Annual Report for the year
ended 31 December 2016
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 2016
1
Contents
Strategic Report
Group at a Glance
2
Group Highlights
3
Chairman’s Statement
4
8
Business Model and Strategy
15 Operational and Financial Review
28 Measuring Our Performance
30
32
36
Risk Management and Assurance
Principal Risks and Uncertainties
Corporate Responsibility
Governance Report
Chairman’s Introduction to Governance
47
48 Board of Directors
50 Governance Report
59 Nomination Committee Report
60 Audit Committee Report
66 Remuneration Committee Report
68 Directors’ Remuneration Report
Remuneration Policy Report
77
85 Directors’ Report (other statutory information)
88 Statement of Directors’ Responsibilities
Financial Statements
Independent Auditor’s Report
90
92 Group Financial Statements
137 Company Financial Statements
150 Five Year Summary
Shareholder Information
152 Financial Calendar
153 Shareholder Information
154 Principal Group Businesses
157 Directors, Contacts and Advisors
Front Cover Images
Top - GRP handrailing and galvanized steel flooring at the
Doncaster rail depot.
Middle - Zoneguard, our temporary safety barrier being galvanized
at our Bilston facility.
Bottom - First installation in the world of the newly patented O
Post Brifen wire rope safety fence on Interstate 5 in Oregon, USA.
Left - Brifen wire rope fence installation on Highway 36, near the
Thingvellir National Park, Iceland.
Below - Carpenter & Paterson’s trucks at their new facility, the
‘eastern region service centre’ in Bordentown, New Jersey.
2
Strategic Report
Group at a Glance
Supplying to and located in global markets, the Group serves customers from facilities in Australia, France, India, Scandinavia, 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 and FMK
(acquired April 2016).
India – manufacturing
facilities for pipe
supports.
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.
Australia – office in
Queensland for the
development of our wire rope
and safety barrier products.
Percentage of 2016 revenue £540.1m
shown by end market geography
Percentage of 2016 underlying operating profit £70.6m
shown by location of the operating site
UK - 49%
Europe - 16%
N America - 29%
Asia and M East - 4%
ROW - 2%
UK - 44%
N America - 46%
Europe and ROW - 10%
www.hsholdings.com | Stock Code HILS
Strategic Report
3
Group Highlights
•
•
Record revenue and underlying earnings performance.
Improved returns driven by strong end markets and active portfolio management.
• Underlying profit before taxation up 28% to £68.0m.
•
•
•
Five acquisitions completed during the year.
Strong cash generation performance with net debt at £112.0m.
Proposed 32% increase in final dividend of 17.9p giving a full year dividend of 26.4p, up 28%.
31 December
2016
31 December
2015
Change %
£540.1m
£467.5m
Revenue
Underlying*:
Operating profit
Operating margin
Profit before taxation
Earnings per share
Statutory:
Operating profit
Profit before taxation
Basic earnings per share
Dividend per share
Net debt
+16
+26
£56.0m
12.0%
+110bps
£53.0m
51.7p
£37.3m
£33.2m
30.9p
20.7p
£91.5m
+28
+27
+39
+45
+39
+28
£70.6m
13.1%
£68.0m
65.9p
£51.8m
£48.3m
43.0p
26.4p
£112.0m
* All underlying measures exclude certain non-underlying items, which are as defined in note 3 on page 105 to the Financial Statements and described in the Operating and Financial Review.
References to an underlying profit measure throughout this report are made on this basis and, in the opinion of the Directors, aid the understanding of the underlying business performance as
they exclude items that are either unlikely to recur in future periods or represent non-cash items that distort the underlying performance of the business. Underlying measures are presented on
a consistent basis over time to assist in comparison of performance.
Where we make reference to constant currency amounts, these are prepared using exchange rates which prevailed in the current year rather than the actual exchange rates that applied in the
prior year. Where we make reference to organic measures we exclude the impact of currency translation movements, acquisitions, disposals and closures of subsidiary businesses.
Revenue
Underlying operating
profit
Underlying earnings
per share
Dividend per share
£540.1m up 16%
£70.6m up 26%
65.9p up 27%
26.4p up 28%
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www.hsholdings.com | Stock Code HILS
4Strategic Reportwww.hsholdings.com | Stock Code HILSBill WhiteleyChairmanOverviewI am delighted to report a further year of record performance in 2016. In an uncertain political and macro-economic environment, our focused strategy of developing businesses with market leading positions in international growth markets has again delivered good organic revenue and profit progression and improved returns on the capital entrusted to us.In 2016, organic revenue growth of 5% aided an increase in our revenue of 16% to £540.1m (2015: £467.5m). Underlying operating profit increased by 26% to £70.6m (2015: £56.0m), or 17% at constant currency. Underlying operating margin improved by 110 basis points to 13.1% (2015: 12.0%). Reported operating profit increased by 39% to £51.8m, resulting in a reported operating margin of 9.6% (2015: 8.0%).Continuation of our strategy of active portfolio management resulted in us completing five acquisitions during 2016 for an aggregate cash consideration of £36.9m (with a further £0.4m deferred): ›In January, we acquired E.T. Techtonics, Inc., a US-based designer of composite bridge products that complements our existing US composites business, Creative Pultrusions. ›In April, we acquired FMK Trafikprodukter AB (‘FMK’), a Swedish producer of safety barriers, noise reduction screens and bridge parapets for the Scandinavian roads markets. FMK has been integrated with our existing ATA business, providing an expanded suite of traffic management products. ›In May, we acquired Safety and Security Barrier Holdings Limited, the parent company of Hardstaff Barriers Limited (‘Hardstaff Barriers’). Hardstaff Barriers, based in Nottingham, UK, specialises in temporary and permanent concrete safety barriers for site and vehicle protection. ›In July, we acquired Technocover Limited (‘Technocover’). Technocover specialises in the development, manufacture, installation and maintenance of high security access products for the utilities markets. ›In August, we acquired Signature Limited (‘Signature’). Signature develops, manufactures, installs and maintains street lighting columns, road sign and traffic management systems and has been integrated into our existing Mallatite business.We welcome the employees of the acquired companies to the Group and are excited about the opportunities the expanded businesses can deliver.In March 2016, following a strategic review of our non-US Pipe Supports business, we announced a plan to close and exit our manufacturing sites in the UK and Thailand, and also our sales office in China. To the extent possible, work would be transferred to our Indian manufacturing facility. I am pleased to report the successful completion of the restructuring project, ahead of plan both in terms of timing and expected cost. Performance highlightsThe Board is pleased with the Company’s financial performance for 2016, the highlights of which are shown below: Change %20162015ReportedConstant currencyRevenue£540.1m£467.5m+ 16+ 9Underlying(1):Operating profit£70.6m£56.0m+ 26+ 17Profit before tax£68.0m£53.0m+ 28+ 18 Earnings per share65.9p51.7p+ 27+ 18Reported:Operating profit£51.8m£37.3m+ 39Profit before tax£48.3m£33.2m+ 45Basic earnings per share43.0p30.9p+ 39(1) Underlying measures exclude certain non-underlying items, which are as defined in the ‘Group Accounting Policies’ on page 97 to 102 and detailed in note 3 on page 105 to the Financial Statements.Chairman’s StatementI am delighted to report a further year of record performance in 2016.““ Strategic Report
5
Dividends
In view of the strong performance the Board is recommending an
increase of 32% in the final dividend to 17.9p per share
(2015: 13.6p per share) making a total dividend for the year of 26.4p
per share (2015: 20.7p per share), an increase of 28% on the prior
year. Underlying dividend cover remains a healthy 2.5 times
(2015: 2.5 times). Reported dividend cover is 1.6 times (2015: 1.5
times).
We continue to perform at a level that enables us to maintain a
progressive dividend policy which has resulted in fourteen years of
uninterrupted dividend growth. The final dividend, if approved, will be
paid on 3 July 2017 to those shareholders on the register at the close
of business on 26 May 2017.
Set out below is our five year dividend per share track record, growth
of which is at the heart of our strategic objectives.
26.4p
(proposed)
2016
2015
2014
2013
20.7p
18.0p
16.0p
2012
15.0p
Total shareholder return
In addition to our progressive dividend policy we also strive to deliver
increased shareholder value as demonstrated from the graph below.
This graph shows the total shareholder return performance of the
Group against that for the FTSE SmallCap, FTSE 250 and FTSE All-
Share for the period 1 January 2010 to 31 December 2016. 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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Jan 10
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Hill & Smith
FTSE 250
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. As previously announced, in May 2016, Clive Snowdon
retired as a Non-executive Director. On 1 June 2016, Mark Reckitt
joined the Board as a Non-executive Director and in November,
was appointed Chairman of the Audit Committee. With extensive
strategic and financial experience, he is an invaluable addition to
the Board. Effective 1 July 2016, Mark Pegler was asked by the Board
to assume full operational and management responsibility for the
businesses within our UK Utilities division. The new role is in addition
to his current role of Group Finance Director.
After more than 7 years serving as your Chairman, earlier this year I
notified the Board of my intention to retire at the conclusion of the
Annual General Meeting in May 2017. During my time as Chairman,
we have focused upon widening our product and service offering to
our chosen infrastructure markets as well as improving the quality of
our portfolio of businesses. Our drive to improve shareholder value
and overall returns has resulted in record revenue and earnings,
with Hill & Smith entering the FTSE 250 in 2016 for the first time in
its history. I have enjoyed immensely working with the Hill & Smith
team, who are totally dedicated to enhancing shareholder returns. I
am confident that the business is in excellent health and has strong
prospects ahead of it.
The process to appoint my successor was led by Annette Kelleher
with the support of Korn Ferry, a firm of international search
consultants. Following the conclusion of that search, I am pleased to
announce the appointment of Jock Lennox as your next Chairman.
Jock has been a Non-executive Director of the Group since 2009 and
has made an invaluable contribution in that time. For 7 years Jock
served as Chairman of the Audit Committee and he is currently the
Senior Independent Director. Jock will assume the role of Chairman
at the conclusion of the forthcoming AGM and I wish him and
Hill & Smith every success for the future. A search has begun to
appoint an additional Non-executive Director to the Board.
Brexit
It is too early to assess with any certainty the impact of the decision
by the United Kingdom to leave the European Union. In the short
time since the referendum result we have not experienced any
material positive or negative impact. We are confident that our
strategy of international diversification along with market leading
positions in key infrastructure investment markets will help limit any
potential negative impact on the Group. However, we remain vigilant
and will react with our customary speed as necessary.
www.hsholdings.com | Stock Code HILS
6
Strategic Report
Chairman’s Statement (continued)
AGM
We will hold our AGM on 11 May 2017 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 opportunities and challenges 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.
In Utilities, our UK and US activities are well placed to continue to benefit from the significant investment going into the replacement of ageing
infrastructure and new infrastructure projects in those countries. Overall, with wider market conditions remaining favourable, we expect our
Galvanizing businesses to consolidate their strong market positions and to take advantage of the opportunities as they present themselves.
In the UK, the implementation of the Department of Transport’s Road Investment Strategy is entering the third 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.
In the US, the new administration has indicated that spending on US infrastructure, including building and repairing roads and bridges, is a
priority and our businesses are well positioned to benefit should this increased investment materialise.
Overall, despite political and macro-economic uncertainties, 2017 is again expected to be a year of progress.
Bill Whiteley
Chairman
8 March 2017
Image
Hill & Smith Ltd’s Zoneguard and Hardstaff Barrier’s
Multibloc at junction 19 northbound on the M6.
www.hsholdings.com | Stock Code HILS
7
8
Strategic Report
Our Business Model
1. Services and Products
Our two divisions of infrastructure
products and galvanizing services provide
services and products to the world’s
utilities and power generation industries
and to international businesses within the
infrastructure of roads and rail, together
with corrosion protection services in
the form of zinc and other coatings,
to both external customers and Group
companies.
2. Margins
All our subsidiaries are tasked with
achieving an acceptable operating margin
on sales. Businesses that fail to achieve
this margin are given a period of grace to
develop a plan for margin improvement
to the targeted level.
2.
Margins
1.
Services and
Products
We seek to deliver superior
shareholder returns by holding
leading positions in the niche
markets of infrastructure
products and galvanizing
services, diversified over
different geographies and
focusing on the following:
4.
Delivering sustainable
profitable growth and
shareholder return
3. Product Development
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 developed
and designed to strict specifications and
tested according to applicable world
standards.
3.
Product
Development
www.hsholdings.com | Stock Code HILS
4. Delivering sustainable profitable
growth and shareholder return
See page 12 and 13 for more details.
Strategic Report
9
Our Strategy
Five strategic priorities drive our business model.
1. People
Our businesses employ people local to their communities, 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. See our
strategy in action on page 36.
2. Portfolio Management
We continually seek organic growth from our existing operations and
monitor our lower performing Group businesses to ensure overall
growth targets are maintained. See our strategy in action on
page 10.
5.
Revenue growth and
targeted returns
2.
Portfolio
Management
1.
People
4.
Entrepreneurial
Management
3.
Geographical
diversification
3. Geographical diversification
Whilst continually driving our existing
businesses we seek to supplement this organic
growth by acquiring sustainable businesses
around the world in niche markets that
complement our existing activities. See our
strategy in action on page 10.
4. Entrepreneurial Management
Group senior management encourages
an entrepreneurial culture at business
unit level, ensuring businesses are agile,
responsive and competitive. See our
strategy in action on page 11.
5. Revenue growth and targeted returns
By targeting returns at each individual
business unit the Board ensures that
revenue growth is achieved which flows
through to sustainable profitable growth.
See our strategy in action on page 11.
www.hsholdings.com | Stock Code HILS
10 Strategic Report
Our Strategy in Action
Portfolio management
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 2016
›
Rationalisation of the non-US Pipe Supports business into one site of manufacturing excellence in Andhra Pradesh, India.
›
›
Commencement of Carpenter & Paterson’s site rationalisation programme.
Organic revenue growth of 5%.
Geographical diversification
Our acquisition strategy is to buy and develop 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 2016
›
Purchase of E.T.Techtonics, Inc. (20 January 2016).
›
›
›
›
Purchase of FMK Trafikprodukter AB, a business operating in the Swedish and Norwegian roads market (1 April 2016).
Purchase of Hardstaff Barriers Ltd, a business specialising in the sale and rental of temporary and permanent concrete barriers
(13 May 2016).
Purchase of Technocover Ltd, a business dedicated to high quality steel security solutions for protecting and preventing unauthorised access
(13 July 2016).
Purchase of Signature Ltd, manufacturers of street furniture and LED traffic products (3 August 2016).
Barkers StronGuard crash tested palisade fencing.
www.hsholdings.com | Stock Code HILS
Strategic Report
11
Entrepreneurial management
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
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 authorities. 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 2016
›
Successful integration of Bowater Doors into the Birtley Group.
›
›
›
›
Premier Galvanizing Limited (acquired 25 November 2015) contibuted £2.8m underlying operating profit to the UK Galvanizing division.
Integration of E.T. Techtonics, Inc. into Creative Pultrusions contributing 23% of the combined businesses 2016 operating profit.
Integration/rationalisation of Signature Ltd and Hardstaff Barriers Limited.
Expansion of Hardstaff Barriers Limited’s product range.
Revenue, growth and targeted returns
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 20%.
Key events in 2016
Underlying operating margins
Infrastructure Products
Utilities
Roads
Galvanizing
Group
2016
8.7%
6.3%
11.7%
23.1%
13.1%
Target range %
ROIC
8 – 11
7 – 11
9 – 13
18 – 21
11 – 14
Infrastructure Products
Utilities
Roads
Galvanizing
Group
2016
18.6%
15.3%
21.7%
20.2%
19.4%
Hardstaff Barrier’s Multibloc at Edinburgh Airport.
www.hsholdings.com | Stock Code HILS
12 Strategic Report
Our Strategy in Action
Sustainable Profitable Growth - Value Creation
Strategic focus
To create long-term sustainable profitable growth and through this growth create value for all stakeholders.
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 enhancing our
relationships with other stakeholders, including our employees, our suppliers and the communities in which we operate. At the same time we
must be cognisant of the effect our operations have on the environment. More details can be found in our Corporate Responsibility Report on
pages 36 to 43.
Key events in 2016
›
Underlying Group operating profit up 26% at £70.6m.
›
›
Underlying earnings per share up 27% at 65.9p.
Dividend per share 26.4p, up 28% year-on-year.
Underlying earnings per share (pence)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
-
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Opportunities for growth
›
US galvanizing market, opportunities through organic growth, plant investment and acquisition.
›
›
The introduction of Smart Motorways, driven by the UK Government’s promised £15.2bn investment in the UK road network.
Continued expansion of the Group’s US composites business.
Priorities for 2017
›
Selective acquisitions to consolidate our market position or increase our geographical representation.
›
›
Investing in increased capacity and product development to capture potential opportunities.
Continuation of the structural and operational improvements in both infrastructure products and galvanizing services.
www.hsholdings.com | Stock Code HILS
Strategic Report
13
Our Strategy in Action
Our Investment Proposition
We believe in providing superior shareholder returns by doing business in the right way in markets where we have global expertise.
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.
29 subsidiaries
60 sites
7 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.
5% organic revenue growth
3 UK acquisitions
1 US acquisition
1 Swedish acquisition
Strong Operating Cash Flow
We 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).
2016: 93%
2015: 100%
Progressive Dividend
We have increased dividend payments by a compound annual
growth rate of 13.1% since 2007.
Increased Shareholder Value
In the last seven years our total shareholder return has
consistently outperformed the FTSE All Share.
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2015
2016
* as at the date of this report.
50
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Hill & Smith
FTSE 250
FTSE SmallCap
FTSE All Share
www.hsholdings.com | Stock Code HILS
14 Strategic Report
Case Study
Barkers Engineering - Vehicle Incursion
Barkers Engineering, established in 1865, is now one of the UK’s largest manufacturers and designers of high
security perimeter systems and has developed an extensive service related to security infrastructure projects.
Manufacturing high performance fencing for every application, including boundary demarcation and
safety, multi-use games areas, sports enclosures, high security fencing, maximum security gates and fully
implemented anti-terrorist installations.
Understanding the importance of security in today’s world, Barkers now provide ultimate perimeter
security systems and can ensure confidentiality on all projects entrusted to them.
“Looks like a standard fence with
the additional benefit of an
impact system”.
During 2016 Barkers were approached to develop their StronGuardTM RCS PAS68
crash tested palisade fencing to protect sensitive infrastructure on the railway.
A major issue facing highway and rail infrastructure is the threat of
unauthorised vehicle incursion, whether criminal or accidental.
Barkers StronGuard is a crash tested palisade fence, designed and
accredited to stop up to 7.5 ton vehicles travelling at 30mph.
The basic design was modified to meet the clients’ operational
requirements and the company worked closely with the contractor
to ensure vegetation clearing, the removal of existing fencing,
traffic management and site supervision were all maintained.
The project encountered several challenges for the Barkers design
team as there were restrictions on what could be connected to
the existing infrastructure and the difficulty encountered with
the lack of footprint available. By working closely with their
client these issues were overcome by way of innovative
design solutions.
The outcome was a redesigned palisade, StronGuard
RCS75. An aesthetically pleasing palisade, which
looks like standard fencing whilst affording the
added benefit of an impact system.
Find out more about the company
at www.barkersengineering.com
Images
Top - StronGuard crash testing
at the Transport Research
Laboratory.
Bottom - 38m of
Stronguard RCS75 palisade
system at Wythall
Station road junction.
Strategic Reportwww.hsholdings.com | Stock Code HILS1515Derek MuirGroup Chief ExecutiveMark PeglerGroup Finance DirectorOperational and Financial ReviewInfrastructure Products£m+/-%Constant Currency%20162015Revenue375.7325.5+15+11Underlying operating profit32.626.5+23+18Underlying operating margin %8.78.1Reported operating profit14.98.5The division supplies engineered products to the roads and utilities markets in geographies where there is sustained long term investment in infrastructure. In 2016 the division accounted for 70% (2015: 70%) of the Group’s revenue and 46% (2015: 47%) of the Group’s underlying operating profit. Revenues increased 15% to £375.7m (2015: £325.5m) including a £14.5m positive impact from exchange rate movements. Acquisitions contributed £16.8m and there was £3.4m of lower revenue from the restructured non-US Pipe Supports operations. Organic revenue growth was £22.3m, or 7%. Underlying operating profit was £32.6m (2015: £26.5m), an increase of £6.1m, with a positive currency translation benefit of £1.1m. Acquisitions contributed £0.8m and the non-US Pipe Supports restructuring an additional £1.9m. Underlying operating margin improved to 8.7% (2015: 8.1%). Reported operating profit was £14.9m (2015: £8.5m) and included charges of £10.5m relating to restructuring actions taken during the year and goodwill impairment charges of £4.1m relating to CA Traffic Limited, our traffic data collection business.2016 overviewHill & Smith delivered its best ever trading performance in the twelve months to 31 December 2016. Against a backdrop of uncertain political and macro-economic environments, infrastructure investment in our key UK and US markets remained strong which, combined with our focused active portfolio management strategy, resulted in record revenue, profitability and operating margin. Our performance continues to be underpinned by our tried and tested strategy of international diversity together with the leading positions our businesses hold in their respective markets. Our US and UK operations benefitted from rising spending on infrastructure in our chosen end markets, and together the US and UK operations represented over 80% of revenue and 90% of underlying operating profit. Organic profit growth has been supported by targeted bolt-on acquisitions and the restructuring of underperforming assets to improve overall returns and shareholder value. The prospects for both the US and UK economies as well as the markets in which we operate continue to be positive for 2017 and beyond.Revenue for the year increased by 16% to £540.1m (2015: £467.5m), of which translational currency benefits contributed £27.9m or 6%. After adjusting for additional revenue of £25.4m from acquisitions and reduced revenue from restructuring of the non-US Pipe Supports businesses of £3.4m, organic revenue growth was £22.7m or 5%. Underlying operating profit improved by 26% to £70.6m (2015: £56.0m), including a positive currency translation of £4.4m. Acquisitions contributed £3.4m and the benefit of the non-US Pipe Supports restructuring actions a further £1.9m. The organic improvement in underlying operating profit was 8%. Underlying operating margin improved by 110bps to 13.1% (2015: 12.0%). Underlying profit before taxation was 28% higher at £68.0m (2015: £53.0m). Reported operating profit was £51.8m (2015: £37.3m), an increase of 39% on the prior year. Reported profit before tax was £48.3m (2015: £33.2m). 16
ATA’s new median barrier was successfully tested at MIRA in October 2016. With its ground breaking elliptical design, all parts are rounded with no sharp edges offering increased safety
for all road users. The unique connection between post and rail enables rapid installation and easy maintenance.
Strategic Report
17
Roads
Revenue
Underlying operating profit
Underlying operating margin %
Reported operating profit
+/-
%
+28
+23
Constant
Currency
%
+24
+21
£m
2016
2015
168.1
131.6
19.6
11.7
10.9
16.0
12.2
15.6
Our Roads segment designs, manufactures and installs temporary
and permanent safety products for the roads market together
with intelligent transport systems 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 innovative tested safety products. Roads represented
28% (2015: 29%) of the Group’s underlying operating profit, and
31% (2015: 28%) of revenue in 2016. Revenues increased by 28%
to £168.1m (2015: £131.6m), an organic increase of 17% after a
currency benefit of £4.0m and contribution from acquisitions of
£10.1m. Underlying operating profit of £19.6m was £3.6m higher
than the prior year (2015: £16.0m) including £0.2m from positive
currency translations.
Reported operating profit
Restructuring actions
Impairment charges
Acquisition costs and amortisation
Underlying operating profit
£m
2016
10.9
2.7
4.1
1.9
19.6
2015
15.6
-
-
0.4
16.0
UK
The Government’s Road Investment Strategy (‘RIS’) is entering
its third year of an initial five-year plan. The RIS aims to provide
certainty of investment funding for the period 2015/16 to 2020/21,
improve the connectivity and condition of the existing road network
and, importantly, increase capacity, with projects that will deliver
1,300 additional lane miles. Core to the drive to add capacity will be
additional ‘Smart’, or managed motorways, which are at the heart of
the Group’s product offering in the UK. Overall, the implementation
of the Government’s RIS continues to develop in line with our
expectations. Three Smart Motorway programmes are progressing
well, supported by early stage engineering for the next phase of
investment. Additional Smart Motorways are due to commence later
in 2017. As expected, demand for our temporary safety barrier has
been strong and utilisation of this rental product has been high. In
September 2016 we committed to expanding our temporary safety
barrier rental fleet by a further 10,000m to 280,000m to support
expected demand levels later in 2017/2018.
To expand our product and market offering, on 13 May 2016 we
completed the acquisition of Safety and Security Barrier Holdings
Limited (‘Hardstaff Barriers’). Hardstaff Barriers specialises in the
sale and rental of fully tested temporary and permanent pre-cast
concrete barriers for site and vehicle protection, and complements
our existing range of vehicle restraint systems. It has also developed
a quick-deploy, high security perimeter system for the protection of
critical infrastructure in vulnerable locations. The business, which
supplies products across the UK and Europe, complements and
further enhances our existing range of hostile vehicle mitigation
products. Trading since acquisition has been in line with expectations
with clear benefits from integration with our existing temporary
safety barrier business.
Demand for our permanent safety barrier application was lower than
in the previous year. This was unsurprising, as it is naturally required
towards the end of projects, and demand is expected to increase
as the current Smart Motorway and other programmes approach
finalisation later in 2017 and beyond. Higher demand in the UK
for our BEBO concrete structures and our bridge parapet products
resulted in improved profitability. Order books remain encouraging
and further progress is expected. Exports of our Brifen wire rope
safety fence and Bristorm, our newly certified high containment
anti-terrorist perimeter barrier, to the Middle East were strong with
projects completed for power, desalination and chemical plants.
Our Variable Message Sign business produced an excellent improved
result for the year and was the leading provider of signs to Highways
England, Transport Scotland and Transport Wales, supplying all major
UK motorway schemes. The business was particularly successful
in winning orders for the new Remote Operated Temporary Traffic
Management (‘ROTTM’) variable message signs which are being
deployed by Highways England to improve road worker safety where
no hard shoulders exist on the Smart Motorways. Investment in
product development has widened our product offering which will
deliver future benefits.
Our traffic data collection business, CA Traffic Limited, experienced
difficult conditions throughout the year as a result of reduced local
governmental spending in its core markets. Following a deterioration
in performance in the second half of the year, the Board revised its
expectations for the future performance of the business resulting in a
goodwill impairment charge of £4.1m.
Continued diversification of our lighting column business away
from the diminishing PFI market and into the local authority and
contractor markets has been highly successful and improved
volumes and margins contributed to an excellent year. On 3 August
2016 we completed the acquisition of Signature Limited (‘Signature’),
a UK based business which specialises in the development,
manufacture, installation and maintenance of street lighting
columns, road sign and traffic management systems. The business
complements and expands our product offering into the UK roads
market. Post-acquisition, and as planned, we rationalised the cost
base of the combined operation with the closure of the Signature
lighting column facility and one sales office at a cost of £0.8m. With
an enhanced product offering and reduced cost base we are excited
about the opportunities for growth in this market.
www.hsholdings.com | Stock Code HILS
18 Strategic Report
Operational and Financial Review (continued)
Non-UK
Our Scandinavian business delivered a solid first half, but performed
below expectations in the second half of the year and the overall
result was disappointing. Poor weather conditions in the final
quarter were a contributing factor. On 1 April 2016 we acquired FMK
Trafikprodukter AB (‘FMK’), a business based in Sweden, that designs
and manufactures safety barriers, noise reduction screens and bridge
parapets for the Scandinavian roads market. The acquisition of FMK
and its suite of products will accelerate the growth plans of our
existing Scandinavian roads business. Although the slow integration
of FMK into our existing business impacted overall profitability, the
integration is now complete and we look forward to an improved
performance in 2017. Sterling’s weakness will assist the export of
Group products into this market.
In France, our lighting column business operated in a difficult market,
but increased volumes and profitability. Recent investment in
automation continues to reduce costs and enhance service capability
and enabled us to secure a number of export opportunities in the
second half of the year.
In India, despite repeated assurances from the national government
that funding would be released for new road schemes, we continued
to be frustrated by the level of delays and bureaucracy. Conditions
therefore remained difficult and we incurred a small operating loss.
Having reassessed the outlook, and the returns available, we took the
decision to withdraw from the market and the process to close the
business commenced in December 2016. Closure of the business is
expected to be completed by the end of the first quarter at a cost of
£1.9m, of which cash costs are expected to be £0.5m.
In the USA and Australia we continue to work hard to introduce
our tried and tested products into new markets by promoting their
benefits through lower cost and efficient installation. Excellent
progress was made in both countries in the distribution of Zoneguard,
our steel temporary safety barrier, as an alternative to incumbent
concrete/plastic products and revenue and profitability were ahead
year on year. In the USA, we expanded our coverage across various
states and delivered a record number of barriers. In Australia, we
have continued to develop our presence in the direct sale and
rental market and, in the first half, we invested £1.1m in 5.5km of
Zoneguard rental pool which will be utilised fully through 2017. We
also secured a supply contract for 19.8km of Zoneguard for the New
South Wales government for an upgrade to the M1 motorway in
the Hunter Valley region. For the first time, our Australian business
returned a positive result and we are optimistic for the future.
Utilities
Revenue
£m
2016
2015
207.6
193.9
+/-
%
+7
Underlying operating profit
13.0
10.5
+24
Underlying operating margin %
Reported operating profit
6.3
4.0
5.4
(7.1)
Constant
Currency
%
+2
+14
Our Utilities segment provides industrial flooring, plastic drainage
pipes, security fencing, steel and composite products for a wide
range of infrastructure markets including energy creation and
distribution, rail, water and house building. The requirements for new
power generation in emerging economies and replacement of ageing
infrastructure in developed countries provide excellent opportunities
for the Group’s utilities businesses. Revenues increased by 7% to
£207.6m (2015: £193.9m). Benefits from currency translation of
£10.5m and a £6.7m contribution from recent acquisitions were
partly offset by the restructuring and closure programme of our
non-US Pipe Supports business (£3.4m lower revenue year on
year). Organically, revenue was similar to the prior year. Underlying
operating profit was £13.0m (2015: £10.5m) including a positive
currency impact of £0.9m, first time contribution from acquisitions
of £0.8m and a £1.9m benefit from the non-US Pipe Supports
restructuring.
Reported operating profit
Restructuring actions
Impairment charges
Acquisition costs and amortisation
Underlying operating profit
£m
2016
2015
4.0
7.8
(7.1)
0.7
-
15.7
1.2
1.2
13.0
10.5
In the US, our power transmission substation operation performed
strongly, delivering record revenue and operating profit. The strategy
of supplying complete packaging work, structural steel and electrical
components, under framework agreements with key US utilities
continues to work well. Investment in the US electricity distribution
network looks set for continued growth and that, together with our
relationships with key market players, is encouraging.
www.hsholdings.com | Stock Code HILS
Strategic Report
19
The industrial flooring business completed two major new rail
maintenance depots for Crossrail and Eurostar supplying galvanized
open grid flooring, stairs and handrails along with GRP driver access
platforms. Oil and gas refurbishment projects remain low despite
the recent increase in oil prices. We developed new GRP composite
products for London Underground and began supplying them at
the end of the year. The business should experience higher demand
from AMP6 as years three to five are traditionally strong periods for
flooring and walkway bridges.
