2017
Annual Report for the year
ended 31 December 2017
Stock Code HILS
Hill & Smith Holdings PLC
Annual Report for the year ended 31 December 2017
Contents
Strategic Report
Group Highlights
Group at a Glance
Chairman’s Statement
Business Model and Strategy
Our Strategy in Action
1
2
4
6
8
13 Operational and Financial Review
24 Measuring Our Performance
26
28
32
Risk Management and Assurance
Principal Risks and Uncertainties
Corporate Responsibility
Governance Report
Chairman’s Introduction to Governance
Board of Directors
43
44
46 Governance Report
55 Nomination Committee Report
56 Audit Committee Report
62
63 Directors’ Remuneration Report
77 Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
80
Remuneration Committee Report
Mission Statement
“To deliver
sustainable
profitable growth
through the supply
of Infrastructure
Products and
Galvanizing Services.”
Cover Images
Top – Cryogenic pipe supports awaiting inspection at Bergen Pipe Supports India.
Middle – Bristorm Zero HVM Perimeter Fence – Kingdom of Saudi Arabia.
Bottom – Galvanized product at Joseph Ash Ltd.
Below – Brifen N2W4 wire rope VRS installed on the A11 Thetford bypass.
Financial Statements
Independent Auditor’s Report
82
87 Group Financial Statements
134 Company Financial Statements
146 Five Year Summary
Shareholder Information
148 Financial Calendar
149 Shareholder Information
150 Principal Group Businesses
153 Directors, Contacts and Advisors
1
Group Highlights
•
•
Record revenue and underlying earnings performance.
Improved returns driven by strong end markets and active portfolio management.
• Underlying profit before taxation up 15% to £78.5m.
•
•
•
Two acquisitions completed during the year, both in the US.
Strong cash generation performance with net debt at £99.0m.
Proposed 15% increase in final dividend of 20.6p, giving a full year dividend of 30.0p, up 14%.
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
31 December
2017
31 December
2016
Change %
£585.1m
£540.1m
+8
£81.3m
13.9%
£78.5m
75.9p
£74.1m
£70.2m
68.6p
30.0p
£99.0m
£70.6m
13.1%
£68.0m
65.9p
£51.8m
£48.3m
43.0p
26.4p
£112.0m
+15
+80bps
+15
+15
+43
+45
+60
+14
*All underlying measures exclude certain non-underlying items, which are as defined in note 3 on page 100 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. In respect of
acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary
businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year.
Revenue
Underlying operating
profit
Underlying earnings
per share
Dividend per share
(proposed)
£585.1m up 8%
£81.3m up 15%
75.9p up 15%
30.0p up 14%
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Strategic Reportwww.hsholdings.com | Stock Code HILS
2
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.
Infrastructure Products –
Roads
Our Roads segment designs,
manufactures and installs
temporary and permanent
safety products for the
roads market together with
intelligent transport systems
which provide information
to road users. We principally
serve the UK market, with
an international presence in
selected geographies.
For more information see page 13.
Infrastructure Products –
Utilities
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.
For more information see page 16.
Revenue: £187.1m
Revenue by Geography
Employees by Geography
(Numbers)
Underlying Operating
Profit: £23.6m
No. of Employees: 816
UK – 66%
UK – 546
International – 34%
International – 270
Revenue: £215.7m
Revenue by Geography
Employees by Geography
(Numbers)
Underlying Operating
Profit: £16.8m
No. of Employees: 1,784
UK – 45%
USA – 36%
RoW – 19%
UK – 808
USA – 646
RoW – 330
Galvanizing Services
Revenue: £182.3m
Revenue by Geography
The Galvanizing Services
division offers corrosion
protection services to the
steel fabrication industry
with multi-plant facilities in
the UK, France and the USA.
For more information see page 17.
Underlying Operating
Profit: £40.9m
No. of Employees: 1,543
Employees by Geography
(Numbers)
UK – 43%
USA – 26%
France – 31%
UK – 670
USA – 395
France – 478
Strategic Reportwww.hsholdings.com | Stock Code HILS 3
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 businesses, Creative
Pultrusions, Kenway and
Tower Tech.
UK – head office and
various locations
covering our main
infrastructure
products businesses
and a network of UK
galvanizing plants.
Sweden – location
of ATA and FMK, the
road safety barrier and
signage business.
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 2017 revenue £585.1m
shown by end market geography
Percentage of 2017 underlying operating profit £81.3m
shown by location of the operating site
UK – 49%
USA – 29%
UK – 42%
USA – 43%
Europe and ROW – 22%
Europe and ROW – 15%
Strategic Reportwww.hsholdings.com | Stock Code HILS 4
Chairman’s Statement
Jock Lennox
Chairman
Overview
In my first statement as Chairman, I am delighted to report another
year of progress in 2017. Our focused strategy of developing
businesses with market leading positions in international growth
markets continues to deliver good organic revenue and profit
progression and improved capital returns.
In 2017, organic revenue growth of 4% helped lift our total revenue
by 8% to £585.1m (2016: £540.1m). Underlying operating profit
increased by 15% to £81.3m (2016: £70.6m), or 12% at constant
currency. Underlying operating margin improved by 80 basis points
to 13.9% (2016: 13.1%). Underlying earnings per share of 75.9p were
15% higher (2016: 65.9p). Reported operating profit increased by
43% to £74.1m, resulting in a reported operating margin of 12.7%
(2016: 9.6%). Basic earnings per share of 68.6p were 60% higher
than the prior year (2016: 43.0p). Return on invested capital was
20.2% (2016: 19.4%).
Continuation of our proven strategy of active portfolio management
resulted in us completing two acquisitions, one disposal and the
closure of one non-core business during 2017:
›
›
›
›
In March, we completed the acquisition of the trade and
assets of Kenway Corporation (‘Kenway’) for an aggregate cash
consideration of £6.1m. Kenway is a specialist in technologically
advanced composite design, manufacturing and field service
work across a broad range of industries including marine,
power, pulp and paper, transportation and renewable energy.
Integrated into our existing composite business, Creative
Pultrusions, Kenway is trading in line with our expectations.
In August, we completed the acquisition of the trade and
assets of Tower Tech Inc. (‘Tower Tech’), a manufacturer of
modular build, high efficiency composite cooling towers which
offer ease of installation, low operating costs and longevity.
Cash consideration of £2.4m was paid at completion. Tower
Tech is performing as expected and is being integrated into
our composites business, a long time supplier to Tower Tech.
The acquisition furthers our strategy of enhancing our product
offering to end users within infrastructure markets.
In April, we completed the disposal of CA Traffic Limited, a non-
core traffic data collection business, to TagMaster AB for a net
consideration of £2.5m.
In December 2016, following a review of the returns available,
we announced a plan to close and exit our roads business in
India. Following the execution of a licensing agreement with a
local manufacturer, the closure process was completed in the
third quarter of 2017.
I am delighted to
report another year
of progress in 2017.
“
“
After the year end, on 1 January 2018, we completed the small
bolt-on acquisition of D Gibson Road & Quarry Services Limited for
a cash consideration of £0.3m. Supplying road signs and ancillary
products into UK contractors, the business has been absorbed into
our existing Mallatite operation.
We welcome the employees of the acquired companies, which
provide exciting growth opportunities for the Group.
Dividends
In view of the strong performance the Board is recommending
an increase of 15% in the final dividend to 20.6p per share (2016:
17.9p per share) making a total dividend for the year of 30.0p per
share (2016: 26.4p per share), an increase of 14% on the prior year.
Underlying dividend cover remains a healthy 2.5 times (2016: 2.5
times). Reported dividend cover is 2.3 times (2016: 1.6 times).
Our performance gives us confidence to maintain a progressive
dividend policy which has resulted in fifteen years of uninterrupted
dividend growth. The final dividend, if approved, will be paid on 2 July
2018 to those shareholders on the register at the close of business
on 25 May 2018.
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 2017, Bill Whiteley
retired and I was appointed as your Chairman. On 3 October 2017,
Alan Giddins joined the Board as a Non-executive Director and
became the Group’s Senior Independent Director. With significant
board experience he is already providing a valuable and additional
perspective to the Board.
Strategic Reportwww.hsholdings.com | Stock Code HILS 5
Brexit
It remains too early to assess with any certainty the impact of the
decision by the United Kingdom to leave the European Union. We
have not experienced any material positive or negative impact since
the referendum result and 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 are not complacent,
remain vigilant and will react with our customary speed as necessary.
AGM
We will hold our AGM on 17 May 2018 and it is an excellent
opportunity for shareholders to meet the Board and certain senior
executives of the Group. If you can 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. In my time on the Board, and latterly
as Chairman, I have been immensely impressed by the skill and
dedication of all our employees. On behalf of the Board, I would like
to thank them for their continued hard work and for rising to the
opportunities and challenges they meet.
Outlook
The industrial and geographical spread of the Group’s markets and
businesses not only provide a resilient base, but also opportunities for
growth. With 80% of revenue and 85% of underlying operating profit
deriving from its UK and US activities, the Group mainly operates in
niche infrastructure markets with positive outlooks.
In Utilities, our UK and US activities continue to benefit from the
significant investment in replacing ageing infrastructure and new
infrastructure projects in those countries. In Galvanizing, wider
market conditions remain favourable and we expect our businesses
to consolidate their strong market positions and continue to take
advantage of opportunities.
In the UK, the implementation of the Department of Transport’s Road
Investment Strategy is entering the fourth year of the initial five year
plan, which provides certainty of funding through to 2019/20. We
are encouraged that recent announcements by Highways England
indicate further investment plans through into 2025 are under
discussion. We therefore have confidence the Group’s road product
portfolio will continue to benefit from increased investment in the
UK’s road infrastructure.
In the US, the administration has prioritised spending on US
infrastructure, including building and repairing roads and bridges,
and our businesses are well positioned to benefit from any increased
investment.
Overall, despite political and macro-economic uncertainties, we
remain well positioned to again deliver another year of progress.
Jock Lennox
Chairman
7 March 2018
Culvert Structure and VSoL Walls spanning the River Carron on a residential development for Stewart Milne Homes (North), Carron Den, Stonehaven, Aberdeenshire.
Strategic Reportwww.hsholdings.com | Stock Code HILS 6
Our Business Model and Strategy
Hill & Smith Holdings PLC seeks to deliver superior shareholder returns by
holding leading positions in the niche markets of infrastructure products and
galvanizing services, diversified over different geographies.
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. 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 country
standards. See our strategy in action on page 8.
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 8. 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.
Business Principles
Governance
Hill & Smith Holdings PLC is led by an experienced management team which has a strong record in successfully implementing the
Company’s strategy. The Board is collectively responsible for upholding high standards of corporate governance and leadership, ensuring
that the Company continues to deliver value creation for our shareholders. See pages 43 to 79 for more details.
Aligned Interests
The Hill & Smith Holdings PLC executive directors are subject to minimum shareholding requirements and also participate in long-term
incentive arrangements which link remuneration to shareholder return, ensuring their interests are aligned directly with shareholders. See
page 68 for more details.
www.hsholdings.com | Stock Code HILS
Strategic Report 7
Our Markets
Our businesses 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 these
and other industries.
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 9.
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.
All our subsidiaries are tasked
with achieving an acceptable
operating margin. Businesses
that fail to achieve this margin
are given a period of grace
to develop a plan for margin
improvement to the targeted
level. See our strategy in action
on page 9.
Hill & Smith
Holdings PLC
generating
sustainable
profitable growth
and shareholder
return. See pages
10 and 11 for
more details.
Risk Management
Effective risk management is critical to the achievement of our strategic objectives, and the Group-wide risk identification, articulation
and mitigation processes followed by our subsidiaries are integrated into their daily business activities. See pages 26 to 30 for more
details.
People
The Group is committed to ensuring its businesses provide the right environment in which to work. We insist that people connected
with the Group are trained correctly, behave in the right way, work safely and comply with all local legal and regulatory requirements,
thus ensuring the sustainability of the business as well as the environment. We do this by implementing the correct policies and
procedures relating to our people and the environment, by successfully delivering an effective health and safety system and
encouraging our business to interact with their local communities. See pages 32 to 37 for more details.
Key Performance Indicators (‘KPIs’)
The Board has adopted certain financial and non-financial KPIs. See pages 24 to 25 for more details.
Strategic Reportwww.hsholdings.com | Stock Code HILS 8
Our Strategy in Action
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 2017
›
Purchase of Kenway Composites, Inc. (24 March 2017).
›
Purchase of Tower Tech, Inc. (15 August 2017).
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 2017
›
Organic revenue growth of 4.5%
›
›
Integration of Kenway Composites, Inc. and Tower Tech, Inc. into Creative Pultrusions.
Bergen Pipe Supports India developed into a site of manufacturing excellence.
MASS Siteguard installed around the American Embassy, London, UK.
Strategic Reportwww.hsholdings.com | Stock Code HILS 9
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 2017
›
Establishment of Carpenter & Paterson’s Eastern Region Service Centre (‘ERSC’).
›
›
›
›
Rationalisation of the Variable Message Signs business, from three sites to one manufacturing facility in the North East of England.
Closure of Indian roads business.
Sale of C.A Traffic Ltd.
Successful integration of Mallatite Ltd’s five sites into three – Chesterfield, Oldbury and Inchinnan.
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
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 2017
Underlying operating margins
2017
Target range %
ROIC
Infrastructure Products
Utilities
Roads
Galvanizing
Group
10.0%
7.8%
12.6%
22.4%
13.9%
8 – 11
7 – 10
10 – 14
18 – 21
12 – 15
Infrastructure Products
Utilities
Roads
Galvanizing
Group
2017
19.9%
17.5%
22.0%
20.4%
20.2%
Data centre protection utilising Barkers Engineering’s StronGuard RCS Pallisade.
Strategic Reportwww.hsholdings.com | Stock Code HILS 10
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 32 to 39.
Key events in 2017
›
Underlying Group operating profit up 15% at £81.3m.
›
›
Underlying earnings per share up 15% at 75.9p.
Dividend per share 30.0p, up 14% year-on-year.
Underlying earnings per share (pence)
e
r
a
h
S
r
e
p
s
g
n
n
r
a
E
i
80.0
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
2017
Opportunities for growth
›
US galvanizing market, opportunities through organic growth, plant investment and acquisition.
›
›
›
The growth of Smart Motorways, driven by the UK Government’s five-year £15.2bn investment in the UK road network.
Capitalising on the growing demand for tested products in our International Roads markets.
Continued expansion of the Group’s US composites business.
Priorities for 2018
›
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.
Strategic Reportwww.hsholdings.com | Stock Code HILS
11
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.
*as at the date of this report.
7 countries*
59 sites
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.
4% organic revenue growth
2 US acquisitions
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
nine years the Group has achieved an average underlying cash
conversion rate of over 90% (the ratio of underlying operating cash
less capital expenditure to underlying operating profit).
*87% excluding the impact of zinc price rises during the year.
2017: 78%*
2016: 93%
Progressive Dividend
We have increased dividend payments by a compound annual
growth rate of 13.2% since 2008.
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d
i
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35.00
30.00
25.00
20.00
15.00
10.00
5.00
-
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Increased Shareholder Value
Since 2010 our total shareholder return has regularly
outperformed the FTSE All Share.
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Hill & Smith
FTSE 250
FTSE SmallCap
FTSE All Share
Strategic Reportwww.hsholdings.com | Stock Code HILS
12
Case Study
Kilrenny Bridge Strengthening
Asset International Structures (a division of Hill & Smith Ltd) provides a fully engineered design and
manufacture service for construction, highways and rail clients and has an international reputation for
providing bespoke designs that address all specific project requirements.
The Kilrenny Bridge in Anstruther, Fife, Scotland, was found to be weak during a programme of bridge
assessments by Fife Council. The reinforced concrete bridge was built in 1937 over the top of the original,
narrower arch bridge. With a 17-tonne weight restriction applied a traffic light controlled single lane
operation was also imposed in 1995 to ease the stress on the structure.
The original project to replace the bridge involved the removal of the whole structure and replacing
it with a small culvert and the formation of embankments.
Fife Council, faced with a cost of more than £1million brought in a new project team in 2015
charged with a radical rethink and review of the scheme in its entirety. With an alternative
solution in mind the Fife Council team approached Asset International Structures to design
and supply a lightweight lining system that could be built in situ to accommodate the
constraints at the site.
Using Asset Liner Plate system as an alternative
to rebuilding resulted in a 40% cost saving
In 2017 Asset International Structures supplied and designed a lightweight
Liner Plate solution that involved building a steel arch under the existing
bridge and infilling between the two structures with concrete. This meant
the concrete bridge could be left in place but would become structurally
redundant. The abutment walls from the old masonry arch also remained
in place, with minor adjustments, avoiding the need to divert Kilrenny
Burn. The voussoirs (external facing stones) from the old masonry
arch, which had been stored when it was demolished, were used in
facing the new steel arch and the remainder of the external faces
would be clad in natural stone.
By Fife Council adopting the Liner Plate solution substantial
cost savings (approximately £400k) were achieved. The works
were completed with only three nights of roads closures,
and significantly less disruption to the traffic and the local
community.
The bridge is now open to two-way traffic, has one
footway and is wide enough to accommodate a
potential cycleway extension in the future.
Find out more about the company
at www.assetint.co.uk
Images
Top – Kilrenny bridge before.
Bottom – Kilrenny bridge after
completion of works.
Strategic Reportwww.hsholdings.com | Stock Code HILS Operational and Financial Review
13
Mark Pegler
Group Finance Director
and MD, UK Utilities
Group
Derek Muir
Group Chief Executive
2017 overview
Hill & Smith delivered a record trading performance in the twelve
months to 31 December 2017. Infrastructure investment in our
key UK and US markets remained strong which, combined with
our focused active portfolio management strategy, resulted in our
highest ever revenue, profitability and operating margin.
Our performance remains underpinned by our proven strategy
of international diversity combined 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 they represented 80% of revenue
and 85% of underlying operating profit. Organic profit growth was
supported by targeted bolt-on acquisitions and the restructuring of
underperforming assets to improve overall returns and shareholder
value. Prospects in our core US and UK infrastructure markets as well
as the other geographies in which we operate continue to be positive
for 2018 and beyond.
Change %
2017
2016
Reported
Constant
currency
£585.1m
£540.1m
+ 8
+ 5
+ 12
+ 12
+ 12
£81.3m
£78.5m
75.9p
£74.1m
£70.2m
68.6p
£70.6m
£68.0m
65.9p
£51.8m
£48.3m
43.0p
+ 15
+ 15
+ 15
+ 43
+ 45
+ 60
Revenue
Underlying(1):
Operating profit
Profit before tax
Earnings per
share
Reported:
Operating profit
Profit before tax
Basic earnings
per share
(1) Underlying measures exclude certain non-underlying items, which are detailed in note 3
to the Financial Statements.
Annual revenue increased by 8% to £585.1m (2016: £540.1m), of
which translational currency benefits contributed £14.4m or 3%.
After adjusting for additional revenue of £23.6m from acquisitions,
reduced revenue from the prior year restructuring of the non-US
Pipe Supports businesses of £14.8m and disposals of £2.5m, organic
revenue growth was £24.3m or 4%. Underlying operating profit
improved by 15% to £81.3m (2016: £70.6m), including a positive
currency translation of £2.1m. Acquisitions contributed £2.3m and
the benefit of the non-US Pipe Supports restructuring actions a
further £1.0m. The organic improvement in underlying operating
profit was 7%. Underlying operating margin improved by 80bps to
13.9% (2016: 13.1%) despite absorbing significantly higher zinc raw
material costs. Underlying profit before taxation was 15% higher
at £78.5m (2016: £68.0m). Reported operating profit was £74.1m
(2016: £51.8m), an increase of 43% on the prior year. Reported profit
before tax was £70.2m (2016: £48.3m).
Infrastructure Products
Revenue
Underlying operating profit
Underlying operating margin %
Reported operating profit
Constant
Currency
%
+ 5
+22
+/-
%
+ 7
+24
£m
2017
402.8
40.4
10.0
34.4
2016
375.7
32.6
8.7
14.9
The division supplies engineered products to the roads and utilities
markets in geographies where there is sustained long term
investment in infrastructure. In 2017 the division accounted for
69% (2016: 70%) of the Group’s revenue and 50% (2016: 46%) of
the Group’s underlying operating profit. Revenues increased 7% to
£402.8m (2016: £375.7m) including an £8.1m positive impact from
exchange rate movements. Acquisitions and disposals contributed
a net £21.1m and there was £14.8m of lower revenue from the
restructured non-US Pipe Supports operations. Organic revenue
growth was £12.7m, or 3%. Underlying operating profit was £40.4m
(2016: £32.6m), an increase of £7.8m, with a positive currency
translation benefit of £0.6m. Acquisitions contributed £2.3m and the
non-US Pipe Supports restructuring an additional £1.0m. Underlying
operating margin improved to 10.0% (2016: 8.7%). Reported
operating profit was £34.4m (2016: £14.9m) and included costs of
£2.8m (2016: £10.5m) relating to restructuring actions taken during
the year.
Roads
Revenue
Underlying operating profit
Underlying operating margin %
Reported operating profit
Constant
Currency
%
+ 9
+20
+/-
%
+11
+20
£m
2017
187.1
23.6
12.6
20.9
2016
168.1
19.6
11.7
10.9
Our Roads segment designs, manufactures and installs temporary
and permanent safety products for the roads market. We principally
serve the UK market, with an international presence in selected
geographies where there is a growing demand for innovative tested
safety products. Roads represented 29% (2016: 28%) of the Group’s
Strategic Reportwww.hsholdings.com | Stock Code HILS 14
14
The ‘Crowned Stag’ – a majestic, galvanized, steel sculpture on the Beaulieu housing development, Chelmsford, Essex. Galvanized by Joseph Ash Ltd.
Strategic Reportwww.hsholdings.com | Stock Code HILS 15
underlying operating profit and 32% (2016: 31%) of revenue in
2017. Revenues increased by 11% to £187.1m (2016: £168.1m), an
organic increase of 6% after a currency benefit of £3.3m, contribution
from acquisitions of £8.1m less the impact of disposals of £2.5m.
Underlying operating profit of £23.6m was £4.0m higher than the
prior year (2016: £19.6m), including £0.1m from positive currency
translations and £1.0m from acquisitions.
Reconciliation of Reported to Underlying operating
profit
£m
Reported operating profit
Restructuring actions
Impairment charges
Profit on disposal of subsidiary
Acquisition costs and amortisation
Underlying operating profit
2017
20.9
1.8
-
(0.6)
1.5
23.6
2016
10.9
2.7
4.1
-
1.9
19.6
UK
The Government’s Road Investment Strategy (‘RIS’) is entering
its fourth year of an initial five-year plan. The RIS aims to provide
certainty of investment funding for the period 2015/16 to 2019/20,
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. We are encouraged that
in December 2017 Highways England published its Strategic Road
Network Initial Report (‘SRNIR’) setting out its vision and priorities for
the second road investment period, covering 2020-2025. Subject now
to public consultation, the SRNIR reaffirms the priority on building
a Smart Motorway spine across the UK, connecting major cities
in the most cost-efficient manner. Acceleration of the roll-out of
expressways also remains a focus. The publication of RIS 2 covering
investment spending across 2020-2025 is due in 2019.
Demand for our rental temporary safety barrier was good in the
first half of the year as three Smart Motorways were in construction.
Utilisation in the second half was lower, in line with expectations and
as previously flagged, as the start of the next significant phase of
Smart Motorways was delayed into 2018. We anticipate a significant
improvement in the utilisation of our rental fleet as we progress
throughout the first half of the current year and for the second
half to be stronger year on year. We are also experiencing growing
interest from UK and International third parties in purchasing
our proven safety product for road and hostile vehicle mitigation
applications.
The increased threat of terrorism in the UK has intensified the
demand for deployment of our range of hostile vehicle mitigation
products, including temporary and permanent, steel and concrete
applications in key locations across the country. With a market
leading range of solutions, and the ability to respond swiftly, we have
completed projects to protect bridges in London, as well as sports
and other high profile events. Discussions are being held with security
agencies outside the UK and we expect this market to continue to
grow.
In line with our expectations, as the initial phase of Smart Motorways
nears completion, demand for our permanent safety barrier has
been stronger year on year. The wider road improvement programme
outside the core Smart Motorway work was also much improved
towards the end of the year and we anticipate a stronger start
to 2018. The market for bridge parapets remains positive as local
authorities and Network Rail upgrade ageing bridge infrastructure
to protect the rail and road network from potential hostile and
accidental vehicle damage. Exports of Brifen, our wire rope safety
barrier system, and Bristorm, our high containment anti-terrorist
perimeter barrier, experienced strong volumes in the second half of
the year and, although lower than the record prior year, both revenue
and profitability remained strong. Bristorm remains the product of
choice for protecting many power, desalination and chemical plants
in the Middle East.
Our Variable Message Sign (‘VMS’) business performed well in the
year with strong sales of new Remotely Operable Temporary Traffic
Management (‘ROTTM’) signs, which Highways England are deploying
to improve road worker safety where no hard shoulder exists on
Smart Motorways. The higher sales of ROTTM more than offset
lower revenue from maintenance activities as a historic ten-year
‘supply and maintain’ contract with Highways England completed.
In June we announced a proposal to commence the rationalisation
of the VMS business that will result in the closure of two UK sites
and consolidation into our existing facility in the north east. The
restructuring is progressing to plan with completion expected in the
first half of 2018 at a cost of £1.4m.
On 27 April 2017, we completed the disposal of CA Traffic Limited,
a traffic data collection business, to TagMaster AB for a net
consideration of £2.5m. Non-core, and unable to deliver the returns
that we target from our businesses, in the year to 31 December 2016
CA Traffic Limited reported revenue of £3.9m and an operating loss
of £0.2m.
Operating with a lower cost base following the rationalisation
completed at the end of 2016, our lighting column business
continues to perform well, supplying aluminium and passive safety
products to projects such as the M8/M74 upgrade in Scotland and
the Manchester M60 Smart Motorway. With its enhanced product
offering following the acquisition of Signature last year, the business
is capitalising on cross selling opportunities into the local authority
and contractor markets.
Non-UK
In Scandinavia, our Swedish and Norwegian operations both
performed well, particularly in the second half of the year. Recent
investment in the temporary safety barrier rental fleet is paying
dividends and utilisation was high. Major upgrades to the wider road
network in both geographies are ongoing and further opportunities
remain.
In France, our lighting column business operates in a competitive
market which was also impacted negatively by disruption due to the
national Presidential election in the first half of the year. Profitability
improved in the second half of the year, but overall fell short of the
prior year performance.
Employing both a rental and a direct sales approach, exciting
progress continues to be made in promoting our temporary safety
barrier in both the USA and Australia. In the USA, acceptance of our
temporary steel barrier, Zoneguard, as an alternative to concrete is
now well established in a number of States and continues to gain
recognition elsewhere, including Canada where we have appointed
a local distributor to drive sales. A record volume of safety barriers
were sold during the year. In Australia, revenue rose to a record level
as we delivered 16km of Zoneguard and 8km of ancillary products
for a road project in Queensland. We also secured a 12km Zoneguard
project for supply into New Zealand in the first half of 2018. Both
the USA and Australia improved profitability against the same period
prior year, establishing new benchmarks for each business.
In December 2016, following an assessment of the local market and
outlook, we announced a plan to close and exit our manufacturing
Strategic Reportwww.hsholdings.com | Stock Code HILS 16
Operational and Financial Review (continued)
and sales facility in India. Following the execution of a licensing
agreement with a local manufacturer, the closure process was
completed in the third quarter of 2017.
Utilities
Revenue
Underlying operating profit
Underlying operating margin %
Reported operating profit
Constant
Currency
%
+ 2
+24
+/-
%
+ 4
+29
£m
2017
215.7
16.8
7.8
13.5
2016
207.6
13.0
6.3
4.0
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 4% to
£215.7m (2016: £207.6m). Benefits from currency translation of
£4.8m and a £15.5m contribution from recent acquisitions were
partly offset by the prior year restructuring and closure programme
of our non-US Pipe Supports business (£14.8m lower revenue year
on year). Organically, revenue was 1% higher than the prior year.
Underlying operating profit was £16.8m (2016: £13.0m) including
a positive currency impact of £0.5m, first time contribution from
acquisitions of £1.3m and a £1.0m benefit from the non-US Pipe
Supports restructuring.
Reconciliation of Reported to Underlying operating
profit
£m
Reported operating profit
Restructuring actions
Impairment charges
Acquisition costs and amortisation
2017
13.5
1.0
0.4
1.9
2016
4.0
7.8
-
1.2
Underlying operating profit
16.8
13.0
In the US, our power transmission substation business performed
well but fell short of the prior year’s strong comparatives. Day to day,
the packaging together of structural steel with electrical components
through framework agreements with key US utilities remains strong
but an absence of larger contracts, notably in the first half of the
year, reduced revenue and profitability. As expected, the second half
of the year experienced improved order intake and we carry a higher
order book into 2018. Investment in US electricity distribution looks
set to continue over the medium term and opportunities for growth
remain.
