Delivering intelligent
protection solutions
Annual Report for the year
ended 31 December 2018
Stock code HILS
Image: Zoneguard
with fence and
QuadGuard at
Heathrow
Airport.
Our mission is to deliver
sustainable profitable
growth through the supply of
Infrastructure Products and
Galvanizing Services.
Our sectors
Infrastructure – Roads
Infrastructure – Utilities
Galvanizing Services
Group
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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Strategic Report
Group Highlights
Group at a Glance
Who We Are and Where We Operate
Why Invest?
Chairman’s Letter
Business Model
2
3
4
5
6
8
10 Our Values
12 Our Business Segments in 2018
Infrastructure – Roads
Infrastructure – Utilities
12
14
16 Galvanizing Services
18 Operational and Financial Review
30 Measuring Our Performance
32
36
40 Corporate Responsibility
Risk Management and Assurance
Principal Risks and Uncertainties
Governance Report
Board of Directors
52
54 Chairman’s Introduction to Governance
56 Governance Report
56 Leadership
58 Effectiveness
61 Accountability
63 Remuneration
64 Relations With Shareholders
65 Nomination Committee Report
Audit Committee Report
67
Remuneration Committee Report
73
74 Directors’ Remuneration Report
87 Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
90
Financial Statements
Independent Auditor’s Report
92
99 Group Financial Statements
149 Company Financial Statements
161 Five Year Summary
Shareholder Information
164 Financial Calendar
165 Shareholder Information
166 Principal Group Businesses
169 Directors, Contacts and Advisors
Front cover images:
Top: WAPCO’s Smart Cushion® crash attenuator.
Middle: Composite Bridge installed at Little Buffalo State Park, Pennsylvania, USA.
Bottom: Galvanized lighting columns.
To find out more about Hill
& Smith Holdings visit our
website hsholdings.com
hsholdings.com
1
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Group Highlights
• Robust performance from US and other international businesses, driven by significant investment
in new and replacement infrastructure.
•
•
•
Improved second half performance in UK despite a cautious investment environment.
Seven infrastructure product acquisitions completed in 2018 and early 2019, extending product
range and addressable markets.
Full year dividend increased by 6% to 31.8p.
Revenue
£637.9m
up 9%
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Underlying
operating profit
£80.1m
down 1.5%
Underlying
earnings per share
77.8p
up 2.5%
Dividend per share
31.8p
up 6%
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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 2018
31 December 2017
Change %
£637.9m
£585.1m
£80.1m
12.6%
£76.3m
77.8p
£65.2m
£59.8m
59.9p
31.8p
£132.9m
£81.3m
13.9%
£78.5m
75.9p
£74.1m
£70.2m
68.6p
30.0p
£99.0m
+9
-1
-130bps
-3
+3
-12
-15
-13
+6
*All underlying measures exclude certain non-underlying items, which are as defined in note 3 on page 116 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 whose quantum, nature or volatility would otherwise 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.
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Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 of our products are designed to strict specifications and tested according to applicable
standards.
Infrastructure Products
– Roads
Infrastructure Products
– Utilities
Galvanizing
Services
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 12.
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 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 16.
For more information see page 14.
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Hill & Smith Zoneguard temporary barrier protecting
a section of the M1/M3 Gateway project in Brisbane,
Australia.
Composite stair treads for use at the new Great Wolf
Lodge waterpark in Scotsdale, Arizona, USA.
Galvanized steel gates awaiting collection from Joseph
Ash Limited’s Walsall site.
Percentage of 2018 revenue of
£637.9m shown by location of the
operating site
Percentage of 2018 underlying
operating profit of £80.1m shown
by location of the operating site
Employees by geographical
location
UK – 45%
USA – 36%
ROW – 19%
UK – 37%
USA – 51%
ROW – 12%
UK – 2,023
USA – 1,252
ROW – 1,072
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Who We Are and Where We Operate
We are an international group with leading positions in the supply of Infrastructure Products
and Galvanizing Services to global markets. Through a focus on strong positions in niche
markets we aim to consistently deliver strong returns and shareholder value.
1. USA
4. Norway
Our businesses are situated predominantly on the
east coast and in the mid-west and include V&S
Galvanizing; V&S Utilities; Bergen and Carpenter &
Paterson pipe supports; the Composites Group of
Creative Pultrusions, Composite Advantage, Kenway
and Tower Tech; and the US roads businesses of Hill &
Smith Inc. and Work Area Protection Corp.
A division of ATA, the road safety barrier and signage
business.
5. Sweden
Location of ATA, FMK and Signalvakter, our road
safety barrier and signage businesses.
2. UK
Group head office and various locations throughout
the UK, including Hill & Smith Ltd and associated
Roads businesses; Birtley Group Ltd and other
subsidaries covering our main infrastructure utilities
businesses; and Joseph Ash Ltd who are responsible
for a network of UK galvanizing plants.
3. France
The base of France Galva and Conimast where we
have ten galvanizing plants and a lighting column
business.
1
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2
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6. India
BPSI, a centre of manufacturing excellence for pipe
supports.
7. Australia
Office in Queensland for the development of our wire
rope and safety barrier products business.
18
Find out more detail in the
Operational and Financial
review on page 18.
6
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Stock Code HILS
Why Invest?
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
We aim to deliver superior shareholder returns by building leading positions in the niche markets of infrastructure
products and galvanizing services, in geographies where the underlying drivers of infrastructure spending are
robust.
Our strategy is one of carefully targeted profitable growth through product development, innovation, acquisition
and international expansion, all driven by highly entrepreneurial management teams throughout the organisation.
1.
2.
3.
4.
5.
We are a geographically diverse group and, as such, we are not dependent on one economy
for our success. We are focused on territories where there are either existing high levels of
investment, driven by the need to upgrade or replace existing ageing infrastructure, or where
emerging economic growth is driving the need for new infrastructure spending. As at the date
of this report we operate from 60 sites in 7 countries.
We pursue both organic and acquisition growth. We require our individual business units
to exercise agility and entrepreneurialism, seeking out opportunities in their markets and
responding through innovation in product development. We supplement this organic growth
with value-enhancing acquisitions that complement our existing activities and create new
growth opportunities, and we are proactive and decisive in the way we manage our portfolio.
In 2018, organic revenue growth was 3%, and we acquired six businesses in the UK, US and
Scandinavia which, combined, contributed a further 7% of growth in our revenues.
This all takes place within a disciplined framework of agreed Group KPIs. We achieve a strong
operating cash flow by focusing on underlying cash conversion and a disciplined approach
to each business unit’s return on capital employed. Over the last ten years the Group has
achieved an average underlying cash conversion rate of 88%. In 2018 this was 78% (2017:
78%) or 93% excluding strategic capital expenditure.
We operate a progressive dividend policy and have increased dividend payments by a
compound annual growth rate of 12% over the last 10 years. In August 2019 we will be paying
a final dividend of 21.8p per share which, with the interim dividend of 10.0p paid in January
2019, will amount to a full dividend paid in respect of the financial year ended 31 December
2018 of 31.8p (2017: 30.0p), up 6%.
Our overall objective is to generate
sustainable profitable growth and
shareholder returns. Since 2010 our
total shareholder return has materially
outperformed the FTSE All Share.
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Hill & Smith
FTSE 250
FTSE SmallCap
FTSE All Share
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Chairman’s Letter
Dear Shareholder,
2018 was a more challenging year for your company but I am
pleased to report that, notwithstanding the difficult environment for
certain businesses in the first half, particularly in the UK, the second
half saw the return to growth that we were expecting. I believe that,
in the circumstances, the outturn of revenues of £637.9m (2017:
£585.1m) and underlying profit of £80.1m (2017: £81.3m) represent
a good performance. The results are explained in detail in the
Operating and Financial Review (‘OFR’).
We continued to pursue our strategy of building on our leadership
position in niche markets serving infrastructure needs in a range
of countries, with the majority of revenue and profits arising in the
UK and US. We focus on countries with high levels of infrastructure
investment driven either by regulation, health and safety, security or
environmental concerns, or by emerging economic growth, or both.
Our strategy is to grow both organically and through acquisition
and, as you will see in the OFR, revenue grew organically by 3% and
has been further supplemented by additional net revenue of £40.5m
from acquisitions/disposals.
We completed six acquisitions for a total consideration of £45.2m,
five in the UK and US and one in Scandinavia. These have expanded
our product range in both Roads and Utilities and have been
successfully integrated into our existing businesses. After the
year-end, we announced the acquisition of ATG Access Limited for
a consideration of £22.5m. Based in the UK, ATG has a considerable
international market footprint so will add both products and routes
to market for our security products operations.
As well as maintaining an active acquisition pipeline and leading
subsequent effective integration, your management, ably led by the
Executive Directors, has continued to work on the performance of
the continuing businesses, generating ideas and opportunities for
growth. You will see examples of these in the various sections of
this Annual Report.
In the wide portfolio of businesses that comprise Hill & Smith there
has been a range of performances in 2018. The Board’s focus is very
much to review and debate business performance, to encourage
attainment of the key performance metrics, and to ensure that the
overall mix of businesses is capable of delivering the Group’s targeted
returns. Our attention on this proactive portfolio management very
much continues.
In addition to the focus on performance your Board has spent time
looking at our purpose and values, our responsibilities to all of our
stakeholders, especially our employees, our environmental impact
and succession at the Board level and throughout the businesses.
We have also discussed the dividend and the risk environment,
including Brexit, and these are all covered further below.
People
All companies are reliant on the commitment of their people to
pursue their strategy successfully, and Hill & Smith is no exception.
At 31 December 2018, we had 4,327 employees, including 180 who
joined with the acquisitions completed during the year. On behalf of
the Board, I would like to thank all of them, new and old, for rising to
the challenge and producing the results that we can see.
Our primary responsibility to our employees is to ensure that our
businesses are safe places to work. This is discussed further under
Health & Safety below.
As a Board we have been reviewing our employee engagement in
light of the new UK Corporate Governance Code (‘the Code’) which
came into effect on 1 January 2019. We will be reporting on this in
the 2019 Annual Report.
Jock Lennox
Chairman
Succession planning has remained an important Board priority and
we have discussed the various plans and activities in place, both
business-level specifics and also the wider development activities
that are in place to ensure people are ready to step up when the time
comes. We continue to look at diversity in all its senses so that our
mix of people is tapping into all the sources of talent.
Purpose and values
You will see on page 10 of this Annual Report that we have set out
the Purpose and Values for Hill & Smith for the first time. Whilst this
is also in anticipation of the new Code, the publication of these is in
essence a formalisation of what Hill & Smith has been designed to
achieve, and how it has set out to achieve it, for a number of years
now.
So that these important statements are aligned with the individual
businesses, work has been undertaken involving the Executive
Directors and business-level management to test the direction
and points of emphasis. In adopting these Purpose and Value
statements the Board was able to see that they sit comfortably
at the business level and can be made to ‘work’. We will provide
feedback on their impact in due course.
Environment
We have been reporting on our impact on the environment for
a number of years now. The detailed results are included in the
Corporate and Social Responsibility Report (‘CSR’) contained within
this Annual Report.
As this aspect of corporate responsibility continues to develop we
look regularly at the scope of reporting so that the communication
is consistent and appropriate. Our aim is to conform with our
responsibilities. As the Group continues to grow, our reporting is
focused on accounting for the change in the impact of our relative
intensity. I am pleased to say that this has continued to reduce, from
0.116 in 2017 to 0.108 in 2018.
Health & Safety
We continue to place a high emphasis on ensuring that we make
our various sites safe places to work for our employees and visitors.
Detailed reporting is contained within the CSR report.
We believe it is important to encourage employee shareholder
participation wherever practical and we currently have 786 of our
UK-based employees enrolled in our Save as You Earn (‘SAYE’)
schemes.
The Board receives regular analyses of incidents both actual and
near misses. Management continues to work with the businesses
so that we see consistent reporting and the willingness to learn
from each other’s experiences. In a diverse Group like Hill & Smith,
6
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Training & development
The Apprenticeship Levy
Since the launch of the Apprenticeship Levy in May
2017, Hill & Smith has seen an increase in the number of
personal training and development opportunities across
the Group. The Group contributes c. £280,000 annually
and is determined to ensure that all our UK businesses
are committed to implementing training schemes. To
facilitate this our Group head office works closely with
an Apprenticeship Levy manager to interact with the 10
UK subsidiaries to drive engagement in apprenticeship
schemes. In the last 12 months we have gone from having
only 5 apprentices across three of our UK subsidiaries
to having 64 across eight. Work will continue in 2019 to
encourage more use of the levy.
Sites are taking advantage of utilising their Levy in a
variety of areas; however, the greatest impact is through
Business Improvement Techniques across numerous
companies launching this summer. Through 5S, Kaizen
and efficiency projects those sites will see a great return
on investment during the programme by making the
processes slicker, resolving issues and improving bottom
line profits. Staff are really getting involved in making a
tangible difference in their workplace. Along with this sites
are taking on Apprentices across a variety of other areas:
Business Administration, Electrical Engineering, Design/
Draughtsperson, Health & Safety, Welding, Warehousing,
Sales and Accounting.
Other Training
The HS Group General Management Development
Programme will begin in April 2019 with six workshop
dates throughout April to October 2019. This is for existing
managers who have had no formal training and want to
further develop their leadership skills. The programme
comprises six one-day workshops and will be held at our
Bilston site. It is a skills development programme, and
can be converted in to ILM qualification at a later date if
desired.
Our ‘Understanding the Essentials of Finance’ workshop
will help non-financial managers develop their financial
understanding, appreciate how their decisions affect their
organisation’s financial performance and enable them to
contribute to and understand financial discussions and
meetings in the workplace. It will demystify the jargon,
explore key ratios, and examine key trends and areas
for concern as well as help managers identify future key
issues, threats and opportunities and how to plan and
budget for them.
In Q2 of 2019 we shall be introducing our ‘Successful
Supervisors Programme’, a three-part programme for
first-line managers/supervisors to build their leadership
skills and develop their teams by encouraging flexibility,
motivation and a positive attitude to work.
particularly with the acquisitions that are made, this will remain a
continuing point of emphasis. For the incidents reported, attention is
very much on looking for root causes so that learnings can be made
and shared as necessary across the Group.
We continue to use a third party assurance and advisory support
service and have now extended this to a domestic provider in the
US. Over the last two years the focus on reporting and auditing
has seen accidents reduce by 7.8% and the injury rate per 100,000
employees reduce by 13.6%.
Board succession
In the year, as has already been mentioned, the Code was updated. One
of the changes is the application, for the first time, of the “nine year”
rule to the tenure of the Chair. This is highly relevant to Hill & Smith as I
joined the Board in 2009.
I have set out in more detail in the Corporate Governance Report
how this provision applies. The recommendation of the Board, led
by the Senior Independent Director for this purpose and excluding
me, is that I should be proposed for re-election at the Annual
General Meeting in May. My tenure will continue to be subject to
annual approval. The Board has also agreed that during 2019 it will
commence a search for an additional Non-executive Director to
further strengthen the composition of the Board.
I held a number of meetings with leading shareholders during 2018
and among other matters I flagged the Board’s thinking regarding my
tenure as Chairman. The feedback was supportive and we will continue
with this process of consultation through the Senior Independent
Director during 2019.
As at the date of this report, Mark Pegler will step down as Group
Finance Director on 30 April 2019. This move reflects the outcome
of the Board’s long-term succession planning alongside Mark’s
personal plans for the future. I wish him well and would like to add
my thanks for his major contribution to the development of Hill &
Smith. A search for his successor is underway.
Looking ahead
As is well documented, we face a variety of uncertainties in 2019,
not least Brexit, the range of possible outcomes and their likely
impact in the UK.
In our disclosures on principal risks and risk management and our
comments on the potential impact of Brexit (as set out in the OFR),
we have set out the matters that we have identified as needing
to be managed and mitigated as we pursue the next stage of
development of Hill & Smith.
The outlook section in the OFR sets out our expectations for the
year ahead which, overall, are that we are cautiously optimistic that
2019 will be a year of progress for Hill & Smith.
Dividend and Annual General Meeting
The Board has proposed a 6% increase in the final dividend to 21.8p
which, if approved, would result in a full year dividend also up 6% at
31.8p. Dividends are a central part of shareholder returns and this
will be our sixteenth successive year of increases, a testament to
the Group’s cash generative business model.
The Annual General Meeting is to be held at The Village Hotel, Shirley,
B90 4GW on 16 May 2019. The meeting is an ideal forum for raising
any questions you may have of your Board and I hope many of you take
advantage of the opportunity. I look forward to meeting you there.
Jock Lennox
Chairman
6 March 2019
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Business Model
Our Purpose
Our purpose is to deliver
innovative solutions in
infrastructure products and
galvanizing services, for the
benefit of our shareholders,
customers and employees.
Our Culture
We encourage a high degree of entrepreneurialism
at business unit level, supported by the resources
of a larger group and within a disciplined framework
of clear strategic priorities, whilst at the same
time applying the appropriate level of corporate
governance and reporting.
Our Markets
Our businesses serve a wide range of industries,
including road, rail, utilities, power generation and
construction, supplying infrastructure products
as well as corrosion protection services. Our
largest markets are the UK and US, but we also
have businesses in Scandinavia, France, India and
Australia. For more information see pages 12 to 17.
Business Segments
Product areas
Infrastructure
– Roads
For more
information see
page 12.
12
Infrastructure
– Utilities
For more
information see
page 14.
14
Galvanizing
Services
For more
information see
page 16.
16
Infrastructure – Roads
Our Roads businesses design, manufacture and supply
products including permanent road safety barriers and other
vehicle restraint solutions, temporary work zone protection
products, hostile vehicle mitigation products, street lighting
columns, car park and bridge parapets, and variable road
message systems.
Infrastructure – Utilities
Our Utilities businesses design, manufacture and supply
products and services for the power generation, liquefied natural
gas, renewables, utilities, construction and other industrial
sectors. These include pipe supports, electricity transmission
structures, energy components, liquid storage and water
management solutions, perimeter security, industrial flooring and
access systems, and GRP composite products.
Galvanizing Services
The Galvanizing Services division provides corrosion
protection services, in the form of hot dip zinc galvanizing
and other coatings, for metal products used in a wide range
of infrastructure and other industrial applications. It serves
external customers, as well as the Group’s infrastructure product
companies, through a network of facilities in the UK, France and
the North East region of the USA.
Creating Value
For shareholders
For customers
A focused and well balanced
group capable of generating
sustainable profitable growth
and superior total shareholder
returns.
A highly customer-focused group of businesses,
committed to operational excellence and
delivering innovative solutions, superior
manufacturing capability and the highest quality
customer service.
8
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Our Strategy
Our strategy is to deliver sustainable profitable growth through product
development, innovation and international expansion. We target
geographies with high levels of infrastructure investment driven either
by regulation, health & safety, security or environmental concerns, or by
emerging economic growth, or both. Growth is achieved organically and
through acquisition, and we actively manage our business portfolio.
Our Governance
The Board is collectively responsible for upholding high standards
of corporate governance and leadership, and we place a high
priority on meeting our environmental and social responsibilities,
whilst continuing to deliver value to shareholders. Effective risk
management is critical to the achievement of our strategy, and
our risk management processes are integrated into daily business
activities. For more information see pages 32 to 39 and 52 to 82.
Growth strategy
Outcome
Revenue Growth and Targeted Returns
The Board ensures that revenue growth is achieved at each
individual business unit alongside appropriate targets for margins,
return on invested capital and debt, which in turn flows through to
sustainable profitable growth at Group level.
The Group’s targets are as follows: ROIC of 20%; underlying margin
of 12% - 15%; net debt to EBITDA ratio of 1.5 - 2.0x.
Geographical Expansion
We have a major presence in the UK and the US. From that
strong base, we target further geographies where infrastructure
is either being upgraded or is being invested in, where our existing
solutions can readily and profitably be introduced, and where
businesses can be acquired to enhance our market position.
Entrepreneurial Culture
We require and incentivise our individual business units to exercise
agility and entrepreneurialism, and we allow them room to do so. This
approach ensures that decisions are made close to the market and
that our businesses can respond rapidly both to opportunities and to
changes in their competitive environment.
Portfolio Management
We manage our business portfolio proactively. We supplement
organic growth with acquisitions that complement our existing
activities and create new growth opportunities, but we also
closely monitor all our businesses to ensure that they are
capable of contributing to the attainment of the Group’s overall
growth targets. Where this is not the case prompt action is
taken, whether through restructuring or divestment.
A strong track record, over many
years, of profitable growth,
cash generation and increasing
dividends.
A balanced portfolio of responsibly
managed businesses today, with
leading niche positions in growth
markets.
A growth strategy, management
culture and financial profile that
create a strong platform for
further sustained, superior Total
Shareholder Returns over time.
For employees
As an employer committed to providing the right environment in which to work we insist that people connected with the Group can
work safely, are trained correctly, behave in the right way, and comply with all local legal and regulatory requirements, thus ensuring
the sustainability of the business as well as the environment and the communities in which we operate. We do this by implementing
the correct policies and procedures relating to our people and the environment, by successfully delivering an effective health & safety
system, and by encouraging our businesses to interact with their local communities. See pages 42 to 43 for more information.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Our Values
At the heart of everything we do, our values underpin the behaviours of our people and of our businesses across
the Group.
Protecting people
and our communities
Acting with integrity
Innovating and
developing
Operational
excellence
Accountability
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
We practise the highest
standards of health and
safety, promote wellbeing
for our people, both inside
and outside of work, and
seek to offer protection to
the communities in which we
work through our products
and services.
We do the right thing, for
people, our customers and
all stakeholders. We do
what we say we will do,
expect the same of each
other and speak up when
there is a problem. We place
importance on relationships
internally and externally,
treating everyone we come in
to contact with, with respect,
honesty, openness and care.
We encourage collaboration
both internally across the
worldwide Hill & Smith
Group and externally with
regulators and customers to
deliver the right solutions to
protect our communities. We
are committed to developing
our people to ensure that our
businesses have the right
skills and talents for now and
in the future.
We work alongside our
customers, stakeholders and
partners to deliver solutions,
which add value, increase
efficiency and solve their
problems, whilst offering
the highest standards
of customer service and
behaviours, utilising superior
manufacturing capabilities
and a well-trained and
knowledgeable workforce.
We take accountability for
our own work. We take the
initiative, seek clarity and
transparency and demand
high standards from
ourselves, our colleagues
and our leaders.
This means that we:
•
•
•
do not cut corners in pursuit of lowering cost or increasing efficiency, if it
prejudices the health and safety or wellbeing of our colleagues and customers;
understand that all employees have a duty to each other to keep ourselves safe
from harm or injury;
abide by our own safety policies and procedures; and
• will consider the impact of our actions on the community, our customers and
each other.
This means that we:
•
•
•
•
•
treat our colleagues and customers with respect, even in challenging situations;
deliver solutions which meet the exacting requirements of our customers;
do what we say we will do, when we say it and, if we can’t, we will communicate
in good time;
raise our concerns with senior management if we suspect wrongdoing; and
care for our colleagues and the communities in which we work.
This means that we:
• will always seek to meet our customers’ needs;
• will continue to work in partnership with our customers, to develop our
understanding of the markets in which we both operate;
• will take risks that are within our approved risk appetite in order to develop the
business;
•
•
understand we all have a shared responsibility to develop ourselves and others;
and
develop in-house talent in order to support both the business and the career
aspirations of our employees.
This means that we:
•
•
•
•
•
continually ask ourselves ‘is this what our customers want?’;
treat all our customers and their products with respect;
act ethically in everything we do;
continually review our manufacturing processes to ensure they are as efficient
and as environmentally considerate as possible; and
invest in customer service training for staff in order to ensure they deliver a first-
class experience.
This means that we:
•
•
•
•
•
respond to changing circumstances with agility and make decisions quickly and
with accuracy;
communicate our decisions to colleagues and customers with clarity;
achieve what we set out to achieve and learn from our mistakes;
actively seek out opportunities for continuous development; and
foster a culture where our employees feel able to challenge our leadership.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Our Business Segments in 2018
Revenue
£208.5m
Underlying operating profit £24.2m
Underlying operating margin 11.6%
Number of subsidiaries
11
Number of employees
927
Market drivers
• Government road investment initiatives in the UK and the US:
–
–
Next phase of UK Road Investment Strategy announced, with
increased funding through to 2025 and with Smart Motorways at its
core
Implementation of US Administration’s Fixing America’s Surface
Transportation ‘(FAST’) Act through to 2021
• Ongoing heightened terror threat driving demand for hostile vehicle
mitigation systems for buildings and areas at risk of attack.
Strategic priorities
• Maintaining market-leading positions in vehicle restraint systems (‘VRS’)
and other road safety traffic products, sign posts and lighting columns
• Developing and delivering new industry-leading barrier and hostile vehicle
mitigation systems through market analysis and technical development
• Aligning our businesses as key and sustainable supply chain partners with
our clients
• Continuing to investigate the horizontal market integration of our
manufacturing capabilities
•
Identifying further acquisition opportunities to extend product offer and
further strengthen our market positions.
Geographical spread
• UK (9 sites)
• USA (5 sites in 4 states)
•
•
France (1 site)
Scandinavia (10 sites)
• Australia (1 site)
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Images:
Above: VecuStop attached to Variguard temporary steel
barrier on the M6, junctions 12 to 15, Stafford. UK.
Facing page Top: Permanent precast concrete barrier
installed on the A1M between Leeming and Thirsk, North
Yorkshire. UK.
Facing page Middle: Rebloc barrier installed in Stockholm,
Sweden, by ATA.
Facing page Bottom: A Wayne County, Indiana bridge
replacement project utilising Hill & Smith Inc’s Zoneguard
rental fleet for temporary traffic control.
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Locations
Employees
UK – 9
International – 17
UK – 544
International – 364
Progress
• Growing international acceptance of temporary steel barrier
safety products: major new distribution agreement with
nationwide US distributor; sales into Norway, Denmark,
Australia & New Zealand
•
Investment in additional steel and concrete temporary safety
barrier in the UK and Australia
• Continued development and deployment of new hostile vehicle
mitigation products at high-profile, security-sensitive UK
locations
• Higher demand for lighting columns in France and market
share gained in northern Europe.
Expansion
•
Three acquisitions completed to extend our product offering in
line with our strategy, all successfully integrated into our existing
businesses:
– D Gibson, UK supplier of road signs and ancillary products
– Signalvakter Syd, Scandinavian supplier of traffic
management systems
– Work Area Protection Corp., US supplier of road workzone
safety and traffic control products.
Revenue and Returns
• Revenue up 11% (2017: £187.1m)
• Underlying margin of 11.6%. (2017: 12.6%)
(business segment target range 10% - 14%)
• ROIC of 17.3% (Group target ROIC: 20%)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Our Business Segments in 2018
Revenue
£239.0m
Underlying operating profit £18.3m
Underlying operating margin
7.7%
Number of subsidiaries
15
Number of employees
1,849
Market drivers
•
Requirement for new power generation in emerging economies and
replacement of ageing infrastructure in developed countries
• Government investment initiatives:
– UK Government’s Asset Management Programme (AMP6) for the water
industry
– UK Government and departmental guidelines for critical infrastructure
protection
•
•
Investment in US electricity distribution forecast to continue over medium term
UK investment in new-build housing, supported by Government initiatives to
address long-term housing shortage.