On 13 July 2016 we completed the acquisition of Technocover
Limited (‘Technocover’), which specialises in the development,
manufacture, installation and maintenance of high security access
products for the utilities markets. Technocover’s suite of products is
complementary to our existing market offering, particularly plastic
pipes, industrial flooring and security fencing, and will therefore
benefit from being part of the UK Utilities division. The slow release
of projects from AMP6 meant that the results since acquisition have
been marginally lower than expected. However, strong order intake
experienced in the final quarter resulted in a solid order book for the
new year. The number of new orders released from AMP6 is also
encouraging for our other UK Utilities businesses.
Ongoing investment in the UK rail network and the protection of
critical infrastructure sites continues to provide good 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 threat of terrorism
both in the UK and overseas.
Unexpectedly, despite the abandonment of the UK Renewable
Obligation scheme for solar projects over 5MW in March 2015, our
solar frame business had a record year. Investment in UK solar parks
continues and, whilst we do not anticipate a repeat of the record
performance, prospects are already encouraging for the current year.
A strong UK housing market aided our building products business
and demand for composite residential doors, steel lintels and
builders‘ metalwork reached record levels. Supplying national and
independent housebuilders, in addition to national merchants,
minimises geographical risks in demand patterns whilst maximising
our exposure to both retail and social housing sectors.
Our composite material business experienced a disappointing year
with the absence of large one-off contracts impacting performance.
On 20 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.
Trading ahead of expectations, ETT has been integrated into our
existing composites business and enhances our product offering to
end users within infrastructure markets.
Encouragingly, overall results in our US Pipe Supports business
were ahead of last year. We experienced higher demand for our
engineered pipe supports in both the petrochemical and power
markets and we completed three projects under a master supply
agreement with Bechtel Power. Demand for our industrial hangers
also increased as construction activity in our key north east markets
improved. To provide new impetus, a new leadership team was
installed mid-year. Following a strategic review, a cost reduction
programme was implemented in the fourth quarter resulting in the
closure of three of the seven existing branches and the consolidation
of their operations into one strategically located service centre
between New York and Philadelphia to serve the eastern region. The
rationalisation was completed in February 2017 and we expect to see
the benefits of a lower cost base and more efficient operation in an
improved performance in 2017.
In March 2016, following a strategic review of our non-US Pipe
Supports business, we announced a plan to close and exit our
manufacturing sites in the UK and Thailand, and also our sales
office in China. To the extent possible, work was to be transferred
to our Indian manufacturing facility. A non-underlying charge of
approximately £10m was expected to be booked in the 2016 results
of which net cash costs were expected to be £4m. The restructuring
project was completed in late 2016, ahead of plan in terms of both
timing and costs. A one-off non-underlying charge of £7.8m has
been incurred with a net cash cost in the year of £0.9m. The total
cash cost of the restructuring, including future spend, is expected
to be £2.5m. We have invested further in our Indian facility, both in
terms of transferring existing equipment from the UK and Thailand
and also the construction of new facilities to increase capacity and
expand the product offering. The Indian business coped well with
the disruption caused by the additional investment and the transfer
of existing customers into India has been better than expected. We
entered into a strategic partnership covering the Middle East with a
local Saudi Arabian manufacturer, which will allow us to have local
manufactured content when supplying pipe supports in the region.
The market outlook in India and the Far East remains strong with
a large programme to build both coal and gas fired power plants
together with LNG receiving terminals.
UK
In the UK the performance of our utilities businesses was mixed
and, as expected, results were lower than the strong performance
in the prior year. Our plastic pipe business fell below expectations
as anticipated orders from Asset Management Period 6 (‘AMP6’) for
the water industry failed to materialise despite numerous projects in
design phase. As the programme enters year three of the five-year
investment cycle we do expect a significant upturn in the number
of projects being released. Demand for storm attenuation tanks
for flood alleviation in the UK housing market was strong and is
expected to continue in 2017.
www.hsholdings.com | Stock Code HILS
20
Strategic Report
21
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.
In a challenging economic climate the business performed well,
improving volumes year on year by 1% and increasing market share.
Competition remains strong, but actions to reduce the cost base
and focus on operational effectiveness resulted in profitability ahead
of prior year. The resizing of one of our structural steel plants to a
jobbing plant with a smaller bath was completed in July 2016.
UK
Our galvanizing businesses are located on ten sites, four of which are
strategically adjacent to our Infrastructure Products manufacturing
facilities.
Overall volumes were 12% higher year on year. Excluding Premier
Galvanizing, acquired in November 2015, underlying volumes were
similar to the prior year. Internal or ‘own work’ volumes from our UK
utilities business and permanent road safety barrier were lower year
on year but external volumes improved, increasing market share. Our
strategy of focusing on lower volume, higher margin work continues
to pay off, resulting in record profitability and operating margins.
Premier Galvanizing has been integrated into our UK galvanizing
business and performed ahead of expectations. Significant
investment in our Chesterfield, Walsall and Medway plants has
increased capacity and improved their operational efficiencies.
Galvanizing Services
Revenue
Underlying operating profit
Underlying operating margin %
Reported operating profit
+/-
%
+16
+29
Constant
Currency
%
+6
+16
£m
2016
2015
164.4
142.0
38.0
23.1
36.9
29.5
20.8
28.8
The Galvanizing Services division offers corrosion protection services
to the steel fabrication industry with multi-plant facilities in the UK,
France and the USA. The division accounts for 30% (2015: 30%) of
the Group’s revenue and 54% (2015: 53%) of the Group’s underlying
operating profit. Revenue increased by 16% to £164.4m
(2015: £142.0m) including positive currency translation of £13.4m
and £8.6m from acquisitions. Organic revenue growth was marginally
positive. Underlying operating profit of £38.0m (2015: £29.5m)
included a £3.3m currency benefit and a £2.6m contribution from
acquisitions. The organic improvement in profitability was £2.6m.
Underlying operating margin was a record 23.1% (2015: 20.8%).
Reported operating profit
Acquisition amortisation
Other items
Underlying operating profit
£m
2016
36.9
1.3
(0.2)
38.0
2015
28.8
1.0
(0.3)
29.5
USA
Located in the north east of the country, Voigt & Schweitzer is the
market leader with seven plants offering local services and extensive
support to fabricators and product manufacturers involved in
highways, construction, utilities and transportation.
Following a strong first half where volumes were 15% ahead of the
prior year, the second half faced stronger comparatives and, as
expected, volumes were down 11% year on year. Overall, volumes
for the year were 1% higher year on year. A focus on smaller, higher
margin infrastructure jobs, operational excellence and customer
service resulted in record revenue and profitability. Strong volumes
were seen from the alternative energy market, particularly solar
where recent medium term legislation to extend tax credits has
supported demand. A large LNG project, running throughout the last
two years, was completed in the third quarter. Despite the approval
of a $305bn five-year highway bill in December 2015, bridge and
highway work remained lower than expected and volumes were
down year on year. As various states are awarded their allocation of
funds we expect projects to be released and volumes to increase in
2017. Recent US administration pronouncements on the strategic
importance of additional investment in US infrastructure, including
building and repairing roads and bridges, are supportive to the
galvanizing industry and we are well positioned to benefit should this
increased spend materialise.
Image
V&S Galvanizing plants in Memphis, Delaware, Columbus and Lebanon, USA worked on
the Dominion Cove Liquid Natural Gas facility at Chesapeake Bay in Maryland. The project
is made up of over 15,000 tonnes of steel and to date is the largest project that the
galvanizing group has been part of.
www.hsholdings.com | Stock Code HILS
22 Strategic Report
Operational and Financial Review (continued)
Financial review
Income statement phasing
2016
Revenue £m
First
half
Second
half
Full
year
259.3
280.8
540.1
Underlying operating profit £m
Underlying operating margin %
Reported operating profit £m
32.0
12.3
21.2
38.6
13.7
30.6
70.6
13.1
51.8
2015
Revenue £m
233.0
234.5
467.5
Underlying operating profit £m
Underlying operating margin %
Reported operating profit £m
26.3
11.3
9.1
29.7
12.7
28.2
56.0
12.0
37.3
The phasing of revenue and to a greater extent underlying operating
profit was again second half weighted in 2016, principally reflecting
the impact of acquisitions and currency translation benefits together
with a normal degree of seasonality across the Group’s portfolio of
businesses.
Reported revenue of £540.1m was 16% ahead of the prior year.
The acquisitions completed during both the current and prior year
resulted in a net revenue increase of £25.4m and a £3.4m benefit
to underlying operating profit, while the restructuring of the Group’s
non-US Pipe Supports businesses reduced revenues by £3.4m but
delivered an improvement in underlying operating profit of £1.9m.
The translation impact arising from changes in exchange rates,
principally the US Dollar and Euro, increased revenue by £27.9m and
underlying operating profit by £4.4m. Organic revenue growth was
£22.7m and underlying operating profit growth was £4.9m, or 5%
and 8% respectively. Further details of the performance of the Group
are provided in the Operational Review.
£m
2015
Acquisitions
Restructuring actions
Currency
Organic growth
2016
Revenue
467.5
25.4
(3.4)
27.9
22.7
Underlying
operating profit
56.0
3.4
1.9
4.4
4.9
540.1
70.6
Cash generation and financing
The Group again demonstrated its cash generating abilities with
strong operating cash flow of £78.2m (2015: £66.1m).
Working capital was similar to the prior year (2015: increase of
£2.5m), with the effect of rising zinc and steel prices on inventory
values being offset by a realisation and write off of working capital
balances due to the restructuring actions taken during the year.
Working capital as a percentage of annualised sales fell to 14.2% at
31 December 2016 (2015: 14.3%), while debtor days improved to
61 days (2015: 62 days).
Capital expenditure at £21.7m (2015: £16.0m) represents a multiple
of depreciation and amortisation of 1.2 times
(2015: 1.0 times). Significant items of expenditure in the current year
included £2.0m of Zoneguard temporary safety barrier investment
to meet demand in our US, Australian and Scandinavian operations,
and £1.8m of product development spend reflecting the continued
innovation within the Group’s suite of products, particularly for the
UK roads markets. The Group continues to invest in organic growth
opportunities where returns exceed internal benchmarks and its cost
of capital.
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 2016 the Group achieved an underlying cash conversion
rate of 93% (2015: 100%). Over the past eight years the Group has
achieved an average rate of over 90%.
Operating profit
Non-cash items
Net movement in working
capital
Cash generated by
operations
Capital expenditure (net)
Operating cash flow
Operating profit
Cash conversion %
Reported
£m
51.8
26.5
(0.1)
Non-
underlying
items
£m
18.8
(6.7)
(3.9)
Underlying
£m
70.6
19.8
(4.0)
78.2
8.2
86.4
(18.1)
60.1
51.8
116%
(2.8)
5.4
(20.9)
65.5
70.6
93%
The Group’s strong operating cash flow provides the funds to invest in
growth, both organic and acquisitive, to restructure underperforming
businesses where appropriate, 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 2016 was £112.0m, representing
a year on year increase of £20.5m driven by acquisition spend of
£37.4m and adverse exchange rate movements of £6.9m reflecting
the weakening in Sterling against the US Dollar and Euro. The
Group’s net debt includes 36% denominated in US Dollars and 7%
denominated in Euros which act as a hedge against the net asset
investments in overseas businesses.
www.hsholdings.com | Stock Code HILS
Strategic Report
23
Change in net debt
The results of the covenant calculations at 31 December 2016 were:
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
Amortisation of refinancing costs
Net issue of shares
Change in net debt
Opening net debt
Exchange
Closing net debt
2016
£m
51.8
21.0
(0.1)
-
5.5
78.2
(15.7)
(2.8)
(21.7)
3.6
41.6
(16.2)
(37.4)
(0.4)
(1.2)
(13.6)
(91.5)
(6.9)
(112.0)
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)
* includes £2.6m (2015: £1.6m) in respect of acquisition intangibles.
The Group’s principal debt facility consists of a headline £210m
multicurrency revolving credit agreement. In May 2016 the Group
extended the term of the existing facility from April 2019 to April
2021, providing the Group with significant headroom against its
expected future funding requirements for a further two years whilst
also taking advantage of favourable market conditions to reduce
costs and amend key terms. Costs associated with the amendment
of £1.0m were deducted from the carrying value of the loans and will
be amortised over the life of the facility, as required by accounting
standards.
Maturity profile of debt facilities
On demand
2017-2020
2021
2016
£12.2m
£0.6m
On demand
2015-2016
2015
£10.2m
£0.6m
£234.3m
2017-2019
£214.8m
At the year end the Group had committed debt facilities available of
£234.9m and a further £12.2m 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.
Actual
Covenant
Interest Cover
Net debt to EBITDA
33.2 times > 4.0 times
< 3.0 times
1.2 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 underlying:
Net pension interest
Costs of refinancing
2016
£m
2015
£m
2.6
-
0.5
0.4
3.0
2.6
-
3.0
0.7
0.4
1.1
4.1
0.9
3.5
Net financing costs were lower than prior year at £3.5m
(2015: £4.1m). The net cost from pension fund financing under IAS19
was £0.5m (2015: £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 amendments of the terms of its principal
banking facilities in 2014 and 2016, reflecting the amortisation of
the costs capitalised against the loans in accordance with IAS39. The
underlying cash element of net financing costs decreased by £0.4m
to £2.6m (2015: £3.0m), as a result of the improved terms achieved
on the refinancing of debt facilities in May and the maturity of certain
higher cost fixed rate interest swap agreements earlier in the year.
Underlying operating profit covered net cash interest 27.2 times
(2015: 18.7 times). Reported operating profit covered total reported
interest 14.8 times (2015: 9.1 times).
Return on invested capital (‘ROIC’)
The Group aims to maintain ROIC above its pre-tax weighted average
cost of capital (currently c.10%), with a target return of 20%. In
2016, ROIC increased to 19.4% (2015: 17.8%) largely as a result
of improvements in underlying operating margins, tight control
over working capital and capital investment outflows, and active
management of the portfolio. 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, provisions, retirement benefit obligations and derivative
financial instruments, and therefore includes goodwill and other
acquired intangible assets. On a reported basis, ROIC was 14.3%
(2015: 11.8%).
www.hsholdings.com | Stock Code HILS
24 Strategic Report
Case Study
Title
Permanent bridge installed in the Himalaya
In June 2013, devastating floods and landslides in the Himalaya caused the destruction
of the bridge at Sonprayag in Uttarakhand. A quick, temporary bridge was erected but
was washed away on two occasions by floods, most recently in June 2015.
The remote site is extremely important as it is part of the route taken each year by
hundreds of thousands of pilgrims from all over the world on the trek to the Kedarnath
Temple, which is some 3,600 metres above sea level.
Acrow Bridge, a leading bridge engineering and supply company enlisted the help of V&S
Galvanizing to galvanize a permanent bridge to be installed at the foot of the Himalaya.
Constructing a long, conventional bridge in-situ would not have been feasible due to
the location’s challenging topography and length of time to build. However, an Acrow
steel span bridge of any length can be operational in days with minimal construction
machinery and using unskilled labour.
The 60m, clear-span bridge was customised with modular components, which included
two lanes of traffic and construction was completed in six weeks. The bridge opened to
traffic in May 2016 and through to the end of June, more than 250,000 pilgrims visited
the temple at Kedarnath.
Find out more about the company at: www.hotdipgalvanizing.com
Strategic Report
25
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 2015 revenue
and underlying operating profit using 2016 average exchange
rates would have increased the prior year revenue by £27.9m and
increased underlying operating profit by £4.4m, the movements
reflecting the impact of Sterling’s depreciation against both the Euro
and US Dollar during the year. 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 2017. Retranslating 2016
revenue and underlying operating profit using exchange rates at 3
March 2017 (inter alia £1 = $1.22 and £1 = €1.16) would increase the
revenue and underlying operating profit by £21.7m (4%) and £4.1m
(6%) respectively. For the US Dollar, a 1 cent movement results in a
£1.4m and £0.3m adjustment to revenue and underlying operating
profit respectively, while for the Euro, a 1 cent movement results in a
£0.5m and £0.1m 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 £18.8m
(2015: £18.7m) and were made up of the following:
Income
statement
charge
£m
Cash in
the year
£m
Future
cash
£m
Business reorganisation costs
(10.5)
(1.5)
(2.1)
Impairment of goodwill
Amortisation of acquisition
intangibles
Acquisition expenses
Pension settlement gains
(4.1)
(2.6)
(1.8)
0.2
-
-
(1.8)
-
-
-
-
-
Non-
cash
£m
(6.9)
(4.1)
(2.6)
-
0.2
(18.8)
(3.3)
(2.1)
(13.4)
›
Business reorganisation costs relate to three restructuring
actions taken by the Group during the year.
In March, the Group announced the proposed restructuring of
its non-US Pipe Supports operations, resulting in the cessation
of manufacturing in the UK and Thailand, the closure of a sales
office in China and the transfer of work to our Indian plant.
The programme, which has been delivered ahead of target
timeframe and cost, resulted in a net charge to the income
statement of £7.8m. The net cash cost in the year was £0.9m,
which includes property and other fixed asset disposal proceeds
of £2.8m arising from the disposal of the manufacturing
facilities in the UK and Thailand. Further cash costs of £1.6m are
expected in 2017. In the period between the announcement
of the restructuring actions on 9 March 2016 and 31 December
2016, the trading results of the non-US Pipe Supports operations
included revenue of £10.6m and an operating loss of £0.6m
and are included in the Group’s underlying trading results for
the year. In the Group’s half year results to 30 June 2016 the
post-announcement trading results of the non-US Pipe Supports
operations (revenue of £5.3m and an operating loss of £1.0m)
were disclosed separately as non-underlying items given their
quantum relative to the overall result for that period.
In September, following the acquisition of Signature Limited,
the Group initiated a rationalisation of the Signature business
as part of its integration with our existing lighting column
operation. The charge to the income statement was £0.8m of
which £0.6m were cash costs in the year.
In December, the Group committed to the closure of its Indian
roads business following a period of disappointing performance
and a lack of clear opportunities in that market. The total
closure cost is expected to be £1.9m, of which £0.5m are cash
costs that will be incurred in 2017.
The impairment charge of £4.1m represents a full impairment
of the goodwill relating to the Group’s acquisition of CA Traffic
Limited, our transport data collection business, in 2006. In
recent years the business has generated levels of profitability
that are below those anticipated at acquisition, largely driven
by a contraction of available markets in the UK partly resulting
from reduced government and local authority spending.
Performance in the second half of 2016 was substantially below
that anticipated at the end of the prior year and, as a result, an
impairment review was performed during the year resulting in a
full impairment of the acquisition goodwill.
Non-cash amortisation of acquired intangible fixed assets was
£2.6m (2015: £1.6m), the increase reflecting the acquisitions
made by the Group during the year.
Acquisition related expenses of £1.8m (2015: £1.0m) reflect
costs associated with acquisitions expensed to the Consolidated
Income Statement in accordance with IFRS3 (Revised).
Pension settlement gains of £0.2m (2015: nil) arose on the
settlement of outstanding defined benefit liabilities with certain
pension scheme members as part of the merger of the Group’s
two UK defined benefit pension schemes during the year.
›
›
›
›
The net cash impact of the above items was an outflow of £3.3m in
the year, a further £2.1m outflow expected in 2017 and a non-cash
element therefore amounting to £13.4m. 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 £14.5m (2015: £9.1m). The
underlying effective tax rate for the Group was 24.0% (2015: 23.8%),
which is lower than the weighted average mix of tax rates in the
jurisdictions in which the Group operates as a result of the benefit of
tax efficient financing arrangements, the successful conclusion of
tax uncertainties related to prior years and the impact on the Group’s
deferred tax liabilities of forthcoming reductions in tax rates in
France. Cash tax paid was £15.7m (2015: £12.6m), with the increased
spend reflecting the growth in the Group’s profits. Tax paid was
broadly in line with the current tax charge for the year of £16.7m.
The Group’s net deferred tax liability is £7.8m (2015: £7.9m). An
£8.9m (2015: £7.0m) deferred tax liability is provided in respect
of brand names, customer relationships and other contractual
arrangements acquired, while a further £1.1m (2015: £1.2m) 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, contractual arrangements and
properties are amortised.
www.hsholdings.com | Stock Code HILS
26 Strategic Report
Operational and Financial Review (continued)
In August 2016 we acquired Signature Limited, a UK business
specialising in the development and manufacture of street lighting
columns, road signage and traffic management systems, for a
net cash consideration of £12.6m. Intangible assets arising on the
acquisition comprise goodwill of £3.0m, brand names of £0.5m,
customer relationships of £4.4m and contractual arrangements
of £1.7m. The acquired business will complement and has been
integrated with the Group’s existing UK lighting column business.
The Group also completed two smaller acquisitions during the year:
›
›
In January we acquired E.T. Techtonics, Inc., a US-based
designer of composite bridge products that complements
our existing US composites business, Creative Pultrusions.
Consideration for the acquisition was £1.5m.
In April we acquired FMK Trafikprodukter AB, a Swedish producer
of equipment for the Scandinavian roads markets. FMK has
been integrated with our existing ATA business, providing an
expanded suite of traffic management products. Consideration
for the acquisition was £4.0m, of which £0.8m is deferred and
contingent on future performance and product development
targets.
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 Group
Finance Director.
Derek Muir
Group Chief Executive
Mark Pegler
Group Finance Director
8 March 2017
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 (as described in note 3). UEPS for the
period under review increased by 27% to 65.9p (2015: 51.7p), driven
by organic revenue growth in the Group’s core markets, continuing
improvements in underlying operating margins, currency translation
benefits and the impact of active management of the Group’s
portfolio. The diluted UEPS was 65.1p (2015: 51.3p). Basic earnings
per share was 43.0p (2015: 30.9p). The weighted average number of
shares in issue was 78.5m (2015: 78.1m) with the diluted number of
shares at 79.3m (2015: 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 2016 was £27.3m,
significantly higher than the £14.6m reported at 31 December 2015.
The deterioration in the deficit relates principally to the UK scheme
and was largely driven by a reduction in the discount rate, in line
with substantial falls in UK corporate bond yields particularly towards
the end of the year, and was exacerbated by an increase in future
inflation assumptions reflecting current expectations of higher UK
inflation in the medium term.
At 31 December 2015 the Group operated two UK defined benefit
pension schemes, The Hill & Smith Executive Pension Scheme and the
Hill & Smith Pension Scheme. In March 2016 the Group completed
a merger of these two schemes into one new scheme, The Hill &
Smith 2016 Pension Scheme (the ‘Scheme’), which remains the
largest employee benefit obligation within the Group. As part of this
merger, certain members of the Scheme accepted the Group’s offer
to crystallise their pension entitlement by payment of a winding up
lump sum, which resulted in a settlement gain of £0.2m.
In common with many other UK companies, the Scheme is mature
having significantly more pensioners and deferred pensioners than
active participating members and is closed to new members. The
IAS19 deficit of the Scheme as at 31 December 2016 was £22.4m
(2015: £11.1m). The Group is actively engaged in dialogue with
the Scheme’s Trustees with regard to management, funding and
investment strategy, and has an agreed deficit recovery plan that
requires cash contributions amounting to £2.3m per annum until
5 April 2020. A formal valuation of the newly merged scheme, dated
5 April 2016, is currently underway.
Acquisitions
In May 2016 the Group completed the acquisition of Safety and
Security Barrier Holdings Limited, the parent company of Hardstaff
Barriers Limited, for a net cash consideration of £10.4m. Intangible
assets arising on the acquisition comprise goodwill of £6.8m,
customer relationships of £3.0m and contractual arrangements
of £1.4m. The acquired business, based in Nottingham, UK, will
complement the Group’s existing UK temporary road safety barrier
business.
In July 2016 we completed the acquisition of Technocover Limited for
a net cash consideration of £9.2m. Intangible assets arising on the
acquisition comprise goodwill of £1.8m, the brand name of £0.3m,
customer relationships of £3.9m and contractual arrangements of
£1.8m. The acquired business, based in Welshpool, will complement
and enhance the Group’s existing product offering into its UK utilities
markets.
www.hsholdings.com | Stock Code HILS
Strategic Report 27
Case Study
Weholite Manholes - making the jump to light speed
In November 2016 Asset Weholite started work on a new housing project with one of the biggest
developers in East Anglia. A complex stormwater drainage network made up of 900mm and
1,050mm internal diameter pipes with twelve oversize, and totally bespoke, manholes in 1,800mm
and 2,100mm diameters.
Originally, the specification was concrete, but the open minded contractor wanted to explore
the new and latest technology that the twenty first century has to offer and supported Asset’s
innovative way of thinking.
The contractors did the maths themselves. No concrete surround, no rocker pipes and manholes
ready to use immediately would mean a massive saving in programme time. On this project
alone, the developer and the contractor achieved a 40% saving on programme time - a fifty
day programme became thirty days.
The results spoke for themselves:
›
›
›
›
›
Structural bases designed for high ground water pressure;
Components manufactured using the latest industry technology;
Bespoke manholes produced with robotic precision;
Fully benched with bright yellow anti-slip HDPE flooring; and
Fully integrated design, engineering and automated manufacturing
ensures bespoke manholes ready for delivery in quick time.
Find out more about the company at: www.weholite.co.uk
28 Strategic Report
Measuring Our Performance
The Board has adopted certain financial and non-financial key performance indicators (‘KPIs’). Other similar performance indicators are used at
subsidiary business level and adapted to suit the diversity and variety of the Group’s operations.
The Group uses a number of performance indicators to measure operational and financial activity in the business. Most of these are monitored
and reviewed on a weekly or monthly basis. A comprehensive monthly management accounts pack, including profit and loss statements and
key ratios, is prepared for each business. In addition, every Managing Director in the Group submits a monthly report which is the basis of regular
operational meetings.
The KPIs below are used as measures of the longer-term health of the business and for monitoring progress in the implementation of the Group’s
strategy.
KPIs
Link to our
strategy
Total revenue
growth
Underlying
operating profit
margin
Underlying
earnings per share
(‘UEPS’) growth
The Group’s core strategy is to deliver
sustainable profitable growth. This is
achieved with the target of mid-single
digit organic revenue growth and
selective acquisitions.
In line with its strategy of delivering
balanced profitable growth, the Group
reviews underlying operating margins to
assess returns achieved on revenues.
The Group considers UEPS growth to
be its key indicator of the profitable
growth of the Group. Achieving UEPS
growth enables the Group to maintain
its progressive dividend policy.
KPI definition
Annual % growth in total revenue.
Annual % organic growth in revenue.
Underlying operating profit as a % of
total revenue.
Underlying profit after tax for the year
divided by weighted average number of
ordinary shares.
2016 performance
Total growth
Organic growth
Up 110bps
27% growth
%
1
3
1
.
%
0
2
1
.
%
6
4
.
%
5
3
.
.
p
9
5
6
.
p
7
1
5
%
5
5
1
.
%
8
2
.
2015
2016
2015
2016
2015
2016
2015
2016
Comment
Organic revenue growth in 2016 was
4.6%, largely driven by the Group’s UK
Roads businesses where we experienced
increased demand through the UK
Government’s Road Investment
Strategy. Total growth was higher at
16% as a result of acquisitions made
during the current/prior year and
currency translation benefits.
The Group’s underlying operating profit
of £70.6m represents a 13.1% return
on sales, a 110bps improvement on
prior year. The improvement reflects
a combination of strength in our core
markets and the benefits of active
management of the Group’s portfolio.
The Group’s UEPS for 2016 is 65.9p, an
increase of 27% compared with 2015.
Key factors were the contribution from
organic revenue growth, the increase
in underlying operating margins,
acquisitions completed during the
year and currency translation benefits.
There were no significant interest or tax
impacts year on year.
www.hsholdings.com | Stock Code HILS
Strategic Report
29
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, including minor
injuries.
Underlying free cash flow is defined
as underlying operating cash flow less
capital expenditure.
Invested capital is defined as
net assets excluding current and
deferred tax, net debt, provisions,
retirement benefit obligations and
derivative financial instruments.
Number of lost time accidents.
Audit scores and benchmarkings.
Carbon usage comparison year
on year and over a three year
programme.
Down 7ppts
Up 160bps
Up 39%
IR down 8%
%
0
0
1
%
3
9
%
4
9
1
.
%
8
7
1
.
8
6
4
7
3
3
CO2e
5
7
2
4
6
,
7
6
1
8
6
,
IR
7
3
1
0
.
6
2
1
0
.
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
The Group achieved an underlying
cash conversion rate of 93% in
2016 (2015: 100%). Working capital
increased by only £0.1m despite the
growth in revenue and profitability,
while capital expenditure at £21.7m
represented a multiple of depreciation
and amortisation of 1.2 times
(2015: 1.0 times).
The Group aims to achieve ROIC
that exceeds its weighted average
cost of capital (currently c.10%
on a pre-tax basis), with a target
return of 20%. In 2016 the Group
achieved ROIC of 19.4% (2015:
17.8%), the improvement largely
reflecting further increases in
underlying operating margins
during the year and the benefits of
strategic actions taken.
The focus during the year was to
raise the awareness of minor injury
and near-miss reporting and improve
the culture within our businesses and
help our employees begin to better
understand the inherent benefits
from having a safe place to work.
This has led to an increase in the
reporting of injuries, including minor
injuries, and in 2016, on a like-for-
like basis reported injuries were 468
(2015: 337), with lost-time injuries
amounting to 178.
Following a fall in actual CO2e
emissions in 2015, the Group
has continued to focus on
energy saving opportunities
identified from the ESOS audits
conducted by CMR, and an
Energy Forum met for the first
time in 2016. Due to the Group’s
expansion in 2015 and 2016
actual CO2e in 2016 rose by 6%.
However the intensity ratio fell
by 8%.
www.hsholdings.com | Stock Code HILS
30 Strategic Report
Risk Management and Assurance
Risk Management and Assurance
Effective risk management is critical to the achievement of our strategic objectives of portfolio management, geographical diversification,
entrepreneurial culture and targeted growth returns. All our subsidiaries hold leading positions in the provision of galvanizing services and the
design, manufacture and supply of infrastructure products and the Group benefits from a risk management system that is integrated into the
daily business activities of these subsidiaries.
Whilst the Board has delegated the risk discussion to the Audit Committee, the Board is responsible for the overall stewardship of our system of
risk management and internal control. It has established the level of risk that is appropriate for our business and acceptable in the pursuit of our
strategic objectives. It has also set delegated authority levels to provide the framework for assessing risks and ensuring that they are escalated
to the appropriate levels of management, including up to the Board where appropriate, for consideration and approval.
As part of this process, the Risk Committee receives reports from the subsidiaries on their individual risks. The Committee, met formally once
during the year and comprises 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 on a rotational basis.
The Committee reviews and validates the subsidiary reports, before presenting a Group-wide report to the Audit Committee for discussion on
both subsidiary risk and Group risk. Challenging feedback is provided by the Audit Committee to further question the validity and mitigations of
the risks presented and to identify others not already considered.
This process ensures that risks are not just the product of a bottom-up approach but are also examined from a top-down perspective via an
integrated senior management approach, which is closely aligned with the Group’s strategy. In order to enhance the Group’s approach to risk
generally, more work was done with the subsidiaries in terms of providing an online risk assessment reporting process during 2016, and the
senior management team were instrumental in adding a top-down perspective to the Group’s principal risks.
