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 and additional areas of concern were added
to the plan as required. This series of activities will be concluded in
March 2016.
Any changes to the approved 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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Treasury control and processes;
IT infrastructure and resources update;
Project-based capital expenditure;
Financial controls in Bergen Pipe Supports India;
Financial controls and KPI analysis for Bergen Pipes Support Asia;
Appropriateness of the carrying value of goodwill and intangible
assets of The Paterson Group and France Galva, SA; and
The announcement of the proposed restructuring of the non-
US pipe supports business and consideration of whether an
impairment of fixed assets and working capital was necessary.
For 2016 the Committee is considering an internal audit plan that
aligns with the Group’s identification of risks and mitigating controls,
and also assesses conformance against the compliance and policy
initiatives that the Group has issued.
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, and following the
publication, in September 2014, by the Financial Reporting Council
(‘FRC’) of their Guidance on Risk Management, Internal Control and
related Financial Business Reporting the Committee and the Board
focused their attention on the Group’s ‘principal’ risks and the risk
management process and approved the implementation of a
Group-wide risk assessment process.
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 and during the year received its
first report from the newly formed Risk Committee. This Committee
monitors, validates and reports on the Group-wide risk assessment
process.
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 32 to 37.
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 2015 year end audit during the Committee
meeting in September 2015. This highlighted the proposed approach
and scope of the audit for the coming year, which was similar to
2014, 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;
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 debated 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 2015 audit. The Committee discussed the issues
raised in the report, particularly in relation to the areas highlighted,
at their meeting in March 2016. 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.
Governance Reportwww.hsholdings.com | Stock Code HILS 64
Audit Committee Report (continued)
Auditor independence and rotation
The auditor confirmed its policies on ensuring auditor 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.
For any non-audit services (which are not excluded under the policy),
the policy provides for 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 the aggregated spend with the external
auditor will not exceed 70% of the audit fee.
To maintain auditor independence 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.
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.
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.
A partner change has been recommended by KPMG and following
Board and Committee discussion and taking up personal references
the recommendation was approved by the Audit Committee in
September 2015 and the allocated partner will shadow the 2015
year-end process.
The EU Audit Directive on audit tendering now takes effect from June
2016 and its key aspects include:
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Audit firms will have a maximum tenure of ten years, although
the UK Government proposes to allow an extension of (i) up to
an additional ten years where a public tender is carried out after
ten years; or (ii) by an additional 14 years where more than one
audit firm is appointed to carry out the audit;
Audit firms are to be prohibited from providing certain non-audit
services and where non-audit services are provided they will be
subject to a fees cap; and
A restriction in any contract limiting a company’s choice of
auditor will be prohibited.
The Group has therefore adopted a policy that no external auditor
appointed after June 2016 can remain in post for longer than
twenty years and there will be a tendering process every ten years,
and that KPMG, as the currently appointed external auditor, may
remain so until the completion of the 2023 annual audit. However
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 Committee also has a ‘Non-Audit Services’ policy that
it approves annually, which restricts the use of the external auditor
for activities including compiling accounting records, certain aspects
of internal audit, IT consultancy, tax services except in exceptional
circumstances, and advice to the Remuneration Committee.
During 2015, there were fees of £298,000 (2014: £34,000) paid to the
auditor for non-audit services. The fees paid covered due diligence on
acquired businesses and aborted acquisition costs £112,000
(2014: £6,000), pension advice £161,000 (2014: £7,000), an interim
review £16,000 (2014: £21,000) and £9,000 for UK GAAP conversion
work. Audit fees for 2015 were c.£635,000, representing a 1:2 ratio
between non-audit and audit fees (2014: 1:18). 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 Code of
Business Conduct is being breached by any person or group of people,
they are 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 2015 Annual Report and Accounts is fair, balanced and
understandable and whether it provides the information necessary
for shareholders to assess the Group’s position and 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’ performance in 2015 and does not
mislead the reader by excluding appropriate bad news. That the
disclosures of the Group’s business segments and key messages
are consistently delivered throughout the document, KPIs are
clear and appropriate and linked to both the Group’s strategy and
remuneration incentives.
Governance Reportwww.hsholdings.com | Stock Code HILS 65
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 Group’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 Group’s financial and non-financial
performance in 2015 and allows them to get a clear and understandable picture of the Group’s business model, key drivers and commercial
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 and we will continue to make
improvements to our risk management processes and approach to our internal control environment.
Jock Lennox
Independent Non-executive Director
Chairman, Audit Committee
9 March 2016
Asset International Structures designed, supplied and installed their precast BEBO arch using 44 sections to create a 80.42m bypass tunnel on the Clyst Honiton Bypass, at the foot of
Exeter Airport’s runway.
Governance Reportwww.hsholdings.com | Stock Code HILS 66
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 the Company’s AGM in
2014, was applied throughout 2015.
Remuneration policy
The Company’s Remuneration Policy was put before members at our
AGM in May 2014 and 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
2015, despite there being challenges in some of the economies
and markets in which we operate. Underlying profit before tax (at
budgeted exchange rates) was up 14% year-on-year and the annual
growth in underlying earnings per share (‘UEPS’) was 15%. 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 2015 Annual Bonus scheme and
each is weighted equally.
During the year the Company has performed well against these
measures, exceeding the on-budget targets, at which 60% of bonus
can be earned. Growth in UEPS was 15%, underlying operating
margin was 12%, and at budgeted exchange rates underlying
profit before tax was £51.8m and internal return on capital (‘ROC’)
was 15.3%. The Remuneration Committee was satisfied that this
performance reflected the underlying performance of the Company
and that 100% of salary should vest as a bonus.
Awards were made in 2015 in respect of the Long-Term Incentive
Plan 2014 (‘LTIP’), see page 71 for more details. This plan 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.
During the year the LTIP award made in 2013 vested, the last under
the Long-Term Incentive Plan 2007 rules, with the strong results
in 2015 contributing to the Company’s performance over the last
three years (to 31 December 2015); with underlying profit before tax
increasing 31.2%, UEPS rising by 33.2% and the Company’s share
price gaining 358p, an increase of 89.7%. On the back of these results
97.9% of the LTIP 2013 award vested as shares.
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220
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180
160
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100
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Jan 13
Jan 14
Jan 15
Hill & Smith
FTSE SmallCap
FTSE All-Share
Annual Remuneration 2016
The Committee approved base salary increases of 3% in December
2015 for the Executive Directors, which is comparable to the
increases awarded to the wider group population and is considered
by the Committee to be appropriate and in line with the Group’s 2015
performance. For completeness there has been no change in the
quantum of the annual bonus or LTIP in 2016.
The activities of the Committee during 2015, including deliberating
on the LTIP and annual bonus performance conditions, are outlined
on page 67. The Committee also discussed specific strategies being
applied during 2016 and has approved bonus arrangements for 2016
aligned to these goals, believing that these best suit the Board’s
short-term strategy for the forthcoming year - see page 76.
Throughout the year, and to the date of this report, the Committee
has maintained dialogue with its advisors, Deloitte LLP. The
Committee will continue to discuss changing governance matters
ahead of any policy changes to be made in 2017, 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 2016.
Clive Snowdon
Senior Independent Non-executive Director
Chairman, Remuneration Committee
9 March 2016
Governance Reportwww.hsholdings.com | Stock Code HILS
Directors’ Remuneration Report
67
Policy and strategy
The Company’s strategy is explained in detail on pages 18 to 27. The Company’s Remuneration Policy, which can be found in summary form on
pages 77 to 80, 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
ROC(1)
Operating margins
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%.
Geographical
diversification
The international diversity of the markets in which we operate
continues to underpin our performance.
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)
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
Sustainable
profitable growth
Our objective is to deliver balanced profitable growth through both
organic growth and acquisition opportunities.
UEPS
(1) ROC represents an internal return on capital calculated as return on average invested capital at cost, adjusted for property ownership.
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
plus a specific target, 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.
The extent to which payments and awards have been made under the Annual Bonus and LTIP arrangements can be found on pages 70 and 71.
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 and Annette Kelleher. 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.
During this time the Committee:
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Reviewed the Company’s Remuneration Policy approved by shareholders at the AGM in May 2014, and was satisfied that it remains
appropriate;
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 vested;
Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2013, confirming that 95.8% of the Total
Shareholder Return (‘TSR’) portion of the original award would vest and 100% of the UEPS portion of the original award would vest;
Approved grants under the Company’s LTIP;
Measured the performance condition for awards granted under the rules of the Company’s 2007 ESOS, determining that the performance
condition had been met and that awards made in 2012 would vest in full;
Approved grants under the rules of the Company’s 2014 ESOS;
Approved the award of a new SAYE scheme, to run from December 2015 for a three or five year period. Options to be awarded with the
maximum discount of 20% allowable under HMRC rules;
Reviewed the base salaries of the Executive Directors and approved a 3% increase, with effect from 1 January 2016. This was in line with the
increase elsewhere in the Group;
Reviewed the updated provisions of the UK Corporate Governance Code relating to clawback and determined that any introduction of a
post-vesting clawback provision in the annual bonus and LTIP would be considered as part of an evaluation, ahead of the 2017 AGM, of the
Group’s Remuneration Policy.
Governance Reportwww.hsholdings.com | Stock Code HILS 68
Directors’ Remuneration Report (continued)
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Approved the annual bonus calculation and payment for the financial years 2014 and 2015 and the performance measure and targets for
2016;
Reviewed and approved the Company’s Annual Remuneration Report for inclusion in the Company’s 2015 Annual Report and Accounts; and
Considered and approved the Committee’s terms of reference.
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 £11,200 for the year ended 31 December 2015. 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 also attends Remuneration Committee
meetings to provide advice and respond to specific questions, but he is not in attendance when his 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 Company’s Remuneration
Policy was put before members at our AGM in May 2014 and was approved by 97.73% of shareholders.
% of votes
Remuneration Policy Report
For
97.73%
Against
2.00%
329,276 votes were withheld in relation to this resolution (<0.5%)
Withheld votes
At the Company’s AGM in May 2015 the Annual Remuneration Report was approved by 93.04% of shareholders
% of votes
Annual Remuneration Report
For
93.04%
Against
6.96%
695,933 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 2016 policy
How the Remuneration Policy was implemented in 2015 – Executive Directors
Single remuneration figure for 2015
D W Muir
M Pegler
Total
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
464,500
297,200
761,700
52,114
21,000
73,114
464,500
297,200
761,700
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
(1) The amount of base salary received in the year.
LTIP (vested in respect
of performance period
ended 2015)(4)
796,305
509,062
1,305,367
LTIP (vested in respect
of performance period
ended 2014)
761,628
485,650
1,247,278
Pension
116,125
74,300
190,425
Pension
112,750
72,125
184,875
Total ‘Single
Figure’ 2015
1,893,544
1,198,762
3,092,306
Total ‘Single
Figure’ 2014
1,834,738
1,155,175
2,989,913
(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 £24,400 (2014: £31,461) 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 70.
(4) For the year ended 31 December 2015 the growth in UEPS over the three year performance period commencing 1 January 2013 and ending 31 December 2015 was 33.2%, 27.6 ppts above
RPI growth for the same period, therefore 100% of this portion of the LTIP award vests. The Company’s TSR was positioned in the second quartile relative to the FTSE SmallCap for the same
period and consequently 95.8% of this portion of the LTIP award vests. This resulted in a total of 97.9% of the LTIP vesting in March 2016, giving D W Muir the benefit of 95,650 shares and
M Pegler the benefit of 61,146 shares. The face value of the vested shares is based on the closing share price of 762 price in pencep/share as at 4 March 2016. The value of dividends
receivable in respect of vesting LTIPs was for D W Muir £51,302 and for M Pegler £32,803, which in both cases was taken in Company shares 8,852 shares for D W Muir and 5,660 shares for
M Pegler.
Governance Reportwww.hsholdings.com | Stock Code HILS 69
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
2015 base salary
2016 base salary
£464,500
£297,200
£478,500
£306,000
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.
The details of D W Muir’s pension accrued in the defined benefit scheme are shown below:
Accrued pension at 31 December 2015
Transfer value of accrued pension at 31 December 2015
Change in accrued pension of 2014 excluding increase for inflation
Normal retirement date
£126,297
£3,617,000
£nil
6 July 2020
The increase in the transfer value calculated for D W Muir (from £3,470,000 as at 31 December 2014) is mainly a result of him now being one
year closer to retirement, hence an increase in the transfer value due to the unwinding of the discount rate. The assumptions basis used to
calculate the transfer value has also been reviewed and updated since the previous year end, with the main changes being the introduction of
an inflation risk premium deduction of 0.25% p.a. to the RPI inflation assumption and an update to the mortality assumption to reflect a more
recent mortality base table and future improvement in longevity projections. These changes offset each other and therefore have little impact on
D W Muir’s transfer value.
As noted last year in the 2014 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 2015.
Any inflationary increases that have occurred over the year are in line with statutory requirements and these increases have already:
›
›
›
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 70
Directors’ Remuneration Report (continued)
In addition, these Regulations also require information on the aggregate pension input amount across all pension schemes in which the Director
accrues benefits, calculated using a specific method, broadly in line with Section 229 of the Finance Act 2004 for the last 5 financial years
(ultimately increasing to the last 10 years). The figures are:
Year Ending
31/12/2015
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
nil
99
26
67
As D W Muir ceased accrual in the executive scheme during 2011, the pension input amounts in respect of the scheme for the years ending
31 December 2012, 31 December 2013, 31 December 2014 and 31 December 2015 are £nil.
D W Muir receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary amounting to £116,125 for the year ended
31 December 2015 (2014: £112,750).
M Pegler receives a cash payment in lieu of any pension contribution , equal to 25% of his base salary amounting to £74,300 for the year ended
31 December 2015 (2014: £72,125).
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 2016 that was operated in 2015.
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, and the Committee has considered the appropriateness of such disclosures and has
concluded that the Company’s strategic plan and business model is now well understood and that, therefore:
›
›
In the Directors’ Remuneration Report relating to the year in respect of which a bonus is earned, the actual performance and pay out by
performance measures will be disclosed (i.e. as shown below in relation to the 2015 bonus); and
In the Directors’ Remuneration Report for the year following the year in respect of which a bonus is earned, further detail will be given as
to the range of performance targets (i.e. as shown on page 71 in relation to the 2014 bonus), provided those performance targets are no
longer considered commercially sensitive.