Following a subdued first half performance, our composite materials
business delivered a much stronger second half, delivering larger
projects into OEM customers which had been absent in the previous
year. Consequently, the business performed well with revenue and
profitability ahead of the prior year. Development of new products
direct to end users within infrastructure markets continues to be
the focus. On 24 March 2017, we completed the acquisition of the
trade and assets of Kenway Corporation (‘Kenway’), a specialist in
technologically advanced composite design, manufacturing and field
service work across a broad range of industries including marine,
power, pulp and paper, transportation and renewable energy. Cash
consideration of £5.5m was paid at acquisition with a further £0.6m
due in 2018. On 15 August, we completed the acquisition of the
trade and assets of Tower Tech Inc. (‘Tower Tech’), a manufacturer
of modular build, high efficiency composite cooling towers which
offer ease of installation, low operating costs and longevity. Cash
consideration of £2.4m was paid at completion. Kenway has been,
and Tower Tech is being, integrated into our Creative Pultrusions
business, a long time supplier to Tower Tech, furthering our strategy
of enhancing our product offering to end users within infrastructure
markets.
The market for engineered pipe supports in the US remains robust
and we completed projects with EPC contractors supplying a new
build natural gas power plant and bio-solid water treatment plant, as
well as the modernisation of petrochemical facilities. Following the
restructuring and consolidation of the branch network serving the
north east market in the middle of the year, our industrial hangers
business benefitted from a lower cost base. The market remains
competitive but the benefits of a more focused, efficient operation
assisted in improving profitability and margin year on year despite
lower revenue.
In India we successfully completed the expansion of our pipe
supports facility and the business performed ahead of our
expectations. The increased capacity enables us to service our
international customers, with global supply agreements for the
supply of engineered pipe supports into major power projects in
geographies such as Japan, Malaysia and Egypt, as well as our
domestic customers in the Indian market. Our strategic partnership
with a Saudi Arabian manufacturer enables us to have local
manufactured content when supplying pipe supports projects in the
Middle East. We are encouraged by the market outlook in India and
the Far East, both of which remain strong with a large programme to
build both coal and gas fired power stations, petrochemical plants
and LNG terminals.
UK
In the UK the performance of our utilities businesses was mixed and,
overall, results were below the prior year. Our plastic pipe business
benefited from a strong UK housing market where flood alleviation
on new build sites remains a key focus. Continual delays in the Asset
Management Period 6 (‘AMP6’) order cycle continued to frustrate the
business in the first half of the year. Order intake increased in the
second half of the year with projects focussing on improvements to
the quality of drinking water as well as foul water management. The
industry’s current focus on off-site build and modular construction
plays well into the strengths of the business and significant
opportunities remain.
The industrial flooring business completed a wide array of
infrastructure projects including rail maintenance depots, energy
from waste plants, rail platforms and wind farms, utilising both steel
and composite material. Oil and gas activity remains subdued but
day to day business was much improved on the back of increased UK
infrastructure investment.
Despite the delays in the AMP6 programme, our security access
covers business enjoyed a strong first half of the year. Order intake
slowed in the third quarter before steadily improving towards the
end of the year and overall results were in line with expectations.
With just two years remaining on the AMP6 cycle, and much of the
investment programme still to be carried out, further progress is
expected.
The protection of critical infrastructure sites continues to produce
good volumes for our security fencing operation with a wide range of
installations including protection of data centres, power generation
sites and the UK rail network.
Demand for solar frames was materially lower than the record
Strategic Reportwww.hsholdings.com | Stock Code HILS 17
costs. 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.
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.
Overall volumes were 1% ahead of the prior year. In the first half the
disruption of the national Presidential elections inevitably impacted
the wider environment and volumes were 2% down year on year.
Normality and confidence increasingly returned throughout the
second half of the year and volumes were a creditable 5% ahead of
the same period prior year and whilst competition remains strong,
the business delivered improved profitability at similar margins
despite significantly higher zinc input costs.
UK
Our galvanizing businesses are located on ten sites, four of which are
strategically adjacent to our Infrastructure Products manufacturing
facilities.
Overall volumes were 4% higher year on year. Internal or ‘own
work’ volumes from our UK Utilities business and road safety barrier
were similar to the prior year. Despite continued low levels of larger
structural steel projects, ongoing general infrastructure investment
remains strong across a wide, and growing, customer base. Our
strategy of focusing on lower volume, higher margin work in addition
to investment in our key galvanizing facilities resulted in record
profitability. Operating margin was broadly similar to the record prior
year despite significantly higher zinc input costs.
performance last year, as developers adapt their return model
away from reliance on the now removed tax credits under the
UK Renewable Obligation Scheme to one of battery storage and
timed release of the stored power into the national grid. Once
technology is proven and sold to investors we expect further orders
to recommence.
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.
Galvanizing Services
Revenue
Underlying operating profit
Underlying operating margin %
Reported operating profit
Constant
Currency
%
+ 7
+ 4
+/-
%
+11
+ 8
£m
2017
182.3
40.9
22.4
39.7
2016
164.4
38.0
23.1
36.9
The Galvanizing Services division offers corrosion protection services
to the steel fabrication industry with multi-plant facilities in the USA,
France and the UK. The division accounts for 31% (2016: 30%) of
the Group’s revenue and 50% (2016: 54%) of the Group’s underlying
operating profit. Revenue increased by 11% to £182.3m (2016:
£164.4m) including positive currency translation of £6.3m. Organic
revenue growth was 7%. Underlying operating profit of £40.9m
(2016: £38.0m) included a £1.5m currency benefit. The organic
improvement in profitability was £1.4m. Underlying operating margin
was 22.4%, marginally below the prior year record of 23.1%.
Reconciliation of Reported to Underlying operating
profit
£m
Reported operating profit
Acquisition amortisation
Other items
Underlying operating profit
2017
39.7
1.2
-
40.9
2016
36.9
1.3
(0.2)
38.0
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.
As expected, and against strong comparatives, volumes were 9%
below the prior year, principally due to a large LNG project which
ran throughout the first three quarters of 2016. Alternative energy
demand was also materially lower year on year, particularly with
respect to solar frames as the industry awaited a clear direction
with regard to US energy policy and import tariffs. Day to day
infrastructure demand remains strong and despite first half volumes
being similar to the prior year, second half volumes increased by 8%
against the same period the year before with strong contributions
from utility, bridge & highway and OEM manufacturers. Continued
focus on smaller, higher margin infrastructure jobs together with
operational excellence and customer service once again resulted in
record profitability despite the lower volumes. Operating margins
were similar to the prior year despite significantly higher zinc input
Strategic Reportwww.hsholdings.com | Stock Code HILS 1818
Tower Tech Modular Cooling towers installed at a NetApp Data Center.
Strategic Reportwww.hsholdings.com | Stock Code HILS 19
Capital expenditure at £20.7m (2016: £21.7m) represents a
multiple of depreciation and amortisation of 1.1 times (2016: 1.2
times). Significant items of expenditure in the current year included
£2.9m of Zoneguard temporary safety barrier investment to meet
demand in our US, Australian and Scandinavian operations, £1.1m
investment in further expansion of manufacturing facilities at our
Pipe Supports centre in India, and £1.3m of product development
spend reflecting the continued innovation within the Group’s suite of
products, particularly for the 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 2017 the Group achieved an underlying cash conversion rate
of 78% (2016: 93%), or 87% excluding the impact of zinc prices rises
during the year. Over the past nine years the Group has achieved an
average rate of 90%.
Pensions &
provisions
£m
-
-
-
3.2
3.2
-
-
3.2
-
Reported
£m
74.1
24.7
(19.1)
(3.2)
76.5
(20.7)
2.3
58.1
74.1
78%
Non-
underlying
items
£m
7.2
(3.7)
Underlying
£m
81.3
21.0
-
-
3.5
-
(1.1)
2.4
7.2
(19.1)
-
83.2
(20.7)
1.2
63.7
81.3
78%
Operating profit
Non-cash items
Change in:
Working capital
Pensions/provisions
Cash generated by
operations
Capital expenditure
Asset sale proceeds
Adjusted cash flow
Operating profit
Cash conversion %
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 2017 was £99.0m, representing a
year on year reduction of £13.0m including favourable exchange
rate movements of £3.3m principally reflecting the strengthening
in Sterling against the US Dollar towards the end of the year. The
Group’s net debt includes 41% denominated in US Dollars and 8%
denominated in Euros, which act as a hedge against the net asset
investments in overseas businesses.
Financial review
Income statement phasing
2017
Revenue £m
First
half
Second
half
Full
year
291.8
293.3
585.1
Underlying operating profit £m
Underlying operating margin %
Reported operating profit £m
38.8
13.3
35.4
42.5
14.5
38.7
81.3
13.9
74.1
2016
Revenue £m
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
The phasing of revenue and to a greater extent underlying operating
profit was marginally second half weighted in 2017, principally
reflecting strength in the Group’s US operations and the impact of
acquisitions together with a normal degree of seasonality across the
Group’s portfolio of businesses.
Reported revenue of £585.1m was 8% ahead of the prior year.
The acquisitions and disposals completed during both the current
and prior year resulted in a net revenue increase of £21.1m and a
£2.3m benefit to underlying operating profit, while the prior year
restructuring of the Group’s non-US Pipe Supports businesses reduced
current year revenues by £14.8m, but delivered an improvement in
underlying operating profit of £1.0m. The translation impact arising
from changes in exchange rates, principally the US Dollar and Euro,
increased revenue by £14.4m and underlying operating profit by
£2.1m. Organic revenue improvement was £24.3m and underlying
operating profit growth was £5.3m, or 4% and 7% respectively.
Further details of the performance of the Group are provided in the
Operational Review.
£m
2016
Acquisitions & disposals
Restructuring actions
Currency
Organic growth
2017
Revenue
Underlying
operating profit
540.1
21.1
(14.8)
14.4
24.3
585.1
70.6
2.3
1.0
2.1
5.3
81.3
Cash generation and financing
The Group once again demonstrated its cash generating abilities with
strong operating cash flow of £76.5m (2016: £78.2m).
The increase in working capital in the year was £19.1m (2016:
increase of £0.1m), including an increase in inventories of £13.8m.
The increase in inventories includes £6.7m in relation to zinc held by
the Group’s galvanizing operations, resulting from a c.20% rise in zinc
commodity prices during 2017, and £6.1m of additional inventory
build in anticipation of projects to be delivered in Q1 2018. Working
capital as a percentage of annualised sales increased to 17.4% at 31
December 2017 (2016: 14.2%), however excluding the impact of the
zinc price increases the ratio is 16.2%. Debtor days were in line with
the prior year at 61 days.
Strategic Reportwww.hsholdings.com | Stock Code HILS 20
Operational and Financial Review (continued)
Change in net debt
Net finance costs
Operating profit
Depreciation and amortisation*
Working capital movement
Pensions and provisions
Other items
Operating cash flow
Tax paid
Interest paid (net)
Capital expenditure
Sale of fixed assets
Free cash flow
Dividends
Acquisitions & disposals
Amortisation of refinancing costs
Net issue of shares
Change in net debt
Opening net debt
Exchange
Closing net debt
2017
£m
74.1
23.2
(19.1)
(3.2)
1.5
76.5
(16.7)
(2.8)
(20.7)
2.3
38.6
(20.7)
(5.8)
(0.4)
(2.0)
9.7
(112.0)
3.3
(99.0)
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)
* includes £4.0m (2016: £2.6m) in respect of acquisition intangibles.
The Group’s principal debt facility consists of a headline £210m
multicurrency revolving credit agreement maturing in April 2021,
providing the Group with significant headroom against its expected
future funding requirements.
Maturity profile of debt facilities
On demand
2018-2020
2021
2017
£9.5m
£0.7m
On demand
2017-2020
£227.1m
2021
2016
£12.2m
£0.6m
£234.3m
At the year end the Group had committed debt facilities available of
£227.8m and a further £9.5m in overdrafts and other on-demand
facilities.
The principal debt facility is subject to covenants which are tested
biannually on 30 June and 31 December. The covenants require that
the ratio of EBITDA (adjusted profit before interest, tax, depreciation
and amortisation as defined in the facility agreement) to net interest
costs exceeds four times and require the ratio of net debt to EBITDA
to be no more than three times.
The results of the covenant calculations at 31 December 2017 were:
Interest Cover
Net debt to EBITDA
Actual
37.1 times
1.0 times
Covenant
> 4.0 times
< 3.0 times
Appropriate monitoring procedures are in place to ensure continuing
compliance with banking covenants and, based on our current
estimates, we expect to comply with the covenants for the
foreseeable future.
Underlying net cash interest:
Bank loans/overdrafts
Non underlying:
Net pension interest
Costs of refinancing
2017
£m
2.8
1.1
3.9
2016
£m
2.6
0.9
3.5
0.5
0.4
0.7
0.4
Net financing costs in the year were £3.9m (2016: £3.5m). The net
cost from pension fund financing under IAS19 was £0.7m (2016:
£0.5m) 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 increased by £0.2m to £2.8m (2016: £2.6m),
the marginal change reflecting interest rate rises in the UK and US
during 2017. Underlying operating profit covered net cash interest
29.0 times (2016: 27.2 times). Reported operating profit covered total
reported interest 19.0 times (2016: 14.8 times).
Return on invested capital (‘ROIC’)
The Group aims to maintain ROIC above its pre-tax weighted average
cost of capital (currently c.11%), with a target return of 20%. In
2017, ROIC increased to 20.2% (2016: 19.4%) largely as a result of
improvements in underlying operating margins, tight control over
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 18.4% (2016: 14.3%).
Operating profit (£m)
Average invested capital (£m) 403.1
ROIC %
20.2%
Group ROIC
81.3
Reported ROIC
74.1
403.1
18.4%
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 2016 revenue
and underlying operating profit using 2017 average exchange
rates would have increased the prior year revenue by £14.4m and
increased underlying operating profit by £2.1m, the movements
primarily reflecting the impact of Sterling’s depreciation against the
US Dollar compared with the prior 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 2018. Retranslating 2017
revenue and underlying operating profit using exchange rates at 23
February 2018 (inter alia £1 = $1.40 and £1 = €1.14) would reduce
the revenue and underlying operating profit by £15.6m (3%) and
£3.3m (4%) respectively. For the US Dollar, a 1 cent movement
results in a £1.3m adjustment to revenue and a £0.3m adjustment to
underlying operating profit, while the equivalent impacts for a 1 cent
movement in the Euro are £0.6m and £0.1m respectively.
Strategic Reportwww.hsholdings.com | Stock Code HILS
21
Non-underlying items
The total non-underlying items charged to operating profit in the
Consolidated Income Statement amounted to £7.2m (2016: £18.8m)
and were made up of the following:
Income
statement
charge
£m
Cash in
the year
£m
Future
cash
£m
Non-
cash
£m
Business reorganisation costs
(2.8)
(0.1)
(1.8)
(0.9)
Impairment of assets held
for sale
Amortisation of acquisition
intangibles
Acquisition expenses
Profit on disposal of
subsidiary
(0.4)
(4.0)
(0.6)
0.6
-
-
(0.6)
2.5
-
-
-
-
(0.4)
(4.0)
-
(1.9)
(7.2)
1.8
(1.8)
(7.2)
›
Business reorganisation costs relate to a number of
restructuring actions taken by the Group during the current and
prior year.
–
–
–
–
–
In June 2017 the Group initiated a rationalisation of its
Variable Message Signs business that will result in the
closure of two of its operating sites and the consolidation
of activities into the remaining site in Hebburn, UK. The
business has been operating across three sites since the
acquisitions of VMS and Tegrel in 2014/15 and expects to
take advantage of cost savings and efficiencies as a result.
The anticipated cost of the rationalisation is £1.4m and the
relocation is expected to be completed in the first half of
2018.
Following a strategic review of the US Pipe Supports
business, in March 2017 the Group completed a
rationalisation of its branch structure 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,
serving the eastern region. The cost of this programme
was £0.4m.
Following the acquisition of Tower Tech in August 2017, the
Group has commenced a programme to close Tower Tech’s
existing facility in Oklahoma and relocate the business to
our Creative Pultrusions site in Pennsylvania. The cost of
this programme, which is expected to be completed in the
second half of 2018, is £0.4m.
In December 2016, having reassessed the prospects in
the market, the Group announced the closure of its roads
business in India. Total costs of £2.3m include a further
£0.4m charge in 2017.
In March 2016 the Group announced the closure of its
non-US Pipe Supports operations. Whilst substantially
completed in the prior year, additional costs of £0.2m have
been incurred in the current year on finalisation of the
closure.
›
In April 2017 the Group sold its traffic data collection business,
CA Traffic Limited, to TagMaster AB for a consideration of £2.6m
(after costs). Net assets disposed were £2.0m resulting in a
profit on disposal of £0.6m.
›
›
›
Non-cash amortisation of acquired intangible fixed assets was
£4.0m (2016: £2.6m), the increase reflecting the acquisitions
made by the Group during the current and prior year.
Acquisition related expenses of £0.6m (2016: £1.8m) reflect
costs associated with acquisitions expensed to the Consolidated
Income Statement in accordance with IFRS3 (Revised).
An impairment charge of £0.4m (2016: £nil) has been
recognised in respect of a property reported within assets held
for sale, reflecting a reassessment of its likely realisable value.
The net cash impact of the above items was an inflow of £1.8m in
the year, a £1.8m outflow expected in 2018 and a non-cash element
therefore amounting to £7.2m. 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 £16.3m (2016: £14.5m). The
underlying effective tax rate for the Group was 24.0% (2016: 24.0%),
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
contained in the US Tax Cuts and Jobs Act passed in December 2017.
Cash tax paid was £16.7m (2016: £15.7m), 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 £18.2m.
The Group’s net deferred tax liability is £5.6m (2016: £7.8m).
Following the enactment of changes to US tax legislation, deferred
tax balances relating to the Group’s US businesses as at 31 December
2017 have been recalculated based on the revised US tax rates
resulting in a £1.9m reduction in the Group’s net deferred tax liability.
A £6.7m (2016: £8.9m) deferred tax liability is provided in respect
of brand names, customer relationships and other contractual
arrangements acquired, while a further £0.9m (2016: £1.1m) 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.
The Group expects that the significant tax reforms contained in the
US Tax Cuts and Jobs Act will benefit its future post tax earnings.
Although partly offset by an adverse impact from other changes, it
is expected that the future reduction in the US corporate income tax
rate from 35% to 21% will reduce the Group’s future overall effective
percentage tax rate by around 1-2 percentage points.
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 15% to 75.9p (2016: 65.9p), 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 74.8p (2016: 65.1p). Basic earnings
per share was 68.6p (2016: 43.0p). The weighted average number of
shares in issue was 78.6m (2016: 78.5m) with the diluted number of
shares at 79.6m (2016: 79.3m) adjusted for the outstanding number
of dilutive share options.
Strategic Reportwww.hsholdings.com | Stock Code HILS 22
Case Study
Title
Joseph Ash - Revolutionising UK racehorse pre-training
In the picturesque and quiet village of Lambourn, West Berkshire, a revolutionary development has been taking place
at the Kingwood Stud, a premier horse training facility owned by racehorse owner and breeder Mehmet Kurt.
Kingwood Stud is set to open the new Kurtsystems – a £20m pre-training system designed to provide controlled
and synchronised exercise for young racehorses, to develop stronger bones, cartilages, muscles and tendons
before they enter a traditional training regime.
A Joseph Ash Galvanizing client has been one of the contractors on the project, and Joseph Ash Chesterfield
galvanized approximately 411 tons of structural steel.
Horses are trained on an artificial surface training circuit, without jockeys, by being harnessed into
specially designed ‘cabins’ which travel along an overhead rail track at set speeds. The speeds are
managed by a computer controlled unit at the back of the cabins. The horses carry specialist saddles
to replicate the weight of a jockey.
It is a mile-long circuit which can train up to 12 horses at a time. It can also be used to
rehabilitate injured horses.
The galvanizing of the steel ensures the facilities’ longevity.
Find out more about the company at xxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Find out more about the company at: www.josephash.co.uk
Images
Top and Bottom – Horses at work in the new ‘Kurtsystems’ training system at
Kingwood stud.
“
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cus etur rehenderit,
qui te volorempore
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“
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Strategic Reportwww.hsholdings.com | Stock Code HILS Operational and Financial Review (continued)
23
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
7 March 2018
Mark Pegler
Group Finance Director
Dividends
Dividends paid in the year were £20.7m. The proposed final dividend
is 20.6p per share (2016: 17.9p per share) resulting in a total dividend
for the year of 30.0p per share (2016: 26.4p per share), a 14%
increase on the prior year. Underlying dividend cover remains at 2.5
times (2016: 2.5 times).
The Board is committed to a long-term sustainable dividend policy.
Ordinary dividends will grow broadly in line with underlying earnings,
targeting dividend cover of between 2x and 2.5x underlying earnings
per share over the medium term.
Pensions
The Group operates a number of defined contribution and defined
benefit pension plans both in the UK and overseas. The IAS19 deficit
of the defined benefit plans as at 31 December 2017 was £25.6m,
marginally lower than the £27.3m reported at 31 December 2016.
The reduction in the overall deficit relates principally to the UK
scheme and was largely driven by a strong asset performance and
deficit recovery payments made during the year, offsetting the
impact of a 20 basis point reduction in the discount rate in line with
movements in corporate bond yields.
The Group’s UK defined benefit pension scheme, The Hill & Smith
2016 Pension Scheme (the ‘Scheme’), remains the largest employee
benefit obligation within the Group. 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 2017 was £20.8m (2016: £22.4m).
The gross assets and liabilities of the Scheme were each reduced
by £10.0m during the year as a result of transfer values taken by a
number of members.
The Group remains actively engaged in dialogue with the Scheme’s
Trustees with regard to management, funding and investment
strategy and, in May 2017, an update to the investment strategy
was agreed. A formal actuarial valuation of the Scheme as at April
2016 was also finalised during the year, following which the Group
agreed a deficit recovery plan with the Trustees that requires cash
contributions amounting to £2.5m per annum until September 2027.
Acquisitions
In March 2017 the Group completed the acquisition of the trade
and assets of Kenway Corporation, a specialist in technologically
advanced composite design, manufacturing and field service work
across a broad range of industries including marine, power, pulp
& paper, transportation and renewable energy. Consideration for
the acquisition was £6.1m and intangible assets arising amounted
to £5.1m, comprising goodwill of £3.7m, customer relationships of
£0.7m and brand valuation of £0.7m. The acquired business has
been integrated into Creative Pultrusions, our existing US composites
operation.
In August 2017 the Group acquired the trade and assets of Tower
Tech, Inc., a US manufacturer of modular build, high efficiency
composite cooling towers for a net cash consideration of £2.4m,
resulting in goodwill of £0.4m. In 2018 the acquired business will
be relocated from its current facility in Oklahoma to our Creative
Pultrusions facility in Pennsylvania.
On 1 January 2018 we acquired the trade and assets of D. Gibson
Road & Quarry Services Limited for a cash consideration of £0.3m.
Based in Scotland, the business will be integrated with Mallatite
Limited, our UK lighting column and traffic signage business, further
expanding our product offering in that market.
The level of headroom that the Group maintains in its principal
banking facilities enables us to continue to seek opportunities for
Strategic Reportwww.hsholdings.com | Stock Code HILS
24
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.
2017 performance
Total growth
Organic growth
Up 80bps
15% growth
%
6
4
.
%
5
4
.
%
9
3
1
.
%
1
3
1
.
.
p
9
5
7
.
p
9
5
6
%
5
5
1
.
%
3
8
.
2016
2017
2016
2017
2016
2017
2016
2017
Comment
Organic revenue growth in 2017 was
4.5%, largely driven by the Group’s
Galvanizing and international Roads
businesses where we experienced
increased demand through the year.
Total growth was higher at 8% as a
result of acquisitions made during
the current/prior year and currency
translation benefits.
The Group’s underlying operating profit
of £81.3m represents a 13.9% return
on sales, an 80bps improvement on
the prior year. The increase reflects a
combination of strength in our core
markets, currency translation impacts
and the benefits of active management
of the Group’s portfolio.
The Group’s UEPS for 2017 is 75.9p, an
increase of 15% compared with 2016.
Key factors were the contribution
from organic revenue growth, the
increase in underlying operating
margins, acquisitions completed during
the current/prior year and currency
translation benefits. There were no
significant interest or tax impacts year
on year.
Strategic Reportwww.hsholdings.com | Stock Code HILS 25
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 15ppts
Up 80bps
Down 1%
IR down 8%
%
3
9
%
8
7
%
4
9
1
.
%
2
0
2
.
9
0
5
3
0
5
CO2e
7
6
1
8
6
,
6
2
1
8
6
,
IR
6
2
1
0
.
6
1
1
0
.
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
The Group achieved an underlying
cash conversion rate of 78% in 2017
(2016: 93%). The reduction reflects a
working capital increased of £19.1m
in the year, which includes a £6.7m
impact from rising zinc raw material
prices. Capital expenditure at £20.7m
represented a multiple of depreciation
and amortisation of 1.1 times (2016:
1.2 times).
The Group aims to achieve ROIC
that exceeds its weighted average
cost of capital (currently c.11%
on a pre-tax basis), with a target
return of 20%. In 2017 the Group
achieved ROIC of 20.2% (2016:
19.4%), the improvement largely
reflecting further increases in
underlying operating margins
during the year and the benefits of
strategic actions taken.
The focus during 2017 remained
the desire to raise the awareness of
minor injury and near-miss reporting
and improve the culture within our
businesses, thereby helping our
employees to better understand the
inherent benefits from having a safe
place to work.
Reported injuries are consistent with
2016 on a like-for-like basis with
503 reported (2016: 509). However
lost-time injuries fell 31% from 178
to 123.
The Group has continued
to focus on energy saving
opportunities identified from the
ESOS audits and during 2017
the Energy Forum met twice to
discuss shared opportunities
and best practices. On the basis
of these initiatives actual CO2e
used in 2017 remained at the
levels used in 2016, even though
Group revenues increased. The
intensity ratio fell by 8%.
Strategic Reportwww.hsholdings.com | Stock Code HILS 26
Risk Management and Assurance
Risk Management and Assurance
Effective risk management is critical to the achievement of our
strategic objectives of geographical diversification, entrepreneurial
management, portfolio management, and targeted growth
returns. All our subsidiaries hold leading positions in the provision
of galvanizing services or 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 five
times during the year and comprises the Group Financial Controller,
the Group Company Secretary, the Assistant Company Secretary,
the Group Internal Audit Manager and the Group’s Corporate
Development Director. 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 in 2017 we:
›
›
Delivered in-depth face-to-face training to the senior managers
of our largest subsidiaries internationally to equip them with the
latest insight into risk management techniques and emerging
risk themes;
Developed a risk ‘manual’ for all subsidiaries to refer to when
holding strategic risk meetings, which allows the subsidiaries
›
›
›
›
autonomy in identifying and scoring risks particular to their
business, but also enables the Group Board more consistent
comparison between different businesses;
Expanded the composition of the Risk Committee to increase
the pool of knowledge and experience;
Increased the best practice sharing and resources available for
the subsidiaries to manage risks;
Continuously worked to improve Board reporting, developing
reporting tools for our subsidiaries to help them embed risk
identification and articulation into their business processes; and
Introduced a Risk Management Framework across the Group,
clarifying how risk is to be managed in a way which satisfies the
autonomous operating model of the Group and, in particular,
roles and responsibilities at each level, (see below).
This approach, enhanced throughout 2017, 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 which can be found on pages 28 to 30.
Key focus for 2018:
›
›
›
›
›
Continued assessment of the principal risks facing the Group
and subsidiaries including those that might threaten the Group’s
business model, future performance, solvency and liquidity;
Further work to mature the risk management processes with
our subsidiaries, particularly by increasing the range of methods
used to assess the effectiveness of risk mitigations;
Continued development of best practice resources available to
subsidiaries;
To work with the recently appointed Group Internal Audit
Manager to further develop the risk-based approach to internal
audit; and
Assessment of new methods in risk management and internal
controls to ensure that our approach remains up-to-date and
appropriate for a quoted company.
Risk Management Framework
The Group operates a tiered approach to risk management, with risk
registers at each level linked to the appropriate objectives and flows
of appetite, information and assurance as outlined in Figure 1.
Identified against Corporate Goals & Objectives
Reported to investors
Used to set risk appetite for the Group
Identified against Subsidiary Goals & Objectives
Key risks and assurance escalated upwards
Figure 1
Approach to risk
management
Principal
Risks (PLC)
Level 2 Risks
(Subsidiaries)
Identified against Trading divisional Goals & Objectives
Key risks and assurance escalated upwards
Level 3 Risks
(Trading divisions)
Strategic Reportwww.hsholdings.com | Stock Code HILS 27
Governance
Figure 2 Risk Management Framework
Culture and Strategy
Risk Appetite
Reporting and assurance
Core risk management processes
Identify
Assess and quantify
Manage
Monitor
Infrastructure
Tools, systems and data
Policies and procedures
Roles and responsibilities
The Risk Management Framework enables the practical
implementation of this. The elements of the Framework are
summarised in Figure 2.
Framework or Group Principal Risks; and
›
Reviewing the detail of external reporting.
The Risk Management Framework is, by definition, only an outline
of the approach to risk management across the Group. It wraps
around the implementation of specific compliance programmes
and internal controls and is supported by the internal and external
audit programmes and a range of external accreditation schemes.