The approach, enhanced throughout 2016, has allowed the Board to carry out a robust assessment of the principal risks and uncertainties that
might threaten the Group’s business model, future performance, solvency and liquidity and this has led to a more strategic focus on our principal
risks and uncertainties as explained on page 32 to 34.
Key focus for 2017
›
›
›
›
Continued assessment of the principal risks facing the Group and its subsidiaries including those that might threaten the Group’s business
model, future performance, solvency and liquidity;
Further work with the subsidiaries to develop business unit risk registers and to share best practice;
Improved bottom-up reporting on principal risks and uncertainties and enhancing the Board conversation; and
Further development of the Risk Committee and top-down risk assessment processes.
www.hsholdings.com | Stock Code HILS
Strategic Report
31
The roles and responsibilities of the Group’s risk management process, key committees and all levels of management from a risk management
perspective are summarised below.
Subsidiary key risks and uncertainties
Subsidiary management assess risk on a business unit by business unit basis using a dedicated
risk assessment and reporting tool. The likelihood and impact of these risks and uncertainties
are considered and scored against a recognised framework dependent upon their effect on the
achievement of the subsidiaries strategic plan.
Mitigation
Responsibility for taking the necessary actions to manage these risks is deferred
to individual managers within the subsidiaries. Each subsidiary risk register and
the associated mitigations are monitored by the Group’s Risk Committee.
Review
The Risk Committee reviews, challenges and validates the
individual subsidiary risk registers whilst at the same time
engaging with other senior managers within the Group to
identify those risks and uncertainties that are Group specific.
Report
The Risk Committee reports to the
Audit Committee on the principal risks
and uncertainties that have been
identified by the subsidiaries and senior
management and validated by the Risk
Committee. The Audit Committee gives
challenging feedback on the output from
the Risk Committee ensuring that the
type, quantum and mitigations of the
principal risks and uncertainties identified
mirrors the levels of risk that the Board is
willing to accept in achieving the Group’s
strategic objectives.
www.hsholdings.com | Stock Code HILS
32 Strategic Report
Principal Risks and Uncertainties
Economic
Risk: Changes in government spending plans
Trend
Higher
Link to strategy
Description and potential impact
The Group generates the majority of its revenues from its operations
located in the UK and the USA.
A reduction in UK or US government infrastructure spending,
particularly in relation to national roads infrastructure in the UK,
could have an adverse impact on the Group’s financial performance.
The financial burden on the governments of both jurisdictions from
economic downturn may lead to reduced spending in the principal
markets in which the Group operates.
Mitigation
Strategy of diversification into new markets and territories.
Identification of export opportunities to encourage growth
in alternative markets.
Product development initiatives.
Co-operation between Group businesses, leveraging
the Group’s size/international footprint and exploiting
synergies.
Risk: Changes in global outlook and geopolitical environment
Trend
Higher
Link to strategy
Description and potential impact
The Group operates in a range of end-user markets around the
world and may be affected by political, economic or regulatory
developments in any of these countries.
Mitigation
The Group has a diverse portfolio of businesses with
exposure to a range of markets and geographies, limiting
exposure to any one country or market sector.
Material adverse changes in the political and economic environments
in the countries in which we operate have the potential to put at risk
our ability to execute our strategy.
Current and future financial performance is continuously
monitored, facilitating rapid response to changes in market
conditions.
Entrepreneurial culture established through a decentralised
management structure, ensuring that Group businesses
are agile and responsive to changes in their competitive
environments.
Commercial & Financial
Risk: Product failure
Trend
No change
Link to strategy
Description and potential impact
The Group operates in infrastructure markets where it is critical
that its products meet legislative requirements and where the
consequences of product failure are potentially serious.
Significant product failure arising from component defects or
warranty issues may require remediation including the replacement
of defective components or complete products, resulting in direct
financial costs to the Group and/or wider reputational risk.
Mitigation
Products tested, approved and accredited by regulatory
bodies.
Quality control protocols fully implemented and
continuously monitored.
Contractual controls in place to minimise economic
impacts.
Insurance cover maintained globally with insurance
partners.
Litigation supported/managed by external legal specialists.
Risk: Contractual arrangements
Trend
No change
Link to strategy
Description and potential impact
The Group delivers its commitments to its customers through a
variety of contractual arrangements of both a short and medium
term nature.
Mitigation
Group material contract review process implemented
ensuring specialist central oversight of key contractual
arrangements.
Weaknesses in the contract tendering process, inappropriate pricing,
misalignment of contract terms, ineffective contract management
or failure to comply with contractual conditions could result in loss
of revenues, pressure on operating margins and wider reputational
damage to the Group.
Contracts training provided to all relevant employees during
the current and prior year.
Dedicated quantity surveyors and contracts managers
embedded in subsidiary management structures to control
projects.
Litigation supported/managed by external legal specialists.
www.hsholdings.com | Stock Code HILS
Strategic Report
33
Operational
Risk: Supply chain deficiency
Trend
Slightly higher
Link to strategy
Description and potential impact
The Group’s businesses depend on the availability and timely delivery
of raw materials and purchased components, which could be
affected by disruption in its supply chain.
Mitigation
Implementation of Group procurement standards, including
robust due diligence of supply chain partners and requiring
dual sourcing where available.
Supply chain failures as a result of performance, cost, quality and/or
insolvency may have an adverse impact on the Group’s production
capacity and lead to an inability to meet customer requirements,
resulting in reduction in revenues, potential loss of market share and
possible reputational damage.
Maintenance of relationships with key suppliers through
regular interaction and assessment of performance/
financial status.
Central oversight of material procurement contracts
ensuring robust contractual protections.
Risk: Weaknesses in IT systems
Trend
No change
Description and potential impact
The Group relies on the information technology systems used in the
daily operations of its subsidiaries.
Mitigation
Group IT Steering Committee established to review IT
systems capability, suitability and integrity.
Link to strategy
A failure or impairment of those systems or any inability to
effectively implement new systems could cause a loss of business
and/or damage to the reputation of the Group, together with
significant remedial costs.
Risk: Ineffective management of acquisitions
Trend
Slightly higher
Link to strategy
Description and potential impact
The Group’s growth strategies include the acquisition of businesses
around the world that complement or supplement its existing
activities.
Failure to execute an effective acquisition and integration
programme would have a significant impact on the Group’s ability to
generate long term value growth for shareholders.
Risk: Insufficient investment in product development and innovation
Trend
No change
Link to strategy
Description and potential impact
The Group operates in global infrastructure markets where
continuous innovation is integral to the Group’s product offering and
where a failure to innovate could result in product obsolescence, the
entry of new competitors and/or loss of market share.
The development of new products and technologies carries risk
including failure to develop a commercially viable offering within an
acceptable timeframe.
Steering Committee assesses, approves and monitors
significant IT change programmes.
Disaster recovery plans documented, tested and monitored
by Group businesses.
The Group’s Policy Manual incorporates IT policies in respect
of system back-up procedures and hardware/software
protection.
Mitigation
Board approval required for Group acquisitions, in line with
the Group’s delegation of authority structure.
Due diligence protocols deployed in relation to assessment
of target businesses, including financial, commercial, legal
and others where appropriate.
Contractual protections and assurances sought from sellers
to mitigate subsequent identification of risks.
‘100 Day’ post-acquisition integration plan established
for all material acquisitions with regular performance
monitoring and reporting to the Board.
Mitigation
Subsidiary discretion to engage in research and
development activities.
Robust quality controls.
Dedicated quality compliance resources in place across
Group businesses, ensuring responsiveness to regulator
and/or customer approval requirements.
Executive Board approval of product development proposals
within the Group’s capital spend approval policies.
Board monitoring of emerging risks alongside external
specialist support, where both the risks identified and the
potential opportunities arising are considered.
Portfolio management
Target returns and leverage
Geographic diversification
Entrepreneurial culture
www.hsholdings.com | Stock Code HILS
34 Strategic Report
Principal Risks and Uncertainties (continued)
Human Resources
Risk: Loss of key employees
Trend
No change
Description and potential impact
The Group encourages an entrepreneurial culture through a
decentralised management structure.
Mitigation
Development and implementation of a succession planning
model driven by the Group Chief Executive.
An inability to attract, develop and retain high-quality individuals
in key management positions could severely affect the long term
success of the Group.
Implementation of contractual protections and retentions
in employment contracts of senior management and other
key employees.
Link to strategy
Competitive remuneration, benefits and incentive plans
offered to employees and regularly benchmarked.
Recruitment process developed to include competency
requirements and skills gap analysis.
Group policies supporting the training and development of
employees.
Regular interaction between Group and local executive
management, including attendance at subsidiary Board
meetings.
Legal & Regulatory
Risk: Failure to comply with applicable health and safety legislation
Trend
No change
Description and potential impact
The Group operates a number of manufacturing facilities around the
world.
Mitigation
Implementation of health and safety monitoring and
‘safety cloud’ online reporting framework.
Link to strategy
A failure in the Group’s health and safety procedures could lead to
environmental damage or to injury to or death of employees or third
parties, with a consequential impact on operations and the increased
risk of regulatory or legal action being taken against the Group. Any
such action could result in both financial damages and damage to
reputation.
Retention of an external independent health, safety and
environmental consultant.
Group Health and Safety Forum established to monitor
performance.
Culture of zero tolerance in respect of health and safety
violations promoted by the Board and disseminated
throughout Group businesses.
Open relationships maintained with regulatory bodies.
Risk: Violation of applicable laws and regulations
Trend
Slightly higher
Link to strategy
Description and potential impact
The Group’s global operations must comply with a range of national
and international laws and regulations including those related to
anti-bribery and corruption, human rights and employment, trade/
export compliance and competition/anti-trust.
A failure to comply with any applicable laws and regulations could
result in civil or criminal liabilities and/or individual or corporate
fines and could also result in debarment from government-related
contracts, restrictions on ability to trade or rejection by financial
counterparties as well as reputational damage.
Mitigation
Group Code of Conduct issued to all employees setting out
the Group’s requirements in relation to legal and regulatory
matters.
Training/testing modules in respect of Anti-Bribery and
Corruption and Competition Compliance required to be
taken by all Group employees.
Competition compliance manual implemented by each
Group business.
Programme of audits undertaken on a cyclical basis to
review subsidiary compliance with regulatory requirements,
for example simulated ‘dawn raids’.
Software solutions implemented globally to ensure
compliance with trade and export legislation.
Whistleblowing hotline available to all employees to allow
them to raise concerns in confidence or anonymously, if
preferred.
Modern Slavery compliance programme implemented in
2016.
www.hsholdings.com | Stock Code HILS
35
M.A.S.S. Visirail guard supplied by Asset VRS at Hinkley Point C nuclear power station, Somerset.
ATA’s Zoneguard rental fleet delivered and deployed in Stockholm, Sweden.
36 Strategic Report
Corporate Responsibility
We recognise 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.
Group learning and development – strengthening our talent pipeline
Alongside these management development programmes, individuals
are encouraged to undertake appropriate specialist/technical and
personal development appropriate to their roles and aspirations and
in line with organisational strategy.
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:
›
›
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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.
Our people
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. Investing in our people development framework helps
ensure we create a skilled and motivated workforce that will
positively impact on our future success.
Succession planning and talent management
In 2015 we commenced and during 2016 we have continued
our Succession Planning and Talent Management programme for
managers across all subsidiaries, to nurture the talent within the
Group and ensure we are retaining and developing our leaders of
the future. This involves drawing up Personal Development Plans
for individuals with potential for senior roles. We have a number
of management and leadership programmes in place to aid this
initiative – an executive level development programme, a senior
management leadership programme and a general management
development programme. All these programmes additionally enable
our managers to undertake internationally recognised management
qualifications as part of their studies. These management
programmes are underpinned by Group-wide programmes at
supervisory and team leader level. Our aim is to continually develop
our Group leadership and management capabilities across all levels
of the organisation, enabling all our managers to effectively motivate
and co-ordinate their teams in their business.
To help facilitate this, Group-wide learning and development events
are held throughout the year, covering a range of topics and are
open to employees from all subsidiaries. This enables individuals to
develop specific skills whilst simultaneously providing an opportunity
for inter-subsidiary networking. Recent programmes have included
IT software training, lean manufacturing, time management and
personal organisation, presentation skills, assertive communication
and sales development. Our intention is to ensure we are developing
all our people appropriately and in line with the future skill
requirements of our business.
At a local level, individuals also undertake specialist/technical skills
development, pertinent to their roles – including qualifications in
health and safety, project management, finance and accountancy,
construction and engineering.
Engagement and opportunity is also provided through:
›
›
›
›
›
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Offering share ownership within the Group through the
employee Sharesave Schemes, which currently have circa 700
employees participating;
Support with education, leading to recognised professional and
academic qualifications;
Health and safety training;
Anti-bribery, international competition, Modern Slavery 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; and
Communication through the Group’s website and intranet site.
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 2016, the Group-wide split of male and female
employees is shown in the charts opposite.
www.hsholdings.com | Stock Code HILS
Strategic Report
37
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 Group 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.
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.
Number of PLC Board
Directors:
Male & Female split
Male 5
Female 1
Number of other
Directors:
Male & Female split
Male 74
Female 4
Number of senior
managers in the Group:
Male & Female split
Male 164
Female 22
Total number of
employees in the Group:
Male & Female split
Male 3,774
Female 354
www.hsholdings.com | Stock Code HILS
38 Strategic Report
Case Study
Asset break new ground in creation of new ecological market town
Asset International Limited (‘Asset’), the world’s leading
manufacturer of Weholite large diameter plastic pipes, provided
vital sewerage system components to the developers of Sherford,
an ambitious environmentally-friendly and modern market town
development in South Hams in Devon.
Sherford will have 5,500 homes, four schools and over 80,000m2 of
employment and retail space when completed and is located 28
miles to the east of Plymouth, equidistant from Dartmoor and the
south Devon coast.
It is the aspiration of the developers that Sherford will be viewed in
years to come as one of the West Country’s most admired market
towns; one that has the feeling of being centuries in the making, but
developed with responsible 21st century practices in mind, including
affordable housing and the implementation of renewable energy.
Green practices are very much in the focus for the developers, who
claimed that Sherford will be the most green and sustainable new
town in the country, conceived with a minimised carbon footprint in
mind. All the houses are designed to be energy-efficient, and much of
the energy will be provided by two wind turbines on site.
Ecologically friendly good practice has been extended to the
procurement processes on site, with many of the suppliers chosen
committed to the green agenda, something that Asset place a heavy
emphasis on. The company’s green ethos is exemplified by the fact
that the production and installation of their signature large diameter
plastic pipes has been proven to have a significantly reduced carbon
footprint compared with other alternatives on the market, including
concrete.
One of the fundamental considerations of any new development is
the management of the site’s foul water. Using the standard Sewers
for Adoption discharge figure of 4,000 litres per dwelling day for
5,500 dwellings gives a typical discharge rate of 254 litres per second.
In order to efficiently manage the vast quantities of foul water
flowing through the site once the development is populated, Asset
were commissioned to provide a back-up storage tank for Sherford’s
foul water pumping station. The vast 3.5 metre diameter 30 metre
long, multi-leg Weholite attenuation tank utilises 170 metres of
pipes, and holds approximately 1,500m3 of foul water.
The Weholite tank is much larger than its more standard sized
counterparts, which usually hold around 200m3, and connects
directly to the town’s foul water pumping station. The tank was
designed and made to the specific requirements of Fred Champion
Groundworks, who were responsible for developing the infrastructure
for the site’s sewerage needs.
The tank was designed and supplied with an integral dry weather
flow channel to meet the specific requirements set by South West
Water. The dry weather flow channel is uniquely designed to improve
the hydraulic efficiency of the tank in low flow conditions, helping to
avoid silting.
The offline attenuation tank was prefabricated at Asset’s state of the
art factory in Newport, and transported to the site in Devon in one
piece prior to installation, vastly cutting down on the amount of time
spent positioning the tank in situ; a huge bonus to the contractors
who are observing stringent timescales.
Find out more about the company at www.weholite.co.uk
Strategic Report
39
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 committed to the Modern Slavery Act 2015 and has supported the implementation of a number of policies and initiatives during
2016 to supplement the Group’s existing compliance controls in respect of anti-slavery and human trafficking. The Group has adopted a
zero-tolerance approach to modern slavery and human trafficking and, in conjunction with strengthening our supplier due diligence activities and
human resources procedures, has undertaken an initial risk assessment of its exposure to modern slavery and also delivered training to the Board
and Group’s senior management teams in this area.
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 variations 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.
Procurement controls
The Group is further developing its procurement systems to enhance and embed best practices in purchasing activity and during the year looked
at how the Modern Slavery Act impacted upon its supply chain.
Health and safety
The Group remains firmly committed to ensuring a safe working environment and continues to maintain a system of control and monitoring for
health and safety risks. Sites continue to work alongside our external health and safety consultant to assist the Group in achieving its objectives
around health and safety.
Our systems for controlling occupational health and safety risks continue to be focussed on third-party support including a programme of
external audits, a compliance based software solution and in the UK, quarterly Safety Forum meetings.
Our third-party consultant has continued to audit our sites and tracks overall performance. This is also supported by an internal self-assessment
completed by a nominated subsidiary director in each business.
The UK Safety Forums are attended by dedicated health and safety representatives for each site, which ensures that best practice is shared, that
there is discussion on practical solutions to common issues and that generally there is a high level of communication across the sites.
The ‘Safety Cloud’ compliance tool continues to assist in the reporting of incidents, tracking of actions from third party audits, close out of safety
related inspections/audits and sharing of information through the dissemination of safety alerts and bulletins.
www.hsholdings.com | Stock Code HILS
40 Strategic Report
Corporate Responsibility (continued)
Summary of health and safety objectives for 2016
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 to be
set up.
Safety culture was formally assessed across our UK sites in 2016. Over
two-thirds of staff returned a survey which has helped each business to prioritise
its objectives for the next year. This culture tool will now be rolled out to overseas
sites.
The continuation of the external audit programme,
with current scores to be maintained or improved, as
appropriate.
For UK sites, 2016 has seen the best performance to date with an improvement
on previous years. Overseas sites continue to address the actions arising from the
audits and are also making steady and encouraging improvements.
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.
Through the Safety Forum and online reporting via Safety Cloud, sites have been
encouraged to be more open about incident reporting. This has led to a better
understanding and more accurate reporting of injuries. Near miss reporting is also
improving across the workforce.
A review of the way accident data is collated to provide a
more meaningful measure based on employment rate.
Injury data in still based on numbers of reports across the organisation and work
is ongoing to try to streamline comparative data, which varies in its baseline
measure across our global operations.
The Group companies work actively to effectively manage health and safety, evidenced by the following initiatives:
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Ongoing attainment of OHSAS 18001 certification by Hill & Smith Ltd, Variable Message Signs, Mallatite Ltd, France Galva, Asset Varioguard
(VRS) and Joseph Ash Galvanizing Limited.
Newly certified sites to OHSAS 18001 including other Joseph Ash Galvanizing Limited sites and Asset International Limited, with several
others following up with their initial OHSAS assessments which will be completed in 2017.
Joseph Ash Galvanizing Limited once again received a RoSPA Gold Medal in recognition of their safety performance and involvement of the
workforce.
A number of subsidiaries continued to maintain their Achillies supplier HSE accreditation, which is a national registration scheme allowing
companies to be assessed to work in the infrastructure sector.
Creative Pultrusions fully reviewed their induction training and rolled out a new programme to all existing and new employees. This has
helped to raise the profile of both quality and safety across the site.
Recognising that the social use of drugs and alcohol could potentially have an impact of how workers behave and react in the workplace,
several subsidiaries have rolled out initiatives to raise awareness of such issues and have also introduced random monitoring.
Asset International Limited have continued to invest in automated machinery for pipe fabrication which has further reduced exposure levels
for hand arm vibration. Workers have been actively involved in the trials of personal monitoring devices which helps them to ensure they are
fully aware of personal trigger times and are therefore able to react accordingly.
Lionweld Kennedy Flooring Ltd t/a Access Design & Engineering provided the design, fabrication, supply and installation of 1,225m2 of GRP flooring and all steel handrails and stairs
around the perimeter of the Siemens Berth 1 project on the north side of the Humber near Hull.
www.hsholdings.com | Stock Code HILS
Strategic Report
41
Other progress in 2016
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Safety Culture
The safety culture assessment completed across our UK sites showed that, as a Group, we are performing above the industry standard
(from benchmark data collated by the Health and Safety Laboratory). The survey has been useful to identify workers’ perceptions of health
and safety and how we deal with it across eight key themes. With two-thirds of the surveys being returned, we were pleased with such a
high uptake which was supported by an effective publicity and promotional campaign before the surveys were commenced. The findings
of the survey will help sites to identify key initiatives to improve safety culture across the forthcoming months and years. Recognising
that cultural change can be slow, this initial survey is vital in our goal of demonstrating a defined improvement in attitudes, values and
behaviours at all levels.
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Incidents
Encouraging the open reporting of accidents and incidents continues to be a prime objective. A number of subsidiaries have embraced more
effective near miss reporting which is creating a better understanding of root causes, behaviours and the general management of risk. More
work will be done in this area in 2017 with others being strongly encouraged to adopt an open approach to near miss reporting.
At the same time, there has been a drive to encourage reporting of minor injuries, that in previous years might not necessarily have been
reported and this has led to an increase in injuries reported as our employees begin to better understand the inherent benefits from having
a safe place to work. Reported injuries, including minor injuries, in 2016, on a like-for-like basis, was 468 (2015: 339), with lost-time injuries
amounting to 178. Within this number, are some of the newer acquisitions from previous years who are becoming familiar with the Group’s
expectations for health and safety and injury reporting. That said, we are confident that our sites are and remain safe places to work and
that our employees better understand their health and safety obligations both to themselves and their colleagues.
Our reporting is now more accurate than it has ever been. In particular, all subsidiaries adopt a thorough investigation process to
identify underlying causes and to ensure action plans to address any improvements are put in place. The reporting of incidents to the Group
via the Safety Cloud has helped the UK sites to implement a more consistent approach and to start to gather better and more accurate
data.
The culture survey also asked various questions around accident and near miss reporting, with results showing our arrangements are on par
with industry standards.
Audits
The externally managed health and safety audit programme continues to show that sites are demonstrating a high level of health and
safety management and adherence to safe working practices. For 2016, we saw a further improvement in the overall weighted score, which
is now at its lowest since the external audit programme commenced in 2009.
2017 health and safety objectives
In the forthcoming year our efforts in promoting a safe and secure workplace will continue with specific focus on:
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Further roll out of the safety culture assessment tool to newly acquired businesses and our overseas operations.
Utilising the findings of the 2016 culture assessment to drive improvements in how we deal with health and safety on a day to day basis
and how we can encourage a better understanding of the behaviours and attitudes of our workforce. Specific initiatives will be driven from
within each site to reflect the findings from their individual surveys.
The continuation of the external audit programme, with current scores to be maintained or improved, as appropriate.
An ongoing drive to encourage better reporting of near misses and non-injury related events and a further review of the way accident data
is collated to provide a more meaningful measure based on employment rate.
Further development of key performance indicators to link incident rates, health and safety audit performance and the results of the culture
survey.
Hot dip galvanizing by France Galva on Station F, a former 34,000m2 railway freight hangar in Paris, France. Now the largest start up campus in the world with more than 3,000
workstations, an auditorium with seating for 370 people, a fablab, a pop up store and services, as well as a 4,000m2 catering and relaxation area open to the public.
www.hsholdings.com | Stock Code HILS
42 Strategic Report
Corporate Responsibility (continued)
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,
and the Group contributes information and data to the Carbon Development Project, a programme designed to tackle climate change.
In 2016, the Group 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.
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 these were discussed at the Company’s inaugural Energy Forum meeting in
November 2016, where the subsidiary Energy Champions shared experiences and best practice and discussed actions to identify energy savings
opportunities, how to drive forward their implementation, and whether such plans should be developed on a local basis or sponsored by the
Group.
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, with companies
monitoring their environmental impact on a day-to-day basis.
Greenhouse 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
Gas and oil usage
Commercial and business miles driven
Purchased electricity
Water and waste
Total tCO2e
Total turnover
Intensity Ratio
Group emissions
2016
Group emissions
2015
Group emissions
2014
37,061.92
8,284.80
21,950.87
869.10
68,166.69
£540.1m
0.126
33,557.46
7,104.59
23,146.75
466.07
64,274.87
£467.5m
0.137
33,418.90
7,358.00
25,851.20
454.70
67,082.80
£454.7m
0.148
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.
Water consumption
After a few years of reported reduction in water consumption, the Group’s consumption in 2016 rose by 13.6%. This is due to the corporate
acquisition strategy followed by the Group in late 2015 and throughout 2016. When measured against Group revenues in much the same way as
CO2e emissions the water consumption ratio remains changed.
Group water usage
UK water usage
Overseas water usage
Total usage
Ratio per £1000 of Group turnover
2016 volume
2015 volume
39,737 m3
59,034 m3
98,771 m3
0.183
27,681 m3
59,239 m3
86,920 m3
0.186
www.hsholdings.com | Stock Code HILS
Strategic Report
43
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 (like-for-like)
Waste to landfill
Recycled waste
Total waste (inc. landfill)
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 complies 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.
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 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 Lily Mae Foundation, NSPCC, Cancer Research,
Macmillan and Sport Relief.
In the UK, Mallatite, Signature, Dee-Organ and Post and Column
took part in the UK’s biggest road safety event, Road Safety Week,
co-ordinated by Brake, the road safety charity. Thousands of
organisations, schools and community groups backed the Make the
Brake Pledge campaign.
UK volume
Overseas volume
(ltrs) 2016
119,423
(ltrs) 2016
35,508
4,929,021
1,727,106
1,550
7,628
9,178
2,647
11,084
13,731
The Road Safety Week 2016 theme for Make the Brake Pledge, was
about raising awareness in six key areas for individuals to protect
themselves and the people around them, as well as reducing
emissions and pollution from vehicles. The six Brake Pledge points
are: Slow, Sober, Secure, Silent, Sharp and Sustainable.
Jonathan Brown, the event co-ordinator for Mallatite Limited was
extremely pleased to be able to support the event stating: “Brake
Road Safety Week is an extremely worthwhile charity event that
is particularly relevant to our industry. We’re a manufacturer and
distributor of a wide range of products that are vital to the safety of
all types of road user, so it’s important that we all play our part to
raise awareness and funds for this great cause. We’re encouraging
all team members across our five sites around the country to get
involved by making the pledge, holding a bright day and baking for
Brake.”
In the US our colleagues, many of them V&S employees, participated
in and helped sponsor a local “5K Run/Walk Race” in memory of
Kyle Miller, who lost his life in a kayaking accident. Kyle enjoyed
studying Zoo and Conservation Science at Otterbein University and
volunteered at the Ohio Wildlife Center, and the “Kyle Miller Memorial
Scholarship Fund”, endowed a scholarship at Otterbein University
created in his memory.
www.hsholdings.com | Stock Code HILS
44 Strategic Report
Case Study
Let sleeping dragons lie
The bread and butter of Joseph Ash Galvanizing’s work is centred around galvanizing steel used in
transport, farming, construction and infrastructure. They do this for fabricators, fencing and agricultural
manufacturers, and large structural steelwork companies. Every so often however they also receive a
project from a steel sculptor. The works are unusual, intricate and detailed and it is an absolute pleasure
to become a part of the sculptor’s artistic process.
Joseph Ash Galvanizing is a complete
one-stop-shop steel finishing service.
The most recent pieces of art that came in to Joseph Ash Bridgend were two huge steel dragons:
a dragon curled around a lamp post and a sleeping dragon, fabricated by Phoenix Forge Ltd, a
bespoke metalwork and blacksmith’s business based in Carmarthen, South Wales.
Will Holland from Phoenix Forge said:
“The dragon lamp post sculpture was vast with a wing span of approximately 6-7 feet and a
nose to tail length of about 9 feet, however the sleeping dragon was a lot larger, but curled
up on a rock with a diameter of 6 feet.”
After spending over 300 man hours, over a period of six weeks, to make each dragon,
Phoenix Forge asked Joseph Ash Bridgend to galvanize both sculptures. Galvanizing is
an important finish for outside sculptures such as these as the treatment protects
the steel from atmospheric conditions and rust.
The dragon climbing the lamp post sculpture was commissioned by a private
collector in Shropshire who has bought several similar sculptures from Phoenix
Forge over the last few years. The artwork has now been installed outside
the client’s private residence.
In contrast the sleeping dragon - which is made up of over 5,000
individual steel scales - was fabricated as a show piece for Phoenix
Forge’s display at the 2016 Royal Welsh Show at the National Botanic
Gardens in Wales.
Find out more about the company at:
www.josephash.co.uk
Top - Lamp post dragon.
Bottom - Sleeping dragon.
Governance ReportSee further information at hsholdings.com47 Chairman’s Introduction to Governance48 Board of Directors50 Governance Report59 Nomination Committee Report60 Audit Committee Report66 Remuneration Committee Report68 Directors’ Remuneration Report77 Remuneration Policy Report85 Directors’ Report (other statutory information)88 Statement of Directors’ ResponsibilitiesImage Hardstaff’s Rebloc RB60 temporary safety barrier on the A10 motorway in Zederhaus, Salzburg in Austria.45Governance Report45Governance Report 46
Governance Reportwww.hsholdings.com | Stock Code HILS47Chairman’s Introduction to GovernanceDear 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 2016 the Group continued to strengthen its risk assessment and risk management processes leading to a revised principal risks and uncertainties register that is specific to the Group’s operations and strategy. This is set out on pages 30 to 34.As Chairman, it is my role to provide leadership to enable the Board to discharge its responsibilities effectively. Such effectiveness is normally evaluated internally and, set out on page 54, is the Board’s response to such evaluations.Annette Kelleher, Chair of the Remuneration Committee reports in her introduction on page 66, on the approach taken to executive remuneration and the work done on revising the Company’s Remuneration Policy as well as other 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 39) and their safety (see page 39). I look forward to meeting you at our Annual General Meeting on Thursday 11 May 2017.Bill Whiteley Chairman8 March 2017Bill WhiteleyChairmanImageRemovable GRP handrail system and galvanized steel flooring at the Doncaster rail depot, designed, supplied and installed by Access Design & Engineering and fabricated by Lionweld Kennedy Flooring Ltd. 48 Governance Report
Board of Directors
W H Whiteley BSc, FCMA
Chairman and Non-executive (68)
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 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 (56)
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 29 years, having first been 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 (48)
Managing Director - UK Utilities Group
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. From 1 July 2016, he assumed full operational and managerial
responsibility for businesses within the UK Utilities division.
Appointed to the Board
11 March 2008
Committee Membership
n/a
www.hsholdings.com | Stock Code HILS
Governance Report
49
J F Lennox LLB, CA
Senior Independent Non-executive (60)
Jock is the non-executive Chairman of Enquest plc and a non-executive
director and Audit Committee Chairman of both Barratt Developments plc
and Dixons Carphone plc. He is also 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.
Appointed to the Board
12 May 2009
Committee Membership
Audit, Remuneration, Nomination
A M Kelleher MSc, BA
Independent Non-executive (50)
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 (c), Nomination
M J Reckitt BCom, CA
Independent Non-executive (58)
Mark was appointed as Non-executive Director on 1 June 2016. Mark is a
chartered accountant and was Group Strategy Director of Smiths Group
plc from February 2011 to April 2014, and Divisional President, Smiths
Interconnect from October 2012 to April 2014. Prior to joining Smiths, Mark
was interim Managing Director of Green & Black’s Chocolate and before
that he held a number of finance and strategy roles at Cadbury plc before
being appointed its Chief Strategy Officer from 2004 to 2010. He is also a
Non-executive Director and Chairman of the Audit Committee, as well as a
member of the Nomination and Remuneration Committees, for Mitie Group
PLC and Cranswick plc.