Strategy
• Developing engineered solutions, both in core product range and in adjacent
and complementary areas which can be delivered through existing supply
chains
• Aligning ourselves as key and sustainable supply chain partners with our
clients
•
•
Identifying further acquisition opportunities to extend product offer,
increase penetration of existing products and further strengthen our market
positions
Expansion of fibre reinforced polymer (‘FRP’) technical solutions into wider
infrastructure markets.
Geographical spread
• UK (8 sites)
• USA (13 sites in 7 states)
•
India (3 sites)
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Above: An historic church, in Springboro, Ohio, USA,
built in 1885 with a disguised RF-transparent steeple
manufactured and supplied by V&S Utilities.
Facing page Top: An American Electric Power substation
manufactured jointly by V&S Utilities Oklahoma & Ohio
plants.
Facing page Middle: LPCB SR4 rated cage, providing
physical security of a transformer at a South Staffordshire
Water PLC site. UK.
Facing page Bottom: A Composite Advantage developed
composite bumper or ‘camel’ for use by the US Navy to
moor CVN aircraft carriers when in port.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Locations
Employees
UK – 8
USA – 13
RoW – 3
UK – 785
USA – 767
RoW – 297
Progress
•
•
•
•
•
•
Composite materials businesses benefited from wider product
offering created by acquisitions in 2017
Increased orders for plastic pipe for water management, driven by
AMP6 and higher volume of new housing developments in UK
Exciting opportunities emerging in both local and export markets for
our protection solutions for critical infrastructure sites – first-time
deployment at large data centres in Europe
Building products business embarked on major capital investment
programme to increase capacity and improve efficiency in order to
benefit fully from growth in UK new-build housing market
Strong demand for pipe supports in a robust US economy.
Delivery to the Middle East of our first cryogenic pipe supports
project.
Expansion
•
Three acquisitions completed and successfully integrated,
extending product offering and addressable markets, and
increasing our manufacturing capacity:
– Composite Advantage Inc., Ohio, US supplier of fibre reinforced
polymer infrastructure products including for waterfront, rail,
bridge decks and oil & gas
– Engineered Endeavours Inc., Ohio, US supplier of utility poles
for power distribution and wireless cellular markets
– The Grating Company Limited & Pro Composites Limited, UK
supplier of GRP composite products for construction and rail
markets
•
Pipe supports business in India enjoying demand from both local
and international power markets, supplying projects in India,
Japan, Indonesia and Middle East.
Revenue and returns
• Revenue up 11% (2017: £215.7m)
• Underlying margin of 7.7%. (2017: 7.8%)
(business segment target range 7% - 11%)
• ROIC of 17.6% (Group target ROIC: 20%)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Our Business Segments in 2018
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Revenue
£190.4m
Underlying operating profit £37.6m
Underlying operating margin 19.7%
Number of subsidiaries
5
Number of employees
1,571
Market drivers
• Ongoing high levels of activity in transport infrastructure, utilities, security,
construction, agriculture and other sectors in our chosen geographies
•
Imposition of tariffs on imported fabricated steel products, and Executive
Order to ‘Buy American’ on all infrastructure projects with federal financial
assistance, driving US volumes
• UK market consolidating, presenting opportunities to further strengthen
market leadership.
Strategy
• Differentiation through high service levels and competitive pricing, enabled
by well invested facilities and strategically located plant networks
•
Increasing focus on lower-volume but higher-margin work
• Provide high level of support to, and thereby increase competitiveness of,
Group’s Infrastructure business segments
•
Continue process of geographic infill in UK, North East USA and France,
through acquisition of competitors and greenfield investment.
Geographical spread
• UK – 10 sites
• USA – 6 sites in north east USA and one in the south
•
France – 10 sites
Images:
Above: Galvanized walkways inside a water tower on the
Ariane 6 space project.
Facing page Top: A stature of Queen Aethelflaed, Lady of
the Mercians, being galvanized at Joseph Ash Ltd’s Bilston
plant.
Facing page Middle: Galvanized temporary bridge
structures at Joseph Ash Ltd’s Telford plant.
Facing page Bottom: Galvanized barrier on the Mersey
Gateway Bridge.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Locations
Employees
UK – 10
USA – 7
France – 10
UK – 675
USA – 416
France – 480
Progress
• UK performance benefited from strategic decision to focus on
lower volume but higher margin work from smaller, jobbing
customers
•
US business well ahead driven by strong day-to-activity across
a range of sectors, and despite absence of large one-off
projects
•
Volumes up in France and an improved market share.
Expansion
• Commenced greenfield development of a new galvanizing
plant in the State of New York, due to be operational in Q4,
2019. This provides further filling out of our geographic
footprint in North East USA.
Revenue and returns
• Revenue up 4% (2017: £182.3m)
• Underlying margin of 19.7%. (2017: 22.4%)
(business segment target range 18% - 21%)
• ROIC of 18.5% (Group target ROIC: 20%)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Operational & Financial Review
Derek Muir
Group Chief Executive
Mark Pegler
Group Finance Director
2018 overview
After a difficult start to the year, Hill & Smith returned to growth
in the second half and delivered underlying profitability for
2018 only marginally below the record prior year. Our US and
other international businesses performed strongly, driven by
the significant investment going into the replacement of ageing
infrastructure and new infrastructure projects. Our UK business
experienced certain headwinds earlier in the year, with adverse
weather in Q1 and delays to some key roads projects, but delivered
a strong second half trading performance.
Our UK and US operations, which generated 81% of revenue and
88% of underlying operating profit, operate principally in niche
infrastructure markets where the overall outlook remains positive.
The Group benefits from the industrial and geographical spread
of its markets and businesses, which not only create a resilient
business model but also opportunities for profitable growth. Overall,
we are confident that our focused strategy of developing and
investing in businesses with market leading positions in growth
infrastructure markets, combined with our active and decisive
approach to portfolio management, including bolt-on acquisitions,
will provide continued growth and drive attractive returns for
shareholders.
During the year, in line with our growth strategy, we:
•
•
•
completed six acquisitions in the UK, USA and Scandinavia for
our Roads and Utilities divisions, for total cash consideration in
the period of £45.2m, with further consideration of up to £2.6m
dependent on future financial performance;
committed to a new-build galvanizing facility in northern USA,
expected to be operational fourth quarter 2019;
completed the investment in a further 30km of concrete, and
committed to an additional 38km of steel, temporary safety
barrier in the UK with a combined investment of £10.4m.
After the year end, on 22 February 2019, we completed the
acquisition of ATG Access Limited, a UK-based supplier of
hostile vehicle mitigation perimeter security solutions, for a cash
consideration of £22.5m. In addition, on 10 January 2019, the Group
completed an amendment to its principal debt facility, extending the
term to January 2024 and increasing the size by £50m to c.£280m.
The increase in headroom will allow the Group greater flexibility to
pursue further growth opportunities.
Change %
2018
2017
Reported
Constant
currency
Revenue
£637.9m £585.1m
+ 9
+ 10
Underlying(1):
Operating profit
£80.1m
£81.3m
Profit before tax
£76.3m
£78.5m
Earnings per
share
Reported:
77.8p
75.9p
Operating profit
£65.2m
£74.1m
Profit before tax
£59.8m
£70.2m
Basic earnings
per share
59.9p
68.6p
- 1
- 3
+3
-12
-15
-13
-
-1
+4
(1) Underlying measures exclude certain non-underlying items, which are detailed in note 3
to the Financial Statements.
Annual revenue increased by 9% to £637.9m (2017: £585.1m),
despite a translational currency headwind of £7.1m or 1%. After
adjusting for net additional revenue of £40.5m from acquisitions/
disposals, organic revenue growth was 3%. Underlying operating
profit declined by 1% to £80.1m (2017: £81.3m), which included a
headwind from currency translation of £1.4m. The net operating
profit contribution from acquisitions/disposals was £3.0m.
Underlying operating margin reduced by 130bps to 12.6% (2017:
13.9%) while underlying profit before taxation was 3% lower at
£76.3m (2017: £78.5m). Reported operating profit was £65.2m
(2017: £74.1m), a decrease of 12% on the prior year. Reported profit
before tax was £59.8m (2017: £70.2m). The principal reconciling
items between underlying and reported operating profit are a
goodwill impairment charge of £6.0m, amortisation of acquisition
intangibles of £4.8m and acquisition related expenses of £2.2m.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
£m
2017
Acquisitions &
disposals
Currency
Organic growth/
decline
2018
Revenue
Underlying
operating profit
585.1
40.5
(7.1)
19.4
637.9
81.3
3.0
(1.4)
(2.8)
80.1
The phasing of revenue and to a greater extent underlying operating
profit was again second half weighted in 2018, principally reflecting
improvements in the Group’s UK operations after some challenges
in the first half, the impact of acquisitions and a normal degree of
seasonality across the Group’s portfolio of businesses.
First half
Second half
Full year
295.4
34.6
342.5
45.5
637.9
80.1
11.7
13.3
12.6
31.0
34.2
65.2
291.8
38.8
293.3
42.5
585.1
81.3
13.3
14.5
13.9
35.4
38.7
74.1
2018
Revenue £m
Underlying
operating
profit £m
Underlying
operating
margin %
Reported
operating
profit £m
2017
Revenue £m
Underlying
operating
profit £m
Underlying
operating
margin %
Reported
operating
profit £m
Dividend
The Group continues to generate good levels of profitability and
benefits from a cash generative business model. The Board is
recommending an increase of 6% in the final dividend to 21.8p per
share (2017: 20.6p per share) making a total dividend for the year
of 31.8p per share (2017: 30.0p per share), an increase of 6% on
the prior year. Underlying dividend cover remains a conservative 2.4
times (2017: 2.5 times). Reported dividend cover is 1.9 times (2017:
2.3 times).
Our long-term performance and outlook gives us the confidence
to maintain a progressive dividend policy which has resulted in
sixteen years of uninterrupted dividend growth. The final dividend, if
approved, will be paid on 1 July 2019 to those shareholders on the
register at the close of business on 24 May 2019.
Brexit
Hill & Smith is an international business, operating in seven
countries and selling into numerous others. The Group has
continued to monitor closely, and on a business-by-business basis,
the identified operational and financial risks arising from the UK’s
expected exit from the EU on 29 March 2019.
In Europe we have operations located in the UK, France, Sweden
and Norway. Although the UK businesses do produce goods for
export, the overall percentage is relatively small and the proportion
destined for the EU is less than 1% of Group revenues. Whilst some
of the supply chain inputs for the UK emanate from the EU, again
the proportion is not significant. The operations located in France,
Sweden and Norway do not have any significant transactions with
the UK.
A small number of businesses use supply chains from both the
Far East and the USA and there remains a possibility of potential
disruption at UK sea ports in the period following exit. Contingency
plans are in place within the relevant businesses and throughout the
supply chain to mitigate these risks, such as purchasing additional
stock of key raw materials and securing additional supply chain
capacity.
Approximately 6% of our UK employees are EU Nationals and we are
communicating with them using the latest information from the UK
Government. They will also be receiving our support, to the extent
necessary, to obtain ‘settled status’ if and when needed.
Like other UK based international businesses, we remain exposed to
any impact Brexit may have on currency. Any transactional exposure
is hedged in accordance with existing treasury policies, and the
short term impact should therefore not be material. As is common,
any translational exposure is unhedged and the translation of the
Group’s overseas earnings, net assets and net debt could therefore
be impacted by any sudden and prolonged movement in Sterling.
The impact of any significant macro-economic disruption to wider
demand patterns is difficult to predict but our experience is that our
exposure to longer term infrastructure investment programmes,
in many cases Government-funded, will mitigate the impact on
the Group. As always, we remain vigilant and will react with our
customary speed as necessary.
Outlook
The industrial and geographical spread of the Group’s markets and
businesses not only provide a resilient base, but also opportunities
for growth. Notwithstanding the current cautious investment
environment in the UK, the fundamentals of our niche infrastructure
markets remain encouraging.
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, supported by infrastructure activity, remain
favourable and we expect our businesses to consolidate their strong
market positions and continue to take advantage of opportunities.
In the UK, we have confidence that the Group’s road product
portfolio will continue to benefit from increased investment in the
UK’s road infrastructure. Implementation of the Department for
Transport’s Road Investment Strategy is entering the final year of
the initial five year plan, providing certainty of funding through to
2019/20. Recent UK Government announcements have confirmed
its commitment to a second phase of road investment across 2020
to 2025, increasing funding by some 66% to £25.3 billion compared
to the prior five year period.
In the US, the Administration has implemented its ‘Buy American’
policy through the imposition of tariffs and requirements to
source locally for federally funded infrastructure projects. Our US
businesses remain well positioned to benefit from any such on-
shoring trends.
Overall, despite all the current well-documented political and macro-
economic uncertainty, we are confident that our leading market
positions, business model and financial strength put us in a strong
position to take advantage of market opportunities as they present
themselves. Whilst we continue to experience some short term
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Operational & Financial Review (continued)
uncertainty in the UK, we have reasonable expectations that 2019
will be a year of progress for the Group.
Reconciliation of Reported to Underlying
operating profit
Infrastructure Products
Revenue
£m
2018
2017
447.5
402.8
Underlying operating profit
42.5
40.4
Underlying operating margin
%
9.5
10.0
Reported operating profit
29.3
34.4
+/-
%
+11
+5
Constant
Currency
%
+13
+7
Reported operating profit
Restructuring actions
Past service pension costs
Profit on disposal of subsidiary
Acquisition costs and amortisation
Underlying operating profit
£m
2018
2017
20.3
-
0.3
-
3.6
24.2
20.9
1.8
-
(0.6)
1.5
23.6
The Infrastructure Products division supplies engineered products
to the roads and utilities markets in geographies where there is
sustained long term investment in infrastructure. In 2018 the
division accounted for 70% (2017: 69%) of the Group’s revenue
and 53% (2017: 50%) of underlying operating profit. Revenues
increased 11% to £447.5m (2017: £402.8m) which included a
£5.4m headwind from exchange rate movements. Acquisitions
and disposals contributed a net £40.5m of revenue. Organic
revenue growth was £9.6m, or 2%. Underlying operating profit was
£42.5m (2017: £40.4m), an increase of £2.1m or 5%, with currency
translation headwinds of £0.7m. Acquisitions/disposals contributed
a net £3.0m. Underlying operating margin was 9.5% (2017: 10.0%).
Reported operating profit was £29.3m (2017: £34.4m) and included
intangible asset impairment charges of £6.0m relating to the
Group’s acquisition of Technocover Limited in 2016, and costs of
£0.7m (2017: £2.8m) relating to restructuring actions taken during
the year.
Roads
Revenue
£m
2018
2017
208.5
187.1
Underlying operating profit
24.2
23.6
Underlying operating margin
%
11.6
12.6
Reported operating profit
20.3
20.9
+/-
%
+11
+3
Constant
Currency
%
+13
+4
Our Roads business designs, manufactures and installs temporary
and permanent safety products for the roads market. We principally
serve the UK market, but with an increasing international presence
in selected geographies – Scandinavia, USA, France and Australia
– where there is a growing demand for innovative tested safety
products. Roads represented 33% (2017: 32%) of the Group’s
revenue in 2018, and 30% (2017: 29%) of underlying operating
profit. Revenues increased 11% to £208.5m (2017: £187.1m). After
currency headwind of £2.0m and net contribution from acquisitions/
disposals of £28.3m, the organic decline was 3%. Underlying
operating profit of £24.2m was £0.6m higher than the prior year
(2017: £23.6m), including a £0.3m headwind from currency
translation and £2.1m from acquisitions/disposals.
UK
The UK Government’s Road Investment Strategy (‘RIS’) is entering
its final year of an initial five-year plan. The RIS aims to provide
certainty of investment funding for the period 2015/16 to 2019/20,
to improve the connectivity and condition of the existing road
network and, importantly, to increase capacity, with delivery of 1,300
additional lane miles. In October 2018, the Group was encouraged
to hear the Government commit to further significant investment in
the UK roads network. Confirming funding for its Road Investment
Strategy 2 (“RIS2”) programme, the UK Government increased
investment across 2020 to 2025 to £25.3 billion, an increase of
some 66% compared with the initial RIS programme spanning 2015
to 2020. The delivery of Smart Motorways, in which the Group has
an active and significant presence, continues to lie at the core of the
Government’s investment in the strategic road network.
In the first half of the year we experienced some delays in the
commencement of new projects, principally Smart Motorways,
as Highways England completed detailed planning to ensure
efficient execution. Demand for our rental temporary safety
barrier was therefore below our expectations in the first half,
although completion delays on existing projects helped to mitigate
the impact. New Smart Motorway projects were progressively
commissioned throughout the year and second half utilisation
rates were significantly higher and in line with expectations. As the
significant investment programme ramps up we continue to expect
high demand for both our steel and concrete temporary safety
barriers. In anticipation of the programme ahead, we completed
the investment in a further 30km of concrete and committed to an
additional 38km of steel temporary safety barrier, with a combined
investment of £10.4m. The outlook for the remainder of RIS1 and
for RIS2, the details of which are due to be published later in 2019,
remains strong.
Demand for permanent safety barrier, bridge parapet and lighting
columns was adversely impacted by UK weather conditions in the
first quarter with limited end of financial year spend by local councils
as funds were diverted elsewhere to keep the transport network
operational. The market for permanent safety barrier subsequently
improved and was in line with our expectations. Our bridge parapet
business was also adversely impacted by preparations to relocate to
a new, larger facility expected to be completed in the first quarter of
2019. Our lighting column and signage business continues to deliver
a strong performance in a competitive market. An enhanced product
portfolio and inclusion in a number of supply chain framework
agreements will provide a platform for further development. On
1 January 2018, we acquired D Gibson Road & Quarry Services
Limited for a cash consideration of £0.3m. Supplying road signs
and ancillary products to UK contractors, the business has been
absorbed into our existing lighting column and signage business.
The delays in the commencement of new Smart Motorway projects
adversely impacted our Variable Message Signs (‘VMS’) business
and volumes and profitability were materially below the prior year.
The impact of the lower volumes has been partly mitigated as we
completed the previously announced restructuring involving the
closure of two UK sites and consolidation into our existing facility in
the north east of England. Our Remotely Operated Temporary Traffic
20
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Management (‘ROTTM’) signs, which are safety-led permanent
applications on motorways where no hard shoulder exists, continue
to be deployed across the network. Development of a new, full
colour LED variable message sign for use on the next phase of the
Smart Motorway roll-out was completed and the first project for the
new technology was won for delivery in the first half of 2019.
With the continuing high threat of terrorism, demand for our range
of hostile vehicle mitigation products, including temporary and
permanent, steel and concrete applications, remains strong. We
continue to develop new products and applications to protect key
locations and events across the country, including Hinkley Point,
the US Ambassador’s residence in London on the visit of the
US President, royal weddings and the Commonwealth Heads of
Government meeting. As previously reported, we are experiencing
growing interest from UK and international third parties in
purchasing our proven safety product for road and hostile vehicle
mitigation applications. During the year we sold both new and
existing rental fleet temporary safety barrier for applications in
Denmark, Norway and the UK including 24km for use on ‘Project
Brock’ on the M20 in Kent which will be used to control traffic on the
motorway to Dover in the post-Brexit interim.
Exports of Brifen, our wire rope safety barrier system, and Bristorm,
our high containment anti-terrorist perimeter barrier, experienced
a slow start to the year but finished strongly as projects and credit
financing were released. After the year end, on 22 February 2019,
the Group announced the acquisition of ATG Access Limited
(“ATG”) for a cash consideration of £22.5m. Based in the UK and
exporting to over 30 countries, ATG specialises in the development,
manufacture and installation of hostile vehicle mitigation perimeter
security solutions including bollards, road blockers, barriers and
gates. The combination of our existing security products with those
of ATG provides a strong platform to accelerate the expansion of
both our existing UK and international roads businesses.
Non-UK
Our Scandinavian businesses performed well and profitability was
ahead of the prior year. Further investment in the temporary steel
and concrete safety barrier rental fleet continues to be made to
support significant upgrades to the wider road networks, including
the E4 Stockholm bypass. On 28 March 2018, we acquired
Signalvakter Syd for an initial cash consideration of £0.4m. A further
£0.5m consideration is potentially due dependent on financial
performance over the next five years. A traffic management
business, Signalvakter has been integrated into our existing
Scandinavian operations and will serve to extend our product
offering. In January 2019, we recruited sixteen people from an
existing road traffic safety management business to complement
and accelerate our traffic management and safety products
operation.
In France, our lighting column business has started to experience
higher demand from local councils across the country as additional
budgets are allocated to urban design work ahead of municipal
elections in 2020. Recent work to develop export markets was also
successful with market share gained in northern Europe. Despite a
competitive market, results were materially ahead of the prior year.
Employing both a rental and 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. In May 2018 we signed
a major new distribution agreement with a nationwide US roads
traffic management business and this is a major step forward for
the business, expanding the number of states which the product
can reach. Overall, despite a slower first half of the year, volumes
sold were similar to the prior year. In Australia, road infrastructure
investment remains buoyant. In addition to delivering a 12km
Zoneguard project into New Zealand along with a significant project
in Queensland, the business also invested in the further expansion
of its rental fleet and utilisation was high.
On 9 May 2018, the Group announced the acquisition of the trade
and assets of Work Area Protection Corp. (“WAPCO”) for a cash
consideration of £31.2m. Based in the USA, WAPCO specialises
in the development, manufacture and distribution of a wide range
of road work zone safety products including crash attenuators,
temporary variable message signs, smart work zone systems and
traffic control products such as drums, channelizers and cones.
The combination of WAPCO’s business with our existing US and
international roads businesses will increase the scale and range
of road safety products we can sell into key geographies where
the infrastructure investment outlook is strong. WAPCO has been
fully integrated into our existing US operation and trading since
acquisition has been in line with expectations.
Utilities
Constant
Currency
%
+13
+12
+/-
%
+11
+9
£m
2018
2017
239.0
215.7
18.3
16.8
7.7
9.0
7.8
13.5
Revenue
Underlying operating profit
Underlying operating margin
%
Reported operating profit
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 housebuilding. The requirements for
new power generation in emerging economies and replacement
of ageing infrastructure in developed countries provide excellent
opportunities for the Group’s businesses. Revenues increased by
11% to £239.0m (2017: £215.7m) including a £12.2m contribution
from acquisitions and despite a headwind from currency translation
of £3.4m. Organically, revenue was £14.5m or 7% higher than the
prior year. Underlying operating profit was £18.3m (2017: £16.8m)
including a negative currency impact of £0.4m and a contribution
from acquisitions of £0.9m.
Reconciliation of Reported to Underlying
operating profit
£m
2018
2017
Reported operating profit
Restructuring actions
Impairment charges
Past service pension costs
Acquisition costs and amortisation
Underlying operating profit
9.0
0.7
6.1
0.4
2.1
18.3
13.5
1.0
0.4
-
1.9
16.8
Non-UK
In the US, investment across key utilities infrastructure continues
and our power transmission substation business grew strongly.
Significant steel and zinc price increases were managed effectively
through the supply chain and profitability was ahead of the prior
year. On 17 August 2018, we acquired the business assets of
Engineered Endeavours Inc. from Chapter 11 proceedings in Ohio,
USA for a cash consideration of £4.8m. The business designs
and manufactures utility poles for the power distribution and
wireless cellular markets and gives us 52,000 sq. ft. of additional
manufacturing capacity. Already integrated into our existing US
utility business, performance has been ahead of plan and the
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Operational & Financial Review (continued)
positive reaction from the enlarged customer base bodes well
for the future. Investment in US electricity distribution is forecast
to continue over the medium term and we are excited about the
opportunities for the combined business.
With a growing acceptance of its expanding product offering,
our composite materials group delivered record results, growing
both revenue and profitability by delivering wide ranging projects
for cooling towers, bridge structures, fender piles, seawall,
rail protective cover boards and harbour camels. Kenway and
TowerTech, acquired in 2017, have been seamlessly integrated into
the Group and the benefits of a wider product offering are evident.
Facilities at our Pennsylvania base have been expanded and the
TowerTech operation will relocate in the first quarter of 2019. The
business and assets of Composite Advantage Inc. (“CA”) were
acquired on 5 October 2018 for an initial cash consideration of
£8.0m (net of expected working capital adjustments on completion
of £1.0m). A further £1.2m is due on the expiry of certain warranties
and indemnities. Based in Ohio, USA, CA provides fibre reinforced
polymer products for infrastructure markets including waterfront,
rail, bridge decks and oil & gas. CA is being integrated into the
existing composite products business and will expand the range of
technical solutions into ever wider infrastructure markets. Trading
since acquisition has been encouraging and we remain excited by
the opportunities for growth.
UK
In the UK, all of our utilities businesses were impacted by the
poor weather in the first quarter and, whilst trading subsequently
improved, overall results were mixed. Our plastic pipe business
experienced the expected up-turn in orders from Asset Management
Period 6 (“AMP6”) and continued to enjoy good volumes from new
housing developments. However, private investment projects were
below expectations, in part due to a more cautious investment
environment in the UK. The performance of Technocover Limited,
our security access cover operation, was below expectation as
key water utilities deferred or diverted funds away from security
investment plans and profitability was impacted by operational
gearing and inefficiencies.
The industrial flooring business used the slower start to the year
to restructure its operations, enabling it to improve operational
efficiency as the year progressed. Performance in the second half
of the year was strong as we designed, supplied and installed
flooring, walkways and handrails for rail maintenance depots, energy
from waste plants and rail platform extensions in both steel and
composite material. New products have been readily accepted by
the customer base and will assist in increasing market share. On
27 April 2018, we acquired the business and certain assets of The
Grating Company Limited and Pro Composites Limited for an initial
cash consideration of £0.5m. A further £0.9m consideration is
potentially due dependant on financial performance over the next
five years. The businesses specialise in the supply and installation
of glass reinforced plastic composite products for the construction
and rail markets in the south east of the UK, and have been
integrated into our existing UK composites operation within the
industrial flooring business.
Our security fencing operation continues to develop its range of
tested options for the protection of critical infrastructure sites,
which have been deployed at large data centres in both Ireland
and Continental Europe for the first time. The introduction of more
specialist products has helped to offset the decline in spend from
electrification projects on the UK rail network. Exciting opportunities
exist in both local and export markets that require high security
protection and the recent acquisition of ATG will help widen our
product offering and geographical reach.
Our building products business, supplying composite residential
doors, steel lintels and builders’ metalwork, was impacted by the
poor weather in the first quarter but recovered strongly, benefitting
from growth in the new build housing market and growing its share
of the residential door market. The business also embarked on
a major capital investment programme to increase capacity and
improve efficiency to enable it to take advantage of medium term
growth opportunities.
Pipe Supports
In our US pipe supports business the requirement for engineered
pipe supports in the power sector has continued, albeit at lower
levels versus the prior year, with the focus around combined cycle
gas power, chemical and waste water plants. Strong demand from
a robust US economy, including a growing commercial construction
market in the north east of the country, resulted in our industrial
hangers business improving revenue and profitability. Rising input
prices, principally resulting from the implementation of tariffs, were
managed through the supply chain.
In India, both the local and the international power market for
our engineered pipe supports remains encouraging and we have
supplied coal and gas projects in India, Japan and Indonesia in
addition to our first cryogenics project in the Middle East. Whilst
results were below the exceptional prior year, the introduction of
new products developed by our Indian team will continue to expand
the customer base and our market reach.