In addition, the Group’s entrepreneurial management culture at
subsidiary level means that individual businesses are able to add
additional elements. This ensures risk management is effectively
embedded in a way that fits each particular operating environment
and risk horizon.
Roles and responsibilities
The Group Board:
›
Retains overall ownership and accountability for risk
management;
›
›
›
›
Ensures the Directors have the appropriate skills, knowledge and
experience to effectively assess the Group Principal Risks and
carry out their duties effectively;
Establishes the Group Principal Risks and oversees the
management of these;
Establishes the Group risk appetite; and
Leads on the external reporting of risk and viability.
The Audit Committee supports the Group Board by:
›
Monitoring and testing the Risk Management Framework,
appetite and associated internal controls, including the
influencing factors of culture and reward;
›
›
Ensuring there is a link between the Group Principal Risks and
the Group’s internal and external audit programme;
Reviewing sufficient internal and external sources of assurance
and information to enable it to recommend to the Group
Board where changes may be needed to the Risk Management
The Risk Committee:
›
Acts as a conduit between the Group and subsidiary risk
registers, supporting the dissemination of the Framework and
appetite down to the subsidiaries and flow of assurance up to
the Group Board;
›
›
›
Supports the executive team to embed the Risk Management
Framework by designing and implementing supporting systems,
procedures, tools and training;
Proactively analyses and challenges the assessment,
management and monitoring of subsidiary risk registers and
day-to-day risk management; and
Ensures the Group Board and Audit Committee are provided with
sufficient information in order to discharge their responsibilities
effectively.
The executive team:
›
Ensures each subsidiary is effectively embedding the Group Risk
Management Framework and is maintaining a current live risk
register that is actively managed; and
›
Oversees completion of all required Group reporting of risk with
escalation of any significant matters to the Risk Committee in a
timely manner.
Strategic Reportwww.hsholdings.com | Stock Code HILS 28
Principal Risks and Uncertainties
Economic
Risk: Changes in government spending plans
Trend
No change
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 reduce demand for our products and services. 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
Our existing entity portfolio contains diversity of product,
market and territory and we will continue with this
approach as we review potential acquisitions.
Market development initiatives.
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
No change
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.
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.
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.
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.
Hedging mechanisms used to limit potential effects of
economic volatility on forecasted revenue.
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 customer and 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.
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.
Mitigation
Group material contract review process ensures specialist
central oversight of key contractual arrangements.
Contracts training for key staff.
Dedicated quantity surveyors and contracts managers
embedded in subsidiary management structures to control
projects.
Litigation supported/managed by external legal specialists.
Insurance cover maintained globally with insurance
partners
Strategic Reportwww.hsholdings.com | Stock Code HILS 29
Operational
Risk: Supply chain deficiency
Trend
No change
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.
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.
Mitigation
Group procurement standards in place, including robust
due diligence of supply chain partners and requiring dual
sourcing where available.
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.
Goods inwards and stock management processes in place
to reduce the likelihood of defects in or shortage of raw
materials.
Raw material hedging.
Risk: Weaknesses in IT systems
Trend
Higher
Link to strategy
Description and potential impact
The Group relies on the information technology systems used in the
daily operations of its subsidiaries.
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: Acquisition strategy failure
Trend
No change
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: Lack of 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.
Mitigation
External specialist support with the development and
oversight of IT system 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.
External GDPR and cyber risk reviews commissioned in
2017 and reviewed by the Board in 2018 – Management
responses are being prepared.
Mitigation
Our strategic planning process supports our M&A planning.
Board approval required for Group acquisitions, in line with
the Group Board’s Schedule of Matters Reserved.
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
Entrepreneurial culture established through a decentralised
management structure, ensuring that Group businesses
are agile and responsive to changes in their competitive
environments.
The Group actively encourages and supports research
and development programmes at subsidiary level where
knowledge of the market and the needs of our customers
are greatest.
Executive Board approval of product development proposals
within the Group’s capital spend approval policies.
Active Intellectual Property management.
Dedicated quality compliance resources in place across
Group businesses, ensuring responsiveness to regulator
and/or customer approval requirements.
Board monitoring of emerging risks alongside external
specialist support, where both the risks identified and the
potential opportunities arising are considered.
Portfolio management
Geographic diversification
Target returns and leverage
Entrepreneurial culture
Strategic Reportwww.hsholdings.com | Stock Code HILS
30
Principal Risks and Uncertainties (continued)
Human Resources
Risk: Failure to recruit and retain key employees
Trend
Slightly higher
Link to strategy
Description and potential impact
The Group encourages an entrepreneurial culture through a
decentralised management structure.
An inability to attract, develop and retain high-quality individuals
in key management positions could severely affect the long term
success of the Group.
Legal & Regulatory
Risk: Failure to comply with applicable health and safety legislation
Trend
No change
Link to strategy
Description and potential impact
The Group operates a number of manufacturing facilities around the
world.
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.
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
Succession planning model driven by the Group Chief
Executive and overseen by the Board.
Implementation of contractual protections and retentions
in employment contracts of senior management and other
key employees.
Competitive remuneration, benefits and incentive plans
offered to employees and regularly benchmarked.
Recruitment process developed to include competency
requirements and skills gap analysis.
Training and development of employees, which includes
a programme of IOD and ILM courses for senior
management and identified potential successors, and
apprenticeship and other vocational courses for specialist
and technical roles.
Mitigation
Regular health and safety monitoring, supported by an
external independent health, safety and environmental
consultant and utilizing a ‘safety cloud’ online reporting
framework.
Group Health and Safety Forum established to monitor
performance and share best practice.
Culture of zero tolerance in respect of health and safety
violations promoted by the Board and disseminated
throughout Group businesses supported with appropriate
HR policies and the Business Code of Conduct.
Open relationships maintained with regulatory bodies.
External health and safety accreditations.
Health and safety required as a priority area of focus for
new acquisitions.
Mitigation
Group Code of Conduct sets out required approach for all
staff.
Staff training provided on Anti-Bribery and Corruption and
Competition Compliance.
Competition compliance manual implemented by each
Group business.
Programme of audits undertaken on a cyclical basis to
review subsidiary compliance with regulatory requirements,
including for example simulated ‘dawn raids’.
Software solutions implemented globally to ensure
compliance with trade and export legislation.
Externally hosted whistleblowing hotline available to all
employees to allow them to raise concerns in confidence or
anonymously, if preferred.
Modern Slavery compliance programme continued through
2017.
Portfolio management
Geographic diversification
Target returns and leverage
Entrepreneurial culture
Strategic Reportwww.hsholdings.com | Stock Code HILS 3131
Top: Varioguard protection barriers in place on Blackfriars Bridge, London.
Bottom: Galvanized bridge on the Island of Kauai in Hawaii
Strategic Reportwww.hsholdings.com | Stock Code HILS 32
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.
The Group is committed to implementing the correct policies and
procedures relating to the sustainability of the environment and to
the successful delivery of an effective health and safety system, as
well as ensuring that the people connected with the Group behave
in the right way, complying with all local legal and regulatory
requirements.
Board level responsibility
Derek Muir, the Chief Executive, is the Director responsible for the
Corporate Responsibility (‘CR’) performance of the Group and is
supported by the operating Directors in achieving compliance with
the Group’s policies, primarily through:
›
›
›
Communication across the businesses;
Implementation of supporting principles; and
Monitoring performance and improvements.
Our operating Directors are supported in this by the Group’s
employees, who are encouraged to contribute positively to the
communities and environment in which we do business.
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 our Succession Planning and Talent
Management (‘SPTM’) 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 and this has
developed over the last two years. Part of this process, in 2017,
was for all Subsidiary Boards to identify the senior managers within
the Group who would succeed them on their subsidiary board as
directors.
UK subsidiaries have also engaged positively with the SPTM process
and recognise the need to address succession considerations,
talent management and staff development to enable ongoing
corporate success. The SPTM programme has supplemented and/
or formalised existing arrangements for some companies; for
others it has introduced a new approach to explore succession
planning and learning and development more generally; whilst
others are still relatively recently adopting the process as a result
of ongoing expansion and restructuring. A number of management
and leadership programmes have been co-ordinated since the
SPTM launch – an executive level development programme,
culminating in the IOD Corporate Director qualification; a senior
management leadership programme and a first line management
development programme sponsored by the Institute of Leadership
and management (‘ILM’). All these programmes additionally enable
managers to undertake 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
the teams in their business. Work has commenced with non UK-
based subsidiaries to develop the same kind of SPTM programmes.
Group learning and development – strengthening our talent pipeline
Alongside these management development programmes, individuals
are encouraged to undertake appropriate specialist/technical and
personal development opportunities appropriate to their roles and
aspirations and in line with organisational strategy.
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:
›
›
›
›
›
›
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 zero tolerance approach to
discrimination, bullying and harassment. All our policies promote the
principles of fairness and equal opportunities.
The current policy on diversity can be found on the CR section of the
website.
As at 31 December 2017, the Group-wide split of male and female
employees is shown in the charts opposite.
Gender Pay
Gender pay reporting legislation requires employers with 250 or more
employees to publish statutory calculations every year showing how
large the pay gap is between their male and female employees. This
legislation affects three of our UK Subsidiaries: Birtley Group Ltd, a
galvanizer and construction business; Joseph Ash Ltd, a galvanizing
business; and Hill & Smith Ltd, a roads barrier manufacturer.
The gender pay gap data, which can be found on each company’s
website via http://www.hsholdings.co.uk/, shows the difference in
the average pay between all men and women in a workforce and is
different to any equality of pay, which deals with the pay differences
between men and women who carry out the same jobs, similar jobs
or work of equal value.
Strategic Reportwww.hsholdings.com | Stock Code HILS 33
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 covers 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 within their business
or, if necessary, the Group Company Secretary or the Chairman of
the Audit Committee. Should individuals wish to raise concerns
or adverse behaviours anonymously they are able to do so via an
externally-hosted whistleblowing facility (the ‘Reporting System’).
The Reporting System is operated in conjunction with a
whistleblowing policy annually approved by the Audit Committee
and comprises both an online web-based reporting module as well
as a phone line option in the language of the individual raising the
concern. 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 in their business
activities as well as in a legally compliant manner, and applies to
everyone who is engaged by the Group anywhere in the world,
whether they are employees or third parties. Consequently, 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.
However, 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 71
Female 3
Number of senior
managers in the Group:
Male & Female split
Male 182
Female 19
Total number of
employees in the Group:
Male & Female split
Male 3,538
Female 346
Strategic Reportwww.hsholdings.com | Stock Code HILS 34
Case Study
Hostile Vehicle Mitigation deployment on London Bridge
On 4th June 2017 the Metropolitan Police requested that Hardstaff Barriers Ltd supply and install Hostile Vehicle
Mitigation (‘HVM’) barrier systems to protect eight Thames Bridges with immediate effect. Barriers were
delivered into London on that same evening. This project was delivered through the National Barrier Asset
Framework where Hardstaff Barriers operate as one of two HVM contractors.
Over the following week HVM products were installed on London bridges over the Thames at Westminster
Bridge; Vauxhall Bridge; Lambeth Bridge; Waterloo Bridge; Blackfriars Bridge; Southwark Bridge; Tower
Bridge and London Bridge to protect and keep people safe.
The rapid delivery of these key installations across London within a short timeframe astonished
many stakeholders and exceeded expectations.
Images
Top – Hostile Vehicle Mitigation products installed on Vauxhall Bridge, London.
Bottom – Varioguard barrier installed on Blackfriars Bridge, London.
Find out more about the company at www.hardstaffbarriers.com
Strategic Reportwww.hsholdings.com | Stock Code HILS 35
Procurement controls
The Group is further developing its procurement systems to enhance
and embed best practices in purchasing activity and during the year
continued to look at how the Modern Slavery Act impacts upon its
supply chain.
Health and safety
Minimising the risks to our workers remains a key commitment across
the Group. To protect the health, safety and welfare of everyone,
the Group continues to adopt various measures to maintain a safe
working environment, to ensure work related risks are effectively
identified/controlled, that our monitoring regimes for health and
safety help to spot issues at the earliest opportunity and that lessons
are learnt from any events that do occur.
The importance of safety culture, personal responsibility and keeping
an eye out for anything ‘dangerous’ forms a key part of our Group
objectives. 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, the quarterly safety forum meetings.
The UK safety forums, which are attended by dedicated health and
safety representatives for each site, are continuing to ensure that
best practice is shared, that practical solutions to common issues
are evaluated and that overall sites are working to a set of common
standards. This successful forum approach of sharing best practice is
being extended to our US operations in 2018.
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.
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
continued to support a number of policies and initiatives commenced
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, in 2017 the
Group requested ‘Hope for Justice’, a charity dealing with the effects
of human slavery, to conduct a survey of some of our UK subsidiaries
in order to assess the potential of exposure to modern slavery.
Pleasingly the companies audited were assessed as low risk. In
January 2018 we also undertook an internal audit of our Bergen Pipe
Supports business in India and concluded that there were no issues
that should concern the Group.
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.
Strategic Reportwww.hsholdings.com | Stock Code HILS 36
Corporate Responsibility (continued)
Summary of health and safety objectives for 2017
Objectives
Outcomes
Continued rollout of the safety culture assessment to
newly acquired businesses and our overseas operations
and utilise 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.
Following the first survey in the UK in 2016, our sites have been implementing
their respective action plans to address the findings and further improve culture at
all levels. Newly acquired UK businesses will participate in a full UK survey that is
to be repeated in 2018, and for our overseas operations, key findings from the UK
have been shared and we are continuing to explore the practicalities of extending
the survey to our non-UK operations.
For UK sites, 2017 has seen a consistent level of performance when compared to
2016, which was our best year since an audit rating was introduced. Revisits to
ATA in Sweden and Creative Pultrusions in the US showed that significant progress
has been made since the previous audits. Baseline audits for Bergen Pipe Supports
India and recent US acquisitions (Novia & Kenway) have helped them to develop
more focussed action plans.
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.
A number of UK sites have been piloting “Don’t walk by” and “safety observations”
initiatives in an attempt to get operatives to be more aware of their work
environment and their actions. The importance of an open culture of reporting
near-misses and close-call events continues to be widely publicised.
Further development of key performance indicators to link
incident rates, health and safety audit performance and
the results of the culture survey.
Preliminary discussions over how the UK sites can link their existing performance
have been part of the last safety forum in 2017.
The Group companies work actively to effectively manage health and safety, evidenced by the following initiatives:
›
Ongoing attainment of OHSAS 18001 certification by Hill & Smith Ltd, Asset International Limited, Variable Message Signs, Mallatite Ltd,
France Galva and Asset Varioguard (VRS);
› Within the Joseph Ash Group, additional sites have been certified to OHSAS 18001 with a view to remaining sites attaining it by the end of
2019;
›
›
›
›
›
Birtley Group, Technocover and Bergen Pipe Supports India (‘BPSI’) have started their OHSAS 18001 journey and are expecting to achieve
certification in 2018;
Joseph Ash Galvanizing 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;
Following on from 2016, which saw a number of UK subsidiaries launch drug and alcohol awareness campaigns with a supporting policy and
random monitoring, other sites are now adopting a similar approach to help ensure the impact of social use of drugs and alcohol is better
understood; and
Technocover were asked to present a session on hand-arm vibration at a Health & Safety Executive organised event in North Wales, outlining
how the issue could be practically dealt with. This also built on various other UK subsidiaries introducing real time monitoring and data
trackers for hand-arm vibration exposure. This has helped greatly in operatives being able to control their own levels of exposure.
MidGuard C1, a tubular median barrier installed by ATA on the E20 at Hova, Västergötland, Sweden.
Strategic Reportwww.hsholdings.com | Stock Code HILS
37
A collection of safety signs displayed at BPSI, Andhra Pradesh, India.
Incidents
Encouraging the open reporting of accidents and incidents continues to be a prime objective. In the UK, more effective near-miss reporting is
leading to a much better appreciation of working safely and keeping work areas clean and tidy. We intend to undertake further work in this area
to ensure a more open and active reporting culture around close-call and near-miss events.
For 2017 the Group received, on a like-for-like basis, 503 accident reports, (2016:509). Allowing for acquisitions which have now been included in
the Group’s health & safety regime the injury rate per 100,000 employees remains unchanged; however days lost due to accidents fell from 178
in 2016 to 123 in 2017.
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. In the UK for 2017 this showed that existing sites were maintaining a good level of
performance and newly acquired sites had improved their rating by more than 50%.
Those overseas subsidiaries that were audited, also showed a good level for performance and improvements being made year on year, both in
terms of general working conditions risk management and specific safety initiatives.
2018 health and safety objectives
In the forthcoming year our efforts in promoting a safe and secure workplace will continue with specific focus on:
›
›
›
›
In the UK, the safety culture assessment tool will be re-run to provide us with a comparison on how the safety culture across the businesses
is improving.
In the US, an inaugural Safety Forum will be held, in April 2018, bringing together, for the first time, key health and safety teams from across
our US subsidiaries who will be sharing best practice, discussing common issues and agreeing the way forward for safety performance and
auditing.
The continuation of the external audit programme, with current levels 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 in the way accident data is
collated to provide a more meaningful measure based on employment rate.
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 2017, 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
A permanent installation of ZoneGuard/Fonocon, installed by ATA, on the E18 outside of Karlstad, Sweden, at a police and customs vehicle inspection site.
Strategic Reportwww.hsholdings.com | Stock Code HILS 38
Corporate Responsibility (continued)
seeking ways to motivate its businesses to adopt an environmentally-friendly approach to these activities. We utilise the services of CMR
Consultants (‘CMR’), an independent energy management consultancy who liaise with all our subsidiaries to collect, collate and verify this 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. These meetings have continued in 2017, where discussions have also centred on the best way to share knowledge and information.
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
2017
Group emissions
2016
Group emissions
2015
34,468.28
10,611.17
22,574.98
472.20
68,126.63
£585.1m
0.116
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
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%, but pleasingly the Group has
responded to this increase and in 2017 water consumption fell by 7.4%. When measured against Group revenues in much the same way as CO2e
emissions the water consumption ratio fell by 14.7%.
Group water usage
UK water usage
Overseas water usage
Total usage
Ratio per £1,000 of Group turnover
2017 volume
2016 volume
36,001 m3
55,475 m3
91,476 m3
0.156
39,737 m3
59,034 m3
98,771 m3
0.183
Waste management
During the year the Group significantly improved its management and reporting of waste disposal at its UK sites, particularly at Medway
Galvanizing where, data had previously been misinterpreted. 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.
Strategic Reportwww.hsholdings.com | Stock Code HILS Waste quantities
Commodity
Liquid waste
Acidic waste (like-for-like)
Commodity
Waste to landfill
Recycled waste
Total waste (inc. landfill)
39
UK volume (‘00s ltrs)
Overseas volume
(‘00s ltrs)
12,663
5,257
3,417
5,218
UK tonnes
Overseas tonnes
1,793
8,320
10,113
2,611
12,416
15,027
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.
In the UK, Asset International Ltd contributed to the delivery of a
‘Sensory Room’ for autistic children at a local primary school, (see
page 40), whilst Joseph Ash Ltd galvanized a series of signpost
(interpretation) panels to be situated amongst Folkestone Warren to
highlight points of interest for visitors to the trails. The Warren is an
area of outstanding natural beauty along the Kent coastline. Visitors
to the area can enjoy the stunning beach and the majestic views
of the White Cliffs, as well as walks through woodland and fields,
passing interesting sites such as Napoleonic Martello Towers and the
ruins of a Roman villa. An intrepid band of Technocover employees
ran the Lake Vyrnwy Half Marathon in September 2017. On the wet
and windy Sunday afternoon the team set off to raise money for
Hope House Children’s Hospices, a charity that cares for children with
serious health conditions across Shropshire, Cheshire, North and Mid
Wales and a charity that has long been supported by Technocover.
Hill & Smith Ltd supports a number of charity events throughout the
year, including Red Nose Day; the British Heart Foundation’s WEAR IT.
BEAT IT; Macmillan’s World’s Biggest Coffee Morning.
In the US our colleagues at Creative Pultrusions participated in
an annual Softball Tournament held in August of each year to
raise funds for ‘We CARE Foundation’. This foundation assists
programmes in Blair County, Pennsylvania that focus on therapy
services for children between the ages of 0 to 21 years old,
including Occupational Therapy, Physical Therapy, and Speech and
Language Therapy. The We CARE Foundation is also supporting adult
programmes that offer therapy services to patients with symptoms
of Stroke, Parkinson’s Disease, Multiple Sclerosis, brain injury and
other neurological conditions. 100% of all funds raised are directed to
these children and adults that live in and around Blair County.
Strategic Reportwww.hsholdings.com | Stock Code HILS 40
Case Study
Sensory den for autistic primary school pupils
Asset International Ltd, a subsidiary based in Newport, South Wales,
is the UK’s leading manufacturer of large diameter plastic pipe
solutions. Using Weholite, a large diameter gravity/low pressure
structured wall pipe made from high density polyethylene (HDPE)
resin, the company utilises advanced product technology to create
lightweight engineered pipes with superior loading capacity that are
used extensively throughout the water industry, in flood defence
and sewerage projects, and more recently, in the renewable energy
sector, providing pipework for air-ground heat exchangers and large
scale anaerobic digestion chambers for the biogas industry.
In 2017 the company engaged on a project with a difference!
During the year the company designed and built a unique project
using state-of-the-art technology usually used for underground
water pipes. Using their 3.5m diameter Weholite pipe they helped
to build and subsequently donate a sensory den to Machen Primary
School in Caerphilly after being moved by the fundraising efforts of a
parent of one of the autistic children at the school.
Neil Bryan, Finance Director at Asset International, whose children
also study at Machen Primary school, said: “On hearing about the
incredible achievement and perseverance towards fundraising, we
were keen to support the project in whatever way we could. Given
the nature of our work, we were well placed to deliver the project,
which we created in collaboration with the school to ensure the den
was effectively designed with the children who would be using it
firmly in mind.”
The new den, named the Cwtsh, will combine a range of stimuli,
including different lights, colours, sounds and textures to provide
children with additional educational needs within a safe and
comforting environment to explore their senses and build up their
confidence and abilities. It is hoped that regular access to the Cwtsh
will enhance pupils’ concentration and focus, improve alertness and
social communication skills, as well as providing a calming effect to
enable them to thrive both in and out of the classroom.
Asset International worked with other local companies to fit out and
deliver the den, which was officially opened in September 2017.
Find out more about the company at:
www.weholite.co.uk
Image
Sensory den at Machen Primary School made from Weholite 3.5m polyethylene pipe.
Strategic Reportwww.hsholdings.com | Stock Code HILS 41
41
41
Governance
Governance
Report
Report
Governance Report
Chairman’s Introduction to Governance
Board of Directors
43
44
46 Governance Report
55 Nomination Committee Report
56 Audit Committee Report
62
63 Directors’ Remuneration Report
77 Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
80
Remuneration Committee Report
Bristorm Zero Hostile Vehicle Mitigation (HVM) perimeter fence – Maaden Phosphate Plant, Umm Wu’al.
See further information at hsholdings.com
Strategic Reportwww.hsholdings.com | Stock Code HILS 4242
Tower Tech cooling towers being installed on the roof of 340 On The Park, the second tallest all-residential tower in Chicago, Illinois.
Governance Reportwww.hsholdings.com | Stock Code HILS Chairman’s Introduction to Governance
43
Jock Lennox
Chairman
Dear Shareholder,
Welcome to our Corporate Governance Report. As your new Chairman, I wish to share with you how the Board ensures strong corporate
governance to underpin the delivery of our strategy, and how I plan to lead the continued development of our approach.
The Board has ultimate responsibility for the Group’s strategic delivery and for the management of risk. The Board discusses the Company’s
Strategic plans at each Board meeting and is resolved to continue with its current strategy, which has proven successful in delivering value
to shareholders over the last few years and maintaining our strategic direction will be our focus in 2018. This will be complemented by our
continuous improvements in risk management and internal controls. Our approach to risk management was set out in our Strategic Report on
pages 26 to 30 and Mark Reckitt, Chair of the Audit Committee, gives more insight into our internal control environment in his report at pages 56
to 60.
In order to fulfil our role, I am committed to ensuring that we have an effective Board. To support this, the Board commissioned an external
review of Board effectiveness in 2017 and we are considering various responses to its recommendations, including reviewing the composition of
the Board in the light of FRC’s review of the UK Corporate Governance Code which is likely to be released in the summer of 2018. More detail on
Board composition changes and Board effectiveness can be found in the Governance Report on pages 50 and 51 and my report on behalf of the
Nomination Committee on page 55.
The Board leads the business 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. Our approach to shareholder and other stakeholder engagement is set out in the Governance Report on
page 46 and I would encourage you to attend our Annual General Meeting on Thursday 17 May 2018.
In order to promote the long-term success of our business and support an appropriate internal culture, the Board has given robust consideration
to executive remuneration and Annette Kelleher, Chair of the Remuneration Committee, explains further in her report on pages 62 to 71.
Finally, I would like to thank my Board colleagues and all employees for their commitment and focus in 2017.
Jock Lennox
Chairman
7 March 2018
Governance Reportwww.hsholdings.com | Stock Code HILS 44
Board of Directors
J F Lennox LLB, CA
Chairman and Non-executive (61)
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
Nomination (c)
D W Muir BSc, CEng, MICE
Group Chief Executive (57)
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 (49)
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
Governance Reportwww.hsholdings.com | Stock Code HILS 45
A C B Giddins FCA
Senior Independent Non-executive (52)
Alan is a Managing Partner and co-head of Private Equity at 3i Group
plc (‘3i’), and a member of its Executive Committee. He has extensive
experience of sitting on the boards of international businesses, and is
currently a Non-executive Director of two companies in which 3i has
invested, JMJ Associates, a leading transformational consultancy focused
on safety and Audley Travel, a market leader in tailor-made experiential
travel. Prior to joining 3i in 2005, he spent 13 years in investment banking
advising a broad range of quoted companies. He qualified as a chartered
accountant at KPMG in 1990 and has a degree in economics.
Appointed to the Board
3 October 2017
Committee Membership
Audit, Remuneration, Nomination
A M Kelleher MSc, BA
Independent Non-executive (51)
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 (59)
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 a Non-
executive Director and Chairman of the Audit Committee at both Mitie
Group PLC and Cranswick plc, and he is also a member of the Nomination
and Remuneration Committees at Cranswick plc.
Appointed to the Board
1 June 2016
Committee Membership
Audit (c), Remuneration, Nomination
Governance Reportwww.hsholdings.com | Stock Code HILS 46
Governance Report
Leadership framework
The Hill & Smith Holdings PLC Group consists of the Company and the principal subsidiary companies, listed on pages 150 to 152, and during 2017
operated in seven different countries. The Group’s businesses are directly supervised by local operating boards and performance is monitored at
individual operating company and divisional levels. Details of the Group’s business model and strategy can be found on pages 6 to 11.
The Group’s subsidiary companies hold monthly board meetings, regularly attended by the Executive Directors and there is 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.
The Board has established processes designed to help maximise its performance. These processes operate from within 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 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.
Statement of compliance with UK Corporate Governance Code
Hill & Smith Holdings PLC is a premium listed issuer on the London Stock Exchange. In accordance with the listing rules, during 2017 the company
applied the main principles of the UK Corporate Governance Code 2016 (the ‘Code’): leadership, effectiveness, accountability, remuneration and
relations with shareholders. In doing so, the organisation has complied with all provisions of the Code, except during a period of 5 months, whilst
recruitment for a new Non-executive Director extended for longer than predicted, see page 49 for more details. The search began in March 2017
and a candidate of suitable calibre was identified and appointed in October 2017. Application of the principles was still maintained during this
period and more detail can be found on our compliance in the sections below.
Governance Reportwww.hsholdings.com | Stock Code HILS 47
A. Leadership
The Role of the Board
The Board is collectively responsible for the long-term success of the Company and is focused on ensuring its own effectiveness.
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; in
particular the Board takes decisions on and reviews:
›
›
›
›
›
›
›
›
›
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;
Corporate sustainability and responsibility, ethics, health and safety, the environment; and
Pension benefits and liabilities.
In addition to its normal business, the Board received, reviewed and approved various matters, during 2017 and up to the date of this report:
›
›
›
›
›
›
›
›
›
Regular updates on the reorganisation of VMS Group;
The schedule of matters reserved for the Board and all Committee terms of reference;
Acquisition integration plans;
Conclusion of the external review of board effectiveness;
Succession planning and talent management updates;
Goodwill and Intangible Asset carrying values;
Pension scheme master trust arrangements and trustee reports;
Viability Statement; and
Corporate activity including the acquisitions of Kenway Corporation and Tower Tech and the sale of CA Traffic.
The Board also received budget presentations from the management of Creative Pultrusions, Carpenter & Paterson, the V&S Group, Hill & Smith
Ltd and Joseph Ash Ltd.
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 challenges 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.
Governance Reportwww.hsholdings.com | Stock Code HILS 48
Governance Report (continued)
Board structure
During 2017 the Board constituted the individuals listed below and these Directors made up three Board committees as described below. Each
Committee reports to the Board.
J F Lennox - Chairman (appt 11 May 2017 previously Senior Independent Director)
W H Whiteley - Chairman (retired 11 May 2017)
D W Muir - Group Chief Executive
M Pegler - Group Finance Director & MD, UK Utilities Group
A C B Giddins – Senior Independent Director (appt 3 October 2017)
A M Kelleher - Non-executive Director
M J Reckitt - Non-executive Director
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, and its internal controls and risk
management systems.