Appointed to the Board
1 June 2016
Committee Membership
Audit (c), Remuneration, Nomination
www.hsholdings.com | Stock Code HILS
50 Governance Report
Governance Report
Statement of compliance with UK Corporate Governance Code
The UK Corporate Governance Code published by the Financial
Reporting Council in September 2014 applies to the Group and the
Board confirms that for the period ended 31 December 2016 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. A
new UK Corporate Governance Code was published in June 2016
for accounting periods beginning on or after 17 June 2016 and the
Company will report against this code in its 2017 Annual Report.
A. Leadership
Details of the Group’s business model and strategy can be found on
pages 8 to 13.
Leadership framework
The Hill & Smith Holdings PLC Group consists of the Company and
the principal subsidiary companies, listed on pages 154 to 156,
and during 2016 operated 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 2016 the Board constituted the individuals listed below and
these Directors made up 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 (appt Senior Independent Director 17 May 2016)
C J Snowdon - Non-executive and Senior Independent Director (resigned 17 May 2016)
A M Kelleher - Non-executive Director
M J Reckitt - Non-executive Director (appt 1 June 2016)
C A Henderson - Company Secretary
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
M J Reckitt
(appt Chairman 17 November 2016)
Chairman
A M Kelleher (appt 17 May 2016)
Chairman
W H Whiteley
Other members
C J Snowdon (resigned 17 May 2016)
A M Kelleher
J F Lennox (resigned as Committee Chairman
17 November 2016)
Other members
J F Lennox
M J Reckitt (appt 1 June 2016)
C J Snowdon (resigned 17 May 2016)
Other members
J F Lennox
D W Muir
C J Snowdon (resigned 17 May 2016)
A M Kelleher
M J Reckitt (appt 1 June 2016)
Secretary
C A Henderson
Secretary
C A Henderson
Secretary
C A Henderson
www.hsholdings.com | Stock Code HILS
Governance Report
51
The Code provides that for those companies in the FTSE 350 at
least half the Board, excluding the Chairman, should comprise
independent Non-executive Directors. The Company entered the FTSE
350 in June 2016 and confirms its adherence to the Code for FTSE
350 businesses in that half of the Board consists of independent
Non-executive Directors.
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 (2)
Annette Kelleher
Mark Reckitt (2)
Total meetings
9
9
9
9
4
9
5
9
4*
4*
4*
4
1
4
3
4
2
2
-
2
1
2
1
2
5*
3*(1)
1*(1)
5
1
5
4
5
* 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.
(2) Both C J Snowdon and M J Reckitt attended all meetings that they were eligible to attend.
All Directors of the Board except M J Reckitt attended the AGM on
17 May 2016; M J Reckitt was not appointed to the Board until 1 June
2016. All Directors of the Board except C J Snowdon attended the
strategy meetings held in June and November as he had resigned on
17 May 2016.
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, regularly visits the US and France and in 2016 also visited
Thailand, India and Australia.
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 compliance,
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 48 and 49.
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.
www.hsholdings.com | Stock Code HILS
52 Governance Report
Governance Report (continued)
B. 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
above, the Board received, reviewed and approved various matters,
during 2016 and up to the date of this report:
›
›
Regular updates on the rationalisation of the non-US Pipe
Supports business;
Presentations on specific strategic plans from the management
of ATA Sweden, Hill & Smith India, The Birtley Group and Hill &
Smith Australia;
›
›
›
›
›
›
›
›
›
›
›
›
›
The schedule of matters reserved for the Board;
Acquisition integration plans;
Anti-bribery & Corruption compliance;
Modern Slavery;
Consideration of the EU Market Abuse Regulations;
Diversity and equal opportunities policy;
Dividend policy;
Goodwill and Intangible Asset carrying values;
Pension schemes merger;
Pension scheme master trust arrangements;
Amended and extended the Group’s banking facilities for a
further two years;
Viability Statement; and
Corporate activity including the acquisitions of FMK
Trafikprodukter AB, Hardstaff Barriers Limited, Technocover
Limited, Signature Limited, and E.T. Techtonics, Inc.
The Board also received budget presentations from the management
of Bergen Pipe Supports USA, Carpenter & Paterson, the V&S Group,
Hill & Smith Ltd and Joseph Ash Ltd, as well as visiting the France
Galva site at Saint-Floretin, France for a two-day budget and strategy
discussion.
These budget presentations are initially challenged by the Executive
Directors before being presented to the Board which approves the
businesses’ individual budgets, having reviewed and discussed the
plans submitted. Where appropriate the Board offers additional
challenge in order that the final budgets are a realistic representation
of the expected financial performance of the businesses taking onto
account historical performance and future economic conditions.
E.T. Techtonic’s fabricated bridge at the 243-acre Pescadero Marsh Natural Preserve in California, USA. The area is a habitat for a wide range of birds and endangered wildlife and offers
many hiking trails.
www.hsholdings.com | Stock Code HILS
Governance Report
53
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 are
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.
All Directors have open access to the Group’s key advisors, senior management and the Company Secretary.
www.hsholdings.com | Stock Code HILS
54 Governance Report
Governance Report (continued)
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
(5)
Mergers &
Acquisitions
(6)
Culture &
Ethics
(6)
Supply
chain
(4)
Human
Resources
(5)
Leadership
(6)
Digital (1)
Health & Safety
(6)
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
48 and 49, 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. The 2015
and 2016 evaluation process was done internally and facilitated
using a bespoke online questionnaire. The Board will consider an
externally facilitated evaluation for 2017 or 2018.
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:
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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.
The Board have responded to these matters by:
›
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Receiving presentations from subsidiary management teams.
Most notably ATA Sweden, The Birtley Group, Carpenter &
Paterson, V&S and France Galva;
Giving consideration to the economic and political landscape
that had changed throughout 2016 and the general
opportunities that there might be for further acquisitions in
appropriate markets;
Meeting with many subsidiary businesses to discuss their
three-year strategic plans, including a site visit at France Galva,
Saint-Florentin;
Being cognisant of upcoming Board changes and ensuring that
recent appointees have the right balance of skills and expertise
to ensure a strong Board.
The 2016 evaluation, conducted via an internal questionnaire, focused
on the following factors:
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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.
The results of the evaluation will be discussed at a future Board
meeting, bearing in mind the recommended Board changes taking
place in 2017. We will report on the results of this evaluation, in next
year’s Annual Report.
Following this internal evaluation, the Chairman met with the
Non-executive Directors, in the absence of the Executive Directors, to
discuss the performance of the Executive Directors and the
Non-executive Directors met in the absence of the Chairman to
discuss his performance.
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55
Appointments to the Board
Mark Reckitt was appointed as Non-executive Director on
1 June 2016. Korn Ferry were engaged by the Company to conduct
a search for a suitable candidate and shortlisted several individuals.
Feedback from these meetings was then given to the Chairman. The
Nomination Committee subsequently met to discuss the potential
appointment. The Board had requested that an individual with
international strategic management experience be recruited, and
the Committee, in considering this requirement and the existing
balance of skills, knowledge and experience on the Board, the merit
and capabilities of the candidates and the time they were able to
devote to the role in order to promote the success of the Company,
recommended the appointment of Mark to the Board. Following
his appointment Mark met with the Executive Directors, the Group
Company Secretary and the Group Financial Controller and visited
major companies within the Group’s UK-based Roads, Utilities and
Galvanizing businesses as part of his induction.
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 54.
Bill Whiteley will step down from the Board at the conclusion of the
Company’s AGM in May 2017 and will not be seeking re-election. The
Board approved the appointment of Jock Lennox as Chairman, from
the conclusion of the AGM, see the Nomination Committee Report on
page 59 for more details.
Following the formal evaluation of the performance of the Board in
2016, Mark Reckitt is being proposed for election and the remaining
Directors for re-election at the 2017 AGM. The biographies of the
Directors of the Board are shown on pages 48 and 49.
C. 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 in separate reports.
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.
Financial and business reporting
The respective responsibilities of the Directors and auditor in
connection with the Financial Statements are explained in the
Statement of Directors’ Responsibilities on page 88 and the
Independent Auditor’s Report on pages 90 to 91.
Fair, balanced and understandable
The Directors consider that the Annual Report, taken as a whole, is
fair, balanced and understandable, and provides the information
necessary for shareholders to assess the Group’s performance,
business model and strategy. More information can be found on
page 64 of the Audit Committee Report.
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 and steel prices 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 preparing this statement of viability, the Directors have considered
the prospects of the Group over the three year period immediately
following the 2016 financial year. This longer-term assessment
process supports the Board’s statements on both viability, as set
out below, and going concern, above. A three year period was
determined as the most appropriate as it is the period covered by the
Group’s annual strategic planning process, which sets the
long-term direction of the Group and is reviewed at least annually by
the Directors. The Board concluded that a period of longer than three
years would not be meaningful for the purpose of concluding on
longer-term viability.
The strategic planning process considered metrics which enable
assessment of the Group’s key performance indicators (see pages 28
and 29) in addition to net debt, liquidity and financing requirements.
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56 Governance Report
Governance Report (continued)
In conducting the review of the Group’s prospects the Directors
assessed the three-year plan alongside the Group’s current financial
position, the Group’s strategy and the principal risks facing the Group
(all of which are detailed in the Strategic Report on pages 32 to 34).
This assessment considered the impact of the principal risks on the
business model and on future performance, liquidity and solvency.
Stress tests were applied to the Group’s three-year plan, whereby
risks associated with the economic risks faced by the Group were
applied to the plan in a number of diverging scenarios. The developed
scenarios were designed to be plausible, yet severe:
›
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A decrease in the UK Government’s road infrastructure spend;
A fall in galvanizing volumes across all geographies; and
A reduction in revenues in the Group’s Utilities businesses in the
UK and USA.
In making this viability statement the Directors considered the
mitigating actions that would be taken by the Group in the event that
the principal risks of the Company become realised. The Directors
also took into consideration the Group’s financial position at
31 December 2016 with net cash of £15.6m, available committed
facility headroom of £105.8m and a history of strong cash
generation, and noted that the Company’s principal financing
facilities are committed until April 2021 thus covering the period of
review.
The Directors have assessed the viability of the Group and, based on
the procedures outlined above in addition to activities undertaken
by the Board in its normal course of business, confirm that they have
a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period to
31 December 2019.
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 2016,
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 2016, and up to the date
of approving the Annual Report and Financial Statements, the key
elements of this process are:
›
›
A comprehensive system of monthly reporting from key
executives, identifying performance against budgets and
forecasts;
Analysis of variances, major business issues, key performance
indicators and regular forecasting;
› Well-defined policies governing appraisal and approval of capital
expenditure and treasury operations;
›
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›
›
›
Regular meetings to identify and discuss key risks and
mitigations with a broad sample of the senior management
team and the Executive Directors;
Review of the corporate risk register in terms of completeness
and accuracy with the senior management team and the
Executive Directors;
Audit Committee discussion of the corporate risk register and
the risk management system with subsequent reports to the
Board;
The use of a Risk Committee to monitor, validate and report on
the Group-wide risk assessment process; and
The introduction of a senior management top-down approach
to complement the work of the Risk Committee.
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 30 to 34.
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Governance Report
57
D. Remuneration
The Directors’ Remuneration Report on pages 68 to 76 explains how the Company applies the Code principles relating to remuneration.
E. 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:
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During the year the Chief Executive Officer and Group Finance Director regularly meet with institutional shareholder representatives,
including days at Hill & Smith Limited, V&S Galvanizing and Creative Pultrusions, to discuss strategic and other issues as well as to give
presentations on the Group’s results.
The Board regularly receives reports from the Company’s brokers and financial public relations agency on feedback from institutional
shareholders following the Executive Directors’ presentations.
During the year the Chair of the Remuneration Committee consulted with major shareholders over changes in Executive remuneration,
based on a change in roles and responsibilities and liaised with major shareholders on changes to the Company’s Remuneration Policy, 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.
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, Nomination Committee
8 March 2017
Varley & Gulliver installed their VGAN 300 aluminium parapet on the world’s first all aluminium bridge structure on the Arvida Bridge in Québec, Canada.
www.hsholdings.com | Stock Code HILS
58
Joseph Ash’s galvanizing on the Bond Street, Crossrail.
Nomination Committee Report
Governance Report
59
Bill Whiteley
Chairman, Nomination Committee
Nomination Committee composition
During the year the Committee comprised myself as the Group’s
Chairman, the Non-executive Directors Clive Snowdon (resigned
17 May 2016), Jock Lennox, Annette Kelleher, and Mark Reckitt
(appointed 1 June 2016), and the Group Chief Executive, Derek Muir.
The Committee met twice in the financial period under review with all
eligible members of the Committee being present on each occasion.
Chairman succession
During the year I indicated my intention to stand down as Chairman
of the Company at the next AGM in May 2017. The Company
immediately engaged Korn Ferry to compile a shortlist of potential
candidates along with an internal candidate that had expressed an
interest in the position. Annette Kelleher was delegated by the Board
to commence a process of selection. On completion of this process,
Annette Kelleher recommended to the Nomination Committee, that
Jock Lennox, the Company’s current Senior Independent Director be
appointed Chairman of the Company on my retirement. Following a
meeting of the Nomination Committee, this recommendation was
forwarded to the Board, who approved the appointment of Jock
Lennox to Chairman, as from the conclusion of the Company’s AGM
on Thursday 11 May 2017. The Company has commenced a search,
via Korn Ferry for a new Non-executive Senior Independent Director.
Other principal activities
During the year, and the period up to the date of this report, the
Committee also considered:
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›
›
›
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 other forthcoming changes over
the next two years.
Non-Executive appointments and changes in roles and
responsibilities on the Board.
Board evaluation - a summary of the process and key matters
arising from the 2015 and 2016 Board evaluation, led by the
Chairman and internally facilitated by the Company Secretary, is
contained on page 54.
The appointment of Mark Reckitt as a Non-executive Director
(see page 55) and subsequently as Chairman of the Audit
Committee.
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.
The Committee will consider candidates on merit and against
objective criteria and with due regard for the benefits of diversity on
the Board, including gender, taking care that appointees have enough
time available to devote to the position.
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 54) 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.
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.
Bill Whiteley
Jock Lennox
Date of appointment
Length of service at
31 December 2016
1 January 2010
7 years
12 May 2009
7 years 7 months
Annette Kelleher
1 December 2014
2 years 1 month
Mark Reckitt
1 June 2016
7 months
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.
On behalf of the Board
Bill Whiteley
Chairman, Nomination Committee
8 March 2017
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60 Governance Report
Audit Committee Report
Mark Reckitt
Chairman, Audit Committee
Dear Shareholder
It is a pleasure to make my first report as the Audit Committee
Chairman of Hill & Smith Holdings PLC. I currently hold similar
positions at Mitie Group PLC and Cranswick plc, having previously
held the position of Group Strategy Director at Smiths Group plc from
February 2011 to April 2014 and Chief Strategy Officer at Cadbury plc
from 2004 to 2010. I look forward to working with the Company’s
senior management team as we continue to develop and enhance
our risk management processes and internal audit programmes.
During this financial period, with the support of the Audit
Committee, the executive team has continued to build upon the
risk management processes that were first implemented in 2014.
The new risk assessment methodology which was implemented
across the Group in 2015 was further enhanced in 2016, with all
subsidiaries having access to an online reporting tool that helps with
the production of business unit specific risk registers in a consistent
format for debate by the Group Risk Committee. The Committee
comprises the Group Risk & Compliance Counsel, the Group Financial
Controller, the Group Company Secretary and the Group’s Director
of Corporate Development. As part of the continual improvement
process, senior management also provided the Risk Committee
information on risks that were apparent across all subsidiaries and
that might affect the Group’s ability to deliver its strategic plan.
The Committee also engaged advisors to provide a third party
assessment of the extent to which subsidiary businesses are
mitigating the risks identified in their risk registers. The results of this
review were used to introduce an internal audit programme to assess
conformance against the compliance and policy initiatives that
the Group has issued, together with a more in-depth review of the
approach of each company within the Group to the internal controls
relevant to its risks.
This Audit Committee report explains how the Committee has
discharged its responsibilities, and takes into account the specific
areas of:
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Primary areas of judgement considered by the Committee in
relation to the 2016 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 2017.
Mark Reckitt
Chairman, Audit Committee
8 March 2017
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Roles and composition of the Committee
The Audit Committee reviews the Group’s accounting policies and procedures, its Annual and Interim Financial Statements before submission to
the Board and its compliance with statutory requirements.
The Committee monitors the integrity of the Group’s Financial Statements and announcements relating to financial performance and reviews the
significant reporting judgements contained therein. It also reviews the scope, remit and effectiveness of the internal control systems and internal
audit function.
At different times during the year the Audit Committee consisted of Jock Lennox, Clive Snowdon, Annette Kelleher and Mark Reckitt:
1 January 2016 - 17 November 2016:
Jock Lennox (Chairman)
Clive Snowdon – resigned 17 May 2016
Annette Kelleher
Mark Reckitt – appointed 1 June 2016
17 November 2016 - 31 December 2016:
Mark Reckitt (Chairman)
Jock Lennox
Annette Kelleher
Mark Reckitt, having held the position of Group Strategy Director at Smiths Group plc from February 2011 to April 2014 and Chief Strategy Officer
at Cadbury plc from 2004 to 2010 as well as being the current Audit Committee Chairman at Mitie Group PLC and Cranswick plc, has been
specifically identified as the Committee member having recent and relevant financial experience.
The Committee’s terms of reference can be found on the Company’s website.
Meetings
The Committee meets according to the requirements of the Company’s financial calendar and during 2016 met on four occasions; in March to
consider the Annual Report and Financial Statements together with the external audit findings, in August to review the interim results report,
in September to approve the external auditors plan and approve their fees and in December to review the internal audit activities and reports
and approve the internal audit plan for the year ahead. 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 51.
Each meeting allows time for the Committee to speak with the external auditors without the presence of the Executive management.
When Audit Committee Chairman, Jock Lennox maintained regular contact with the external audit partner outside of Committee meetings
and without the management of the business present and since his appointment, Mark Reckitt has continued this process. 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. During the year and to the date of this report the Committee considered the following items:
Financial Statements and Reports
Risk Management
Internal Audit
External Audit and non-Audit Work
›
›
Assessed the adequacy
of the internal control
environment and
the processes in
place to monitor this,
including reviewing the
performance of the
internal audit activity.
Evaluated the plan of
work that had been
identified through
the risk management
reporting process.
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Reviewed the 2016 Annual Report,
the 2016 Interim Report and other
trading updates issued during the
year.
Reviewed the effectiveness of the
Group’s risk management and
internal controls and disclosures
made in the 2016 Annual Report.
Advised the Board on whether it
is appropriate to adopt the going
concern basis of accounting in
preparing the Group’s Financial
Statements (see page 55).
Advised the Board on whether
the Annual Report and Financial
Statements, taken as a whole, are
fair, balanced and understandable
(see page 64).
Reviewed areas of the accounts
requiring judgement including the
carrying value of goodwill and
indefinite life assets; the defined
benefit pension scheme valuation;
and taxation (see page 62).
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Reviewed the outputs from
the Group’s risk management
process to ensure that
subsidiaries were identifying,
evaluation and mitigating risks
and considered changes to
encourage both bottom-up and
top-down risk assessments.
Reviewed proposals to enhance
the Group’s whistleblowing
policy and process which will
include an external reporting
facility for employees.
Reviewed the Group’s proposed
approach to compliance with
the requirements of the Modern
Slavery Act.
Advised the Board on whether,
given an assessment of the
Company’s current position and
principal risks, the Board can
approve its viability statement,
(see pages 55 and 56).
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Considered, along with the external
auditor, the significant risks to
the audit and their approach
to these risks – risk of fraud in
revenue recognition; fraud risk from
management override of controls;
valuation of goodwill; and
post-retirement benefits obligations.
Reviewed, considered and agreed the
methodology of the 2016 audit work
to be undertaken by the external
auditor.
Oversaw the relationship with the
external auditors, reviewing their
performance and advising the
Board on their appointment and
remuneration;.
Evaluated the independence and
objectivity of the external auditor.
Reviewed the level and nature of
non-audit services provided by the
external auditor.
Reviewed and approved updates to
the non-audit services policy.
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62 Governance Report
Audit Committee Report (continued)
Primary areas of judgement considered by the Committee in relation to the 2016 accounts
In order to discharge its responsibility to consider accounting and financial reporting integrity, the Committee carefully considers key judgements
applied in the preparation of the Consolidated Financial Statements which are set out on pages 92 to 136. 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 £131.8m at 31 December 2016. The review of such assets is based on a calculation
of value in use, using cash flow projections based on financial budgets and strategic plans 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
and challenges 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 109 to 117. 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 CA Traffic Limited in 2006
indicated that the value in use was not sufficient to support the carrying values of those assets. Performance in 2016 and in particular during
the second half of the year was below expectations and, overall, the business continues to generate levels of profitability that are below those
anticipated at acquisition. Following a reassessment of the future profitability and cash flows for the business, a goodwill impairment charge of
£4.1m has been recognised in the year.
Defined benefit pension scheme valuation
Net defined benefit pension obligations under IAS19 amount to £27.3m at 31 December 2016. The Committee reviews benchmarks and
assumptions that are provided by the Group’s actuaries and used to value the pension liabilities for the Group’s defined benefit schemes. The
underlying assumptions based on market conditions and the characteristics of the schemes are reviewed by management and the external
auditors and reported on to the Committee.
Taxation
Assessment of judgements made in relation to uncertain tax positions, regarding the outcome of negotiations with and enquiries from
HM Revenue & Customs and other tax authorities in other jurisdictions. Judgements have been made by management following discussion with
the Group’s tax advisors 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 audit
The internal audit activity is the responsibility of the Group Finance function, who are responsible for preparing the annual audit plan for approval
by the Audit Committee. Once approved, the Group Finance function progresses the plan and reports back to the Audit Committee on the
outcomes of the individual audits carried out. The Audit Committee, considers on an annual basis whether this arrangement is appropriate for
the Company, and in December 2016 concluded that they had confidence in the effectiveness of the way Internal Audit activity is currently
organised, but would keep the matter under review.
Internal controls
The Committee continued to review a more risk-based approach to the internal control environment and expanded its coverage of the Group’s
subsidiaries. As part of the plan to focus on the most appropriate areas, the Group Financial Controller and Group Risk & Compliance Counsel
met with external risk specialists, to determine how to enhance this risk-based approach to internal audit. This review looked at all areas of the
business from Board governance to subsidiaries’ day-to-day business activities. This included Board policies, contract and project management,
procurement and supply chain management, sales and credit management, compliance and financial reporting. Subsidiary businesses are
annually 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 the annual internal audit plan was reviewed and additional areas of concern as determined by
the external review were added to the plan as required. Any changes to the approved audit plan were agreed by the Committee. The Committee
received an update from the Group Financial Controller and the Group Risk & Compliance Counsel each meeting summarising the findings of the
internal audits undertaken and the progress made against actions agreed from previous audits as well as progress made in the assessment and
management of risk both at Group and subsidiary level.
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;
Brexit;
Modern slavery;
Appropriateness of the carrying value of goodwill and intangible assets of CA Traffic Limited and France Galva, SA;
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Governance Report
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The announcement of the proposed restructuring of the non-US
Pipe Supports business and its subsequent treatment in the
Group’s financial reporting; and
Third-party whistleblowing hotlines.
For 2017 the Committee is considering an enhanced and expanded
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 a model for consideration of
principal risks that includes the implementation of a Group-wide risk
assessment process across all subsidiaries.
This online risk assessment and management process will be further
rolled out during 2017, with the Committee particularly focused
on risk assessment and mitigation within the subsidiaries. The Risk
Committee will provide an effective ‘filter’ ensuring that appropriate
subsidiary risk matters are escalated to the Board and Audit
Committee, and that key Group risks are mandated for assessment
and mitigation at subsidiary level. The Committee believes that these
improvements will further strengthen the way that the business
understands and manages risk.
During 2016, the Committee has monitored the key risks on the
corporate risk register and during the year received its first reports
from the newly formed Risk Committee, together with high-level
reports from the subsidiaries. The Risk Committee has monitored,
validated and provided a detailed report to the Audit Committee
on the Group-wide risk assessment process and the movements
in major risks and provided updates on risk mitigation activity
undertaken in relation to those risks. A summary of the principal risks
and uncertainties to which the business is exposed, can be found on
pages 32 to 34.
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 2016 year-end audit during the Committee
meeting in September 2016. This highlighted the proposed approach
and scope of the audit and identified the key issues in detail, being
the risk of fraud in revenue recognition; fraud risk from management
override of controls; valuation of goodwill and indefinite life assets;
and post-retirement benefits obligations. 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:
›
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 its 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 2016 audit. The Committee discussed the issues
raised in the report, particularly in relation to the areas highlighted,
at their meeting in March 2017. 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
questions and challenges the work undertaken, the findings and the
key assumptions made, with particular attention to the areas of audit
risk identified.
Auditor independence and rotation
The external 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.
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.
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
completed his fifth year in the year ending 31 December 2015 and a
new partner, Darren Turner, recommended by KPMG and approved by
the Audit Committee in September 2015, took over for the
31 December 2016 year-end audit.
Following the EU Audit Directive taking effect from June 2016,
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 and may seek
to tender the audit at anytime prior to the next partner rotation in
2021. 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.
www.hsholdings.com | Stock Code HILS
64 Governance Report
Audit Committee Report (continued)
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 to ensure that the aggregated spend
with the external auditor will not exceed 70% of the audit fee.
Where the Committee believes it is cost effective for non-audit
services to be provided by the external auditor, such as those relating
to merger and acquisition due diligence work, it will consider the
engagement of the external auditor, subject to application of the
principles of the policy, including the financial limits.
During 2016, there were fees of £343,100 (2015: £298,000) paid
to the auditor for non-audit services. The fees paid covered due
diligence on acquired businesses and aborted acquisition costs
£241,500 (2015: £112,000), pension advice £45,200
(2015: £161,000), assurance reviews £40,100 (2015: £16,000) and
restructuring work £16,300 (2015: £nil). Audit fees for 2016 were
c.£711,000, representing a 1:2 ratio between non-audit and audit
fees (2015: 1:2). 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 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. The Committee also, at its meeting in
December 2016 approved the engagement of a third-party to provide
whistleblowing services to the Group and this new process will be
implemented during 2017.
Fair, balanced and understandable
The Committee examined the 2016 Annual Report and was
specifically tasked by the Board to advise it on whether the 2016
Annual Report is fair, balanced and understandable. 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 had been compiled.
The Committee considered the information laid out in the Annual
Report and concluded:
›
›
›
›
That the process by which the allocation of responsibility for
the preparation of certain sections of the Annual Report to
individuals in the head office team and their review by external
advisors was fit for purpose;
That the information given represented the whole story of
the business’ performance in 2016 and did 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;
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; and
That the document allowed shareholders to follow the whole
story of the Group’s financial and non-financial performance
in 2016 giving them 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 and reported to the
Board accordingly.
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.
Mark Reckitt
Chairman, Audit Committee
8 March 2017
Images
A strategic partnership between Asset
International, Technocover and Lionweld
Kennedy Flooring provided prefabricated
solutions for Yorkshire Water for their £2m
water treatment plant beside the A1 at
Catterick, which supplies clean drinking
water to 30,000 residents in the area.
www.hsholdings.com | Stock Code HILS
65
66 Governance Report
Remuneration Committee Report
Annette Kelleher
Chair, Remuneration Committee
Dear Shareholder,
I am pleased to present our Directors’ Remuneration Report for 2016,
including our updated Directors’ Remuneration Policy. This is our first
Directors’ Remuneration Report since I took over the Chair of the
Remuneration Committee following the 2016 AGM.
Our previous Policy was adopted at the AGM in 2014 and was
strongly supported by shareholders, with more than 97% of the votes
in favour of it. In accordance with the applicable legislation, we are
required to put the Policy to shareholders at the 2017 AGM, and in
preparing to do so the Committee reviewed the Policy and thought
through its appropriateness for the Company going forward.
Our revised Directors’ Remuneration Policy
Having considered the Company’s strategy, and carried out a review
of the remuneration arrangements currently in place, we believe the
existing remuneration framework continues to effectively support
the delivery of the business strategy and the continued creation of
shareholder value. Therefore, we are not proposing any structural
changes to our Policy, however we propose to modify some elements
of the Policy to support the business needs and succession planning
over the next three years.
I am delighted to report that since our current Policy was approved
three years ago the Company has grown in terms of scale and
complexity, both in the UK and internationally. This has impacted our
results and value very positively, moving from a market capitalisation
of circa £430 million in May 2014 to circa £942 million in December
2016, and we are very pleased to now be part of the FTSE 250.
Recognising this growth, we realise there are certain shareholder
expectations of us and we have accounted for these in our proposals.
We plan to include deferral in our annual bonus arrangements,
as well as a post vesting holding period in our long term incentive
plans. In addition, we are also increasing shareholding requirements
significantly for our Executive Directors, from 100% to 200% of base
salary. We believe this will contribute further to robust shareholder
alignment.
We have formally introduced malus and clawback into both the
annual bonus and long term incentive plans.
In addition, for new Executive Directors, we will be re-setting our
pension arrangements to take into account the alignment with the
wider workforce.
On page 68, we have summarised how our Policy supports
the Group’s strategic drivers. The proposed Policy changes are
summarised on page 77, and the full Policy is on pages 77 to 84.
2016 performance and remuneration
Against a backdrop of uncertain political and macro-economic
conditions the Company has once again recorded record results. More
details about the Company’s operational and financial performance
can be found on pages 15 to 26.
That performance is reflected in the incentive remuneration outturns
for 2016. More information in relation to the 2016 annual bonus is
included on page 70. However, in summary based on the Company’s
performance in 2016, the Executive Directors earned bonuses of
100% of salary - more information is given on page 70.
The performance period for the first awards granted under our new
LTIP approved at the 2014 AGM ended on 31 December 2016. Two
criteria were applied to these awards, 50% being a performance
condition based on TSR growth compared to the FTSE SmallCap
and 50% being growth in UEPS. Following an assessment of the
performance conditions, the awards vested at 100% - more
information is given on page 70.
Our usual practice is to review Executive Directors’ salaries on an
annual basis, with increases typically in line with the increases
awarded to the wider workforce. For 2017, we are following this
principle and Executive Director salary increases are summarised on
page 67.
During 2016 the scope of Mark Pegler’s role was significantly
increased as well as his role of Group Finance Director, he took on full
managerial and operational responsibility for the UK Utilities division
(comprising Asset International Limited, Birtley Group Limited,
Barkers Engineering Limited, Lionweld Kennedy Flooring Limited
and the recently acquired Technocover Limited) which represent in
aggregate approximately 20% of the Group’s total revenue and EBIT.
We consulted with a number of our shareholders prior to increasing
Mark’s salary to £335,000 in July 2016 in recognition of this increase
in responsibilities.
The Non-executive Chairman’s fee has been increased by
approximately 3% with effect from 1 January 2017. Details on other
Non-executive fees are set out on pages 73 and 76.