Galvanizing Services
Constant
Currency
%
+5
- 6
+/-
%
+4
- 8
£m
2018
2017
190.4
182.3
37.6
40.9
19.7
35.9
22.4
39.7
Revenue
Underlying operating profit
Underlying operating margin
%
Reported operating profit
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 30% (2017:
31%) of the Group’s revenue and 47% (2017: 50%) of underlying
operating profit. Revenue increased by 4% to £190.4m (2017:
£182.3m) which included an adverse currency translation of £1.7m.
Organic revenue growth was 5%. Underlying operating profit of
£37.6m (2017: £40.9m) included a £0.7m currency headwind. The
organic decline in profitability was £2.6m. Underlying operating
margin was 19.7% (2017: 22.4%).
Reconciliation of Reported to Underlying
operating profit
Reported operating profit
Acquisition amortisation
Past service pension costs
Underlying operating profit
£m
2018
2017
35.9
39.7
1.3
0.4
1.2
-
37.6
40.9
USA
Located in the north east of the USA, 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.
Day-to-day infrastructure investment remains strong with growth
across a wide range of market sectors, particularly OEM and Bridge
& Highway with new and replacement bridges, overhead sign
structures, sound walls and highway fencing all performing well.
Overall, despite the absence of large one-off projects, volumes
22
Stock Code HILS
Zoneguard temporary workzone
protection barrier deployed
by Asset Vehicle Restraint
Systems, a division of
Hill & Smith Ltd along
the M6 motorway,
junctions 13-15
near Stoke-
on-Trent.
UK.
23
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Operational & Financial Review
(continued)
were 7% ahead of the prior year which once again resulted in record profitability.
Operating margins were marginally lower than the prior year as higher zinc input
costs were managed through the supply chain. Bridge & Highway demand in particular
is expected to continue into 2019 at significant levels, supplemented by the return of
alternative energy infrastructure products as investment re-commences. Recent moves
by the US Administration to implement tariffs on imported fabricated steel products, along
with an Executive Order to ‘Buy American’ on all infrastructure projects with federal financial
assistance, is expected to benefit the US galvanizing industry.
Bristorm Impeder 30 Bollards,
manufactured and supplied by Hill
& Smith Ltd installed to protect
a bus station in Singapore.
One of seven projects
in the city being
undertaken by
ESCO, our agent
in Singapore.
During the period, the Group committed the capital to invest in the greenfield development of a
new plant which further fills out our geographical footprint. The plant is expected to be operational
in the fourth quarter of 2019.
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.
Volumes were 1% above the prior year, and the business improved market share. Competition
remains strong and the pass-through of higher zinc costs in particular in the second half of the year
was difficult. Peak zinc prices have now worked their way through the supply chain. Growth in the
smaller jobbing market continues but structural volumes remain subdued. Overall, profitability
and operating margin were below the same period prior year principally due to the higher zinc
input costs.
UK
Our UK galvanizing businesses are located on ten sites, four of which are strategically
adjacent to our Infrastructure Products manufacturing facilities.
Overall, volumes were down 5% compared to the prior year with the first quarter
particularly weak due to the adverse weather before recovering as the year
progressed. The volume reduction was also, in part, a function of our successful
strategic decision to focus on lower volume but higher margin work from
smaller jobbing customers as opposed to lower priced structural steel work.
Day to day demand from the agricultural, housing and trailers markets was
strong, offsetting weaker rail and construction sectors. Zinc price increases
were successfully managed through the supply chain albeit resulting in
a lower operating margin than in the prior year. Significant investment
to expand capacity and improve efficiency was made in our Hull and
Medway facilities, the benefits from which are expected to accrue in
2019.
24
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Financial review
Cash generation and financing
The Group again demonstrated its cash generating abilities with
strong operating cash flow of £87.7m (2017: £76.5m).
The increase in working capital in the year was £6.3m (2017:
increase of £19.1m), the prior year increase reflecting significant
rises in commodity prices, particularly zinc. The current year
movement includes a working capital inflow of £16.0m in the
second half, partly reflecting the liquidation of inventory built in the
first half ahead of the anticipated stronger trading period. Working
capital as a percentage of annualised sales was 17.0% at 31
December 2018 (2017: 17.4%). Debtor days were in line with the
prior year at 61 days.
Capital expenditure at £32.8m (2017: £20.7m) represents a multiple
of depreciation and amortisation of 1.7 times (2017: 1.1 times). The
Group invested £12.6m in its fleet of temporary road safety rental
barriers during the year, including £9.7m in the UK in anticipation
of strong future demand from the Government’s Road Investment
Strategy. Other significant items of expenditure in the year included
£4.5m on new facilities to support the expansion of certain of our
businesses in the UK roads and US composite products markets,
£2.1m of equipment upgrades that will improve efficiency and
productivity in a number of our operations, and £0.9m 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 2018 the Group achieved an underlying cash
conversion rate of 78% (2017: 78%), or 93% excluding the impact
of the £12.6m investment in the temporary barrier rental fleet that
will support future growth. Over the past ten years the Group has
achieved an average cash conversion rate of 88%.
Non-
underlying
items
£m
14.9
(11.3)
-
3.6
-
3.6
Underlying
£m
80.1
19.9
(6.3)
93.7
(31.6)
62.1
80.1
78%
Reported
£m
65.2
31.2
(6.3)
90.1
(31.6)
58.5
65.2
90%
Operating profit
Non-cash items
Net movement in
working capital
Cash generated by
operations
Capital expenditure (net)
Adjusted operating cash
flow*
Operating profit
Cash conversion %
*Adjusted to include net capital expenditure and to exclude movements in provisions/
pensions.
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 2018 was £132.9m, representing a
year on year increase of £33.9m including adverse exchange rate
movements of £3.3m principally reflecting the overall weakening
in Sterling against the US Dollar compared with the end of the prior
year. The Group’s net debt includes 41% denominated in US Dollars
and 10% denominated in Euros, which act as a hedge against the
net asset investments in overseas businesses.
Change in net debt
Operating profit
Depreciation and amortisation*
Working capital movement
Pensions and provisions
Other items
Operating cash flow
Tax paid
Net financing costs paid
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
2018
£m
65.2
24.3
(6.3)
(2.4)
6.9
87.7
(13.3)
(3.9)
(32.8)
1.2
38.9
(23.6)
(45.8)
(1.0)
(1.2)
(32.7)
(96.9)
(3.3)
(132.9)
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)
* includes £4.8m (2017: £4.0m) in respect of acquisition intangibles.
**2018 opening net debt restated for the adoption of IFRS 9 Financial Instruments,
reducing net debt by £2.1m.
On 31 December 2018 the Group’s principal debt facility consisted
of a £230m multicurrency revolving credit agreement maturing in
April 2021. At the year end the Group had committed debt facilities
available of £232.7m and a further £11.3m in overdrafts and other
on-demand facilities.
Maturity profile of debt facilities
On demand
2019-2020
2021
2018
£11.3m
£0.8m
On demand
2018-2020
2017
£9.5m
£0.7m
£231.9m
2021
£227.1m
Subsequent to the year end, on 10 January 2019 the Group
completed an amendment of its principal debt facility, extending the
term to January 2024 and increasing the size by £50m to c.£280m,
with no significant impact on costs and no changes to financial
covenants. This amendment provides the Group with extended
certainty of funding through an uncertain economic period and
further increases the headroom available to the Group in order to
pursue growth opportunities.
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
The results of the covenant calculations at 31 December 2018 were:
Exchange rates
Actual
Covenant
Interest Cover
26.5 times
> 4.0 times
Net debt to EBITDA
1.3 times
< 3.0 times
Appropriate monitoring procedures are in place to ensure continuing
compliance with banking covenants and, based on our current
estimates, we expect to comply with the covenants for the
foreseeable future.
Net finance costs
2018
£m
2017
£m
Underlying net cash interest:
Bank loans/overdrafts
3.8
2.8
Non underlying:
Net pension interest
Costs of refinancing
0.6
1.0
1.6
5.4
0.7
0.4
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 2017 revenue
and underlying operating profit using 2018 average exchange rates
would have reduced the prior year revenue by £7.1m and reduced
underlying operating profit by £1.4m, the movements primarily
reflecting the impact of Sterling’s appreciation 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 2019. Retranslating 2018
revenue and underlying operating profit using exchange rates at
26 February 2019 (inter alia £1 = $1.30 and £1 = €1.13) would
increase the revenue and underlying operating profit by £5.3m (1%)
and £1.0m (1%) respectively. For the US Dollar, a 1 cent movement
results in a £1.7m 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 £0.7m and £0.1m respectively.
Non-underlying items
1.1
3.9
The total non-underlying items charged to operating profit in the
Consolidated Income Statement amounted to £14.9m (2017:
£7.2m) and were made up of the following:
Net financing costs in the year were £5.4m (2017: £3.9m). The net
cost from pension fund financing under IAS 19 was £0.6m (2017:
£0.7m) which, given its non-cash nature, continues to be treated
as ‘non-underlying’ in the Consolidated Income Statement. Non-
underlying financing costs also include £1.0m 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 and of modification gains arising in accordance
with IFRS 9. The underlying cash element of net financing costs
increased by £1.0m to £3.8m (2017: £2.8m), the change reflecting
interest rate rises in the US during 2018 and higher levels of
average net debt resulting from acquisitions and capital investment
programmes. Underlying operating profit covered net cash interest
21.1 times (2017: 29.0 times). Reported operating profit covered
total reported interest 12.1 times (2017: 19.0 times).
Business reorganisation
costs
Impairment charges
Amortisation of acquisition
intangibles
Acquisition expenses
Pension past service costs
Income
statement
charge
£m
(0.7)
(6.1)
(4.8)
(2.2)
(1.1)
Cash
in the
year
£m
Future
cash
£m
(0.5)
(0.2)
-
-
-
-
(1.8)
-
(0.4)
(1.1)
Non-
cash
£m
-
(6.1)
(4.8)
-
-
(14.9)
(2.3)
(1.7)
(10.9)
Return on invested capital (‘ROIC’)
• Business reorganisation costs of £0.7m include:
The Group aims to maintain ROIC above its pre-tax weighted average
cost of capital (currently c.9%), with a target return of 20%. In 2018,
ROIC was 17.9% (2017: 20.2%), the reduction largely reflecting the
significant capital investments undertaken during the year and
reductions in underlying operating margins. The Group measures
ROIC as the ratio of underlying operating profit to average invested
capital. Invested capital is defined as net assets excluding current
and deferred tax, net debt, provisions, retirement benefit obligations
and derivative financial instruments, and therefore includes goodwill
and other acquired intangible assets. On a reported basis, ROIC was
14.6% (2017: 18.4%).
Group ROIC
Reported ROIC
•
Operating profit (£m)
Average invested capital (£m)
ROIC %
80.1
446.6
17.9%
65.2
446.6
14.6%
–
–
A charge of £0.5m relating to the restructuring of the
Group’s UK Industrial Flooring business, part of the
Infrastructure Products – Utilities segment, a decision
taken in light of weaker market conditions in the first half
of the year. The restructuring has improved the efficiency
and productivity of the business.
A further charge of £0.2m in respect of the relocation
of the Oklahoma-based Tower Tech business, which
the Group acquired in 2017, to our existing composite
products facility in Pennsylvania.
The impairment charge of £6.1m includes a full impairment
of the goodwill and intangible assets relating to the Group’s
acquisition of Technocover Limited in July 2016, amounting
to £6.0m. Despite a reasonable performance in 2017, albeit
marginally below expectations, in 2018 the business has
experienced a further deterioration in its results due principally
to a lack of activity in the niche areas of the water industry
market that the business services. As a result, an impairment
review was performed at 31 December 2018 resulting in a
full impairment of the goodwill and remaining book value of
acquired intangible assets, reflecting a short/medium-term
outlook for the business that is below that anticipated at the
time of the acquisition.
26
Stock Code HILS
• Non-cash amortisation of acquired intangible fixed assets was
£4.8m (2017: £4.0m), the increase reflecting the acquisitions
made by the Group during the current and prior year.
• Acquisition related expenses of £2.2m (2017: £0.6m) reflect
costs associated with acquisitions and include £0.4m relating
to future consideration payments to previous owners of the
acquired businesses, the terms of which require those costs
to be treated as a post-acquisition employment expense in
accordance with IFRS 3 (Revised).
•
In October 2018 the High Court handed down a judgement
requiring businesses with defined benefit pension schemes
to equalise historical Guaranteed Minimum Pensions (GMPs)
between male and female members. The Group has taken
professional advice as to the impact of this judgement and
concluded that a cost of £1.0m is likely to be incurred in
equalising GMPs arising in prior years. The charge has been
treated as a non-underlying item in accordance with the
Group’s definitions of such items. A further charge of £0.1m
was incurred in respect of changes to the terms of the Group’s
pension schemes in France.
The net cash impact of the above items was an inflow of £2.3m in
the year, a £1.7m outflow expected in 2019 and a non-cash element
therefore amounting to £10.9m. 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 £12.6m (2017: £16.3m).
The underlying effective tax rate for the Group was 19.6% (2017:
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 of reductions in headline corporate tax rates in the UK, USA
and France. Cash tax paid was £13.3m (2017: £16.7m), with the
reduction in spend also reflecting the falls in national corporate tax
rates. Tax paid was broadly in line with the current tax charge for the
year of £13.6m.
The Group’s net deferred tax liability is £6.3m (2017: £5.6m). An
£8.6m (2017: £6.7m) deferred tax liability is provided in respect
of brand names, customer relationships and other contractual
arrangements acquired, while a further £0.6m (2017: £0.9m) is
provided on the fair value revaluation of French properties acquired
as part of the Zinkinvent acquisition in 2007. These liabilities do not
represent future cash tax payments and will unwind as the brand
names, customer relationships, contractual arrangements and
properties are amortised.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 3% to 77.8p (2017: 75.9p).
The diluted UEPS was 77.2p (2017: 74.8p). Basic earnings per share
was 59.9p (2017: 68.6p). The weighted average number of shares in
issue was 78.8m (2017: 78.6m) with the diluted number of shares
at 79.5m (2017: 79.6m) adjusted for the outstanding number of
dilutive share options.
Pensions
The Group operates a number of defined contribution and defined
benefit pension plans both in the UK and overseas. The IAS 19
deficit of the defined benefit plans as at 31 December 2018 was
£23.0m, a reduction of £2.6m compared to 31 December 2017
(£25.6m). The reduction in the overall deficit relates principally to the
UK scheme and was largely driven by a 40 basis point increase in
the discount rate, in line with movements in corporate bond yields,
and deficit recovery payments made during the year.
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 2018 was £17.6m (2017: £20.8m).
The gross assets and liabilities of the Scheme were each reduced
by £7.9m during the year as a result of transfer values taken by
members.
The Group remains actively engaged in dialogue with the Scheme’s
Trustees with regard to management, funding and investment
strategy. A formal actuarial valuation of the Scheme as at April
2016 was finalised in 2017, alongside an update to the investment
strategy, resulting in the Group agreeing a deficit recovery plan with
the Trustees that requires cash contributions amounting to £2.5m
per annum until September 2027. The next triennial valuation is April
2019.
Acquisitions
In May 2018 the Group acquired the business and assets of WAPCO
for a consideration of £31.2m. Intangible assets arising on the
acquisition amounted to £18.0m, comprising customer lists of
£4.5m, patents of £4.0m, brands of £0.8m and residual goodwill of
£8.7m.
In August 2018 the Group acquired the business and assets of
Engineered Endeavors, Inc. for a consideration of £4.8m. Intangible
assets arising on the acquisition amounted to £1.7m, comprising
customer lists of £0.5m and residual goodwill of £1.2m.
In October 2018 the Group acquired the business and assets of
Composite Advantage for a consideration of £10.2m. Intangible
assets arising on the acquisition amounted to £5.5m, comprising
customer lists of £1.5m, patents of £0.5m, brands of £0.3m and
residual goodwill of £3.2m.
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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
Mark Pegler
Group Chief Executive
Group Finance Director
6 March 2019
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
The Group also completed three smaller acquisitions during the
period:
•
•
•
In January we acquired D Gibson Road & Quarry Services
Limited for a cash consideration of £0.3m;
In March we acquired Signalvakter Syd for an initial cash
consideration of £0.4m, with future deferred consideration of up
to £0.5m contingent on financial performance over the next five
years;
In May we acquired the business and assets of The Grating
Company Limited for initial cash consideration of £0.5m
and deferred consideration of up to £0.9m dependent on
performance over the next three years.
Intangible assets arising on these smaller acquisitions comprised
customer lists of £0.4m and residual goodwill of £0.9m.
On 22 February 2019 the Group acquired ATG Access Limited and
its related entities for a cash consideration of £22.5m on a debt free,
cash free basis.
The level of headroom that the Group maintains in its principal
banking facilities enables us to continue to seek opportunities
for acquisitive growth where potential returns exceed the Group’s
benchmark performance targets.
New International Financial Reporting Standards
IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9
‘Financial Instruments’ are applicable to reporting periods beginning
on or after 1 January 2018, and have therefore been adopted by the
Group.
IFRS 15 provides a principles-based approach to the recognition
of revenue from contracts with customers, focussing on the
identification of performance obligations in a contract and requiring
revenue to be recognised when or as those performance obligations
are satisfied. The new standard affects certain revenue streams
in the Group’s Utilities segment where revenue that was previously
recognised at the point of delivery of products to customers is
now recognised over the period of manufacture of those products.
Further details of the impact are set out in the accounting policies
on pages 104 and 105, and in note 1 to the financial statements on
page 114.
The implementation of IFRS 9, which replaces IAS 39, has resulted
in the Group adjusting the treatment of debt modifications in
prior years as explained in note 1 to the financial statements. The
standard has not had any other material impact on the Group.
IFRS 16 ‘Leases’ will be applicable to the Group in the year ending
31 December 2019. The Group’s preparations for the introduction of
IFRS 16 are at an advanced stage and a summary of the expected
impacts is set out in note 1 to the financial statements.
28
Stock Code HILS
Case Study
The Hard Rock Casino, Atlantic City.
Atlantic City has a history of its buildings being devastated by the strong winds that pass
through the area every hurricane season. Consequently it was decided that new buildings
should incorporate more protection from the elements.
Leading the way on this new initiative is the world renowned “Hard Rock Casino and Hotel.”
Creating one of their largest venues in the country a new casino and hotel has been built
complete with a front façade including a 10 storey-high Gibson Guitar. Built from structural tubular
steel this modern artsy “pop” design welcomes guest to the new venue.
The entrance to the Hard Rock Casino &
Hotel, galvanized by the Amboy plant
of V&S Galvanizing. The use of
hot dip galvanizing will protect
the structures and means
they should never have
to close the entrance
to the new
“crown jewel”
of Atlantic
City.
The steel needed to be protected beyond a basic paint system as in the past the storms have brought
flying debris, sand, and ocean salt water to ravage local buildings. Given theses circumstances hot-dip
galvanizing was regarded as the best choice for corrosion protection for all the structural steel used, not
only this new location, but all building restoration and new construction work in this area of New Jersey.
Find out more about the company at http://www.hotdipgalvanizing.com
29
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Measuring Our Performance
The Board has adopted certain 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. Other non-financial KPIs can be found on pages 46 and
48.
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
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.
KPI definition
Annual % growth in total revenue.
Annual % organic growth in revenue.
Underlying operating profit as a % of total
revenue.
2018 performance
Total growth
Organic growth
Down 130bps
%
0
.
9
%
3
8
.
%
5
4
.
%
4
.
3
%
9
3
1
.
%
6
.
2
1
Comment
2017
2018
2017
2018
2017
2018
Organic revenue growth in 2018 was 3.4%,
largely driven by the Group’s Utilities and
Galvanizing Services businesses. Total
growth was higher at 9% as a result of
acquisitions made during the current and
prior year.
The Group’s underlying operating profit
of £80.1m represents a 12.6% return on
sales, a 130bps reduction on the prior
year. The change predominantly relates to
the Galvanizing Services segment, where
the pass-through of higher zinc input
costs reduced the segment margin by 2.7
percentage points.
30
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Underlying earnings per share
(‘UEPS’) growth
Free cash flow
Return on invested capital
(‘ROIC’)
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.
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.
Underlying profit after tax for the year
divided by weighted average number of
ordinary shares.
Underlying free cash flow divided by
underlying operating profit.
Underlying operating profit divided by
average invested capital.
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.
3% growth
No change
Down 23bps
p
9
5
7
.
p
8
.
7
7
%
8
7
%
8
7
%
2
0
2
.
%
9
.
7
1
2017
2018
2017
2018
2017
2018
The Group’s UEPS for 2018 is 77.8p, an
increase of 3% compared with 2017.
Key factors were the contribution from
organic revenue growth, acquisitions
completed during the current/prior year
and a reduction in the underlying effective
tax rate from 24% to 19.5%.
The Group achieved an underlying
cash conversion rate of 78% in 2018, in
line with 2017, or 93% after excluding
strategic capital investment programmes
undertaken during the year. Working
capital increased by £6.3m during the
year, while capital expenditure at £32.8m
represented a multiple of depreciation
and amortisation of 1.7 times (2017: 1.1
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
2018 the group achieved ROIC of 17.9%
(2017: 20.2%), the reduction largely
reflecting the fall in underlying operating
margins during the year and the impact
of strategic capital investments made to
support future growth prospects.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Risk Management and Assurance
Responsibilities
Framework
Effective risk management is critical to the achievement of our
strategic objectives of portfolio management, geographical
diversification, entrepreneurial 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.
Appetite
A Risk Management Framework operates 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). The approach, which
is subject to continual improvement, has allowed the Board to
consider its appetite in the light of the Group’s business model and
carry out a robust assessment during 2018, 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 36 to 39.
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.
The Risk Management Framework is, by definition, only an
outline of the approach to risk management across the Group
and its elements are summarised in Figure 2. 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. Within this framework the following roles and
responsibilities exist:
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;
•
•
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
Framework or Group Principal Risks; and
•
reviewing the detail of external reporting.
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)
32
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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
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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.
A decorative cupola atop an architectural tower with RF-Transparent
concealment panels situated in Northwood, North Carolina, USA
manufactured at V&S Utilities Inc.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Risk Management and Assurance (continued)
Risk in 2018
Risk Committee
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.
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.
Risk Analysis
As part of the challenging validation approach and due to the
changing political environment in the UK, Europe and the US, the
Risk Committee reviewed in depth, the Subsidiaries’ feedback
on the Group’s Principal Risk of ‘Changes in global outlook and
geopolitical environment’ and in so doing, determined that at an
individual business unit level this risk was perceived as referring to
events that would introduce increased competitive pressure to these
businesses causing changes in raw material prices and exchange
rates; reductions in the cost of entry to our markets; and changes in
customer buying habits. Our Subsidiaries felt able to mitigate these
problems at a local level by taking immediate actions to nullify the
effect of these causes, using their entrepreneurial culture and agile
capabilities to respond to such events. However, they felt less able
to formulate what mitigating actions they could take to major global
geopolitical upheaval.
Following detailed debate, the Risk Committee concluded that
the Group’s Principal Risk Register should be amended. ‘Changes
in global outlook and geopolitical environment’ should be treated
as a risk that required Group strategic intervention by way of
product, market and entity portfolio diversification and changes
in our acquisition strategy if needed to mitigate effects of risk
crystallisation. The risk of ‘increased competitive pressure’ should
be included as a Principal Risk, albeit one that the Board looked to
the local management teams to mitigate.
The risk of Brexit was also analysed by the Risk Committee, who
determined that Brexit was an event that increased the probability
and/or impact of the Group’s twelve principal risks rather than
existing as its own risk. Specifically:
•
•
•
•
Increase in competitive pressure as raw material prices increase
due to a weakening in Sterling;
Increase in competitive pressure as raw material prices increase
due to a change in import tariffs;
Increase in supply chain failure as a “no deal” Brexit might have
implications on supply and warehousing capacity;
Increase in supply chain failure as transportation and
bureaucracy cause import delays;
• Changes in Government spending plans may impact UK-based
investment decisions, although we might expect infrastructure
spend to increase in the event that the wrong or “no deal” Brexit
causes uncertainty in the UK economy; and
• Changes in global outlook and political environment as concern
grows that different safety standards may be applicable
between the UK and the EU.
All UK subsidiaries have provided the Board with their assessments
of how Brexit might affect their ability to trade. The results of which
highlighted possible raw material shortages in respect of goods
purchased from the EU as well as other potential supply chain
issues. In response there has been some increased investment
in inventory and some consideration of alternative warehousing
solutions.
Risk Activities
During 2018, to further enhance the Group’s approach to risk
management, we:
•
•
•
•
•
delivered in-depth face-to-face training to the senior managers
of our largest subsidiaries to equip them with the latest insight
into risk management techniques and emerging risk themes;
introduced the mitigation concept of controls and assurances
and discussed the risk management bow-tie analysis of causes
and consequences, pre-event and post-event controls;
attended strategy meetings and held further risk seminars, at
those subsidiaries who requested additional training;
held in-depth discussions within the Risk Committee on the
individual subsidiary risk submissions; and
continuously worked to improve Board reporting, developing
reporting tools for our subsidiaries to help them embed risk
identification and articulation into their business processes.
Risk in 2019
The key focus during 2019 will include:
•
•
•
•
•
•
the Board, following the provisions of the new UK Corporate
Governance Code, assuming responsibility for the monitoring
and testing of the Risk Management Framework and ensuring
that there is a link between risks identified and the internal audit
programme;
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;
continual onsite work with all subsidiaries to align risks with
strategy;
further work to embed the risk management processes with our
subsidiaries, particularly by increasing the range of methods
used to assess the effectiveness of risk mitigations;
consideration of any emerging risks that might disrupt the
business models and strategies of our subsidiaries; and
an assessment of methods in risk management and internal
controls to ensure that our approach remains up-to-date and
appropriate for a Premium Listed issuer.
34
Stock Code HILS
The Mersey Gateway Bridge
Joseph Ash Galvanizing was proud to provide the
galvanizing protection to this bridge structure.
Hot dip galvanizing has been used worldwide
for well over a century because it provides
a long-life, low-maintenance corrosion
protection which safeguards steel
from atmospheric attack. This
is important in huge scale
engineering projects that
need to provide safety
standards for the
public, as well as
longevity for the
structure
being
built.
35
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Principal Risks and Uncertainties
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Risk: Changes in
government spending
plans
Trend:
Slightly higher
Risk: Changes in global
outlook and geopolitical
environment
Trend:
Slightly higher
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Risk: Increase in
competitive pressure
Trend:
Slightly higher
Risk: Product failure
Trend:
No change
Risk: Contractual Failure
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Risk: Supply chain
deficiency
Trend:
Sightly higher
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. This includes the
impact of Brexit which is difficult to determine.
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.
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.
As an international group operating in seven countries and selling into
numerous others the impact of Brexit is difficult to quantify.
Description and potential impact
Increased volatility, uncertainty and slowdown in our markets could result in
increased prices and the emergence of new technologies, leading to a loss
of customers and/or pricing pressures leading and as a consequence a loss
of sales and reduced profits.
The impact of a ‘no deal’ Brexit may lead to a change in trade tarfiffs and/
or a weakening of sterling, causing a resultant increase in prices for raw
materials.
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.
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.
The availability of debt finance to some of our markets sectors may change
as lenders’ appetite for risk decreases.
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. A small number of businesses use supply chains from
both the Far East and the USA, and there remains a possibility of potential
disruption at UK sea ports in the period following Brexit.