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 Director, Non-executive Director or
Chairman.
Chairman
M J Reckitt
Chairman
A M Kelleher
Chairman
J F Lennox
Other members
A M Kelleher
A C B Giddins (appt 3 October 2017)
J F Lennox (resigned 11 May 2017)
Other members
M J Reckitt
A C B Giddins (appt 3 October 2017)
J F Lennox (resigned 11 May 2017)
Secretary
C A Henderson
Secretary
C A Henderson
Other members
D W Muir
A M Kelleher
M J Reckitt
A C B Giddins (appt 3 October 2017)
W H Whiteley (resigned as Committee
Chairman 11 May 2017)
Secretary
C A Henderson
Board meeting attendance
During the year attendance by Directors at Board and Committee meetings was as follows:
Board
Audit
Nomination
Remuneration
Jock Lennox
Derek Muir
Mark Pegler
Mark Reckitt
Alan Giddins(2)
Annette Kelleher
Bill Whiteley(3)
Total meetings held
9
9
9
9
2
9
2
9
3*
3*
3*
3
0
3
1*
3
3
3
-
3
1
3
1
3
2*
1*(1)
-
3
1
3
1*
3
*indicates attendance of whole or part of the meeting by invitation. (1) The Executive Directors were not present when elements of their remuneration were discussed. (2) A C B Giddins attended
all meetings he was eligible to attend. (3) W H Whiteley retired from the Board on the 11 May 2017.
Governance Reportwww.hsholdings.com | Stock Code HILS
49
All Directors of the Board except A C B Giddins attended the AGM on
11 May 2017; A C B Giddins was not appointed to the Board until 3
October 2017.
The biographies of the Directors of the Board are shown on pages
44 and 45, along with any significant other commitments and
appointments they may have.
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 2017 also visited
Australia, Sweden and India.
Skills and business experience
International
markets
(6)
Marketing
(5)
Mergers &
Acquisitions
(6)
Culture &
Ethics
(6)
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.
The Chairman met the independence criteria set out in the Code on
appointment and was not previously the Chief Executive.
Non-executive Directors
The Non-executive Directors take an active role in challenging
strategy and monitoring the performance of the Company. J F
Lennox was the Senior Independent Director at the start of 2017 until
he became Chairman in May 2017. A C B Giddins was appointed as
Senior Independent Director in October 2017. During the intervening
period, the recruitment (which had been started in advance of J F
Lennox becoming Chairman) of a new Non-executive Director who
would also be appointed as the Senior Independent Director was
continuing. Code provision A.4.1. was not complied with during this
period as the Board considered that it was appropriate to wait for a
candidate of suitable skill and experience to be identified. However,
Code principle A.4. was still applied as the Company ensured that
it maintained support for the Chairman and a route of resolution
for shareholders through the Company Secretary and other Non-
executive Directors.
The Non-executive Directors meet independently without the
Chairman present and also meet with the Chairman, independent of
management.
No concerns regarding the running of the company or any proposed
action were received or recorded from Directors.
B. Effectiveness
Composition of the Board
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 (see opposite), are key elements to the effective
functioning of the Board and its Committees, ensuring matters are
fully and effectively debated and challenged and no individual or
group dominates the Board’s decision-making processes.
Taking into account the provisions of the Code, the Board has
determined that during the year under review none of the Non-
executive Directors 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. Half of the Board consists of independent Non-executive
Directors.
Supply
chain
(4)
Human
Resources
(5)
Leadership
(6)
Digital (2)
Health & Safety
(6)
Risk
management
and assurance
(6)
Business
integration
(6)
Financial
Planning
(6)
Strategy
(5)
Operating
performance &
delivery
(6)
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. 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 44 and 45. 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.
Nomination Committee
The Board has appointed a Nomination Committee, composed of
a majority of independent Non-executive Directors. In addition
to leading the process of Board appointments, the Nomination
Committee supports the Board in succession planning for the
Board and senior management. The terms of reference of the
Nomination Committee can be found at www.hsholdings.com and
more information on the work of the Committee can be found in the
Committee Chairman’s report at page 55.
Appointments to the Board
Alan Giddins was appointed as Non-executive Director and Senior
Independent Director on 3 October 2017. Korn Ferry (who have no
other connection with the Company) were engaged by the Company
to conduct a search for a suitable candidate based on the description
of the required capabilities prepared by the Nomination Committee
and in April a list of prospective candidates was drawn up. Following
this the Nomination Committee met to discuss the skills and
experiences of the potential candidates and their relevance to the
Group’s business model, strategy and the requirement to balance
the long-term sustainability of the business with the expectations of
shareholders.
Governance Reportwww.hsholdings.com | Stock Code HILS 50
Governance Report (continued)
Following further meetings with a shortlist of candidates the
Nomination Committee subsequently met to discuss the potential
appointment. The Committee, in considering 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 Alan Giddins to the Board.
The service agreements and terms of appointment for the Executive
Directors and Non-executive Directors respectively, are discussed on
pages 68 and 71 of the Directors’ Remuneration Report. Appropriate
directors’ insurance cover is kept by the Company.
Board Development
The Chairman has overseen the induction of Alan Giddins, which was
full, formal and tailored. Following his appointment Alan 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 and Galvanizing businesses, as well as speaking to
the Group’s External Auditors.
The Chairman has discussed training and development needs with
all Board members, as part of individual performance evaluations.
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 experiences for
Directors includes attendance at seminars, forums, conferences
and working groups, as well as the provision of information from the
Company Secretary.
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.
All Directors have access to the advice and services of the Company
Image: Hill & Smith Ltd’s QUEST-GEN crash cushion installed on the A90 near Forfar, Fife.
Secretary and 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, internal audit, treasury, taxation, acquisitions and
corporate development.
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 results of the 2016 internal Board evaluation concluded:
›
›
›
›
An increased proportion of Board time should be focused on
future strategy and direction;
The formality of succession planning and Board oversight on this
topic should be increased;
Board discussions could benefit from an improved balance of
detailed information and subsidiary specific KPIs; and
The continuous improvement around risk and internal audit
should be maintained.
The Board has responded to these matters by:
›
›
›
Altering Board agendas to ensure strategic focus and increasing
the number of Board meetings with a specific strategic remit;
Increasing Board reporting on succession planning progress,
supported by the work of the Nomination Committee;
Refreshed the KPI report to the Board; and
Governance Reportwww.hsholdings.com | Stock Code HILS 51
›
Continued to improve the risk management framework and
system of internal control, more detail of which can be found on
pages 26 to 30.
In 2017 the Board commissioned an external Board Effectiveness
evaluation, facilitated by Colin Mayer CBE FBA, Professor of
Management Studies at Saïd Business School, University of Oxford,
who has no other connection to the Company. The evaluation
centred around the requirements of the Code and with particular
focus on the following:
›
›
›
›
Board composition;
The Chairman and Non-executive Directors;
Board processes; and
Communication with investors.
The evaluation process concluded,
“The Company comfortably satisfies the requirements of the
Corporate Governance Code.”
and commented further on:
›
›
›
›
›
Leadership – A highly effective board that is collegiate and works
as a team;
Effectiveness – Board members are highly experienced and
knowledgeable, with a good spread of skills that cover its main
requirements;
Accountability – Financial performance is extensively reviewed,
there is central oversight of controls and risk management has
recently been strengthened;
Remuneration – A well run committee, that sets the Company’s
remuneration policy and considers the remuneration of senior
executives;
Investor Relations – The arrangements whereby the Group
CEO and Group Finance Director undertake meetings with
shareholders work well.
In the context of the Company’s successful strategy and its growth
in recent years the Report made recommendations in the following
areas:
›
›
›
›
The Board should continue to focus on the Group’s strategic and
long-term sustainability;
Existing work around succession planning should be extended
further;
The Board should build on existing mechanisms to further
embed culture and values; and
Improvements could be made to the presentation and format
of board packs.
Following this evaluation, the Chairman met with all Board members,
individually, in February 2018, to discuss the Evaluation Report and to
determine what actions should be considered in response and we will
report on these steps in next year’s Annual Report.
Following these meetings Alan Giddins, as Senior Independent
Director met with his Board colleagues to discuss the performance
of the Chairman and the Chairman met with the Non-executive
Directors, in the absence of the Executive Directors, to discuss the
performance of the Executive Directors.
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 above.
Governance Reportwww.hsholdings.com | Stock Code HILS 52
Governance Report (continued)
Following the formal evaluation of the performance of the Board,
Alan Giddins is being proposed for election and the remaining
Directors for re-election at the 2018 AGM. The biographies of the
Directors of the Board are shown on pages 44 and 45.
C. Accountability
Financial and business reporting
The respective responsibilities of the Directors and External Auditor
in connection with the Financial Statements are explained in
the Statement of Directors’ Responsibilities on page 80 and the
Independent Auditor’s Report on pages 82 to 86.
›
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 2017 with an undrawn committed facility headroom of
£111.4m 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.
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
60 of the Audit Committee Report.
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 2020.
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 2017 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 24
and 25) in addition to net debt, liquidity and financing requirements.
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 1 to 40).
This robust 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:
›
›
A decrease in the UK Government’s road infrastructure spend;
A fall in galvanizing volumes across all geographies; and
Risk Management and Internal Control
Overall responsibility for 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 and for internal
control, and reviewing the effectiveness of these processes, lies with
the Board.
The process has been in place throughout 2017, 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;
›
›
›
›
›
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.
More information on the Group’s key risks and uncertainties is shown
on pages 28 to 30.
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 2017,
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 53
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. This 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.
Audit Committee
The Board has appointed an Audit Committee, which at the beginning
and end of the year composed of three independent Non-executive
Directors. However there was a period of 5 months, incorporating one
meeting where the committee comprised of only two independent
Non-executive Directors whilst the process of recruiting a new
Non-executive Director was completed, see page 49 for details. The
terms of reference of the Audit Committee can be found at www.
hsholdings.com and includes the main responsibilities as outlined
in the Code. More information on the work of the Committee can be
found in the Committee Chairman’s report on pages 56 to 60.
D. Remuneration
Remuneration Committee
The Board has appointed a Remuneration Committee, which at
the beginning and end of the year composed of three independent
Non-executive Directors. However there was a period of 5 months,
in which there were no Remuneration Committee meetings, where
the committee comprised of only two independent Non-executive
Directors whilst the process of recruiting a new Non-executive
Director was completed, see page 49 for details. The terms of
reference of the Remuneration Committee can be found at www.
hsholdings.com. The Remuneration Committee Report on pages 62
to 71 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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›
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›
›
›
The Chairman met directly with institutional shareholder
representatives, and plans to continue this annually;
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.
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.
No concerns regarding the running of the company or any
proposed action were received or recorded from shareholders.
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 trading updates and Interim and Annual Reports are
posted on the Company’s website, together with details of key
financial and shareholder information, governance statements,
Group policies and corporate and organisational structure.
On behalf of the Board
›
During the year the Chief Executive Officer and Group Finance
Director regularly meet with institutional shareholder
representatives both in the UK and USA, as well as hosting a site
visit at Hill & Smith Limited, Bilston, UK.
Jock Lennox
7 March 2018
Asset International Structures provides a solution to the Rail Industry using the Asset BaFix 70 Ballast Retention System.
Governance Reportwww.hsholdings.com | Stock Code HILS 5454
Adaptation and modification of existing rail
depot facilities, by Lionweld Kennedy, for
Eurostar maintenance within the Temple
Mills International Rail Depot.
Governance Reportwww.hsholdings.com | Stock Code HILS Nomination Committee Report
55
Jock Lennox
Chairman, Nomination Committee
Nomination Committee composition
During the year the Committee comprised myself as the Group’s
Chairman, having been appointed as such on 11 May 2017, the
Non-executive Directors Annette Kelleher, Mark Reckitt and Alan
Giddins (appointed 3 October 2017), and the Group Chief Executive,
Derek Muir. Prior to resigning on 11 May 2017, the Company’s
previous Chairman, Bill Whiteley also served on the Committee. The
Committee met three times in the financial period under review
with all eligible members of the Committee being present on each
occasion.
Chairman succession
During the year I took over as Chairman of the Company from Bill
Whiteley. Bill had been Chairman since January 2010 in which time
the business has experienced strong growth under his leadership
and I feel privileged to be given this opportunity and look forward to
working with management and the Board as part of Hill & Smith’s
exciting future.
Other principal activities
During the year, and the period up to the date of this report, the
Committee also considered:
Board succession and diversity – recognising the desire to
maintain the right balance of expertise both at Executive
Director and Non-executive Director level, the Committee
discussed and planned for any other forthcoming changes.
Non-Executive appointments and changes in roles and
responsibilities on the Board.
Board evaluation – the Board commissioned Professor Colin
Mayer of Saïd Business School at the University of Oxford to
facilitate an external Board Effectiveness evaluation and his
findings were discussed at the Board’s meeting in January 2018,
a summary of which is contained on page 50.
›
›
›
›
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 49) 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.
Jock Lennox
(as Chairman
Date of Appointment
Length of service at 31
December 2017
12 May 2009
8 years 7 months
11 May 2017
7 months)
Annette Kelleher
1 December 2014
3 years 1 month
Mark Reckitt
Alan Giddins
1 June 2016
1 year 7 months
3 October 2017
3 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.
The appointment of Alan Giddins as a Non-executive Director
and Senior Independent Director (see page 51).
On behalf of the Board
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
Jock Lennox
Chairman, Nomination Committee
7 March 2018
Governance Reportwww.hsholdings.com | Stock Code HILS 56
Audit Committee Report
Mark Reckitt
Chairman, Audit Committee
Dear Shareholder
It is a pleasure to make my report as the Audit Committee Chairman
of Hill & Smith Holdings PLC. I currently hold similar positions at Mitie
Group PLC and Cranswick plc. I look forward to working with my
fellow committee members and the Company’s senior management
team as we continue to develop and enhance our risk management
processes and internal audit programmes.
During the year the Committee considered the increased scale
of Hill & Smith and asked for a Group Internal Audit Manager to
be appointed. This new role, commencing September 2017, was
considered by the Committee to be instrumental in ensuring an
effective capability to review the Group’s internal control and
risk management systems. The Committee also approved an
internal audit plan for 2018, put forward by the Group Internal
Audit Manager, that focuses on Group-wide thematic reviews, risk
mitigation reviews and Group policy compliance, and engaged with
third-party advisors to provide assessment of the extent to which
subsidiary businesses are at risk from cyber-based attacks.
As reported on last year, the executive team, with the support of the
Audit Committee, has continued to build upon the risk assessment
methodology which was implemented across the Group in which
training sessions on risk identification and definition were delivered
to all senior executives across the Group. The subsidiaries have
access to an online reporting tool to enable the production of
business unit specific risk registers in a consistent format for review
and challenge by the Group Risk Committee. During the year the
Committee comprised the Group Company Secretary, the Group
Financial Controller, the Group Assistant Company Secretary, the
Group Internal Audit Manager and the Group’s Director of Corporate
Development. As part of the continual improvement process,
senior operational 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.
This Audit Committee report explains how the Committee has
discharged its responsibilities, and takes into account the specific
areas of:
›
›
›
›
Primary areas of judgement considered by the Committee in
relation to the 2017 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 2018.
Mark Reckitt
Chairman, Audit Committee
7 March 2018
Governance Reportwww.hsholdings.com | Stock Code HILS 57
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 risk management and internal
control systems and internal audit function.
At different times during the year the Audit Committee consisted of Mark Reckitt, Alan Giddins, Annette Kelleher and Jock Lennox.
1 January 2017 – 11 May 2017: Mark Reckitt (Chairman); Annette Kelleher; and Jock Lennox.
12 May 2017 – 2 October 2017: Mark Reckitt (Chairman); Annette Kelleher.
3 October 2017 – 31 December 2017: Mark Reckitt (Chairman); Annette Kelleher; and Alan Giddins (who was appointed to committee on 3
October 2017)
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, in keeping with the provisions of the UK Corporate Governance Code, 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 2017 met on three occasions; in March to
consider the Annual Report together with the external audit findings, in August to review the interim results report and in September to approve
the external auditors’ plan and approve their fees. A meeting held in January 2018 reviewed the Subsidiaries’ Risk Registers, and internal audit
activities and approved 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 recently appointed Group Internal Audit Manager and, where appropriate, the external
auditor, KPMG. A record of the meeting attendance by Committee members is set out on page 48.
Time is allowed for the Committee to speak with the external auditor and the Group Internal Audit Manager without the presence of the
Executive management.
As Audit Committee Chairman, Mark Reckitt has maintained regular contact with the external audit partner and the Group Internal Audit
Manager outside Committee meetings and without the management of the business present. In these meetings a wide range of matters
are discussed, including the change in financial reporting and governance landscape, the Company’s readiness to accommodate these
developments, the 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
› Reviewed the 2017 Annual Report, the
2017 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
2017 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 52).
› Advised the Board on whether
› Reviewed the outputs from the
Group’s risk management process
to ensure that subsidiaries were
identifying, articulating, evaluating
and mitigating risks and
considered changes to encourage
both bottom-up and top-down risk
assessments.
› 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.
› Reviewed proposals to enhance
› Recommended the
the Group’s whistleblowing policy
and process and implemented
an externally managed reporting
facility for employees.
the Annual Report and Financial
Statements, taken as a whole, are fair,
balanced and understandable (see
page 60).
› Reviewed areas of the accounts which
require particular judgement including
the carrying value of goodwill and
indefinite life assets; the defined
benefit pension scheme valuation; and
taxation (see page 58).
› 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 and forecast
position and principal risks, the
Board can approve its viability
statement (see page 52).
appointment of a Group
Internal Audit Manager
reporting to the Group
Finance Director and
the Audit Committee
Chairman.
› Evaluated the Internal
Audit Plan for 2018 that
was submitted with
reference to the risk
management reporting
process.
› 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 in
relation to France Galva S.A.; provisions
for uncertain income tax positions; and
UK post-retirement benefits obligations.
› Reviewed, considered and agreed the
methodology of the 2017 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.
Governance Reportwww.hsholdings.com | Stock Code HILS 58
Audit Committee Report (continued)
Primary areas of judgement considered by the Committee in
relation to the 2017 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 87 to 131. 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
£132.3m at 31 December 2017. 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
further 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 105 to 112. Business plans are signed off by the
Board and assessment models are reviewed and challenged as part
of the audit, for which the external auditor, KPMG, provides reporting
to the Committee.
Defined benefit pension scheme valuation
Net defined benefit pension obligations under IAS19 amount to
£25.6m at 31 December 2017. 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
During the year the Audit Committee reviewed the arrangements for
internal audit and, having regard for the increased scale of the Group,
decided that the effectiveness of Internal Audit would be further
improved by the appointment of a Group Internal Audit Manager.
This role was effective from September 2017 and was responsible
for preparing the annual audit plan for 2018, in conjunction with
the Group’s Risk Committee, for approval by the Audit Committee.
This ensures that the annual audit plan is a risk-based programme
concentrating on reviewing the Group’s assurances and controls
over its principal risks. The Group Internal Audit Manager may also
perform special investigations and ad hoc reviews, as directed by
the Audit Committee, or requested by Executive Management and
approved by the Audit Committee. Once approved, the Group Internal
Audit Manager implements the plan and reports back to the Audit
Committee on the outcomes of the individual audits carried out;
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identifying improvements that can be made to internal controls,
risk management and governance processes;
verifying that such improvements are implemented within a
reasonable timeframe;
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providing regular reports to the Audit Committee summarising
its work and progress with the Internal Audit Plan; and
providing an annual report to the Audit Committee summarising
the themes arising from work performed during the year, and
assessing the level of Internal Audit resource and access to
information.
The Audit Committee and Hill & Smith executive management
ensure that the Group Internal Audit Manager has free access to
the businesses, information and management within the Group and
remains free from inappropriate management influence or other
restrictions on their ability to perform their work in an objective and
effective manner.
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 continue to focus
on the most appropriate areas, the Group Company Secretary was
asked to take responsibility for the Group’s Risk Committee, which
also included on a regular basis the Group Financial Controller, the
Group Internal Audit Manager and the Group Corporate Development
Director together with annual attendance of the Executive Directors.
The Risk Committee reviewed the work undertaken, supported
by external risk specialists during the course of 2017. This work
examined all areas of the business from Board governance to
subsidiaries’ day-to-day business activities and included Board
policies, contract and project management, procurement and supply
chain management, sales and credit management, compliance
and financial reporting. Subsidiary businesses were re-familiarised
with the risk management cycle and required to identify, define
and formalise their mitigation controls as well as self-assess their
compliance with Group-wide policies. The reports generated by the
subsidiaries and validated by the Risk Committee were reviewed and
discussed at the Audit Committee, which concluded that the reports,
collectively, provided 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 Risk Committee 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/or the Group Internal Audit Manager at 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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Cyber risk;
Modern slavery;
Appropriateness of the carrying value of goodwill and intangible
assets of France Galva, SA; and
Third-party whistleblowing hotlines.
In addition the Audit Committee considered the effectiveness of
controls relating to payments due from customers, those due to
suppliers, the suitability of suppliers and the adherence to Hill &
Smith policies and practices by recently acquired businesses. A
review of Cyber Risk was commissioned during the course of 2017
and during 2018 the Audit Committee will review and advise the
Board on the implementation of agreed recommendations from
Governance Reportwww.hsholdings.com | Stock Code HILS 59
this review. For 2018 the Committee is continuing to develop with
the Group Internal Audit Manager and the Group’s Risk Committee
an enhanced and expanded internal audit plan that aligns with the
Group’s identification of risks and mitigating activities; assurances
and controls, and also assesses conformance against the compliance
and policy initiatives that the Group has issued.
Risk management
The risk management process is continually reviewed throughout
the year to ensure that it is set up to deliver appropriate risk
management across the Group. Every year the Committee seeks to
improve the Group’s risk management processes to ensure that the
Group’s principal risks and uncertainties are correctly identified by
virtue of a top-down/bottom-up approach utilising the experiences
of the Audit Committee and the Group’s 29 subsidiaries. This led in
2016 to the approval of a model for consideration of principal risks
that included the implementation of a Group-wide risk assessment
process across all subsidiaries. During 2017 this risk assessment
and management process, which focused on risk assessment
and mitigation within the subsidiaries, was further developed
with a programme of training for senior management across the
Group; delivered through face-to-face seminars in the UK, USA and
Sweden and through a training manual to the other international
jurisdictions. Almost 100 senior managers attended the seminars
which gave both a refresher of the theory of risk and the Group’s
framework as well as practical exercises. These sessions were led by
members of the Risk Committee with support from third-party risk
professionals and will continue throughout 2018. The Committee
believes that these improvements will further strengthen the way
that the business understands and manages risk.
During 2017, subsidiaries have been required to identify, articulate
and report into an online database the risks to their individual
strategies – these are aligned with the Audit Committee’s review of
the Group’s principal risks and uncertainties and reviewed, validated
and filtered by the Risk Committee to ensure that appropriate
subsidiary risk matters are escalated to the Board and Audit
Committee. Any risks submitted by subsidiaries that do not align with
the Group’s principal risks are individually reviewed and taken into
account in current and subsequent reviews of the Group principal
risks. The Audit Committee has monitored the resultant key risks
on the corporate risk register and during the year received reports
and minutes from the Risk Committee, detailing 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 28 to 30.
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 2017 year-end audit during the Committee
meeting in September 2017. 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 in relation to France
Galva S.A; provisions for uncertain income tax positions and UK
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.
In January 2018 the Committee considered a report from the
Group Finance Director on the effectiveness of the performance of
the external auditor. This report included a detailed assessment
compiled from the individual businesses and head office finance
team feedback and covered, amongst other things:
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The calibre of the external auditor including size, resources,
geographical representation and reputation;
The external audit team in terms of the requisite skills,
professional and industry knowledge;
The scope of the external audit to adequately address the
financial reporting risks facing the Company and 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 reviewed this feedback together with the 2016/17
Audit Quality Inspection review undertaken by the FRC on KPMG, and
discussed the broader topic of the perceived quality and effectiveness
of external audits generally. Following this discussion the Committee
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 2017 audit. The Committee discussed the issues
raised in the report, particularly in relation to the areas highlighted,
at their meeting in February 2018. A similar discussion of the
external auditor’s report, following their 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 last partner rotation occurred
in December 2016 when Darren Turner, recommended by KPMG and
approved by the Audit Committee took over for the 31 December
2016 year-end audit. This year’s audit will be his second.
Following the EU Audit Directive which took effect from June 2016,
the Group has 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
Governance Reportwww.hsholdings.com | Stock Code HILS 60
Audit Committee Report (continued)
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That the information given represented the whole story of
the business’ performance in 2017 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 2017 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
7 March 2018
continue to consider annually the need to tender the audit for audit
quality or independence reasons and may seek to tender the audit
at any time 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 reviewed its ‘Non-Audit Services’ policy
in January 2018 to ensure it meets the detailed requirements of the
EU Audit legislation, 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.
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 level by the full Audit
Committee. 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 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 2017, there were fees of £122,600 (2016: £343,100) paid
to the auditor for non-audit services. The fees paid covered due
diligence on acquired businesses and aborted acquisition costs
£92,400 (2016: £241,500), pension advice £Nil (2016: £45,000),
assurance reviews £13,500 (2016: £40,100) and restructuring
work £16,700 (2016: £16,300). Audit fees for 2017 were £793,000,
representing a 1:6 ratio between non-audit and audit fees (2016:
1:2). Further details of these amounts are included in note 6 of the
accounts on page 102.
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 report such incidents through a third party provided
whistleblowing hotline or if necessary, to the Company Secretary or
the Chairman of the Audit Committee.
During the year the Committee received reports from the Group
Company Secretary on matters reported under the Group’s
whistleblowing policy, which supports the provision of an externally-
hosted internet and telephone based whistleblowing hotline. Any
incidents reported whether through the whistleblowing hotline or
direct to the Company Secretary or any other member of Group-level
management are investigated under the supervision of the Company
Secretary and resolved appropriately.
Fair, balanced and understandable
The Committee examined the 2017 Annual Report and was
specifically tasked by the Board to advise it on whether the 2017
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;
Governance Reportwww.hsholdings.com | Stock Code HILS 61
61
Top: ZoneGuard installed on E4 at Häggvik north of Stockholm, at the start of the new Stockholm ring road. Below: Single-sided Varioguard installed on the Clyesdale Expressway, Glasgow.
Governance Reportwww.hsholdings.com | Stock Code HILS 62
Remuneration Committee Report
Annette Kelleher
Chair, Remuneration Committee
Dear Shareholder,
2017 performance and remuneration
I am pleased to present our Directors’ Remuneration Report for 2017.
Our Directors’ Remuneration Policy was approved at our AGM in May
2017 and you will find a summary of the policy on pages 72 to 76.
This Policy was strongly supported by shareholders, with more than
93% of the votes in favour of it.
Our revised Directors’ Remuneration Policy
When reviewing our policy, prior to the AGM in May 2017, we
considered and reviewed a number of items, including the Company’s
short and long-term strategy, its overall performance and the
remuneration arrangements already in place. We were also mindful
of general guidance from shareholders and good remuneration
practice.
On balance, we took the view that the existing remuneration
framework continued to effectively support the delivery of the
business strategy and the ongoing creation of shareholder value.
Therefore, we did not make any structural changes to our Policy,
but we chose to modify some elements of the Policy to support the
business performance and succession planning over the next three
years.
However, we did recognise both the growth of the Group over the
last few years, as well as certain shareholder expectations of us as a
FTSE 250 company. Reflecting the significant increase in scale and
complexity of the Company, both in the UK and internationally over
the last few years the overall maximum annual bonus opportunity
was increased from 100% to 125% of base salary under the new
Policy in 2017. Given the continued strong performance of the
business, the maximum bonus opportunity for the Executive Directors
in 2018 will be 125% of base salary with up to 20% of the bonus
earned being delivered in the form of shares that are deferred for two
years.
Further recognising the Company’s growth and success, the Policy
permits the Committee to grant LTIP awards of up to 150% of base
salary. However, 2018 LTIP awards for the Executive Directors will
continue to be 125% of base salary and will be subject to a further
two year holding period after vesting.
In addition, we also increased shareholding requirements
significantly for our Executive Directors, from 100% to 200% of base
salary to contribute further to robust shareholder alignment. We also
formally introduced malus and clawback into both the annual bonus
and long term incentive plans.
Against a backdrop of uncertain political and macro-economic
conditions the Company has recorded excellent results. More details
about the Company’s operational and financial performance can be
found on pages 13 to 23.
This very strong performance is reflected in the incentive
remuneration outturns for 2017. In summary, the Executive Directors
earned bonuses of 94% of salary. More information in relation to the
detail of the 2017 annual bonus is included on page 65.
The performance period for LTIP awards granted in 2015 ended on
31 December 2017. 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 66.
2018 base salary and fees
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 2018, we are following this
principle and our Executive Director salary increases of 3% are in line
with our wider workforce. Full details can be found on pages 69 and
70.