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67
Looking ahead to 2017
In 2017 we will apply the new Policy. Subject to the approval of shareholders at the 2017 AGM, our approach to remuneration for Executive
Directors will be as follows:
Salary
Executive Directors’ salaries will be increased by 3%, in line with the range of increases awarded to the wider workforce:
2016 Salary 2017 Salary
Derek Muir £478,500 £493,000
Mark Pegler £335,000* £345,100
* Following the increase to reflect additional responsibilities.
Bonus
The maximum award for 2017 will remain at 100% of salary, subject to the achievement of stretching performance
conditions based on growth in UEPS, profit, operating margin and ROIC (with equal weightings). Any bonus earned will be
paid in cash, but in line with the new Policy clawback provisions will apply.
LTIP
2017 awards will be limited to 125% of salary. A two year holding period will apply in respect of any shares that vest.
Performance measures will continue to be based on UEPS growth and relative TSR (with equal weightings). However, as the
Company is now part of the FTSE 250, the comparator group for the purpose of the TSR element will be the FTSE 250 index
(excluding investment trusts and financial services companies).
Shareholding
guidelines
In accordance with the new Policy, the shareholding guideline will be increased to 200% of salary for Executive Directors.
Recovery
provisions
The LTIP and annual bonus will be subject to pre-vesting malus and post-vesting clawback provisions, which have been
formally included in the new Policy.
I hope you find this Directors’ Remuneration Report helpful in explaining our approach to Executive remuneration and how that approach
supports and reflects our performance. I would be delighted to answer any questions that you might have, and hope you will be supportive of our
new Policy at the 2017 AGM.
Annette Kelleher
Chair, Remuneration Committee
8 March 2017
www.hsholdings.com | Stock Code HILS
68 Governance Report
Directors’ Remuneration Report
Policy and strategy
The Company’s strategy is explained in detail on pages 8 to 13. The Company’s Remuneration Policy for the year ended 31 December 2016, which
can be found in complete form on the Company’s website, was approved at the Annual General Meeting (‘AGM’) on 14 May 2014, and permits
the payment of base salary, benefits and pension in order to 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.
The Company’s Remuneration Policy setting out the forward-looking remuneration policy for the next three years will be subject to a binding vote
at the Annual General Meeting and is set out on pages 77 to 84.
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
ROIC
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
ROIC
Operating margins
Active portfolio
management
Our strategic objective is to develop more sustainable businesses in
each of our chosen sectors through organic and acquisitive growth.
Budgeted profit
Sustainable
profitable growth
Our objective is to deliver balanced profitable growth through both
organic growth and acquisition opportunities.
UEPS
Leads to:
Measured by Long-Term
Incentive Plan targets of:
Shareholder
value
50% of any award is based
on growth in the absolute
UEPS, over the three-year
performance period;
and
50% of the award is based
on TSR performance over
the three-year performance
period relative to an
appropriate comparator
group.
The extent to which payments and awards have been made under the Annual Bonus and LTIP arrangements can be found on page 70.
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,
and following his retirement Annette Kelleher, together with Jock Lennox and Mark Reckitt. For more details see below. 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.
Clive Snowdon
Annette Kelleher
Jock Lennox
Mark Reckitt
During this time the Committee:
Resigned - 17 May 2016
Appointed Chairman - 17 May 2016
Appointed - 1 June 2016
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›
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Approved the annual bonus calculation and payment for the financial years 2015 and 2016 – further information is given on page 70;
Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2013, confirming that 95.8% of the TSR portion
and 100.0% of the UEPS portion of the original award vested;
Approved grants under the Company’s LTIP;
Approved an increase in salary of 9% to £335,000 for M Pegler as he took full managerial and operational responsibility for the UK Utilities
division of the Group effective 1 July 2016;
Reviewed the Company’s Remuneration Policy approved by shareholders at the AGM in May 2014, and considered changes to this Policy. A
new Remuneration Policy will be put before members at the Company’s AGM in May 2017;
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Governance Report
69
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Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2014, confirming that 100% 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 – further
information is given on page 70;
Approved the award of a new SAYE scheme, to run from December 2016 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 2017, in line with the
increases awarded to the wider workforce;
Approved the annual bonus performance measures and targets for 2017;
Reviewed and approved the Company’s Annual Remuneration Report for inclusion in the Company’s 2016 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.
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 remuneration advice, share scheme advice, pension advice and corporation tax advice
to the Group. Their fees for providing remuneration advice to the Committee amounted to £30,000 for the year ended 31 December 2016. 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, nor is the Group Finance Director. 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 2016 the Annual Remuneration Report was approved by 92.39% of shareholders
% of votes
Annual Remuneration Report
For
92.39%
Against
7.61%
865,744 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 2017 policy
How the Remuneration Policy was implemented in 2016 – Executive Directors
Single remuneration figure for 2016
D W Muir
M Pegler
Total
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
478,500
320,500
799,000
49,457
21,630
71,087
478,500
320,500
799,000
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
(1) The amount of base salary received in the year.
LTIP (vested in respect
of performance period
ended 2016)(4)
1,008,377
645,051
1,653,428
LTIP (vested in respect
of performance period
ended 2015)
796,305
509,062
1,305,367
Pension
119,625
80,125
199,750
Pension
116,125
74,300
190,425
Total ‘Single
Figure’ 2016
2,134,459
1,387,806
3,522,265
Total ‘Single
Figure’ 2015
1,893,544
1,198,762
3,092,306
(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 £20,898 (2015: £24,400) 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) LTIP is the value of LTIPs vested in respect of a performance period ended in 2016. A description of the basis on which awards vested and the value can be found on page 70.
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70 Governance Report
Directors’ Remuneration Report (continued)
Salary
Basic salaries for Executive Directors are reviewed by the Committee on an annual basis or when a material change of responsibility occurs. In
July 2016 the Committee approved an increase in salary of 9% to £335,000 for Mark Pegler as, in addition to his responsibilities as Group Finance
Director, he took full managerial and operational responsibility for the UK Utilities division of the Group. This represented a material change in
Mark’s responsibilities as this division currently includes five businesses: Asset International Limited, Birtley Group Limited, Barkers Engineering
Limited, Lionweld Kennedy Flooring Limited and the recently acquired Technocover Limited.
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.
2016 annual bonus
Each Executive Director was eligible to earn a bonus for 2016 of up to 100% of his base salary. The extent to which the bonus was earned is
summarised below. As in previous years, the Committee is disclosing the bonus outturns, and will disclose further details as to the range of
performance targets (i.e. as shown below in relation to the 2015 bonus) in next year’s report, provided those performance targets are no longer
considered commercially sensitive.
Growth in UEPS
Underlying profit before tax (at budgeted exchange rates)
Underlying operating margins
The delivery of specific strategic objectives(1)
Total
Maximum pay out per
performance measure
Actual performance (1)
Actual pay out per
performance measure
25%
25%
25%
25%
100%
22%
£64.8m
13.6%
completed(2)
25%
25%
25%
25%
100%
(1) The strategic objectives related to the restructuring of the non-US Pipe Supports business and the actual financial performance metrics detailed above exclude the restructured non-US Pipe
Supports business.
(2) The restructuring of the non-US Pipe Supports businesses was completed ahead of target timeframes and cost (see page 19 for more details).
2015 annual bonus
The performance conditions for the year ended 31 December 2015 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)
2015 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 ROIC
Totals
25%
25%
25%
25%
100%
11%
£49.3m
11.1%
14.8%
15%
15%
15%
15%
60%
2015 stretch
performance
15%
£51.8m
11.6%
15.3%
Bonus payable
for stretch
performance (%
of base salary
25%
25%
25%
25%
100%
Actual
performance
15%
£51.8m
12.0%
15.3%
Actual pay out
per performance
measure (% of
base salary
25%
25%
25%
25%
100%
LTIP awards vesting in respect of 2016
Each Executive Director was granted an LTIP award on 20 May 2014 which vested subject to the achievement of performance conditions based
on absolute UEPS growth over the three year performance period ended 31 December 2016 (as regards 50% of the award) and TSR relative to the
FTSE SmallCap excluding investment trusts (as regards 50% of the award). The extent to which the awards vested and the value included in the
single figure of remuneration table as a result is set out below.
Performance targets
Vesting
Actual performance
Actual vesting
Threshold
Maximum
15% UEPS growth
Median TSR
30% UEPS growth
Upper quartile TSR
25%
UEPS growth
63%
UEPS: 100% of
maximum
100%
TSR - ranked 2
TSR: 100% of
maximum
Shares subject
to award *
Vesting shares
Vested value **
D W Muir
80,752
80,752
£931,878
M Pegler
51,656
51,656
£596,110
* Each of Messrs Muir and Pegler was also granted a tax qualifying option over 5,371 shares at an exercise price of 558.5p per share. On exercise of the option, the number of shares in respect of
which the LTIP can be exercised will be reduced to reflect any gain made on the exercise of the option. Accordingly, the value of the option is disregarded for the purposes of this calculation.
** The value of the shares is calculated by reference to the price of a share on 2 March 2017, being £11.54p. In accordance with the rules of the LTIP, each of Messrs Muir and Pegler is entitled to
a further benefit by reference to dividends paid over the period from grant to vest, amounting to £76,499 in the case of D W Muir and £48,941 in the case of M Pegler.
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71
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 2016
Transfer value of accrued pension at 31 December 2016
Change in accrued pension of 2015 excluding increase for inflation
Normal retirement date
£126,297
£4,452,000
£nil
6 July 2020
The increase in the transfer value calculated for D W Muir (from £3,617,000 as at 31 December 2015) is mainly due to a change in market
conditions between 31 December 2015 and 31 December 2016 i.e. a reduction in corporate bond yields which has reduced the discount rate
assumption and an increase in inflation expectations which has increased the inflation assumptions used. The increase is also partly due to
D W Muir now being one year closer to retirement, leading to an increase in the transfer value due to the unwinding of the discount rate.
As noted last year for the 2015 year end accounts, benefit accrual ceased in 2011 and D W Muir received a cash supplement amount in lieu
of company pension contributions. As such, D W Muir has not had any further benefit accrual within the DB scheme in 2016. Any inflationary
increases that have occurred over the year are in line with statutory requirements and as such, these increases have:
›
›
›
already been accrued by D W Muir;
already been funded for in the Executive DB Scheme; and
already had the associated cost of accrual reported in the Group’s accounts in previous years under IAS19.
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 (a) for the last 5 financial years
(ultimately increasing to the last 10 years). The figures are:
Year Ending
31/12/2016
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
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.
Pension contributions
D W Muir receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary amounting to £119,625 for the year ended
31 December 2016 (2015: £116,125).
M Pegler receives a cash payment in lieu of any pension contribution , equal to 25% of his base salary amounting to £80,125 for the year ended
31 December 2016 (2015: £74,300).
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 2017 that was operated in 2016.
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72 Governance Report
Directors’ Remuneration Report (continued)
Share awards granted during the year
During the year to 31 December 2016 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
Performance period
D W Muir
M Pegler
17 March 2016
nil cost option
17March 2016
nil cost option
55,371
35,410
£478,500
£306,000
25%
25%
1 Jan 2016 – 31 Dec 2018
1 Jan 2016 – 31 Dec 2018
(1) Calculated by reference to a share price of £8.6417, being the average of the mid-market prices for the three trading days prior to the grant date and reflecting an award of 100% of base
salary.
The performance conditions for these awards are:
Vesting amount
0% Vesting
25% Vesting
Maximum vesting
* Straight line vesting will apply between these two points.
** Relative to the FTSE SmallCap (excluding investment trusts).
Absolute UEPS growth
over three years (50% of each award)
TSR* (50% of each award)
Less than 15%
15%*
30%*
Below median
Median**
Upper quartile**
Share options
The interests of Directors, who served during 2016, in options for ordinary shares in the Company, granted under the Company’s sharesave
schemes, together with options granted and exercised during 2016, are included in the following table:
Executive
D W Muir
M Pegler
Grant Price
Awards held
31 December 2015
Granted during
the year
Exercised during
the year
Awards held
31 December 2016
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
2,003
4,225
2,097
-
-
-
-
-
-
4,855
-
1 January 2016
1 July 2016
-
-
-
-
-
1,064
3,496
2,003
4,225
2,097
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
246,221
n/a
n/a
60,407
n/a
n/a
Vested but
unexercised
Subject to
performance conditions
Not subject to
performance conditions
Total as at
31 December 2016
Unvested
n/a
-
-
n/a
-
-
208,928(4)
5,371
n/a
133,649(4)
5,371
n/a
n/a
-
6,563
n/a
-
6,322
455,149
5,371
6,563
194,056
5,371
6,322
(1) Under the current remuneration policy 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 opposite.
(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 2 March 2017 the Remuneration Committee approved the vesting of 100% of the 2014 LTIP award, being 80,752 and 51,656 shares for D W Muir and M Pegler respectively.
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Governance Report
73
Shareholding guidelines
Shareholding requirement
Current shareholding as at 31 December 2016
Current value (based on share price on 31 December 2016)
Current % of salary
D W Muir
100%*
246,221
£2,949,728
616%
M Pegler
100%*
60,407
£723,676
226%
* With effect from the 2017 AGM and subject to the approval of the new Directors’ Remuneration Policy, this will increase to 200% of salary.
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
are interested in an additional 46,312 and 29,625 shares respectively, being the net amount of those shares vested on 2 March 2017 in respect
of the 2014 LTIP award and D W Muir held an extra 360 shares received on 6 January 2017 through the Company’s Dividend Re-Investment Plan
(‘DRIP’).
Non-executive Director shareholding
Director
W H Whiteley
J F Lennox
A M Kelleher
M J Reckitt
2016
22,100
5,000
2,164
4,000
2015
22,100
5,000
2,164
-
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 2016 and 8 March 2017. 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.
Loss of office payments and payments to former directors
There were no loss of office payments or payments made to past Directors during the year ended 31 December 2016.
Transactions with Directors
There were no material transactions between the Group and the Directors during 2016.
How the Remuneration Policy was implemented in 2016 – Non-executive Directors
Non-executive Director single figure comparison
Director
Role
W H Whiteley
Chairman
C J Snowdon(1)
J F Lennox(2)
Senior Independent
Director and Remuneration
Committee Chairman
Senior Independent Director,
and Audit Committee
Chairman
A M Kelleher(3)
Remuneration Committee
Chairman
M J Reckitt(4)
Audit Committee Chairman
Total
Board Fees
143,170
21,875
52,899
49,161
26,917
294,022
Taxable
Benefits
Other
Fees
Annual
Bonus
LTIP
Pension
Total ‘Single
Figure’ 2016
Total ‘Single
Figure’ 2015
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
143,170
139,000
21,875
51,100
52,899
50,450
49,161
44,800
26,917
-
294,022
285,350
(1) Clive Snowdon, who resigned as a Director of the Company on 17 May 2016, received a base fee of £19,227 plus an additional £663 as the Senior Independent Director and £1,985 as
Chairman of the Remuneration Committee.
(2) Jock Lennox, who was appointed Senior Independent Director on 17 May 2016 and resigned as Chairman of the Audit Committee on 17 November 2016, received a base fee of £46,144 plus
an additional £1,062 as the Senior Independent Director and £5,693 as Chairman of the Audit Committee.
(3) Annette Kelleher received a base fee of £46,144 and was appointed Chair of the Remuneration Committee on 17 May 2016. As Chair she received an additional £3,017.
(4) Mark Reckitt, who was appointed to the Board on 1 June 2016, received a base fee of £26,917. He was appointed Chairman of the Audit Committee on 17 November 2016, for which he is due
to receive £728.
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.
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74 Governance Report
Directors’ Remuneration Report (continued)
The following parts of the Remuneration Report are not subject to audit
TSR performance graph
The following graphs show the TSR performance of the Company since January 2014 against the FTSE SmallCap index and the FTSE 250. TSR was
calculated by reference to the growth in share price, as adjusted for reinvested dividends.
300
250
200
150
100
)
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
50
Jan 14
300
250
200
150
100
)
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 15
Jan 16
Hill & Smith
FTSE SmallCap
50
Jan 14
Jan 15
Jan 16
Hill & Smith
FTSE 250
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 2015 and 2016.
Percentage increase
Salary
Taxable benefits
Annual bonus
Chief Executive Officer
Wider workforce
3.0%
-5.1%
3.0%
4.8%
-
13.0%
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
2016
£20.8m
£140.6m
2015
£16.1m
£121.8m
% change
29.2%
15.4%(1)
(1) This includes a 3% increase in the average number of people employed by the Group. See note 4 to the accounts on page 105.
Chief Executive remuneration pay compared to performance
The graph opposite shows the TSR performance of the Company over the eight year period to 1 January 2017 compared to the appropriate FTSE
indices.
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Governance Report
75
850
800
750
700
650
600
550
500
450
400
350
300
250
200
150
100
)
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
50
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Hill & Smith
FTSE All Share
FTSE SmallCap
FTSE 250
The table below summarises the Chief Executive’s single figure for the past eight 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
2016
2,034
100
92.7
97.9
100
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 Company’s website.
How the Remuneration Policy will be implemented for 2017 – Executive Directors
Salary
Base salaries were reviewed in December 2016 and as from 1 January 2017 are:
Chief Executive
Finance Director
£493,000
£345,100
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 2017 for the financial year 2018.
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76 Governance Report
Directors’ Remuneration Report (continued)
Annual bonus
The annual bonus opportunity for 2017 will remain unchanged as follows:
Chief Executive
Finance Director
›
›
›
›
Maximum opportunity of 100% of base salary
Paid in cash
Maximum opportunity of 100% of base salary
Paid in cash
The Committee can disclose that for the 2017 financial year the annual bonus targets will be equally weighted towards:
›
›
›
›
Growth in UEPS;
Budgeted profit;
Operating margins; and
Achievement of budgeted internal ROIC (at budgeted exchange rates).
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 70 of the 2015 and 2016 bonuses.
Share plans
The Remuneration Policy being put before members at the Company’s AGM, will, if approved, permit the Committee to grant awards under the
LTIP up to a maximum of 150% of base salary. If approved the Committee intends to make an award in 2017 in respect of the performance
period
1 January 2017 – 31 December 2019, of 125% of base salary, subject to the following performance conditions:
Vesting amount
0% Vesting
25% Vesting
Maximum vesting
Absolute UEPS growth over three years (50% of the award)
TSR* (50% of the award)
Less than 15%
15%**
30%**
Below median
Median*
Upper quartile*
* Relative to the FTSE 250 (excluding investment trusts and financial services companies).
** Straight line vesting will apply between these two points.
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 W Muir and M Pegler in lieu of pension contributions, equal to 25% of their base salary.
How the Remuneration Policy will be implemented for 2017 – 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 2016, the Board approved a 3% increase in the base fees as from 1 January 2017 and, having benchmarked
other fees, increased these to £7,500.
Chairman
Non-executive Director
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
2016
£143,170
£46,144
£1,725
£5,820
£4,764
2017
£147,500
£47,500
£7,500
£7,500
£7,500
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Remuneration Policy Report
Governance Report
77
Directors’ remuneration policy report (not audited)
This part of the Report sets out the Directors’ remuneration policy, which, subject to shareholder approval at the 2017 AGM, shall take binding
effect from the close of that meeting. The policy has been determined by the Company’s Remuneration Committee. Information on how the
Remuneration Committee intends to implement the policy for the current financial year is set out in the Annual Report on remuneration.
The Company’s Directors’ Remuneration Policy was first approved at the 2014 AGM (with over 97% votes in favour of the policy) and took effect
from the close of that meeting. The new policy set out below will, subject to shareholder approval, apply from the close of the 2017 AGM. There
is no substantial change to the policy or overall remuneration structure. The changes proposed finesse the current policy and are intended
to ensure that the Company has sufficient flexibility to support the business needs, retention and recruitment over the next three years. In
summary, the changes made in the proposed policy as compared to the Policy approved at the 2014 AGM are set out below.
›
Flexibility has been added to increase the annual bonus opportunity from 100% of salary to 125% of salary and the annual LTIP opportunity
from 100% of salary to 150% of salary – notwithstanding this flexibility, the annual bonus opportunity for 2017 will remain at 100% of
salary and LTIP awards for 2017 will be granted at the level of 125% of salary;
› Where a bonus opportunity in excess of 100% of salary is offered, a two year deferral will apply to a proportion of the bonus (of up to 20% of
the bonus earned);
› Where an LTIP opportunity in excess of 100% of salary is offered (including as regards the 2017 awards), a two year holding period will apply
to any vested shares;
›
Once the annual LTIP opportunity awarded increases above 100% of salary, the shareholding guideline applied to the Executive Directors
will increase to 200% of salary;
› We have formally included pre-vesting malus and post-vesting clawback in the policy for both annual bonus and LTIP awards; and
› We have reduced the maximum pension contribution (or cash allowance) for any newly appointed Executive Director to 20% of salary.
Other minor amendments have been made to the policy as a consequence of the changes referred to above or to aid its operation.
Policy table for Directors
Base salary
Benefits
Purpose and link
to strategy
To 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.
To recruit and
retain Executive
Directors.
Ensures the
overall package is
competitive.
Participation in the
SAYE promotes
staff alignment
with the Group
and a sense of
ownership.
Operation
Maximum opportunity
Performance metrics
Normally reviewed annually and fixed for twelve
months.
Salaries are determined by the Remuneration
Committee taking into account a range of
factors, which may include but are not limited to:
›
›
›
the size and scope of the role;
individual and Group performance;
the range of salary increases (in percentage
terms) applied to the wider workforce;
total organisational salary budgets; and
pay levels for comparable roles in companies
of a similar size and complexity.
›
›
Any salary increases may be implemented over
such time as the Remuneration Committee
deems appropriate.
Executive Directors are entitled to various
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,
relocation allowances or overseas tax support.
The SAYE is a HM Revenue & Customs approved
monthly savings scheme facilitating the purchase
of shares at a discount as permitted by the
applicable legislation (currently up to a maximum
discount of 20%). SAYE options may be exercised
in the event of a change of control to the extent
permitted by the rules of the scheme, which
do not provide discretion for the Remuneration
Committee in respect of the treatment on
change of control.
Not applicable.
Not applicable.
Ordinarily salary increases will not
exceed the range of salary increases
awarded to other employees in
the Group (in percentage of salary
terms). 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 tax legislation.
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78 Governance Report
Remuneration Policy Report (continued)
Purpose and link
to strategy
Operation
Maximum opportunity
Performance metrics
Pension
To 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 allowance)
are up to a maximum of 25% of base
salary for current Executive Directors.
Not applicable.
For any newly appointed executive
director, the maximum contribution
rate (or cash allowance) would be up
to a maximum 20% of base salary.
The Company closed, with effect from
October 2011, its defined benefits
pension scheme to future accrual.
D W Muir who is a deferred member
will continue to receive benefits only
in accordance with the terms of this
scheme.
The maximum bonus opportunity is up
to 125% of base salary.
However, for 2017, the maximum
opportunity will be 100% of base
salary.
To provide
post-retirement
benefits and
reward sustained,
long-term
contribution to the
performance of
the Group.
Rewards the
achievement of
annual financial
targets and/
or the delivery
of strategic/
individual
objectives.
Annual bonus
Group contributions or cash allowances 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.
Performance measures and targets are
reviewed and set annually by the Remuneration
Committee.
Bonus pay out is determined by the
Remuneration Committee after the year
end, based on audited performance, where
appropriate, against those targets.
The Remuneration Committee has the discretion
to amend the bonus pay out should any
formulaic outputs not produce an appropriate
result for either the Executive Directors or the
Company, taking account of overall business
performance.
Where an annual bonus opportunity of more
than 100% of base salary applies, up to 20% of
the bonus earned will be delivered in the form of
shares in the Company, deferred for a period of
two years. Deferral of any bonus is subject to a
de minimis limit of £5,000.
At its discretion, the Remuneration Committee
may award dividend equivalents to reflect
dividends that would have been paid over the
deferral period on shares subject to deferred
bonuses. These dividend equivalents may be
paid in cash or shares and may assume the
reinvestment of dividends.
Deferred bonus awards will vest in the event of a
change of control.
Malus and clawback provisions apply to the
annual bonus as described below this table.
The bonus will be based
on the achievement of
targets related to key
business objectives, with
the performance measures
and respective weightings
each year dependent on the
Group’s strategic priorities.
Financial performance
measures may include, for
example:
› measures based on
underlying earnings per
share;
budgeted profit;
operating margins; or
return on capital.
›
›
›
At least 50% of bonus will be
based on financial measures.
No more than 25% of the
bonus opportunity will be
based on individual objectives.
The Remuneration Committee
will determine an appropriate
vesting schedule for each
measure used.
For financial measures, 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 strategic and individual
performance measures, bonus
will be earned between 0%
and 100% of the opportunity
based on the Remuneration
Committee’s assessment
of the extent to which the
relevant measure has been
achieved.
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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 clawback
applies to
unvested awards
enabling the
Company to
mitigate risk.
Governance Report
79
Operation
Maximum opportunity
Performance metrics
Awards vest subject to the
achievement of performance
measures assessed over the
performance period (normally
three financial 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 metrics,
and/or share price growth
related metrics, and/or
strategic metrics.
For 2017, the performance
measures and weightings
will be:
›
50% based on UEPS
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 (which is the
highest level of performance
that results in any vesting)
100% of the maximum
opportunity will vest; there is
usually straight line vesting
between these performance
points.
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.
LTIP awards are granted under the 2014
Long Term Incentive Plan approved by
shareholders at the 2014 AGM.
The annual LTIP maximum opportunity
is 150% of base salary in respect of any
financial year.
However, for 2017, the maximum
opportunity will be 125% of base
salary.
Shares subject to a tax qualifying
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’, the unapproved
LTIP option is scaled back to reflect
the gain made on the exercise of the
option.
The Remuneration Committee may grant awards
as 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.
Where an award is granted in excess of 100% of
salary, vested shares are ordinarily subject to an
additional two year holding period before they
are released to the Executive Directors (so that
they can exercise the award and acquire them).
Unvested LTIP awards will vest and be released
early on a change of control (or other relevant
events), taking into account the extent to which
the performance conditions have been satisfied
and pro-rating to reflect the proportion of the
performance period that has elapsed, although
the Remuneration Committee has discretion not
to apply time pro-rating. Vested LTIP awards
which are subject to a holding period are
released, to the extent vested, in the event of a
change of control. LTIP awards may also vest and
be released early in ‘good leaver’ circumstances
(as shown on page 83).
At its discretion the Remuneration Committee
may award dividend equivalents to reflect
dividends that would have been paid over the
vesting period (and, if relevant, holding period) on
shares that vest. These dividend equivalents may
be paid in cash or shares and may assume the
reinvestment of dividends.
Malus and clawback provisions apply to the LTIP
as described below this table.
The Remuneration Committee may, at its
discretion, structure awards as approved LTIP
awards comprising both approved tax qualifying
options granted under the Executive Share
Option Scheme (‘ESOS’) and an LTIP award.
Approved LTIP awards enable the participant
and the Company to benefit from tax qualifying
option treatment in respect of part of the award,
without increasing the pre-tax value delivered to
the participant. The approved LTIP awards consist
of a tax qualifying 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 tax
qualifying option. Other than to enable the grant
of £30,000 in value of HMRC approved options
as part of an approved LTIP award, the Company
will not grant awards to Executive Directors under
the ESOS.
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80 Governance Report
Remuneration Policy Report (continued)
Shareholding
guidelines
Purpose and link
to strategy
Promotes
alignment to
shareholders’
interests and
share ownership.
Chairman
and Non-
executive
Director fees
Fees are set
at a level that
reflects market
conditions and
are sufficient to
attract individuals
with appropriate
knowledge and
experience.
Operation
Maximum opportunity
Performance metrics
Each Executive Director is required to hold shares
acquired through the LTIP (after sales to cover
tax) until the value of their total shareholding is
equal to 200% of their annual base salary.
Vested shares subject to awards under the LTIP
which are subject to a holding period count
towards the shareholding requirement on a net
of assumed tax basis.
Shares subject to LTIP awards and deferred
bonus awards which are capable of exercise
count towards the limit on a net of assumed tax
basis.
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.
›
›
›
Not applicable.
Not applicable.
Not applicable.
Fees are subject to an overall cap as
set out in the Company’s Articles of
Association from time to time.
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.
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.
Recovery provisions
Annual bonus and LTIP awards are subject to malus and clawback provisions as set out below.
For up to two years following the determination of an annual bonus, the Remuneration Committee may require a participant to repay any cash
bonus paid and/or may reduce or cancel any deferred bonus award granted in the event of: (i) a material misstatement in the Group’s financial
results; or (ii) the Remuneration Committee reasonably determining that the participant has been guilty of gross misconduct.
Before the vesting of an LTIP award, the Remuneration Committee may decide to reduce or cancel the award in the event of: (i) a material error
in or misstatement of the Group’s results; (ii) information coming to light which, had it been known, would have affected the award or vesting
decision; or (iii) reputational damage to the Group. For up to two years following the vesting of an LTIP award the Remuneration Committee may
reduce or cancel the award (for example if it remains unexercised and subject to a holding period) or require a repayment in respect of shares
acquired in the event of: (i) a material misstatement in the Group’s financial results for any year in the performance period for the relevant award;
or (ii) the Remuneration Committee reasonably determining that the participant has been guilty of gross misconduct.
Explanation of chosen performance measures and how targets are set
Performance measures have been selected that reflect the Group’s strategy. Stretching performance targets are set each year for the annual
bonus and LTIP awards. In setting these stretching performance targets the Remuneration Committee will take into account a number of
different reference points such as the Group’s business plans and strategy.
The Remuneration Committee considers that underlying EPS and profit before tax are closely aligned to the Group’s key performance metrics and,
in conjunction with the other annual bonus performance metrics, provide a balanced measurement of performance that encourages sustainable
growth.
The UEPS and TSR performance conditions attaching to the LTIP align management’s objectives to those of shareholders and reward the delivery
of year on year growth and delivery of value to shareholders. For the relative TSR performance condition there will be no vesting for performance
below median compared to the comparator group.
The Remuneration Committee retains the discretion to adjust the performance targets and measures where it considers it appropriate to do so.
For example, to reflect changes in the strategy or structure of the business or in prevailing market conditions and to assess performance on a fair
and consistent basis from year to year.
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Governance Report
81
Operation of share plans
The Remuneration Committee retains discretion to operate the Company’s share plans in accordance with their rules, including the ability to
adjust awards in the event of a variation of capital or other relevant corporate event, and settle awards in cash.
Differences in the Group’s policy for the remuneration of employees generally
The Group aims to provide a remuneration package that is market competitive in the employee’s jurisdiction of employment and which:
›
›
›
is appropriate to attract, retain, motivate and reward, without paying more than necessary;
is fairly and consistently applied; and
includes an element of incentive to share in the financial success of the Group through: annual bonuses, based upon the performance
of individual business units, executive share options and a UK SAYE scheme, all of which are aligned to the strategic objectives and
performance of the Group.
Illustrative performance scenarios for 2017 (all £000’s)
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
£666k
100%
Derek Muir
£1,116k
14%
26%
60%
£1,775k
35%
28%
37%
)
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
r
l
a
t
o
T
1,400
1,200
1,000
800
600
400
200
0
Mark Pegler
£768k
14%
26%
£1,229k
35%
28%
£453k
100%
60%
37%
Minimum
performance
Performance in line with
expectations
Maximum
performance
Minimum
performance
Performance in line with
expectations
Maximum
performance
Base salary, benefits and pension
Annual Bonus
LTIP
Base salary, benefits and pension
Annual Bonus
LTIP
The illustrative performance charts above are based on the proposed remuneration policy as set out on pages 77 to 84. In developing the
scenarios, the following assumptions have been made:
Minimum
(£000’s)
CEO - 666
FD - 453
Consists of total fixed pay – i.e. base salary, benefits and pension.