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.
36
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Portfolio management
Geographic expansion
Target returns and leverage
Entrepreneurial culture
Mitigation
• Our existing entity portfolio contains a diversity of product, market and territory and
we will continue with this approach. External strategy review completed in 2018 and
mitigating opportunities identified.
• Market and product development initiatives.
• Co-operation between Group businesses, leveraging the Group’s size/international
footprint and exploiting synergies.
• Monitoring of UK businesses and the effects of Brexit.
•
Exposure to longer term infrastructure investment programmes.
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.
• The Group has closely monitored on a business-by-business basis, the identified
operational and financial risks arising from the UK’s expected exit from the EU on 29
March 2019.
Mitigation
• The holding of leading positions in niche markets of infrastructure products and
•
galvanizing services with high barriers to entry.
In line with our entrepreneurial model, our decisions are made close to our markets and
our businesses are agile and responsive to changes in their competitive landscape.
• Regular subsidiary Board meetings that review market and customer activity.
• Our subsidiary businesses aim to provide superior products and high service levels
to customers, whilst aiming to ensure there is no dependency on any one particular
customer.
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.
• Thematic review carried out in 2018 with recommendations made for prioritisation in
2019.
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.
•
•
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.
• 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.
• Contingency plans are in place within the relevant businesses and throughout the supply
chain to mitigate these risks, such as purchasing additional stock of key raw materials
and securing additional supply chain capacity.
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Link to strategy
hsholdings.com
37
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Principal Risks and Uncertainties (continued)
Risk: Weaknesses in IT
systems
Trend:
No change
Risk: Acquisition strategy
failure
Trend:
No change
Risk: Lack of product
development and
innovation
Trend:
No change
Risk: Failure to recruit and
retain key employees
Trend:
No change
Risk: Failure to comply
with applicable health and
safety legislation
Trend:
No change
Risk: Violation of
applicable laws and
regulations
Trend:
No change
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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.
Breakdowns in controls and security procedures could cause the Group to
become susceptible to cyber risks.
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 sustainable
profitable growth for shareholders.
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
the failure to develop a commercially viable offering within an acceptable
timeframe.
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.
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.
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, GDPR, 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.
38
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Portfolio management
Geographic expansion
Target returns and leverage
Entrepreneurial culture
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.
• The Board maintains a watching brief on IT risks, particularly cyber risk, and has
commissioned a project of improvement for 2019.
Mitigation
•
• Board approval required for Group acquisitions, in line with the Group Board’s Schedule
External strategy review completed in 2018, providing a road map for future M&A activity.
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 needs of our
customers is greatest.
Executive Board approval of product development proposals within the Group’s capital
spend approval policies. Active Intellectual Property management, by individual business
units overseen by Group. 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.
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, both in the UK & the US. Use of an online ‘safety cloud’
reporting framework.
• UK & US Health and Safety Forums 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.
External health and safety accreditations and relationships maintained with regulatory bodies.
•
• Health and safety as a priority area of focus for new acquisitions.
• Any incident with serious outcomes is followed up and investigated thoroughly and
improvement recommendations are implemented to minimise any reoccurrence.
Mitigation
• Group Code of Conduct sets out required approach for all staff.
• Staff training provided on Anti-Bribery and Corruption and Competition Compliance.
• 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 2018.
• Toolkits issued to all UK subsidiaries to aid compliance with local GDPR. Audits and further
training to be completed in 2019.
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Link to strategy
Link to strategy
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hsholdings.com
39
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Corporate Responsibility
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.
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.
Non-financial information statement
We aim to comply with the Non-financial Reporting requirements contained in S414CA and S415CB of the Companies Act 2006. The table
below, and the information it refers to, is intended to help readers understand our position on key non-financial matters.
Reporting requirement
Policies and standards which govern our approach
Additional information
See page no.
Employees
Human rights
The environment
Community
Anti-bribery and
corruption
• Group Code of Business Conduct*
Training & development policy*
•
Senior management salary policy
•
• Health & Safety policy*
• Recruitment of employees policy
Employment references policy
•
•
Equal opportunities & diversity policy*
• Board diversity statement*
• Data protection policy*
• Modern slavery policy*
•
•
•
Environment policy*
Energy policy*
Individual subsidiary approach
International competition law policy
• Anti-bribery & corruption policy*
•
• Gifts & Entertainment policy
• Whistleblowing policy*
Description of the
business model
Description of the
principal risk and
uncertainties and
impact of business
activities.
Non-financial key
performance indicators.
• Our business model
• Our purpose
• Our values
• Our business model
• Our markets
• Risk framework
• Principal risks & uncertainties
• Diversity
• Accidents
• Greenhouse gas emissions
• Water & waste
Behaving correctly
Succession planning and talent
management
Group learning and development
Health & safety
Wellbeing
Diversity & inclusion
Gender pay
Human rights
Sustainability
Greenhouse gases
Water & waste
44
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42-43
45-46
43
43
43
44
47
47-48
48
49
44
44
44
69
8-9
8
10-11
8-9
12-17
32-34
36-39
43
46
47-48
48
Visit https://www.hsholdings.co.uk/about-us/corporate-governance/policies
Those policies marked with an asterisk can be found on the Company’s website
40
Stock Code HILS
Case Study
In September 2017, Hurricane Maria brought devastation to the island of Puerto Rico,
leaving the island without power, food, communications or water. More than 1,100
lives were lost in this catastrophic event.
During 2018, the US Bridge and Acrow Bridge companies brought relief to five communities
throughout the island using modular designed bridges. In just six weeks, with the help of the
V&S Galvanizing plants in Columbus, Taunton and Amboy the first of these hot dip galvanized
bridges was manufactured and installed. Within six months, all the community’s bridges
were completed, reconnecting the residents across the island. In total there were 18 bridges
reconnecting the Puerto Rican citizens with families and their lives.
Following the Hurricane Maria disaster,
V&S Galvanizing helped bring relief to
the island of Puerto Rico, by being
part of the relief effort that
rebuilt 18 bridges across
the island re-establishing
the road network
and reconnecting
communities.
V&S Galvanizing’s plants galvanized more than 2,850 metric tons of hot dip galvanized steel, which
was used to create more than 20,000 feet of bridges, including the embedments, stringers, cross
members, and all major structural support members. The flooring was also galvanized and coated with
each company’s trademarked grit surface. Even though the work took place during the heart of the winter,
V&S Galvanizing’s workforce ensured that the steel was galvanized, properly packed into containers and
prepared for the emergency contractors to erect the bridges immediately on arrival of steel at the site.
Find out more about the company at http://www.hotdipgalvanizing.com
41
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Corporate Responsibility (continued)
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 people. 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. Our aim is to continually develop
our Group leadership and management capabilities across all levels of the organisation,
enabling all our managers to effectively motivate and co-ordinate their teams in their
business.
Succession planning and talent management
We are in the fourth year of our Succession Planning and Talent Management (‘SPTM’)
programme for managers across all subsidiaries. Subsidiary Boards continue to identify the
senior managers within the Group who would succeed them on their subsidiary board as
directors. In 2018 we saw the programme bear fruit, in that two managers were promoted to
the position of subsidiary company directors and, in one case, the opportunity was filled by a
senior manager from elsewhere in the Group.
UK subsidiaries continue to engage 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.
In 2018 we introduced an SPTM programme into our US subsidiaries, with twelve senior
managers being identified as leaders of the future. Participants were identified by local
Managing Directors across the three US business groups and attended a nine-day
programme over seven months. The workshops were delivered at various different sites
across the US, incorporating site tours to provide an opportunity for managers to improve
their understanding of our different businesses and network effectively with their peers.
The programme was designed to maximise the impact of these leaders and their teams
within their own organisations. Content included leadership, emotional intelligence, financial
awareness, understanding culture and performance, leading change, strategy and innovation.
Group learning and development – strengthening our talent pipeline
Alongside these management development programmes, individuals are encouraged to
undertake appropriate specialist/technical and personal development appropriate to their
roles and aspirations and in line with organisational strategy and in 2018 we introduced
a number of apprenticeship schemes across the UK subsidiaries. Our UK sites are taking
advantage of utilising their apprenticeship levy payments in a variety of areas; however, the
greatest impact is through Business Improvement Techniques launched across numerous
companies this summer. Through 5S Lean Development and Kaizen projects, businesses
are looking to see major improvements in their manufacturing processes as well as taking
on apprentices across a variety of areas: Business Administration, Electrical Engineering,
Design/Draughtsperson, Health & Safety, Welding, Warehousing, Sales and Accounting. In
addition, in 2019 two new development programmes will commence:
•
The UK Hill & Smith Group General Management Development Programme designed
for existing managers who have no formal training and want to further develop their
leadership skills. The programme is one of skills development and comprises six one-day
sessions. It will be possible to convert to an ILM qualification at a later date if desired.
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Stock Code HILS
•
The US Supervisors Development Programme is a five-month
programme, delivered as a combination of face-to-face and
virtual workshops. The programme has been designed to
ensure our next level of supervisors/managers are developing
their skills in line with the senior managers, delivering consistent
messages from management levels across the businesses
of leadership, goal setting, accountability, giving feedback,
managing change, influencing others, handling resistance and
performance coaching.
Employees are also encouraged to immerse themselves in the
Group with regular communication through the Group’s intranet
and owning shares in the Group through the employee sharesave
scheme. This currently has over 750 participants.
Diversity and inclusion
The Group is committed to equal opportunities and fairness
and to policies, practices and regulations for promotion of equal
opportunities in recruitment, training and career development. As
the Group has a global presence, these are appropriate for the
local areas of operation. This includes a no tolerance approach to
discrimination, bullying and harassment. All our policies promote the
principles of fairness and equal opportunities and if these are not
followed, employees can use an externally hosted whistleblowing
hotline to report adverse behaviours. The Board has overall
responsibility for the Company’s Equal Opportunities, Discrimination
and Diversity Policy.
As at 31 December 2018, 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 indicates the percentage 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. The data for each of the above companies
can be found on their websites via www.hsholdings.com.
For 2018, the Group extended these calculations to all our UK
subsidiaries. This Group data can also be found on our website
www.hsholdings.com.
Wellbeing
During 2018, the Group partnered with Lifeworks to deliver an
Employee Assistance Programme (‘EAP’) to its UK employees. This
programme includes the following: 24/7/365 access to support;
EAP-appropriate counselling model; unlimited routine telephonic
critical & significant incident support; phone apps; and support for
dependants. Lifeworks are also able to support our international
colleagues and we will be looking at this in more detail during 2019.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Number of PLC
Board Directors:
Male & Female split
Male 5
Female 1
Number of other
Directors:
Male & Female split
Male
59
Female 2
Number of senior
managers in the Group:
Male & Female split
Male 167
Female 19
Total number of
employees in the Group:
Male & Female split
Male 3,728
Female 366
Visit www.hsholdings.com
To read the Board’s Statement on Diversity and the Group’s Equal Opportunities Policy.
hsholdings.com
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Corporate Responsibility (continued)
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 Code
of Business Conduct (‘CBC’) sets down the guidelines by which we
expect our business to be conducted and this is supported by a set
of global policies issued through the Group intranet and internal
communications.
The CBC presides over areas such as health and safety, fair,
honest and ethical business practice, gifts and entertainment,
conducting international business, protection of individuals,
resources and assets and at a high level summarises the Group’s
legal and compliance responsibilities in areas such as anti-bribery
and corruption, export laws and regulations and international
fair and open competition. The CBC also extends to the handling
and minimisation of conflicts of interest and the protection of the
Group’s valuable intellectual property rights.
The Group’s written policy states that if any employee has
reasonable grounds to believe that the Group’s CBC policy or internal
Group policy is not being adhered to by any person or group of
people, he or she is able to contact Senior Managers within their
business unit, the Group Company Secretary or the Chairman of
the Audit Committee. Should individuals wish to raise concerns
anonymously they are able to do so via a compliance hotline and
email facility (the ‘Reporting System’).
The Reporting System is operated in conjunction with a
whistleblowing policy, which is approved annually by the Audit
Committee. The policy gives assurance that issues will be
investigated and resolved in accordance with the principles of
the CBC. During 2018 eleven such issues were reported and
investigated.
The CBC is designed to ensure that as a Group, all subsidiary
companies act ethically, honestly, with integrity and in a legally
compliant manner in their business activities and this applies to
everyone who is engaged by the Group anywhere in the world,
whether they are employees or third parties. Consequently, as
part of the CBC the Group has implemented a set of procurement
standards, which seeks to ensure that the Group and its subsidiaries
mitigate any risk stemming from its supply chain and is able to
leverage the economies of scale a group of its size, composition and
structure can hope to expect.
The CBC is not designed to supersede detailed Group policies
but rather to supplement and summarise the Group’s compliance
initiatives, its behavioural and ethical standards, as well as to give
the relevant assurances in respect of the Group’s key corporate,
legal and social responsibilities.
As in previous years, each business is required to certify its
compliance with the policies issued by the Group during the year
and in particular with the CBC.
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 during
2018 to supplement the Group’s existing compliance controls in
respect of anti-slavery and human trafficking. In January 2018 we
undertook an internal audit of our Bergen Pipe Supports business in
India and concluded that there were no issues that should concern
the Group. During 2018 we have also undertaken an in-depth
analysis of the location of our UK-based subsidiaries’ customers and
suppliers and compared that against the Global Slavery Index. The
analysis revealed that the vast majority, 97% of both our customers
and suppliers, were based in the United Kingdom and that only
< c.0.08% of suppliers and customers were based in countries in the
bottom quartile of the Global Slavery Index. Consequently, the risk
of exposure to modern slavery in our supply and customer chains
is considered to be low. However, we are taking steps to ensure that
these customers and suppliers conform to the Group’s CBC and
Modern Slavery policy. We intend to undertake the same exercise
with our USA-based subsidiaries in 2019.
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, online training and auditing
via simulated dawn raid. The programme is based on requirements
of UK law with local variations applied to non-UK businesses.
The Group operates a Sanctioned Countries Policy in line with its
legal and financial obligations using restricted party screening
software. Additional protocols have also been provided to certain
subsidiaries to ensure they meet all international obligations when
trading in sensitive geographical areas.
Procurement controls
The Group is further developing its procurement systems to
enhance and embed best practices in purchasing activity and during
the year looked at how the Modern Slavery Act impacted upon its
supply chain.
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Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Health and safety
An ongoing and non-negotiable commitment to our workers continues to minimise the risks
they face on a daily basis. The provision and maintenance of good health, safety and welfare
standards for everyone is a prime focus across all sites. The Group continues to adopt
various measures to maintain a safe working environment, to ensure work-related risks are
effectively identified and 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 awareness around and 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 which continues to be focussed on: third-party
support including a programme of external audits, a compliance-based software solution and
for the UK/US subsidiaries regular Group safety forum meetings. In the US, the appointment
of a third-party Safety Specialist, to mirror our well established approach in the UK, will
provide more effective support for site auditing and ongoing advice to the US operations.
This approach, alongside our safety forums and regular contact with key parties on each site,
continues to ensure that best practice is shared, that practical solutions to common issues
are evaluated and that overall, sites are striving to work to a set of common standards.
Summary of health and safety objectives for 2018
Objectives
Outcomes
In the UK, the safety culture
assessment tool was re-run to
provide us with a comparison
on how the safety culture
across the businesses is
improving.
In the US, an inaugural Health &
Safety Forum was held in April
2018 with another in November,
bringing together, for the first
time, key health and safety
teams from across our US
subsidiaries who shared best
practice, discussed common
issues and agreed a way
forward for safety performance
and auditing.
This was undertaken across all UK sites in July
2018. Whilst the 55% response rate was lower than
the previous survey (2016: 65%), the Safety Climate
Tool ratings showed improvements across all areas
reviewed. Overall, our UK sites are performing in line
with other industries. Of particular note were upward
performance shifts in Organisational Commitment
and Health & Safety Trust and Engagement. All sites
still face the ongoing challenge of ensuring their day
to day working procedures covering H&S requirements
are made simpler and are easier to understand by our
workers. Sites are now starting to implement their own
action plans to address the survey findings.
Full day meetings in April and November 2018 saw 22
representatives from all US businesses discuss a range
of safety-related matters, together with key parties from
our Insurers. The days were extremely useful in sharing
best practice and setting the framework for future
relationships and meetings. Further meetings for 2019
are planned. In parallel with the US Safety Forum, an
external Safety Specialist has been appointed to assist
the Company in providing more scrutiny and support
to the US sites. The appointment will run alongside the
UK’s continued use of a third party consultant to advise,
audit and validate safety performance.
The continuation of the external
audit programme, with current
levels to be maintained or
improved, as appropriate.
Audits undertaken for UK sites showed a consistent
level of performance from 2017 and visits to ATA in
Sweden and Bergen Pipes in India also showed those
subsidiaries are improving their approaches to health
and safety.
For the US, following the appointment of the Safety
Specialist, a joint exercise with our UK Consultant was
undertaken at three sites to share our UK audit protocol
and expected standards. The US Consultant is now
all set up and will commence the 2019 programme of
audits directly with each site.
For France, a Board visit was undertaken and an
overview of their safety performance was discussed.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Corporate Responsibility (continued)
Objectives
Outcomes
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.
Within the UK subsidiaries, there was a 22% increase in the numbers of near miss events reported
which demonstrated the effectiveness of various awareness campaigns reminding workers of the
importance of ‘not walking by’ something that may be dangerous. At the same time, we also saw a
reduction in total injury reports, which we hope is also a reflection of addressing issues before they
cause an injury.
Collating a consistent set of data points for rates is ongoing.
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, and Mallatite
Ltd, France Galva;
• Within the Joseph Ash Group, additional sites have been certified to OHSAS 18001 with a view to the remaining sites attaining it by the
end of 2019;
• Birtley Group, Technocover and Bergen Pipe Supports India have started their OHSAS 18001 journey and are expecting to achieve
certification in 2019;
•
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 Achilles 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.
KPIs
Link to our strategy
KPI definition
2018 performance
Comment
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.
Number of
accidents, including
minor injuries.
Number of lost time
accidents.
Audit scores and
benchmarkings.
3
0
5
4
6
4
2017
2018
Health and
safety
Incidents
The focus during 2018 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.
Down 7.8%
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 2018 the Group received, on a like-for-like basis, 464 accident reports (2017:503). Allowing for acquisitions which have now been included
in the Group’s health & safety regime, the injury rate per 100,000 employees fell by 13.6% and days lost due to accidents fell from 123 in 2017
to 61 in 2018.
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 2018 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.
With our US Safety Specialist now appointed, the Group is better placed to benchmark the US operations going forward.
2019 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, ensuring the results from the safety culture assessment tool are used to form future strategy and action plans for each site.
Firmly embedding the Safety Forum across the US subsidiaries to assist in sharing best practice, discussing common issues and
agreeing the way forward for safety performance and auditing.
The continuation of the external audit programme for sites in the UK, Sweden and India, with current levels to be maintained or improved,
as appropriate. For the US sites, ensuring each one is audited by the newly appointed Safety Specialist and benchmarked standards
collated accordingly to provide a baseline against which future performance can be assessed. In France, we intend to undertake a further
review of their corporate health and safety arrangements to provide a benchmark against the UK/US businesses.
• An ongoing drive to encourage better reporting of near misses and non-injury related events and encouragement to promote the
monitoring of safe/unsafe behaviours as a means for providing both positive and negative feedback to workers and management.
46
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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.
As in previous years, the Group continues to measure its water and energy usage and
monitor the disposal of its waste products, paying particular attention to the recycling of
materials. Different geographies have different attitudes to waste disposal and recycling
and the Group is committed to seeking ways to motivate its businesses to adopt an
environmentally friendly approach to these activities. In the UK we utilise the services of CMR
Consultants (‘CMR’), an independent energy management consultancy who help to collect,
collate and verify the data.
A programme of environmental audits is carried out on a regular cycle, by an independent
third party, to monitor individual company performance and to assist the Group in reducing
its environmental impact on an ongoing basis. In addition, during the year our UK-based
Group companies conducted energy audits at their premises, in accordance with the Energy
Saving Opportunities Scheme.
Recommendations were made following these audits and these were discussed at the
Company’s annual Energy Forum meeting in November 2018, where the subsidiary Energy
Champions shared experiences and best practice and discussed actions to identify energy
savings opportunities, how to drive forward their implementation, and whether such plans
should be developed on a local basis or sponsored by the Group.
Our UK operations are also committed to working towards compliance with the ISO
14002:2004 standard, which is awarded to companies that operate to an accepted
environmental government standard. A programme of audits has been agreed for our UK
businesses, with companies monitoring their environmental impact on a day-to-day basis.
Greenhouse gas (‘GHG’) emissions
The Group’s GHG emissions continue to be constantly monitored, so that we can improve
upon our use of energy, water and 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 them, allowing us
to monitor the impact of our operations on the environment and make improvements where
feasible.
Group total emissions by scope
Group
emissions
2018
Group
emissions
2017
Group
emissions
2016
Group
emissions
2015
Scope 1 (Gas, fuel & oil usage)
44,231.49
44,995.94
45,346.72
40,662.05
Purchased electricity
24,448.78
22,599.19
21,950.87
23,146.75
Water & waste
Total tCO2e
Total revenue
Intensity ratio
528.90
472.20
869.10
466.07
69,209.17
68,067.33
68,166.69
64,274.87
£637.9m
£585.1m
£540.1m
£467.5m
0.108
0.116
0.126
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Corporate Responsibility (continued)
KPIs
Link to our strategy
KPI definition
2018 performance
Comment
C02e
emissions
Cost reductions and
greater efficiency,
improve not only our
operating margins but
also the sustainability of
our operations.
Carbon usage
comparison
year on year and
over a three-year
programme.
C02e
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9
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9
6
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IR
6
1
1
0
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8
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1
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0
2017
2018
2017
2018
The Group has continued to focus on energy saving
opportunities; however, due to the acquisition of three new
sites actual total tCO2e used across the group rose by
1,142.85 tonnes. Group activities also increased throughout
the year with the result that the Group’s intensity ratio fell by
6.9%.
Water consumption
Although water consumption rose in 2016, the initiatives put in place in 2016-2017 resulted in a fall in overall water usage in 2017 of 7.4% with
a resultant 14.7% fall in the intensity ratio. These same initiatives have continued the improvement in 2018, with the IP ratio falling by a further
12.2%.
Group water usage
UK water usage
Overseas water usage
Total usage
Ratio per £1,000 of Group turnover
2018 volume
2017 volume
36,895.5 m3
50,589.4 m3
87,484.9 m3
0.137
36,001 m3
55,475 m3
91,476 m3
0.156
Waste management
The Group continues to manage its waste disposal, discouraging the use of landfill sites and 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.
Waste quantities
Liquid waste
Acidic waste (like-for-like)
Waste to landfill
Recycled waste
Total waste (inc. landfill)
2018 volume
2017 volume
11,727 m3
10,471 m3
12,083 m3
10,475 m3
2018 tonnes
2017 tonnes
5,038
28,779
33,817
4,404
20,736
25,410
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.
Visit www.hsholdings.com
To see the Company’s Energy and Environmental policies
48
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Although the Group does not have a Group-wide programme in place to support specific
charities or communities, it remains committed to encouraging its subsidiary companies to
fully engage with their local communities. The Group values its relationship with the local
stakeholders and the support it receives from them.
During the year Joseph Ash Ltd supported the Lily Mae Foundation and worked with a valued
customer, Reid Steel, to rebuild a school on the Caribbean Island of Tortola. Other subsidiaries
supported national and local organisations including Magic FM, Macmillan Cancer Support
and Hope House.
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Images:
Top: Artist’s impression of the new school on the Caribbean island of Tortola.
Middle: Staff at Technocover Ltd, Welshpool, hand over a cheque in respect of their fundraising efforts.
Bottom: Lionweld Kennedy Bake Off and Joseph Ash Ltd’s sponsored golf day.
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The Massachusetts Bay Transit Authority is
using Composite Advantage Inc’s products
for their accessibility platforms in
Boston. These fibre reinforced polymer
(‘FRP’) composite platforms
and ramps are replacing
deteriorated concrete panels
on train platforms as
they are unaffected by
salt, water and de-
icing chemicals.
50
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Governance
Report
Board of Directors
52
54 Chairman’s Introduction to Governance
56 Governance Report
56 Leadership
58 Effectiveness
61 Accountability
63 Remuneration
64 Relations With Shareholders
65 Nomination Committee Report
Audit Committee Report
67
73
Remuneration Committee Report
74 Directors’ Remuneration Report
87 Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
90
Top: The thrilling new White Cap and Breakers Edge water
slides at Hershey Park, Pennsylvania, constructed with
steel galvanized by our V&S Galvanizing plants.
Bottom: Modular steel security building incorporating
twin and single doors, designed to protect
mechanical and electrical operational equipment.
Provided by Technocover Limited to a water
booster station on an Affinity Water Limited site.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Board of Directors
J F Lennox LLB, CA
Chairman and Non-executive (62)
Jock is the Non-executive Chairman of Enquest plc and a Non-executive
Director and Audit Committee Chairman of Barratt Developments plc. Jock
was a Non-executive Director of Dixons Carphone plc until the end of 2018
and retired as a partner from Ernst & Young in 2009.
Appointed to the Board
12 May 2009
Committee Membership
Nomination (c)
D W Muir BSc, CEng, MICE
Group Chief Executive (58)
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 30 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 (50)
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 July 2016 to June 2018 he was Managing Director of the
UK Utilities Division.
Appointed to the Board
11 March 2008
Committee Membership
n/a
52
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
A C B Giddins FCA
Senior Independent Non-executive (53)
Alan is a Managing Partner and 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 a company in which 3i has invested, 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 (52)
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 a Non-executive 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 (60)
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 Senior Independent Non-executive Director and Chairman of the Audit
Committee at Cranswick plc, where he is also a member of the Nomination
and Remuneration Committees. Mark was also a Non-executive Director of
Mitie Group PLC until July 2018.
Appointed to the Board
1 June 2016
Committee Membership
Audit (c), Remuneration, Nomination
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Chairman’s Introduction to Governance
Mark Reckitt, Chair of the Audit Committee, gives more insight
into this in his report on pages 67 to 72.
In January 2018 we considered the findings and conclusions
of a review of our strategy, confirming the Board’s belief in the
continuation of the Group’s strategy of developing leading positions
in the niche markets of infrastructure products and galvanizing
services.
More information on our strategy, our business model and our
markets can be found on pages 8 to 17.
As reported last year the Board received the findings of an externally
facilitated Board effectiveness review and during the year have
considered what actions should be taken to respond to those
conclusions, in light of the 2018 Code recommendations.
More information can be found in our report on Board
effectiveness on page 59.
In response to market sentiment, the Board has continued its robust
consideration of executive remuneration, considering how to best
balance the promotion of the Group’s long-term success whilst
supporting an appropriate internal culture.
Annette Kelleher, Chair of the Remuneration Committee,
explains more in her report on pages 73 to 82.
Looking Ahead
The Governance landscape has changed considerably during 2018,
with BEIS statements on executive directors’ pay, gender pay, CEO
pay ratios, and guidance on the application of s172 Companies Act
2006; the new Corporate Governance Code published by the FRC
along with associated guidance on Board effectiveness; and also
publication of the Wates Principles for large private companies
which will affect three of our UK subsidiaries.