2015 Annual bonus
The performance metrics for 2015, which were the same as those used in 2014 were:
›
›
›
›
Underlying profit before tax (‘PBT’);
UEPS;
Operating margins; and
Returns on capital.
The performance conditions for the year ended 31 December 2015 applied in equal measure and the performance levels achieved and bonuses
earned by reference to that performance were as follows:
Growth in UEPS
Underlying profit before tax (at budgeted exchange rates)
Underlying operating margins
Achievement of budgeted internal ROC (at budgeted exchange rates)
Total
Maximum pay out per
Actual pay out per
performance measure
Actual performance
performance measure
25%
25%
25%
25%
100%
15%
£51.8m
12.0%
15.3%
25%
25%
25%
25%
100%
Governance Reportwww.hsholdings.com | Stock Code HILS 71
2014 Annual bonus
The performance conditions for the year ended 31 December 2014 applied in equal measure and the targets, performance levels achieved and
bonuses earned by reference to that performance are shown below:
Target performance
Stretch performance
Maximum pay out
per performance
measure (% of
base salary)
2014 on target
performance
Bonus payable
for on target
performance (%of
base salary)
Growth in UEPS
Underlying profit before tax
Underlying operating margins
Achievement of budgeted
internal ROC
Totals
25%
25%
25%
25%
100%
8.0%
£42.6m
10.5%
13.4%
15%
15%
15%
15%
60%
2014 stretch
performance
11.3%
£44.7m
10.8%
13.9%
Bonus payable
for stretch
performance (%
of base salary
25%
25%
25%
25%
100%
Actual
performance
11.4%
£46.0m
10.8%
14.5%
Actual pay out
per performance
measure (% of
base salary
25.00%
25.00%
25.00%
25.00%
100.00%
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.
Awards vesting in respect of the three-year performance period ended 31 December 2015, 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
Vesting amount
less than RPI + 10%
RPI + 10%*
RPI + 25%*
0%
0%
100%
Secondly, 50% of any award is based on growth in the absolute UEPS that is in excess of RPI plus a specific target, over the three-year
performance period.
Vesting amount
Below threshold
Threshold
Maximum
* Straight line vesting will apply between these two points.
Company TSR relative to FTSE SmallCap
Vesting amount
Below median
Median*
Upper quartile*
0%
30%
100%
The Committee determined that the measurement of relative growth for half of the award would complement the absolute growth targets to
ensure that an award could only fully vest if the Group’s performance is superior to a majority of the companies in the FTSE SmallCap index.
Based on TSR performance in the three-year performance period ended 31 December 2015, Hill and Smith’s TSR performance was within the
second quartile of the comparator group and therefore 95.8% of the portion of the TSR element of the award is expected to vest. UEPS growth
over the same period was 27.6 ppts above RPI and therefore 100% of the UEPS element of the award is expected to vest.
Share awards granted during the year
During the year to 31 December 2015 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(1)
Threshold vesting (%
of target award)
Performance period
D W Muir
M Pegler
13 March 2015
nil cost option
13 March 2015
nil cost option
72,805
46,583
£464,500
£297,200
25%
25%
1 Jan 2015 – 31 Dec 2017
1 Jan 2015 – 31 Dec 2017
(1) Calculated by reference to a share price of £6.38, being the average of the mid-market prices for the three trading days prior to the grant date.
Governance Reportwww.hsholdings.com | Stock Code HILS 72
Directors’ Remuneration Report (continued)
Following changes to the Company’s Remuneration Policy, approved at the AGM in May 2014, the LTIP 2015 performance conditions remain
growth in UEPS and TSR, relative to the FTSE SmallCap (and with 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 outperformance. The performance conditions for the awards granted in 2015 in respect of the three-year performance
period ending 31 December 2017 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*
Share options
The interests of Directors, who served during 2015, in options for ordinary shares in the Company, granted under the Company’s sharesave
schemes, together with options granted and exercised during 2015, are included in the following table:
Executive
D W Muir
M Pegler
Grant Price
Awards held 31
December 2014
Granted during
the year
Exercised during
the year
Awards held 31
December 2015
Period that option is exercisable
From To
2.38
3.55
4.29
5.60
3.55
4.29
4,855
1,064
3,496
-
4,225
2,097
-
-
-
2,003
-
-
-
-
-
-
-
-
4,855
1,064
3,496
2,003
4,225
2,097
1 January 2016
1 July 2016
1 June 2018
1 December 2018
1 August 2019
1 February 2020
1 January 2021
1 July 2021
1 June 2018
1 December 2018
1 August 2017
1 February 2018
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
210,752
n/a
n/a
70,000
n/a
n/a
Vested but
unexercised
Subject to
performance conditions
Not subject to
performance conditions
Total as at
31 December 2015
Unvested
n/a
-
-
n/a
-
-
251,252(4)
5,371
n/a
160,692(4)
5,371
n/a
n/a
-
11,418
n/a
-
6,322
462,004
5,371
11,418
230,692
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 above.
(4) On 4 March 2016 the Remuneration Committee approved the vesting of 97.9% of the 2013 LTIP award, being 95,650 and 61,146 shares for D W Muir and M Pegler respectively.
Shareholding guidelines
Shareholding requirement
Current shareholding as at 31 December 2015
Current value (based on share price on 31 December 2015)
Current % of salary
D W Muir
100%
210,752
£1,595,393
343%
M Pegler
100%
70,000
£529,900
178%
These figures include those of their spouse or civil partner and infant children, or stepchildren. At the date of this report, D W Muir and M Pegler
held an additional 60,079 and 38,407 shares respectively, being the net amount of shares vested on 4 March 2016 in respect of the 2013 LTIP
award.
Governance Reportwww.hsholdings.com | Stock Code HILS Non-executive Director shareholding
Director
W H Whiteley
C J Snowdon
J F Lennox
A M Kelleher
2015
22,100
28,930
5,000
2,164
73
2014
22,100
28,930
5,000
-
These figures include those of their spouses, civil partners and infant children, or stepchildren. There was no change in these beneficial interests
between 31 December 2015 and 9 March 2016. 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.
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. See page 74 for more information.
Loss of office payments
There were no payments made to past Directors during the year ended 31 December 2015.
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 2015.
How the Remuneration Policy was implemented in 2015 – 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)
Non-executive Director
Total
Board Fees
139,000
51,100
50,450
44,800
285,350
Taxable
Benefits
Annual
Bonus
LTIP
Pension
Total ‘Single
Figure’ 2015
Total ‘Single
Figure’ 2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
139,000
135,000
51,100
49,600
50,450
49,000
44,800
3,625
285,350
237,225
(1) Clive Snowdon received a base fee of £44,800 plus an additional £1,675 as the Senior Independent Director and £4,625 as Chairman of the Remuneration Committee.
(2) Jock Lennox received a base fee of £44,800 plus an additional £5,650 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 to the year ended 31 December 2014.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 74
Directors’ Remuneration Report (continued)
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.
550
500
450
400
350
300
250
200
150
100
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
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o
h
e
r
a
h
S
l
a
t
o
T
550
500
450
400
350
300
250
200
150
100
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Hill & Smith
FTSE SmallCap
Hill & Smith
FTSE All-Share
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 between 2014 and 2015.
Percentage increase
Salary
Taxable benefits
Annual bonus
Chief Executive Officer
Wider workforce
3.0%
-10.7%
3.0%
3.3%
-
5.4%
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.
Relative importance of spend on pay
Dividends paid in respect of the financial year
Overall spend on pay
2015
£16.1m
£121.8m
2014
£14.1m
£119.6m
% change
14.2%
1.8%
Chief Executive remuneration pay compared to performance
The following graphs show the TSR performance of the Company over the seven year period to 1 January 2016 compared to the 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.
Governance Reportwww.hsholdings.com | Stock Code HILS
75
550
500
450
400
350
300
250
200
150
100
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
l
o
h
e
r
a
h
S
l
a
t
o
T
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Hill & Smith
FTSE All-Share
The following table summarises the Chief Executive’s single figure for the past seven 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
2015
1,894
100%
92.7
97.9%
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
(including any bonus accrued up until the date of termination – notwithstanding 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.
How the Remuneration Policy will be implemented for 2016 – Executive Directors
Salary
Base salaries were reviewed in December 2015 and as from 1 January 2016 are:
Chief Executive
Finance Director
£478,500
£306,000
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 2016 for the financial year 2017.
Annual bonus
The annual bonus opportunity for 2016 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
Governance Reportwww.hsholdings.com | Stock Code HILS
76
Directors’ Remuneration Report (continued)
The Committee can disclose that for the 2016 financial year the annual bonus targets will be equally weighted towards;
›
›
›
›
Growth in UEPS;
Budgeted profit;
Operating margins; and
The delivery of specific strategic objectives.
The Remuneration Committee will determine an appropriate performance range for each measure used.
The Committee considers that the performance targets are commercially sensitive and so will not be disclosed prospectively. However the
Committee will disclose performance against these measures and their targets retrospectively in future reports on a similar basis to the
disclosures on page 71 and 70 of the 2014 and 2015 bonuses.
Share plans
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
2016 in respect of the performance period 1 January 2016 – 31 December 2018, 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 D Muir and M Pegler in lieu of pension contributions, equal to 25% of their base salary.
How the Remuneration Policy will be implemented for 2016 – 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 2015, the Board approved a 3% increase in all fees as from 1 January 2016.
Chairman
Non-executive Director
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
Clive Snowdon
Senior Independent Non-executive Director
Chairman, Remuneration Committee
9 March 2016
2015
£139,000
£44,800
£1,675
£5,650
£4,625
2016
£143,170
£46,144
£1,725
£5,820
£4,764
Governance Reportwww.hsholdings.com | Stock Code HILS 77
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 17 May 2016.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 78
Directors’ Remuneration Report (continued)
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.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS
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.
79
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 80
Directors’ Remuneration Report (continued)
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.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS Directors’ Report (other statutory information)
81
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 88 and the business segment
information is given on pages 99 to 100.
During 2015 the principal activities of the Group comprised the
manufacture and supply of:
-
-
Infrastructure Products (Roads and Utilities)
Galvanizing Services
Pages 3 to 37 contain further details of these areas of the business
and the principal subsidiaries operating within them are set out on
pages 146 to 148.
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 3 to 46.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2015
comprises sections of the Annual Report referred to under ‘Strategic
Report’, and ‘Governance Report’, which are incorporated into the
Directors’ Report by reference.
Results
The Group profit before taxation for the year amounted to £33.2m
(2014: £36.9m). Group revenue at £467.5m was 2.8% higher than
the prior year. Operating profit at £37.3m was 9.2% lower than for
the previous year (2014: £41.1m).
Dividends
The Directors recommend the payment of a final dividend of 13.6p
per ordinary share (2014: 11.6p per ordinary share) which, together
with the interim dividend of 7.1p per ordinary share (2014: 6.4p per
ordinary share) paid on 4 January 2016, makes a total distribution for
the year of 20.7p per ordinary share (2014: 18.0p per ordinary share).
Subject to shareholders approving this recommendation at the AGM,
the final dividend will be paid on 1 July 2016 to shareholders on the
register at the close of business on 27 May 2016. The latest date for
receipt of Dividend Re-investment Plan elections is 10 June 2016.
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 2015
Total new ordinary shares issued during the year
Issued share capital 31 December 2015
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
77,872,520
365,204
78,237,724
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 121 and 122 of the Group Financial Statements.
Governance Reportwww.hsholdings.com | Stock Code HILS 82
Directors’ Report (other statutory information) (continued)
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 2015 AGM and will be limited by the
resolution to be put to the 2016 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 11 May 2015 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 11 August 2016.
Substantial shareholdings
As at 29 February 2016, 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:
Shareholder
FIL Investment International
Henderson Global Investors
Charles Stanley
JPMorgan Asset Mgt
BlackRock Investment Mgt
NFU Mutual Investment Mgrs
Legal & General Investment Mgt
Hargreave Hale
Number of
ordinary shares
% of issued
share capital
4,041,153
3,698,914
3,218,923
3,093,500
3,078,127
2,853,390
2,623,889
2,443,629
5.15
4.71
4.10
3.94
3.92
3.63
3.34
3.11
Directors
The names of the Directors of the Company who served throughout
the year, including brief biographies, are set out on pages 52 and 53.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith
Holdings PLC as at 31 December 2015 are set out on page 72 and 73.
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 115 to 120.
Research and development
During the year, the Group spent a total of £1.6m (2014: £1.4m) on
research and development.
Political and charitable donations
Charitable donations amounting to £36,000 (2014: £30,000)
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 75.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 83
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 auditor
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 auditor is unaware; each Director has taken all the steps that he ought to have taken as a Director to
make themselves aware of any relevant audit information and has established that the Company’s auditor are aware of that information.
Events since 31 December 2015
On 20 January 2016, the Group acquired E.T. Techtonics, Inc. (‘ETT’), a US based designer of composite bridge products, for a consideration of
£1.2m. ETT will be integrated into Creative Pultrusions, Inc. our existing US composite products business.
On 9 March 2016, following a strategic review of its non-US Pipe Supports business the Group announced its plan to engage in a consultation
process regarding the closure of, and its exit from, its manufacturing sites in the UK and Thailand and also its sales office in China. To the extent
possible, work will be transferred to the Group’s Indian manufacturing facility, which will become the centre of excellence for the manufacture of
pipe support products. Following completion of the restructuring, it is expected that the Group will seek a buyer for the Indian business. A non-
underlying restructuring charge of approximately £10m will be reported in the 2016 results.
Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 a.m. on Tuesday 17 May 2016 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 144.
By order of the Board
Alex Henderson
Company Secretary
9 March 2016
Governance Reportwww.hsholdings.com | Stock Code HILS 84
Statement of Directors’ Responsibilities
In respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the
Group and Parent Company Financial Statements in accordance with
applicable law and regulations.
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, including FRS 101
Reduced Disclosure Framework.
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 that 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.