›
›
›
Base salary is the latest salary effective at 1 January 2017.
Taxable benefits as per single figure table for the year ended 31 December 2016.
Pension is based on the policy set out in the future policy table and base salary effective at 1 January 2017.
In line with expectations
(£000’s)
CEO - 1,116
FD - 768
Maximum
(£000’s)
CEO - 1,775
FD - 1,229
Consists of:
›
›
›
Total fixed pay, as set out above.
Annual bonus pays out at 60% of maximum for target performance (i.e. 60% of base salary based on a
maximum potential for 2017 of 100% of base salary).
LTIP pays out at 25% of maximum for threshold vesting (i.e. 31.25% of base salary based on a maximum
for 2017 of 125% of base salary).
Consists of:
›
›
›
Total fixed pay, as set out above.
Full pay out of annual bonus – i.e. 100% of base salary.
Full vesting of LTIP awards – i.e. 125% of base salary.
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82 Governance Report
Remuneration Policy Report (continued)
Approach to recruitment remuneration
The objective of this Policy is to allow the Remuneration Committee to offer remuneration packages which:
›
›
›
facilitate the recruitment of individuals of sufficient calibre to develop and deliver the business strategy and shareholder value;
reflect the key principles of the Group’s wider remuneration philosophy; and
seek to ensure that arrangements are in the best interests of the Company and not to pay more than is appropriate.
Typically the individual will be transitioned onto a remuneration package that is consistent with the policy set out above. However, the
Remuneration Committee retains the discretion to make remuneration decisions or include other remuneration components or awards which are
outside the policy elements set out on pages 77 to 80, where it considers it necessary. However, this discretion is not uncapped, in determining
appropriate remuneration arrangements:
›
›
›
›
the Remuneration Committee will not offer non-performance related incentive payments;
the quantum of variable remuneration will be limited as set out below;
the quantum and structure of the package on offer will be determined taking into account that for similar positions in the market; and
the package will be determined having due regard to the experience of the candidate and the interests of the Company and its shareholders.
The following elements may also be considered by the Remuneration Committee for inclusion in a recruitment package for an Executive Director:
Compensation for forfeited awards
on leaving a previous employer
Initial incentive awards
The Remuneration Committee may make awards on hiring an external candidate to compensate
the candidate for the forfeiture of any award entered into with a previous employer. In determining
any such ‘buy-out’ the Remuneration Committee will consider all the relevant factors regarding the
forfeited arrangements which may include the likelihood of the awards vesting should the external
candidate have remained in their previous employment, the form in which they were granted (e.g. cash
or shares) and the time over which they would have vested. Generally, buy-out awards will be made on
a comparable basis to those remuneration arrangements forfeited.
Where considered appropriate, buy-out awards will be subject to forfeiture or clawback on early
departure.
Subject to the overall maximum variable remuneration limit set out below and to the overall plan LTIP
limits set-out under the policy elements on page 79, incentive awards may be granted within the first
twelve months of appointment above the normal maximum annual award opportunity set out on
page 79. The Remuneration Committee will ensure that any such awards are linked to the achievement
of appropriate and challenging performance targets and will be forfeited if performance or continued
employment conditions are not achieved.
The Remuneration Committee may also alter the performance measures, performance period and any
deferral arrangements or holding period applying to the annual bonus and LTIP if the circumstances
of the recruitment merit such an alteration; the rationale will be clearly explained in a subsequent
Directors’ Remuneration Report.
Maximum variable remuneration
(excluding buy-out awards)
The maximum level of variable remuneration which may be awarded is 275% of base salary
(consisting of 125% annual bonus and 150% LTIP).
Service contracts
The Remuneration Committee’s policy is for service contracts for new Executive Directors to be capable
of termination by giving up to twelve months’ notice and up to twelve months’ notice from the
Executive Director.
The Remuneration Committee would seek to implement any share awards referred to in this section under the Company’s existing share plans.
However, in connection with the recruitment of an Executive Director, the Remuneration Committee may implement a new arrangement
in accordance with paragraph 9.4.2 of the Listing Rules which permits the making of a long-term incentive award to facilitate, in unusual
circumstances, the recruitment of a Director.
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue
according to the original terms. Where necessary, the Group will pay appropriate relocation costs and the Remuneration Committee will seek to
ensure that no more than necessary is paid.
Fees payable to a newly appointed Chairman or Non-executive Director will be in line with the fee policy in place at the time of appointment.
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Governance Report
83
Service contracts and loss of office payments
The Policy on Executive Director service contracts and payment for loss of office is summarised below:
Notice period for termination
by the Company
Twelve months
Notice period for termination
by the employee
Not less than six months
Within ninety days of a
change of control
By the Company – twelve months
By the Executive Director – ninety days
Payment in lieu of notice
Base salary, pension contributions and benefits for the duration of the notice period.
Other incentives
The Remuneration Committee also has discretion to incorporate payments under the performance-linked
elements of the package under ‘good leaver’ scenarios.
›
If the Executive Director leaves during the annual bonus performance year, a bonus payment may
be made at the Remuneration Committee’s discretion. Typically for ‘good leavers’, bonus amounts
(as determined by the Remuneration Committee) will be pro-rated for time in service during the
bonus year and will be, subject to performance, paid at the usual time, although the Remuneration
Committee retains discretion not to apply time pro-rating and to accelerate the payment of bonuses
in appropriate circumstances. Where bonus deferral would otherwise apply, the Remuneration
Committee retains discretion to pay the whole of the bonus for the year of cessation and prior year in
cash;
›
Under the Company’s LTIP:
-
-
If a participant leaves as a ‘good leaver’ before an award has vested, that award will ordinarily
continue until the ordinary vesting date, when the extent of vesting will be determined by
reference to the extent to which the performance conditions have been satisfied, although the
Remuneration Committee retains discretion to vest the award sooner. The extent to which the
award vests will ordinarily be reduced to reflect the proportion of the performance period for
which the Executive Director was employed, but the Remuneration Committee has discretion
not to apply this proportionate reduction. Where the award is subject to a holding period, it
will ordinarily be released to the participant on the earlier of the ordinary release date and the
second anniversary of the date of termination, although the Remuneration Committee retains
discretion to release the award sooner.
If a participant leaves for any reason (other than summary dismissal, in which case the award
will lapse) after an award has vested but before it has been released (i.e. if an award is subject to
a holding period and the participant leaves during that holding period), the award will ordinarily
be released to him on the ordinary release date, although the Remuneration Committee retains
discretion to release the award sooner.
› Where a deferred bonus award is granted, if the participant leaves as a ‘good leaver’ during the
deferral period, the award will ordinarily continue and be released at the ordinary release date,
although the Remuneration Committee retains discretion to release the award at the date of
cessation.
›
For the purposes of the LTIP and any deferred bonus award, ‘good leaver’ means cessation due to
death, injury, ill-health, redundancy, or any other circumstance that the Remuneration Committee
deems appropriate.
› Were an award to be made in accordance with Listing Rule 9.4.2. then the leaver provisions would be
determined at the time of the grant.
Other payments
In appropriate circumstances, other payments may be made in the event of a termination of an Executive
Director’s employment in respect of, for example, accrued holiday and legal and outplacement fees.
SAYE options may be exercised on termination of employment to the extent permitted by the rules of the
scheme, which do not provide discretion for the Remuneration Committee in respect of the treatment on
termination.
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84 Governance Report
Remuneration Policy Report (continued)
Appointments for Non-executive Directors are governed by letters of engagement. Under the terms of their engagement, the notice period to be
given by the Non-executive Directors to the Company is three months and the Company is obliged to give the same length of notice. Discretion is
retained to terminate with or without due notice or pay any payment in lieu of notice dependent on what is considered to be in the best interests
of the Company in the particular circumstances.
Where the Remuneration Committee retains discretion, as outlined above, it will be used to provide flexibility in certain situations, taking into
account the particular circumstance of the Director’s departure and recent performance of the Company.
Statement of considerations elsewhere in the Company
When setting the policy for Directors’ remuneration, the Remuneration Committee has regard to the pay and employment conditions elsewhere
within the Group, although employees are not formally consulted on Directors’ remuneration policy.
This includes consideration of:
›
›
›
›
›
salary increases for the general employee population;
overall spend on annual bonus;
participation levels in the annual bonus, long term incentive and share option plans;
Company-wide benefits (including pension) offerings; and
any other relevant factors as determined by the Remuneration Committee.
The Remuneration Committee takes into account ad-hoc information as provided to it from time to time.
Discretion and existing contractual arrangements
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they
are not in line with the policy, set out above, where the terms of the payment were agreed:
(i)
before the policy came into effect provided, in the case of a payment agreed after the 2014 AGM that it is in line with the policy approved at
the 2014 AGM; or
(ii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Remuneration Committee, the payment
was not in consideration for the individual becoming a Director of the Company.
For these purposes ‘payments’ includes the Remuneration Committee satisfying awards of variable remuneration and, in relation to an award
over shares, the terms of the payment are ‘agreed’ at the time the award is granted.
Statement of consideration of shareholder views
The Company is committed to ongoing dialogue and seeks shareholder views ahead of making significant changes to its remuneration policies.
Annette Kelleher
Chair, Remuneration Committee
8 March 2017
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Directors’ Report (other statutory information)
Governance Report
85
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 92 and the business segment
information is given on pages 103 and 104.
During 2016 the principal activities of the Group comprised the
manufacture and supply of:
-
-
Infrastructure Products (Roads and Utilities)
Galvanizing Services
Pages 2 to 34 contain further details of these areas of the business
and the principal subsidiaries operating within them are set out on
pages 154 to 156.
The Chairman’s Statement and the Directors’ Strategic Report
include:
›
›
›
›
›
An analysis of the development and performance of the
Company’s business during the financial year;
Key performance indicators used to measure the Group’s
performance;
The position of the Company’s business at the end of the
financial year;
A description of the principal risks and uncertainties faced by the
Group; and
Main trends and factors likely to affect the future development,
performance and position of the Company’s business.
Future development
An indication of likely future developments in the Group is given in
the Strategic Report on pages 2 to 43.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2016
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 £48.3m
(2015: £33.2m). Group revenue at £540.1m was 16% higher than the
prior year. Operating profit at £51.8m was 39% higher than for the
previous year (2015: £37.3m).
Dividends
The Directors recommend the payment of a final dividend of 17.9p
per ordinary share (2015: 13.6p per ordinary share) which, together
with the interim dividend of 8.5p per ordinary share (2015: 7.1p per
ordinary share) paid on 5 January 2017, makes a total distribution for
the year of 26.4p per ordinary share (2015: 20.7p per ordinary share).
Subject to shareholders approving this recommendation at the AGM,
the final dividend will be paid on 3 July 2017 to shareholders on the
register at the close of business on 26 May 2017. The latest date for
receipt of Dividend Re-investment Plan elections is 12 June 2017.
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 2016
Total new ordinary shares issued during the year
Issued share capital 31 December 2016
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
78,237,724
304,867
78,542,591
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 127 and 128 of the Group Financial Statements.
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86 Governance Report
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 2016 AGM and will be limited by the
resolution to be put to the 2017 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 17 May 2016 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 2017.
Substantial shareholdings
As at 28 February 2017, 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
Standard Life Investments
Hargreave Hale
Charles Stanley
BlackRock Investment Management
JPMorgan Asset Management
Number of
ordinary shares
% of issued
share capital
5,146,485
3,587,876
3,283,900
2,886,340
2,827,297
6.55
4.57
4.18
3.67
3.60
3.20
Legal & General Investment Management
2,511,675
Directors
The names of the Directors of the Company who served throughout
the year, including brief biographies, are set out on pages 48 and 49.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith
Holdings PLC as at 31 December 2016 are set out on page 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 21 on pages 121 to 126.
Research and development
During the year, the Group spent a total of £2.0m (2015: £1.6m) on
research and development.
Political and charitable donations
Charitable donations amounting to £42,000 (2015: £36,000)
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.
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Governance Report
87
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 is aware of that information.
Events since 31 December 2016
There were no post-Balance Sheet events.
Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 a.m. on Thursday 11 May 2017 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 152.
By order of the Board
Alex Henderson
Company Secretary
8 March 2017
www.hsholdings.com | Stock Code HILS
8888 Governance Report
Governance Report
Statement of Directors’ Responsibilities
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
8 March 2017
www.hsholdings.com | Stock Code HILS
Financial StatementsSee further information at hsholdings.com90 Independent Auditor’s Report92 Group Financial Statements137 Company Financial Statements150 Five Year SummaryImageAbove - Signature’s installation of the Junction Master VAS (Vehicle Activated Sign) on the A4123 New Birmingham Road. This sign, activated by a vehicle travelling at 40+ mph, displays ‘Slow Down 40’ and ‘Slow Down Staggered Junction’.898989Financial Statements89Financial Statements89 90 Financial Statements
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 2016 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, Company Statement of Cash Flows 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
2016 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 - £131.8m
(2015: £107.6m) Risk v 2015:
Refer to page 60 (Audit Committee Report), page 98 (Accounting Policy)
and pages 109 to 117 (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 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. The assessment uses a net present value of
forecast cash flows of the CGU. 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, in
addition to the required annual impairment testing;
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;
›
›
›
evaluating 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;
challenging, 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; and
performing 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 CA Traffic is appropriately disclosed.
UK post retirement benefits obligation - Gross liabilities £90.9m
(2015: £80.1m) Risk v 2015:
Refer to page 60 (Audit Committee Report), page 101 (Accounting Policy)
and pages 129 to 135 (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 and small changes
in the assumptions and estimates used to value the Group’s net pension
deficit could have a significant effect on the financial position of the
Group.
Our response
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,
such as the comparison of different durations using the bond yield
curve to derive a single equivalent discount rate. 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 £2.9m (2015: £2.4m), determined with reference to a benchmark
of Group profit before taxation, normalised to exclude specific non-
underlying items, included within 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 as we consider these to distort the underlying performance of the
Group. Normalised group profit before tax is calculated as £64.5m
(2015: £50.3m), of which materiality represents 4.5% (2015: 4.8%).
We report to the Audit Committee any corrected or uncorrected identified
misstatements exceeding £145,000 (2015: £120,000), in addition to other
identified misstatements that warranted reporting on qualitative grounds.
Of the Group’s 57 (2015: 54) reporting components, we subjected 38
(2015: 34) to audits and 3 (2015: 2) to specified audit procedures for
Group reporting purposes. The components for which we performed work
other than audits for Group reporting purposes were not individually
significant but were included in the scope of our Group reporting work
in order to provide further coverage over the Group’s results. These
components were subjected to specified risk-focused audit procedures
over inventory and trade receivables.
www.hsholdings.com | Stock Code HILS
Financial Statements
91
These audits covered 84.9% (2015: 86.4%) of total Group revenue; 90.4%
(2015: 97.8%) of Group profit before taxation; and 88.8% (2015: 89.5%)
of total Group assets. Specified audit procedures were performed at
components which comprise a further 8.0% (2015: 6.7%) of total Group
revenue; 1.0% (2015: 0.1%) of Group profit before taxation; and 0.9%
(2015: 0.6%) of total Group assets.
Normalised Group
profit before tax
£64.5m
Group
materiality
£2.9m
£2.9m
Whole
Financial
Statements
materiality
£2.2m
Maximum
component
materiality
Misstatements
reported to
the Audit
Committee
£145k
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
(2015: £0.1m) to £2.2m (2015: £1.8m), having regard to the mix of size
and risk profile of Group entities across the components. The audit of
5 of the 38 (2015: 5 of 34) components was performed by component
auditors and the remainder by the Group audit team. The Group team
performed procedures on the items excluded from normalised Group
profit before tax.
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 the United States of
America.
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.
Based solely on the work required to be undertaken in the course of the
audit of the Financial Statements and from reading the Strategic Report
and the Directors’ Report:
›
›
we have not identified material misstatements in those reports; and
in our opinion, those reports have been prepared in accordance with
the Companies Act 2006.
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 pages 55 and 56, 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 2019; or
the disclosures in the Group Accounting Policies on page 97
concerning the use of the going concern basis of accounting.
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.
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 88, in relation to going
concern and longer-term viability; and
the part of the Corporate Governance Statement on pages 45 to 87
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 88, 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.
Darren Turner (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
8 March 2017
www.hsholdings.com | Stock Code HILS
92 Financial Statements
Consolidated Income Statement
Year ended 31 December 2016
Revenue
Trading profit
Amortisation of acquisition intangibles
Business reorganisation costs
Pension settlement gains
Impairment of intangible assets
Acquisition costs
Loss 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
2016
Non-
underlying*
£m
-
-
(2.6)
(10.5)
0.2
(4.1)
(1.8)
-
(18.8)
-
(0.9)
(19.7)
1.8
Underlying
£m
540.1
70.6
-
-
-
-
-
-
70.6
0.4
(3.0)
68.0
(16.3)
Total
£m
Underlying
£m
540.1
467.5
70.6
(2.6)
(10.5)
0.2
(4.1)
(1.8)
-
51.8
0.4
(3.9)
48.3
(14.5)
56.0
-
-
-
-
-
-
56.0
0.5
(3.5)
53.0
(12.6)
2015
Non-
underlying*
£m
-
-
(1.6)
(0.3)
-
Total
£m
467.5
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)
51.7
(17.9)
33.8
40.4
(16.3)
24.1
65.9p
65.1p
51.7p
51.3p
43.0p
42.5p
8.5p
17.9p
26.4p
30.9p
30.6p
7.1p
13.6p
20.7p
Notes
1, 2
3
3
3
3, 10
3
1, 2
5
5
7
8
8
9
9
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 102.
www.hsholdings.com | Stock Code HILS
Financial Statements
93
Consolidated Statement of Comprehensive Income
Year ended 31 December 2016
Profit for the year
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations
Exchange differences on foreign currency borrowings denominated as net investment hedges
Effective portion of changes in fair value of cash flow hedges
Transfers to the income statement on cash flow hedges
Taxation on items that may be reclassified to profit or loss
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain 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
2016
£m
33.8
36.5
(9.5)
-
0.2
-
(14.1)
2.1
15.2
49.0
2015
£m
24.1
1.8
(0.4)
(0.1)
0.4
(0.1)
5.0
(1.2)
5.4
29.5
www.hsholdings.com | Stock Code HILS
94 Financial Statements
Consolidated Statement of Financial Position
Year ended 31 December 2016
Non-current assets
Intangible assets
Property, plant and equipment
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
10
11
12
14
15
16
1
17
19
17
18
19
13
23
18
21
2016
£m
166.5
149.7
316.2
1.1
71.6
112.9
15.6
201.2
517.4
(105.1)
(11.2)
(2.6)
(0.3)
(119.2)
82.0
(0.4)
(3.2)
(7.8)
(27.3)
(127.3)
(166.0)
(285.2)
232.2
19.7
33.5
4.8
29.3
-
144.9
232.2
2015
£m
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
Approved by the Board of Directors on 8 March 2017 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
www.hsholdings.com | Stock Code HILS
Financial Statements
95
Consolidated Statement of Changes in Equity
Year ended 31 December 2016
At 1 January 2015
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
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 2016
Notes
Share
capital
£m
19.5
Share
premium
£m
31.7
Other
reserves†
£m
4.5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.6
1.1
32.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.7
0.7
33.5
9
21
7
21
9
21
7
21
-
-
-
-
-
-
0.1
-
-
4.6
-
-
-
-
-
-
0.2
-
-
4.8
Translation
reserves
£m
0.9
-
1.4
-
-
-
-
-
-
-
Hedge
reserves
£m
(0.4)
-
0.2
Retained
earnings
£m
125.3
24.1
3.8
Total
equity
£m
181.5
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
-
27.0
-
0.2
33.8
(12.0)
33.8
15.2
-
-
-
-
-
-
-
29.3
-
-
-
-
-
-
-
-
(16.2)
(16.2)
1.1
(1.4)
(0.6)
(0.2)
1.0
-
1.1
(1.4)
(0.6)
-
1.0
0.8
144.9
232.2
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2015: £0.2m) capital redemption reserve.
At 31 December 2015 the Group had purchased 86,732 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 £0.5m, was
included within retained earnings at that date. In March 2016, these shares were issued in settlement of awards to employees together with an
additional 11,754 shares purchased in 2016. A further 103,246 shares were purchased in 2016 at a cost of £1.1m and are held at 31 December
2016.
www.hsholdings.com | Stock Code HILS
96 Financial Statements
Consolidated Statement of Cash Flows
Year ended 31 December 2016
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payments
Gain on disposal of non-current assets
Depreciation
Amortisation of intangible assets
Impairment of non-current assets
Operating cash flow before movement in working capital
(Increase)/decrease in inventories
Increase in receivables
Increase/(decrease) in payables
Decrease in provisions and employee benefits
Net movement in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash from operating activities
Interest received
Proceeds on disposal of non-current assets
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisitions of subsidiaries
Deferred consideration in respect of prior year acquisitions
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 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
6
6, 11
6, 10
6, 10
10
21
9
16
2016
£m
1.6
(0.2)
17.3
3.7
4.1
(4.3)
(0.6)
4.8
-
0.4
3.6
(19.9)
(1.8)
(36.9)
(0.5)
0.8
(2.0)
(16.2)
(1.0)
46.1
(31.7)
-
£m
48.3
3.5
51.8
26.5
78.3
(0.1)
78.2
(15.7)
(3.2)
59.3
(55.1)
(4.0)
0.2
12.9
2.5
15.6
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
www.hsholdings.com | Stock Code HILS
Group Accounting Policies
Financial Statements
97
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 Group 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 137 to 148.
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 15 to 26. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described
in the Strategic Report on pages 22 to 26. 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 £232.3m at 31 December 2016, expiring in April 2021. 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 2016
In 2016 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
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Amendments to IFRS 11 - Accounting for Acquisitions of Interests in Joint Operations.
Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation.
Amendments to IAS 27 - Equity Method in Separate Financial Statements.
Annual Improvements to IFRSs – 2012-2014 Cycle.
Disclosure Initiative – Amendments to IAS 1.
The adoption of these standards and amendments has not had a material impact on the Group’s Financial Statements.
The following standards and interpretations which are not yet effective and have not been early adopted by the Group will be adopted in future
accounting periods:
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IFRS 15 ‘Revenue from Contracts with Customers’ (effective 1 January 2018).
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.
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98 Financial Statements
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.
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Financial Statements
99
Financial instruments
Financial assets and liabilities are recognised on the Group’s Consolidated Statement of Financial Position when the Group becomes party to the
contractual provisions of the instrument.
The Group’s investments in equity securities and certain debt securities are classified as available for sale financial assets. Subsequent to initial
recognition, they are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on
available for sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is
transferred to profit or loss.
Trade receivables and trade payables are initially measured at fair value. Subsequent to initial recognition, they are carried at amortised cost
using the effective interest method, less any impairment losses.
Derivative financial instruments of the Group are used to hedge its exposure to interest rate and foreign currency risks arising from operational,
financing and investment activities.
In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives
that do not qualify for hedge accounting are accounted for as trading instruments, as follows:
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Derivative financial instruments are stated at fair value. The unhedged gain or loss on remeasurement to fair value is recognised
immediately in the Consolidated Income Statement.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the year end
date, taking into account current interest rates and the current creditworthiness of the swap counterparties.
The fair value of foreign exchange contracts is the estimated amount that the Group would receive or pay to terminate such contracts at the
year end date, taking into account the forward exchange rates prevailing at that date.
Where derivative financial instruments are used to hedge cash flow risk, such as interest rate swaps, the effective part of any gain or loss on
the fair value of cash flow hedges is recognised in the Consolidated Statement of Comprehensive Income and in the hedge reserve, while any
ineffective part is recognised immediately in the Consolidated Income Statement. Amounts recorded in the hedge reserve are subsequently
reclassified to the Consolidated Income Statement when the interest expense is actually recognised.
To qualify for hedge accounting the hedging relationship must meet several conditions with respect to documentation, probability of occurrence,
hedge effectiveness and reliability of measurement. At the inception of the transaction, the Group documents the relationship between hedging
instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process
includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions.
The Group also documents its assessment, at hedge inception and on a half yearly basis, as to whether the derivatives that are used in hedging
transactions have been, and are likely to continue to be, effective in offsetting changes in fair value or cash flows of hedged items.
Interest bearing borrowings are recognised initially at fair value. Subsequent to initial recognition, interest bearing borrowings are stated at
amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period
of the borrowings on an effective interest basis.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Statement of Cash
Flows.
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.
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100 Financial Statements
Group Accounting Policies (continued)
The principal exchange rates used were as follows:
Sterling to Euro (£1 = EUR)
Sterling to US Dollar (£1 = USD)
Sterling to Swedish Krona (£1 = SEK)
2016
2015
Average
1.22
1.35
11.57
Closing
1.17
1.23
11.14
Average
1.38
1.53
12.90
Closing
1.36
1.48
12.50
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.
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Financial Statements
101
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.
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.
In the Consolidated Income Statement current and past service costs are recognised in operating profit and the interest cost on the net defined
benefit obligations is included in financial expense.
All actuarial gains and losses in calculating the Group’s obligation in respect of defined benefit schemes are recognised annually in reserves and
reported in the Consolidated Statement of Comprehensive Income.
Share-based payment transactions
The fair value of shares/options granted is recognised as an employee expense, with a corresponding increase in equity reserves. The fair value
is calculated at the grant date and spread over the period during which the employees become unconditionally entitled to the shares/options.
The Black–Scholes model has been adopted as the method of evaluating the fair value of the options where vesting is based on non-market
conditions, while a Monte Carlo Simulation is used where vesting is based on market conditions. The amount recognised as an expense is
adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions are expected to be met, such
that the amount ultimately recognised as an expense is based on the number of awards that do meet the related service and non-market
performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant date fair value of the
share-based payment is measured to reflect such conditions and there is no adjustment for differences between expected and actual outcomes.
The fair value of amounts payable to employees in respect of share appreciation rights settled in cash is recognised as an employee expense and
corresponding increase in liabilities. The fair value of the liability is remeasured at each reporting date and spread over the period during which
employees become unconditionally entitled to the payment.
Financial income and expense
Financial income comprises interest income on funds invested and gains on the fair value of financial assets and liabilities at fair value through
profit or loss. Interest income is recognised as it accrues in the Consolidated Income Statement using the effective interest method.
Financial expense comprises interest expense on borrowings, interest cost on net pension scheme obligations, unwinding of discounts, losses on
the fair value of financial assets and liabilities at fair value through profit or loss, the interest expense component of finance lease payments and
financial expenses related to refinancing. All borrowing costs are recognised in the Consolidated Income Statement using the effective interest
method with the exception of those meeting the criteria for capitalisation set out in IAS 23.
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102 Financial Statements
Group Accounting Policies (continued)
Non-underlying items
Non-underlying items are disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items
would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment of
non-underlying items:
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Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued
operations.
Amortisation of intangible fixed assets arising on acquisitions.
Expenses associated with acquisitions.
Impairment charges in respect of tangible or intangible fixed assets.
Changes in the fair value of derivative financial instruments.
Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material
changes in the terms of the schemes.
Net financing costs or returns on defined benefit pension obligations.
Costs incurred as part of significant refinancing activities.
The tax effect of the above is also included.
Details in respect of the non-underlying items recognised in the current and prior year are set out in note 3 to the Financial Statements.
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates to items either recognised in Other Comprehensive Income or directly in
equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is
calculated using tax rates enacted or substantively enacted at the year end date, and any adjustments to tax payable in respect of previous
years.
Deferred taxation
Deferred tax is provided in full using the Consolidated Statement of Financial Position liability method and represents the tax expected to be
payable or recoverable on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes,
the initial recognition of assets and liabilities not resulting from a business combination that affects neither accounting or taxable profit, and
differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the year end date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Ordinary dividends
Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders.
Own shares held by Employee Benefit Trust (‘EBT’)
Transactions of the Group-sponsored EBT are included in the Group Financial Statements. In particular, the Trust’s purchases of shares in the
Company are debited directly to equity.
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Notes to the Consolidated Financial Statements
Financial Statements
103
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:
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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
207.6
168.1
375.7
164.4
540.1
2016
2015
Revenue
£m
193.9
131.6
325.5
142.0
467.5
Result
£m
4.0
10.9
14.9
36.9
51.8
(3.5)
48.3
(14.5)
33.8
Underlying
result*
£m
13.0
19.6
32.6
38.0
70.6
(2.6)
68.0
(16.3)
51.7
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
* Underlying result is stated before non-underlying items as defined in the Group Accounting Policies on page 102, 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 £4.7m (2015: £5.2m) revenues to Infrastructure Products - Roads and £1.4m (2015: £1.6m) revenues to
Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £5.4m (2015: £3.0m) 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
2016
2015
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
4.9
7.3
12.2
9.9
22.1
20.4
1.7
22.1
3.5
12.2
15.7
9.4
25.1
17.3
7.8
25.1
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
The impairment losses, amortisation and depreciation amounts above relating to the Infrastructure Products - Roads segment include
impairment losses of £4.1m relating to CA Traffic (see note 3). The prior year amounts for the Infrastructure Products - Utilities segment include
impairment losses of £15.7m relating to The Paterson Group.
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104 Financial Statements
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
Rest of World
Total Group
2. Operating profit
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
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2016
£m
264.5
89.1
156.9
8.1
11.5
10.0
540.1
2016
£m
217.4
106.1
173.1
16.4
4.4
517.4
2016
£m
10.6
4.5
5.2
0.7
1.1
22.1
2016
£m
540.1
(340.6)
199.5
(28.7)
(120.2)
1.2
51.8
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
Financial Statements
105
3. Non-underlying items
Non-underlying items included in operating profit comprise the following:
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Business reorganisation costs of £10.5m (2015: £0.3m) relating to the closure or reorganisation of three of the Group’s businesses as set out
below.
• On 9 March 2016 the Group announced its intention to exit its non-US Pipe Supports business, involving cessation of manufacturing in
the UK and Thailand, the closure of its sales office in China and the transfer of work to its facility in India. An initial provision of £9.2m
was made in respect of the estimated costs of closure. Subsequently £1.4m of this provision has been released following the favourable
settlement of certain matters resulting in a net charge to the income statement of £7.8m.
•
•
Following the acquisition of Signature Limited on 3 August 2016, the Group has commenced a reorganisation of the business as part of
its integration with Mallatite Limited, the Group’s existing lighting column operation. The cost of the reorganisation and restructuring
plan is £0.8m. The plan includes a reduction in the number of operating sites of the integrated business from five to three.
In December 2016 the Group committed to the closure of Hill & Smith Infrastructure Products India Pvt. Limited, our Roads business in
India. The cost of the closure is expected to be £1.9m, which has been provided for in full in the year to 31 December 2016. Closure is
expected to be completed in the first quarter of 2017.