The Non-executive director fees have been increased by
approximately 3% with effect from 1 January 2018. Following a
review which indicated that the Chairman’s fee was positioned below
the market competitive range and taking into account the increase
in the scale and complexity of the business and the scope of the
role for a FTSE 250 business, the Board approved an increase in the
Chairman’s fee from £147,500 to £165,000 in line with the lower end
of the market range. Details on other Non-executive fees are set out
on pages 68 and 71.
Annette Kelleher
Chair, Remuneration Committee
7 March 2018
Governance Reportwww.hsholdings.com | Stock Code HILS Directors’ Remuneration Report
63
Policy and strategy
The Company’s strategy is explained in detail on pages 6 to 11. The Company’s Remuneration Policy was approved by shareholders at the Annual
General Meeting (‘AGM’) on 11 May 2017 with 93.44% of all votes cast in favour. The full policy can be found in complete form on the Company’s
website. The Remuneration Policy Table and accompanying notes to the Policy have been provided on pages 72 to 76 as it is considered these
would be helpful for shareholders to have them repeated in this year’s report. However, to aid reading in relation to the application of the
Remuneration Policy in 2018, certain date references have been updated.
The Policy 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. The table below sets out how variable
remuneration is linked to the Company’s strategic drivers and business objectives.
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
Leads to:
Measured by Long-Term
Incentive Plan targets of:
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%.
50% of any award is based
on growth in the absolute
UEPS, over the three-year
performance period;
Geographical
diversification
The international diversity of the markets in which we operate
continues to underpin our performance.
Budgeted profit
and
Entrepreneurial
culture
We encourage an entrepreneurial culture in our businesses ensuring
that they are agile and responsive to changes in their competitive
environment.
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
ROIC
Operating margins
Budgeted profit
ROIC
Operating margins
Sustainable
profitable growth
Our objective is to deliver balanced profitable growth through both
organic growth and acquisition opportunities.
UEPS
Shareholder
value
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 65.
Committee activity
The Committee
During the year, and the period to the date of this report, the Remuneration Committee (the ‘Committee’) consisted of Annette Kelleher,
Chairman, together with Jock Lennox, Mark Reckitt and Alan Giddins. For more details see below.
1 January 2017- 11 May 2017: Annette Kelleher (Chairman); Mark Reckitt; and Jock Lennox.
12 May 2017- 2 October 2017: Annette Kelleher (Chairman); Mark Reckitt.
3 October 2017 - 31 December 2017: Annette Kelleher (Chairman); Mark Reckitt; and Alan Giddins (who was appointed to committee on 3
October 2017).
All members of the Committee are Non-executive Directors of the Company and are regarded as independent. They do not participate in any
form of performance related pay or pension arrangements.
During this time the Committee:
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Approved the annual bonus calculation and payment for the financial years 2016 and 2017 – further information is given on page 65;
Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2014, confirming that 100.0% of the TSR
portion and 100.0% of the UEPS portion of the original award vested;
Approved grants under the Company’s LTIP;
Following the review of the Remuneration Policy during 2016, the Company introduced a new Remuneration Policy that was put before
members at the Company’s AGM in May 2017 and approved by 93.44% of shareholders;
Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2015, confirming that 100% of both the Total
Shareholder Return (‘TSR’) portion and the UEPS portion of the original award would vest – further information is given on page 66;
Approved the award of a new SAYE scheme, to run from December 2017 for a three or five year period. Options to be awarded with the
maximum discount of 20% allowable under HMRC rules;
Governance Reportwww.hsholdings.com | Stock Code HILS 64
Directors’ Remuneration Report (continued)
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Reviewed the base salaries of the Executive Directors and approved a 3% increase, with effect from 1 January 2018, in line with the
increases awarded to the wider workforce;
Approved the annual bonus performance measures and targets for 2018;
Reviewed reports on the Group’s approach to the National Minimum Wage and the Gender Pay Gap in UK subsidiaries where this was
appropriate. Approving the Gender Pay statement for inclusion on the relevant websites;
Reviewed and approved the Company’s Annual Remuneration Report for inclusion in the Company’s 2017 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 £10,950 for the year ended 31 December 2017. 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 ongoing shareholder dialogue and takes an active interest in voting outcomes. Both the Company’s
Remuneration Policy and Remuneration Report were put before members at our AGM in May 2017 and were approved by 93.44% and 97.27% of
shareholders respectively, see below.
% of votes
Remuneration Policy Report
% of votes
Annual Remuneration Report
For
93.44%
For
97.27%
Against
6.56%
Against
2.73%
826,027 votes were withheld in relation to this resolution (<0.5%)
Withheld votes
48,419 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 2018 policy.
How the Remuneration Policy was implemented in 2017 – Executive Directors
Single remuneration figure for 2017
D W Muir
M Pegler
Total
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
493,000
345,100
838,100
50,465
22,279
72,744
463,421
324,394
787,815
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
(1) The amount of base salary received in the year.
LTIP (vested in respect
of performance period
ended 2017)(4)
954,463
610,703
1,565,266
LTIP (vested in respect
of performance period
ended 2016)
1,008,377
645,051
1,653,428
Pension
123,250
86,275
209,525
Pension
119,625
80,125
199,750
Total ‘Single
Figure’ 2017
2,084,599
1,388,751
3,473,350
Total ‘Single
Figure’ 2016
2,134,459
1,387,806
3,522,265
(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 £20,989 (2016: £20,898) 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 65.
(4) LTIP is the value of LTIPs vested in respect of a performance period ended in 2017. A description of the basis on which awards vested and the value can be found on page 66.
Salary
Basic salaries for Executive Directors are reviewed by the Committee on an annual basis or when a material change of responsibility occurs. The
Remuneration Committee does not have a formal positioning policy for base salary as it is acutely aware of the issues around setting pay solely
by reference to a benchmark reference point.
Governance Reportwww.hsholdings.com | Stock Code HILS 65
During the period under review the Committee reviewed the salaries of the Executive Directors and other senior executives, in the context of
reports received from the Committee’s remuneration consultants, the current performance of the Company and the levels of pay increases
applied throughout the Group’s UK and international businesses. This approach is consistent with previous years.
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.
2017 annual bonus
Each Executive Director was eligible to earn a bonus for 2017 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 2016 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
Achievement of budgeted internal ROIC
Total
Maximum pay out per
performance measure
Actual performance
Actual pay out per
performance measure
25%
25%
25%
25%
100%
15%
£77.8m
13.9%
20.2%
25%
23%
25%
21%
94%
2016 annual bonus
The performance conditions for the year ended 31 December 2016 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)
25%
25%
25%
25%
100%
2016 on target
performance
2%
£58.7m
13.2%
Performance
assessment
by the
Remuneration
Committee
Bonus payable
for on target
performance
(% of base
salary)
15%
15%
15%
15%
60%
2016 stretch
performance
7%
£61.6m
13.4%
Performance
assessment
by the
Remuneration
Committee
Bonus payable
for stretch
performance
(% of base
salary)
25%
25%
25%
25%
100%
Actual performance (1)
22%
£64.8m
13.6%
Completed
ahead of target
timeframe and
budgeted costs
Actual pay out
per performance
measure (% of
base salary)
25%
25%
25%
25%
100%
Growth in UEPS
Underlying profit before tax
Underlying operating margins
The delivery of specific
strategic objectives related
to non-US Pipe Supports
business
Total
(1) The strategic objectives related to the restructuring of the non-US Pipe Supports businesses and the actual financial performance detailed
above excludes the restructured Pipe Supports business.
LTIP awards vesting in respect of 2017
Each Executive Director was granted an LTIP award on 13 March 2015 which vested subject to the achievement of performance conditions based
on absolute UEPS growth over the three year performance period ended 31 December 2017 (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.
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Directors’ Remuneration Report (continued)
Performance targets
Vesting
Threshold
Maximum
15% UEPS growth
25%
Median TSR
25%
30% UEPS growth
100%
Upper Quartile
100%
Actual
performance
Actual vesting
Shares subject to
award
Vesting shares
Vested value *
UEPS growth
of 67%
UEPS: 100%
of maximum
TSR ranked 10
(out of 127)
TSR: 100% of
maximum
D W Muir
72,805
72,805
891,133
M Pegler
46,583
46,583
570,176
* The value of shares is calculated by reference to the share price on 1 March 2018, being £12.24. In accordance with the rules of the LTIP, each of Messers Muir and Pegler is entitled to a further
benefit by reference to the dividends paid over the period from grant to vesting, amounting to £63,330 in the case of D W Muir and £40,527 in the case of M Pegler.
Total pension entitlements
D W Muir was a member of the Hill & Smith 2016 Pension Scheme (‘the Scheme’), the Group’s defined benefit pension plan, until 22 June
2017. On 22 June 2017, he took a cash equivalent transfer value from the Scheme. This transfer value was for £4,534,510 and he now has no
entitlement in the Scheme. Movements in the year are shown below.
Accrued pension at 31 December 2016 (no revaluation)
Transfer value of accrued pension at 22 June 2017
Accrued pension at 31 December 2017 (no revaluation)
Normal retirement date
£126,297
£4,534,510
-
06/07/2020
As noted last year for the 2016 year end accounts, D W Muir had ceased benefit accrual in 2011 and had then received a cash supplement
amount in lieu of company pension contributions. As such, he has not had any further benefit accrual within the Scheme from 2011. Any
inflationary increases that have occurred are in line with statutory requirements.
In addition, there is a requirement to provide 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
31/12/2009
31/12/2010
31/12/2011
31/12/2012
31/12/2013
31/12/2014
31/12/2015
31/12/2016
31/12/2017
Pension input amount
£66,666
£25,640
£99,467
£nil
£nil
£nil
£nil
£nil
£nil
*As D W Muir ceased accrual in the Scheme during 2011, the pension input amounts in respect of the Scheme for the years ending 31 December
2012 to 31 December 2017 (inclusive) 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 £123,250 for the year ended
31 December 2017 (2016: £119,625).
M Pegler receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary amounting to £86,275 for the year ended
31 December 2017 (2016: £80,125).
Other than as stated above, there are no other pension arrangements in place for Executive Directors.
The Remuneration Committee intends to operate the same pension provision for 2018 that was operated in 2017.
Governance Reportwww.hsholdings.com | Stock Code HILS 67
Share awards granted during the year
During the year to 31 December 2017 the Committee approved awards to the Executive Directors under the LTIP 2014 rules as follows:
Date of award
Type of award
Number of
shares(1)
Maximum face value
of award(2)
Threshold
vesting
Performance period (3)
D W Muir
M Pegler
16 May 2017
nil cost option
16 May 2017
nil cost option
46,863
32,804
£616,250
£431,373
25%
25%
1 January 2017 – 31 December 2019
1 January 2017 – 31 December 2019
(1) Following approval of the Company’s Remuneration Policy the award reflects 125% of base salary
(2) Calculated by reference to a share price of £13.15, being the average of the mid-market prices for the three trading days prior to the grant date and reflecting an award of 125% of base
salary.
(3) After the end of the performance period, LTIP awards will be subject to an additional two year holding period before they are released to the Executive Directors.
Both D W Muir and M Pegler also received market value options up to a maximum of £30,000, which were granted under the tax-advantaged
part of the ESOS and subject to the same performance conditions as the LTIP award. The resultant ESOS options of 2,281 ordinary shares have an
exercise price of 1315.0p per shares (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.
The performance conditions for these awards are:
Vesting amount
0% Vesting
25% Vesting
Maximum Vesting
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**
* Straight line vesting will apply between these two points. ** Relative to the FTSE 250 (excluding Investment Trusts and Financial Services companies).
Share options
The interests of Directors, who served during 2017, in options for ordinary shares in the Company, granted under the Company’s sharesave
schemes, together with options granted and exercised during 2017, are included in the following table:
Executive
D W Muir
M Pegler
Grant Price
Awards held 31
December 2016
Granted during
the year
Exercised during
the year
Awards held 31
December 2017
£3.55
£4.29
£5.60
£3.55
£4.29
£10.21
1,064
3,496
2,003
4,225
2,097
-
-
-
-
-
-
881
-
-
-
-
2,097
-
Period that option is exercisable
From
To
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
1 January 2021
1 July 2021
1,064
3,496
2,003
4,225
-
881
Unvested
Statement of Executive Directors’ shareholding and interest in shares
Type
Owned outright
Vested but
unexercised
Subject to performance
conditions (4)
Not subject to
performance conditions
Total as at 31 December
2017
D W Muir
Shares(1)
Market value options(2)
SAYE options(3)
M Pegler
Shares(1)
Market value options(2)
SAYE options(3)
293,957
n/a
n/a
52,129
n/a
n/a
n/a
-
-
n/a
-
-
175,039
2,281
n/a
114,797
2,281
n/a
n/a
-
6,563
n/a
-
5,106
468,996
2,281
6,563
166,926
2,281
5,106
(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 below.
(2) The Market Value options were granted under the tax-advantaged part of the ESOS and subject to the same performance conditions as the LTIP award. The ESOS options have an exercise
price of 1315p 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 1 March 2018 the Remuneration Committee approved the vesting of 100% of the 2015 LTIP award, being 72,805 and 46,584 shares for D W Muir and M Pegler respectively.
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Directors’ Remuneration Report (continued)
Shareholding guidelines
Shareholding requirement
Current shareholding as at 31 December 2017
Current value
(based on share price on 31 December 2017 of £13.39)
Current % of salary
D W Muir
200%
293,957
£3,936,084
798%
M Pegler
200%
52,129
£698,007
202%
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 41,329 and 26,444 shares respectively, being the net amount of those shares vested on 1 March 2018 in respect
of the 2015 LTIP award and D W Muir held an extra 399 shares received on 5 January 2018 through the Company’s Dividend Re-Investment Plan
(‘DRIP’).
Non-executive Director shareholding
Director
J F Lennox
A C B Giddins
A M Kelleher
M J Reckitt
2017
7,500
4,500
2,164
4,000
2016
5,000
-
2,164
4,000
These figures include those of their spouses, civil partners and infant children, or stepchildren. There was no change in these beneficial interests
between 31 December 2017 and 7 March 2018. 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 2017.
Transactions with Directors
There were no material transactions between the Group and the Directors during 2017.
How the Remuneration Policy was implemented in 2017 – Non-executive Directors
Non-executive Director single figure comparison
Director
Role
Board Fees
Other Fees
Taxable
Benefits
Annual
Bonus
LTIP
Pension
Total ‘Single
Figure’ 2017
Total ‘Single
Figure’ 2016
W H Whiteley(1)
Chairman
J F Lennox(2)
Chairman & Senior
Independent Director
54,272
114,577
A C B Giddins(3)
Senior Independent Director
13,609
A M Kelleher
Remuneration Committee
Chairman
M J Reckitt
Audit Committee Chairman
Total
55,000
55,000
292,458
(1 )W H Whiteley resigned as Chairman of the Company on 11 May 2017.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
54,272
143,170
114,577
52,899
13,609
-
55,000
49,161
55,000
26,917
292,458
272,147
(2) J F Lennox, who served as Senior Independent Director from 1 January 2016 until 11 May 2017 received a base fee of £18,438 plus an additional £2,911 as Senior Independent Director. On 11
May 2017, he was appointed Chairman of the Company and received an annual fee of £147,500 prorated over the year.
(3) A C B Giddins was appointed to the Board as Senior Independent Director on 3 October 2017 and received a base fee of £11,753 and an additional fee as £1,856 for Senior Independent
Director for the period in which he served as a non-executive director.
The Non-executive Directors do not have service contracts, only letters of appointment, and fees for Non-executive Directors are determined by
the Executive Directors in light of market best practice and with reference to the time commitment and responsibilities associated with the role.
The Non-executive Directors do not participate in any decision in relation to the determination of their fees and are not eligible for performance
related bonuses or the grant of awards under any Group incentive scheme. No pension contributions are made on their behalf.
Governance Reportwww.hsholdings.com | Stock Code HILS 69
300
250
200
150
100
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
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r
e
d
l
o
h
e
r
a
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S
l
a
t
o
T
300
250
200
150
100
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
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e
d
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a
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T
0
Jan 15
Jan 16
Jan 17
0
Jan 15
Jan 16
Jan 17
Hill & Smith
FTSE 250
Hill & Smith
FTSE SmallCap
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 2015 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.
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 2016 and 2017.
Percentage increase
Salary
Taxable benefits
Annual bonus
Chief Executive Officer
3%
2%
-3%
Wider workforce
2% - 5%
-
-3%
For salary purposes the ‘wider workforce’ comparator group looked at the increases awarded across the UK subsidiaries at all levels of the
workforce and found that pay awards across these businesses ranged from between 2% and 5%, with the average being 3.72%. Additional
increases were also made to take into account structural changes within the wider pay environment. The bonus figures were taken from those
senior executives operating on similar incentivised arrangements to the CEO and capable of influencing the Group’s performance, as well as their
own individual businesses’ performance.
Relative importance of spend on pay
Dividends in respect of the financial year
Overall spend on pay
2017
£23.8m
£148.7m
2016
£20.7m
£140.6m
% change
15.0%
5.8%(1)
(1) This includes a 2.6% increase in the average number of people employed by the Group. See note 4 to the accounts on page 101.
Governance Reportwww.hsholdings.com | Stock Code HILS
70
Directors’ Remuneration Report (continued)
Chief Executive remuneration pay compared to performance
The graph below shows the TSR performance of the Company over the nine year period to 1 January 2018 compared to the appropriate FTSE
indices.
1200
1000
800
600
400
200
)
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
0
Jan 09
Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Hill & Smith
FTSE 250
FTSE SmallCap
FTSE All Share
The table below summarises the Chief Executive’s single figure for the past nine 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
2010
851
14
2011
690
30
2012
941
85
100
100
-
-
2013
1,084
16
50
2014
1,835
100
2015
1,894
100
2016
2,134
100
2017
2,085
94
92.7
97.9
100
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 2018 – Executive Directors
Salary
Base salaries were reviewed in December 2017 and as from 1 January 2018 are:
Chief Executive
Finance Director
£507,800
£355,500
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 2018 for the financial year 2019.
Annual bonus
Following approval of the Company’s Remuneration Policy the annual bonus opportunity for 2018 is amended to 125% of salary, with up to 20%
of the bonus earned being delivered in the form of shares that are deferred for two years. The increase in annual bonus opportunity reflects the
significant increase in scale and complexity of the Company, both in the UK and internationally, over the last few years and the Company’s move
into the FTSE 250 in June 2016.
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71
Chief Executive
Finance Director
›
›
›
›
›
›
Maximum opportunity of 125% of base salary
80% Paid in cash
20% Delivered in shares vesting after two years
Maximum opportunity of 125% of base salary
80% Paid in cash
20% Delivered in shares vesting after two years
The Committee can disclose that for the 2018 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 65.
Share plans
The Remuneration Policy approved by members at the Company’s AGM in May 2017, permits the Committee to grant awards under the LTIP up to
a maximum of 150% of base salary. However the Committee intends to make an award in 2018 in respect of the performance period 1 January
2018 – 31 December 2020, 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**
* Straight line vesting will apply between these two points.
** Relative to the FTSE 250 (excluding investment trusts and financial services companies).
After the end of the performance period, LTIP awards will be subject to an additional two year holding period before they are released to the
Executive Directors.
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 2018 – Non-executive Directors
Fees
The fees of Non-executive Directors are 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 2017, the Board approved a 3% increase in the base fees as from 1 January 2018 for all Non-executive Director fees and
following a review which indicated that the Chairman’s fees was positioned below the market competitive range, given the Company’s position in
the FTSE 250, the Board approved an increase in the Chairman’s fees to £165,000 in line with the lower end of the market range.
Chairman
Non-executive Director
Senior Independent Director
Audit Committee Chairman
Remuneration Committee Chairman
Annette Kelleher
Chairman, Remuneration Committee
7 March 2018
2018
£165,000
£48,900
£7,750
£7,750
£7,750
2017
£147,500
£47,500
£7,500
£7,500
£7,500
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Directors’ Remuneration Report (continued)
Directors’ remuneration policy report
The Company’s Directors’ Remuneration Policy was approved at the 2017 AGM (with over 93% votes in favour of the policy) and took effect from
the close of that meeting and is summarised below. It does not form part of the Annual Remumeration Report and will not be subject to a vote
at the Company’s AGM on 17 May 2018.
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.
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.
To provide
post-retirement
benefits and
reward sustained,
long-term
contribution to the
performance of
the Group.
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.
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.
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73
Purpose and link
to strategy
Operation
Maximum opportunity
Performance metrics
The maximum bonus opportunity is up
to 125% of base salary.
However, for 2017, the maximum
opportunity will be 100% of base
salary.
Annual bonus
Rewards the
achievement of
annual financial
targets and/
or the delivery
of strategic/
individual
objectives.
Performance measures and targets are
reviewed and set annually by the Remuneration
Committee.
Bonus pay out is determined by the
Remuneration Committee after the 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.
Governance Reportwww.hsholdings.com | Stock Code HILS
74
Directors’ Remuneration Report (continued)
Long-Term
Incentive
Plan (‘LTIP’)
Purpose and link
to strategy
Incentivises
Executive
Directors to
achieve higher
returns for
shareholders over
a longer time
frame.
A clawback
applies to
unvested awards
enabling the
Company to
mitigate risk.
Operation
Maximum opportunity
Performance metrics
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.
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 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.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 75
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.
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.
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.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 76
Directors’ Remuneration Report (continued)
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.
Governance Reportwww.hsholdings.com | Stock Code HILS Directors’ Report (other statutory information)
77
Principal activities and strategic report
The Company acts as a holding company to all the Group’s subsidiaries.
During 2017 the principal activities of the Group comprised the manufacture and supply of:
›
Infrastructure Products
- Roads; and
- Utilities
›
Galvanizing Services
Pages 1 to 39 contain further details of these areas of the business and the principal subsidiaries operating within them are set out on pages 150
to 152.
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 1 to 40.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2017 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 £70.2m (2016: £48.3m). Group revenue at £585.1m was 8% higher than the prior year.
Operating profit at £74.1m was 43% higher than for the previous year (2016: £51.8m).
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
78,542,591
154,512
78,697,103
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 122 and 123 of the Group Financial Statements.
Details of the results for the year are shown on the Consolidated Income Statement on page 87 and the business segment information is given
on pages 98 and 99.
Dividends
The Directors recommend the payment of a final dividend of 20.6p per ordinary share (2016: 17.9p per ordinary share) which, together with the
interim dividend of 9.4p per ordinary share (2016: 8.5p per ordinary share) paid on 5 January 2018, makes a total distribution for the year of
30.0p per ordinary share (2016: 26.4p per ordinary share). Subject to shareholders approving this recommendation at the AGM, the final dividend
will be paid on 2 July 2018 to shareholders on the register at the close of business on 25 May 2018. The latest date for receipt of Dividend
Re-investment Plan elections is 11 June 2018.
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.
Governance Reportwww.hsholdings.com | Stock Code HILS
78
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 2017 AGM and will be limited by the resolution to be put to the 2018 AGM. The prices to be paid for such purchases must be a
minimum price of 25 pence per ordinary share (the nominal value) and a maximum price of 5% above the average of the middle market
quotations for ordinary shares derived from the London Stock Exchange Daily Official List for the five business days immediately preceding
the day on which any such purchase takes place.
The Companies (Shareholders’ Rights) Regulations 2009 provide that a company can reduce the notice period for calling meetings to the
shorter period of 14 clear days on two conditions: firstly that the company offers a facility for shareholders to vote by electronic means and
secondly that there is an annual resolution of shareholders approving such reduction in the required minimum notice period. Approval to the
calling of general meetings other than AGM’s on 14 clear days’ notice was approved at the AGM on 11 May 2017 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 2018.
Substantial shareholdings
As at 21 February 2018, 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
Number of ordinary shares
% of issued share capital
Aberdeen Standard Investments (Standard Life)
Hargreave Hale
Charles Stanley
BlackRock Investment Management
4,561,670
3,284,198
2,942,072
2,778,048
5.80
4.17
3.74
3.53
Directors
The names of the Directors of the Company who served throughout the year, including brief biographies, are set out on pages 44 and 45.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith Holdings PLC as at 31 December 2017 are set out on page 68.
Appointment and replacement of Directors
The appointment and replacement of Directors of the Company is governed by its Articles of Association, the UK Corporate Governance Code, the
Companies Acts and related legislation. Directors can be appointed by ordinary resolution at a general meeting or by the Board. If a Director is
appointed by the Board, such Director will hold office until the next AGM and shall then be eligible for election at that meeting.
Conflicts
Under the Companies Act 2006 and the provisions of the Company’s Articles of Association, the Board is required to consider potential conflicts
of interest. The Company has established formal procedures for the disclosure and review of any conflicts, or potential conflicts, of interest which
the Directors may have and for the authorisation of such conflict matters by the Board. To this end the Board considers and, if appropriate,
authorises any conflicts, or potential conflicts, of interest as they arise and reviews any such authorisation annually. New Directors are required
to declare any conflicts, or potential conflicts, of interest to the Board at the first Board meeting after his or her appointment. The Board believes
that the procedures established to deal with conflicts of interests are operating effectively.
Directors’ and officers’ liability
The Company maintains an appropriate level of Directors’ and Officers’ insurance whereby Directors are indemnified against liabilities to third
parties to the extent permitted by the Companies Act 2006.
Financial instruments
The financial risk management objectives and policies are detailed in note 20 on pages 117 to 121.
Research and development
During the year, the Group spent a total of £1.6m (2016: £2.0m) on research and development.
Political and charitable donations
Charitable donations amounting to £34,000 (2016: £42,000) 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.
Governance Reportwww.hsholdings.com | Stock Code HILS 79
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 70.
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.
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 2017
There were no significant post-Balance Sheet events.
Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 a.m. on Thursday 17 May 2018 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 148.
By order of the Board
Alex Henderson
Company Secretary
7 March 2018
Governance Reportwww.hsholdings.com | Stock Code HILS 80
Statement of Directors’ Responsibilities
In respect of the Annual Report and the Financial Statements
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
7 March 2018
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 International Financial Reporting Standards as
adopted by the European Union (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, relevant,
reliable 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;
assess the Group and parent Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern; and
use the going concern basis of accounting unless they either
intend to liquidate the Group or the parent Company or to cease
operations, or have no realistic alternative but to do so.
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 are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error, and
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.
Governance Reportwww.hsholdings.com | Stock Code HILS 8181818181
Financial
Statements
Financial Statements
Independent Auditor’s Report
82
87 Group Financial Statements
134 Company Financial Statements
146 Five Year Summary
Galvanized stand at Maidstone FC, galvanized at the Chesterfield plant of Joseph Ash Ltd.
See further information at hsholdings.com
82
Independent Auditor’s Report
To the members of Hill & Smith Holdings PLC
1. Our opinion is unmodified
We have audited the financial statements of Hill & Smith Holdings
PLC (“the Company”) for the year ended 31 December 2017 which
comprise the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated Statement of
Financial Position, Consolidated Statement of Changes in Equity,
Consolidated Statement of Cash Flows, Company Balance Sheet,
Company Statement of Changes in Equity, Company Statement of
Cash Flows, and the related notes, including the accounting policies
on page 87 to 145.
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 2017 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.
Basis for opinion
We conducted our audit in accordance with International Standards
on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
are described below. We believe that the audit evidence we have
obtained is a sufficient and appropriate basis for our opinion. Our
audit opinion is consistent with our report to the audit committee.
We were appointed as auditor by the shareholders on 19 March 1999.
The period of total uninterrupted engagement is for the 19 financial
years ended 31 December 2017. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality:
Group financial
statements as a
whole
Coverage
£3.25m (2016:£2.9m)
4.4% (2016: 4.5%) of Total profits and
losses that made up normalised Group
profit before tax
95% (2016: 89%) of Total profits and losses
that made up normalised Group profit
before tax
Risks of material misstatement vs 2016
Recurring risks
Valuation of goodwill in relation to
France Galva S.A.
Provisions for uncertain income tax
positions
UK post retirement benefits
obligation
2. Key audit matters: our assessment of risks of material
misstatement
Key audit matters are those matters that, in our professional
judgment, were of most significance in the audit of the financial
statements and include the most significant assessed risks of
material misstatement (whether or not due to fraud) identified by
us, including those which had the greatest effect on: the overall
audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. We summarise below the key
audit matters, in decreasing order of audit significance, in arriving at
our audit opinion above, together with our key audit procedures to
address those matters and, as required for public interest entities, our
results from those procedures. These matters were addressed, and
our results are based on procedures undertaken, in the context of,
and solely for the purpose of, our audit of the financial statements as
a whole, and in forming our opinion thereon, and consequently are
incidental to that opinion, and we do not provide a separate opinion
on these matters.
Valuation of goodwill in relation to France Galva S.A.
(£29.7 million; 2016: £28.8 million)
Refer to page 58 (Audit Committee Report), page 93 and 95
(accounting policy) and pages 105 to 112 (financial disclosures).
The risk
Forecast based valuation
Market conditions in France have been challenging and as a result
there is limited headroom when testing France Galva S.A. for
impairment. As explained in note 10, there are inherent uncertainties
involved in forecasting and discounting future cash flows and
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:
›
›
›
›
›
Sector knowledge: Assessed, through inquiry with
management, review of interim financial information whether
any trigger events have arisen which would indicate a possible
impairment based on our knowledge of current market
conditions;
Benchmarking assumptions: Comparing the group’s
assumptions to externally derived data in relation to key inputs
such as projected growth and discount rates;
Our sector experience: Evaluated the appropriateness and year
on year consistency of underlying assumptions in determining
the cash flows including considering the appropriateness of the
growth assumption applied, comparison of forecast cash flows
to those achieved during the financial year ended 31 December
2017 and challenging management if such future cash flows
do not reflect known or probable changes in the business
environment.