By order of the Board
Alex Henderson
Company Secretary
9 March 2016
Governance Reportwww.hsholdings.com | Stock Code HILS 85
85
Financial
Statements
Financial Statements
Independent Auditor’s Report
86
88 Group Financial Statements
130 Company Financial Statements
142 Five Year Summary
Image
Above - Access Design and Engineering designed, manufactured and installed all the steel and GRP access products
at the Three Bridge train depot in Crawley, West Sussex for the £300m investment Thameslink Programme.
See further information at hsholdings.com
86
Independent Auditor’s Report
To the members of Hill & Smith Holdings PLC
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 2015 which comprise the
Consolidated Income Statement, the Consolidated Statement of
Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows, the Company Balance Sheet
and Company Statement of Changes in Equity 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 2015 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, including
FRS 101 Reduced Disclosure Framework; 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 Financial Statements the
risks of material misstatement that had the greatest effect on our
audit were as follows:
Valuation of goodwill and indefinite life intangible assets (£107.6m)
Refer to page 62 (Audit Committee Report), page 93 (Accounting
Policy) and pages 106 to 110 (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
cashflows of the cash generating unit. The value in use of each CGU
is calculated using entity specific assumptions around discount
rates, growth rates and cash flow forecasts. Given the relative size
of the goodwill and indefinite life intangible assets balance in the
Consolidated Balance Sheet and inherent uncertainty involved
in forecasting and discounting future cash flows, relatively small
changes in these assumptions could give rise to material changes in
the assessment of the carrying value of goodwill.
Our response
Our procedures included 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
in determining the value in use of these CGUs. 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
the 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, France Galva S.A., including a
reasonably possible reduction in assumed growth rates, discount
rates and cash flows to compare to the sensitivity analysis prepared
by the Group. We also assessed whether the Group’s disclosures
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, and that the impairment loss recognised in respect of The
Paterson Group is appropriately disclosed.
UK post retirement benefits obligation (gross liabilities £80.1m,
net liability £11.1m)
Refer to page 62 (Audit Committee Report), page 93 (Accounting
Policy) and pages 123 to 128 (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, inflation 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 agreement of the
valuation and completeness of scheme assets to external supporting
documentation. With the support of our own actuarial specialists, we
challenged the key assumptions applied 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.
3. Our application of materiality and an overview of the scope
of our audit
Materiality for the Group Financial Statements as a whole was set at
£2.4m, determined with reference to a benchmark of Group profit
before taxation, normalised to exclude specific non-underlying
items as detailed in note 3, being net costs in respect of business
reorganisations, acquisition costs, losses on disposal of properties
and an impairment charge of goodwill and acquired intangible
assets. Normalised Group profit before tax is calculated as £50.3m, of
which materiality represents 4.8%.
We report to the Audit Committee any corrected or uncorrected
identified misstatements exceeding £120,000, in addition to other
identified misstatements that warranted reporting on qualitative
grounds.
Of the Group’s 54 reporting components, we subjected 34 to audits
for Group reporting purposes.
These audits covered 86.4% of total Group revenue; 97.8% of
underlying Group profit before taxation; and 89.5% of total Group
assets.
Financial Statementswww.hsholdings.com | Stock Code HILS
87
The remaining 13.6% of total Group revenue, 2.2% of Group profit
before tax and 10.5% of total Group assets is represented by 20
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.
6. We have nothing to report 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.
Normalised Group
profit before tax
£50.3m
Group
materiality
£2.4m
£2.4m
Whole
Financial
Statements
materiality
£1.8m
Maximum
component
materiality
Misstatements
reported to
the Audit
Committee
£120k
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 to the Group audit
team. The Group audit team approved the component materialities,
which ranged from £0.1m to £1.8m, having regard to the mix of size
and risk profile of Group entities across the components. The audit of
5 of the 34 components was performed by component auditors and
the remainder 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. The Group audit team also visited component locations in
France.
4. Our opinion on other matters prescribed by the Companies
Act 2006 is unmodified
In our opinion:
›
›
the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
the information given in the Strategic Report and the Directors’
Report for the financial year for which the Financial Statements
are prepared is consistent with the Financial Statements.
5. We have nothing to report on the disclosures of principal
risks
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
the Directors’ Statement of Viability on page 14, concerning
the principal risks, their management, and, based on that,
the Directors’ assessment and expectations of the Group’s
continuing in operation over the 3 years to December 2018; or
›
›
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 position and 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’ Statements, set out on page 84, in relation to
going concern and longer-term viability; and
the part of the Corporate Governance Statement on pages 49
to 83 relating to the Company’s compliance with the eleven
provisions of the 2014 UK Corporate Governance Code specified
for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities Statement
set out on page 84, 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 Financial
Statements 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 is 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.
the disclosures in the Group Accounting Policies on page 93
concerning the use of the going concern basis of accounting.
Michael Steventon (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill, Snow Hill Queensway
Birmingham, B4 6GH
9 March 2016
Financial Statementswww.hsholdings.com | Stock Code HILS
88
Consolidated Income Statement
Year ended 31 December 2015
Revenue
Trading profit
Amortisation of acquisition intangibles
Business reorganisation costs
Loss on disposal of subsidiaries
Impairment of intangible assets
Acquisition costs
(Loss)/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
Notes
1, 2
3
3
3
10
3
3
1, 2
5
5
7
8
8
9
9
9
Total
£m
Underlying
£m
467.5
454.7
2015
Non-
underlying*
£m
-
-
(1.6)
(0.3)
-
56.0
(1.6)
(0.3)
-
(15.7)
(15.7)
(1.0)
(0.1)
(18.7)
-
(1.1)
(19.8)
3.5
(1.0)
(0.1)
37.3
0.5
(4.6)
33.2
(9.1)
Underlying
£m
467.5
56.0
-
-
-
-
-
-
56.0
0.5
(3.5)
53.0
(12.6)
2014
Non-
underlying*
£m
-
-
(2.1)
(2.6)
(3.7)
-
(0.1)
0.4
(8.1)
-
(1.0)
(9.1)
1.5
Total
£m
454.7
49.2
(2.1)
(2.6)
(3.7)
-
(0.1)
0.4
41.1
0.5
(4.7)
36.9
(9.6)
49.2
-
-
-
-
-
-
49.2
0.5
(3.7)
46.0
(11.1)
40.4
(16.3)
24.1
34.9
(7.6)
27.3
51.7p
51.3p
45.0p
44.4p
30.9p
30.6p
7.1p
13.6p
20.7p
35.1p
34.7p
6.4p
11.6p
18.0p
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 98.
Financial Statementswww.hsholdings.com | Stock Code HILS Consolidated Statement of Comprehensive Income
Year ended 31 December 2015
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 gain/(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
2015
£m
24.1
1.8
(0.4)
(0.1)
0.4
(0.1)
5.0
(1.2)
5.4
29.5
89
2014
£m
27.3
1.2
(0.1)
(0.1)
0.3
-
(3.6)
0.8
(1.5)
25.8
Financial Statementswww.hsholdings.com | Stock Code HILS 90
Consolidated Statement of Financial Position
Year ended 31 December 2015
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
Notes
2015
£m
2014
£m
10
11
12
14
15
16
1
17
19
17
18
19
13
23
18
21
126.4
129.2
-
255.6
-
57.7
98.8
12.9
169.4
425.0
(87.8)
(8.7)
(0.2)
(0.3)
(97.0)
72.4
(0.2)
(2.7)
(7.9)
(14.6)
(104.1)
(129.5)
(226.5)
198.5
19.6
32.8
4.6
2.3
(0.2)
139.4
198.5
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
Approved by the Board of Directors on 9 March 2016 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
Financial Statementswww.hsholdings.com | Stock Code HILS
91
Total
equity
£m
169.1
27.3
(1.5)
Consolidated Statement of Changes in Equity
Year ended 31 December 2015
Notes
Share
capital
£m
19.4
Share
premium
£m
31.5
Other
reserves†
£m
4.5
Translation
reserves
£m
(0.2)
Hedge
reserves
£m
(0.6)
Retained
earnings
£m
114.5
At 1 January 2014
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
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 held by employee benefit trust
Transfers between reserves
Tax taken directly to the Consolidated
Statement of Changes in Equity
Shares issued
At 31 December 2015
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.5
0.2
31.7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.6
1.1
32.8
9
21
7
21
9
21
7
21
-
-
-
-
-
-
-
-
4.5
-
-
-
-
-
-
0.1
-
-
4.6
-
1.1
-
0.2
27.3
(2.8)
-
-
-
-
-
-
0.9
-
1.4
-
-
-
-
-
-
-
-
-
-
-
-
-
(12.4)
(12.4)
0.9
(1.0)
0.9
(1.0)
(1.4)
(1.4)
0.2
-
0.2
0.3
(0.4)
125.3
181.5
-
0.2
24.1
3.8
24.1
5.4
-
-
-
-
-
-
-
(14.1)
(14.1)
0.9
(1.8)
0.9
(0.1)
0.4
-
0.9
(1.8)
0.9
-
0.4
1.2
2.3
(0.2)
139.4
198.5
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2014: £0.2m) capital redemption reserve.
In 2014 the Group purchased 230,000 of its own shares, which were 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, was included within retained
earnings at 31 December 2014. In March 2015, 143,268 of these shares were issued in settlement of awards to employees at a cost of £0.9m.
There are 86,732 shares remaining at 31 December 2015 with a cost of £0.5m.
Financial Statementswww.hsholdings.com | Stock Code HILS 92
Consolidated Statement of Cash Flows
Year ended 31 December 2015
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
Decrease/(increase) in inventories
Increase in receivables
(Decrease)/increase in payables
Decrease in provisions and employee benefits
Net movement in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash from operating activities
Interest received
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 increase/(decrease) in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
Notes
5
1, 2
4, 21
3
6
6, 11
6, 10
6, 10, 11
10
21
9
16
2015
£m
0.9
-
-
15.5
2.5
15.7
1.1
(3.0)
(0.6)
(3.3)
0.5
1.2
(14.8)
(1.2)
(16.6)
-
1.2
(0.9)
(14.1)
-
46.0
(45.0)
(0.1)
£m
33.2
4.1
37.3
34.6
71.9
(5.8)
66.1
(12.6)
(3.5)
50.0
(30.9)
(12.9)
6.2
6.7
-
12.9
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
Financial Statementswww.hsholdings.com | Stock Code HILS 93
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 FRS 101; these are presented on pages 130 to 140.
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 6 to 14. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the
Strategic Report on pages 11 to 14. 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 £213.1m at 31 December 2015, 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 2015
In 2015 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
›
›
Amendments to IAS 19 Defined Benefit Plans: Employee Contributions.
Annual Improvements to IFRSs – 2010-2012 Cycle.
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:
›
›
›
›
›
›
›
›
Amendments to IFRS 11 - Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016).
Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016).
Amendments to IAS 27 - Equity Method in Separate Financial Statements (effective 1 January 2016).
Annual Improvements to IFRSs – 2012-2014 Cycle (effective 1 January 2016).
Disclosure Initiative – Amendments to IAS 1 (effective 1 January 2016).
IFRS 15 ‘Revenue from Contracts with Customers’ (effective 1 January 2017).
IFRS 9 ‘Financial Instruments’ (effective 1 January 2018).
IFRS 16 ‘Leases’ (effective 1 January 2019).
The impact of IFRS 16, which was issued in January 2016, is currently being assessed. None of the other standards or amendments above are
expected to have a material impact on the Group.
Financial Statementswww.hsholdings.com | Stock Code HILS 94
Group Accounting Policies (continued)
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 95
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:
›
›
›
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.
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 96
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)
2015
2014
Average
1.38
1.53
52.49
12.90
Closing
1.36
1.48
53.50
12.50
Average
1.24
1.65
53.50
11.30
Closing
1.28
1.56
51.32
12.07
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 97
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 98
Group Accounting Policies (continued)
Non-underlying items
Non-underlying items are non-trading items disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility
of such items would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment
of non-underlying items:
›
›
›
›
›
›
›
›
Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued
operations.
Amortisation of intangible fixed assets arising on acquisitions.
Expenses associated with acquisitions.
Impairment charges in respect of tangible or intangible fixed assets.
Changes in the fair value of derivative financial instruments.
Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material
changes in the terms of the schemes.
Net financing costs or returns on defined benefit pension obligations.
Costs incurred as part of significant refinancing activities.
The tax effect of the above is also included.
Details in respect of the non-underlying items recognised in the current and prior year are set out in note 3 to the Financial Statements.
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates to items either recognised in Other Comprehensive Income or directly in
equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is
calculated using tax rates enacted or substantively enacted at the 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 purchases of shares in the
Company are debited directly to equity.
Financial Statementswww.hsholdings.com | Stock Code HILS Notes to the Consolidated Financial Statements
99
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
193.9
131.6
325.5
142.0
467.5
2015
2014
Revenue
£m
195.2
127.7
322.9
131.8
454.7
Result
£m
(7.1)
15.6
8.5
28.8
37.3
(4.1)
33.2
(9.1)
24.1
Underlying
result*
£m
10.5
16.0
26.5
29.5
56.0
(3.0)
53.0
(12.6)
40.4
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
* Underlying result is stated before non-underlying items as defined in the Accounting Policies on page 98, 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 £5.2m (2014: £5.9m) revenues to Infrastructure Products - Roads and £1.6m (2014: £1.8m) revenues to
Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £3.0m (2014: £3.6m) revenues to Infrastructure Products - Roads.
These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.
Capital expenditure and amortisation/depreciation
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total Group
Property, plant and equipment (note 11)
Intangible assets (note 10)
Total Group
2015
2014
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
2.5
3.8
6.3
8.3
14.6
13.5
1.1
14.6
19.4
6.8
26.2
7.5
33.7
15.5
18.2
33.7
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
The impairment losses, amortisation and depreciation amounts above relating to the Infrastructure Products - Utilities segment include
impairment losses of £15.7m (2014: £nil) relating to The Paterson Group (see note 3).