An impairment charge of £4.1m (2015: £15.7m). In recent years CA Traffic Limited has generated levels of profitability that are below
those anticipated when the business was acquired in 2006. The current and forecast financial performance of the business (part of the
Infrastructure Products – Roads segment) is below that assumed in the impairment reviews performed at 31 December 2015 and 30
June 2016. As a result, a further impairment review was performed at the end of 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 £4.1m, representing the value of the goodwill arising on
acquisition. The basis for determining the Value in Use, including the discount rate, was consistent with that used in the annual impairment
review performed as at 31 December 2015.
Amortisation of acquired intangible fixed assets of £2.6m (2015: £1.6m).
Acquisition expenses of £1.8m (2015: £1.0m) principally relating to acquisitions made by the Group during the year.
A gain of £0.2m relating to the settlement of certain defined benefit pension obligations during the year (see note 23).
Non-underlying items included in financial expense represent the net financing cost on pension obligations of £0.5m (2015: £0.7m) and a £0.4m
charge in respect of amortisation of costs associated with refinancing (2015: £0.4m).
4. Employees
The average number of people employed by the Group during the year
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total Group
The aggregate remuneration for the year
Wages and salaries
Share-based payments
Social security costs
Pension costs
2016
No.
1,688
783
2,471
1,459
3,930
2015
No.
1,646
674
2,320
1,503
3,823
£m
£m
117.3
1.6
19.2
2.5
140.6
100.6
1.2
17.3
2.7
121.8
Details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 68 to 76.
www.hsholdings.com | Stock Code HILS
106 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
Underlying
£m
Non-
underlying
£m
2016
£m
Underlying
£m
Non-
underlying
£m
0.4
0.4
3.0
3.0
-
-
3.0
2.6
-
-
-
-
0.4
0.5
0.9
0.9
0.4
0.4
3.0
3.0
0.4
0.5
3.9
3.5
0.5
0.5
3.5
3.5
-
-
3.5
3.0
-
-
-
-
0.4
0.7
1.1
1.1
5. Net financing costs
Interest on bank deposits
Financial income
Interest on bank loans and overdrafts
Total interest expense
Financial expenses related to refinancing
Interest cost on net pension scheme deficit (note 23)
Financial expense
Net financing costs
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
2015
£m
0.5
0.5
3.5
3.5
0.4
0.7
4.6
4.1
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
2016
£m
17.3
-
2.3
3.7
0.5
2.6
0.9
0.2
4.1
-
0.2
11.7
£m
0.1
0.6
0.1
0.2
1.0
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 60 to 64 and includes an explanation of how
auditor objectivity and independence is safeguarded when non audit services are provided by the auditor.
www.hsholdings.com | Stock Code HILS
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
Financial Statements
107
2016
£m
5.4
12.9
(1.6)
16.7
(0.4)
-
-
(1.8)
14.5
(2.1)
-
(2.1)
(0.6)
(0.4)
(1.0)
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)
The tax charge in the Consolidated Income Statement for the period is higher (2015: 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% (2015: 20.25%)
Expenses not deductible/income not chargeable for tax purposes
Non-deductible goodwill impairment
Benefits from internal financing arrangements
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
2016
£m
48.3
9.7
1.4
0.8
(1.4)
(0.9)
(0.1)
6.3
1.6
0.5
(1.8)
(1.6)
14.5
2015
£m
33.2
6.7
0.4
1.6
(1.3)
(0.9)
-
3.7
0.4
0.1
0.7
(2.3)
9.1
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108 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was 78.5m (2015: 78.1m), diluted for the effects of the outstanding
dilutive share options 79.3m (2015: 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.
2016
Pence
per share
43.0
22.9
65.9
42.5
22.6
65.1
£m
33.8
17.9
51.7
33.8
17.9
51.7
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
9. Dividends
Dividends paid in the year were the prior year’s interim dividend of £5.5m (2015: £5.0m) and the final dividend of £10.7m (2015: £9.1m).
Dividends declared after the year end date are not recognised as a liability, in accordance with IAS10. The Directors have proposed the following
interim dividend and final dividend for the current year, subject to shareholder approval:
Equity shares
Interim
Final
Total
2016
Pence
per share
8.5
17.9
26.4
£m
6.7
14.1
20.8
2015
Pence
per share
7.1
13.6
20.7
£m
5.5
10.6
16.1
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Financial Statements
109
10. Intangible assets
Cost
At 1 January 2015
Exchange adjustments
Acquisitions
Additions
At 31 December 2015
Exchange adjustments
Acquisitions
Additions
At 31 December 2016
Amortisation and impairment losses
At 1 January 2015
Exchange adjustments
Impairment losses
Amortisation charge for the year
At 31 December 2015
Exchange adjustments
Impairment losses
Amortisation charge for the year
At 31 December 2016
Carrying values
At 1 January 2015
At 31 December 2015
At 31 December 2016
Goodwill
£m
Brands
£m
Customer
lists
£m
Capitalised
development
costs
£m
Contracts,
licences and
other assets
£m
Total
£m
100.1
0.8
8.3
-
109.2
12.9
15.8
-
137.9
-
0.3
8.2
-
8.5
1.7
4.1
-
19.5
0.5
0.9
-
20.9
3.6
0.8
-
25.3
2.5
0.1
5.6
0.5
8.7
1.7
-
0.6
14.3
11.0
100.1
100.7
123.6
17.0
12.2
14.3
13.2
0.3
7.3
-
20.8
2.3
11.3
-
34.4
8.9
0.3
0.8
1.1
11.1
2.0
-
1.8
14.9
4.3
9.7
19.5
11.9
2.0
146.7
-
-
1.1
13.0
-
-
1.5
14.5
8.6
-
-
0.8
9.4
-
-
0.9
10.3
3.3
3.6
4.2
-
-
-
2.0
0.3
4.9
0.2
7.4
0.6
-
1.1
0.1
1.8
0.3
-
0.4
2.5
1.4
0.2
4.9
1.6
16.5
1.1
165.9
19.1
32.8
1.7
219.5
20.6
0.7
15.7
2.5
39.5
5.7
4.1
3.7
53.0
126.1
126.4
166.5
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110 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
2016
On 13 May 2016 the Group acquired the share capital of Safety and Security Barrier Holdings Limited, the parent company of Hardstaff Barriers
Limited. Details of this acquisition are as follows:
Safety and Security Barrier Holdings Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current trade and other liabilities
Current tax liabilities
Deferred tax liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Cash and cash equivalents acquired with 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
-
1.9
0.2
0.7
0.3
3.1
(0.8)
(0.2)
(0.3)
(1.3)
1.8
4.4
(0.7)
-
-
-
3.7
(0.2)
(0.8)
(0.6)
(1.6)
2.1
Total
£m
4.4
1.2
0.2
0.7
0.3
6.8
(1.0)
(1.0)
(0.9)
(2.9)
3.9
10.7
6.8
10.7
(0.3)
10.4
Contractual 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. Fair value adjustments
have been made to better align the accounting policies of the acquired business with the Group’s accounting policies and to reflect the fair value
of assets and liabilities acquired.
Post acquisition the acquired business has contributed £2.6m revenue and £0.4m underlying operating profit, which are included in the Group’s
Consolidated Income Statement. If the acquisition had been made on 1 January 2016, the Group’s results for the year would have shown
revenue of £541.2m and underlying operating profit of £70.8m.
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Financial Statements
111
10. Intangible assets continued
2016
On 13 July 2016 the Group acquired the share capital of Technocover Limited. Details of this acquisition are as follows:
Technocover Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current trade and other liabilities
Current tax liabilities
Deferred tax liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Cash and cash equivalents acquired with 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
0.1
2.4
0.5
1.7
1.0
5.7
(1.7)
(0.2)
(0.1)
(2.0)
3.7
Total
£m
6.0
2.3
0.5
1.7
1.0
5.9
(0.1)
-
-
-
5.8
11.5
-
-
(1.1)
(1.1)
4.7
(1.7)
(0.2)
(1.2)
(3.1)
8.4
10.2
1.8
10.2
(1.0)
9.2
Brands, contractual 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. Fair value
adjustments have been made to better align the accounting policies of the acquired business with the Group’s accounting policies and to reflect
the fair value of assets and liabilities acquired.
Post acquisition the acquired business has contributed £4.6m 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 2016, the Group’s results for the year would have shown
revenue of £546.2m and underlying operating profit of £71.3m.
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112 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
2016
On 3 August 2016 the Group acquired the share capital of Signature Limited. Details of this acquisition are as follows:
Signature Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current interest bearing liabilities
Current trade and other liabilities
Current tax liabilities
Deferred tax liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Refund of consideration due
Net overdraft acquired with 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
-
3.5
1.7
2.5
-
7.7
(0.2)
(3.2)
(0.2)
-
(3.6)
4.1
6.6
(0.1)
(0.2)
(0.1)
-
6.2
-
(0.2)
-
(1.1)
(1.3)
4.9
Total
£m
6.6
3.4
1.5
2.4
-
13.9
(0.2)
(3.4)
(0.2)
(1.1)
(4.9)
9.0
12.0
3.0
12.0
0.4
0.2
12.6
Brands, contractual 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. Fair value
adjustments have been made to better align the accounting policies of the acquired business with the Group’s accounting policies and to reflect
the fair value of assets and liabilities acquired.
Post acquisition the acquired business has contributed £4.8m 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 2016, the Group’s results for the year would have shown
revenue of £548.6m and underlying operating profit of £72.0m.
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Financial Statements
113
ETT
Pre acquisition
carrying
amount
£m
FMK
Pre acquisition
carrying
amount
£m
Policy
alignment and
fair value
adjustments
£m
-
-
-
0.1
-
0.1
-
-
-
0.1
-
-
1.3
0.2
-
1.5
(0.2)
-
(0.2)
1.3
-
-
(0.1)
-
-
(0.1)
-
-
-
(0.1)
Total
£m
-
-
1.2
0.3
-
1.5
(0.2)
-
(0.2)
1.3
5.5
4.2
5.5
(0.8)
-
4.7
10. Intangible assets continued
2016
The Group has also made two other smaller acquisitions during the year:
›
›
The trade and certain assets of E.T. Techtonics, Inc. (‘ETT’), acquired in January 2016; and
The share capital of FMK Trafikprodukter AB (‘FMK’) , acquired in April 2016.
Details of these acquisitions are set out below:
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current trade and other liabilities
Deferred tax liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Contingent consideration
Cash and cash equivalents acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
The goodwill arising primarily represents the market share and know-how afforded to the Group. Fair value adjustments have been made
to better align the accounting policies of the acquired businesses with the Group’s accounting policies and to reflect the fair value of assets
and liabilities acquired. Contingent consideration relates to the acquisition of FMK and is the maximum amount payable dependent on the
achievement of performance and product development targets.
Post acquisition the acquired businesses have contributed £3.8m revenue and £nil underlying operating profit, which are included in the Group’s
Consolidated Income Statement. If the acquisitions had been made on 1 January 2016, the Group’s results for the year would have shown
revenue of £540.5m and underlying operating profit of £70.5m.
www.hsholdings.com | Stock Code HILS
114 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
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:
Premier Galvanizing Limited
Intangible assets
Property, plant and equipment
Inventories
Current assets
Cash and cash equivalents
Total assets
Current trade and other liabilities
Deferred tax liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Deferred consideration
Cash and cash equivalents acquired with 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
-
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
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 were 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. Fair value adjustments have
been made to better align the accounting policies of the acquired business with the Group’s accounting policies and to reflect the fair value of
assets and liabilities acquired.
www.hsholdings.com | Stock Code HILS
Financial Statements
115
10. Intangible assets continued
2015
The Group also made three other smaller acquisitions in 2015:
›
›
›
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 trade and other liabilities
Deferred tax liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Deferred consideration
Cash and cash equivalents acquired with 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 were recognised as a specific intangible asset as a result of the acquisition of Novia Associates. Fair value adjustments have been
made to better align the accounting policies of the acquired businesses with the Group’s accounting policies and to reflect the fair value of assets
and liabilities acquired.
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116 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
Cash generating units with significant amounts of goodwill
Infrastructure Products - Utilities
Creative Pultrusions
Others <£5m individually
Infrastructure Products - Roads
Hardstaff Barriers
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
2016
£m
9.1
10.9
6.8
15.6
28.8
27.6
24.8
123.6
2015
£m
7.4
6.5
-
13.6
25.4
23.0
24.8
100.7
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 £8.2m (2015: £6.9m), which are the Group’s only
other indefinite life intangible assets, are performed by analysing the carrying value allocated to each significant cash generating unit against
its value in use. All goodwill is allocated to specific cash generating units which are in all cases no larger than operating segments. Value in use
is calculated for each cash generating unit as the net present value of that unit’s discounted future cash flows. These cash flows are based on
budget cash flow information for a period of one year, strategic plans for the following two years and an average growth rate of 3% applied
subsequently based on management’s estimate for revenue and associated cost growth. Budgets and strategic plans are prepared taking into
account a range of factors including past experience, the forecast future trading environment and macroeconomic conditions in the Group’s key
markets. The long-term growth rate assumption reflects the historical long-term growth rates of the developed economies in which the Group
principally operates.
These assumptions are applied to all CGU’s with the exception of the CA Traffic CGU and France Galva SA CGU, further details of which are set out
below.
The calculated headroom between value in use and carrying value of each of the cash generating units with significant amounts of goodwill,
together with the pre-tax discount rates applied, is set out below. Hardstaff Barriers is excluded from this table as the CGU was acquired in May
2016 and there have been no factors arising since its acquisition that would indicate an impairment.
Creative Pultrusions
France Galva SA
Galvanizing Services - USA
Galvanizing Services - UK
2016
Headroom
£m
42.8
4.1
233.6
63.8
Discount
rate
11.8%
13.7%
12.1%
11.0%
2015
Headroom
£m
21.2
2.5
134.5
25.7
Discount
rate
12.6%
14.4%
13.5%
12.2%
The pre-tax discount rates detailed above equate to post-tax discount rates of between 9.5% and 10.0%, 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 2016 and 2015 are broadly consistent.
CA Traffic
The 2016 financial performance of the CA Traffic CGU was below that assumed in the impairment review carried out at 31 December 2015,
and below the CGU’s budget for 2016, due to the deterioration in performance in the second half of 2016. As a result the impairment review
performed during the year was based on the Board’s revised expectations of future profitability and cash flow forecasts, which are lower than
the 2017 budget and strategic plan. The impairment review concluded that the carrying value of the assets of the business were less than
their recoverable amount (determined by reference to the value in use) by £4.1 million, representing the total value of the goodwill arising on
acquisition. The basis for determining the value in use, including the discount rate was consistent with that used in the annual impairment review
performed as at 31 December 2015. The review concluded that no further impairment charge in relation to the remaining assets of the CA Traffic
CGU was required.
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.
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Financial Statements
117
10. Intangible assets continued
France Galva SA
The France Galva SA impairment review was prepared based on the following key assumptions:
›
›
Budgeted cash flows for 2017, which assumed a 2% reduction in galvanizing volumes compared with 2016, and were driven by market
conditions in France at the time that the budget was set.
For 2018 and beyond the calculations assume future annual growth in galvanizing volumes of 1%. This assumption is considered
appropriate as, in the Group’s experience, galvanizing volumes are closely linked to growth in activity in industrial markets, itself closely
linked to country GDP growth. The current GDP growth projections for France issued by the IMF exceed 1%. This assumption results in future
cash flows that are higher than the original strategic plan for 2018 and 2019 and reflects the improvement in the performance of the
business in 2016 compared with the prior year.
›
A discount rate of 13.7%.
Galvanizing volumes are the key assumption on which the goodwill impairment review is most sensitive. A reduction of 1.7% in the 2017
budgeted volumes, assuming the same future growth rates thereafter, would reduce the headroom to zero. In the event that budgeted volumes
for 2017 are achieved but that there is no subsequent growth, a goodwill impairment charge of £18.1m would arise. The carrying value of
goodwill of £28.8m would be fully impaired if future volumes were assumed to fall by 1.2% per annum.
11. Property, plant and equipment
Cost
At 1 January 2015
Exchange adjustments
Acquisitions
Additions
Transfers from assets held for sale
Disposals
At 31 December 2015
Exchange adjustments
Acquisitions
Additions
Reclassification
Transfers to assets held for sale
Disposals
At 31 December 2016
Depreciation and impairment losses
At 1 January 2015
Exchange adjustments
Disposals
Charge for the year
At 31 December 2015
Exchange adjustments
Disposals
Reclassification
Transfers to assets held for sale
Charge for the year
At 31 December 2016
Carrying values
At 1 January 2015
At 31 December 2015
At 31 December 2016
Land and
buildings
£m
Plant, machinery
and vehicles
£m
Total
£m
77.1
0.5
0.9
4.3
1.0
(0.8)
83.0
12.3
4.5
4.7
0.8
(1.9)
(2.4)
101.0
17.8
(0.2)
(0.4)
2.9
20.1
3.3
(0.7)
0.7
(0.8)
3.5
26.1
59.3
62.9
74.9
155.5
232.6
-
0.7
9.2
-
(5.2)
160.2
11.4
2.4
15.7
(0.8)
-
(8.5)
180.4
86.1
0.1
(4.9)
12.6
93.9
5.4
(6.8)
(0.7)
-
13.8
105.6
69.4
66.3
74.8
0.5
1.6
13.5
1.0
(6.0)
243.2
23.7
6.9
20.4
-
(1.9)
(10.9)
281.4
103.9
(0.1)
(5.3)
15.5
114.0
8.7
(7.5)
-
(0.8)
17.3
131.7
128.7
129.2
149.7
The gross book value of land and buildings includes freehold land of £18.6m (2015: £15.3m). Included in the carrying value of plant, machinery
and vehicles is £nil (2015: £0.1m) 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 £40.4m (2015: £40.3m) and accumulated depreciation of £25.2m (2015: £23.1m).
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118 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
12. Assets held for sale
Land and buildings
2016
£m
1.1
2015
£m
-
At 31 December 2015 the Group did not hold any assets for sale. During 2016 one property has been actively marketed for disposal and has
therefore been classified as held for sale at 31 December 2016. This property is expected to be sold in 2017.
Intangible
assets
£m
Property, plant
and equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
13. Deferred taxation
At 1 January 2015
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)
At 31 December 2015
Exchange adjustments
Acquisitions of subsidiaries
Credited/(charged) for the year in the Consolidated
Income Statement (note 7)
Credited for the year in the Consolidated Statement of
Comprehensive Income (note 7)
Credited for the year in the Consolidated Statement of
Changes in Equity (note 7)
(8.5)
(0.1)
(1.5)
3.1
-
-
(7.0)
(0.9)
(3.0)
1.1
-
-
(6.6)
(0.1)
-
0.6
-
-
(6.1)
(1.2)
(0.3)
0.9
-
-
0.3
-
-
1.2
-
-
4.7
(0.1)
-
(0.2)
(1.2)
-
3.2
0.2
-
-
-
-
-
Total
£m
(7.6)
(0.2)
(1.5)
1.9
0.1
-
(1.2)
2.6
(0.1)
(1.3)
0.1
0.8
0.5
0.1
0.1
(7.9)
(1.4)
(3.2)
2.1
-
5.3
-
2.1
0.4
2.3
0.4
(7.8)
2016
£m
0.1
(7.9)
(7.8)
2015
£m
1.0
(8.9)
(7.9)
1.1
(0.3)
(0.2)
0.5
2.2
At 31 December 2016
(9.8)
(6.5)
0.9
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
No deferred tax asset has been recognised in respect of tax losses of £10.9m (2015: £14.6m) as their future use is uncertain. There is no time
limit on the carrying forward of these losses.
In the UK Budget on 8 July 2015, the UK Government proposed to reduce the main rate of UK corporation tax to 19% with effect from
1 April 2017 and to 18% with effect from 1 April 2020. In the Budget on 16 March 2016 a further rate reduction to 17% was proposed from
1 April 2020, instead of the reduction to 18% as originally planned. The deferred tax balance in respect of UK entities has therefore been
calculated at 17% (2015: 18%) on the basis that these balances will materially reverse after 1 April 2020. In addition a reduction in the French
corporation tax rate to 28% by 2020 was enacted in December 2016. The deferred tax balance in respect of French entities has therefore been
calculated at 28% (2015: 33.33%) on the basis that these balances will materially reverse after 1 April 2020.
14. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2016
£m
38.2
8.4
25.0
71.6
2015
£m
32.3
5.6
19.8
57.7
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Financial Statements
119
14. Inventories continued
The amount of inventories expensed to the Consolidated Income Statement in the year was £309.8m (2015: £264.8m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £2.1m (2015: £nil) and arose from the
restructuring actions undertaken by the Group. The amount of inventories held at fair value less cost to sell included in the above was £nil
(2015: £nil).
15. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
Fair value derivatives
2016
£m
104.3
6.7
1.8
0.1
112.9
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 £1.7m (2015: £0.2m), which is
included in non-underlying items as it relates to the restructuring actions taken by the Group during the year.
16. Cash and borrowings
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and bank balances
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)
Amortisation of costs associated with refinancing revolving credit facilities
Purchase of shares for employee benefit trust
Issue of new shares (note 21)
Net debt (increase)/decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
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2016
£m
15.6
15.6
(0.3)
(127.3)
(112.0)
51.8
26.5
78.3
(0.1)
-
78.2
(15.7)
(2.8)
(21.7)
3.6
41.6
(16.2)
(37.4)
(0.4)
(2.0)
0.8
(13.6)
(6.9)
(91.5)
(112.0)
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)
120 Financial Statements
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
2016
£m
0.3
-
0.3
59.1
10.8
27.8
-
7.4
105.1
2016
£m
127.3
-
127.3
0.4
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
In accordance with IAS39, the costs of £1.0m associated with the amendments to the Group’s principal banking facilities in 2016 have been
deducted from the carrying value of the loans and are amortised over the life of the facility.
The unsecured bank borrowings carry a rate of interest of 1.05% above LIBOR/EURIBOR/US LIBOR subject to a ratchet as defined in the facility
agreement. In the USA, borrowings that are not fixed carry a rate of interest of 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.
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Financial Statements
121
Environmental
£m
Restructuring
£m
2.3
-
-
2.3
0.5
-
-
-
2.8
1.5
(0.7)
(0.6)
0.2
-
7.2
(4.1)
(0.7)
2.6
Other
£m
0.4
-
-
0.4
-
-
-
-
0.4
2016
£m
2.6
3.2
5.8
Total
£m
4.2
(0.7)
(0.6)
2.9
0.5
7.2
(4.1)
(0.7)
5.8
2015
£m
0.2
2.7
2.9
19. Provisions for liabilities and charges
At 1 January 2015
Utilised during the year
Released during the year
At 31 December 2015
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2016
Amounts due within one year
Amounts due after more than one year
Environmental provisions
Environmental provisions recognise the estimated cost of remediating contaminated land at a number of the Group’s operating sites, where it
is considered probable that the Group will be obliged to carry out the necessary remediation work. Primarily the issues identified relate to sites
acquired through acquisitions of subsidiaries. As a consequence of the long-term nature of the liabilities, the timescales are uncertain and the
provisions represent the Directors’ best estimate of the associated costs. The Group has sought expert external valuations where appropriate.
Restructuring provisions
Restructuring provisions represent the cash costs of closing or rationalising operations. The provisions represent the Directors’ best estimate of the
liabilities arising and are expected to be settled within the next twelve months.
Other provisions
Other provisions relate to various obligations including obligations in respect of onerous leases, property dilapidations and claims or disputes.
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,
financial 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.
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122 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
20. Financial instruments continued
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. The Group’s UK companies represent the majority of the trade
receivable at 31 December 2016 with 57% (2015: 56%) and currently the only geographical region that does not generally insure trade
receivables is North America, which represents 21% (2015: 22%) 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 2016 and 2015, 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 2016 all such debt was covered by cash and cash equivalents netting to £15.3m positive current liquidity (2015: £12.6m).
The Group’s principal UK revolving credit facility is a multicurrency agreement with a maturity date of April 2021 and a value at
31 December 2016 of £232.3m (2015: £213.1m), 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 £247.1m (2015: £225.6m).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary course of
business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the
Board.
Counterparty risk
A group of relationship banks provides the bulk of the banking services, with pre-approved credit limits set for each institution. Financial
derivatives are entered into with these core banks and the underlying credit exposure to these instruments is included when considering the
credit exposure to the counterparties. At the end of 2016 credit exposure including cash deposited did not exceed £3.6m with any single
institution (2015: £1.9m).
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 and North America. 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 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 Group’s policy is to enter into interest rate swaps in order to fix interest rates on up to 40% of its outstanding gross borrowings. At
31 December 2016 the proportion of gross borrowings subject to fixed interest rate swaps was 0% (2015: 26%).
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Financial Statements
123
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 2016 and 2015, as set out in the Operational and Financial Review on page 23.
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 2016
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
-
-
-
0.1
-
-
-
0.1
-
-
-
-
(0.4)
-
-
(0.4)
15.6
(0.3)
(127.3)
-
-
106.1
(94.3)
(100.2)
12.9
(0.3)
(104.1)
-
-
92.3
(77.8)
(77.0)
15.6
(0.3)
15.6
(0.3)
(127.3)
(127.3)
0.1
-
106.1
(94.3)
0.1
-
106.1
(94.3)
(100.1)
(100.1)
12.9
(0.3)
12.9
(0.3)
(104.1)
(104.1)
-
(0.4)
92.3
(77.8)
(77.4)
-
(0.4)
92.3
(77.8)
(77.4)
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 2016
Derivative financial assets
Derivative financial liabilities
Total at 31 December 2015
Level 1
£m
-
-
-
-
-
-
Level 2
£m
0.1
-
0.1
-
(0.4)
(0.4)
Level 3
£m
-
-
-
-
-
-
Total
£m
0.1
-
0.1
-
(0.4)
(0.4)
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124 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
20. Financial instruments continued
At 31 December 2016 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/US LIBOR.
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 denominated
finance leases. 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/US LIBOR.
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 £11.1m (2015: £11.4m) and US Dollar £53.6m (2015: £25.2m) denominated
interest bearing loans, which are predominantly used to fund the Group’s European and United States operations and include £64.7m
(2015: £36.9m) designated as a hedge of the net investment in a foreign operation. The foreign currency loss of £9.5m (2015: loss of £0.4m) 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 2016
Sterling at 31 December 2015
US Dollar at 31 December 2015
Euro at 31 December 2015
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
6.2
5.5
1.1
1.5
1.7
1.2
0.3
0.3
(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:
Contractual
cash flows
£m
Due within
one year
£m
Due between
one and
two years
£m
Due between
two and
five years
£m
(1.6)
(127.1)
-
-
-
(128.7)
(0.9)
(105.0)
-
-
-
Due after
more than
five years
£m
(0.3)
-
-
-
-
(0.3)
(0.9)
-
-
-
-
(0.3)
(1.9)
-
-
-
(2.2)
(0.2)
(1.7)
-
-
-
(1.9)
(105.9)
(0.9)
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
Total at 31 December 2016
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
Total at 31 December 2015
Carrying
amounts
£m
2.5
125.1
-
94.3
-
221.9
2.3
102.1
-
77.8
0.4
182.6
(2.5)
(130.9)
-
(94.3)
-
(227.7)
(2.3)
(108.4)
-
(77.8)
(0.4)
(188.9)
(0.3)
(1.9)
-
(94.3)
-
(96.5)
(0.3)
(1.7)
-
(77.8)
(0.4)
(80.2)
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Financial Statements
125
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
2016
£m
2015
£m
105.8
110.2
(d) Fair values
The gain in the year on the interest rate swaps held by the UK Group was £0.2m (2015: 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 (2015: nil). The fair values of the Group’s other financial instruments at
31 December 2016 and 2015 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 £4.1m (2015: £15.7m) were recognised in respect of the carrying values of non-current assets, as detailed in
note 10.
(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
2016
£m
106.1
15.6
121.7
2016
£m
59.7
16.3
21.9
6.4
104.3
2016
£m
41.6
33.2
74.8
29.5
104.3
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
www.hsholdings.com | Stock Code HILS
126 Financial Statements
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
75.3
20.7
7.0
4.8
107.8
2016
Provisions
£m
(0.1)
-
(0.2)
(3.2)
(3.5)
Net
£m
75.2
20.7
6.8
1.6
104.3
Gross
£m
61.3
19.0
8.5
5.1
93.9
2015
Provisions
£m
(0.2)
-
(0.4)
(2.2)
(2.8)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2015
Exchange adjustments
Credited to the Consolidated Income Statement during the year
Utilised during the year
At 31 December 2015
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2016
Net
£m
61.1
19.0
8.1
2.9
91.1
£m
3.0
-
(0.2)
-
2.8
0.2
0.3
1.7
(1.5)
3.5
(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 £1.4m (2015: £0.9m), 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 £3.4m (2015: £2.7m) and the impact on equity would have been a gain of £18.9m (2015: £17.9m).
Based on a 10% strengthening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement
would have been a loss of £2.8m (2015: £2.2m) and the impact on equity would have been a loss of £15.5m (2015: £14.6m).
www.hsholdings.com | Stock Code HILS
Financial Statements
127
21. Called up share capital
Allotted, called up and fully paid
78.5m ordinary shares of 25p each (2015: 78.2m)
2016
£m
19.7
2015
£m
19.6
In 2016 the Company issued 0.3m shares under its various share option schemes (2015: 0.3m), realising £0.8m (2015: £1.2m).
Options outstanding over the Company’s shares
2014 LTIP Award (granted March 2016)*
2014 LTIP Award (granted March 2015)*
2014 LTIP Award (granted May 2014)*¥
2007 LTIP Award (granted March 2013)*
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)*†
2016 grant of 2014 Savings Related Share
Option Scheme (granted October 2016)*†
2016 grant of 2014 Savings Related Share
Option Scheme (granted October 2016)*†
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
116,563
153,290
186,121
-
17,146
2,854
3,586
10,514
126,991
238,009
-
233,904
125,291
124,793
153,526
144,929
133,959
71,283
1,842,759
34,100
1,808,659
1,842,759
2016
Option
price (p)
-
-
-
-
350
350
316
316
685
685
238
355
429
429
560
560
963
963
Number
of shares
-
153,290
186,121
160,148
2015
Option
price (p)
-
-
-
-
Date first exercisable
Expiry date
§
§
§
§
§
§
§
§
34,292
350
13 April 2010
13 April 2017
7,708
8,072
350
13 April 2010
13 April 2017
316
19 April 2015
19 April 2022
10,514
316
19 April 2015
19 April 2022
144,507
685
12 August 2018
12 August 2025
265,493
685
12 August 2018
12 August 2025
281,902
238
1 January 2016
1 July 2016
237,284
355
1 June 2018
1 December 2018
136,950
429
1 August 2017
1 February 2018
132,065
429
1 August 2019
1 February 2020
173,111
560
1 January 2019
1 July 2019
148,141
560
1 January 2021
1 July 2021
-
-
1 January 2020
1 July 2020
1 January 2022
1 July 2022
-
-
2,079,598
60,586
2,019,012
2,079,598
† 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 2017 for
the 2014 grant, 1 January 2018 for the 2015 grant and 1 January 2019 for the 2016 grant.
¥ The 2014 LTIP award granted in May 2014 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 6 months (2015: 3 years 7 months).
www.hsholdings.com | Stock Code HILS
128 Financial Statements
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)
2016
360
615
(164)
(554)
443
Millions
of options
2016
2.1
0.3
(0.5)
(0.1)
1.8
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
The weighted average share price on the dates of exercise of share options during the year was 772p (2015: 677p), and the weighted average fair
value of options and awards granted in the year was 477p (2015: 184p). The weighted average exercise price of outstanding options exercisable
at the year end was 336p.