Challenged, assisted by our own valuation specialists, the key
inputs used in the calculation of the discount rate by comparing
it against external data sources and comparator group data;
Sensitivity analysis: Performed our own sensitivity analysis on
the assumptions noted above;
Assessing transparency: Assessed whether the Group’s
disclosures about the sensitivity of the outcome of the
impairment assessment to changes in key assumptions
reflected the risks inherent in the valuation of goodwill in
relation to France Galva S.A..
Financial Statementswww.hsholdings.com | Stock Code HILS
83
Our results
We found the resulting estimate of the recoverable amount of
goodwill in relation to France Galva S.A. to be acceptable.
We continue to perform procedures over the valuation of goodwill
and other indefinite life intangible assets (excluding France Galva
S.A.). However, due to the impairment headroom on these assets,
we have not assessed this as one of the most significant risks in our
current year audit and, therefore, it is not separately identified in our
report this year.
Provisions for uncertain income tax positions
(£7.8 million; 2016: £6.9 million)
Refer to page 58 (Audit Committee Report), page 97 (accounting
policy) and pages 103 and 131 (financial disclosures).
The risk
Subjective estimate
The Group’s international operations result in transactions that
impact multiple tax jurisdictions. This activity has led to the existence
of a number of uncertain tax positions for which the Group makes a
provision based on its best estimate of the amount of tax payable.
The provisions for these estimates often require judgement as to the
interpretation of specific tax law. In addition there is a risk of an error
in estimating the provision.
Our response
Our procedures included:
Our response
Our procedures included:
›
›
Benchmarking assumptions: Challenging, with the support of
our own actuarial specialists, the key assumptions applied,
being the discount rate, inflation rate and mortality/life
expectancy against externally derived data;
Assessing transparency: Considered the adequacy of the Group’s
disclosures in respect of the sensitivity of the deficit to these
assumptions.
Our results
We found the valuation of the UK post retirement benefits obligation
to be acceptable.
Recoverability of parent company investments in subsidiaries
(£324.9 million; 2016: £330.9 million)
Refer to page 137 (accounting policy) and page 140 (financial
disclosures).
The risk
Low risk/ high value (Parent Company key audit matter)
Investment in subsidiaries represents 81% of the Company’s
total assets. Their recoverability is not at a high risk of significant
misstatement or subject to significant judgement. However, due
to their materiality in the context of the parent Company financial
statements, this is considered to be the area that had the greatest
effect on our overall parent Company audit.
›
Our tax expertise: With the assistance of our own tax specialist,
we:
Our response
Our procedures included:
– Assessed the Group’s tax positions, its correspondence with
the relevant tax authorities, and analysed and challenged
the assumptions used to determine tax provisions based
on our knowledge and experiences of the application of the
international and local legislation by the relevant authorities
and courts;
›
›
– Assessed the tax implications of the intragroup refinancing
exercise undertaken in the year;
–
–
Inspected Board minutes for reference to tax matters;
Challenged as to why the provisions for uncertain income
tax positions represent management’s best estimate;
›
Assessing transparency: Assessed that the tax accounting and
disclosures complied with the requirements of IAS 12 ‘Income
Taxes’.
Our results
We found the level of provisions for uncertain income tax positions to
be acceptable.
UK post retirement benefits obligation
(£81.9 million; 2016: £90.9 million)
Refer to page 58 (Audit Committee Report), page 96 (accounting
policy) and pages 124 to 130 (financial disclosures).
The risk
Subjective valuation
The valuation of the UK post retirement benefits obligation involves
the selection of appropriate actuarial assumptions, most notably
the discount rate applied to the 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 pension obligation could have a significant effect
on the financial position of the Group.
Tests of detail: We compared the net asset value and forecast
income of the subsidiaries to the investment in subsidiary
undertakings and assessed whether there is sufficient
headroom for each of the investments;
Assessing subsidiary audits: Assessing the work performed
on the subsidiary audits for a sample of subsidiaries and
considering the results of that work, on those subsidiaries’
profits and net assets.
Our results
We found the resulting estimate of the recoverable amount of
investment in subsidiaries to be acceptable.
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
£3.25m, determined with reference to a benchmark of total profits
and losses that made up Group profit before tax, normalised to
exclude net costs in respect of business reorganisations, acquisition
costs, profit on disposals of businesses, impairment of assets held
for sale, an impairment charge of goodwill, settlement of certain
defined benefit pension obligations and acquired intangible assets as
disclosed in note 3. Total profits and losses that made up normalised
Group profit before tax is calculated as £73.4m (2016: £64.5m), of
which materiality represents 4.4% (2016: 4.5%).
Materiality for the parent Company financial statements as a whole
was set at £2.4m (2016: £2.2m), determined with reference to a
benchmark of Company total assets, of which it represents 0.6%
(2016: 0.5%).
We agreed to report to the Audit Committee any corrected or
uncorrected identified misstatements exceeding £162,500, in
addition to other identified misstatements that warranted reporting
on qualitative grounds.
Financial Statementswww.hsholdings.com | Stock Code HILS 84
Independent Auditor’s Report (continued)
Of the Group’s 57 (2016: 57) reporting components, we subjected 27
(2016: 38) to full scope audits for Group purposes.
Group revenue
Total profits and losses that
made up Group profit before tax
8
96%
(2016 85%)
85
96
1
95%
(2016 90%)
90
96
Group total assets
Total profits and losses that
made up normalised Group
profit before tax
1
94%
(2016 89%)
89
94
1
95%
(2016 89%)
89
96
Full scope for Group audit purposes 2017
Full scope for Group audit purposes 2016
Specified risk-focused audit procedures 2016
Residual components
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 4% of total Group revenue, 5% of total profits and
losses that made up Group profit before tax, 6% of total Group
assets and 5% of total profits and losses that made up normalised
Group profit before tax is represented by 30 reporting components,
none of which individually represented more than 2% of any of total
Group revenue, total profits and losses that made up Group profit
before tax, total Group assets or total profits and losses that made
up normalised Group before tax. For these residual components,
we performed analysis at an aggregated Group level to re-examine
our assessment that there were no significant risks of material
misstatement within these.
The Group team instructed component auditors as to the significant
areas to be covered, including the relevant risks detailed above and
the information to be reported back. The Group team approved
the component materialities, which ranged from £0.1m to £2.4m,
having regard to the mix of size and risk profile of the Group across
the components. The work on 5 of the 27 components (2016: 5 of
the 57 components) was performed by component auditors and the
rest, including the audit of the parent Company, was performed by
the Group team. The Group team performed procedures on the items
excluded from normalised Group profit before tax.
The Group team visited 1 (2016: 1) component in the United States
of America, the component in France (2016: no visit) to confirm
appropriate execution of the audit plan & strategy and inspect
their findings. Telephone conference meetings were also held with
these component auditors and all other components that were
not physically visited. At these visits and meetings, the findings
reported to the Group team were discussed in more detail, and any
further work required by the Group team was then performed by the
component auditor.
Total profits and losses that
made up normalised Group
profit before tax
£73.4m (2016: £64.5m)
Group Materiality £3.25m
(2016: £2.9m)
£3.25m
Whole financial
statements materiality
(2016: £2.9m)
Total profits and losses that
made up normalised Group
before tax
Group Materiality
£2.4m
Range of materiality at 56
components (£0.1m to
£2.4m) (2016: £0.1m to
£2.2m)
£162,500
Misstatements reported to
the audit committee
(2016: £145,000)
Financial Statementswww.hsholdings.com | Stock Code HILS 85
4. We have nothing to report on going concern
We are required to report to you if:
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
›
›
we have anything material to add or draw attention to in
relation to the directors’ statement in the Group accounting
policies to the financial statements on the use of the going
concern basis of accounting with no material uncertainties that
may cast significant doubt over the Group and Company’s use of
that basis for a period of at least twelve months from the date
of approval of the financial statements; or
if the related statement under the Listing Rules set out on page
80 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects.
5. We have nothing to report on the other information in the
Annual Report
The directors are responsible for the other information presented
in the Annual Report together with the financial statements. Our
opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or,
except as explicitly stated below, any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in doing so,
consider whether, based on our financial statements audit work, the
information therein is materially misstated or inconsistent with the
financial statements or our audit knowledge. Based solely on that
work we have not identified material misstatements in the other
information.
Strategic report and directors’ report
Based solely on our work on the other information:
›
›
›
we have not identified material misstatements in the strategic
report and the directors’ report;
in our opinion the information given in those reports for the
financial year is consistent with the financial statements; and
in our opinion those reports have been prepared in accordance
with the Companies Act 2006.
Directors’ remuneration report
In our opinion the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Disclosures of principal risks and longer-term viability
Based on the knowledge we acquired during our financial statements
audit, we have nothing material to add or draw attention to in
relation to:
›
›
›
the directors’ confirmation within the viability statement on
page 52 that they have carried out a robust assessment of
the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency and
liquidity;
the Principal Risks disclosures describing these risks and
explaining how they are being managed and mitigated; and
the directors’ explanation in the viability statement of how they
have assessed the prospects of the Group, over what period
they have done so and why they considered that period to be
appropriate, and their statement as to whether 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
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Corporate governance disclosures
We are required to report to you if:
›
›
we have identified material inconsistencies between the
knowledge we acquired during our financial statements 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 section of the annual report describing the work of the
Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
We are required to report to you if the Corporate Governance
Statement does not properly disclose a departure from the eleven
provisions of the UK Corporate Governance Code specified by the
Listing Rules for our review.
We have nothing to report in these respects.
6. We have nothing to report on the other matters on which we
are required to report by exception
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.
We have nothing to report in these respects.
7. Respective responsibilities
Directors’ responsibilities
As explained more fully in their statement set out on page 80,
the directors are responsible for: the preparation of the financial
statements including being satisfied that they give a true and fair
view; such internal control as they determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error; assessing the Group
and parent Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern; and using
the going concern basis of accounting unless they either intend to
liquidate the Group or the parent Company or to cease operations, or
have no realistic alternative but to do so.
Auditor’s responsibilities
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or other irregularities (see below), or error, and
to issue our opinion in an auditor’s report. Reasonable assurance
is a high level of assurance, but does not guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud,
other irregularities or error and are considered material if, individually
or in aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of the financial
Financial Statementswww.hsholdings.com | Stock Code HILS 86
Independent Auditor’s Report (continued)
statements.
A fuller description of our responsibilities is provided on the FRC’s
website at www.frc.org.uk/auditorsresponsibilities.
Irregularities – ability to detect
We identified areas of laws and regulations that could reasonably
be expected to have a material effect on the financial statements
from our sector experience, through discussion with the directors and
other management (as required by auditing standards).
We had regard to laws and regulations in areas that directly affect
the financial statements including financial reporting (including
related company legislation) and taxation legislation. We considered
the extent of compliance with those laws and regulations as part of
our procedures on the related annual accounts items.
As with any audit, there remained a higher risk of non-detection of
non-compliance with relevant laws and regulations (irregularities),
as these may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal controls.
8.
The purpose of our audit work and to whom we owe our
responsibilities
This report is made solely to the Company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members, as
a body, for our audit work, for this report, or for the opinions we have
formed.
Darren Turner (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
One Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
7 March 2018
Financial Statementswww.hsholdings.com | Stock Code HILS 87
Total
£m
540.1
70.6
(2.6)
(10.5)
0.2
(4.1)
(1.8)
-
51.8
0.4
(3.9)
48.3
(14.5)
Consolidated Income Statement
Year ended 31 December 2017
Revenue
Trading profit
Amortisation of acquisition intangibles
Business reorganisation costs
Pension settlement gains
Impairment of assets
Acquisition costs
Profit on disposal of subsidiary
Operating profit
Financial income
Financial expense
Profit before taxation
Taxation
Profit for the year attributable to owners of the
parent
Basic earnings per share
Diluted earnings per share
Dividend per share – Interim
Dividend per share – Final proposed
Total
Notes
1, 2
3
3
3
3, 12
3
3
1, 2
5
5
7
8
8
9
9
2017
Non-
underlying*
£m
Total
£m
Underlying
£m
2016
Non-
underlying*
£m
-
-
(4.0)
(2.8)
-
(0.4)
(0.6)
0.6
(7.2)
-
(1.1)
(8.3)
2.6
585.1
81.3
(4.0)
(2.8)
-
(0.4)
(0.6)
0.6
74.1
0.6
(4.5)
70.2
(16.3)
540.1
70.6
-
-
-
-
-
-
70.6
0.4
(3.0)
68.0
(16.3)
-
-
(2.6)
(10.5)
0.2
(4.1)
(1.8)
-
(18.8)
-
(0.9)
(19.7)
1.8
Underlying
£m
585.1
81.3
-
-
-
-
-
-
81.3
0.6
(3.4)
78.5
(18.9)
59.6
(5.7)
53.9
51.7
(17.9)
33.8
75.9p
74.8p
65.9p
65.1p
68.6p
67.7p
9.4p
20.6p
30.0p
43.0p
42.5p
8.5p
17.9p
26.4p
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 100.
Financial Statementswww.hsholdings.com | Stock Code HILS 88
Consolidated Statement of Comprehensive Income
Year ended 31 December 2017
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
Transfers to the income statement on cash flow hedges
Taxation on items that may be reclassified to profit or loss
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive (expense)/income for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
23
7
2017
£m
53.9
(11.3)
4.9
-
-
-
(0.2)
(6.6)
47.3
2016
£m
33.8
36.5
(9.5)
0.2
-
(14.1)
2.1
15.2
49.0
Financial Statementswww.hsholdings.com | Stock Code HILS Consolidated Statement of Financial Position
Year ended 31 December 2017
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
Retained earnings
Total equity
Notes
10
11
12
14
15
16
1
17
19
17
18
19
13
23
18
21
2017
£m
163.9
145.1
309.0
0.7
84.6
116.5
16.4
218.2
527.2
(104.8)
(11.7)
(2.1)
(0.3)
(118.9)
99.3
(0.5)
(2.9)
(5.6)
(25.6)
(115.1)
(149.7)
(268.6)
258.6
19.7
34.1
4.9
22.9
177.0
258.6
Approved by the Board of Directors on 7 March 2018 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
89
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
Financial Statementswww.hsholdings.com | Stock Code HILS
90
Consolidated Statement of Changes in Equity
Year ended 31 December 2017
At 1 January 2016
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 awards
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
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 awards
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 2017
Notes
Share
capital
£m
19.6
Share
premium
£m
32.8
Other
reserves†
£m
4.6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.7
0.7
33.5
-
-
-
-
-
-
-
-
-
19.7
-
-
-
-
-
-
-
-
0.6
34.1
9
21
7
21
9
21
7
21
-
-
-
-
-
-
0.2
-
-
4.8
-
-
-
-
-
-
0.1
-
-
4.9
Translation
reserves
£m
2.3
-
27.0
Hedge
reserves
£m
(0.2)
Retained
earnings
£m
139.4
-
0.2
33.8
(12.0)
Total
equity
£m
198.5
33.8
15.2
-
-
-
-
-
-
-
29.3
-
(6.4)
-
-
-
-
-
-
-
22.9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(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
53.9
(0.2)
53.9
(6.6)
(20.7)
(20.7)
1.3
(2.5)
(0.1)
(0.1)
0.5
-
1.3
(2.5)
(0.1)
-
0.5
0.6
177.0
258.6
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2016: £0.2m) capital redemption reserve.
At 31 December 2016 the Group had purchased 103,246 of its own shares, which were held in an employee benefit trust for the purpose of
settling awards granted to employees under equity-settled share based payment plans. The cost of these shares, amounting to £1.0m, was
included within retained earnings at that date. In March 2017, these shares were issued in settlement of awards to employees. A further 84,225
shares were purchased in 2017 at a cost of £1.1m and are held at 31 December 2017.
Financial Statementswww.hsholdings.com | Stock Code HILS Consolidated Statement of Cash Flows
Year ended 31 December 2017
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payments
Gain on disposal of subsidiary
Gain on disposal of non-current assets
Depreciation
Amortisation of intangible assets
Impairment of assets held for sale
Impairment of non-current assets
Operating cash flow before movement in working capital
Increase in inventories
Increase in receivables
Increase in payables
Decrease in provisions and employee benefits
Net movement in working capital
Cash generated by operations
Income taxes paid
Interest paid
Net cash from operating activities
Interest received
Proceeds on disposal of non-current assets
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisitions of businesses
Deferred consideration in respect of prior year acquisitions
Disposal of subsidiary
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
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
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)
Notes
5
1, 2
4, 21
3
6
6, 11
6, 10
12
6, 10
10
21
9
16
2017
£m
1.8
(0.6)
(0.1)
18.2
5.0
0.4
-
(13.8)
(5.3)
-
(3.2)
0.6
2.3
(19.4)
(1.3)
(7.9)
(0.4)
2.5
0.6
(2.6)
(20.7)
-
32.9
(41.3)
£m
70.2
3.9
74.1
24.7
98.8
(22.3)
76.5
(16.7)
(3.4)
56.4
(23.6)
(31.1)
1.7
15.6
(0.9)
16.4
91
£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
Financial Statementswww.hsholdings.com | Stock Code HILS 92
Group Accounting Policies
Hill & Smith Holdings PLC is a company incorporated in the UK.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer.
The financial statements of subsidiaries are included in the 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 134 to 145.
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 13 to 23. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described
in the Strategic Report on pages 19 to 23. 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 £225.5m at 31 December 2017, 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 2017
In 2017 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
›
›
›
Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12
Disclosure Initiative – Amendments to IAS7
Annual Improvements to IFRSs – 2014-2016 Cycle.
The adoption of these standards and amendments has not had a material impact on the Group’s Financial Statements.
The following standards and interpretations which are not yet effective or endorsed by the EU and have not been early adopted by the Group will
be adopted in future accounting periods:
›
›
›
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).
IFRS 16 replaces IAS 17 ‘Leases’ and requires lessees to recognise a lease liability reflecting the future lease payments and a right-of-use asset
for all lease contracts. Upon adoption of IFRS 16, the most significant impact will be the present value of the operating lease commitments
(£36.6m at 31 December 2017, as detailed in Note 22) being shown as a liability in the statement of financial position together with a right of use
asset, which are unwound and amortised to the income statement over the life of the lease. There will be no impact on cash flows although the
presentation of the cash flow statement will change. Management is currently working on the new processes and systems that will be required
to comply with this accounting standard.
None of the other standards or amendments above are expected to have a material impact on the Group.
Financial Statementswww.hsholdings.com | Stock Code HILS 93
Measurement convention
The Group Financial Statements are prepared on the historical cost basis except where the measurement of balances at fair value is required as
explained below.
Intangible assets
IFRS3 was revised in 2010 such that acquisition costs cannot be capitalised for investments made on or after 1 January 2010. Acquisitions prior
to this date have had these costs included with the purchase consideration and as such the goodwill on acquisition of subsidiaries comprises the
excess of this fair value of the purchase consideration over the Group’s share of the fair value of the identifiable assets and liabilities acquired. On
an ongoing basis the goodwill is measured at cost less impairment losses (see accounting policy ‘Impairment of assets’). Fair value adjustments
are always considered to be provisional at the first year end date after the acquisition to allow the maximum time to elapse for management to
make a reliable estimate.
Goodwill prior to 1 October 1998 was written off to reserves. Goodwill from 1 October 1998 to 31 December 2003 was amortised in line with
UK GAAP. From 1 January 2004 this goodwill is subject to annual impairment testing. Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
Brands and customer lists that are acquired by the Group as part of a business combination are stated at cost less accumulated amortisation
and impairment losses (see accounting policy ‘Impairment of assets’). Cost reflects management’s judgement of the fair value of the individual
intangible asset calculated by reference to the net present value of future benefits accruing to the Group from the utilisation of the asset,
discounted at an appropriate discount rate.
Certain US brands are considered to have an indefinite life and therefore are subject to annual impairment testing (see accounting policy
‘Impairment of assets’). For other brands and customer lists, amortisation is provided equally over the estimated useful economic life of the
assets concerned, currently up to 20 years.
Expenditure on development activities is capitalised if the product or process is considered to be technically and commercially viable and the
Group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and an
appropriate proportion of overheads. Other development expenditure is recognised in the Consolidated Income Statement as an expense as
incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses. Amortisation is provided
equally over the estimated useful economic life of the assets concerned, currently up to seven years.
Trade licences are amortised over the specific term granted to each individual licence.
Property, plant, equipment and depreciation
Depreciation is provided to write off the cost or deemed cost less the estimated residual value of property, plant and equipment by equal
instalments over their estimated useful economic lives as follows:
Freehold buildings
Leasehold buildings
Plant, machinery and vehicles
5 to 50 years
life of the lease
4 to 20 years
No depreciation is provided on freehold land.
The Group has chosen to take the first time adoption exemption available under IFRS1 to use a previous revaluation for certain land and buildings
as its deemed cost at the transition date. All other items of property, plant and equipment are stated at cost unless it is felt that this value should
be impaired.
Assets held for sale
A non-current asset is classified as held for sale if its carrying amount will be recovered principally through sale rather than through continuing
use, it is available for immediate sale and sale is highly probable within one year. On initial classification as held for sale, non-current assets and
disposal groups are measured at the lower of previous carrying amount and fair value less costs to sell with any adjustments taken to the income
statement. The same applies to gains and losses on subsequent remeasurement.
Financial Statementswww.hsholdings.com | Stock Code HILS 94
Group Accounting Policies (continued)
Financial instruments
Financial assets and liabilities are recognised on the Group’s Consolidated Statement of Financial Position when the Group becomes party to the
contractual provisions of the instrument.
The Group’s investments in equity securities and certain debt securities are classified as available for sale financial assets. Subsequent to initial
recognition, they are measured at fair value and changes therein, other than impairment losses and foreign exchange gains and losses on
available for sale monetary items, are recognised directly in equity. When an investment is derecognised, the cumulative gain or loss in equity is
transferred to profit or loss.
Trade receivables and trade payables are initially measured at fair value. Subsequent to initial recognition, they are carried at amortised cost
using the effective interest method, less any impairment losses.
Derivative financial instruments of the Group are used to hedge its exposure to interest rate and foreign currency risks arising from operational,
financing and investment activities.
In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives
that do not qualify for hedge accounting are accounted for as trading instruments, as follows:
›
›
›
Derivative financial instruments are stated at fair value. The unhedged gain or loss on remeasurement to fair value is recognised
immediately in the Consolidated Income Statement.
The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the year end
date, taking into account current interest rates and the current creditworthiness of the swap counterparties.
The fair value of foreign exchange contracts is the estimated amount that the Group would receive or pay to terminate such contracts at the
year end date, taking into account the forward exchange rates prevailing at that date.
Where derivative financial instruments are used to hedge cash flow risk, such as interest rate swaps, the effective part of any gain or loss on
the fair value of cash flow hedges is recognised in the Consolidated Statement of Comprehensive Income and in the hedge reserve, while any
ineffective part is recognised immediately in the Consolidated Income Statement. Amounts recorded in the hedge reserve are subsequently
reclassified to the Consolidated Income Statement when the interest expense is actually recognised.
To qualify for hedge accounting the hedging relationship must meet several conditions with respect to documentation, probability of occurrence,
hedge effectiveness and reliability of measurement. At the inception of the transaction, the Group documents the relationship between hedging
instruments and hedged items, as well as its risk management objective and strategy for undertaking the hedge transaction. This process
includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions.
The Group also documents its assessment, at hedge inception and on a half yearly basis, as to whether the derivatives that are used in hedging
transactions have been, and are likely to continue to be, effective in offsetting changes in fair value or cash flows of hedged items.
Interest bearing borrowings are recognised initially at fair value. Subsequent to initial recognition, interest bearing borrowings are stated at
amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period
of the borrowings on an effective interest basis.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of
the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Statement of Cash
Flows.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Any gain or loss on translation of
monetary foreign currency assets and liabilities arising from a movement in exchange rates subsequent to initial measurement is included as an
exchange gain or loss in the Consolidated Income Statement.
The assets and liabilities of overseas subsidiary undertakings, including goodwill and fair value adjustments arising on acquisition, are translated
at the closing exchange rate. Income statements and cash flows of such undertakings are translated into Sterling at weighted average rates
of exchange, other than substantial transactions that are translated at the rate on the date of the transaction. The adjustments to period end
rates are taken to the cumulative translation reserve in equity and reported in the Consolidated Statement of Comprehensive Income. When an
overseas operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss.
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign operation
are recognised directly in equity and reported in the Consolidated Statement of Comprehensive Income, to the extent that the hedge is effective.
To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed
of, the associated cumulative amount in the translation reserve is transferred to profit or loss as an adjustment to the profit or loss on disposal.
Financial Statementswww.hsholdings.com | Stock Code HILS 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)
Sterling to Indian Rupee (£1 = INR)
Sterling to Australian Dollar (£1 = AUD)
2017
2016
Average
Closing
1.14
1.29
11.00
83.90
1.68
1.13
1.35
11.08
86.30
1.73
Average
1.22
1.35
11.57
90.96
1.82
95
Closing
1.17
1.23
11.14
83.48
1.70
Inventories
Inventories are stated at the lower of cost and net realisable value. In determining the cost of raw materials, consumables and goods purchased
for resale, the FIFO or average cost method is used. Cost for work in progress and finished goods comprises direct materials, direct labour and an
appropriate proportion of attributable overheads.
Provisions
A provision is recognised in the Consolidated Statement of Financial Position when the Group has a present legal or constructive obligation as
a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material,
provisions are determined by discounting the expected future cash flows at a pre tax rate that reflects current market assessments of the time
value of money and, when appropriate, the risks specific to the liability.
A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring either has
commenced or has been announced publicly. Future operating costs are not provided for.
In accordance with the Group’s environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated
land is recognised as an obligation arises.
The estimated cost of returning properties held under leases to their original condition in accordance with the terms of specific lease contracts is
recognised as soon as such costs are able to be reliably estimated.
Impairment of assets
The carrying amounts of the Group’s non-financial assets, other than inventories (see accounting policy ‘Inventories’) and deferred tax balances
(see accounting policy ‘Deferred taxation’), are reviewed at each year end date to determine whether there is an indication of impairment.
Impairment reviews are undertaken at the level of each significant cash generating unit, which are no larger than operating segments as
defined in IFRS8 – Segmental reporting. If such an indication exists, the relevant asset’s recoverable amount is estimated. An impairment loss is
recognised whenever the carrying amount of the asset or its cash generating unit exceeds its recoverable amount.
For goodwill and intangible assets that have an indefinite life, the recoverable amount is assessed at each year end date and an impairment loss
is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Leases
Leases for which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition
the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are classified as operating leases and the leased assets are not recognised on the Group’s Consolidated Statement of Financial
Position. Payments made under operating leases are recognised in the Consolidated Income Statement on a straight line basis over the term of
the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding
liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the
remaining balance of the liability.
Rental income from operating leases is recognised as revenue in the Consolidated Income Statement on an accruals basis.
Financial Statementswww.hsholdings.com | Stock Code HILS 96
Group Accounting Policies (continued)
Revenue
Revenue from the sale of goods and services represents the amount (excluding sales taxes) 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 although customer contracts are generally relatively simple. 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 97
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:
›
›
›
›
›
›
›
›
Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued
operations.
Amortisation of intangible fixed assets arising on acquisitions.
Expenses associated with acquisitions.
Impairment charges in respect of tangible or intangible fixed assets.
Changes in the fair value of derivative financial instruments.
Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material
changes in the terms of the schemes.
Net financing costs or returns on defined benefit pension obligations.
Costs incurred as part of significant refinancing activities.
The tax effect of the above is also included.
Details in respect of the non-underlying items recognised in the current and prior year are set out in note 3 to the Financial Statements.
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates to items either recognised in Other Comprehensive Income or directly in
equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is
calculated using tax rates enacted or substantively enacted at the year end date, and any adjustments to tax payable in respect of previous
years.
Deferred taxation
Deferred tax is provided in full using the Consolidated Statement of Financial Position liability method and represents the tax expected to be
payable or recoverable on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes,
the initial recognition of assets and liabilities not resulting from a business combination that affects neither accounting or taxable profit, and
differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the year end date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Ordinary dividends
Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders.
Own shares held by Employee Benefit Trust (‘EBT’)
Transactions of the Group-sponsored EBT are included in the Group Financial Statements. In particular, the Trust’s purchases of shares in the
Company are debited directly to equity.
Financial Statementswww.hsholdings.com | Stock Code HILS 98
Notes to the Consolidated Financial Statements
1. Segmental information
Business segment analysis
The Group has three reportable segments which are Infrastructure Products – Utilities, Infrastructure Products – Roads and Galvanizing Services.