Financial Statementswww.hsholdings.com | Stock Code HILS 100
Notes to the Consolidated Financial Statements
(continued)
1. Segmental information continued
Geographical analysis
Revenue (irrespective of origin)
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
2. Operating profit
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
2015
£m
235.8
73.4
135.0
7.2
13.3
2.8
467.5
2015
£m
175.5
88.3
144.3
15.5
1.4
425.0
2015
£m
8.7
2.9
2.8
0.2
14.6
2015
£m
467.5
(300.6)
166.9
(23.2)
(107.6)
1.2
37.3
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
2014
£m
454.7
(296.9)
157.8
(22.9)
(95.0)
1.2
41.1
Financial Statementswww.hsholdings.com | Stock Code HILS 101
3. Non-underlying items
Non-underlying items included in operating profit comprise the following:
›
›
›
›
›
Amortisation of acquired intangible fixed assets of £1.6m (2014: £2.1m).
Acquisition expenses of £1.0m (2014: £0.1m) principally relating to acquisitions made by the Group during the year.
Losses on disposal of properties of £0.1m (2014: profit of £0.4m).
Net costs in respect of business reorganisations of £0.3m (2014: £2.6m), reflecting costs associated with restructuring of certain of the
Group’s subsidiaries together with the net release of provisions made in previous years in respect of site closures following a favourable
settlement during the year of the exposures identified.
An impairment charge of £15.7m in respect of goodwill and acquired intangible assets. As set out in the Operational and Financial Review
on page 12, the current and forecast financial performance of The Paterson Group (part of the Infrastructure Products – Utilities segment)
is below that assumed in the impairment review performed at 31 December 2014 and, overall, the business continues to generate levels of
profitability that are significantly below those anticipated at acquisition. As a result, an impairment review was performed during the year
based on the Board’s revised expectation of future profitability and cash generation. The impairment review concluded that the carrying
values of the assets of the business were less than their recoverable amount (determined by reference to the Value in Use) by £15.7m,
allocated to the goodwill (£8.2m) and the remaining book value of acquired intangible fixed assets (£7.5m) arising on acquisition. The basis
for determining the Value in Use, including the discount rate (13.1% on a pre-tax basis) and rate of future growth, was consistent with that
used in the annual impairment review performed as at 31 December 2014.
Non-underlying items in 2014 also included a net loss on disposal of subsidiaries of £3.7m, as 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)
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 expense represent the net financing cost on pension obligations of £0.7m (2014: £0.7m) and a £0.4m
(2014: £0.3m) charge in respect of amortisation of costs associated with refinancing.
Financial Statementswww.hsholdings.com | Stock Code HILS 102
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 67 to 76.
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
2015
£m
Underlying
£m
Non-
underlying
£m
0.5
0.5
3.5
-
3.5
-
-
3.5
3.0
-
-
-
-
-
0.4
0.7
1.1
1.1
0.5
0.5
3.5
-
3.5
0.4
0.7
4.6
4.1
0.5
0.5
3.7
-
3.7
-
-
3.7
3.2
-
-
-
-
-
0.3
0.7
1.0
1.0
2015
No.
1,646
674
2,320
1,503
3,823
2014
No.
1,591
662
2,253
1,445
3,698
£m
£m
100.6
1.2
17.3
2.7
121.8
99.0
1.2
17.0
2.4
119.6
2014
£m
0.5
0.5
3.7
-
3.7
0.3
0.7
4.7
4.2
Financial Statementswww.hsholdings.com | Stock Code HILS 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
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
Other assurance services
Services relating to corporate finance transactions
103
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
2015
£m
15.5
-
2.2
3.5
0.5
1.6
0.8
0.1
15.7
0.1
0.1
9.7
£m
0.1
0.5
0.2
0.1
0.9
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 61 to 65 and includes an explanation of how
auditor objectivity and independence is safeguarded when non audit services are provided by the auditor.
Financial Statementswww.hsholdings.com | Stock Code HILS 104
Notes to the Consolidated Financial Statements
(continued)
7. Taxation
Current tax
UK corporation tax
Overseas tax at prevailing local rates
Adjustments in respect of prior periods
Deferred tax (note 13)
UK deferred tax
Overseas tax at prevailing local rates
Adjustments in respect of prior periods
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
2015
£m
4.0
10.1
(2.4)
11.7
0.3
(3.7)
0.1
0.7
9.1
1.2
0.1
1.3
(0.3)
(0.1)
(0.4)
2014
£m
3.6
8.7
(1.8)
10.5
0.1
(0.1)
(0.9)
-
9.6
(0.8)
-
(0.8)
-
(0.2)
(0.2)
The tax charge in the Consolidated Income Statement for the period is higher (2014: 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 20.25% (2014: 21.5%)
Expenses not deductible/income not chargeable for tax purposes
Non-deductible goodwill impairment
Local tax incentives
Utilisation of brought forward tax losses not recognised
Overseas profits taxed at higher/(lower) rates
Overseas losses not relieved
Withholding taxes
Impact of rate changes
Adjustments in respect of prior periods
Tax charge
2015
£m
33.2
6.7
(0.5)
1.6
(0.9)
(0.4)
3.7
0.4
0.1
0.7
(2.3)
9.1
2014
£m
36.9
7.9
0.2
-
(0.7)
(0.1)
4.3
0.4
0.3
-
(2.7)
9.6
The Group carries tax provisions in relation to uncertain tax positions arising from the possible outcome of negotiations with and enquiries from
the UK and other overseas tax authorities. Such provisions are a reflection of the geographical spread of the Group’s operations and the variety of
jurisdictions in which it carries out its activities.
Financial Statementswww.hsholdings.com | Stock Code HILS 105
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was 78.1m (2014: 77.8m), diluted for the effects of the outstanding
dilutive share options 78.8m (2014: 78.8m). Underlying earnings per share have been shown because the Directors consider that this provides
valuable additional information about the underlying performance of the Group.
Basic earnings
Non-underlying items*
Underlying earnings
Diluted earnings
Non-underlying items*
Underlying diluted earnings
* Non-underlying items as detailed in note 3.
2015
Pence
per share
30.9
20.8
51.7
30.6
20.7
51.3
£m
24.1
16.3
40.4
24.1
16.3
40.4
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
9. Dividends
Dividends paid in the year were the prior year’s interim dividend of £5.0m (2014: £4.6m) and the final dividend of £9.1m (2014: £7.8m). 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
2015
Pence
per share
7.1
13.6
20.7
£m
5.5
10.6
16.1
2014
Pence
per share
6.4
11.6
18.0
£m
5.0
9.0
14.0
Financial Statementswww.hsholdings.com | Stock Code HILS 106
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets
Cost
At 1 January 2014
Exchange adjustments
Acquisitions
Additions
At 31 December 2014
Exchange adjustments
Acquisitions
Additions
At 31 December 2015
Amortisation and impairment losses
At 1 January 2014
Exchange adjustments
Amortisation charge for the year
At 31 December 2014
Exchange adjustments
Impairment losses
Amortisation charge for the year
At 31 December 2015
Carrying values
At 1 January 2014
At 31 December 2014
At 31 December 2015
Goodwill
£m
Brands
£m
Customer
lists
£m
Capitalised
development
costs
£m
99.8
0.3
-
-
18.7
0.4
0.4
-
13.3
(0.1)
-
-
100.1
19.5
13.2
0.8
8.3
-
0.5
0.9
-
0.3
7.3
-
109.2
20.9
20.8
-
-
-
-
0.3
8.2
-
8.5
99.8
100.1
100.7
2.1
(0.1)
0.5
2.5
0.1
5.6
0.5
8.7
16.6
17.0
12.2
7.1
0.2
1.6
8.9
0.3
0.8
1.1
11.1
6.2
4.3
9.7
10.5
-
0.2
1.2
11.9
-
-
1.1
13.0
7.9
-
0.7
8.6
-
-
0.8
9.4
2.6
3.3
3.6
Licences
£m
Total
£m
1.9
144.2
-
-
0.1
2.0
-
-
-
0.6
0.6
1.3
146.7
1.6
16.5
1.1
2.0
165.9
0.4
-
0.2
0.6
-
1.1
0.1
1.8
1.5
1.4
0.2
17.5
0.1
3.0
20.6
0.7
15.7
2.5
39.5
126.7
126.1
126.4
Financial Statementswww.hsholdings.com | Stock Code HILS 10. Intangible assets continued
2015
On 25 November 2015 the Group acquired the share capital of Premier Galvanizing Limited. Details of this acquisition are as follows:
Pre acquisition
carrying amount
£m
Policy
alignment and
fair value
adjustments
£m
-
1.2
0.6
2.2
3.3
7.3
(2.2)
(0.1)
(2.3)
5.0
7.9
-
(0.2)
-
-
7.7
(0.2)
(1.3)
(1.5)
6.2
Premier Galvanizing Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Deferred consideration
Cash and cash equivalents received in the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
107
Total
£m
7.9
1.2
0.4
2.2
3.3
15.0
(2.4)
(1.4)
(3.8)
11.2
18.3
7.1
18.3
(0.3)
(3.3)
14.7
Brands and customer relationships have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising
primarily represents the assembled workforce, market share and geographical advantages afforded to the Group. Policy alignment and fair
value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the provisional application of fair values on
acquisition.
Post acquisition the acquired business has contributed £0.7m revenue and £0.2m underlying operating profit, which are included in the Group’s
Consolidated Income Statement. If the acquisition had been made on 1 January 2015, the Group’s results for the year would have shown
revenue of £475.7m and underlying operating profit of £58.3m.
Financial Statementswww.hsholdings.com | Stock Code HILS 108
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
2015
The Group has also made three other smaller acquisitions during the year:
›
›
›
The share capital of Novia Associates, Inc., acquired in April 2015;
The trade and certain assets of Tegrel Limited, acquired in November 2015; and
The share capital of Bowater Doors Limited, acquired in December 2015.
Details of these acquisitions are set out below:
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Deferred consideration
Cash and cash equivalents received in the business
Net cash consideration shown in the Consolidated Statement of Cash
Flows
Novia
Pre acquisition
carrying
amount
£m
Tegrel
Pre acquisition
carrying
amount
£m
Bowater
Pre acquisition
carrying
amount
£m
Policy
alignment and
fair value
adjustments
£m
-
0.1
0.1
0.4
0.1
0.7
(0.2)
-
(0.2)
0.5
-
0.1
0.2
0.4
-
0.7
(0.3)
-
(0.3)
0.4
-
0.1
0.5
-
-
0.6
(0.3)
-
(0.3)
0.3
0.3
0.1
(0.1)
-
-
0.3
(0.4)
(0.1)
(0.5)
(0.2)
Total
£m
0.3
0.4
0.7
0.8
0.1
2.3
(1.2)
(0.1)
(1.3)
1.0
2.2
1.2
2.2
(0.2)
(0.1)
1.9
Customer lists have been recognised as a specific intangible asset as a result of the acquisition of Novia Associates. Policy alignment and fair
value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the provisional application of fair values on
acquisition.
Post acquisition the acquired businesses have contributed £1.4m revenue and £0.2m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisitions had been made on 1 January 2015, the Group’s results for the year would have
shown revenue of £475.2m and underlying operating profit of £55.4m.
Financial Statementswww.hsholdings.com | Stock Code HILS 109
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 110
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
Cash generating units with significant amounts of goodwill
Infrastructure Products - Utilities
The Paterson Group
Creative Pultrusions
Others <£5m individually
Infrastructure Products - Roads
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
2015
£m
-
7.4
6.5
2014
£m
8.0
7.1
5.1
13.6
13.6
25.4
23.0
24.8
100.7
26.8
21.8
17.7
100.1
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 Galvanizing brand names of £6.9m (2014: £10.4m), 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 management’s
estimate for revenue and associated cost growth, other than where specific market or business conditions support a different outlook. 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.
Creative Pultrusions
France Galva SA
Galvanizing Services - USA
Galvanizing Services - UK
2015
Headroom
£m
21.2
2.5
134.5
25.7
Discount
rate
12.6%
14.4%
13.5%
12.2%
2014
Headroom
£m
22.9
16.3
105.0
29.6
Discount
rate
13.0%
14.3%
13.5%
12.0%
The pre-tax discount rates detailed above equate to post-tax discount rates of between 9.4% and 10.4%, 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 2015 and 2014 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 analyses did not identify any material impairments with the exception of the
goodwill attributed to France Galva SA.
France Galva SA
The key assumptions used in the France Galva SA impairment review relate to the 2016 budgeted cash flows and the future growth rates
assumed thereafter.
The budget for 2016 assumes a 3% reduction in galvanizing volumes compared with 2015, driven by market conditions in France. Subsequently
the calculations assume future annual growth in galvanizing volumes of between 1% and 2%, resulting in calculated headroom of £2.5m. A
reduction of 1% in the 2016 budgeted volumes would reduce the headroom to zero. In the event that budgeted volumes for 2016 are achieved
but that there is no subsequent growth, a goodwill impairment charge of £18.1m would arise. The carrying value of goodwill of £25.4m would be
fully impaired if future volumes were assumed to fall by 1.5% per annum.
Financial Statementswww.hsholdings.com | Stock Code HILS 11. Property, plant and equipment
Cost
At 1 January 2014
Exchange adjustments
Acquisitions
Disposals of subsidiaries
Additions
Disposals
Transfers to assets held for sale
Reclassification
At 31 December 2014
Exchange adjustments
Acquisitions
Additions
Transfers from assets held for sale
Disposals
At 31 December 2015
Depreciation and impairment losses
At 1 January 2014
Exchange adjustments
Impairment provision
Disposals of subsidiaries
Disposals
Transfers to assets held for sale
Charge for the year
At 31 December 2014
Exchange adjustments
Disposals
Charge for the year
At 31 December 2015
Carrying values
At 1 January 2014
At 31 December 2014
At 31 December 2015
111
Land and
buildings
£m
Plant, machinery
and vehicles
£m
Total
£m
72.4
0.5
-
(0.3)
7.7
(0.4)
(3.4)
0.6
77.1
0.5
0.9
4.3
1.0
(0.8)
83.0
16.4
(0.2)
1.1
(0.2)
(0.3)
(1.9)
2.9
17.8
(0.2)
(0.4)
2.9
20.1
56.0
59.3
62.9
144.3
216.7
-
0.1
(9.7)
27.7
(6.3)
-
(0.6)
0.5
0.1
(10.0)
35.4
(6.7)
(3.4)
-
155.5
232.6
-
0.7
9.2
-
(5.2)
160.2
88.4
-
0.3
(7.9)
(6.0)
-
11.3
86.1
0.1
(4.9)
12.6
93.9
55.9
69.4
66.3
0.5
1.6
13.5
1.0
(6.0)
243.2
104.8
(0.2)
1.4
(8.1)
(6.3)
(1.9)
14.2
103.9
(0.1)
(5.3)
15.5
114.0
111.9
128.7
129.2
The gross book value of land and buildings includes freehold land of £15.3m (2014: £14.1m).