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.
2016 grant
of 2014 LTIP
Award
2015 grant
of 2014 LTIP
Award
2014 grant
of 2014 LTIP
Award
October 2016
grant of
2014 Savings
Related
Share Option
Scheme
October 2015
grant of
2014 Savings
Related
Share Option
Scheme
July 2014
grant of
2014 Savings
Related
Share Option
Scheme
April 2013
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 (%)
862/606
671/434
556/260
309/374
123/159
93/98
862
0
19
3
0
0.7
671
0
20
3
0
0.9
556
0
23
3
0
1.1
1163
963
34/37
3/5
1.8
691
560
512
429
18/24
22/21
3/5
2.6
3/5
3.1
0.1/0.2
0.8/1.2
1.2/2.0
83
429
355
26
5
3.5
0.7
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 unapproved 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 (2015: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
www.hsholdings.com | Stock Code HILS
2016
£m
1.1
0.5
1.6
2016
£m
0.8
2015
£m
0.9
0.3
1.2
2015
£m
1.0
Financial Statements
129
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
2016
Land and
buildings
£m
4.2
4.0
9.8
6.1
24.1
Other
£m
3.5
2.9
3.9
-
10.3
2015
Land and
buildings
£m
3.6
3.4
9.1
6.3
22.4
The Group leases properties, plant, machinery and vehicles for operational purposes. Property leases vary considerably in length up to a
maximum period of 99 years. Plant, machinery and vehicle leases typically run for periods of up to 5 years.
The total future minimum commitments receivable under non-cancellable operating leases are analysed as follows:
Group
Within one year
Between one and five years
After five years
2016
Land and
buildings
£m
0.4
1.0
-
1.4
Other
£m
11.2
1.5
-
12.7
2015
Land and
buildings
£m
0.4
1.1
0.1
1.6
Other
£m
2.7
2.1
3.2
0.2
8.2
Other
£m
10.6
5.0
-
15.6
23. Pensions
Total
The total Group retirement benefit assets and obligations are detailed below:
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
UK
£m
68.5
(90.9)
-
(22.4)
Overseas
£m
3.2
(7.9)
(0.2)
(4.9)
2016
£m
71.7
(98.8)
(0.2)
(27.3)
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)
United Kingdom
At 31 December 2015 the Group operated two main pension schemes in the UK, the Hill & Smith Executive Pension Scheme and the Hill &
Smith Pension Scheme. In March 2016 the Group completed a merger of these schemes into one new scheme, the Hill & Smith 2016 Pension
Scheme (‘the Scheme’). As part of the merger, certain members of the existing schemes accepted the Group’s offer to crystallise their pension
entitlement by payment of a winding up lump sum. The effect of this was to reduce defined benefit obligations by £2.4m but reduce the value of
scheme assets by £2.2m, resulting in a net settlement gain of £0.2m, which is recognised as a non-underlying credit in the Consolidated Income
Statement.
The assets of the Scheme are administered by Trustees and are kept entirely separate from those of the Group. Independent actuarial valuations
are carried out every three years. Contribution rates are determined on the basis of advice from an independent professionally qualified actuary,
with the objective of providing the funds required to meet pension obligations as they fall due.
There are also separate personal pension plans.
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.6m (2015: £2.1m), which includes the
costs of the defined contribution and the defined benefit sections of the Scheme.
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130 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
23. Pensions continued
The Scheme exposes the Group to a number of risks, the most significant being:
Risk
Description
Volatile asset returns
The defined benefit obligation is calculated using a discount rate set with reference to high quality corporate bond
yields. If assets underperform this discount rate, this will create a plan deficit. The Scheme holds a proportion of
its assets in equities and other growth assets which are expected to outperform corporate bonds in the long term.
However, returns are likely to be volatile in the short term, potentially resulting in short term cash requirements
and an increase in the defined benefit obligation recorded on the Consolidated Statement of Financial Position. The
allocation to growth assets is monitored to ensure it remains appropriate given the Scheme’s long term objectives.
Changes in bond yields
A decrease in corporate bond yields will increase the funding and accounting liabilities, although this will be
partially offset by an increase in the value of the Scheme’s investments in corporate and government bonds.
Inflation risk
Life expectancy
A significant proportion of the defined benefit obligation is indexed in line with price inflation, with higher inflation
leading to higher liabilities.
The majority of the Scheme’s obligations are to provide a pension for the life of each of the members, so increases
in life expectancy will result in an increase in the liabilities.
A full actuarial valuation of the Scheme was last carried out as at 5 April 2015 and was updated to 31 December 2016 by a qualified actuary. All
actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income.
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
2016
n/a
3.20%
2.60%
3.40%
2.40%
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%
116%120%
116%120%
116%120%
116%120%
116%120%
S2PACM12015 1% S1PACM12015 1% S1PACM12014 1% S1PACMI2013 1% S1PACMI2011 1%
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
2016
21.8 years
24.0 years
20.8 years
22.7 years
2015
2014
2013
2012
21.7 years
23.9 years
20.7 years
22.7 years
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
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. The Group takes advice from an independent actuary regarding the appropriateness of the assumptions used.
www.hsholdings.com | Stock Code HILS
Financial Statements
131
23. Pensions continued
Assets and liabilities
The 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 an average period of approximately
15 years and which is therefore inherently uncertain, are as follows:
Market value
2016
£m
Market value
2015
£m
Market value
2014
£m
Market value
2013
£m
Market value
2012
£m
Assets
Equities
Bonds
With profits policies
Hedge funds
Cash
Total fair value of Scheme assets
Present value of Scheme funded obligations
Retirement benefit obligation
Total expense recognised in the Consolidated Income Statement
27.7
39.1
1.2
-
0.5
68.5
(90.9)
(22.4)
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)
Current service costs
Settlement gain
Expenses
Charge to operating profit
Interest on net Scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
1.2
-
0.1
1.3
-
1.3
2016
Defined
benefit
schemes
£m
-
(0.2)
0.5
0.3
0.4
0.7
Total
£m
1.2
(0.2)
0.6
1.6
0.4
2.0
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
Gains on curtailments and settlements
Benefits paid
Closing defined benefit obligations
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
2016
£m
80.1
2.9
15.5
-
-
(2.4)
(5.2)
90.9
21.7
33.0
1.4
5.5
0.4
62.0
(75.8)
(13.8)
Total
£m
1.4
-
0.7
2.1
0.6
2.7
2015
£m
86.3
3.0
(2.6)
(0.6)
(2.2)
-
(3.8)
80.1
www.hsholdings.com | Stock Code HILS
132 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
23. Pensions continued
Changes in fair values of Scheme assets
Opening fair value of assets
Interest income
Return on plan assets excluding interest income
Employer contributions
Loss on curtailments and settlements
Benefits paid
Closing fair value of assets
Actual return on Scheme assets
Expected employer contributions in the following year
Defined benefit Scheme
Defined contribution schemes
2016
£m
69.0
2.5
2.0
2.4
(2.2)
(5.2)
68.5
4.5
2.9
1.1
Amounts recognised in the Consolidated Statement of Comprehensive Income
Return on plan assets excluding interest income
Experience gain on Scheme obligations
Changes in assumptions underlying the present value of
Scheme obligations
Annual amount recognised
Total amount recognised
% of Scheme
assets/
liabilities %
3
-
(17)
(14)
2016
£m
2.0
-
(15.5)
(13.5)
(42.5)
Return on plan assets excluding interest income
Experience 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
% of Scheme
assets/
liabilities %
(2)
(1)
(5)
(8)
% of Scheme
assets/
liabilities %
4
-
(7)
(3)
% of Scheme
assets/
liabilities %
11
(1)
(9)
(1)
2015
£m
(0.4)
2.2
3.2
5.0
(29.0)
2013
£m
(0.6)
(1.0)
(4.2)
(5.8)
(31.0)
The table below shows the sensitivity of the Consolidated Statement of Financial Position to certain changes in the significant pension
assumptions:
2015
£m
68.6
2.4
(0.4)
2.2
-
(3.8)
69.0
2.0
2.8
1.2
2014
£m
3.1
-
(6.1)
(3.0)
(34.0)
2012
£m
6.7
(0.5)
(6.7)
(0.5)
(25.2)
Value of funded obligations
Fair value of plan assets
Deficit
Balance at
31 December 2016
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
Life expectancy
(+1 year)
£m
(90.9)
68.5
(22.4)
(92.2)
68.5
(23.7)
(91.9)
68.5
(23.4)
(94.9)
68.5
(26.4)
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.
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Financial Statements
133
23. Pensions continued
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 (2015: £0.6m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £0.9m (2015: £0.6m), which includes the
costs of the defined contribution schemes and the defined benefit schemes.
All actuarial gains and losses are recognised immediately in the Consolidated Statement of Comprehensive Income.
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 2016.
The principal assumptions used by the actuaries
Rate of increase in salaries
Discount rate
Inflation
Mortality table
Rate of increase in salaries
Discount rate
Inflation
Mortality table
USA
0.00%
4.15%
0.00%
2016
France
2.00%
1.40%
2.00%
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%
2014 SOA
TH 00-02,
2014 SOA
TH 00-02,
94 GAR
TH 00-02,
TF 00-02
TF 00-02
Proj. 2002
TF 00-02
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%
94 GAR
TH 00-02,
94 GAR
TH 00-02,
Proj. 2002
TF 00-02
Proj. 2002
TF 00-02
Assets and liabilities
The fair values of scheme assets, which are not intended to be realised in the short term and may be subject to significant change before they are
realised, and the value of the scheme liabilities, which is derived from cash flow projections over long periods and which is therefore inherently
uncertain, are as follows:
Assets
Cash and other insured fixed interest assets
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
Market
value
2016
£m
3.2
3.2
(7.9)
(0.2)
(4.9)
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)
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.
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134 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
23. Pensions continued
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
2016
Defined
benefit
schemes
£m
0.6
0.6
-
0.6
0.3
0.3
0.1
0.4
Defined
contribution
schemes
£m
0.6
0.6
-
0.6
Total
£m
0.9
0.9
0.1
1.0
2015
Defined
benefit
schemes
£m
-
-
0.1
0.1
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
2016
£m
6.1
0.3
0.2
0.6
-
(0.3)
1.2
8.1
2016
£m
2.6
-
0.1
(0.1)
0.6
3.2
0.1
-
0.6
Total
£m
0.6
0.6
0.1
0.7
2015
£m
6.1
-
0.1
-
-
(0.1)
-
6.1
2015
£m
2.7
-
-
(0.1)
-
2.6
-
-
0.6
www.hsholdings.com | Stock Code HILS
Financial Statements
135
23. Pensions continued
Amounts recognised in the Consolidated Statement of Comprehensive Income
Experience 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
%
(2)
-
(5)
(12)
2016
£m
(0.2)
-
(0.4)
(0.6)
(1.2)
(2.8)
Experience 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
% of scheme
assets/
liabilities
%
0
7
(4)
n/a
% of scheme
assets/
liabilities
%
0
0
(10)
0
% of scheme
assets/
liabilities
%
2
4
(12)
n/a
2015
£m
0.2
-
(0.2)
-
-
(1.6)
2013
£m
-
0.2
(0.2)
-
-
(1.0)
2014
£m
-
-
(0.6)
-
(0.6)
(1.6)
2012
£m
0.1
0.1
(0.6)
-
(0.4)
(1.0)
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.
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
Management is required to make an estimate of the current tax liability together with an assessment of the temporary differences which arise as
a consequence of different accounting and tax treatments. Liabilities for tax contingencies also require management judgements and estimates
in respect of tax audit issues and exposures in each of the jurisdictions in which the Group operates. Where management concludes that a tax
position is uncertain, a current tax liability is held for anticipated taxes that are considered probable based on the information available. The
key judgement area for the Group is the pricing of intercompany goods and services between subsidiaries in different countries. Included in the
current tax payable is a liability of £6.1m (2015: £5.7m) for uncertain tax positions. Management engages with professional advisors in making
its assessment and, if appropriate, will liaise with the relevant taxation authorities to resolve the matter. The tax liability is reassessed in each
period to reflect management’s best estimate in light of the information available. If the final outcome of these matters differs from the liability
held in the Financial Statements, the difference may impact the income tax charge / (credit) in the year in which the matter is concluded. Further
information is set out in note 7 and note 13.
www.hsholdings.com | Stock Code HILS
136 Financial Statements
Notes to the Consolidated Financial Statements
(continued)
24. Accounting estimates, assumptions and judgements continued
Valuation of intangible assets
Where an acquisition is of a significant size, it is reviewed by independent experts to assess the specific intangibles arising from the acquisition.
Brands, contractual arrangements 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 determined 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 revenues 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. Other contractual arrangements have been valued based on either replacement cost or an
income approach utilising ‘with or without’ methodology and have been deemed to have estimated useful economic lives of between 8 and 10
years.
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 68 to 76. 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
2016
£m
1.6
0.3
0.2
0.7
2.8
2015
£m
1.6
0.3
0.2
0.7
2.8
www.hsholdings.com | Stock Code HILS
Financial Statements
137
Notes
3
4
5
6, 7
6
7
9
10
2016
£m
0.1
353.4
353.5
84.8
0.8
85.6
(9.6)
(81.2)
(90.8)
(5.2)
348.3
(51.6)
(0.5)
(0.2)
296.0
19.7
33.5
0.2
242.6
296.0
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
Company Balance Sheet
Year ended 31 December 2016
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash and cash equivalents
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 and charges
Pension liabilities
Other provisions
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 8 March 2017 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
www.hsholdings.com | Stock Code HILS
138 Financial Statements
Company Statement of Changes in Equity
Year ended 31 December 2016
Balance at 1 January 2015
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 2015
Comprehensive income
Profit for the year
Other comprehensive income for the year
Transactions with owners recognised directly in equity
Dividends
Credit to equity of share-based payments
Tax taken directly to the Statement of Changes in Equity
Satisfaction of long term incentive payments
Own shares held by employee benefit trust
Shares issued
At 31 December 2016
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Profit and
loss account
£m
19.5
31.7
0.2
114.2
Total
equity
£m
165.6
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.6
1.1
32.8
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.7
0.7
33.5
-
-
-
-
-
-
-
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
-
-
-
-
-
-
-
-
49.4
(0.2)
49.4
(0.2)
(16.2)
(16.2)
1.1
0.4
(1.4)
(0.6)
-
1.1
0.4
(1.4)
(0.6)
0.8
0.2
242.6
296.0
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.
www.hsholdings.com | Stock Code HILS
Company Statement of Cash Flows
Notes
2016
£m
1.1
-
-
(0.5)
0.7
0.2
(31.4)
-
55.7
-
0.8
(2.0)
(16.2)
(1.0)
21.0
(23.0)
10
2
Loss before tax
Add back net financing costs
Operating loss
Adjusted for non-cash items:
Share-based payments
Depreciation
Impairment of non-current assets
Operating cash flow before movement in working capital
Decrease in receivables
Increase in payables
Increase in provisions
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 (decrease)/increase in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
Financial Statements
139
£m
(8.0)
2.0
(6.0)
1.1
(4.9)
(31.0)
(35.9)
(3.5)
(1.7)
(41.1)
55.7
(20.4)
(5.8)
(2.9)
-
(8.7)
2015
£m
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)
www.hsholdings.com | Stock Code HILS
140 Financial Statements
Company Principal Accounting Policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s
Financial Statements, except as noted below.
Basis of preparation
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 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.
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 Accounting Policies set out on pages 140 to 142 have, unless otherwise stated, been applied consistently to all periods presented in these
Financial Statements.
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 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 currency 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.
www.hsholdings.com | Stock Code HILS
Financial Statements
141
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 values 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 to
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.
Certain of 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.
www.hsholdings.com | Stock Code HILS
142 Financial Statements
Company Principal Accounting Policies
(continued)
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 guarantee 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.
www.hsholdings.com | Stock Code HILS
Notes to the Company Financial Statements
Financial Statements
143
1. Profit on ordinary activities before taxation
The profit on ordinary activities is stated after charging:
Operating lease rentals – land and buildings
2016
£m
0.1
2015
£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 £5.5m (2015: £5.0m) and the final dividend of £10.7m (2015: £9.1m).
Dividends declared after the year end date are not recognised as a liability. The Directors have proposed a final dividend for the current year,
subject to shareholder approval, as shown below:
Equity shares
Interim
Final
Total
3. Tangible fixed assets
Cost or valuation
At 31 December 2015
Additions
At 31 December 2016
Depreciation
At 31 December 2015
Charge for the year
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
4. Fixed asset investments
Cost
At 31 December 2015
Return on capital
At 31 December 2016
Provisions
At 31 December 2015
Impairment
At 31 December 2016
Net book value
At 31 December 2016
At 31 December 2015
2016
Pence
per share
8.5
17.9
26.4
2015
Pence
per share
7.1
13.6
20.7
£m
6.7
14.1
20.8
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
351.9
(8.9)
343.0
12.1
-
12.1
330.9
339.8
23.8
-
23.8
1.3
-
1.3
22.5
22.5
0.8
-
0.8
0.8
-
0.8
-
-
www.hsholdings.com | Stock Code HILS
£m
5.5
10.6
16.1
Total
£m
0.5
-
0.5
0.4
-
0.4
0.1
0.1
Total
£m
376.5
(8.9)
367.6
14.2
-
14.2
353.4
362.3
144 Financial Statements
Notes to the Company Financial Statements
(continued)
4. Fixed asset investments continued
A list of the businesses owned by the Company is given in note 13. 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
2016
£m
79.7
3.1
0.8
1.0
0.2
84.8
2016
£m
9.6
9.6
2.1
0.1
2.9
1.1
75.0
81.2
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
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
2016
£m
51.6
51.6
2016
£m
9.6
-
51.6
51.6
61.2
2015
£m
54.2
54.2
2015
£m
2.9
-
54.2
54.2
57.1
www.hsholdings.com | Stock Code HILS
8. Deferred tax
At 1 January
Credited for the year in the Income Statement
Credited for the year directly in equity
At 31 December
Other timing differences
Financial Statements
145
2016
£m
(0.4)
-
(0.4)
(0.8)
(0.8)
2015
£m
(0.4)
-
-
(0.4)
(0.4)
9. Pension liabilities
The Company contributes to the Group pension scheme, which has sections providing benefits accruing in the future on a defined benefit basis
and on a defined contribution basis. Details of the scheme and the 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 (2015: £2.8m), of which
additional deficit contributions were £2.3m (2015: £2.5m).
10. Called up share capital
Allotted, called up and fully paid
78.5m Ordinary Shares of 25p each (2015: 78.2m)
2016
£m
19.7
2015
£m
19.6
In 2016 the Company issued 0.3m shares under its various share option schemes (2015: 0.3m), realising £0.8m (2015: £1.2m). 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 (2015: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2016 was
£96.9m (2015: £62.2m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
Between two and five years
2016
2015
Land and
buildings
£m
0.1
0.1
Other
£m
-
-
Land and
buildings
£m
0.1
0.1
Other
£m
-
-
www.hsholdings.com | Stock Code HILS
146 Financial Statements
Notes to the Company Financial Statements
(continued)
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 2016
£m
Highest during
the year
£m
Balance at
31 December 2015
£m
79.7
(94.5)
79.7
(75.0)
49.1
(109.5)
49.1
(89.5)
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
2016
£m
55.7
5.9
-
2015
£m
116.3
5.2
(0.7)
www.hsholdings.com | Stock Code HILS
Financial Statements
147
IMAS Technology Limited (D)
J. & F. Pool Limited (D)
Jevons Tools Limited (D)
Joliso Limited (D)
Jones of Oswestry 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 Limited (R)*
MB Tech Limited (D)
Meads Cooper Limited (D)
Medway Galvanising Company Limited (G)
Optimum Barrier Systems Limited (D)
Pipe Supports Overseas Limited (H)*
Post & Column Limited (D)
Premier Galvanizing Limited (G)
RBM Reinforcements Limited (D)*
Redman Architectural Metalwork Limited (D)
Redman Fisher Engineering Limited (U)
Royston Steel Fencing Limited (D)
Safety and Security Barrier Holdings Limited (H)
Seniors Reinforcement (Northern) Limited (D)*
Seniors Reinforcement Limited (D)*
Signature Limited (R)
Smeaton Lime Works Limited (D)
Technocover Limited (U)
Tegrel Limited (R)
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)*
Vista Galvanizing (UK) Ltd (D)
Walkers Galvanizers Limited (D)
Western Galvanizers Limited (D)
Wombwell Foundry Limited (D)
Zonestar Limited (D)
13. 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)
Bergen Pipe Supports Group Limited (U)*
Bergen Pipe Supports Limited (U)
Berry Safety Systems Limited (D)*
Bettles and 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 Securities (Dudley) Limited (D)
Cooper Securities Limited (D)
Counters & Accessories Limited (D)
Dee Organ Limited (D)
Eurogrid Limited (D)
Expamet Building Products Limited (D)
Expamet Limited (D)
Foremost Moulding Limited (D)
Gem (Ashfix) Limited (D)
Hawkshead Properties Limited (H)
Hardstaff Barriers Limited (R)
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)
H2S2 Limited (R) **
All of the above subsidiaries have a year end date of 31 December and are included in the consolidated results of the Group. The Company holds
100% of the share capital of all businesses, either directly or indirectly, unless otherwise stated.
All of the above subsidiaries have a registered office address at Westhaven House, Arleston Way, Shirley, Solihull, B90 4LH, England.
(U) Utilities
(R) Roads
(G) Galvanizing
(D) Dormant
(H) Holding company
* Directly held by Hill & Smith Holdings PLC
** 50% owned joint venture
www.hsholdings.com | Stock Code HILS
148148 Financial Statements
Financial Statements
Notes to the Company Financial Statements
Notes to the Company Financial Statements
(continued)
(continued)
13. Subsidiaries continued
Incorporated in Australia
Hill & Smith Pty Limited (R)
Suite 12, Level 12, 37 Bligh Street,
Sydney, New South Wales 2000
Incorporated in Belgium
Vista BVBA (H)
Louizalaan, 331-333, 1050 Brussels
Incorporated in Canada
Process Pipe Supports, Inc (U)
921 Barton Street, Unit #3, Stoney Creek, Ontario, L8E 5P5
Incorporated in China
Bergen Pipe Supports (Jiangsu) Limited (U)
West End of Fuyang Road, South Development District,
Jingjiany City, JiangSu Province, 214500
PSG Trading (Jingjiang) Limited (U)
Fuyang Road, Chengnan Development Zone,
Jingjiang City, Jiangsu Province
Incorporated in France
Conimast International SAS (R)
ZI la Saunière, - BP70, 89600, Saint-Florentin
Européenne de Galvanisation SAS (G)
10 Route de Merviller, 54120, Baccarat
France Galva SA (G)
ZI la Saunière - BP70, 89600, Saint-Florentin
France Galva Lorraine SAS (G)
ZI due Lavoisier, 57340, Morhange
Galvacier SAS (G)
ZI des Terres Noires, 81370, Saint Sulpice
Galva Gaillard SAS (G)
801 rue de la Rive, 42320 La Grand Croix
Galvalandes SAS (G)
3031 route de Mont-de-Marsan, CS 50007, 40120, Sarbazan
Galvanisation de l’Artois SAS (G)
437 Chemin de Noyelles, 62110, Henin-Beaumont
Galvanisation du Cambrésis SAS (G)
Champ de la Cheminée, 59980, Honnechy
Galvamed SAS (G)
1447 avenue des Verges, ZI du Pont, 13750, Plan D’orgon
Société Nantaise de Galvanisation SAS (G)
ZI - 4 rue de l’Europe, 44470, Carquefou
Incorporated in India
Bergen Pipe Supports (India) Private Limited (U)
Plot No 12, Ground Floor, ‘RADHA’, Mangala Nagar Main Road,
Porur, Chennai, 60016
Hill & Smith Infrastructure Products India Private Limited (R)
574, 3rd Floor, Main Road, Chirag Delhi, New Delhi, 110017
Incorporated in Ireland
Redman Fisher Limited (U)
Naas Industrial Estate, Naas,
Co Kildare, 496407
Incorporated in Norway
ATA Hill & Smith AS (R)
Jacob Borchsgate 6, 3012 Drammen
Incorporated in Sweden
ATA Hill & Smith AB (R)
Hill & Smith Sweden AB (H)
FMK Trafikprodukter AB (D)
Box 7051, 192 78, Sollentuna, Stockholms län
Incorporated in Singapore
Bergen Pipe Supports Pte. Limited (D)
2 Shenton Way, #18-01,
SGX Centre 1, 068804
Incorporated in Thailand
Bergen Pipe Supports Asia Limited (U)
26/5 Moo. 9, Soi Rattanaraj, Bangna-Trad Road, Km 18.2,
Bangchalong, Bangplee, Samut Prakarn, 10540
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)
Voigt & Schweitzer LLC (H)
c/o The Corporation Trust Company, Corporation Trust Centre,
1209 Orange Street, Wilmington, Delaware 19801
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)
987 Buckeye Park Road, Columbus, Ohio, 43207
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
www.hsholdings.com | Stock Code HILS
149
V&S’s galvanizing on the Mapfre Stadium, the first US soccer specific stadium in Columbus.
Demand has increased for Bristorm’s Impeder bollards which are used for hostile vehicle mitigation.
150150 Financial Statements
Financial Statements
Five Year Summary
Five Year Summary
Underlying revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
2016
£m
540.1
70.6
68.0
232.2
Pence
65.9
26.4
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
www.hsholdings.com | Stock Code HILS
Shareholder InformationSee further information at hsholdings.com152 Financial Calendar153 Shareholder Information154 Principal Group Businesses157 Directors, Contacts and AdvisorsImage Above - Mallatite manufactured the lighting columns and supplied the LED lanterns, alongside Varley & Gulliver’s bridge parapet railing on the Erskine Bridge, spanning the River Clyde in West Central Scotland.Shareholder Information151151 152 Shareholder Information
Financial Calendar
Annual General Meeting 2017
Trading Update
Ex-dividend date for 2016 final dividend
Record date 2016 final dividend
Dividend Reinvestment Plan – last date for election
Final 2016 ordinary dividend payable
Announcement of 2017 interim results
Trading Update
Payment of 2017 interim dividend
11 May 2017
11 May 2017
25 May 2017
26 May 2017
12 June 2017
3 July 2017
10 August 2017
November 2017
January 2018
www.hsholdings.com | Stock Code HILS
Shareholder Information
153
Shareholder Information
Shareholder base
Holdings of ordinary shares at 7 March 2017
Range of Shares
1 - 500
501 - 1,000
1,001 – 5,000
5,001 – 50,000
50,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
Above 1,000,000
Totals
Shareholder type
Individuals
Institutions
Other corporate
Totals
Dividend History – proposed dividends per share
Interim
Final
Total
Communication with shareholders and analysts
Directors meet with major shareholders and potential investors
following interim and final results, and at other times if requested.
Presentations for analysts are also held on the day of these
announcements and we keep in regular contact with analysts
throughout the year.
Corporate information
The Annual and Interim Reports are the main forms of
communication with our shareholders. We have updated our website
to supplement these reports with additional information. The
website address is www.hsholdings.com and includes share price
information, investor relations information and contact details.
Annual General Meeting (‘AGM’)
The AGM will be held on Thursday 11 May 2017 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 below.
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.
Number of holders
672
359
684
442
46
86
15
20
%
28.92
15.45
29.43
19.02
1.98
3.70
0.64
0.86
2,324
100.00
Number of holders
1,484
835
5
2,324
%
63.86
35.93
0.21
100.00
Number of shares
138,486
273,514
1,617,699
6,383,577
3,373,865
20,605,406
10,014,664
36,137,037
78,544,248
Number of shares
4,656,857
73,879,607
7784
78,544,248
2016
8.5
17.9
26.4
2015
7.1
13.6
20.7
2014
6.4
11.6
18.0
2013
6.0
10.0
16.0
›
›
›
Access current and historical market prices.
Access trading graphs.
Add additional shareholdings to your portfolio.
%
0.18
0.35
2.06
8.13
4.29
26.23
12.75
46.01
100.00
%
5.93
94.06
0.01
100.00
2012
5.8
9.2
15.0
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
12 June 2017)
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.
www.hsholdings.com | Stock Code HILS
154 Shareholder Information
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 (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 Hill & Smith 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
Hardstaff Barriers Ltd*
Temporary and permanent road safety
barriers
Hillside, Gotham Road, Kingston-on-Soar,
Nottingham, NG11 0DF
Tel: +44 (0) 115 983 2304
enquiries@hardstaffbarriers.com
www.hardstaffbarriers.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
Signature (D)
Manufacturer of traffic management
and highway electrical products
www.signatureltd.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
info@ata.se
www.ata.se
ATA Hill & Smith AS*
Road safety barriers, road signage
and traffic safety solutions
Incorporated in Norway
Jacob Borchs Gate 6
3012 Drammen
Tel: +47 (0) 32 26 93 00
post@ata.co
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 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.
www.hsholdings.com | Stock Code HILS
Shareholder Information
155
Infrastructure Products - Utilities
United Kingdom
United States of America
Pipe Supports
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*
Perimeter 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
Technocover Ltd*
Steel security solutions
Henfaes Lane, Welshpool, Powys, SY21 7BE
Tel: +44 (0) 1938 555511
Fax: +44 (0) 1938 555527
techweb@technocover.co.uk
www.technocover.co.uk
Creative Pultrusions, Inc.*
Manufacture of fibre reinforced polymer
(FRP) compositeprofiles
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 (D)
Design and construction of fiberglass bridge
and boardwalk systems
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
www.pipesupports.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.pipehangers.com
Novia Associates (D)
Vibration and seismic control manufacturer
www.cp-novia.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 Inc and V&S Schuler Tubular Products LLC, both are indirectly held, wholly owned and incorporated in the USA.
www.hsholdings.com | Stock Code HILS
156 Shareholder Information
Principal Group Businesses (continued)
United States of America
France
Voigt & Schweitzer LLC*
Galvanizing services
987 Buckeye Park Road, Columbus
Ohio, 43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@hotdipgalvanizing.com
www.hotdipgalvanizing.com
France Galva SA*
Galvanizing and powder coaters of steel
Z.I. La Saunière 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
Galvanizing Services
United Kingdom
Joseph Ash Ltd*
Galvanizing services
Alcora Building 2, Mucklow Hill
Halesowen, West Midlands, B62 8DG
Tel: +44 (0) 121 504 2560
Fax: +44 (0) 121 504 2599
sales@josephash.co.uk
www.josephash.co.uk
Medway Galvanising Company Ltd*
Galvanizing, shotblasting and powder
coating services together with monohinge
gates
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 powder coating services
Unit 25, Stoneferry Business Park
Foster Street, East Riding of Yorkshire,
HU8 8BT
Tel: +44 (0) 1482 587587
Fax: +44 (0) 1482 588599
info@premiergalv.co.uk
www.premiergalv.co.uk
Barkers Engineering Ltd*
Galvanizing and powder 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.
www.hsholdings.com | Stock Code HILS
Shareholder Information
157
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 and
Managing Director - UK Utilities division)
J F Lennox LLB, CA
(Senior Independent Non-executive)
A M Kelleher MSc, BA
(Independent Non-executive)
M J Reckitt BCom, CA
(Independent 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 Advisors
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
www.hsholdings.com | Stock Code HILS
158 Shareholder Information
Shareholder Notes
www.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