Several operating segments that have similar economic characteristics have been aggregated into these reporting segments. The Group’s
internal management structure and financial reporting systems differentiate between these segments on the basis of the following economic
characteristics:
›
›
›
The Infrastructure Products – Utilities segment contains a group of businesses supplying products characterised by a degree of engineering
expertise, to public and private customers involved in the construction of facilities serving the Utilities markets or in the maintenance of such
facilities;
The Infrastructure Products – Roads segment contains a group of companies supplying permanent and temporary safety products to
customers involved in the construction or maintenance of national roads infrastructure; and
The Galvanizing Services segment contains a group of companies supplying galvanizing and related materials coating services to companies
in a wide range of markets including construction, agriculture and infrastructure.
Income Statement
Infrastructure Products - Utilities
Infrastructure Products - Roads
Infrastructure Products - Total
Galvanizing Services
Total Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
Revenue
£m
215.7
187.1
402.8
182.3
585.1
2017
2016
Revenue
£m
207.6
168.1
375.7
164.4
540.1
Result
£m
13.5
20.9
34.4
39.7
74.1
(3.9)
70.2
(16.3)
53.9
Underlying
result*
£m
16.8
23.6
40.4
40.9
81.3
(2.8)
78.5
(18.9)
59.6
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
* Underlying result is stated before non-underlying items as defined in the Group Accounting Policies on page 100, 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 £6.6m (2016: £4.7m) revenues to Infrastructure Products – Roads and £1.9m (2016: £1.4m) revenues to
Infrastructure Products – Utilities. Infrastructure Products – Utilities provided £5.6m (2016: £5.4m) 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
2017
2016
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
4.4
7.7
12.1
7.9
20.0
18.7
1.3
20.0
4.5
8.8
13.3
9.9
23.2
18.2
5.0
23.2
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
The prior year amounts for impairment losses, amortisation and depreciation relating to the Infrastructure Products – Roads segment included
goodwill impairment losses of £4.1m relating to CA Traffic Limited.
Financial Statementswww.hsholdings.com | Stock Code HILS 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
99
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
2017
£m
288.6
99.9
168.0
6.2
8.3
14.1
585.1
2017
£m
217.6
119.4
173.4
14.3
2.5
527.2
2017
£m
6.4
6.3
5.6
1.1
0.6
20.0
2017
£m
585.1
(365.8)
219.3
(32.1)
(114.6)
1.5
74.1
Financial Statementswww.hsholdings.com | Stock Code HILS 100
Notes to the Consolidated Financial Statements
(continued)
3. Non-underlying items
Non-underlying items included in operating profit comprise the following:
›
Business reorganisation costs of £2.8m (2016: £10.5m) relating to various restructuring actions taken by the Group during the current and
prior year.
•
•
•
•
•
In June 2017, the Group initiated a rationalisation of its Variable Message Signs business that will result in the closure of two of its
operating sites and the consolidation of activities into the remaining site in Hebburn, UK. The business had been operating across three
sites since the acquisitions of VMS and Tegrel in 2014/15 and expects to take advantage of cost savings and efficiencies as a result of the
rationalisation. The anticipated cost of the exercise is £1.4m.
Following a strategic review of the US Pipe Supports business, in March 2017 the Group completed a rationalisation of its branch
structure 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, serving the eastern region. The cost of this programme was £0.4m.
Following the acquisition of Tower Tech in August 2017, the Group has commenced a programme to close Tower Tech’s existing facility in
Oklahoma City and relocate the business to our Creative Pultrusions site in Pennsylvania. The cost of this programme, which is expected
to be completed in 2018, is £0.4m.
In December 2016 the Group announced the closure of its roads business in India having reassessed the prospects in that market.
The prior year results included a charge of £1.9m in respect of the closure. A further charge of £0.4m has been recognised in 2017
representing additional closure costs that have been incurred.
In March 2016 the Group announced the closure of its non-US Pipe Supports operations. Whilst substantially completed in the prior year,
additional costs of £0.2m have been incurred in the current year on completion of the closure.
›
›
›
›
Amortisation of acquired intangible fixed assets of £4.0m (2016: £2.6m).
Acquisition expenses of £0.6m (2016: £1.8m) relating to the two acquisitions completed during the year.
An impairment charge of £0.4m in respect of assets held for sale (note 12), reflecting a reduction in the expected realisable value of that
property.
In April 2017 the Group sold its traffic data collection business, CA Traffic Limited, to TagMaster AB for net consideration of £2.6m. Net
assets disposed were £2.0m resulting in a profit on disposal of £0.6m. The detail of the disposal is set out below:
Capitalised development costs
Inventories
Current assets
Cash and cash equivalents
Current liabilities
Deferred tax
Net assets
Consideration
Less costs of disposal
Gain on disposal
Cash flow effect
Consideration less costs of disposal
Cash and cash equivalents disposed of
Net cash received shown in the Consolidated Statement of Cash Flows
£m
0.6
1.4
0.8
0.1
(0.8)
(0.1)
2.0
2.8
(0.2)
0.6
2.6
(0.1)
2.5
Non-underlying items included in financial expense represent the net financing cost on pension obligations of £0.7m (2016: £0.5m) and a £0.4m
(2016: £0.4m) charge in respect of amortisation of costs associated with refinancing.
Financial Statementswww.hsholdings.com | Stock Code HILS 4. Employees
The average number of people employed by the Group during the year
Infrastructure Products – Utilities
Infrastructure Products – Roads
Infrastructure Products – Total
Galvanizing Services
Total Group
The aggregate remuneration for the year
Wages and salaries
Share-based payments
Social security costs
Pension costs
Details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 62 to 71.
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
Underlying
£m
Non-
underlying
£m
2017
£m
Underlying
£m
Non-
underlying
£m
0.6
0.6
3.4
3.4
-
-
3.4
2.8
-
-
-
-
0.4
0.7
1.1
1.1
0.6
0.6
3.4
3.4
0.4
0.7
4.5
3.9
0.4
0.4
3.0
3.0
-
-
3.0
2.6
-
-
-
-
0.4
0.5
0.9
0.9
101
2017
No.
1,739
833
2,572
1,459
4,031
2016
No.
1,688
783
2,471
1,459
3,930
£m
£m
123.1
1.8
20.9
2.9
148.7
117.3
1.6
19.2
2.5
140.6
2016
£m
0.4
0.4
3.0
3.0
0.4
0.5
3.9
3.5
Financial Statementswww.hsholdings.com | Stock Code HILS 102
Notes to the Consolidated Financial Statements
(continued)
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
Foreign exchange loss
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
2017
£m
18.2
-
3.3
3.7
0.3
4.0
0.9
0.1
0.4
0.1
0.1
9.8
£m
0.1
0.7
-
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 56 to 60 and includes an explanation of how
auditor objectivity and independence is safeguarded when non audit services are provided by the auditor.
Financial Statementswww.hsholdings.com | Stock Code HILS 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
Effect of change in tax rate
Tax on profit in the Consolidated Income Statement
Deferred tax (note 13)
Relating to defined benefit pension schemes
Effect of change in tax rate
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
103
2016
£m
5.4
12.9
(1.6)
16.7
(0.4)
-
(1.8)
14.5
(2.5)
0.4
(2.1)
(0.6)
(0.4)
(1.0)
2017
£m
7.6
11.7
(1.1)
18.2
(0.7)
0.7
(1.9)
16.3
-
0.2
0.2
(0.3)
(0.2)
(0.5)
The tax charge in the Consolidated Income Statement for the period is higher (2016: 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 19.25% (2016: 20%)
Expenses not deductible/income not chargeable for tax purposes
Non-deductible goodwill impairment
Non-taxable profit on disposal of UK subsidiary
Benefits from international 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
Successful claim following EU challenge regarding tax on French dividends
Adjustments in respect of prior periods
Tax charge
2017
£m
70.2
13.5
1.0
-
(0.1)
(0.8)
(0.9)
-
6.9
0.3
0.1
(1.9)
(0.7)
(1.1)
16.3
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
Financial Statementswww.hsholdings.com | Stock Code HILS 104
Notes to the Consolidated Financial Statements
(continued)
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was 78.6m (2016: 78.5m), diluted for the effects of the outstanding
dilutive share options 79.6m (2016: 79.3m). 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.
2017
Pence
per share
68.6
7.3
75.9
67.7
7.1
74.8
£m
53.9
5.7
59.6
53.9
5.7
59.6
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
9. Dividends
Dividends paid in the year were the prior year’s interim dividend of £6.7m (2016: £5.5m) and the final dividend of £14.0m (2016: £10.7m).
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
2017
Pence
per share
9.4
20.6
30.0
£m
7.4
16.4
23.8
2016
Pence
per share
8.5
17.9
26.4
£m
6.7
14.1
20.8
Financial Statementswww.hsholdings.com | Stock Code HILS 105
Total
£m
165.9
19.1
32.8
1.7
219.5
(6.5)
5.8
1.3
(6.3)
2.0
0.3
4.9
0.2
7.4
(0.1)
-
-
-
7.3
213.8
1.8
0.3
-
0.4
2.5
-
0.8
-
3.3
0.2
4.9
4.0
39.5
5.7
4.1
3.7
53.0
(2.4)
5.0
(5.7)
49.9
126.4
166.5
163.9
Goodwill
£m
Brands
£m
Customer
lists
£m
Capitalised
development
costs
£m
Contracts,
licences and
other assets
£m
109.2
12.9
15.8
-
137.9
(4.1)
4.4
-
(4.3)
133.9
8.5
1.7
4.1
-
14.3
(0.9)
-
(4.3)
9.1
100.7
123.6
124.8
20.9
3.6
0.8
-
25.3
(1.4)
0.7
-
-
20.8
2.3
11.3
-
34.4
(0.9)
0.7
-
-
24.6
34.2
8.7
1.7
-
0.6
11.0
(0.6)
0.7
-
11.1
12.2
14.3
13.5
11.1
2.0
-
1.8
14.9
(0.9)
2.6
-
16.6
9.7
19.5
17.6
13.0
-
-
1.5
14.5
-
-
1.3
(2.0)
13.8
9.4
-
-
0.9
10.3
-
0.9
(1.4)
9.8
3.6
4.2
4.0
10. Intangible assets
Cost
At 1 January 2016
Exchange adjustments
Acquisitions
Additions
At 31 December 2016
Exchange adjustments
Acquisitions
Additions
Disposal of subsidiary
At 31 December 2017
Amortisation and impairment losses
At 1 January 2016
Exchange adjustments
Impairment losses
Amortisation charge for the year
At 31 December 2016
Exchange adjustments
Amortisation charge for the year
Disposal of subsidiary
At 31 December 2017
Carrying values
At 1 January 2016
At 31 December 2016
At 31 December 2017
Financial Statementswww.hsholdings.com | Stock Code HILS 106
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
2017
During the year, the Group acquired the trade and assets of two businesses:
›
›
On 24 March 2017 the Group acquired the trade and assets of Kenway Corporation (“Kenway”), a specialist in technologically advanced
composite design, manufacturing and field service work across a broad range of industries including marine, power, pulp and paper,
transportation and renewable energy.
On 15 August 2017 the Group acquired the trade and assets of Tower Tech Inc (“Tower Tech”), a leading provider of composite cooling
towers both for permanent installations and temporary rental applications.
Details of these acquisitions are set out below:
Intangible assets
Brands
Customer list
Property, plant and equipment
Inventories
Current assets
Total assets
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Cash consideration
Deferred consideration
Cash and cash equivalents received in the businesses
Net cash consideration shown in the Consolidated Statement of Cash Flows
Kenway -
Pre acquisition
carrying amount
£m
TowerTech -
Pre acquisition
carrying amount
£m
Policy alignment
and provisional fair
value
adjustments
£m
-
-
0.4
1.0
0.7
2.1
(0.3)
-
(0.3)
1.8
-
-
1.3
2.0
0.9
4.2
(1.7)
-
(1.7)
2.5
0.7
0.7
(0.3)
(0.9)
-
0.2
-
(0.1)
(0.1)
0.1
Total
£m
0.7
0.7
1.4
2.1
1.6
6.5
(2.0)
(0.1)
(2.1)
4.4
8.5
4.1
8.5
(0.6)
-
7.9
Brands and customer relationships have been recognised as specific intangible assets as a result of these acquisitions. 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 businesses with the Group’s accounting policies and to reflect the fair
value of assets and liabilities acquired. There is no difference between the gross value and fair value of acquired receivables.
Prior to the acquisition of the trade and assets of Tower Tech, the Group and Tower Tech were parties to trading arrangements on an arm’s length
basis. Trading between Tower Tech and fellow Group undertakings continues, on an arm’s length basis, after the acquisiton.
Post acquisition the acquired businesses have contributed £9.2m revenue and £0.8m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisitions had been made on 1 January 2017, the Group’s results for the year would have
shown revenue of £593.0m and underlying operating profit of £81.3m.
In addition to the above acquisitions, the Group paid a further amount of £0.4m in deferred consideration in respect of acquisitions made in the
prior year.
During the year, a further £0.3m of goodwill has been recognised in relation to the finalisation of fair value adjustments on acquisitions made in
2016.
Financial Statementswww.hsholdings.com | Stock Code HILS 107
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 were 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 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 were
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 108
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
2016
On 13 July 2016 the Group acquired the share capital of Technocover Limited. Details of this acquisition were 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 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
were 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 10. Intangible assets continued
2016
On 3 August 2016 the Group acquired the share capital of Signature Limited. Details of this acquisition were as follows:
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
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
109
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 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
were 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 110
Notes to the Consolidated Financial Statements
(continued)
10. Intangible assets continued
2016
The Group also made two other smaller acquisitions during the prior 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
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
The goodwill arising primarily represents the market share and know-how afforded to the Group. Fair value adjustments were 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 10. Intangible assets continued
Cash generating units with significant amounts of goodwill
Infrastructure Products - Utilities
US Composites
Others <£5m individually
Infrastructure Products - Roads
Hardstaff Barriers
ATA
Mallatite
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
111
2016
£m
9.1
10.9
6.8
6.3
5.3
4.0
28.8
27.6
24.8
123.6
2017
£m
12.1
10.5
6.8
6.3
5.6
4.0
29.7
25.0
24.8
124.8
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 £7.5m (2016: £8.2m), which are the Group’s only
other indefinite life intangible assets, are performed by analysing the carrying value allocated to each significant cash generating unit against
its value in use. All goodwill is allocated to specific cash generating units which are in all cases no larger than operating segments. Value in use
is calculated for each cash generating unit as the net present value of that unit’s discounted future cash flows. These cash flows are based
on budget cash flow information for a period of one year, and an average growth rate of 3% applied subsequently based on management’s
estimate for revenue and associated cost growth. 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 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.
US Composites
Hardstaff Barriers
ATA
Mallatite
France Galva SA
Galvanizing Services - USA
Galvanizing Services - UK
Goodwill
£m
12.1
6.8
6.3
5.6
29.7
25.0
24.8
2017
Headroom
£m
40.4
8.9
12.2
22.4
21.3
266.4
98.5
Discount
rate
11.3%
10.7%
11.3%
9.8%
11.3%
10.9%
10.1%
Goodwill
£m
9.1
6.8
6.3
5.3
28.8
27.6
24.8
2016
Headroom
£m
42.8
*
16.1
28.2
4.1
233.6
63.8
Discount
rate
11.8%
*
12.7%
11.0%
13.7%
12.1%
11.0%
*Hardstaff Barriers was excluded from this table in the prior year as the CGU was acquired in May 2016.
The pre-tax discount rates detailed above are 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 Group has applied sensitivities to assess whether any reasonable possible changes in assumptions could cause an impairment that would be
material to these Consolidated Financial Statements. The sensitivity analysis did not identify any material impairments with the exception of the
goodwill attributed to France Galva SA.
Financial Statementswww.hsholdings.com | Stock Code HILS 112
Notes to the Consolidated Financial Statements
(continued)
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 2018, which assume a 1% increase in galvanizing volumes compared with 2017, consistent with the recent growth
trends and the gradual improvement in economic conditions in France.
For the period 2019-2022 the calculations assume 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%.
For the period from 2023 onwards the calculations assume annual growth in cash flows of 3%, consistent with the historical long-term
growth rates in France.
A discount rate of 11.3%.
Galvanizing volumes, future cash flows and the discount rate are the key assumptions on which the goodwill impairment review is most sensitive.
The following table summarises the impacts on calculated headroom of changes in each of these key assumptions:
Input
Change in 2018 volumes
Volume growth 2019-2022
Cash flow growth 2023 onwards
Change in discount rate
11. Property, plant and equipment
Cost
At 1 January 2016
Exchange adjustments
Acquisitions
Additions
Reclassification
Transfers to assets held for sale
Disposals
At 31 December 2016
Exchange adjustments
Acquisitions
Additions
Reclassification
Disposal of subsidiary
Disposals
At 31 December 2017
Depreciation and impairment losses
At 1 January 2016
Exchange adjustments
Disposals
Reclassification
Transfers to assets held for sale
Charge for the year
At 31 December 2016
Exchange adjustments
Disposals
Disposal of subsidiary
Charge for the year
At 31 December 2017
Carrying values
At 1 January 2016
At 31 December 2016
At 31 December 2017
Sensitivity applied
-5%
0%
1%
+1%
Sensitised headroom £m
4.5
9.9
4.2
8.8
Land and buildings £m
Plant, machinery and vehicles £m
Total £m
83.0
12.3
4.5
4.7
0.8
(1.9)
(2.4)
101.0
(3.5)
-
4.9
0.1
-
(1.5)
101.0
20.1
3.3
(0.7)
0.7
(0.8)
3.5
26.1
(0.5)
(0.5)
-
3.9
29.0
62.9
74.9
72.0
160.2
11.4
2.4
15.7
(0.8)
-
(8.5)
180.4
(2.9)
1.4
13.8
(0.1)
(0.3)
(5.5)
186.8
93.9
5.4
(6.8)
(0.7)
-
13.8
105.6
(1.6)
(4.3)
(0.3)
14.3
113.7
66.3
74.8
73.1
243.2
23.7
6.9
20.4
-
(1.9)
(10.9)
281.4
(6.4)
1.4
18.7
-
(0.3)
(7.0)
287.8
114.0
8.7
(7.5)
-
(0.8)
17.3
131.7
(2.1)
(4.8)
(0.3)
18.2
142.7
129.2
149.7
145.1
The gross book value of land and buildings includes freehold land of £18.4m (2016: £18.6m). Included in the carrying value of plant, machinery
and vehicles is £nil (2016: £nil) 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 £40.1m (2016: £40.4m) and accumulated depreciation of £27.5m (2016: £25.2m).
Financial Statementswww.hsholdings.com | Stock Code HILS 113
2016
£m
1.1
Total
£m
(7.9)
(1.4)
(3.2)
12. Assets held for sale
Land and buildings
2017
£m
0.7
During the year, an impairment charge of £0.4m has been recorded reflecting a reduction in the expected realisable value of the property.
13. Deferred taxation
At 1 January 2016
Exchange adjustments
Acquisitions of businesses
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)
At 31 December 2016
Exchange adjustments
Acquisitions of businesses
Disposal of subsidiary
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)
(7.0)
(0.9)
(3.0)
1.1
-
-
(9.8)
0.3
(0.5)
0.1
2.0
-
-
Intangible
assets
£m
Property, plant
and equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
(6.1)
(1.2)
(0.3)
1.2
-
-
3.2
0.2
-
0.8
0.5
0.1
1.1
(0.3)
(0.2)
0.5
2.2
-
-
(6.5)
0.2
0.1
-
1.3
-
-
-
-
0.9
-
0.3
-
2.1
-
5.3
(0.1)
-
-
-
2.1
0.4
2.3
(0.1)
-
-
0.4
(7.8)
0.3
(0.1)
0.1
(1.0)
(0.3)
(0.1)
1.9
-
-
(0.2)
-
4.7
-
(0.2)
0.2
2.3
0.2
(5.6)
2017
£m
0.9
(6.5)
(5.6)
2016
£m
0.1
(7.9)
(7.8)
At 31 December 2017
(7.9)
(4.9)
0.2
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
No deferred tax asset has been recognised in respect of tax losses of £10.5m (2016: £10.9m) as their future use is uncertain. There is no time
limit on the carrying forward of the losses.
The UK Budget on 16 March 2016 included a rate reduction to 17% from 1 April 2020 which was enacted during the prior year. The deferred tax
balance in respect of UK entities has therefore been calculated at 17% (2016: 17%) on the basis that these balances will materially reverse after
1 April 2020. A reduction in the French corporation tax rate to 25% by 2022 was enacted in December 2017. The deferred tax balance in respect
of French entities has therefore been mainly calculated at 25% (2016: 28%) on the basis that the majority of the balances will reverse after 2022.
On 22 December 2017 there was a significant change in the US tax legislation, which included a reduction in the main rate of corporation tax
from 35% to 21% with effect from 1 January 2018. The deferred tax balance in relation to US entities has therefore been restated to reflect this
reduction in the tax rate.
14. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2017
£m
44.1
9.2
31.3
84.6
2016
£m
38.2
8.4
25.0
71.6
Financial Statementswww.hsholdings.com | Stock Code HILS 114
Notes to the Consolidated Financial Statements
(continued)
14. Inventories continued
The amount of inventories expensed to the Consolidated Income Statement in the year was £320.9m (2016: £309.8m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £nil (2016: £2.1m), the prior year amount
arising 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 (2016: £nil).
15. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
Fair value derivatives
2017
£m
2016
£m
107.4
104.3
6.2
2.9
-
6.7
1.8
0.1
116.5
112.9
The charge to the Consolidated Income Statement in the year in respect of impairment of trade receivables was £0.3m (2016: £1.7m).
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)
Disposals (note 3)
Amortisation of costs associated with refinancing revolving credit facilities (note 5)
Purchase of shares for employee benefit trust
Issue of new shares (note 21)
Net debt decrease/(increase)
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
2017
£m
16.4
16.4
(0.3)
(115.1)
(99.0)
74.1
24.7
98.8
(19.1)
(3.2)
76.5
(16.7)
(2.8)
(20.7)
2.3
38.6
(20.7)
(8.3)
2.5
(0.4)
(2.6)
0.6
9.7
3.3
(112.0)
(99.0)
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)
Financial Statementswww.hsholdings.com | Stock Code HILS 16. Cash and borrowings continued
Reconciliation of movements in financial liabilities to cash flows arising from financing activities
Interest bearing loans and borrowings
At 1 January
New loans and borrowings
Repayments of loans and borrowings
Costs associated with refinancing of revolving credit facility
Cash flows from financing activities
Other changes
Effect of exchange rate fluctuations
Amortisation of costs associated with refinancing of revolving credit facility
At 31 December
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
115
2017
£m
2016
£m
127.6
104.4
32.9
(41.3)
-
(8.4)
(4.2)
0.4
115.4
2017
£m
0.3
-
0.3
59.5
10.8
29.0
0.1
5.4
104.8
2017
£m
115.1
-
115.1
0.5
46.1
(31.7)
(1.0)
13.4
9.4
0.4
127.6
2016
£m
0.3
-
0.3
59.1
10.8
27.8
-
7.4
105.1
2016
£m
127.3
-
127.3
0.4
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 116
Notes to the Consolidated Financial Statements
(continued)
19. Provisions for liabilities and charges
At 1 January 2016
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2016
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2017
Amounts due within one year
Amounts due after more than one year
Environmental
£m
Restructuring
£m
2.3
0.5
-
-
-
2.8
(0.1)
-
-
(0.2)
2.5
0.2
-
7.2
(4.1)
(0.7)
2.6
-
2.7
(3.2)
-
2.1
Other
£m
0.4
-
-
-
-
0.4
-
-
-
-
0.4
2017
£m
2.1
2.9
5.0
Total
£m
2.9
0.5
7.2
(4.1)
(0.7)
5.8
(0.1)
2.7
(3.2)
(0.2)
5.0
2016
£m
2.6
3.2
5.8
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 businesses. As a consequence of the 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.
Financial Statementswww.hsholdings.com | Stock Code HILS 117
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 2017 with 56% (2016: 57%) and currently the only geographical region that does not generally insure trade
receivables is North America, which represents 23% (2016: 21%) 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.
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 2017 all such debt was covered by cash and cash equivalents netting to £16.1m positive current liquidity (2016: £15.3m).
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 2017 of £225.5m (2016: £232.3m), 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 £237.3m (2016: £247.1m).
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 2017 credit exposure including cash deposited did not exceed £4.8m with any single
institution (2016: £3.6m).
Currency risk
The Group publishes its Consolidated Financial Statements in Sterling, but conducts business in several foreign currencies, including significant
operations based in Continental Europe 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 2017 the proportion of gross borrowings subject to fixed interest rate swaps was 0% (2016: 0%).
Insurance
The Group purchases insurance for commercial, legal and contractual reasons. The Group retains insurable risk where external insurance is not
commercially viable.
Financial Statementswww.hsholdings.com | Stock Code HILS 118
Notes to the Consolidated Financial Statements
(continued)
20. Financial instruments continued
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 2017 and 2016, as set out in the Operational and Financial Review on page 20.
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 2017
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
-
-
-
-
(0.1)
-
-
(0.1)
-
-
-
0.1
-
-
-
0.1
16.4
(0.3)
(115.1)
-
-
110.3
(93.9)
(82.6)
15.6
(0.3)
(127.3)
-
-
106.1
(94.3)
(100.2)
16.4
(0.3)
16.4
(0.3)
(115.1)
(115.1)
-
(0.1)
110.3
(93.9)
(82.7)
15.6
(0.3)
-
(0.1)
110.3
(93.9)
(82.7)
15.6
(0.3)
(127.3)
(127.3)
0.1
-
106.1
(94.3)
0.1
-
106.1
(94.3)
(100.1)
(100.1)
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 2017
Derivative financial assets
Derivative financial liabilities
Total at 31 December 2016
Level 1
£m
-
-
-
-
-
-
Level 2
£m
-
(0.1)
(0.1)
0.1
-
0.1
Level 3
£m
-
-
-
-
-
-
Total
£m
-
(0.1)
(0.1)
0.1
-
0.1
Financial Statementswww.hsholdings.com | Stock Code HILS 119
20. Financial instruments continued
At 31 December 2017 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 £10.7m (2016: £11.1m) and US Dollar £49.6m (2016: £53.6m) denominated
interest bearing loans, which are predominantly used to fund the Group’s European and United States operations and include £60.3m
(2016: £64.7m) designated as a hedge of the net investment in a foreign operation. The foreign currency gain of £4.9m (2016: loss of £9.5m) 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 2017
Sterling at 31 December 2016
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
6.5
6.2
1.1
1.7
(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
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
Total at 31 December 2017
Secured bank borrowings
Unsecured bank borrowings
Finance lease obligations
Other liabilities
Derivative liabilities
Total at 31 December 2016
Carrying
amounts
£m
2.0
113.4
-
93.9
0.1
209.4
2.5
125.1
-
94.3
-
221.9
(2.0)
(121.2)
-
(93.9)
(0.1)
(217.2)
(2.5)
(130.9)
-
(94.3)
-
(227.7)
(0.3)
(2.2)
-
(93.9)
(0.1)
(96.5)
(0.3)
(1.9)
-
(94.3)
-
(96.5)
Due between
two and
five years
£m
(1.1)
(116.6)
-
-
-
(117.7)
(1.6)
(127.1)
-
-
-
Due after
more than
five years
£m
(0.3)
(0.2)
-
-
-
(0.5)
(0.3)
-
-
-
-
(0.3)
(2.2)
-
-
-
(2.5)
(0.3)
(1.9)
-
-
-
(2.2)
(128.7)
(0.3)
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
2017
£m
2016
£m
111.4
105.8
Financial Statementswww.hsholdings.com | Stock Code HILS 120
Notes to the Consolidated Financial Statements
(continued)
20. Financial instruments continued
(d) Fair values
The gain in the prior year on the interest rate swaps held by the UK Group was £0.2m which was recognised in the Statement of Comprehensive
Income as these instruments were accounted for as cash flow hedges. Any ineffective portion of these hedges was 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 (2016: nil). The fair values of the Group’s other financial instruments at 31 December 2017 and
2016 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 £0.4m were recognised in respect of the asset held for sale, as detailed in note 12. In the prior year, impairment charges
of £4.1m were recognised in respect of the carrying values of non-current assets.
(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
2017
£m
110.3
16.4
126.7
2017
£m
60.2
19.0
24.3
3.9
2016
£m
106.1
15.6
121.7
2016
£m
59.7
16.3
21.9
6.4
107.4
104.3
2017
£m
32.3
43.1
75.4
32.0
2016
£m
33.2
41.6
74.8
29.5
107.4
104.3
Financial Statementswww.hsholdings.com | Stock Code HILS 121
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
76.7
20.2
8.6
4.7
110.2
2017
Provisions
£m
(0.1)
-
(0.3)
(2.4)
(2.8)
Net
£m
76.6
20.2
8.3
2.3
Gross
£m
75.3
20.7
7.0
4.8
107.4
107.8
2016
Provisions
£m
(0.1)
-
(0.2)
(3.2)
(3.5)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2016
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2016
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2017
Net
£m
75.2
20.7
6.8
1.6
104.3
£m
2.8
0.2
0.3
1.7
(1.5)
3.5
(0.1)
-
0.3
(0.9)
2.8
(f) Sensitivity analysis
In managing interest rate and currency risks the Group aims to reduce the impact of short term fluctuations on the Group’s earnings. Over the
longer term, however, permanent changes in foreign exchange and interest rates may have an impact on consolidated earnings. At the end of
the reporting periods, the effects of hypothetical changes in interest and currency rates are as follows:
›
›
›
Based on average month end net debt balances, 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 (2016: £1.4m), which would directly impact on the Consolidated Income Statement.