Included in the carrying value of plant, machinery and vehicles is £0.1m (2014: £0.4m) in respect of assets held under finance lease and hire
purchase contracts.
Included within plant, machinery and vehicles are assets held for hire with a cost of £40.3m (2014: £39.8m) and accumulated depreciation of
£23.1m (2014: £20.0m).
12. Assets held for sale
Property, plant and equipment
2015
£m
-
2014
£m
1.5
At 31 December 2014 the Group held certain properties that were then being actively marketed for disposal and which were therefore classified
as held for sale at that date. In 2015 the Group disposed of one of these properties and transferred the remaining property to Property, Plant and
Equipment reflecting a change in the plans for that asset.
Financial Statementswww.hsholdings.com | Stock Code HILS 112
Notes to the Consolidated Financial Statements
(continued)
13. Deferred taxation
At 1 January 2014
Exchange adjustments
Acquisitions of subsidiaries
Disposals 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 2014
Exchange adjustments
Acquisitions of subsidiaries
Credited/(charged) for the year in the Consolidated
Income Statement (note 7)
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)
(8.7)
(0.2)
-
-
0.4
-
-
(8.5)
(0.1)
(1.5)
3.1
-
-
Intangible
assets
£m
Property, plant
and equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
(6.8)
1.1
-
-
0.1
0.1
-
-
(6.6)
(0.1)
-
0.6
-
-
-
-
-
-
-
0.9
-
-
0.3
-
-
(0.2)
(0.3)
0.9
0.9
4.3
(0.1)
-
-
0.6
0.1
0.1
-
Total
£m
(9.5)
(0.2)
0.1
0.1
0.8
-
4.7
(0.1)
-
(0.2)
(1.2)
-
3.2
-
0.8
0.2
1.9
0.1
-
0.2
(7.6)
(0.2)
(1.5)
(1.2)
2.6
(0.1)
(1.3)
0.1
0.8
0.1
(7.9)
2015
£m
1.0
(8.9)
(7.9)
2014
£m
2.5
(10.1)
(7.6)
At 31 December 2015
(7.0)
(6.1)
1.2
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
No deferred tax asset has been recognised in respect of tax losses of £14.6m (2014: £16.4m) as their future use is uncertain. There is no time
limit on the carrying forward of these losses.
The reduction in the UK corporation tax rate from 21% to 20% (effective 1 April 2015) was substantively enacted on 2 July 2013. Further
reductions to 19% (effective 1 April 2017) and to 18% (effective 1 April 2020) were substantially enacted on 26 October 2015. The deferred tax
balance in respect of UK entities has therefore been calculated at 18% (2014: 20%) on the basis that it will materially reverse after 1 April 2020.
14. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2015
£m
32.3
5.6
19.8
57.7
2014
£m
32.4
6.6
18.9
57.9
The amount of inventories expensed to the Consolidated Income Statement in the year was £264.8m (2014: £250.1m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £nil (2014: £nil). The amount of inventories held
at fair value less cost to sell included in the above was £nil (2014: £nil).
Financial Statementswww.hsholdings.com | Stock Code HILS 15. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
Fair value derivatives
2015
£m
91.1
6.5
1.2
-
98.8
The charge to the Consolidated Income Statement in the year in respect of impairment of trade receivables was £0.2m (2014: £0.8m).
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 decrease/(increase)
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
2015
£m
12.9
-
12.9
(0.3)
(104.1)
(91.5)
37.3
34.6
71.9
(2.5)
(3.3)
66.1
(12.6)
(3.0)
(16.0)
1.2
35.7
(14.1)
(16.6)
-
(0.4)
(0.9)
1.2
4.9
(0.4)
(96.0)
(91.5)
113
2014
£m
85.3
5.6
1.7
0.1
92.7
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)
Financial Statementswww.hsholdings.com | Stock Code HILS 114
Notes to the Consolidated Financial Statements
(continued)
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
2015
£m
0.3
-
0.3
48.6
9.6
22.8
0.4
6.4
87.8
2015
£m
104.1
-
104.1
0.2
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
In accordance with IAS39, the costs of £1.5m associated with the amendments to the Group’s principal banking facilities in 2014 were deducted
from the carrying value of the loans and are 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 %
-
-
2015
Minimum
lease
payment
£m
Principal
£m
-
-
-
-
-
-
-
-
-
Effective
interest
rate %
5.00
5.00
2014
Minimum
lease
payment
£m
0.1
0.1
0.1
0.2
0.1
0.1
Principal
£m
0.1
-
-
0.1
The unsecured bank borrowings carry a rate of interest of 1.3% above LIBOR/EURIBOR/US LIBOR subject to a ratchet as defined in the facility
agreement. In the USA, borrowings that are not fixed 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 19. Provisions for liabilities and charges
At 1 January 2014
Utilised during the year
Released during the year
Charged to Consolidated Income Statement
At 31 December 2014
Utilised during the year
Released during the year
At 31 December 2015
Amounts due within one year
Amounts due after more than one year
115
Total
£m
6.3
(2.3)
(0.9)
1.1
4.2
(0.7)
(0.6)
2.9
2014
£m
1.4
2.8
4.2
Property
related
£m
Other
regulatory
£m
5.6
(2.2)
(0.7)
0.7
3.4
(0.2)
(0.6)
2.6
0.7
(0.1)
(0.2)
0.4
0.8
(0.5)
-
0.3
2015
£m
0.2
2.7
2.9
Provisions utilised during the year of £0.7m (2014: £2.3m) reflect cash spend associated with the closure of one of the Group’s manufacturing
plants late in 2014. Provisions released of £0.6m (2014: £0.9m) 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. 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 commercial, operating
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 116
Notes to the Consolidated Financial Statements
(continued)
20. Financial instruments continued
The Group’s UK companies represent the majority of the trade receivable at 31 December 2015 with 56% (2014: 58%) and currently the only
geographical region that does not generally insure trade receivables is North America, which represents 22% (2014: 20%) 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 2015 and 2014, 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 2015 all such debt was covered by cash and cash equivalents netting to £12.6m positive current liquidity (2014: £5.6m).
The Group’s principal UK revolving credit facility is a multicurrency agreement with a maturity date of April 2019 and a value at 31 December
2015 of £213.1m (2014: £210.9m), based on year end exchange rates. Along with various other on demand lines of credit, including bank
overdrafts and finance leases, the Group has access to facilities of £225.6m (2014: £223.5m).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary course of
business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the
Board.
Counterparty risk
A group of relationship banks provides the bulk of the banking services, with pre-approved credit limits set for each institution. Financial
derivatives are entered into with these core banks and the underlying credit exposure to these instruments is included when considering the
credit exposure to the counterparties. At the end of 2015 credit exposure including cash deposited did not exceed £1.9m with any single
institution (2014: £2.0m).
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 the financial
implications of these procurements. However, the Group currently feels that using fixed interest rates for short-term day-to-day trading is not
appropriate.
The UK Parent Company and certain of its UK subsidiaries hold 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 65% (2014: 52%) of the
Euro borrowings and 80% (2014: 80%) of the US Dollar borrowings under the Group’s principal UK revolving credit facility.
Country
UK
UK
UK
UK
Financial
instrument
Swap
Swap
Swap
Swap
Maturity date
1 April 2016
1 April 2016
1 April 2016
1 April 2016
Rate excluding
margin %
2015 Notional
amounts €m
2015 Notional
amounts $m
1.148
1.130
1.133
1.544
-
-
-
10.0
10.0
10.0
10.0
-
Financial Statementswww.hsholdings.com | Stock Code HILS 117
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 2015 and 2014, as set out in the Operational and Financial Review on page 12.
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 2015
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
-
-
-
-
(0.4)
-
-
(0.4)
-
-
-
0.1
(0.4)
-
-
(0.3)
12.9
(0.3)
(104.1)
-
-
92.3
(77.8)
(77.0)
6.7
(1.1)
(101.6)
-
-
87.3
(78.4)
(87.1)
12.9
(0.3)
12.9
(0.3)
(104.1)
(104.1)
-
(0.4)
92.3
(77.8)
(77.4)
6.7
(1.1)
-
(0.4)
92.3
(77.8)
(77.4)
6.7
(1.1)
(101.6)
(101.6)
0.1
(0.4)
87.3
(78.4)
(87.4)
0.1
(0.4)
87.3
(78.4)
(87.4)
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 2015
Derivative financial assets
Derivative financial liabilities
Total at 31 December 2014
Level 1
£m
-
-
-
-
-
-
Level 2
£m
-
(0.4)
(0.4)
0.1
(0.4)
(0.3)
Level 3
£m
-
-
-
-
-
-
Total
£m
-
(0.4)
(0.4)
0.1
(0.4)
(0.3)
Financial Statementswww.hsholdings.com | Stock Code HILS 118
Notes to the Consolidated Financial Statements
(continued)
20. Financial instruments continued
At 31 December 2015 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 £11.4m (2014: £15.2m) and US Dollar £25.5m (2014: £24.2m) denominated
interest bearing loans, which are predominantly used to fund the Group’s European and United States operations and include £36.9m
(2014: £39.4m) designated as a hedge of the net investment in a foreign operation. The foreign currency loss of £0.4m (2014: loss of £0.1m) 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 2015
US Dollar at 31 December 2015
Euro at 31 December 2015
Sterling at 31 December 2014
US Dollar at 31 December 2014
Euro at 31 December 2014
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
5.5
1.1
1.5
5.7
1.2
1.5
1.2
0.3
0.3
1.8
1.2
1.3
(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:
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
Total at 31 December 2015
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
Carrying
amounts
£m
2.3
102.1
-
77.8
0.4
182.6
3.2
99.4
0.1
78.4
0.4
Contractual
cash flows
£m
Due within
one year
£m
Due between
one and
two years
£m
(2.3)
(108.4)
-
(77.8)
(0.4)
(188.9)
(3.2)
(108.5)
(0.1)
(78.4)
(0.4)
(0.3)
(1.7)
-
(77.8)
(0.4)
(80.2)
(1.0)
(1.9)
(0.1)
(78.4)
(0.4)
(81.8)
Due between
two and
five years
£m
(0.9)
(105.0)
-
-
-
(105.9)
(0.8)
(104.7)
-
-
-
Due after
more than
five years
£m
(0.9)
-
-
-
-
(0.9)
(1.2)
-
-
-
-
(0.2)
(1.7)
-
-
-
(1.9)
(0.2)
(1.9)
-
-
-
Total at 31 December 2014
181.5
(190.6)
(2.1)
(105.5)
(1.2)
Financial Statementswww.hsholdings.com | Stock Code HILS 119
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
2015
£m
2014
£m
110.2
110.4
(d) Fair values
The gain in the year on the interest rate swaps held by the UK Group was £0.3m (2014: 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 fair value of forward currency exchange contracts realised in the Consolidated
Income Statement as part of fair value derivatives amounted to £nil (2014: nil). The fair values of the Group’s other financial instruments at
31 December 2015 and 2014 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 £15.7m (2014: £1.4m) 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
2015
£m
92.3
12.9
105.2
2015
£m
51.4
12.8
20.1
6.8
91.1
2015
£m
38.3
26.2
64.5
26.6
91.1
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
Financial Statementswww.hsholdings.com | Stock Code HILS 120
Notes to the Consolidated Financial Statements
(continued)
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
61.3
19.0
8.5
5.1
93.9
2015
Provisions
£m
(0.2)
-
(0.4)
(2.2)
(2.8)
Net
£m
61.1
19.0
8.1
2.9
91.1
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)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2014
Exchange adjustments
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2014
Exchange adjustments
Charged to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2015
Net
£m
61.9
14.4
5.4
3.6
85.3
£m
2.6
-
0.8
(0.4)
3.0
-
(0.2)
-
2.8
(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 £0.9m (2014: £0.8m), 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 £2.7m (2014: £2.4m) and the impact on equity would have been a gain of £17.9m (2014: £18.4m).
Based on a 10% strengthening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement
would have been a loss of £2.2m (2014: £2.0m) and the impact on equity would have been a loss of £14.6m (2014: £15.0m).
Financial Statementswww.hsholdings.com | Stock Code HILS 21. Called up share capital
Allotted, called up and fully paid
78.2m ordinary shares of 25p each (2014: 77.9m)
121
2015
£m
19.6
2014
£m
19.5
In 2015 the Company issued 0.3m shares under its various share option schemes (2014: 0.2m), realising £1.2m (2014: £0.3m).
Options outstanding over the Company’s shares
2014 LTIP Award (granted March 2015)*
2014 LTIP Award (granted May 2014)*¥
2007 LTIP Award (granted March 2013)*
2007 LTIP Award (granted March 2012)*
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)*
2015 grant of 2014 Approved Executive Share
Option Scheme (granted August 2015)*
2015 grant of 2014 Unapproved Executive
Share Option Scheme (granted August 2015)*
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 2014 Savings Related Share
Option Scheme (granted July 2014)*†
2014 grant of 2014 Savings Related Share
Option Scheme (granted July 2014)*†
2015 grant of 2014 Savings Related Share
Option Scheme (granted October 2015)*†
2015 grant of 2014 Savings Related Share
Option Scheme (granted October 2015)*†
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
153,290
186,121
160,148
-
34,292
7,708
8,072
10,514
144,507
265,493
281,902
237,284
136,950
132,065
173,111
148,141
2,079,598
60,586
2,019,012
2,079,598
2015
Option
price (p)
-
-
-
-
350
350
316
316
685
685
238
355
429
429
560
560
Number
of shares
-
186,121
160,148
263,721
2014
Option
price (p)
-
-
-
-
Date first exercisable
Expiry date
§
§
§
§
§
§
§
§
44,706
350
13 April 2010
13 April 2017
62,148
350
13 April 2010
13 April 2017
97,370
316
19 April 2015
19 April 2022
157,630
316
19 April 2015
19 April 2022
-
-
-
-
12 August 2018
12 August 2025
12 August 2018
12 August 2025
353,373
238
1 January 2016
1 July 2016
309,953
355
1 June 2018
1 December 2018
173,296
429
1 August 2017
1 February 2018
160,447
429
1 August 2019
1 February 2020
-
-
1 January 2019
1 July 2019
1 January 2021
1 July 2021
-
-
1,968,913
106,854
1,862,059
1,968,913
† 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 2016 for
the 2013 grant, 1 January 2017 for the 2014 grant and 1 January 2018 for the 2015 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.