The Board has and continues to review the 2018 Code to ensure
that it can comply during 2019 with its principles and provisions. We
have already started a project to formalise the Company’s purpose,
culture and values.
Some of the output of this work can be found in our Strategic
report on pages 10 to 11.
We have discussed workforce engagement with the management
teams of our subsidiaries and whilst we are pleased with the level of
top-down engagement, we are considering more options to improve
total engagement to a level which will support our values and our
mission to deliver sustainable profitable growth.
2019 is an important year as we seek to ensure that our governance
arrangements continue to support our Group’s growth, whilst at
the same time ensuring that we remained focused on delivering
our strategy. I would like to thank my Board colleagues and all
employees for their continuing efforts in developing our Group and
delivering innovative solutions from their companies.
Jock Lennox
Chairman
We have used the UK Corporate Governance Code 2016 (the “Code”)
to assess our governance arrangements during 2018. As a premium
listed issuer on the London Stock Exchange and in accordance
with the listing rules, Hill & Smith Holdings PLC has assessed
its application of the Code under the headings of: Leadership,
Effectiveness, Accountability, Remuneration and Relations with
Shareholders. In doing so the Board can confirm that for the
financial year ended 31 December 2018 the Company complied fully
with the requirements of the Code.
Board Dynamics
The Board leads the business in a way that is honest, transparent
and accountable and is ultimately responsible for the delivery of
the Group’s strategy and for the management of risk. 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 comprises four Non-executive Directors, including myself,
as Chairman, and two Executive Directors. Each director brings a
set of skills and experiences to the Board discussions ensuring
that a frank exchange of views drives positive decision-making and
continues the Company’s strategy, which has proven successful in
delivering value to shareholders.
More information can be found on the Board’s effectiveness in
the Governance Report see page 59.
Board Activities
During the year we continued to make improvements in our risk
management processes, (see pages 32 to 34) and strengthen our
internal controls environment.
54
Stock Code HILS
Situated around environmentally
sensitive coastal estuaries on the
California coastline, this inert
fibre reinforced polymer
access walkway provides
an approach for the
inspection and repair
of steel electrical
transmission
structures.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Governance Report
Q: What is the role of the Board?
A. The Board sets the entrepreneurial culture, within which our subsidiaries operate. The Hill &
Smith Holdings PLC Group consists of the Company and the principal subsidiary companies,
listed on pages 166 to 168, and during 2018 operated in seven different countries. Whilst
the Group’s businesses are directly supervised by local operating boards and performance
is monitored at individual operating company and divisional levels, reports are received by
the Group Board on a monthly basis detailing financial performance, including variances to
forecast and estimated year-end outturns; health & safety activities; people activities; and
risks and opportunities.
More details of the Group’s business model and strategy can be found on pages 8 to 17.
There is careful oversight of the individual businesses. The Executive Directors regularly
attend the subsidiary companies’ monthly board meetings, and there is liaison across
divisions to ensure, where appropriate, the consistent application of governance, operational
procedures and Group policies and practices. There are clear lines of delegated authority
and businesses are given a high degree of autonomy to promote their activities in an
entrepreneurial fashion. There is regular communication between the managing director of
the subsidiary and our Chief Executive, who also attends subsidiary board meetings. The
two Executive Directors are accountable to the Board for the operational application of these
controls.
As we move into 2019 and acknowledge the new principles and provisions of the 2018 Code,
the Board and in particular our CEO, supported by the Group Company Secretary, will review
the Purpose & Values project. We commenced this in the latter part of 2018 and involved
meetings with, and information received from the Directors of our subsidiaries and their
immediate reports. The findings will allow the Board to articulate to a wider audience the
purpose of Hill & Smith Holdings PLC.
Q: What are the Board’s responsibilities?
A. The Board is collectively responsible for the long-term success of the Company and is
focused on ensuring its own effectiveness. The Board has established a process designed
to maximise that effectiveness and this operates within a framework of Board meetings,
discussions and site visits; strategic focus; information provided by the Executive Directors
and senior management; and knowledge of the governance background within which the
Group operates and the affairs of the subsidiaries. Enabling the Board to support the Group’s
long-term success, whilst managing any conflicts of interest.
Q: How does the Board discharge these responsibilities?
A. 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.
As well as these regular reviews, during 2018 the Board visited the France Galva and Conimast
sites in Saint Florentin, France; considered the Groups’ year-end forecasts and possible full
year outturn ahead of the announcement of Group trading statements and received, reviewed
and approved matters including: A revised year-end forecast; the acquisitions of Work Area
Protection Corp; Composite Advantage; Signalvakter and EEI in the US, and The Grating
Company in the UK; acquisition integration plans; strategy development plans; national
distributor agreements; the conclusions of the externally facilitated board effectiveness review;
succession planning and talent management updates; goodwill and intangible asset carrying
values; the viability statement; 2019 budget presentations from V&S Galvanizing LLC; Hill &
Smith Ltd; and Creative Pultrusions Inc.; and budget reports from other subsidiaries.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Q: Who constituted the Board during 2018?
Q: How do our Non-executive Directors contribute to the Board?
A. During the whole of 2018 the Board comprised: Jock Lennox,
Chairman; Alan Giddins, Senior Independent and Non-executive
Director; Annette Kelleher, Non-executive Director; Mark Reckitt,
Non-executive Director; Derek Muir, Chief Executive; and Mark Pegler,
Group Finance Director. See pages 52 to 53 for biographies. All of the
directors attended all the Board meetings held during 2018.
Q: What value does our Chairman add to the Board?
A. 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, promoting a culture of openness and debate; facilitating
constructive board relations and effective contribution of board
members; ensuring Directors receive accurate, timely and clear
information; and providing an opportunity for the Non-executive
Directors to meet without the Executive Directors present. He
regularly seeks engagement with major shareholders to understand
views on governance and performance against strategy.
The intention was that his appointment would be for several years.
However, under the 2018 Code the provisions around tenure of
the Chairman have been changed such that the Chair should
now not remain in place beyond nine years from the date of their
first appointment to the board. This period can be extended for
a limited time to facilitate effective succession planning and
board development particularly where the Chair was an existing
Non-executive Director on appointment. Since Jock Lennox was
appointed Chair on 17 May 2017 and to the Board on 12 May 2009,
this amendment is relevant. The nomination committee (excluding
the Chair) has considered this matter and has resolved that Jock
Lennox should continue as Chair so that the leadership of the
board remains settled for the time being. Accordingly Jock Lennox’
reappointment as a director and Chair will be proposed at the
forthcoming AGM on 16 May 2019. An initial discussion was held
with certain shareholders in 2018 and they expressed their support
for this approach and asked that an explanation be provided in the
Annual Report.
Q: What value does our Chief Executive add to the Board?
A. The Chief Executive is responsible for the management of the
Company, recommending and executing the Group’s strategy
and development, meeting financial objectives, implementing
policies and maintaining controls. The Chief Executive has a long
association with the Group, having joined the Company in 1990
and being appointed to the Board of Hill & Smith Limited in 1998
and to the Group Board in August 2006, and brings to the Board an
in-depth knowledge of the operations of all the Group’s subsidiaries,
maintaining a programme of visits to the Group’s subsidiary
businesses, throughout the world. Along with the Group Finance
Director, the Chief Executive provides information to the Board via
their regular written reports; presentation of proposals for Board
approval; and input into subsidiary budgets. These budgets are
initially challenged by the Executive Directors 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.
A. The Non-executive Directors take an active role in challenging
strategy and monitoring the performance of the Company. There
exists an appropriate combination of Executive and Non-executive
Directors, together with clear divisions of responsibilities between
the leadership of the board and the executive leadership of the
company’s business. Non-executive Directors have sufficient time to
meet their board responsibilities and provide constructive challenge,
strategic guidance, specialist advice and hold management to
account.
The Non-executive Directors, led by Alan Giddins our Senior
Independent Director, meet independently without the Chairman
present and also meet with the Chairman, independent of
management.
Q: How is our Board supported by our sub-committees?
A. During 2018, the Board was supported by three committees, each
reporting directly to the Board.
The Nomination Committee, comprising the Chairman, the
three Non-executive Directors and the Chief Executive, has
responsibility for assisting the Board with succession planning
and with the selection of a new Executive Director, Non-executive
Director or Chairman. The Audit Committee, comprising the
three Non-executive Directors, has responsibility for planning and
reviewing the Company’s interim and preliminary reports and
accounts, and its internal controls and risk management systems,
and the Remuneration Committee, comprising the three Non-
executive Directors, is responsible for the creation, approval and
implementation of the Company’s Remuneration Policy in respect of
Executive Directors, Company Secretary and senior executives.
For more information on the work of the Audit Committee see
pages 67 to 72 and for more information on the work of the
Remuneration Committee see pages 73 to 82.
Q: How frequently did our Board and sub-committees come
together?
A. During 2018, the Board met on 11 occasions, the Audit
Committee on five occasions and the Nomination and
Remuneration Committees both met on four occasions.
Board
Meetings
Audit
Committee
Nomination
Committee
Remuneration
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Total
Jock Lennox
Derek Muir
Mark Pegler
Alan Giddins
Annette Kelleher
Mark Reckitt
*attendance as a guest
(1) No Director took part in a meeting where their salary was
discussed.
Visit www.hsholdings.com
for Leadership framework
hsholdings.com
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Governance Report (continued)
Q: What is the profile of our Board?
A: Our 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 below), are key elements to the effective functioning of the
Board and its Committees, ensuring matters are fully and effectively debated and challenged
and no individual or group dominates the Board’s decision-making processes.
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.
The biographies of the Directors of the Board are shown on pages 52 and 53, along with any
significant other commitments and appointments they have.
Skills and business experience:
Strategy (5)
Leadership (6)
Operating performance
& delivery (6)
Mergers & Acquisitions
(6)
Financial Planning (6)
Supply chain (4)
Marketing (5)
Risk management and
assurance (6)
Digital (2)
Health & Safety (6)
International markets (6)
Human Resources (5)
Business integration (6)
Culture & Ethics (6)
Q: Has the Board been conflicted at any time during the year?
A: 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 52 and 53. In accordance
with the Articles, the Board authorised the Company Secretary to receive notifications of
conflicts of interest on behalf of the Board and to make recommendations as to whether the
relevant matters should be authorised by the Board. The Company has complied with these
procedures.
Q: Have there been any changes to the Board during the year?
A: The Board has appointed a Nomination Committee, composed of a majority of
independent Non-executive Directors to oversee any changes to the Board. The Committee
leads the process of Board appointments, and supports the Board in succession planning for
the Board and senior management. Following a review of the Group’s strategy and current
succession plans, no changes were made to the Board in the financial year to 31 December
2018. The terms of reference of the Nomination Committee can be found at
www.hsholdings.com.
For more information on the work of the Nomination Committee see page 65.
Visit www.hsholdings.com
for Board Committee Terms of Reference
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Q: What arrangements are in place for director training and
development?
Q: How did we respond to the recommendations of the 2017 Board
Effectiveness review?
A: 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 include attendance at seminars,
forums, conferences and working groups, as well as the provision
of information from the Company Secretary. The Board regularly
receives:
• Updates from its advisors on topics of interest and during
the year received briefings on the new Code both in respect
of the requirements of the Board to articulate the Company’s
purpose, culture and values and to implement mechanisms
to engage with the wider workforce as well as an update on
the Remuneration Committee’s new duties to understand the
remuneration arrangements across the wider workforce within
the Group; and
•
Information from the businesses within the Group on their
strategic and operational plans; organisational changes; and
health & safety audits.
A: The Board has responded to these matters as follows:
•
Evaluated an external review of the Group’s strategy and focus,
concluding that regular updates on corporate activity within the
Group’s core markets should be received by the Board as well as
information around associated and aligned markets;
• More focus was applied to subsidiary company succession
planning, with company talent spotting being monitored and
confirmed by the Executive Directors;
• Work commenced on articulating the purpose, culture and
values of the Company, with meetings held between the
Executive Directors, Company Secretary and the Corporate
Development Director and between the Company Secretary and
the senior leadership teams in the UK and the US.
• Providing the Company Secretary with feedback on the
information that the Directors wished to see more regularly
within the Board packs, focusing on strategy and future
performance as well as providing more data on people, health &
safety and macro-economic factors. Board packs are now more
concise and aligned to the Company’s purpose, strategy and
values.
Q: What is the Board’s view on diversity?
Q: What did we learn from our most recent board evaluation?
A: The Board is committed to ensuring that the Company’s
workforce is as diverse as possible, that it has access to a wide
labour market and that members of the workforce are recruited on
merit, regardless of age, disability, marital or civil partner status,
pregnancy and maternity, race, colour, nationality, ethnic or national
origin, religion or belief, gender or sexual orientation. As part of this
commitment, the Board annually approves its Statement on Diversity
and the Group’s Equal Opportunities & Diversity Policy.
Details of the number of men and women at board level; the number
of men and women who are ‘managers’ (i.e. those employees with
authority and responsibility for planning, directing and controlling
the activities of the Company); and the number of men and women
across the organisation as a whole are reported in this Annual
Report on page. Where appropriate, the Board will take steps to
address any gender discrimination or other diversity imbalance,
including (but not limited to) by ensuring that the Company’s
vacancies are advertised to a diverse labour market.
Q: What did the 2017 Board Effectiveness Review recommend?
A: The 2017 Board Effectiveness Review conducted by Colin Mayer
CBE FBA, Professor of Management Studies at Saïd Business
School, University of Oxford, made recommendations in the
following areas:
•
•
•
•
•
The Board should continue to focus on the Group’s strategic and
long-term sustainability;
The Board should give consideration to determining and
defining the Group’s purpose and values;
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.
A: Our most recent evaluation was carried out in January 2019 via
an externally facilitated self-assessment questionnaire. The review
was approached from the perspective of the new UK Corporate
Governance Code. It established that during 2019 the Board should
seek to:
•
Engage with the subsidiaries to further develop the business
planning activity into a perpetual long-term process;
• Receive more formal shareholder feedback given to the
Chairman, the CEO and other Directors, ensuring that responses
are appropriate, clear and understood by all sides;
• Consider the need for additional group resource to support the
Executive Directors and the Board as a whole;
• Consider the use of non-financial metrics within incentive
schemes; and
• When considering the continuing Board succession planning
have regard for the growth of the Group and the potential need
for additional non-executive skills and experience.
Q: How do you asses the performance of the Directors?
A: As required by the Code, Alan Giddins, as Senior Independent
Director meets with his Board colleagues to discuss the
performance of the Chairman and the Chairman meets with the
Non-executive Directors to discuss the performance of the Executive
Directors, who are not present at these meetings.
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. Following this evaluation
of the performance of the Board, and on the recommendation of
the Nomination Committee, the Board is proposing that all Directors
should stand for re-election at the Group’s forthcoming Annual
General Meeting (‘AGM’).
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France Galva has provided 650 tonnes of
galvanized steel to the construction of
the Saint Serge Ice Rink in Angers,
France. The new building that
will be completed in 2019
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Ice
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Angers
These
photographs show
the galvanized steel
being put in place (top) and
an artist’s impression of the
finished building (bottom).
Governance Report (continued)
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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Q: How does our Board approach financial and business reporting?
A. 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 90
and the Independent Auditor’s Report on pages 92 to 98.
Q: What responsibility does our Board have for managing risk?
A. 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 2018, 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;
•
Six-monthly submissions from all subsidiaries detailing the risks they have identified and
what controls and assurances they have in place to mitigate these risks;
• 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;
•
The use of a Risk Committee to monitor, validate and report on the Group-wide risk
assessment process;
• Audit Committee discussion of the corporate risk register and the risk management
system with subsequent reports to the Board; and
•
The embedding of a senior management top-down approach to complement the work of
the Risk Committee.
32 - 39
More information on the Group’s key risks and
uncertainties is shown on pages 32 to 39.
Q: How does our Internal Audit function support the work of our Board?
A. During 2018 the Audit Committee reviewed the annual audit plans for 2018 and 2019, as
prepared by the Group Internal Audit Manager and recommended the plans to the Board.
The 2018 plan followed a risk-based programme concentrating on reviewing the Group’s
assurances and controls over its principal risks. For 2019, the Board has requested that the
plan focuses on core baseline controls and key policy compliance, along with thematic reviews
covering certain strategic and operational risks.
Q: How does our Board ensure that our risk management and internal control systems are
effective?
A. 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 2018, 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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Governance Report (continued)
The assessment and control of risk are considered by the Board
to be fundamental to achieving corporate objectives. An ongoing
process for identifying, evaluating and managing the significant
risks faced by the Group and assessing the effectiveness of related
controls has been established by the Board to ensure an acceptable
risk/reward profile across the Group. 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.
Q: What has the Board done in consideration of the Group’s short-
term sustainability?
A. The Board has considered the Group’s status as a going concern
and 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, which reflect the
amendment to the Group’s core debt facilities on 10 January 2019
as explained on page 25. 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 assumptions have been flexed to take into account
any potential negative impacts that the Group could suffer as a
result of the UK’s likely departure from the European Union on 29
March 2019. 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.
Q: What has the Board done in consideration of the Group’s longer-
term sustainability?
A. Please see the Viability Statement below.
The Viability Statement.
The Directors have considered the prospects of the Group over the
three-year period immediately following the 2018 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 30 to 31) 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 36 to 39). This robust assessment
considered the impact of the principal risks on the business model,
which include those that may arise as a result of ‘Brexit’, 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;
• A reduction in revenues in all of the Group’s Utilities businesses;
and
• A reduction in revenues across a range of the Group’s UK
businesses to reflect the possible impacts on macro-economic
conditions of a disorderly Brexit.
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 2018 with an undrawn committed facility headroom of
£60.8m and a history of strong cash generation, and noted that
the Company’s principal financing facilities are committed until
January 2024 (following the amendments made in January 2019)
thus covering the period of review. The Directors have assessed the
viability of the Group and, based on the procedures outlined above in
addition to activities undertaken by the Board in its normal course of
business, confirm that they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as
they fall due over the period to 31 December 2021.
Q: What has the Board done to ensure that the Annual Report
represents a fair, balanced and understandable assessment of the
Group’s position and prospects?
A. The Board received a recommendation from the Audit Committee
that the Group’s position and prospects had been assessed and
reported on in the Annual Report in a way that was fair, balanced
and understandable. Prior to making the recommendation to
the Board the Committee reviewed a report received from the
management responsible for the preparation of the Annual Report
detailing how the report had been compiled. The Committee
considered the information laid out in the Annual Report and
concluded:
•
•
•
•
That the process by which the allocation of responsibility for
the preparation of certain sections of the Annual Report to
individuals in the head office team and their review by external
advisors was fit for purpose;
That the information given represented the whole story of the
Group’s performance in 2018 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 the external auditor 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 2018 giving them a clear and understandable picture of the
Group’s business model, key drivers and commercial operations.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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Q: What is the purpose of our remuneration policy?
A. The purpose of our remuneration policy is to be able to recruit and retain Executive Directors
of sufficient calibre to develop and deliver our business strategy and create shareholder value;
to ensure remuneration arrangements are in the best interests of the Group, in line with the
wider workforce and do not pay more than is appropriate and does not pay for failure. More
information on the Group’s Remuneration Policy is available in the Policy Table on pages 83 to
86 of the Group’s Remuneration Report.
Q: Has our remuneration policy operated as intended?
A. We believe that the policy has operated as intended. Our Executive Directors’ pay
arrangements are made up of three fundamental elements: salary, a short-term annual bonus,
and a three-year longer-term incentive arrangement. Whilst we have achieved an underlying
operating profit that was behind our 2018 target, it was comparable with our record year of
2017. Thus whilst the bonus achieved by the Executive Directors in respect of the year to 31
December 2017 was 94% of salary (Operating Profit: £81.3m), the bonus earned for the period
31 December 2018 is 24.1% of salary (Operating Profit: £80.1m).
However, given that the long-term incentive arrangements cover a three-year performance
period, where performance is measured by the growth in underlying earnings per share
(‘UEPS’) and Total Shareholder Return (‘TSR’), the three-year growth of the company,
represented by an increase in UEPS of 50.5%, will result, in conjunction with an upper-quartile
TSR position of 24th, in a vesting of 100% of the shares awarded in 2016 as part of the
long-term incentive plan, reflecting the strong performance of the group over the three year
performance period from 1 January 2016. More information is available on pages 77 and 79 of
the Group’s Remuneration Report.
Q: How has the Board engaged with the wider workforce regarding pay increases for 2019?
A. In deciding on the annual increase of 2.4% for the Executive Directors, the Remuneration
Committee received information on the average increases being given across the Group’s 31
subsidiaries located in seven countries.
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73 - 82
Find out more detail in the Directors’
Remuneration Report on pages 73 to 82.
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Governance Report (continued)
Q. How does our Board engage with our Shareholders?
A. 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, during the year the
Chief Executive Officer and Group Finance Director have meet with institutional shareholder
representatives both in the UK and USA, as well as hosting a site visit at Hill & Smith Limited,
Bilston, UK and the Chairman met directly with a number of institutional shareholder
representatives. The Board also regularly receives reports from the Company’s brokers
and financial public relations agency on feedback from institutional shareholders following
the Executive Directors’ presentations and Alan Giddins, our Senior Independent Director,
is available to shareholders as and when required. The AGM is also an opportunity for the
shareholders to hear about the business and engage with the Directors.
Q. What value does the Board place on our AGM?
A. The Board is very keen that as many shareholders who wish to are able to attend the
Company’s AGM and ask questions of all of the Directors. 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. At the AGM our Chief Executive and Group Finance Director give a presentation
to all shareholders in attendance and shareholder participation is encouraged, questions
and feedback are invited and all Directors are in attendance and available to meet with
shareholders. In 2018 Proxy votes of shareholders for the AGM were tabulated independently
by the Company’s registrars, provided at the AGM and published on the website shortly after
the conclusion of that meeting. At our AGM in 2018, we announced that we will conduct
voting in 2019 by way of a poll. The Board believes that calling a poll ensures that all votes are
counted and declared so significant opposition is demonstrated where appropriate.
Q. Who can shareholders turn to if they have any concerns?
A. 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. Alan Giddins, as Senior Independent Director, was contacted to discuss concerns
over the number of Company Boards that Jock Lennox was appointed to and whether these
commitments impinged on his ability to commit time to the Company. The matter was
discussed at a Board meeting and it was concluded that Jock continued to have sufficient
time to commit to his responsibilities as Chairman of the Company.
Q. How can shareholders communicate with the Board outside of results season?
A. All Directors are available to meet with shareholders to discuss matters and can be
contacted through the Company Secretary at any time. The Secretary also engages with
shareholders and the investor community as and when 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.
Q. Has the shareholder base changed significantly during 2018?
A. As at 1 March 2019, Institutions and individuals comprised 38.05% and 61.74% respectively
of our register, compared to 38.52% and 61.27% at a similar time in 2018. See the table on
page 165 for more details.
Type of Shareholder 2018
Type of Shareholder 2017
Institution – 38.05%
Individuals – 61.74%
Other – 0.21%
Institution – 38.52%
Individuals – 61.27%
Other – 0.21%
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Nomination Committee Report
Jock Lennox
Chairman
Committee Membership
During the year the Committee comprised myself as the Group’s
Chairman, the Non-executive Directors Annette Kelleher, Mark
Reckitt and Alan Giddins and the Group Chief Executive, Derek Muir.
The Committee met four times in the financial period under review
with all eligible members of the Committee being present on each
occasion.
Role of the Committee
The role of the Nomination Committee is to assist the Board in the
key areas of Board composition, performance, succession planning
and recruitment. Having the appropriate range of high calibre
Directors on our Board is key to determining and achieving the
Group’s strategic objectives and ensuring that success is sustained
over the long-term. The Committee will consider candidates on
merit and against objective criteria and with due regard for the
benefits of diversity on the Board, including gender, taking care that
appointees have enough time available to devote to the position.
All Non-executive Directors, as well as well as myself and the
Group Finance Director, were selected through externally facilitated
recruitments. All Non-executive Directors are independent, as was
I on appointment. The Board believes this has created an effective
group of Executive and Non-executive Directors able to provide
the required range of skills, knowledge and experience to ensure
development of the Group, implementation of its strategy and sound
governance. The Committee 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.
For more information on the balance of skills and experience
see page 58.
Non-executive Directors
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.
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
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
arise. The Board remains satisfied as to the time availability and
commitment of the Non-executive Directors.
Committee Membership
Date of
Appointment
Length of service at
31 December 2018
Jock Lennox
12 May 2009
9 years 7 months
(as Chairman
11 May 2017
1 year 7 months
Annette Kelleher
1 December 2014
4 years 1 month
Mark Reckitt
Alan Giddins
1 June 2016
2 years 7 months
3 October 2017
1 year 3 months
The work of the Committee during the year
During the year, and the period up to the date of this report, the
Committee considered:
• Board succession and diversity – recognising the desire to
maintain the right balance of expertise both at Executive
Director and Non-executive Director level, the Committee
discussed and planned for any other forthcoming changes,
in this regard the Committee has overseen the succession
planning and discussions with Mark Pegler, Group Finance
Director, resulting in the announcement on 6 March 2019 that
Mark will step down from the Board on 30 April 2019. The
Committee has commenced the search for his successor;
•
Subsidiary succession planning and talent management;
• Board evaluation – Review of the externally-facilitated self-
assessment Board evaluation questionnaire, a summary of
which is contained on page 59;
•
The revised tenure of the Chair (in my absence), in the light of
the new UK Corporate Governance Code, concluding that the
extension allowed by the Code to facilitate effective succession
planning and board development was both appropriate and
relevant. Accordingly it was resolved that I should continue as
Chair so that the leadership of the board remains settled for the
time being; and
•
The Committee’s revised terms of reference.
Plans for the year ahead
The Committee intends to remain focused on succession planning
and talent management, recognising that with 31 entrepreneurial
subsidiaries across seven geographies the identification of high-
calibre individuals within these businesses and their successful
transition into senior management roles along with the introduction
of new skills into these businesses is of utmost importance to the
delivery of the Group’s long-term strategy.
Jock Lennox
Chairman
6 March 2019
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V&S Galvanizing’s Columbus plant
provided hot-dip galvanized
steel trellises, ornamental
railings and architectural
steelwork for the
Mirror Lake at
the Ohio State
University.
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Audit Committee Report
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
This Audit Committee report explains how the Committee has
discharged its responsibilities, and takes into account the specific
topics of:
• Primary areas of judgement considered by the Committee in
relation to the 2018 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 2019.
Mark Reckitt
Chairman, Audit Committee
6 March 2019
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 and to explain to how your Audit
Committee and the Company’s senior management team have
continued to develop and enhance our risk management processes
and internal audit programmes. We appointed a Group Internal
Audit Manager in September 2017 and during 2018 we reviewed
the reports produced covering a Group-wide thematic review into
product failure risk as well as multiple subsidiary-level reviews
focussed on risk mitigation reviews, Group policy compliance, and
the strength of core, baseline internal controls. The Committee was
pleased with the effectiveness of the strengthened internal audit
function and approved an internal audit plan for 2019 with a wider
scope of work at subsidiary level, together with appointment of
additional resource to enable effective delivery of the plan.