Based on a 10% weakening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement would
have been a gain of £3.9m (2016: £3.4m) and the impact on equity would have been a gain of £19.3m (2016: £18.9m).
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 £3.2m (2016: £2.8m) and the impact on equity would have been a loss of £16.4m (2016: £15.5m).
Financial Statementswww.hsholdings.com | Stock Code HILS 122
Notes to the Consolidated Financial Statements
(continued)
21. Called up share capital
Allotted, called up and fully paid
78.7m ordinary shares of 25p each (2016: 78.5m)
2017
£m
19.7
2016
£m
19.7
In 2017 the Company issued 0.2m shares under its various share option schemes (2016: 0.3m), realising £0.6m (2016: £0.8m).
Options outstanding over the Company’s shares
2014 LTIP Award (granted May 2017)*¥
2014 LTIP Award (granted March 2016)*
2014 LTIP Award (granted March 2015)*
2014 LTIP Award (granted May 2014)*¥
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)*
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)*†
2017 grant of 2014 Savings Related Share
Option Scheme (granted October 2017)*†
2017 grant of 2014 Savings Related Share
Option Scheme (granted October 2017)*†
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
103,925
116,563
153,290
-
-
-
3,586
10,514
126,991
238,009
216,920
1,257
122,557
145,821
140,807
117,543
60,328
2017
Option
price (p)
-
-
-
-
-
-
316
316
685
685
355
429
429
560
560
963
963
Number
of shares
-
116,563
153,290
186,121
2016
Option
price (p)
-
-
-
-
Date first exercisable
Expiry date
§
§
§
§
§
§
§
§
17,146
350
13 April 2010
13 April 2017
2,854
3,586
350
13 April 2010
13 April 2017
316
19 April 2015
19 April 2022
10,514
316
19 April 2015
19 April 2022
126,991
685
12 August 2018
12 August 2025
238,009
685
12 August 2018
12 August 2025
233,904
355
1 June 2018
1 December 2018
125,291
429
1 August 2017
1 February 2018
124,793
429
1 August 2019
1 February 2020
153,526
560
1 January 2019
1 July 2019
144,929
560
1 January 2021
1 July 2021
133,959
963
1 January 2020
1 July 2020
71,283
963
1 January 2022
1 July 2022
123,784
1,021
54,879
1,021
1,736,774
15,357
1,721,417
1,736,774
-
-
1,842,759
34,100
1,808,659
1,842,759
-
-
1 January 2021
1 July 2021
1 January 2023
1 July 2023
† 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 2018 for
the 2015 grant, 1 January 2019 for the 2016 grant and 1 January 2020 for the 2017 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. Similarly, the 2017 LTIP award granted in May 2017 includes 6,843 shares under the Group’s 2014 Executive Share Option Scheme.
The remaining weighted average life of the outstanding share options is 3 years 3 months (2016: 3 years 6 months).
Financial Statementswww.hsholdings.com | Stock Code HILS 123
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)
2017
443
649
(189)
(761)
518
Millions
of options
2017
1.8
0.3
(0.3)
(0.1)
1.7
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
The weighted average share price on the dates of exercise of share options during the year was 1347p (2016: 772p), and the weighted average
fair value of options and awards granted in the year was 610p (2016: 477p). The weighted average exercise price of outstanding options
exercisable at the year end was 325p (2016: 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.
2017 grant
of 2014 LTIP
Award
2016 grant
of 2014 LTIP
Award
2015 grant
of 2014 LTIP
Award
October 2017
grant of
2014 Savings
Related
Share Option
Scheme
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
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 (%)
1388/850
862/606
671/434
317/322
309/374
123/159
93/98
1388
0
21
3
0
0.2
862
0
19
3
0
0.7
671
0
20
3
0
0.9
1241
1021
32/28
3/5
2.1
1163
963
34/37
3/5
1.8
691
560
512
429
18/24
22/21
3/5
2.6
3/5
3.1
0.5/0.8
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
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 (2016: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
2017
£m
1.3
0.5
1.8
2017
£m
0.9
2016
£m
1.1
0.5
1.6
2016
£m
0.8
Financial Statementswww.hsholdings.com | Stock Code HILS 124
Notes to the Consolidated Financial Statements
(continued)
22. Guarantees and other financial commitments continued
(c) Operating lease commitments
The total future minimum commitments payable under non-cancellable operating leases are analysed as follows:
Group
Within one year
Between one and two years
Between two and five years
After five years
2017
Land and
buildings
£m
4.9
4.4
10.0
5.9
25.2
Other
£m
3.8
3.4
4.1
0.1
11.4
2016
Land and
buildings
£m
4.2
4.0
9.8
6.1
24.1
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
2017
Land and
buildings
£m
0.4
0.7
-
1.1
Other
£m
6.0
0.3
0.1
6.4
2016
Land and
buildings
£m
0.4
1.0
-
1.4
Other
£m
3.5
2.9
3.9
-
10.3
Other
£m
11.2
1.5
-
12.7
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
61.1
(81.9)
-
(20.8)
Overseas
£m
3.0
(7.6)
(0.2)
(4.8)
2017
£m
64.1
(89.5)
(0.2)
(25.6)
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)
United Kingdom
The Group operates one main pension scheme in the UK, the Hill & Smith 2016 Pension Scheme (‘the Scheme’), providing benefits on a defined
benefit and defined contribution basis. The Scheme is closed to future accrual.
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 £1.8m (2016: £1.6m), which includes the
costs of the defined contribution and the defined benefit sections of the Scheme.
Financial Statementswww.hsholdings.com | Stock Code HILS 125
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 against this discount rate, this will create a plan deficit. The Scheme holds a
proportion of its assets in hedge funds 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 2016 and was updated to 31 December 2017 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
2017
n/a
3.1%
2.4%
3.2%
2.2%
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%
105%102%
116%120%
116%120%
116%120%
116%120%
S2PACM12016 (1.25%) S2PACM12015 1% S1PACM12015 1% S1PACM12014 1% S1PACMI2013 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
2017
23.0 years
25.2 years
21.9 years
23.8 years
2016
2015
2014
2013
21.8 years
24.0 years
20.8 years
22.7 years
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
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 126
Notes to the Consolidated Financial Statements
(continued)
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
2017
£m
Market value
2016
£m
Market value
2015
£m
Market value
2014
£m
Market value
2013
£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
-
28.6
1.3
29.0
2.2
61.1
(81.9)
(20.8)
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)
During the year the Group and the Trustees undertook an investment review of the Scheme. As a result the Scheme’s asset allocation was
amended in order to better align the potential risks and returns on investments.
Total expense recognised in the Consolidated Income Statement
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
2017
Defined
benefit
schemes
£m
1.2
-
0.2
1.4
-
1.4
-
-
0.4
0.4
0.5
0.9
Defined
contribution
schemes
£m
1.2
-
0.1
1.3
-
1.3
Total
£m
1.2
-
0.6
1.8
0.5
2.3
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Interest cost
Actuarial (gain)/loss arising from:
Financial assumptions
Demographic assumptions
Experience adjustment
Gains on curtailments and settlements
Benefits paid
Closing defined benefit obligations
2016
Defined
benefit
schemes
£m
-
(0.2)
0.5
0.3
0.4
0.7
2017
£m
90.9
2.2
1.2
0.7
0.5
-
(13.6)
81.9
21.7
33.3
1.0
-
7.1
63.1
(80.7)
(17.6)
Total
£m
1.2
(0.2)
0.6
1.6
0.4
2.0
2016
£m
80.1
2.9
15.5
-
-
(2.4)
(5.2)
90.9
Financial Statementswww.hsholdings.com | Stock Code HILS 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
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
(1)
(2)
(1)
2017
£m
1.9
(0.5)
(1.9)
(0.5)
(43.0)
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 %
3
-
(17)
(14)
% of Scheme
assets/
liabilities %
4
-
(7)
(3)
2016
£m
2.0
-
(15.5)
(13.5)
(42.5)
2014
£m
3.1
-
(6.1)
(3.0)
(34.0)
127
2016
£m
69.0
2.5
2.0
2.4
(2.2)
(5.2)
68.5
4.5
2.9
1.1
2015
£m
(0.4)
2.2
3.2
5.0
(29.0)
2013
£m
(0.6)
(1.0)
(4.2)
(5.8)
(31.0)
2017
£m
68.5
1.7
1.9
2.6
-
(13.6)
61.1
3.6
2.9
1.0
% of Scheme
assets/
liabilities %
(1)
3
1
6
% of Scheme
assets/
liabilities %
(2)
(1)
(5)
(8)
The table below shows the sensitivity of the Consolidated Statement of Financial Position to certain changes in the significant pension
assumptions:
Value of funded obligations
Fair value of plan assets
Deficit
Balance at
31 December 2017
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
Life expectancy
(+1 year)
£m
(81.9)
61.1
(20.8)
(83.1)
61.1
(22.0)
(82.7)
61.1
(21.6)
(85.5)
61.1
(24.4)
A formal actuarial valuation of the Scheme as at April 2016 was finalised during the year, following which the Group agreed a deficit recovery
plan with the Trustees that requires cash contributions amounting to £2.5m per annum until September 2027.
The Group has considered the requirements of IFRIC 14. The terms of the Scheme give the Group the right to recover any surplus assets in the
Scheme upon wind up and therefore management have concluded that there is no impact on the amounts recognised in respect of retirement
benefit obligations.
Financial Statementswww.hsholdings.com | Stock Code HILS 128
Notes to the Consolidated Financial Statements
(continued)
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 £0.8m (2016: £0.6m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.1m (2016: £0.9m), 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 2017.
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%
2017
France
2.00%
3.50% 1.6%/1.45%
0.00%
2.00%
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%
2014 SOA
TH 00-02,
2014 SOA
TH 00-02,
2014 SOA
TH 00-02,
TF 00-02
TF 00-02
TF 00-02
USA
0.00%
4.75%
0.00%
2014
France
2.00%
2.50%
2.00%
USA
0.00%
5.25%
0.00%
2013
France
2.00%
3.10%
2.00%
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
2017
£m
3.0
3.0
(7.6)
(0.2)
(4.8)
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)
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 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
2017
Defined
benefit
schemes
£m
0.8
0.8
-
0.8
0.3
0.3
0.2
0.5
Defined
contribution
schemes
£m
0.6
0.6
-
0.6
Total
£m
1.1
1.1
0.2
1.3
2016
Defined
benefit
schemes
£m
0.3
0.3
0.1
0.4
Change in the present value of the defined benefit obligation
Opening defined benefit obligation
Current service costs
Interest cost on scheme obligations
Actuarial (gains)/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
Admin expenses
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
2017
£m
8.1
0.3
0.3
(0.2)
-
(0.3)
(0.4)
7.8
2017
£m
3.2
0.3
0.1
(0.1)
(0.2)
(0.3)
3.0
0.4
-
0.8
129
Total
£m
0.9
0.9
0.1
1.0
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
Financial Statementswww.hsholdings.com | Stock Code HILS 130
Notes to the Consolidated Financial Statements
(continued)
23. Pensions continued
Amounts recognised in the Consolidated Statement of Comprehensive Income
Experience gain/(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
%
5
10
(1)
(2)
6
2017
£m
0.4
0.3
(0.1)
(0.1)
0.5
(2.3)
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)
(15)
% of scheme
assets/
liabilities
%
0
0
(10)
0
(10)
% of scheme
assets/
liabilities
%
4
0
(4)
0
-
% of scheme
assets/
liabilities
%
0
7
(4)
n/a
-
2016
£m
(0.2)
-
(0.4)
(0.6)
(1.2)
(2.8)
2014
£m
-
-
(0.6)
-
(0.6)
(1.6)
2015
£m
0.2
-
(0.2)
-
-
(1.6)
2013
£m
-
0.2
(0.2)
-
-
(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 judgements, estimates and assumptions
The principal accounting judgements, estimates and related assumptions 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 set out below.
Actuarial assumptions on pension obligations
Estimates
In determining the valuation of the defined benefit pension deficit, certain estimates and 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
influenced by wider macro-economic factors that are largely outside of the Group’s control. A sensitivity analysis of the impact of changes in key
assumptions is set out in note 23.
Impairment of goodwill
Estimates
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, including sensitivity
analysis, is included in note 10.
Environmental and dilapidation provisions
Judgements
Given the nature of the Group’s operations there is a risk that its activities result in an obligation to rectify contaminated land or similar
environmental issues at its operating sites, particularly those acquired through acquisitions of subsidiaries. Management is required to make
judgements as to whether an obligation has arisen, whether it is probable that an outflow of economic value will arise as a result, and if so the
expected timing of such outflows.
Estimates
The amounts of the provisions recognised in respect of environmental and dilapidation obligations reflect cost estimates that 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. The Group
does not consider that there are any key sources of estimation uncertainty in the reporting period that may have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Financial Statementswww.hsholdings.com | Stock Code HILS 131
24. Accounting judgements, estimates and assumptions continued
Valuation of intangible assets
Judgements
Where an acquisition is of a significant size, it is reviewed by independent experts to judge 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 the assembled workforce, technical expertise, know-how, market share and geographical advantages.
Estimates
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. The Group does not consider that there are any key sources of estimation uncertainty in the reporting period that may have a significant
risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Taxation
Judgements
Liabilities for uncertain tax positions require management judgements in respect of tax audit issues and exposures in each of the jurisdictions in
which the Group operates. Where management judges that a tax position is uncertain, a current tax liability is held for anticipated taxes that are
considered to be 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.
Estimates
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 uncertain tax positions also require management estimates in respect
of the amount of tax that may become payable. 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. Included in the current tax payable is a liability of £7.8m (2016: £6.9m) for uncertain tax positions.
The liability includes an amount of £4.2m relating to the pricing of intercompany goods and services between subsidiaries in different countries.
Depending on the conclusions of any tax audits conducted by the tax authorities in the various jurisdictions in which the Group operates,
management estimate the range of possible outcomes to be between £nil and £7.7m and therefore it is possible that, if the outcomes are
different to those estimated by management, the difference may materially impact the income tax charge / (credit) in the year in which the
matter is concluded. Management does not believe that the range of possible outcomes for the other items included in the liability for uncertain
tax positions could have a material effect on the financial statements in the next 12 months. Further information is set out in note 7 and note 13.
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 62 to 71. The compensation in total for each category required by IAS24 is as follows:
Salaries and short term employee benefits
Non-executive Directors’ fees
Pension costs
Share-based payments
2017
£m
1.7
0.3
0.2
0.7
2.9
2016
£m
1.6
0.3
0.2
0.7
2.8
Financial Statementswww.hsholdings.com | Stock Code HILS 132
Case Study
Technocover’s UltraSecure Kiosk and Access Cover Solution for
New UV Treatment Scheme at Water Treatment and Pumping
Works
Completed in 2017, this Technocover kiosk and access cover solution was purpose designed, in close
partnership with the UV technology supplier and client, to facilitate the installation of a new ultra-
violet (UV) water treatment facility at their water treatment works – now one of the largest UV water
treatment plants in the UK.
The project, that converted two underground wet contact tanks into dry chambers to house a
new state of the art facility with more than 120 valves and four UV reactors, each containing
30 quartz tubes, was completed in just ten months primarily due to the strong working
relationships within the partnership and with the wider supply chain. The client had to work
within considerable technical constraints to a very demanding timetable but used these
challenges as an opportunity to be innovative and flexible in their approach, including
how they worked with their suppliers.
The end result meant water supply to customers was not interrupted during
construction and objectives were delivered on all targets.
Images
Top & Bottom – Combined access covers and modular building structure,
manufactured and installed by Technocover at a Ultaraviolet (‘UV’) Water
Treatment Facility at South Staffs Water Plc, Seedy Mill Treatment Works near
Lichfield.
Find out more about the company at: www.technocover.co.uk
“
Lupta pore latur aut et
es rem erumenduci si
accuptam quo occupta
quae lautem quunto
modis nis millore
scipsam fugia que di
cus etur rehenderit,
qui te volorempore
nonserrovit magnis
quia coruntem.
“
Financial Statementswww.hsholdings.com | Stock Code HILS 133133
Top: Hostile Vehicle Mitigation barges in Hyde Park London – Keeping Pedestrians Safe
Bottom: VGAH 2000 Aluminium H2 Parapet, by Varley & Gulliver Ltd, installed at Bicester Village. The first time H2 Aluminium parapet has been used in the UK.
Financial Statementswww.hsholdings.com | Stock Code HILS 134
Company Balance Sheet
Year ended 31 December 2017
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 assets/(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
Notes
3
4
5
6, 7
6
7
9
10
2017
£m
0.1
324.9
325.0
77.8
-
77.8
(6.9)
(57.6)
(64.5)
13.3
338.3
(44.0)
(0.4)
(0.1)
293.8
19.7
34.1
0.2
239.8
293.8
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
Approved by the Board of Directors on 7 March 2018 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
Financial Statementswww.hsholdings.com | Stock Code HILS
Company Statement of Changes in Equity
Year ended 31 December 2017
135
Retained
earnings
£m
210.1
49.4
(0.2)
Total
equity
£m
262.7
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
-
-
-
-
-
-
-
-
19.2
0.1
19.2
0.1
(20.7)
(20.7)
1.3
(0.1)
(2.5)
(0.1)
-
1.3
(0.1)
(2.5)
(0.1)
0.6
0.2
239.8
293.8
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
19.6
32.8
0.2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.7
0.7
33.5
-
-
-
-
-
-
-
-
19.7
-
-
-
-
-
-
-
0.6
34.1
Balance at 1 January 2016
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 awards
Own shares acquired by employee benefit trust
Issue of shares
At 31 December 2016
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 awards
Own shares held by employee benefit trust
Shares issued
At 31 December 2017
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.
Distributable reserves
The Company maintains distributable reserves of a minimum of two times the current annual dividend payment. Total external dividends
declared in 2017, which will be paid in 2018, amounted to £23.8m. When required the Company can receive dividends from its subsidiaries to
further increase distributable reserves.
Financial Statementswww.hsholdings.com | Stock Code HILS 136
Company Statement of Cash Flows
Notes
2017
£m
Loss before tax
Add back net financing costs
Operating loss
Adjusted for non-cash items:
Share-based payments
Depreciation
Loss on disposal of subsidiary
Impairment of investments
Operating cash flow before movement in working capital
Decrease/(increase) in receivables
Increase in payables
(Decrease)/increase in provisions
Change in amounts due to/from Group undertakings
Net movement in working capital
Cash generated from/(used in) operations
Income taxes paid
Interest paid
Net cash generated from/(used in) operating activities
Interest received
Dividends received
Disposal of subsidiaries
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
10
2
New loans and borrowings
Repayment of loans and borrowings
Net cash used in financing activities
Net increase/(decrease) in cash
Cash at the beginning of the year
Cash at the end of the year
1.3
-
2.8
0.7
0.8
1.0
(0.1)
9.0
-
22.5
2.5
-
0.6
(2.6)
(20.7)
-
26.0
(34.0)
£m
(4.7)
1.6
(3.1)
4.8
1.7
10.7
12.4
(3.3)
(1.6)
7.5
25.0
(30.7)
1.8
(8.7)
(6.9)
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)
£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)
Financial Statementswww.hsholdings.com | Stock Code HILS Company Principal Accounting Policies
137
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’).
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 137 to 139 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.
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).
Financial Statementswww.hsholdings.com | Stock Code HILS 138
Company Principal Accounting Policies
(continued)
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 139
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.
Financial Statementswww.hsholdings.com | Stock Code HILS 140
Notes to the Company Financial Statements
1. Profit on ordinary activities before taxation
The profit on ordinary activities is stated after charging:
Operating lease rentals – land and buildings
2017
£m
0.1
2016
£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 £6.7m (2016: £5.5m) and the final dividend of £14.0m (2016: £10.7m).
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 2016
Additions
At 31 December 2017
Depreciation
At 31 December 2016
Charge for the year
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
4. Fixed asset investments
2017
Pence
per share
9.4
20.6
30.0
2016
Pence
per share
8.5
17.9
26.4
£m
7.4
16.4
23.8
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
-
-
Cost
At 31 December 2016
Reclassification to amounts owed to subsidiary undertakings
Disposals
Disposal of subsidiary
At 31 December 2017
Provisions
At 31 December 2016
Reclassification to amounts owed to subsidary undertakings
Disposals
Impairment
At 31 December 2017
Net book value
At 31 December 2017
At 31 December 2016
Shares in
subsidiary
undertakings
£m
Loans to
subsidiary
undertakings
£m
Trade
investments
£m
343.0
-
-
(5.3)
337.7
12.1
-
-
0.7
12.8
324.9
330.9
23.8
(23.8)
-
-
-
1.3
(1.3)
-
-
-
-
22.5
0.8
-
(0.8)
-
-
0.8
-
(0.8)
-
-
-
-
£m
6.7
14.1
20.8
Total
£m
0.5
-
0.5
0.4
-
0.4
0.1
0.1
Total
£m
367.6
(23.8)
(0.8)
(5.3)
337.7
14.2
(1.3)
(0.8)
0.7
12.8
324.9
353.4
Financial Statementswww.hsholdings.com | Stock Code HILS 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.
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
141
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
2017
£m
72.5
4.0
0.7
0.4
0.2
77.8
2017
£m
6.9
6.9
1.8
0.1
4.7
0.6
50.4
57.6
7. Creditors: amounts falling due after more than one year
The Company’s interest bearing loans and borrowings are detailed below. Further information on the Company’s exposure to interest rate and
foreign currency risk is provided in note 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
2017
£m
44.0
44.0
2017
£m
6.9
-
44.0
44.0
50.9
2016
£m
51.6
51.6
2016
£m
9.6
-
51.6
51.6
61.2
Financial Statementswww.hsholdings.com | Stock Code HILS 142
Notes to the Company Financial Statements
(continued)
8. Deferred tax
At 1 January
Credited for the year in the Income Statement
Charged/(Credited) for the year directly in equity
At 31 December
Other timing differences
2017
£m
(0.8)
-
0.1
(0.7)
(0.7)
2016
£m
(0.4)
-
(0.4)
(0.8)
(0.8)
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 £2.9m (2016: £2.8m), of which
additional deficit contributions were £2.4m (2016: £2.3m).
10. Called up share capital
Allotted, called up and fully paid
78.7m Ordinary Shares of 25p each (2016: 78.5m)
2017
£m
19.7
2016
£m
19.7
In 2017 the Company issued 0.2m shares under its various share option schemes (2016: 0.3m), realising £0.6m (2016: £0.8m). 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 (2016: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2017 was
£88.8m (2016: £96.9m).
(b) Operating lease commitments
Annual commitments under non-cancellable operating leases expire in the periods as detailed below:
Within one year
Between one and two years
Between two and five years
After five years
2017
Land and
buildings
£m
0.1
0.1
0.3
0.5
1.0
2016
Land and
buildings
£m
-
0.1
-
-
0.1
Other
£m
-
-
-
-
-
Other
£m
-
-
-
-
-
Financial Statementswww.hsholdings.com | Stock Code HILS 143
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 2017
£m
Highest during
the year
£m
Balance at
31 December 2016
£m
77.3
(75.0)
72.5
(50.4)
79.7
(94.5)
79.7
(75.0)
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 income
2017
£m
22.5
7.5
0.3
2016
£m
55.7
5.9
-
Financial Statementswww.hsholdings.com | Stock Code HILS 144
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)*
A W Thorne Limited (D)*
Bainbridge Engineering Limited (D)*
Barkers Engineering Limited (U, G)
Bergen Pipe Supports Group Limited (U)*
Bergen Pipe Supports Limited (H)
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)
Carrington Packaging Limited (D)
Cooper Securities (Dudley) Limited (D)
Cooper Securities 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 (Americas) 2 Limited
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) **
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 (D)
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)
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
Financial Statementswww.hsholdings.com | Stock Code HILS
145
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 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)
CPK Manufacturing LLC (U)
Hill & Smith Group Holdings, Inc (H)
Hill & Smith Holdings LLC (H)
Hill & Smith, Inc. (R)
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.
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 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 (D)
574, 3rd Floor, Main Road, Chirag Delhi, New Delhi, 110017
Incorporated in Ireland
Redman Fisher Limited (U)
Naas Industrial Estate, Naas,
Co Kildare, 496407
Hill & Smith (Ireland) Unlimited Company
Custom House Plaza, block 6
International Financial Services Centre
Dublin
Financial Statementswww.hsholdings.com | Stock Code HILS 146
Five Year Summary
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
2017
£m
585.1
81.3
78.5
258.6
Pence
75.9
30.0
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
Financial Statementswww.hsholdings.com | Stock Code HILS 147
Shareholder
Information
Shareholder Information
148 Financial Calendar
149 Shareholder Information
150 Principal Group Businesses
153 Directors, Contacts and Advisors
Image
Berry Systems rigid post and Berry Beam VRS installed at the Birmingham New Street station multi-storey car park.
See further information at hsholdings.com
148
Financial Calendar
Annual General Meeting 2018
Trading Update
Ex-dividend date for 2017 final dividend
Record date 2017 final dividend
Dividend Reinvestment Plan – last date for election
Final 2017 ordinary dividend payable
Announcement of 2018 interim results
Trading Update
Payment of 2018 interim dividend
17 May 2018
17 May 2018
24 May 2018
25 May 2018
11 June 2018
2 July 2018
8 August 2018
22 November 2018
4 January 2019
Shareholder Informationwww.hsholdings.com | Stock Code HILS Shareholder Information
Shareholder base
Holdings of ordinary shares at 2 March 2018
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 17 May 2018 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.
149
%
0.19
0.38
2.07
6.98
4.48
24.51
12.07
49.32
100.00
%
5.22
94.77
0.01
100.00
2013
6.0
10.0
16.0
Number of holders
705
392
692
391
48
86
14
21
%
30.02
16.69
29.46
16.64
2.04
3.66
0.60
0.89
2,349
100.00
Number of holders
1,439
905
5
2,349
%
61.27
38.52
0.21
100.00
Number of shares
150,686
299,217
1,631,341
5,492,248
3,524,624
19,291,960
9,495,658
38,816,837
78,702,571
Number of shares
4,111,106
74,584,714
6,751
78,702,571
2017
9.4
20.6
30.0
2016
8.5
17.9
26.4
2015
7.1
13.6
20.7
2014
6.4
11.6
18.0
›
›
›
Access current and historical market prices.
Access trading graphs.
Add additional shareholdings to your portfolio.
Share dealing
Share dealing services are available through Computershare Investor
Services PLC. Log on to www.computershare.com/sharedealingcentre
for internet share dealing and for telephone dealing ring 0370 703
0084.
Dividend Reinvestment Plan ‘DRIP’ (Latest date for election is
11 June 2018)
The Company offers shareholders the facility to reinvest their cash
dividends to buy more shares in the Company.
›
›
The service allows you to increase your shareholding in an easy
and convenient way.
Online application process enables you to participate easily and
securely: www.investorcentre.co.uk.
- Click on ‘Register’ to sign up to the Investor Centre. This will
allow you to carry out a number of share related transactions
online, including opting for the DRIP.
- You will be required to fill in your SRN and your postcode,
together with your email address. You will also be asked to
select a user name (ID) and password of your choice.
- Once registered select ‘Dividend Plans’ from the left hand
menu and amend your current cash dividend instruction,
confirming acceptance of the DRIP terms and conditions.
›
New shares will be purchased as soon as possible on or after the
dividend pay date.
Shareholder helpline number
There is a helpline for shareholders who have enquiries about their
shareholdings. The dedicated helpline number is 0370 707 1058.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 150
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 and hostile vehicle mitigation
products.
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
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
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
Rest of the World
ATA Hill & Smith AB*
Road safety barriers, road signage
and traffic safety solutions
Incorporated in Sweden
Staffans väg 7, 192 78,
Sollentuna, Sweden
Tel: +46 (0) 8 98 80 70
Fax: +46 (0) 8 29 25 15
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
www.hsroads.com.au
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
(D) Operating division only, not a limited company.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 151
Novia Associates (D)
Vibration and seismic control manufacturer
www.cp-novia.com
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
Infrastructure Products - Utilities
United States of America
United Kingdom
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
Kenway Corp. (D)
Specialises in custom composite
manufacturing and field service
www.kenway.com
Tower Tech (D)
Manufacturer of composite cooling towers
www.towertechinc.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
434 Latigue Road
Waggaman
LA 70094, USA
Tel: +1 504 431 7722
Fax: +4 504 431 7900
www.pipehangers.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.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 152
Principal Group Businesses (continued)
Galvanizing Services
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
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
medwayinfo@josephash.co.uk
www.josephash.co.uk/location/medway
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.premiergalvanizing.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.
Shareholder Informationwww.hsholdings.com | Stock Code HILS 153
Directors, Contacts & Advisors
Directors
Contacts
Professional Advisors
J F Lennox LLB, CA
(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)
A C B Giddins FCA
(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
Shareholder Informationwww.hsholdings.com | Stock Code HILS Hill & Smith Holdings PLC
Westhaven House, Arleston Way, Shirley,
Solihull, B90 4LH, United Kingdom
Tel: +44 (0) 121 704 7430
Fax: +44 (0) 121 704 7439
www.hsholdings.com
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