The remaining weighted average life of the outstanding share options is 3 years 7 months (2014: 2 years 10 months).
Financial Statementswww.hsholdings.com | Stock Code HILS 122
Notes to the Consolidated Financial Statements
(continued)
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)
2015
232
521
(191)
(314)
360
Millions
of options
2015
2.0
0.8
(0.6)
(0.1)
2.1
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
The weighted average share price on the dates of exercise during the year for the above share options was 677p (2014: 543p), and the weighted
average fair value of options and awards granted in the year was 184p (2014: 199p). The weighted average exercise price of outstanding options
exercisable at the year end was 340p.
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.
2015 grant
of 2014 LTIP
Award
2014 grant
of 2014 LTIP
Award
2013 grant
of 2007 LTIP
Award
October
2015 grant of
2014 Savings
Related Option
Scheme
July 2014
grant of
2014 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
2015 grant of
2014 Share
Option
Schemes
2012 grant of
2005 Share
Option
Schemes
2007 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 (%)
671/434
556/260
443/248
123/159
93/98
671
0
20
3
0.0
0.9
556
0
23
3
0
1.1
443
0
29
3
0.0
0.3
691
560
512
429
18/24
22/21
3/5
2.6
3/5
3.1
0.8/1.2
1.2/2.0
83
429
355
26
5
3.5
0.7
44
290
238
21
5
4.4
1.6
80
700
685
20
3
2.6
1.0
41
316
316
28
3
4.2
0.6
59
351
350
22
3
3.7
5.1
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:
Equity-settled
Cash-settled
Total expensed during the year
22. Guarantees and other financial commitments
(a) Guarantees
The Group had no financial guarantee contracts outstanding (2014: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
2015
£m
0.9
0.3
1.2
2015
£m
1.0
2014
£m
0.9
0.3
1.2
2014
£m
1.5
Financial Statementswww.hsholdings.com | Stock Code HILS 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
2015
Land and
buildings
£m
3.6
3.4
9.1
6.3
22.4
Other
£m
1.8
1.4
2.3
0.2
5.7
2014
Land and
buildings
£m
3.8
3.6
8.9
8.7
25.0
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
2015
Land and
buildings
£m
0.4
1.1
0.1
1.6
Other
£m
10.6
5.0
-
15.6
2014
Land and
buildings
£m
0.4
0.9
0.3
1.6
123
Other
£m
2.2
1.8
2.4
0.1
6.5
Other
£m
12.8
5.0
-
17.8
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
69.0
(80.1)
-
(11.1)
Overseas
£m
2.6
(6.0)
(0.1)
(3.5)
2015
£m
71.6
(86.1)
(0.1)
(14.6)
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)
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. Both schemes are closed to future accrual. 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 £2.1m (2014: £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.
Financial Statementswww.hsholdings.com | Stock Code HILS 124
Notes to the Consolidated Financial Statements
(continued)
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 2015 and was
updated to 31 December 2015 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
2015
n/a
3.00%
3.80%
3.10%
2.10%
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%
116%120%
116%120%
S1PACM12015 1%* S1PACM12014 1%*
116%120%
S1PACMI2013 1%*
116%120% 116%120%
S1PACMI2011 1%*
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
2015
21.7 years
23.9 years
20.7 years
22.7 years
2014
2013
2012
2011
21.9 years
24.4 years
20.9 years
23.1 years
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
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
2015
£m
Market value
2014
£m
Market value
2013
£m
Market value
2012
£m
Market value
2011
£m
27.0
39.9
1.2
-
-
0.9
69.0
(80.1)
(11.1)
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)
Financial Statementswww.hsholdings.com | Stock Code HILS 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
2015
Defined
benefit
schemes
£m
1.4
0.1
1.5
-
1.5
-
0.6
0.6
0.6
1.2
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
Total
£m
1.4
0.7
2.1
0.6
2.7
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
2015
£m
86.3
3.0
(2.6)
(0.6)
(2.2)
(3.8)
80.1
2015
£m
68.6
2.4
(0.4)
2.2
(3.8)
69.0
2.0
2.8
1.2
125
Total
£m
1.1
0.5
1.6
0.6
2.2
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
Financial Statementswww.hsholdings.com | Stock Code HILS 126
Notes to the Consolidated Financial Statements
(continued)
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 %
1
3
1
6
2015
£m
(0.4)
2.2
3.2
5.0
(29.0)
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 %
4
0
7
3
% of scheme
assets/
liabilities %
11
1
9
1
% of scheme
assets/
liabilities %
2
1
5
8
% of scheme
assets/
liabilities %
8
-
6
12
2014
£m
3.1
-
(6.1)
(3.0)
(34.0)
2012
£m
6.7
(0.5)
(6.7)
(0.5)
(25.2)
2013
£m
(0.6)
(1.0)
(4.2)
(5.8)
(31.0)
2011
£m
(4.3)
-
(3.9)
(8.2)
(24.7)
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 2015
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
Life expectancy
(+1 year)
£m
(80.1)
69.0
(11.1)
(81.2)
69.0
(12.2)
(80.9)
69.0
(11.9)
(83.1)
69.0
(14.1)
The Group has considered the requirements of IFRIC 14 and concluded that there is no impact on the amounts recognised in respect of
retirement benefit obligations.
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 £0.6m (2014: £0.7m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £0.6m (2014: £0.8m), which includes the
costs of the defined contribution schemes and the defined benefit schemes.
All actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income.
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 2015.
The principal assumptions used by the actuaries
Rate of increase in salaries
Discount rate
Inflation
Mortality table
USA
0.00%
4.60%
0.00%
2015
France
2.00%
2.00%
2.00%
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%
2014 SOA
TH 00-02,
94 GAR
TH 00-02,
94 GAR
TH 00-02,
94 GAR
TH 00-02,
TF 00-02
Proj. 2002
TF 00-02
Proj. 2002
TF 00-02
Proj. 2002
TF 00-02
Financial Statementswww.hsholdings.com | Stock Code HILS 127
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
2015
£m
2.6
2.6
(6.0)
(0.1)
(3.5)
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)
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
2015
Defined
benefit
schemes
£m
0.6
0.6
-
0.6
-
-
0.1
0.1
Defined
contribution
schemes
£m
0.7
0.7
-
0.7
Total
£m
0.6
0.6
0.1
0.7
2014
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
2015
£m
6.1
-
0.1
-
-
(0.1)
-
6.1
2015
£m
2.7
-
-
(0.1)
-
2.6
-
-
0.6
Total
£m
0.8
0.8
0.1
0.9
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
Financial Statementswww.hsholdings.com | Stock Code HILS 128
Notes to the Consolidated Financial Statements
(continued)
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
%
4
0
4
0
2015
£m
0.2
-
(0.2)
-
-
(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
0
(10)
0
% of scheme
assets/
liabilities
%
2
4
(12)
n/a
% of scheme
assets/
liabilities
%
0
7
(4)
n/a
% of scheme
assets/
liabilities
%
-
-
(4)
n/a
2014
£m
-
-
(0.6)
-
(0.6)
(1.6)
2012
£m
0.1
0.1
(0.6)
-
(0.4)
(1.0)
2013
£m
-
0.2
(0.2)
-
-
(1.0)
2011
£m
-
-
(0.2)
-
(0.2)
(0.6)
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.
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).
Financial Statementswww.hsholdings.com | Stock Code HILS 129
Valuation of intangible assets
Where an acquisition is of a significant size, it is reviewed by independent experts to assess the specific intangibles arising from the acquisition.
Brands and customer lists have been identified as part of this process and are disclosed in note 10. The reasons for the residual excess of
consideration over net asset value are then identified to identify the reasons for goodwill arising, which in the case of recent acquisitions, has
resulted mainly from assembled workforce, technical expertise, know-how, market share and geographical advantages.
Brands have been valued based on estimated royalty rates discounted over their useful lives, which is normally 20 years, but considered indefinite
for the US Voigt & Schweitzer brand which has been successfully trading 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 66 to 80. 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
2015
£m
1.6
0.3
0.2
0.7
2.8
2014
£m
1.6
0.2
0.2
0.7
2.7
26. Post balance sheet events
On 20 January 2016, the Group acquired E.T. Techtonics, Inc. (‘ETT’), a US based designer of composite bridge products, for a consideration of
£1.2m. ETT will be integrated into Creative Pultrusions, Inc. our existing US composite products business.
On 9 March 2016, following a strategic review of its non-US Pipe Supports business the Group announced its plan to engage in a consultation
process regarding the closure of, and its exit from, its manufacturing sites in the UK and Thailand and also its sales office in China. To the extent
possible, work will be transferred to the Group’s Indian manufacturing facility, which will become the centre of excellence for the manufacture of
pipe support products. Following completion of the restructuring, it is expected that the Group will seek a buyer for the Indian business.
A non-underlying restructuring charge of approximately £10m will be reported in the 2016 results.
Financial Statementswww.hsholdings.com | Stock Code HILS 130
Company Balance Sheet
Year ended 31 December 2015
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
Provisions for liabilities
Pension liabilities
Net assets
Share capital and reserves
Called up share capital
Share premium
Capital redemption reserve
Profit and loss account
Equity shareholders’ funds
Approved by the Board of Directors on 9 March 2016 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Notes
3
4
5
6, 7
6
7
9
10
2015
£m
0.1
362.3
362.4
52.7
52.7
(2.9)
(95.1)
(98.0)
(45.3)
317.1
(54.2)
(0.2)
262.7
19.6
32.8
0.2
210.1
262.7
2014
£m
0.1
312.5
312.6
35.6
35.6
(7.4)
(110.7)
(118.1)
(82.5)
230.1
(64.1)
(0.4)
165.6
19.5
31.7
0.2
114.2
165.6
Financial Statementswww.hsholdings.com | Stock Code HILS
Company Statement of Changes in Equity
Year ended 31 December 2015
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Profit and
loss account
£m
At 1 January 2014
Effect of change in accounting policy
Balance at 1 January 2014
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 plans
Own shares acquired by employee benefit trust
Issue of shares
At 31 December 2014
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 held by employee benefit trust
Shares issued
At 31 December 2015
19.4
-
19.4
31.5
-
31.5
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.5
0.2
31.7
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.6
1.1
32.8
131
Total
equity
£m
159.8
(0.3)
159.5
19.7
-
108.7
(0.3)
108.4
19.7
-
0.2
-
0.2
-
-
-
-
-
-
-
(12.4)
(12.4)
0.9
(1.0)
(1.4)
-
0.9
(1.0)
(1.4)
0.3
0.2
114.2
165.6
-
-
-
-
-
-
-
110.0
110.0
-
-
(14.1)
(14.1)
0.9
(1.8)
0.9
-
0.9
(1.8)
0.9
1.2
0.2
210.1
262.7
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 132
Company Statement of Cash Flows
Notes
2015
£m
Loss before tax
Add back net financing costs
Operating loss
Adjusted for non-cash items:
Share-based payments
Depreciation
Impairment of non-current assets
4
Operating cash flow before movement in working capital
(Decrease)/increase in receivables
Increase in payables
Change in amounts due to/from Group undertakings
Net movement in working capital
Cash used in operations
Income taxes paid
Interest paid
Net cash used in operating activities
Interest received
Dividends received
Investments in subsidiaries
Net cash from 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
Net cash used in financing activities
Net increase/(decrease) in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
10
2
0.7
-
1.0
(0.2)
0.4
(6.5)
0.1
31.5
(0.5)
1.2
(0.9)
(14.1)
-
46.0
(42.4)
£m
(9.2)
3.0
(6.2)
1.7
(4.5)
(6.3)
(10.8)
(3.3)
(2.3)
(16.4)
31.1
(10.2)
4.5
(7.4)
-
(2.9)
2014
£m
1.0
0.1
-
0.2
0.5
0.4
0.1
18.0
-
0.3
(2.4)
(12.4)
(1.5)
33.8
(30.0)
£m
(8.3)
3.5
(4.8)
1.1
(3.7)
1.1
(2.6)
(1.7)
(2.4)
(6.7)
18.1
(12.2)
(0.8)
(6.6)
-
(7.4)
Financial Statementswww.hsholdings.com | Stock Code HILS Company Principal Accounting Policies
133
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
These Financial Statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”). The
amendments to FRS 101 (2014/15 Cycle) issued in July 2015 and effective immediately have been applied.
In preparing these Financial Statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with
Companies Act 2006 and has set out below where advantage of the FRS 101 disclosure exemptions has been taken.
Under section s408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Profit and Loss Account.
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in compliance with FRS
101. An explanation of how the transition to FRS 101 has affected the reported financial position, financial performance and cash flows of the
Company is provided in note 13.
As the Consolidated Financial Statements include the equivalent disclosures, the Company has taken the exemptions under FRS 101 available in
respect of the following disclosures:
›
›
IFRS 2 Share Based Payments in respect of Group settled share based payments; and
The effects of new but not yet effective IFRSs.
The Company proposes to adopt the reduced disclosure framework of FRS 101 in its next Financial Statements.
The Accounting Policies set out on pages 133 to 135 have, unless otherwise stated, been applied consistently to all periods presented in these
Financial Statements and in preparing an opening FRS 101 Balance Sheet at 1 January 2014 for the purposes of the transition to FRS 101.
Measurement convention
The Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value:
derivative financial instruments, financial instruments classified as fair value through the profit or loss or as available-for-sale, investment
property and liabilities for cash-settled share-based payments. Non-current assets and disposal groups held for sale are stated at the lower of
previous carrying amount and fair value less costs to sell.
Investments in subsidiary undertakings
In the Company’s Financial Statements, investments in subsidiary undertakings are carried at cost, less impairment.