During the year, the Committee has also noted the wider debate in
the UK on the role and effectiveness of external auditors, considered
the steps taken by the major audit firms that seek to improve
the effectiveness of the external audits that they undertake and
discussed this topic with KPMG, our external auditor. We have
reviewed the changes that they have put in place, received a report
from the Audit Quality Review team at the Financial Reporting
Council on KPMG’s audit of Hill & Smith Holdings PLC for the year
ended 31 December 2017 and assessed the implications as part
of our consideration of the effectiveness of the external audit
undertaken by KPMG. We remain satisfied that KPMG are able to
undertake an effective external audit for Hill & Smith Holdings PLC.
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
further training sessions on risk identification, definition and
mitigation actions 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 Risk 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 with information on risks that
were apparent across all subsidiaries and that might affect the
Group’s ability to deliver its strategic plan.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Audit Committee Report (continued)
The role and meeting 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. It 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. The Committee’s terms of
reference can be found on the Company’s website.
During the year the Audit Committee comprised:
• Mark Reckitt;
• Alan Giddins; and
• Annette Kelleher.
Mark Reckitt 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. He has previously held the positions 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. He is currently the Audit Committee Chairman and
Senior Independent Director at Cranswick plc.
The Committee meets according to the requirements of the Company’s financial calendar and during 2018 met on five occasions: In January
to review the Subsidiaries’ risk registers and internal audit activities; and approve the internal audit plan for 2018. in February to consider the
Annual Report together with the external audit findings, August to consider the half-year results, October to consider the subsidiaries’ 2018
risk registers, approve the external auditors plan for 2018 and approve their fees and in December to, approve the internal audit plan for 2019
and approve the Group’s principal risks & uncertainties. Attendees at each of the meetings included by invitation, the Chairman; the Group
Chief Executive; the Group Finance Director; the Group Financial Controller; the Group Internal Audit Manager; the external auditor, KPMG
and, where appropriate other advisors. Time is also allowed for the Committee to speak with the external auditor and the Group Internal Audit
Manager without the presence of the executive management.
The FRC’s Audit Quality Review team carried out a review of certain areas of the audit conducted by KPMG LLP for the year ended 31
December 2017. In selecting which aspects of an audit to review, the FRC take account of those areas considered to be higher risk by the
auditors and Audit and Risk Committees, their knowledge and experience of audits of similar entities and the significance of an area in
the context of the financial statements. The results of this review were shared with the Audit Committee in November 2018 and has been
discussed with KPMG. Based on that review no significant matters were raised for the attention of the Audit Committee and good practice
observations were noted in respect of data analytics work undertaken in testing revenue at the major UK component and the clarity of
reporting to the Audit Committee in respect of the assessment of impairment of goodwill. In addition to receiving reports from internal audit
on internal controls, the Committee requested and received specific reports following the identification of a controls breakdown relating to
inventory at one of the smaller UK subsidiaries. In addition to determining the root cause of the breakdown, work was undertaken to satisfy
the Committee that the issue was not being repeated at other similar subsidiaries. The conclusions, with which the Committee concurred,
were that the issues were limited to the specific subsidiary and that the impact of the breakdown was not significant to the results of the
group.
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 changes in financial reporting and governance landscape, the Company’s readiness to accommodate these
developments, the approach to auditing activities undertaken by KPMG and the internal audit function and our approach to managing risk and
assurance generally.
Responsibilities of the Committee
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; and External Audit and non-Audit Work.
Financial Statements and Reports
• Reviewed the 2018 Annual Report, the 2018 Interim Report and other trading updates issued during the year;
• Reviewed the disclosures made in the 2018 Annual Report in respect of the effectiveness of the Group’s risk management and internal
controls.
• 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 62).
• Advised the Board on whether the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable
(see page 62);
• 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 below).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Primary areas of judgement considered by the Committee in relation to the 2018 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 99 to 148. 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 £148.0m at 31 December 2018. 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 pages 123 to 128. 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 £23m at 31 December 2018. 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
auditor 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 appropriate.
Risk management
• Reviewed the outputs from the Group’s risk management process to ensure that subsidiaries were identifying, articulating, evaluating
and mitigating risks.
• Reviewed reports made via the Group’s whistleblowing process and the conclusions from any investigations, ensuring that lessons
learned were implemented.
• 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 62).
Risk management
The risk management process is continually kept under review to ensure that outcomes from the subsidiaries’ risk submissions provide the
necessary information for the Audit Committee to carry out a robust assessment of the risks affecting the Group as a whole. Subsidiary
management are continually monitored and supported to ensure their risk management policies and risk mitigations are suitable to meet the
Board’s appetite for the risks identified.
Risk management process
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 31 subsidiaries. In this, the Audit Committee is supported by the Group’s Risk Committee, which 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.
The Risk Committee overseas the risk management process, which is one of continual improvement and during the year a programme of
training for senior management was delivered across the Group; through face-to-face seminars in the UK, USA and Sweden and through a
training manual to the other international jurisdictions. These sessions complement the work already done on risk management and focused
on the concept of risk mitigation – controls and assurance.
The Risk Committee reviews, discusses and validates the risk submission data received from the subsidiaries. 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 subsidiaries’ risk mitigation activity. More information on the activities of the Risk Committee and the Group’s
principal risks and uncertainties can be found on pages 32 to 34.
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 an externally hosted
internet and telephone based whistleblowing hotline or if necessary, to the Company Secretary or the Chairman of the Audit Committee. This
policy can be found on the Group website.
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. The Committee receives reports
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Audit Committee Report (continued)
from the Group Company Secretary on these cases, on the investigative process, the conclusions, and any lessons to be learned from these
events.
Internal audit
• 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.
• Monitored the performance of the Group Internal Audit Manager and reviewed the work of the Group’s Internal Audit function
concluding that it is operating effectively and was appropriately resourced.
•
Evaluated the Internal Audit Plan for 2019 that was submitted with reference to the risk management reporting process and agreed
that further resource should be added to the function to enable it to widen the scope of the Internal Audit activities.
Internal audit
The Audit Committee and Hill & Smith executive management ensure that the Group Internal Audit manager who reports to the Group
Finance Director and the Audit Committee Chairman has free access to the businesses, information and management within the Group.
Internal audit function
The internal audit function is overseen by the Group Internal Audit Manager. The Audit Committee annually review and approve the Internal
Audit Charter that sets out:
•
•
the function’s purpose: to independently and objectively evaluate the effectiveness of internal controls, risk management and governance
processes; and
how the function will discharge its responsibility, primarily by preparing and executing a risk based audit plan, identifying opportunities
to improve internal control, risk management and governance processes and by verifying improvements agreed with management are
implemented within a reasonable timeframe.
In accordance with the Internal Audit Charter, the Audit Committee and executive management ensure that the internal audit function has
free and unrestricted access to the Group’s records, physical properties and personnel pertinent to carrying out its activities, and remains free
from inappropriate management influence or other restrictions on its ability to perform its work in an objective and effective manner.
The 2018 Internal Audit Plan balanced the focus of the function between Group-wide principal risks and subsidiary-level risks. It included
a Group-wide thematic review of product failure risk mitigation, and multiple subsidiary-level reviews focused on Group subsidiaries’ risk
mitigation, compliance with Group Policy and the strength of core, baseline internal controls.
Where internal audit work did find instances of control weakness, or non-compliance with Group policy, the findings have been discussed at
the Audit Committee, and the resulting audit actions have either been implemented, or are in the process of being addressed in accordance
with agreed timelines. However, as noted on pages 8 to 17, Hill & Smith Holdings PLC operates a decentralised business model where
significant accountability is devolved to subsidiary operational and financial management. Control weaknesses identified at subsidiary level
are taken seriously and management and the Audit Committee seek to ensure that their cause is understood and mitigating actions are taken
to limit the potential for recurrence. In view of the work of internal audit, external audit and Group management it is considered unlikely that a
weakness at an individual subsidiary would have a material impact when taken in the context of the Group as a whole.
In 2019, the function is being further strengthened with additional resource which will continue to widen the scope and intensity of the
function’s assurance activity.
Internal control
The Audit Committee is responsible for ensuring that the Group’s system of internal control is embedded within all subsidiary companies. The
Committee monitors the adequacy and effectiveness of the Group’s internal control processes through review and discussion of:
•
•
•
•
•
the proposed internal audit plan ensuring that it was aligned to the principal risks of the business and received regular progress updates
on the delivery of the objectives of the plan;
the 14 internal audit reports and findings presented throughout the year together with the progress by management in addressing the
issues identified on a timely basis;
executive management reports and presentations including updates on specific areas provided at the request of the Committee. In the
period covered by this report this included the implementation of new accounting standards including IFRS 15 - Revenue from contracts
with customers, and accounting judgements including the carrying value of goodwill and intangible assets of France Galva, SA and
Technocover Ltd;
external audit reports and findings at the half-year, interim and year end audit phases; and
reports from the Group’s external professional advisors as commissioned which, in 2018, included reports on the Group’s health and
safety arrangements and cyber security control environment.
Effectiveness of internal audit
The Audit Committee is responsible for monitoring and reviewing the effectiveness of the Group’s internal audit function.
As noted above the Audit Committee reviewed and approved the risk based audit plan and monitored progress with its completion. Changes
to the plan arising in the year, including the completion of additional work, were discussed and approved at the Audit Committee meetings.
Throughout the year the Audit Committee discussed the internal audit function’s outputs with the Group Internal Audit Manager and executive
management. The Audit Committee was satisfied that the Internal Audit function is operating effectively and that the level of experience
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
within the department was appropriate to meet the Group’s needs during the year. As previously noted it was agreed that the scope of many
of the internal audits should be widened and that additional resource should be recruited to enable this.
External audit and non-audit work
• 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. and Technocover
Ltd; provisions for uncertain income tax positions; and UK post-retirement benefits obligations;
• Reviewed, considered and agreed the methodology of the 2018 audit work to be undertaken by the external auditor;
• Oversaw the relationship with the external auditor, reviewing their performance and advising the Board on their appointment and
remuneration;
•
Evaluated the independence and objectivity of the external auditor;
• Reviewed feedback from the FRC AQR Report;
• Reviewed the level and nature of non-audit services provided by the external auditor during 2018, noting that KPMG, the Company’s
external auditor had, along with other major audit firms decided to provide only audit and related services to their audit clients with
effect from November 2018; and
• Reviewed and approved updates to the non-audit services policy and the Procedure for the external auditor policy.
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 2018 year-end audit during the Committee meeting
in October 2018. 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; valuation
of goodwill in relation to Technocover Ltd, which was omitted from the final key audit issues as it had been fully impaired during the year;
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 December 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:
•
•
•
•
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 2017 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 2018 audit. The Committee discussed the issues raised in the
report, particularly in relation to the areas highlighted, at their meeting in February 2019. 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.
Financial Reporting Council (‘FRC’) review
On 13 November 2018, the Group received a letter from the Financial Reporting Council concerning its review of the Group’s Annual Report
and Accounts for the year ended 31 December 2017. As a result of the review, we have further enhanced the information we disclose with
regard to the potential impact of sensitivities on the goodwill impairment calculations in respect of France Galva SA (see note 10 on pages
123 to 128) and expanded the information that we provide in relation to the assets of the Group’s UK defined benefit pension scheme,
including an explanation of the funding strategy that the Group and Trustees have agreed (see note 23 on page 143). In addition, the Parent
Company financial statements for the current year include a credit for pension deficit contributions due from fellow subsidiary undertakings in
prior years that had not previously been recognised, as explained on page 157. There was no impact of this item on the consolidated financial
statements. On 6 February 2019, correspondence was received from the FRC concluding the review to their satisfaction.
The FRC’s review was based on the Annual Report and Accounts and did not benefit from a detailed knowledge of the business or an
understanding of the underlying transactions entered into. It was, however, conducted by staff of the FRC who have an understanding of the
relevant legal and accounting framework.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Audit Committee Report (continued)
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 auditor 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 third.
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 has considered
that it would be prudent to prepare for new auditors for the 2020 year-end. As such, a tender process would be commenced in the second half
of 2019. There are no contractual obligations in place that restrict our choice of statutory auditor.
Non-audit fees
The Committee reviewed its ‘Non-Audit Services’ policy in December 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 2018, there were fees of £248,000 (2017: £122,600) paid to the auditor for non-audit services. The fees
paid covered due diligence on acquired businesses and aborted acquisition costs £238,000 (2017: £92,400), assurance reviews £10,000
(2017: £13,500) and restructuring work £nil (2017: £16,700). Audit fees for 2018 were £982,000, representing a 1:4 ratio between non-audit
and audit fees (2017: 1:6). Further details of these amounts are included in note 6 of the accounts on page 118.
In November 2018, KPMG announced that, in order to remove the perception of any conflict of interest arising from the provision of non-
audit services to audited entities, they would be discontinuing the provision of all non-audit services (other than those closely related to the
audit) to all FTSE 350 companies. Any contracted non-audit services that had commenced before the date of the announcement (or were in
discussion at that date) that had not been completed would be delivered in line with contractual commitments.
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
6 March 2019
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Remuneration Committee Report
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Annette Kelleher
Chair, Remuneration Committee
Dear Shareholder,
I would like to present our 2018 Directors’ Remuneration Report.
At our AGM in May 2017, shareholders approved our Directors’
Remuneration Policy and you will find a summary of the policy on
pages 83 to 86. I am pleased to say that this policy was strongly
supported by our shareholders, with 93% of the votes in favour of it.
Corporate Governance Change
The Remuneration Committee is very mindful of the revised UK
Corporate Governance Code (‘the Code’) which was published in
July 2018. Recognising that the new governance rules will apply
in 2019, the Committee has had a number of discussions since
July about the implications of the Code. It is the Committee’s
intention to adopt a best practice approach to the Code. We plan
to reflect the necessary modifications in our new policy that we
will present to shareholders at our 2020 AGM. This will include, for
example, a formal policy for post-employment shareholding for
Executive Directors. However, during 2019 we plan to strengthen
our definitions of malus and clawback to ensure they are in line with
the Code for incentive plans being issued in 2019. At the same time,
we will be giving the Remuneration Committee the discretion to
amend formulaic incentive plan outcomes should this be necessary.
In addition, the Committee has planned a number of meetings
during 2019 to prepare its policies and processes related to the
overall management and the wider workforce remuneration across
the countries we operate in. The Committee will also invest time to
develop ways in which the Board can regularly effectively engage
with our employee across with the Group.
2018 performance and remuneration
Against a backdrop of uncertain political and macro-economic
conditions the Company has performed reasonably well, albeit not
as well as in 2017, which was a record year. More details about the
Company’s operational and financial performance can be found on
pages 18 to 28.
This 2018 performance is reflected in the incentive remuneration
outcomes for the year. Detailed information in relation to the
2018 annual bonus is included on page 76 where the comparison
with 2017 can also be found. However, in summary, based on the
Company’s performance in 2018, the Executive Directors earned
bonuses of 24.1% of base salary, of which 20% will be deferred in to
shares. More information is given on page 76.
The performance period for the LTIP award granted in 2016 ended
on 31 December 2018. Two criteria were applied to this award, 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 over the 3 years,
carried out by the Committee’s advisors, Deloitte LLP, 100% of the
award vested. This reflects the strong performance of the group
over the three-year performance period from 1 January 2016. More
information is given on page 79.
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 2019, we are following this
principle where by both our Executives will receive salary increases
of 2.4%.
The Non-executive director fees has been increased by
approximately 2.4% with effect from 1 January 2019, details on
other Non-executive fees are set out on page 82 .
I believe our current remuneration structures have enabled us to
make the appropriate rewards in 2018. During 2019 we will start our
planning for our triennial policy review in 2020 and I will update you
further in my next report.
Annette Kelleher
Chair, Remuneration Committee
6 March 2019
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report
Policy and strategy
The Company’s strategy is explained in detail on pages 8 to 17. 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 Remuneration Policy Table and accompanying
notes to the Policy have been provided on pages 83 to 86 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 2019, certain date references have been
updated. The full policy can be found in complete form on the Company’s website at www.hsholdings.com.
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
Operating margins are an integral measure of the Group’s success.
Our target operating margin for a business unit is 10%, although a
lower margin profile may be acceptable if the business’ return on
capital employed is above 20%.
Geographical
diversification
The international diversity of the markets in which we operate
continues to underpin our performance.
Budgeted profit
Entrepreneurial
culture
We encourage an entrepreneurial culture in our businesses ensuring
that they are agile and responsive to changes in their competitive
environment.
Budgeted profit
ROIC
Operating margins
Shareholder
value
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
Sustainable
profitable growth
Our objective is to deliver balanced profitable growth through both
organic growth and acquisition opportunities.
UEPS
Measured by Long-
Term Incentive
Plan targets of:
Leads to:
50% of any award is
based on growth in
the absolute UEPS,
over the three-year
performance period;
and
50% of the award
is based on TSR
performance over
the three-year
performance
period relative to
an appropriate
comparator group.
The extent to which payments and awards have been made under the Annual Bonus and LTIP arrangements can be found on pages 76 to 77.
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, Chair,
together with Mark Reckitt and Alan Giddins. 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:
• Approved the annual bonus calculation and payment for the financial years 2017 and 2018 – further information is given on page 76;
• Measured the performance conditions of the Company’s Long Term Incentive Plan (‘LTIP’) in respect of awards granted in 2015,
confirming that 100.0% of the TSR portion and 100.0% of the UEPS portion of the original award vested;
• Approved grants under the rules of the Company’s 2014 LTIP;
• Measured the performance conditions of the Company’s LTIP in respect of awards granted in 2016, confirming that 100% of the Total
Shareholder Return (‘TSR’) portion of the original award would vest and 100% of the UEPS portion of the original award would vest –
further information is given on page 77;
• Approved grants under the rules of the Company’s 2014 Executive Share Option Scheme (‘ESOS’);
• Approved the award of a new SAYE scheme, to run from December 2018 for a three or five year period. Options to be awarded with the
maximum discount of 20% allowable under HMRC rules;
• Reviewed the base salaries of the Executive Directors and approved a 2.4% increase, with effect from 1 January 2019, in line with the
increases awarded to the wider workforce;
• Approved the annual bonus performance measures and targets for 2019;
• Reviewed reports on the Group’s approach to 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 2018 Annual Report and Accounts;
and
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
• Considered and approved new Committee terms of reference that had been update for the new Corporate Governance Code.
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 £7,700 for the year ended 31 December
2018. 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 shareholder voting
The Group remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The Company’s 2017
Remuneration Report was put before members at our AGM in May 2018 and the Company’s current Remuneration Policy was put before
members at the 2017 AGM, with shareholder approval of each as follows.
% of votes
Annual Remuneration Report
(2018 AGM)
Remuneration Policy Report
(2017 AGM)
For
97.69%
93.44%
Against
2.31%
6.56%
Withheld votes
1,787,595 votes were withheld in
relation to this resolution (3.36%)
826,027 votes were withheld in
relation to this resolution (1.52%)
The following parts of the Remuneration Report are subject to audit other than elements explaining the application of the policy in 2019.
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How the Remuneration Policy was implemented in 2018 – Executive Directors
Single remuneration figure for 2018
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
LTIP (vested
in respect of
performance period
ended 2018)(4)
D W Muir
M Pegler
Total
507,800
355,500
863,300
52,180
22,279
74,459
122,380
85,675
186,473
697,085
445,792
1,142,877
Single remuneration figure for 2017
Base Salary(1)
Taxable Benefits(2)
Annual Bonus(3)
LTIP (vested
in respect of
performance period
ended 2017)
D W Muir
M Pegler
Total
493,000
345,100
838,100
50,465
22,279
72,744
463,421
324,394
787,815
954,463
610,703
1,565,266
(1) The amount of base salary received in the year.
Pension
126,950
88,875
215,825
Pension
123,250
86,275
209,525
Total ‘Single
Figure’ 2018
1,506,395
998,121
2,504,516
Total ‘Single
Figure’ 2018
2,084,599
1,388,751
3,473,350
(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 £22,679 (2017: £20,989) 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, including the amount deferred into shares. A description of how the bonus payout was
determined can be found on page 76.
(4) LTIP is the value of LTIPs vested in respect of a performance period ended in 2018. A description of the basis on which awards vested and the value can be found on page 77.
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.
During the period under review the Committee reviewed the salaries of the Executive Directors and other senior executives, in the context
of the current performance of the Company and the levels of pay increases applied throughout the Group’s national and international
businesses. This approach is consistent with previous years.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report (continued)
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.
2018 annual bonus
As disclosed in the 2017 Directors Remuneration Report, following approval of the Company’s Remuneration Policy in 2017, the annual bonus
opportunity for 2018 was amended to 125% of salary, with 20% of the bonus earned delivered in shares that are deferred for two years.
The extent to which the bonus was earned is summarised below. Following consultation with shareholders, the Company has decided to
include details as to the range of performance targets as well as to disclose the bonus outturns for both 2017 and 2018 in this year’s report as
follows:
Maximum
pay out per
performance
measure (% of
base salary)
25%
25%
Target Performance
Stretch Performance
2018 on target
performance
Bonus payable
for on target
performance
(% of base
salary)
2018 stretch
performance
Bonus payable
for stretch
performance
(% of base
salary)
Actual
performance
Actual pay
out per
performance
measure (% of
base salary)
76.2p
18.75%
80.0p
31.25%
77.8p
24.1%
£80.4m
18.75%
£84.4m
31.25%
£76.3m
25%
13.0%
18.75%
13.3%
31.25%
12.6%
25%
19.4%
18.75%
19.9%
31.25%
18.0%
-
-
-
Growth in
underlying EPS
Underlying
profit before
tax
Underlying
operating
margins
Achievement
of budgeted
internal ROIC
Total
100%
75%
125%
24.1%
20% of the bonus earned by each Executive Director will be deferred into an award of shares which will vest following the end of a deferral
period of two years, subject, ordinarily, to continued employment but to no additional performance conditions. The cash bonus and deferred
bonus earned by each Executive Director is as follows.
Executive Director
Total bonus earned
Bonus paid in cash
D W Muir
M Pegler
£122,380
£85,675
£97,904
£68,540
Bonus paid as an award of
deferred shares
£24,476
£17,135
2017 annual bonus
The performance conditions for the year ended 31 December 2017 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)
2017 on target
performance
Bonus payable
for on target
performance
(% of base
salary)
2017 stretch
performance
Actual
performance
Bonus payable
for stretch
performance
(% of base
salary)
Actual pay
out per
performance
measure (% of
base salary)
Growth in
underlying EPS
Underlying profit
before tax
Underlying
operating
margins
Achievement of
budgeted internal
ROIC
25%
25%
25%
7.7%
£74.7m
13.4%
15%
15%
15%
12.5%
25%
15%
£78.4m
25%
£77.8m
13.7%
25%
13.9%
25%
19.9%
15%
20.4%
25%
20.2%
Total
100%
60%
100%
25%
23%
25%
21%
94%
76
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
LTIP awards vesting in respect of 2018
Each Executive Director was granted an LTIP award on 17 March 2016 which vested subject to the achievement of performance conditions
based on absolute UEPS growth over the three year performance period ended 31 December 2018 (as regards 50% of the award) and TSR
relative to the FTSE SmallCap excluding investment trusts (as regards 50% of the award). The extent to which the awards vested and the
value included in the single figure of remuneration table as a result is set out below.
Performance Targets
Threshold
15% UEPS
growth
Vesting
25%
Maximum
Median TSR
25%
30% UEPS
growth
Upper
Quartile
100%
100%
Actual
Performance
Actual Vesting
UEPS growth of
50.5%
UEPS: 100% of
maximum
Shares
subject to
the award
Vesting
shares Vested value*
D W Muir
55,371
55,371
£653,378
TSR ranked 24
(out of 131)
TSR: 100% of
maximum
M Pegler
35,410
35,410
£417,838
*The value of shares is calculated by reference to the share price on 28 February 2019, being £11.80. In accordance with the rules of the LTIP, each of Messrs Muir and Pegler is entitled to a
further benefit by reference to the dividends paid over the period from grant to vesting, amounting to £43,707 in the case of D W Muir and £27,955 and in the case of M Pegler, delivered as
additional shares, being 3,704 and 2,369 respectively.
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, when he took a transfer value as reported in last year’s Annual Report. He now has no entitlement in the Scheme.
Pension contributions
D W Muir receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary amounting to £126,950 for the year
ended 31 December 2018 (2017: £123,250).
M Pegler receives a cash payment in lieu of any pension contribution, equal to 25% of his base salary amounting to £88,875 for the year
ended 31 December 2018 (2017: £86,275).
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 2019 that was operated in 2018.
Share awards granted during the year
During the year to 31 December 2018 the Committee approved awards to the Executive Directors under the LTIP 2014 rules as follows:
Date of Award
Type of award
Number of
shares
Maximum face
value of award (1)
Threshold vesting Performance Period (2)
D W Muir
12 March 2018
nil cost option
47,690
£634,754
M Pegler
12 March 2018
nil cost option
33,387
£444,381
25%
25%
1 January 2018 – 31
December 2020
1 January 2018 – 31
December 2020
(1) Calculated by reference to a share price of £13.31, 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.
(2) 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.
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)
Less than 15%
15%*
30%*
TSR (50% of each award)
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).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report (continued)
Share options
The interests of Executive Directors, who served during 2018, in options for ordinary shares in the Company, granted under the Company’s
SAYE schemes, together with options granted and exercised during 2018, are included in the following table:
Executive
D W Muir
M Pegler
Grant
Price
Awards
held 31
December
2017
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Awards held
31 December
2018
Period that option is exercisable
From
To
£3.55
£4.29
£5.60
£8.91
£3.55
£10.21
£8.91
1,064
3,496
2,003
-
4,225
881
-
-
-
-
424
-
-
3,367
1,064
-
-
-
4,225
-
-
-
-
-
-
-
881
-
-
1 June 2018
1 December 2018
3,496
1 August 2019
1 February 2020
2,003
1 January 2021
1 July 2021
424
1 January 2022
1 July 2022
-
-
1 June 2018
1 December 2018
1 January 2021
1 July 2021
3,367
1 January 2022
1 July 2022
Statement of Executive Directors’ shareholding and interest in shares
D W Muir
Type
Shares (1)
Market value
options (2)
SAYE options (3)
M Pegler
Shares (1)
Market value
options (2)
SAYE options (3)
Owned outright
340,515
n/a
n/a
54,573
n/a
n/a
Unvested
Vested but
unexercised
Subject to
performance
conditions (4)
Not subject to
performance
conditions
Total as at 31
December 2018
n/a
-
-
n/a
-
-
149,924
2,281
n/a
101,601
2,281
n/a
n/a
-
5,923
n/a
-
3,367
468,996
2,281
5,923
166,926
2,281
3,367
(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 two times their annual salary – see below.
(2) The Market Value options were granted under the tax-advantaged part of the ESOS as part of the LTIP award granted in 2017 and subject to the same performance conditions as part of
that 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 28 February 2019 the Remuneration Committee approved the vesting of 100% of the 2016 LTIP award, being 59,075 and 37,779 shares for D W Muir and M Pegler respectively.
Shareholding guidelines
Shareholding requirement
Current shareholding as at 31 December 2018
Current value (based on share price on 31 December 2018 of £12.00)
Current % of salary
D W Muir
200%
340,515
£4,086,180
804%
M Pegler
200%
54,573
£654,876
184%
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 number and number shares respectively, being the net amount of those shares vested on 28 February
209 in respect of the 2016 LTIP award and D W Muir is interested in an extra 531 shares received on 4 January 2019 through the Company’s
Dividend Re-Investment Plan (‘DRIP’).