Foreign currencies
Transactions in foreign currencies are translated to the Company’s functional currencies at the foreign exchange rate ruling at the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional
currency at the foreign exchange rate ruling at that date. Non-monetary assets and liabilities that are measured in terms of historical cost in
a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in
foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair
value was determined. Foreign exchange differences arising on translation are recognised in the Profit and Loss Account except for differences
arising on the retranslation of qualifying cash flow hedges, which are recognised in other comprehensive income.
Financial instruments
Trade and other debtors
Trade and other debtors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the
effective interest method, less any impairment losses.
Trade and other creditors
Trade and other creditors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the
effective interest method.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses.
Derivative financial instruments
Derivative financial instruments are recognised at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit
or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item
being hedged.
Financial Statementswww.hsholdings.com | Stock Code HILS 134
Company Principal Accounting Policies
(continued)
Fair value hedges
Where a derivative financial instrument is designated as a hedge of the variability in fair value of a recognised asset or liability or an unrecognised
firm commitment, all changes in the fair value of the derivative are recognised immediately in the Profit and Loss Account. The carrying value
of the hedged item is adjusted by the change in fair value that is attributable to the risk being hedged (even if it is normally carried at cost or
amortised cost) and any gains or losses on remeasurement are recognised immediately in the profit and loss account (even if those gains would
normally be recognised directly in reserves).
Provisions
A provision is recognised in the Balance Sheet when the Company has a present legal or constructive obligation as a result of a past event,
that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of tangible fixed assets have different useful lives, they are accounted for as separate items of tangible fixed assets.
Leases in which the Company assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases.
Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings. Leased
assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum
lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease payments are
accounted for as described below.
Depreciation is charged to the Profit and Loss Account on a straight-line basis over the estimated useful lives of each part of an item of tangible
fixed assets. Land is not depreciated. The estimated useful lives are as follows:
Leasehold improvements
Plant, machinery and vehicles
life of the lease
4 to 20 years
Depreciation methods, useful lives and residual values are reviewed at each Balance Sheet date.
Leases
Operating lease payments
Payments (excluding costs for services and insurance) made under operating leases are recognised in the Profit and Loss Account on a straight-
line basis over the term of the lease. Lease incentives received are recognised in the Profit and Loss Account as an integral part of the total lease
expense.
Finance lease payments
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge 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.
Contingent rents are charged as expenses in the periods in which they are incurred.
Pension scheme arrangements
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of
defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in
return for their service in the current and prior periods; that benefit is discounted to determine its present value, and the fair value of any plan
assets (at bid price) are deducted. The Company determines the net interest on the net defined benefit liability/(asset) for the period by applying
the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the net defined benefit liability/(asset).
The discount rate is the yield at the reporting date on bonds that have a credit rating of at least AA that have maturity dates approximating the
terms of the Company’s obligations and that are denominated in the currency in which the benefits are expected to be paid.
Remeasurements arising from defined benefit plans comprise actuarial gains and losses, the return on plan assets (excluding interest) and the
effect of the asset ceiling (if any, excluding interest). The Company recognises them immediately in other comprehensive income and all other
expenses related to defined benefit plans in employee benefit expenses in profit or loss.
The Company’s employees are members of Group-wide defined benefit schemes. The net defined benefit cost of the plans is allocated to
participating entities based on the contracting entity of the participating employees of the scheme. The contributions payable by the participating
entities are determined on the same basis.
Financial Statementswww.hsholdings.com | Stock Code HILS 135
Share-based payments
Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are
accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair value of the awards granted
is measured using an option valuation model, taking into account the terms and conditions upon which the awards were granted. 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 true-up for differences between expected and
actual outcomes.
Share-based payment transactions in which the Company receives goods or services by incurring a liability to transfer cash or other assets that is
based on the price of the Company’s equity instruments are accounted for as cash-settled share-based payments. The fair value of the amount
payable to employees is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become
unconditionally entitled to payment. The liability is remeasured at each Balance Sheet date and at settlement date. Any changes in the fair value
of the liability are recognised as personnel expense in profit or loss.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except to the extent
that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted
at the Balance Sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on 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: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised.
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 contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of subsidiary companies, the Company considers
these to be insurance contracts and 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 136
Notes to the Company Financial Statements
1. Profit on ordinary activities before taxation
The profit on ordinary activities is stated after charging:
Operating lease rentals – land and buildings
2015
£m
0.1
2014
£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 £5.0m (2014: £4.6m) and the final dividend of £9.1m (2014: £7.8m). 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 2014
Additions
At 31 December 2015
Depreciation
At 31 December 2014
Charge for the year
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
4. Fixed asset investments
Cost
At 31 December 2014
Additions
Exchange adjustments
At 31 December 2015
Provisions
At 31 December 2014
Impairment
At 31 December 2015
Net book value
At 31 December 2015
At 31 December 2014
2015
Pence
per share
7.1
13.6
20.7
2014
Pence
per share
6.4
11.6
18.0
£m
5.5
10.6
16.1
Short leasehold
properties
£m
Plant, machinery
and vehicles
£m
0.1
-
0.1
-
-
-
0.1
0.1
0.4
-
0.4
0.4
-
0.4
-
-
Shares in
subsidiary
undertakings
£m
Loans to
subsidiary
undertakings
£m
Trade
investments
£m
301.1
51.4
(0.6)
351.9
11.1
1.0
12.1
339.8
290.0
23.8
-
-
23.8
1.3
-
1.3
22.5
22.5
0.8
-
-
0.8
0.8
-
0.8
-
-
£m
5.0
9.0
14.0
Total
£m
0.5
-
0.5
0.4
-
0.4
0.1
0.1
Total
£m
325.7
51.4
(0.6)
376.5
13.2
1.0
14.2
362.3
312.5
Financial Statementswww.hsholdings.com | Stock Code HILS 137
4. Fixed asset investments continued
A list of the businesses owned by the Company is given in note 14. 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
Accruals and deferred income
Other creditors
Amounts owed to subsidiary undertakings
2015
£m
49.1
2.7
0.4
0.3
0.2
52.7
2015
£m
2.9
2.9
2.0
0.1
2.5
1.0
89.5
95.1
2014
£m
34.1
0.7
0.4
0.2
0.2
35.6
2014
£m
7.4
7.4
1.3
0.1
3.1
0.8
105.4
110.7
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
2015
£m
54.2
54.2
2015
£m
2.9
-
54.2
54.2
57.1
2014
£m
64.1
64.1
2014
£m
7.4
-
64.1
64.1
71.5
Financial Statementswww.hsholdings.com | Stock Code HILS 138
Notes to the Company Financial Statements
(continued)
8. Deferred tax
At 1 January
Credited for the year in the Profit and Loss Account
At 31 December
Other timing differences
2015
£m
(0.4)
-
(0.4)
(0.4)
2014
£m
(0.2)
(0.2)
(0.4)
(0.4)
9. Pension liabilities
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. 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 £2.8m (2014: £2.6m), of which
additional deficit contributions were £2.5m (2014: £2.5m).
10. Called up share capital
Allotted, called up and fully paid
78.2m Ordinary Shares of 25p each (2014: 77.9m)
2015
£m
19.6
2014
£m
19.5
In 2015 the Company issued 0.3m shares under its various share option schemes (2014: 0.2m), realising £1.2m (2014: £0.3m). Details of share
options and related share-based payments are contained in note 21 to the Group Financial Statements.
11. Guarantees and other financial commitments
(a) Guarantees
The Company had no financial guarantee contracts outstanding (2014: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2015 was
£62.2m (2014: £47.6m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
Between two and five years
2015
2014
Land and
buildings
£m
0.1
0.1
Other
£m
-
-
Land and
buildings
£m
0.1
0.1
Other
£m
-
-
Financial Statementswww.hsholdings.com | Stock Code HILS 139
12. Related party transactions
The Company has related party relationships with its key management personnel and with its subsidiaries (either directly or indirectly controlled).
The related party transactions with key management personnel are considered by the Company to be the same as those of the Group and are set
out in note 25 to the Group Financial Statements.
The transactions with subsidiaries are summarised below.
Transactions with other Group companies
Amounts due from subsidiaries
Amounts due to subsidiaries
Highest during
the year
£m
Balance at
31 December 2015
£m
Highest during
the year
£m
Balance at
31 December 2014
£m
49.1
(109.5)
49.1
(89.5)
34.1
(114.1)
34.1
(105.4)
Transactions with other Group companies typically comprise management and interest charges, dividend receipts and other recharges of
administrative expenses.
The disclosure of the year end balance and the highest balance during the year is considered to provide a meaningful representation of
transactions between the Company and fellow Group undertakings during the year. The highest balance due is generally at the end of each
financial year as this is the time at which the Company levies its management and interest charges.
Related party transactions reported in the Income Statement
Dividends received
Recharge of operating expenses
Net interest expense
2015
£m
116.3
5.2
(0.7)
2014
£m
26.0
5.1
(1.2)
Financial Statementswww.hsholdings.com | Stock Code HILS 140
Notes to the Company Financial Statements
(continued)
13. Explanation of transition to FRS 101 from old UK GAAP
As stated in the Accounting Policies, these are the Company’s first Financial Statements prepared in accordance with FRS 101. The Accounting
Policies set out in pages 133 to 135 have been applied in preparing the Financial Statements for the year ended 31 December 2015, the
comparative information presented in these Financial Statements for the year ended 31 December 2014 and in the preparation of an opening
FRS 101 Balance Sheet at 1 January 2014 (the Company’s date of transition). In preparing its FRS 101 Balance Sheet, the Company has adjusted
amounts reported previously in Financial Statements prepared in accordance with its old basis of accounting (UK GAAP). An explanation of how
the transition from UK GAAP to FRS 101 has affected the Company’s financial position is set out in the following table.
Reconciliation of equity
Fixed assets
Tangible assets
Investments
Current assets
Amounts owed by Group undertakings
Corporation tax
Other debtors
Prepayments and accrued income
Deferred tax asset
Creditors: amounts due within one year
Bank loans and overdrafts
Trade creditors
Amounts owed to Group undertakings
Taxation and social security
Other creditors
Accruals and deferred income
Net current liabilities
Creditors: amounts falling due after more than one year
Bank loans and overdrafts
Provisions for liabilities
Pension liability
Net assets
Capital and reserves
Called up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Shareholders’ equity
1 January 2014
Effect of
transition to
FRS 101
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.3)
(0.3)
(0.3)
-
-
-
(0.3)
(0.3)
UK GAAP
£m
0.2
313.1
313.3
26.3
-
0.4
0.2
0.2
27.1
(6.6)
(1.9)
(106.1)
(0.8)
(0.3)
(2.2)
(117.9)
(90.8)
(62.7)
(62.7)
-
-
159.8
19.4
31.5
0.2
108.7
159.8
31 December 2014
Effect of
transition to
FRS 101
£m
-
-
-
-
-
-
-
0.1
0.1
-
-
-
-
-
-
-
FRS 101
£m
UK GAAP
£m
0.2
313.1
313.3
0.1
312.5
312.6
26.3
34.1
-
0.4
0.2
0.2
0.7
0.2
0.2
0.3
27.1
35.5
(6.6)
(1.9)
(7.4)
(1.3)
(106.1)
(105.4)
(0.8)
(0.3)
(2.2)
(0.1)
(0.8)
(3.1)
(117.9)
(118.1)
(90.8)
(82.6)
0.1
(62.7)
(62.7)
(0.3)
(0.3)
(64.1)
(64.1)
-
-
159.5
165.9
19.4
31.5
0.2
108.4
159.5
19.5
31.7
0.2
114.5
165.9
-
-
(0.4)
(0.4)
(0.3)
-
-
-
(0.3)
(0.3)
FRS 101
£m
0.1
312.5
312.6
34.1
0.7
0.2
0.2
0.4
35.6
(7.4)
(1.3)
(105.4)
(0.1)
(0.8)
(3.1)
(118.1)
(82.5)
(64.1)
(64.1)
(0.4)
(0.4)
165.6
19.5
31.7
0.2
114.2
165.6
The adjustments shown above relate to the change of accounting treatment for the Group defined benefit scheme. Under old UK GAAP, there
was a multi-employer exemption for Group defined benefit schemes under FRS 17. There is no such exemption under FRS 101 and this has
resulted in a change in disclosure to recognise an appropriate proportion of the Group scheme.
Financial Statementswww.hsholdings.com | Stock Code HILS 141
14. Subsidiaries
Incorporated in the UK
AMF Galvanisers Limited (D)
Access Design & Engineering Limited (D)
ALSIPI Limited (D)
Ash & Lacy Limited (H)*
Ash & Lacy Manufacturing Limited (H)
Ash & Lacy Overseas (Holdings) Limited (D)
Ash & Lacy Services Limited (H)
Ash Plastic Products Limited (D)
Asset International Limited (U)*
Bainbridge Engineering Limited (D)*
Barkers Engineering Limited (U, G)
Barkers Fencing Systems Limited (D)*
Bergen Pipe Supports Group Limited (U)*
Bergen Pipe Supports Limited (U)
Berry Safety Systems Limited (D)*
Berry Systems Limited (D)
Bettles & Company Limited (D)
Bipel Group plc (D)
Bipel Ltd (D)
Birtley Group Limited (U, G)
Bowater Doors Limited (U)
British Industrial Engineering Co. (Staffs) Limited (D)
Bromford Reinforcements Limited (D)
Bromford Steel Limited (D)
Brownhills Galvanizing Limited (D)
Bytec Limited (D)
C I C Ralphs Limited (D)
C I Pension Trustees Limited (D)
C. I. Properties Limited (D)
C.I.C. Engineering (Finance) Limited (D)
CA Traffic Limited (R)*
Carrington Packaging Limited (D)
Cooper Industries Limited (D)
Cooper Securities (Dudley) Limited (D)
Cooper Securities Limited (D)
Counters & Accessories Limited (D)
Eurogrid Limited (D)
Exmet Building Products Limited (D)
Expamet Building Products Limited (D)
Expamet Limited (D)
Expandel Limited (D)
Foremost Moulding Limited (D)
Gem (Ashfix) Limited (D)
Hawkshead Properties Limited (H)
Hill & Smith (Americas) Limited (H)
Hill & Smith (France) Limited (H)*
Hill & Smith (Treasury) Limited (H)*
Hill & Smith (USA) Limited (H)
Hill & Smith Galvanized Products Limited (H)
Hill & Smith Holdings PLC (H)
Hill & Smith Infrastructure Products Group Limited (D)
Hill & Smith Limited (R, U)*
Hill & Smith Overseas Limited (H)*
Hill & Smith Pension Trustees Limited (D)
IMAS Technology Limited (D)
J & F Pool Limited (D)
Jevons Tools Limited (D)
Joliso Limited (D)
Jones of Oswestry Limited (D)
Joseph Ash Chesterfield Limited (D)
Joseph Ash Limited (G)
Kinclear Limited (D)
Lamben Galvanizers 85 Limited (D)
Leech, Brain and Co Limited (D)
Lenchs (Birmingham) Limited (D)
Lionweld Kennedy Flooring Limited (U)*
London Galvanizers Limited (D)
Mallatite (Scotland) Limited (D)
Mallatite Limited (R)*
Mallatite Powder Coatings Limited (D)
MB Tech Limited (D)
Meads Cooper Limited (D)
Medway Galvanising Company Limited (G)
Northern Galvanizing Limited (D)*
Optimum Barrier Systems Limited (D)
Pipe Supports Overseas Limited (H)*
Premier Galvanizing Limited (G)
Premier Safety Products Limited (D)*
RBM Reinforcements Limited (D)*
Redman Architectural Metalwork Limited (D)
Redman Fisher Engineering Limited (U)
Royston Steel Fencing Limited (D)
Seniors Reinforcement (Northern) Limited (D)*
Seniors Reinforcement Limited (D)*
Smeaton Lime Works Limited (D)
South Wales Galvanisers Limited (D)*
Staffs Premier Galvanizers Limited (D)*
Staffs Premier Powdercoaters Limited (D)*
Techspan Systems Limited (D)*
Telford Galvanizers Limited (D)
The Albion Galvanizing Company Limited (D)
The Birmingham Galvanizing Company Limited (D)
The Globe Tank and Foundry (Wolverhampton)
Limited (D)
Theta Systems Limited (D)
Variable Message Signs Limited (D)
Varley & Gulliver Limited (R)*
Visionmaster International Limited (D)
Vista Galvanizing (UK) Ltd (D)
Walkers Galvanizers Limited (D)
West Midlands Galvanizers Limited (D)*
Western Galvanizers Limited (D)
Wombwell Foundry Limited (D)
Zonestar Limited (D)
Incorporated in Australia
Hill & Smith Pty Limited (R)
Incorporated in Belgium
Vista BVBA (H)
Incorporated in Canada
Process Pipe Supports, Inc (U)
Incorporated in China
Bergen Pipe Supports (Jiangsu) Limited (U)
PSG Trading (Jingjiang) Limited (U)
Incorporated in France
Conimast International SAS (R)
Europeenne de Galvanisation SAS (G)
France Galva SA (G)
France Galva Lorraine SAS (G)
Galvacier SAS (G)
Galva Gaillard SAS (G)
Galvalandes SAS (G)
Galvanisation de l’Artois (G)
Galvanisation du Cambresis (G)
Galvamed SAS (G)
Societe Nantaise de Galvanisation SAS (G)
Incorporated in Germany
Zinkinvent GmbH (H)*
Incorporated in India
Bergen Pipe Supports (India) Private Limited (U)
Hill & Smith Infrastructure Products India Private
Limited (R)
Incorporated in Ireland
Redman Fisher Limited (U)
Incorporated in Norway
ATA Hill & Smith AS (R)
Incorporated in Singapore
Bergen Pipe Supports Singapore Pte. Limited (D)
Incorporated in Sweden
ATA Bygg-och Markprodukter AB (R)
Hill & Smith Sweden AB (H)
Incorporated in Thailand
Bergen Pipe Supports Asia Limited (U)
Incorporated in the USA
Bergen Pipe Supports, Inc (U)
Carpenter & Paterson, Inc. (U)
Creative Pultrusions, Inc (U)
Hill & Smith Group Holdings, Inc (H)
Hill & Smith Holdings LLC (H)
Hill & Smith, Inc. (R)
Novia Associates, Inc. (U)
V&S Amboy Galvanizing LLC (G)
V&S Columbus Galvanizing LLC (G)
V&S Delaware Galvanizing LLC (G)
V&S Detroit Galvanizing LLC (G)
V&S Lebanon Galvanizing LLC (G)
V&S Memphis Galvanizing LLC (G)
V&S Schuler Engineering, Inc. (U)
V&S Schuler Tubular Products LLC (U)
V&S Taunton Galvanizing, LLC (G)
Voigt & Schweitzer LLC (H)
All of the above subsidiaries have a year end date of 31 December, with the exception of Bergen Pipe Supports (India) Private Limited and Hill &
Smith Infrastructure Products India Private Limited, which each have a year end of 31 March. All of the subsidiaries listed above are included in
the consolidated results of the Group. The Company holds 100% of the share capital of all businesses, either directly or indirectly.
(U) Utilities
(R) Roads
(G) Galvanizing
(D) Dormant
(H) Holding company
* Directly held by Hill & Smith Holdings PLC
Financial Statementswww.hsholdings.com | Stock Code HILS
142
Five Year Summary
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
2015
£m
467.5
56.0
53.0
198.2
Pence
51.7
20.7
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
Financial Statementswww.hsholdings.com | Stock Code HILS 143
Shareholder
Information
Shareholder Information
144 Financial Calendar
145 Shareholder Information
146 Principal Group Businesses
149 Directors, Contacts and Advisors
Image
Above - The completed Bordeaux Stadium in France, with galvanizing on the metal framework by France Galva.
See further information at hsholdings.com
144
Financial Calendar
Annual General Meeting 2016
Trading Update
Ex-dividend date for 2015 final dividend
Record date 2015 final dividend
Dividend Reinvestment Plan – last date for election
Final 2015 ordinary dividend payable
Announcement of 2016 interim results
Trading Update
Payment of 2016 interim dividend
17 May 2016
17 May 2016
26 May 2016
27 May 2016
10 June 2016
1 July 2016
4 August 2016
November 2016
January 2017
Shareholder Informationwww.hsholdings.com | Stock Code HILS Shareholder Information
Shareholder base
Holdings of ordinary shares at 8 March 2016
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 Tuesday 17 May 2016 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.investorcentre.co.uk/eproxy. 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.
145
%
0.17
0.45
3.10
9.61
3.35
18.87
16.24
48.21
100
%
7.03
92.89
0.08
100
2011
5.4
7.8
13.2
Number of holders
646
454
978
544
34
66
17
19
2,758
Number of holders
1,568
1,184
6
2,758
%
23.42
16.46
35.46
19.72
1.23
2.39
0.63
0.69
100
%
56.85
42.93
0.22
100
Number of Shares
132,713
352,490
2,440,383
7,547,629
2,626,883
14,808,993
12,746,391
37,846,981
78,502,463
Number of Shares
5,517,719
72,921,256
63,488
78,502,463
2015
7.1
13.6
20.7
2014
6.4
11.6
18.0
2013
6.0
10.0
16.0
2012
5.8
9.2
15.0
›
›
›
Access current and historical market prices.
Access trading graphs.
Add additional shareholdings to your portfolio.
Share dealing
Share dealing services are available through Computershare Investor
Services PLC. Log on to www.computershare.com/sharedealingcentre
for internet share dealing and for telephone dealing ring
0370 703 0084.
Dividend Reinvestment Plan ‘DRIP’ (Latest date for election is
10 June 2016)
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 0370 707 1058.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 146
Principal Group Businesses
Infrastructure Products - Roads
United Kingdom
Hill & Smith Ltd
Highway and off-highway safety barriers
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
Asset International Structures (D)
Manufacturer of structural solutions
including corrugated steel Multiplate,
Stren-Cor, Precast arches & VSoL
retained earth systems for Highway & Rail
construction sectors
www.assetint.co.uk
Asset VRS (D)
Permanent and temporary solutions
for vehicle restraints
www.asset-vrs.co.uk
Berry Systems (D)
Car park and industrial barriers, spring steel
barriers, protection bollards, speed ramps,
handrail panels
www.berrysystems.co.uk
Brifen (D)
Wire rope safety fence vehicle
restraints
www.hill-smith.co.uk
Tegrel Ltd (D)
Design and manufacture of bespoke metal
fabrications and enclosures
www.tegrel.co.uk
Variable Message Signs (D)
Design, manufacture and installation of LED
based light technology solutions
www.vmstech.co.uk
Rest of the World
CA Traffic Ltd
Traffic monitoring, vehicle activated signs
and automatic number plate recognition
equipment
ATA Bygg-och Markprodukter AB*
Road safety barriers, road signage and
traffic safety solutions
Incorporated in Sweden
Griffin Lane, Aylesbury,
Buckinghamshire, HP19 8BP
Tel: +44 (0) 1296 333499
Fax: +44 (0) 1296 333498
enquiries@c-a.co.uk
www.ca-traffic.com
Mallatite Ltd
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
Varley & Gulliver Ltd
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
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*
Incorporated in Norway
www.ata.no
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, Inc.*
Temporary road barrier solutions for
workzone protection
Incorporated in the USA
987 Buckeye Park Road, Columbus,
Ohio, 43207, USA
Tel: +1 (614) 340 6294
Fax: +1 (614) 340 6296
info@hillandsmith.com
www.hillandsmith.com
Hill & Smith Infrastructure Products
India Pvt Ltd*
Wire rope safety barrier 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 Ltd*
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
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.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 147
Infrastructure Products - Utilities
United Kingdom
United States of America
Pipe Supports
Bergen Pipe Supports Ltd*
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
Bergen Pipe Supports Asia Ltd*
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
Bergen Pipe Supports India Private Ltd*
Incorporated in India
Plot No.12, Ground Floor,
“RADHA”, Mangala Nagar Main Road,
Porur, Chennai, 600116
Tel: +91 8576 305 666
bpsi@pipesupports.com
www.pipesupports.com
Asset International Ltd
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
Barkers Engineering Ltd*
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
Birtley Group Ltd*
Galvanized lintels, construction fittings,
composite doors, Expamet builders
metalwork & plasterers accessories
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
Lionweld Kennedy Flooring Ltd
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
Creative Pultrusions, Inc.*
Manufacture of fibre reinforced composite
profiles
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
E.T. Techtonics, Inc. (D)
Design and construction of composite
bridges
www.ettechtonics.com
V&S Utilities**
Fabrication of electrical transmission and
substation structures and supplier of
substation packaging services
987 Buckeye Park Road, Columbus,
Ohio, 43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@vsschuler.com
www.vsschuler.com
Bergen Pipe Supports, Inc.*
Manufacture and supply of pipe supports
solutions, including constant and variable
effort supports
484 Galiffa Drive, Donora,
Pennsylvania, 15033, USA
Tel: +1 (724) 379 5212
Fax: +1 (724) 379 9363
bpwoburn@bergenpower.com
www.bergenps.com
Carpenter & Paterson, Inc.*
Industrial pipe hangers, metal framing
channel and fasteners
225 Merrimac Street, Woburn,
Massachusetts, 01801, USA
Tel: +1 (781) 935 2950
Fax: +1 (781) 935 7664
www.carpenterandpaterson.com
Novia Associates, Inc. (D)
Vibration and seismic control manufacturer
www.noviaassociates.com
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
** Trading name for V&S 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.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 148
Principal Group Businesses (continued)
Galvanizing Services
United Kingdom
United States of America
France
Joseph Ash Ltd*
Galvanizing and powder coating services
Voigt & Schweitzer LLC*
Galvanizing Services
France Galva SA*
Galvanizing and powder coaters of steel
987 Buckeye Park Road, Columbus
Ohio, 43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@hotdipgalvanizing.com
www.hotdipgalvanizing.com
Z.I. La Sauniere BP70, 89600
Saint Florentin, France
Tel: +33 (0) 3 86 43 82 30
Fax: +33 (0) 3 86 43 82 29
contact@francegalva.fr
www.francegalva.fr
Alcora Building 2, Mucklow Hill
Halesowen, West Midlands, B62 8DG
Tel: +44 (0) 121 504 2560
Fax: +44 (0) 121 504 2599
sales@josephash.co.uk
www.josephash.co.uk
Medway Galvanising Company Ltd*
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
Premier Galvanizing Ltd*
Galvanizing and power coating services
Unit 25, Stoneferry Business Park
Foster Street, East Riding of Yorkshire,
HU8 8BT
Tel: 01482 587587
Fax: 01482 588599
Darwin Road, Willowbrook Industrial Estate,
Corby, Northants, NN7 5XZ
Tel: 01536 409818
Fax: 01536 409722
www.premiergalvanizing.co.uk
Barkers Engineering Ltd*
Galvanizing and power coating services
Duke Street, Fenton, Stoke-on-Trent,
Staffordshire, ST4 3NS
Tel: +44 (0) 1782 343811
Fax: +44 (0) 1782 344974
sales@barkersgalvanizing.com
www.barkersgalvanizing.com
Birtley Group Ltd*
Galvanizing services
Mary Avenue, Birtley, County Durham,
DH3 1JF
Tel: +44 (0) 191 410 4421
Fax: +44 (0) 191 492 1817
info@birtleygalvanizing.co.uk
www.birtleygalvanizing.co.uk
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
(D) Operating division only, not a limited company.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 149
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 LLB, 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 LLP
1 Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Brokers and Financial Advisers
Investec Investment Banking
2 Gresham Street
London
EC2V 7QP
Principal Bankers
Barclays Bank Plc
Midlands Corporate Banking Centre
PO Box 3333
1 Snowhill
Snow Hill Queensway
Birmingham
B3 2WN
Lawyers
Gowling WLG
Two Snowhill
Birmingham
B4 6WR
Silks Solicitors
Barclays Bank Chambers
Birmingham Street
Oldbury
B69 4EZ
Financial Public Relations
MHP Communications
6 Agar Street
London
WC2N 4HN
Shareholder Informationwww.hsholdings.com | Stock Code HILS 150
Shareholder Notes
Shareholder Informationwww.hsholdings.com | Stock Code HILS 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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