M Pegler will retain sufficient shares from the vesting of 100% of the 2016 LTIP award, that vested on 28 February 2019 to ensure that the
200% shareholding guideline is maintained.
78
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Non-executive Director shareholding
Director
J F Lennox
A C B Giddins
A M Kelleher
M J Reckitt
2018
11,000
6,245
2,164
4,000
2017
7,500
4,500
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 2018 and 28 February 2019. 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 2018.
Transactions with Directors
There were no material transactions between the Group and the Directors during 2018.
How the Remuneration Policy was implemented in 2018 – Non-executive Directors
Non-executive Director single figure comparison
Director
Role
Board Fees
Other
Fees
Taxable
Benefits
Annual
Bonus
LTIP
Pension
Total
‘Single
Figure’
2018
Total
‘Single
Figure’
2017
J F
Lennox
A C B
Giddins
A M
Kelleher
M J
Reckitt
Total
Chairman
Senior Independent
Director
Remuneration
Committee Chair
Audit Committee
Chair
165,000
56,650
56,650
56,650
334,950
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
165,000
114,577
56,650
13,609
56,650
55,000
56,650
55,000
334,950
238,186
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.
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 2016 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.
250
200
150
100
50
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Jan 17
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Jan 19
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Jan 17
Jan 18
Jan 19
Hill & Smith
FTSE 250
Hill & Smith
FTSE SmallCap
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report (continued)
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 2017 and 2018.
Percentage increase
Salary
Taxable benefits
Annual bonus
Chief Executive Officer
Wider workforce
3%
3.4%
-76.3%
2% - 7.5%
-
-4.8%
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 2% to 7.5%, with the average being 3.10%. 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 paid in respect of the financial year
Overall spend on pay
2018
£25.1m
£160.4m
2017
£23.8m
£148.7m
% change
5.5%
7.9% (1)
(1) This includes a 4.6% increase in the average number of people employed by the Group. See note 4 to the accounts on page 117.
Chief Executive remuneration pay compared to performance
The graph below shows the TSR performance of the Company over the ten year period to 1 January 2019 compared to the appropriate FTSE
indices.
1200
1000
800
600
400
200
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Jan 10
Jan 11
Jan 12
Jan 13
Jan 14
Jan 15
Jan 16
Jan 17
Jan 18
Jan 19
Hill & Smith
FTSE 250
FTSE SmallCap
FTSE All Share
The table below summarises the Chief Executive’s single figure for the past ten years and outlines the proportion of annual bonus paid as a
percentage of the maximum opportunity and the proportion of LTIP awards vesting as a percentage of the maximum opportunity. The annual
bonus is shown based on the year to which performance related and the LTIP is shown for the last year of the performance period.
Chief Executive’s single figure (£’000)
Annual bonus (% of maximum)
LTIP vesting (% of maximum number
of shares)
2009
1,059
95
100
2010
2011
2012
2013
2014
2015
2016
2017
2018
851
14
100
690
941
1,084
1,835
1,894
2,134
2,085
1,506
30
-
85
-
16
50
100
92.7
100
97.9
100
100
94
100
19
100
80
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 2019 – Executive Directors
Salary
Base salaries were reviewed in December 2018 and as from 1 January 2019 are:
Chief Executive
Finance Director
£520,000
£364,000
This represents an increase of 2.4% which is in line with the increase to other employees within the Group. Salaries will next be reviewed in
December 2019 for the financial year 2020.
Annual bonus
The annual bonus opportunity for 2019 will remain unchanged as follows:
Chief Executive
• Maximum opportunity of 125% of base salary
Finance Director
• Maximum opportunity of 125% of base salary
•
•
80% paid in cash
20% delivered in shares
The Committee can disclose that for the 2019 financial year the annual bonus targets will be equally weighted towards:
•
•
80% paid in cash
20% delivered in shares
• Growth in UEPS;
• Budgeted underlying operating profit;
• Underlying 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 in the Company’s 2019 Annual Report.
Share plans
The Remuneration Policy approved by shareholders 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 has no plans to exercise this approval to the maximum and intend
to make an award in 2019 in respect of the performance period 1 January 2019 – 31 December 2021, 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)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report (continued)
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 2019 – 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 2018, the Board approved an average of a 2.4% increase in the fees for the Chairman and Non-executive
Directors.
2019
£169,000
£50,000
£8,000
£8,000
£8,000
2018
£165,000
£48,900
£7,750
£7,750
£7,750
Chairman
Non-executive Director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Annette Kelleher
Chair, Remuneration Committee
6 March 2019
82
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 Remuneration 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
Pension
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.
To recruit and
retain Executive
Directors.
To provide
post-retirement
benefits and
reward sustained,
long-term
contribution to the
performance of
the Group.
The Group may make payment either into a
defined contribution plan or as a separate cash
allowance.
Group contributions 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.
Not applicable.
Contribution rates (or cash allowance)
are up to a maximum of 25% of base
salary for current Executive Directors.
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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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report (continued)
Purpose and link
to strategy
Operation
Maximum opportunity
Performance metrics
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.
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Purpose and link
to strategy
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.
Long-Term
Incentive Plan
(‘LTIP’)
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.
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.
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Remuneration Report (continued)
Purpose and link
to strategy
Operation
Shareholding
guidelines
Promotes
alignment to
shareholders’
interests and share
ownership.
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.
Maximum opportunity
Performance metrics
Not applicable.
Not applicable.
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.
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.
Fees are subject to an overall cap as
set out in the Company’s Articles of
Association from time to time.
Fees are based on the time
commitment and responsibilities of
the role.
Fees are appropriately positioned
against comparable roles in companies
of a similar size and complexity in the
relevant market.
The Non-executive Directors do not participate in
any of the Group’s share incentive plans nor do
they receive any pension contributions.
Non-executive Directors may be eligible to benefits
such as the use of secretarial support, travel costs
or other benefits that may be appropriate.
Recovery provisions
Annual bonus and LTIP awards are subject to malus and clawback provisions as set out below.
For up to two years following the determination of an annual bonus, the Remuneration Committee may require a participant to repay any cash
bonus paid and/or may reduce or cancel any deferred bonus award granted in the event of: (i) a material misstatement in the Group’s financial
results; or (ii) the Remuneration Committee reasonably determining that the participant has been guilty of gross misconduct.
Before the vesting of an LTIP award, the Remuneration Committee may decide to reduce or cancel the award in the event of: (i) a material
error in or misstatement of the Group’s results; (ii) information coming to light which, had it been known, would have affected the award
or vesting decision; or (iii) reputational damage to the Group. For up to two years following the vesting of an LTIP award the Remuneration
Committee may reduce or cancel the award (for example if it remains unexercised and subject to a holding period) or require a repayment in
respect of shares acquired in the event of: (i) a material misstatement in the Group’s financial results for any year in the performance period
for the relevant award; or (ii) the Remuneration Committee reasonably determining that the participant has been guilty of gross misconduct.
Explanation of chosen performance measures and how targets are set
Performance measures have been selected that reflect the Group’s strategy. Stretching performance targets are set each year for the annual
bonus and LTIP awards. In setting these stretching performance targets the Remuneration Committee will take into account a number of
different reference points such as the Group’s business plans and strategy.
The Remuneration Committee considers that underlying EPS and profit before tax are closely aligned to the Group’s key performance metrics
and, in conjunction with the other annual bonus performance metrics, provide a balanced measurement of performance that encourages
sustainable growth.
The UEPS and TSR performance conditions attaching to the LTIP align management’s objectives to those of shareholders and reward the
delivery of year on year growth and delivery of value to shareholders. For the relative TSR performance condition there will be no vesting for
performance below median compared to the comparator group.
The Remuneration Committee retains the discretion to adjust the performance targets and measures where it considers it appropriate to do
so. For example, to reflect changes in the strategy or structure of the business or in prevailing market conditions and to assess performance
on a fair and consistent basis from year to year.
Operation of share plans
The Remuneration Committee retains discretion to operate the Company’s share plans in accordance with their rules, including the ability to
adjust awards in the event of a variation of capital or other relevant corporate event, and settle awards in cash.
Differences in the Group’s policy for the remuneration of employees generally
The Group aims to provide a remuneration package that is market competitive in the employee’s jurisdiction of employment and which:
•
•
•
is appropriate to attract, retain, motivate and reward, without paying more than necessary;
is fairly and consistently applied; and
includes an element of incentive to share in the financial success of the Group through: annual bonuses, based upon the performance
of individual business units, executive share options and a UK SAYE scheme, all of which are aligned to the strategic objectives and
performance of the Group.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Report (other statutory information)
Principal activities and strategic report
The Company acts as a holding company to all the Group’s subsidiaries.
During 2018 the principal activities of the Group comprised the manufacture and supply of:
•
Infrastructure Products (Roads and Utilities); and
• Galvanizing Services
Pages 1 to 49 contain further details of these areas of the business and the principal subsidiaries operating within them are set out on pages
166 to 168.
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 49.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2018 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 £59.8m (2017: £70.2m). Group revenue at £637.9m was 9% higher than the prior
year. Operating profit at £65.2m was 12% down on the previous year (2017: £74.1m).
Share capital summary
Exchange trade
Class
Issued share capital 1 January 2018
Total new ordinary shares issued during the year
Issued share capital 31 December 2018
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
All issued shares rank equally. Rights and obligations attaching to the Company’s
shares are set out in the Company’s Articles of Association
78,697,103
315,161
79,012,264
Further details can be found in note 21 on pages 139 and 140 of the Group Financial Statements.
Details of the results for the year are shown on the Consolidated Income Statement on page 99 and the business segment information is
given on pages 113 to 115.
Dividends
The Directors recommend the payment of a final dividend of 21.8p per ordinary share (2017: 20.6p per ordinary share) which, together with
the interim dividend of 10.0p per ordinary share (2017: 9.4p per ordinary share) paid on 4 January 2019, makes a total distribution for the year
of 31.8p per ordinary share (2017: 30.0p per ordinary share). Subject to shareholders approving this recommendation at the AGM, the final
dividend will be paid on 1 July 2019 to shareholders on the register at the close of business on 24 May 2019. The latest date for receipt of
Dividend Re-investment Plan elections is 10 June 2019.
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
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Directors’ Report (continued)
also the UK Listing Authority requirements, as the Company’s shares are listed on the London Stock Exchange. At the date of this report no
shares were held in treasury.
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 2018 AGM and will be limited by the resolution to be put to the 2019 AGM. The prices to be paid for such purchases
must be a minimum price of 25 pence per ordinary share (the nominal value) and a maximum price of 5% above the average of the middle
market quotations for ordinary shares derived from the London Stock Exchange Daily Official List for the five business days immediately
preceding the day on which any such purchase takes place.
The Companies (Shareholders’ Rights) Regulations 2009 provide that a company can reduce the notice period for calling meetings to the
shorter period of 14 clear days on two conditions: firstly that the company offers a facility for shareholders to vote by electronic means
and secondly that there is an annual resolution of shareholders approving such reduction in the required minimum notice period. Approval
to the calling of general meetings other than AGM’s on 14 clear days’ notice was approved at the AGM on 17 May 2018 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 17 August 2019.
Substantial shareholdings
As at 21 February 2019, 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)
Canaccord Genuity Wealth Mgt
Mondrian Investment Partners
AXA Investment Mgrs
Legal and General Investment Mgt
Charles Stanley
Royal London Asset Mgt
Directors
4,678,845
4,292,937
3,214,302
3,180,589
2,966,489
2,902,089
2,872,676
5.92
5.43
4.06
4.02
3.75
3.67
3.63
The names of the Directors of the Company who served throughout the year, including brief biographies, are set out on pages 52 and 53.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith Holdings PLC as at 31 December 2018 are set out on pages 78 and 79.
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 Act 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 133 to 138.
Research and development
During the year, the Group spent a total of £1.2m (2017: £1.6m) on research and development.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Political and charitable donations
Charitable donations amounting to £30,000 (2017: £34,000) were made in the year principally to local charities serving the communities in
which the Group operates. There were no political contributions.
Employment policies
Details of the Group’s employment policies are available on the Company’s website.
Change of control/significant agreements
There are no agreements between the Group and its Directors or employees providing for compensation for loss of office or employment that
occurs because of a change of control, other than revised notice periods and termination payments for D W Muir and M Pegler set out in the
Directors’ Remuneration Report on page 81.
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 2018
On 10 January 2019, the Group completed an amendment to its principal UK revolving credit facility, extending the term to January 2024 and
increasing the size of the facility by £50m to c. £280m.
On 22 February 2019, the Group announced the acquisition of 100% of the share capital of Cobaco holdings Limited, the parent company of
ATG Access Limited (“ATG”) for a cash consideration of £22.5m. Based in the UK and exporting to over 30 countries, ATG specialises in the
development, manufacture and installation of hostile vehicle mitigation perimeter security solutions including bollards, road blockers, barriers
and gates
Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 a.m. on Thursday 16 May 2019 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 164.
By order of the Board.
Alex Henderson
Company Secretary
6 March 2019
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and
the Group and parent Company financial statements in accordance
with applicable law and regulations.
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
6 March 2019
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.
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.
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Financial
Statements
Independent Auditor’s Report
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99 Group Financial Statements
149 Company Financial Statements
161 Five Year Summary
Top: Substation structures provided for American
Electric Power. Produced from V&S Utilities’
Muskogee, Oklahoma and Canton, Ohio plants.
Bottom: A Tower Tech pultruded Fibre Reinforced
Polymer (‘FRP’) modular cooling tower installed
on the Marriott Hotel, Aruba.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
To the members of Hill & Smith Holdings PLC
Independent Auditor’s Report
1. Our opinion is unmodified
We have audited the financial statements of Hill & Smith Holdings PLC (“the Company”) for the year ended 31 December 2018 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 pages 100 to
108.
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 2018
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
£3.25m (2017:£3.25m)
4.6% (2017: 4.4%) of Normalised profit before tax
Coverage
96% (2017:96%) of Group normalised profit before tax
Key audit matters vs 2017
New risks
The impact of uncertainties due to the UK exiting the European Union on our
audit
Recurring risks
Valuation of goodwill in relation to France Galva S.A.
Provisions for uncertain income tax positions
UK post retirement benefits obligation
Carrying value of investments in subsidiary undertakings (Parent Company only)
2. Key audit matters: including 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 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.
92
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
The impact of
uncertainties due to
the UK exiting the
European Union
Valuation of
goodwill in relation
to France Galva S.A.
(£30.1 million; 2017:
£29.7 million)
Refer to page 67
(Audit Committee
Report), page 105
(accounting policy)
and pages 117
to 124 (financial
disclosures).
The risk
Our response
Unprecedented levels of uncertainty
All audits assess and challenge the
reasonableness of estimates and related
disclosures and the appropriateness of the
going concern basis of preparation of the
financial statements. All of these depend
on assessments of the future economic
environment and the Group’s future
prospects and performance.
In addition, we are required to consider the
other information presented in the Annual
Report including the principal risks disclosure
and the viability statement and to consider
the directors’ statement 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.
Brexit is one of the most significant
economic events for the UK and at the
date of this report its effects are subject
to unprecedented levels of uncertainty of
outcomes, with the full range of possible
effects unknown.
We developed a standardised firm-wide approach to the
consideration of the uncertainties arising from Brexit in planning
and performing our audits. Our procedures included:
• Our Brexit knowledge – We considered the directors’
assessment of Brexit-related sources of risk for the Group’s
business and financial resources compared with our own
understanding of the risks. We considered the directors’ plans
to take action to mitigate the risks.
• Sensitivity analysis – When addressing areas that depend
on forecasts, we compared the directors’ analysis to our
assessment of the full range of reasonably possible, scenarios
resulting from Brexit uncertainty and, where forecast cash
flows are required to be discounted, considered adjustments to
discount rates for the level of remaining uncertainty.
• Assessing transparency – We considered all of the Brexit
related disclosures together, including those in the strategic
report, comparing the overall picture against our understanding
of the risks.
Our results
We found the estimates and related disclosures and disclosures
in relation to going concern to be acceptable. However, no audit
should be expected to predict the unknowable factors or all
possible future implications for a company and this is particularly
the case in relation to Brexit.
Forecast based valuation
Our procedures included:
Market conditions in France have been
challenging for France Galva S.A. and as a
result there is limited headroom when testing
this CGU for impairment, and that headroom
is sensitive to the assumptions adopted.
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.
The effect of these matters is that, as part of
our risk assessment, we determined that the
value in use of goodwill has a high degree
of estimation uncertainty, with a potential
range of reasonable outcomes greater than
our materiality for the financial statements
as a whole. The financial statements (note
10) disclose the sensitivity estimated by the
Group.
• Benchmarking assumptions: Comparing the group’s
assumptions to externally derived data in relation to projected
growth and discount rates;
• Our sector experience: Evaluating 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 2018 and challenging management
where such future cash flows are significantly higher than
current levels or do not reflect known or probable changes in
the business environment;
• Challenging, 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: Performing our own sensitivity analysis on
the assumptions noted above;
• Assessing transparency: Assessing 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..
Our results
We found the resulting estimate of the recoverable amount of
goodwill in relation to France Galva S.A. to be acceptable (2017:
acceptable).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Independent Auditor’s Report (continued)
Provisions for
uncertain income
tax positions
(£8.3 million; 2017:
£7.8 million)
Refer to page 67
(Audit Committee
Report), page
108 (accounting
policy) and page
144 (financial
disclosures).
UK post retirement
benefits obligation
(£72.8 million; 2017:
£81.9 million)
Refer to page 67
(Audit Committee
Report), page 107
(accounting policy)
and pages 137
to 143 (financial
disclosures).
The risk
Our response
Subjective estimate
Our procedures included:
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.
The effect of these matters is that, as part
of our risk assessment, we determined
that provisions for uncertain income tax
provisions has a high degree of estimation
uncertainty, with a potential range of
reasonable outcomes greater than our
materiality for the financial statements as
a whole. The financial statements (note 24)
disclose the range estimated by the Group.
• Our tax expertise: With the assistance of our own tax
specialist, we:
– 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 prior years;
– Inspected Board minutes for reference to tax matters;
– Challenged as to why the provisions for uncertain income
tax positions represents management’s best estimate;
• Assessing transparency: Assessing whether 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 (2017: acceptable).
Subjective valuation
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: Considering 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 (2017: acceptable).
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 Group’s net pension deficit.
The effect of these matters is that, as part of
our risk assessment, we determined that the
UK post retirement benefits obligation has a
high degree of estimation uncertainty, with
a potential range of reasonable outcomes
greater than our materiality for the financial
statements as a whole. The financial
statements (note 23) disclose the sensitivity
estimated by the Group.
94
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Carrying value
of investment
in subsidiary
undertaking
(£325.0 million; 2017:
£324.9 million)
Refer to page
148 (accounting
policy) and page
151 (financial
disclosures).
The risk
Our response
Low risk/ high value (Parent company only)
Our procedures included:
Investment in subsidiaries represents
78% 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.
• Tests of detail: Comparing the carrying amount of 100% of
investments with the relevant subsidiaries’ draft balance sheet
to identify whether their net assets, being an approximation
of their minimum recoverable amount, were in excess of their
carrying amount and assessing whether those subsidiaries
have historically been profit-making;
• 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;
• Comparing valuations: For the investments where the carrying
amount exceeded the net asset value, comparing the carrying
amount of the investment with the expected value of the
business based on a suitable multiple of the subsidiaries’ profit
or a discounted cash flow.
Our results
We found the resulting estimate of the carrying value of investment
in subsidiary undertakings to be acceptable (2017 result:
acceptable).
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95
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Independent Auditor’s Report (continued)
3. Our application of materiality and an overview of the scope
Normalised profit before tax
Group Materiality
£69.9m (2017: £74.0m)
£3.25m (2017: £3.25m)
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.
Normalised Group profit
before tax
Group materiality
of our audit
Materiality for the Group financial statements as a whole was set at
£3.25m (2017: £3.25m), determined with reference to a benchmark
of Group profit before tax, normalised to exclude net costs in
respect of business reorganisations, acquisition expenses, pension
past service expenses, impairment of assets held for sale and an
impairment charge of goodwill as disclosed in note 3. Normalised
Group profit before tax is calculated as £69.9m (2017: £74.0m), of
which materiality represents 4.6% (2017: 4.4%).
Materiality for the parent Company financial statements as a whole
was set at £2.4m (2017: £2.4m), determined with reference to a
benchmark of Company total assets, of which it represents 0.6%
(2017: 0.5%).
Of the group’s 59 (2017: 56) reporting components, we subjected
27 (2017: 27) to full scope audits for group purposes.
The components within the scope of our work accounted for the
percentages illustrated opposite.
The remaining 5% of total Group revenue, 4% of Group profit before
tax, 13% of total Group assets and 4% of normalised Group profit
before tax is represented by 32 reporting components, none of
which individually represented more than 2% of any of total Group
revenue, Group profit before tax, total Group assets or normalised
Group profit 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 10 of the 59 components
(2017: 5 of the 56 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 (2017: 1) component in the United States
of America, the component in Sweden (2017: no visit) and the
component in France (2017: 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.
£3.25m
Whole financial
statements materiality
(2017: £3.25m)
£2.4m
Range of materiality
at 59 components
(£0.1m to £2.4m)
(2017: £0.1m to
£2.4m)
£162,500
Misstatements
reported to the audit
committee (2017:
£162,500)
Group revenue
Group profit before tax
95%
(2017: 96%)
96%
95%
96%
(2017: 96%)
96%
96%
Group total assets
Normalised Group profit
before tax
87%
(2017: 96%)
96%
87%
96%
(2017: 96%)
96%
96%
4. We have nothing to report on going concern
Full scope for Group audit purposes 2017
Full scope for Group audit purposes 2018
The Directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Company or
the Group or to cease their operations, and as they have concluded
that the Company’s and the Group’s financial position means that
this is realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability
to continue as a going concern for at least a year from the date of
approval of the financial statements (“the going concern period”).
Residual components
96
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Our responsibility is to conclude on the appropriateness of the
Directors’ conclusions and, had there been a material uncertainty
related to going concern, to make reference to that in this
audit report. However, as we cannot predict all future events or
conditions and as subsequent events may result in outcomes that
are inconsistent with judgements that were reasonable at the time
they were made, the absence of reference to a material uncertainty
in this auditor’s report is not a guarantee that the Group and the
Company will continue in operation.
In our evaluation of the Directors’ conclusions, we considered the
inherent risks to the Group’s and Company’s business model and
analysed how those risks might affect the Group’s and Company’s
financial resources or ability to continue operations over the
going concern period. The risks that we considered most likely
to adversely affect the Group’s and Company’s available financial
resources over this period were:
• Reduction or delay in local government infrastructure
programmes;
•
•
Significant changes in foreign exchange rates; and
The impact of Brexit on the Group’s supply chain.
As these were risks that could potentially cast significant doubt
on the Group’s and Company’s ability to continue as a going
concern, we considered sensitivities over the level of available
financial resources indicated by the Group’s and Company’s
financial forecasts taking account of reasonably possible (but
not unrealistic) adverse effects that could arise from these risks
individually and collectively and evaluated the achievability of the
actions the Directors consider they would take to improve the
position should the risks materialise. We also considered less
predictable but realistic second order impacts, such as the impact
of Brexit and the erosion of customer or supplier confidence, which
could result in a rapid reduction of available financial resources.
Based on this work, we are required to report to you if:
• we have anything material to add or draw attention to in
relation to the directors’ statement on page 100 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
•
the related statement under the Listing Rules set out on page
88 is materially inconsistent with our audit knowledge.
We have nothing to report in these respects, and we did not identify
going concern as a key audit matter.
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, page
60, 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 and Uncertainties 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.
Under the Listing Rules we are required to review the viability
statement. We have nothing to report in this respect.
Our work is limited to assessing these matters in the context
of only the knowledge acquired during our financial statements
audit. As we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent
with judgments that were reasonable at the time they were made,
the absence of anything to report on these statements is not a
guarantee as to the Group’s and Company’s longer-term viability.
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Independent Auditor’s Report (continued)
6. We have nothing to report on the other matters on which we
are required to report by exception
of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
Whilst the Group is subject to many other laws and regulations,
we did not identify any others where the consequences of non-
compliance alone could have a material effect on amounts or
disclosures in the financial statements.
Owing to the inherent limitations of an audit, there is an unavoidable
risk that we may not have detected some material misstatements
in the financial statements, even though we have properly planned
and performed our audit in accordance with auditing standards.
For example, the further removed non-compliance with laws and
regulations (irregularities) is from the events and transactions
reflected in the financial statements, the less likely the inherently
limited procedures required by auditing standards would identify
it. In addition, as with any audit, there remained a higher risk of
non-detection of irregularities, as these may involve collusion,
forgery, intentional omissions, misrepresentations, or the override
of internal controls. We are not responsible for preventing non-
compliance and cannot be expected to detect non-compliance with
all laws and regulations.
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
6 March 2019
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 88,
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 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 general commercial and sector experience, through
discussion with the directors and other management (as required
by auditing standards) and discussed with the directors and other
management the policies and procedures regarding compliance
with laws and regulations. We communicated identified laws
and regulations throughout our team and remained alert to any
indications of non-compliance throughout the audit. This included
communication from the group to component audit teams of
relevant laws and regulations identified at group level.
The potential effect of these laws and regulations on the financial
statements varies considerably.
The Group is subject to laws and regulations that directly affect
the financial statements including financial reporting legislation
(including related companies legislation), distributable profits
legislation and taxation legislation and we assessed the extent
98
Stock Code HILS
Year ended 31 December 2018
Consolidated Income Statement
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Revenue
Underlying operating profit
Amortisation of acquisition intangibles
Business reorganisation costs
Pension past service expense
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, 10,12
3
3
1, 2
5
5
7
8
8
9
9
2018
Non-
Underlying
underlying*
£m
637.9
80.1
-
-
-
-
-
-
80.1
0.6
(4.4)
76.3
£m
-
-
(4.8)
(0.7)
(1.1)
(6.1)
(2.2)
-
(14.9)
-
(1.6)
(16.5)
Total
£m
637.9
80.1
(4.8)
(0.7)
(1.1)
(6.1)
(2.2)
-
65.2
0.6
(6.0)
59.8
2017
Non-
Underlying
underlying*
£m
585.1
81.3
-
-
-
-
-
-
81.3
0.6
(3.4)
78.5
£m
-
-
(4.0)
(2.8)
-
(0.4)
(0.6)
0.6
(7.2)
-
(1.1)
(8.3)
2.6
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£m
585.1
81.3
(4.0)
(2.8)
-
(0.4)
(0.6)
0.6
74.1
0.6
(4.5)
70.2
(16.3)
(14.9)
2.3
(12.6)
(18.9)
61.4
(14.2)
47.2
59.6
(5.7)
53.9
77.8p
77.2p
75.9p
74.8p
59.9p
59.3p
10.0p
21.8p
31.8p
68.6p
67.7p
9.4p
20.6p
30.0p
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Year ended 31 December 2018
Consolidated Statement of Comprehensive Income
Profit for the year
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations
Exchange differences on foreign currency borrowings denominated as net investment hedges
Taxation on items that may be reclassified to profit or loss
Items that will not be reclassified subsequently to profit or loss
Actuarial gain on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive income/(expense) for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
23
7
2018
£m
47.2
11.7
(4.7)
-
1.7
(0.3)
8.4
55.6
2017
£m
53.9
(11.3)
4.9
-
-
(0.2)
(6.6)
47.3
100
Stock Code HILS
Year ended 31 December 2018
Consolidated Statement of Financial Position
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Non-current assets
Intangible assets
Property, plant and equipment
Deferred tax assets
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 liabilities
Retirement benefit obligations
Interest bearing borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Translation reserve
Retained earnings
Total equity
Notes
10
11
13
12
14
15
16
1
17
19
17
18
19
13
23
18
21
2018
£m
183.8
170.2
0.5
354.5
0.8
96.6
142.0
36.9
276.3
630.8
2017
£m
163.9
145.1
-
309.0
0.7
84.6
116.5
16.4
218.2
527.2
(120.9)
(10.4)
(1.3)
(0.4)
(104.8)
(11.7)
(2.1)
(0.3)
(133.0)
(118.9)
143.3
99.3
(2.7)
(2.7)
(6.8)
(23.0)
(169.4)
(204.6)
(337.6)
293.2
19.8
35.5
4.9
29.9
203.1
293.2
(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 6 March 2019 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Year ended 31 December 2018
Consolidated Statement of Changes in Equity
Notes
Share
capital
£m
19.7
Share
premium
£m
Other
reserves†
£m
33.5
4.8
At 1 January 2017
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
Adoption of new accounting standards
-
-
-
-
-
-
-
-
-
19.7
-
9
21
7
21
-
-
-
-
-
-
-
-
0.6
34.1
-
At 1 January 2018 (restated)
19.7
34.1
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 2018
9
21
7
21
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.8
1.4
35.5
Translation
reserves
£m
29.3
-
(6.4)
-
-
-
-
-
-
-
22.9
-
22.9
-
7.0
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
-
-
4.9
-
4.9
-
-
-
-
-
-
-
-
-
4.9
29.9
Hedge
reserves
£m
Retained
earnings
£m
Total
equity
£m
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
2.7
2.7
179.7
261.3
47.2
1.4
47.2
8.4
(23.6)
(23.6)
1.1
(2.9)
0.2
-
-
-
203.1
1.1
(2.9)
0.2
-
-
1.5
293.2
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2017: £0.2m) capital redemption reserve.
At 31 December 2017 the Group had purchased 89,970 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 £1.2m, was
included within retained earnings at that date. In March 2018, 87,017 of these shares were issued in settlement of awards to employees. A
further 87,500 shares were purchased in 2018 at a cost of £1.0m. At 31 December 2018 a total of 90,453 shares are therefore held, at a cost
of £1.0m.
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Stock Code HILS
Year ended 31 December 2018
Consolidated Statement of Cash Flows
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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
Purchase of assets for rental to customers
Income taxes paid
Interest paid
Net cash from operating activities
Interest received
Proceeds on disposal of non-current assets
Proceeds on disposal of assets held for sale
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 from/(used in) financing activities
Net increase in cash
Cash at the beginning of the year
Effect of exchange rate fluctuations
Cash at the end of the year
Notes
5
1, 2
4, 21
3
6
6, 11
6, 10
6, 12
6, 10
12
10
21
9
16
2017
£m
2018
£m
£m
59.8
5.4
65.2
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)
1.1
-
(0.3)
18.6
5.7
0.1
6.0
(3.4)
(9.8)
6.9
(2.4)
0.5
0.6
0.6
(17.4)
(0.9)
(45.2)
(0.6)
-
1.5
(2.7)
(23.6)
-
78.3
(26.8)
31.2
96.4
(8.7)
87.7
(14.5)
(13.3)
(4.4)
55.5
(62.4)
26.7
19.8
16.4
0.7
36.9
£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
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 149 to 159.
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.
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.
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 Operational & Financial Review on pages 18 to 28, together with the financial position of the Group, its cash flows, liquidity position
and borrowing facilities. 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 £230.5m at 31 December 2018, expiring in April 2021. As set out in the Operational &
Financial Review on pages 18 to 28, on 10 January 2019 this facility was increased to £280m and the maturity date extended to January
2024. 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 2018
In 2018 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
•
•
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 9 ‘Financial Instruments’
• Amendments to IFRS 2 Share Based Payments
• Annual Improvements to IFRSs – 2014-2016 Cycle
•
IFRIC 22 Foreign Currency Transactions and Advance Consideration
The impacts of IFRS 15 and IFRS 9 on the Group’s results for the year are set out below. The other amendments have not had a material
impact on the financial statements.
IFRS 15 ‘Revenue from Contracts with Customers’
On 1 January 2018 the Group adopted IFRS 15, applying the modified retrospective approach. IFRS 15 provides a principles-based approach
to the recognition of revenue from contracts with customers, focusing on the identification of performance obligations in a contract
and requiring revenue to be recognised when those performance obligations are satisfied. The Group has chosen to apply the modified
retrospective approach and so comparative information throughout these financial statements has not been restated i.e. it is presented as
previously reported, under IAS 18 and related interpretations. Additionally, the disclosure requirements in IFRS 15 have not generally been
applied to comparative information.
The effect of initial application of IFRS 15 is mainly attributable to earlier revenue recognition from certain contracts entered into by
businesses in the Infrastructure Products – Utilities segment. Under IAS 18, revenue for certain products manufactured by these businesses
was recognised when the customer accepted the goods and the related risks and rewards of ownership transferred, usually on delivery
depending on the Incoterms defined in the contract. Under IFRS 15, revenue from products that are produced for specific customer
requirements and therefore require a high degree of customisation is required to be recognised over the period of manufacture of those
products i.e. before delivery to the customer. Consequently the revenue for these products is recognised sooner under IFRS 15 than under
IAS 18. The impacts of these changes on items other than revenue are an increase in trade and other receivables, recognition of contract
assets and a reduction in inventories. The adoption of IFRS 15 has not had a material impact on businesses in the Infrastructure Products –
Roads segment, where products are generally of a more standard nature, or in the Galvanizing Services segment where revenue is generally
recognised on completion of the galvanizing process. Further details are set out in the Revenue accounting policy on page 110.
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Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
The impact on retained earnings at 1 January 2018, net of tax, on transition to IFRS 15 was an increase of £0.9m. The following tables
summarise the impacts on the Group’s statement of financial position as at 31 December 2018 and its income statement for the year
then ended for each of the line items affected. There was no material impact on the Group’s statement of cash flows for the year ended 31
December 2018.
Impact on the consolidated income statement
Revenue
Cost of sales
Income tax expense
Others
Profit for the year
As Reported
£m
Adjustments
£m
Amounts without
adoption of IFRS 15
£m
637.9
(409.3)
(12.6)
(168.8)
47.2
-
0.2
-
-
0.2
637.9
(409.1)
(12.6)
(168.8)
47.4
Impact on the consolidated statement of financial position
Inventories
Contract assets
Trade and other receivables
Others
Total assets
Retained earnings
IFRS 9 ‘Financial instruments’
As Reported
£m
Adjustments
£m
Amounts without
adoption of IFRS 15
£m
96.6
2.9
139.1
392.2
630.8
203.1
2.2
(2.9)
-
-
(0.7)
(0.7)
98.8
-
139.1
392.2
630.1
202.4
IFRS 9 Financial Instruments is the standard that replaces IAS 39 Financial Instruments: Recognition and Measurement. The new standard
addresses the classification, measurement and derecognition of financial assets and liabilities, introduces new rules for hedge accounting
and a new impairment model for financial assets. The Group has adopted IFRS 9 from 1 January 2018 and has used the exemption not
to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements.
Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in retained
earnings and reserves as at 1 January 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of
IFRS 9, but rather those of IAS 39.
Classification and measurement
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities; however it eliminates
the previous IAS 39 category for financial assets of ‘loans and receivables’. The effect of this change on the Group is to amend the
classification of trade and other receivables from ‘loans and receivables’ to ‘amortised cost’. This change of classification has not had any
impact on the carrying amount of trade and other receivables.
Refinancing
IFRS 9 requires that when a financial liability measured at amortised cost is modified without being derecognised, a modification gain or loss
should be recognised in the income statement. This represents a change from IAS 39, under which no gain or loss was recognised.
The Group’s principal funding facility, which is a financial liability, is a multicurrency revolving credit agreement that was originally established
in 2011, but subsequently ‘amended and extended’ in 2014 and 2016, each of which was accounted for as a modification without
derecognition under IAS 39. On transition to IFRS 9, the modification gain that would have arisen on each of those modifications, when
treated in accordance with IFRS 9, has been calculated and applied retrospectively resulting in a credit to equity at 1 January 2018 of £1.8m
comprising a reduction of £2.1m in the carrying value of the financial instrument, which is included in the Group’s definition of net debt, and
recognition of a deferred tax liability of £0.3m.
The following tables summarise the impacts on the Group’s income statement and statement of financial position. There was no impact on
the Group’s cash flow statement.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Group Accounting Policies (continued)
Impact on the consolidated income statement
Financial expense
Others
Profit for the period
As Reported
£m
Adjustments
£m
Amounts without
adoption of IFRS 9
£m
(6.0)
53.2
47.2
0.6
-
0.6
(5.4)
53.2
47.8
Impact on the consolidated statement of financial position
Non-current interest bearing borrowings
Deferred tax liabilities
Others
Net assets
Retained earnings
Impairment of financial assets
As Reported
£m
Adjustments
£m
Amounts without
adoption of IFRS 9
£m
(169.4)
(6.8)
469.4
293.2
203.1
(1.5)
0.3
-
(1.2)
(1.2)
(170.9)
(6.5)
469.4
292.0
201.9
IFRS 9 has introduced a new impairment model which requires the recognition of impairment provisions based on expected credit losses
rather than incurred credit losses as was the case under IAS 39. It applies to financial assets at amortised cost (which include trade and
other receivables), contract assets arising under IFRS 15 and lease receivables amongst others. For trade receivables, the Group applies
the simplified approach set out in IFRS 9 to measure expected credit losses using a lifetime expected credit loss allowance. This change in
impairment methodology did not have a material impact on the Group’s financial results.
New IFRS standards and interpretations to be adopted in the future
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 16 ‘Leases’ (effective 1 January 2019)
IFRIC 23 ‘Uncertainty over Income Tax Treatments’ (effective 1 January 2019)
• Amendments to IFRS 9 ‘Financial Instruments’ (effective 1 January 2019)
• Annual Improvements to IFRSs – 2015-2017 cycle
• Amendments to IAS 19 Employee Benefits
• Amendments to References to the Conceptual Framework in IFRS Standards
• Amendments to IFRS 3 Business Combinations
• Amendments to IAS 1 and IAS 8
With the exception of IFRS 16, the above changes are not expected to have a material impact on the Group.
IFRS 16 ‘Leases’
IFRS 16 was issued by the IASB in January 2016 and replaces IAS 17 and its related interpretations. The new standard sets out the principles
for the recognition, measurement, presentation and disclosure of leases for both the lessee and the lessor. For lessees, IFRS 16 eliminates
the classification of leases as either operating or finance leases and introduces a single lessee accounting model with some exemptions for
short term and low value leases. The lessee recognises a right-of-use asset, representing its right to use the underlying asset, and a lease
liability representing its obligation to make lease payments. It also includes an election which permits a lessee not to separate non-lease
components (e.g. maintenance) from lease components and instead to capitalise both the lease cost and associated non-lease cost. For
lessors, IFRS 16 substantially carries forward the accounting treatment under IAS 17 and is not therefore expected to have a material impact
on the Group’s contracts in which it is a lessor.
The standard will primarily affect the accounting for the Group’s operating leases. The application of IFRS 16 will result in the recognition of
additional assets and liabilities in the statement of financial position, while in the income statement it will replace the operating lease expense
with a depreciation charge on the right-of-use asset and an interest expense on the lease liabilities. In addition, the Group will no longer
recognise provisions for operating leases that it considers are onerous and will instead perform impairment testing on the right-of-use asset.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
The Group’s non-cancellable operating lease commitments on an undiscounted basis at 31 December 2018 are £38.5m (see note 22), which
provides an indication of the scale of leases held by the Group. Within this amount, £26.9m relates to approximately 50 properties that the
Group leases for its manufacturing and distribution activities, with the balance of £11.6m relating to other items, the majority of which are
plant and machinery and vehicle leases. The actual impact of applying IFRS 16 will depend on a number of factors including the discount
rates for each lease calculated as at 1 January 2019, the expected lease term (including renewal options) and any exemptions for short-term
and low-value leases. IFRS 16 requires future lease liabilities to be discounted and therefore the amount that the Group will recognise as a
right-of-use asset at 1 January 2019 will be lower than the undiscounted commitment of £38.5m at 31 December 2018.
The Group has implemented a new accounting process and an accounting software solution to manage the transition to IFRS 16.
Based on the information currently available for the operating leases that will be recognised in the statement of financial position at 1 January
2019, the estimated impact on the key amounts in the Group’s financial statements that will be affected is as follows:
Property, plant and equipment
Increase
Net debt
EBITDA
Operating profit
Profit before tax and EPS
Transition
Increase
Increase
Increase
Increase
c.20%
c.25%
c.10%
c.1%
Marginal
The Group will apply IFRS 16 from its effective date using the modified retrospective approach, under which the cumulative effect of adoption
will be recognised as an adjustment to the opening balance of retained earnings at 1 January 2019, with no restatement of comparative
information. The Group will apply the practical expedient to grandfather the definition of a lease on transition. This means that it will apply
IFRS 16 to all contracts entered into before 1 January 2019 and identified as leases in accordance with IAS 17 and related interpretations.
Intangible assets
IFRS 3 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’). In determining that these brands have indefinite lives, consideration was given to the extent of their trading history,
which in all cases exceeds 50 years, their prominence in the markets in which they operate and the nature of the products sold under those
brands in the context of potential for future development. 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 amount of directly attributable 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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Group Accounting Policies (continued)
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
5 to 50 years
Leasehold buildings
life of the lease
Plant, machinery and vehicles 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 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 fair value through other comprehensive income
(FVOCI) 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 FVOCI 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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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.
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)
Inventories
2018
2017
Average
Closing
Average
Closing
1.13
1.33
11.60
91.25
1.79
1.11
1.28
11.43
89.10
1.81
1.14
1.29
11.00
83.90
1.68
1.13
1.35
11.08
86.30
1.73
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, either the FIFO or average cost method is used depending on the nature of the inventory. 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.
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Group Accounting Policies (continued)
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.
Revenue
Revenue is measured based on the consideration specified in a contract with a customer for the provision of goods and services. The
amount recognised excludes sales taxes and is adjusted for any discounts or volume rebates that are included in the contract. The Group
does not routinely offer discounts or volume rebates, but where it does the variable element of revenue is based on the most likely amount of
consideration that the Group believes it will receive.
The Group recognises revenue when it transfers control over a good or service to a customer. The following information sets out the Group’s
approach to the nature and timing of the satisfaction of performance obligations in contracts with customers in each of its operating
segments and the related revenue recognition policies.
Infrastructure Products – Utilities and Roads
For standard products that are manufactured, revenue is recognised when goods are accepted by customers, which is usually on delivery
depending on the Incoterms defined in the contract. The Group also enters into certain contracts which require customers to inspect and
accept goods that have been manufactured but retained in the Group’s facilities; in these cases the customer is deemed to have accepted
the product when they have provided evidence of their acceptance and revenue is therefore recognised at that point, assuming that the other
criteria set out in IFRS 15 have been met.
Certain of the Group’s businesses in the Utilities segment manufacture non-standard products that are specific to customer requirements and
therefore require a high degree of customisation. The Group has determined that in these cases a product with no alternative use is created.
Where the contractual terms are such that if the contract is terminated by the customer then the Group has a right to reimbursement of the
costs incurred including a reasonable margin, revenue is recognised over time i.e. before the completed goods are delivered to the customer’s
premises. Progress is generally determined using input methods (such as costs incurred), unless the circumstances of the contract are such
that output methods (such as milestones reached) are considered more appropriate.
In some cases the Group provides installation of its products to customers as an additional service. Revenue from installation services is
recognised over the period that the installation takes place, which is generally less than one month.
Certain of the Group’s Roads businesses provide rental assets to customers. Revenue from these rental agreements is recognised over the
period over which the assets are available to the customer.
Galvanizing Services
Contracts with customers in the Galvanizing Services segment are generally simple. Revenue is recognised at a point in time, which is when
the galvanizing process has been completed and the customers’ goods are available to them.
Contract assets
Contract assets primarily relate to the rights to consideration for work completed but not billed at the reporting date. Contract assets are
transferred to receivables when the rights become unconditional.
Guarantees
The Group’s policy is to not give external guarantees.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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.
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, which can vary depending on the nature, size and frequency of acquisitions
in each financial year.
•
•
Expenses associated with acquisitions, comprising professional fees incurred and any consideration, which, under IFRS 3 (Revised), is
required to be treated as a post-acquisition employment expense.
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 non-underlying tax charge or credit comprises the tax effect of the above non-underlying items.
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Group Accounting Policies (continued)
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates to items either recognised in Other Comprehensive Income or directly in
equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is
calculated using tax rates enacted or substantively enacted at the year end date, and any adjustments to tax payable in respect of previous
years.
Deferred taxation
Deferred tax is provided in full using the Consolidated Statement of Financial Position liability method and represents the tax expected to be
payable or recoverable on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax
purposes, the initial recognition of assets and liabilities not resulting from a business combination that affects neither accounting or taxable
profit, and differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax
rates enacted or substantively enacted at the year end date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset
can be utilised. The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
Ordinary dividends
Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders.
Own shares held by Employee Benefit Trust (‘EBT’)
Transactions of the Group-sponsored EBT are included in the Group Financial Statements. In particular, the Trust’s purchases of shares in the
Company are debited directly to equity.
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Notes to the Consolidated Financial Statements
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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, and, in reporting, management
have taken the view that they comprise a segment 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
239.0
208.5
447.5
190.4
637.9
2018
Reported
operating
profit
£m
Underlying
operating
profit*
£m
9.0
20.3
29.3
35.9
65.2
(5.4)
59.8
18.3
24.2
42.5
37.6
80.1
(3.8)
76.3
(12.6)
(14.9)
47.2
61.4
Revenue
£m
215.7
187.1
402.8
182.3
585.1
2017
Reported
operating
profit
£m
Underlying
operating
profit*
£m
13.5
20.9
34.4
39.7
74.1
(3.9)
70.2
(16.3)
53.9
16.8
23.6
40.4
40.9
81.3
(2.8)
78.5
(18.9)
59.6
* Underlying operating profit is stated before non-underlying items as defined in the Group Accounting Policies on page 111, and is the measure of segment profit used by the Chief
Operating Decision Maker, who is the Chief Executive. The reported operating profit columns are included as additional information.
Galvanizing Services provided £6.4m (2017: £6.6m) revenues to Infrastructure Products – Roads and £1.6m (2017: £1.9m) revenues to
Infrastructure Products – Utilities. Infrastructure Products – Utilities provided £5.2m (2017: £5.6m) revenues to Infrastructure Products –
Roads. Infrastructure Products – Roads provided £0.2m (2017: nil) revenues to Infrastructure Products – Utilities. These internal revenues,
along with revenues generated from within their own segments, have been eliminated on consolidation.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
1. Segmental information continued
As explained in the accounting policies on page 104, the Group has adopted IFRS 15 from 1 January 2018. Due to the transition method
chosen, comparative information has not been restated. In the following tables, revenue from contracts with customers is disaggregated by
primary geographical market, major product/service lines and timing of revenue recognition. The table also includes a reconciliation of the
disaggregated revenue with the Group’s reportable segments.
Primary geographical markets
UK
Rest of Europe
North America
The Middle East
Rest of Asia
Rest of the world
Major product/service lines
Manufacture, supply and installation of
products
Galvanizing services
Rental income
Timing of revenue recognition
Products and services transferred at a point in
time
Products and services transferred over time
Additional segmental analysis
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
Utilities
Roads
Galvanizing
Total
2018
£m
2017
£m
2018
£m
113.3
112.7
104.7
5.4
112.0
2.5
5.4
0.4
4.7
86.8
1.7
8.3
1.5
56.2
35.9
2.1
0.2
9.4
239.0
215.7
208.5
2017
£m
115.5
44.8
9.7
4.5
-
12.6
187.1
2018
£m
60.5
53.2
76.7
-
-
-
2017
£m
60.4
50.4
71.5
-
-
-
2018
£m
278.5
114.8
224.6
4.6
5.6
9.8
190.4
182.3
637.9
239.0
215.7
186.5
169.2
-
-
-
-
-
-
-
22.0
239.0
215.7
208.5
151.9
87.1
239.0
204.3
11.4
215.7
152.1
56.4
208.5
17.9
187.1
131.5
55.6
187.1
-
190.4
182.3
-
-
425.5
190.4
22.0
190.4
182.3
637.9
190.4
182.3
-
-
190.4
182.3
494.4
143.5
637.9
2017
£m
288.6
99.9
168.0
6.2
8.3
14.1
585.1
384.9
182.3
17.9
585.1
518.1
67.0
585.1
2018
2017
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
5.6
21.1
26.7
7.5
34.2
33.3
0.9
34.2
11.1
9.2
20.3
10.0
30.3
18.6
11.7
30.3
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
The 2018 amounts for impairment losses, amortisation and depreciation relating to the Infrastructure Products – Utilities segment include
goodwill and acquired intangible asset impairment losses of £6.0m relating to Technocover Limited.
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1. Segmental information continued
Geographical analysis
Total assets
UK
Rest of Europe
North America
Asia
Rest of World
Total Group
Non-current 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
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
2018
£m
236.1
124.2
255.1
12.0
3.4
630.8
2018
£m
129.7
71.0
147.7
3.9
2.2
2017
£m
217.6
119.4
173.4
14.3
2.5
527.2
2017
£m
125.7
70.2
107.7
4.3
1.1
354.5
309.0
2018
£m
20.4
5.3
7.2
0.1
1.2
34.2
2018
£m
637.9
(409.3)
228.6
(35.8)
(129.1)
1.5
65.2
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
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 £0.7m (2017: £2.8m) relating to two restructuring actions taken by the Group:
– During the year the Group undertook a restructuring of its UK Industrial Flooring business, part of the Infrastructure Products –
Utilities segment, a decision taken in light of weaker market conditions in the first half of the year. The restructuring has improved
the efficiency and productivity of the business and supported an improved performance in the second half of the year. The cost in
the year was £0.5m.
– Following the acquisition of Tower Tech in August 2017, the Group commenced a programme to close Tower Tech’s facility in
Oklahoma City and relocate the business to the existing Creative Pultrusions site in Pennsylvania, resulting in a prior year charge of
£0.4m. A further charge of £0.2m has been recognised in 2018 representing additional closure costs that will be incurred.
• Amortisation of acquired intangible fixed assets of £4.8m (2017: £4.0m).
• Acquisition expenses of £2.2m (2017: £0.6m) relating to acquisitions completed during the period. The costs include £0.4m (2017: £nil)
relating to future consideration payments to previous owners of the acquired businesses, the terms of which require those costs to be
treated as a post-acquisition employment expense in accordance with IFRS 3 (Revised).
• An impairment charge of £6.0m in respect of goodwill and acquired intangible assets relating to the Group’s acquisition of Technocover
Limited in July 2016. As set out in the Operational and Financial Review on pages 18 to 28, despite a reasonable performance in 2017,
albeit marginally below expectations, in 2018 the business has experienced a further deterioration in its results due principally to a lack of
activity in the niche areas of the water industry market that the business services. As a result, an impairment review was performed at 31
December 2018 resulting in a full impairment of the goodwill and remaining book value of acquired intangible assets, reflecting a short/
medium term outlook for the business that is below that anticipated at the time of the acquisition.
• A past service cost of £1.1m in respect of defined benefit pension schemes. In October 2018 the High Court handed down a judgement
requiring businesses with defined benefit pension schemes to equalise historical Guaranteed Minimum Pensions (GMPs) between male
and female members. The Group has taken professional advice as to the impact of this judgement and concluded that a cost of £1.0m
is likely to be incurred in equalising GMPs arising in prior years. In drawing this conclusion the Group has taken into account the four
potential approaches that the judgement ruled to be suitable for calculating the equalisation cost, and has calculated that the range of
outcomes under each of these approaches is likely to be between £0.9m and £1.2m. The charge has been treated as a non-underlying
item in accordance with the Group’s definitions of such items. A further charge of £0.1m was incurred in respect of changes to the terms
of the Group’s pension schemes in France.
•
An impairment charge of £0.1m in respect of assets held for sale (note 12), reflecting a loss on the disposal of that property during the
year.
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 details of the disposal were:
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 £0.6m (2017: £0.7m) and a
£1.0m (2017: £0.4m) charge in respect of amortisation of costs associated with refinancing.
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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
Directors’ remuneration
Directors’ remuneration
Amounts receivable under long term incentive schemes
Company contributions to money purchase pension plans
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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No.
1,788
931
2,719
1,499
4,218
2017
No.
1,739
833
2,572
1,459
4,031
£m
£m
132.3
1.1
22.5
4.5
160.4
2018
£m.
1.5
1.1
0.2
2.8
123.1
1.8
20.9
2.9
148.7
2017
£m.
1.9
1.6
0.2
3.7
The aggregate of remuneration and amounts receivable under long term incentive schemes of the highest paid Director was £1.4m (2017:
£2.0m), and company pension contributions of £0.1m (2017: £0.1m) were made to a money purchase scheme on his behalf.
Number of directors
Retirement benefits are accruing to the following number of Directors under:
Money purchase schemes
Defined benefit schemes
The number of Directors who exercised share options was
The number of Directors in respect of whose qualifying services shares were received or receivable under
long term incentive schemes was
2018
No
2017
No
2
-
2
2
2
-
1
2
Further details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 73 to 82.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
Underlying
£m
Non-
underlying
£m
2018
£m
Underlying
£m
Non-
underlying
£m
0.6
0.6
4.4
4.4
-
-
4.4
3.8
-
-
-
-
1.0
0.6
1.6
1.6
0.6
0.6
4.4
4.4
1.0
0.6
6.0
5.4
0.6
0.6
3.4
3.4
-
-
3.4
2.8
-
-
-
-
0.4
0.7
1.1
1.1
2017
£m
0.6
0.6
3.4
3.4
0.4
0.7
4.5
3.9
5. Net financing costs
Interest on bank deposits
Financial income
Interest on bank loans and overdrafts
Total interest expense
Financial expenses related to refinancing
Interest cost on net pension scheme deficit (note 23)
Financial expense
Net financing costs
6. Expenses and auditor’s remuneration
Income statement charges
Depreciation of property, plant and equipment:
Owned
Leased
Operating lease rentals:
Plant and machinery
Other
Research and development expenditure
Amortisation of acquisition intangibles
Amortisation of development costs
Amortisation of other intangible assets
Impairment losses
Foreign exchange loss
Income statement credits
Profit on disposal of non-current assets
Foreign exchange gain
Other rental income
A detailed analysis of the Auditor’s Remuneration worldwide is as follows:
Hill & Smith Holdings PLC
Audit of the Company’s Annual Accounts
Audit of the Company’s subsidiaries
Services relating to corporate finance transactions
A description of the work of the Audit Committee is set out in the Audit Committee report on pages 67 to 72 and includes an explanation of
how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor.
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2018
£m
2017
£m
18.6
-
18.2
-
3.7
4.9
0.4
4.8
0.8
0.1
6.1
-
0.3
0.3
1.1
3.3
3.7
0.3
4.0
0.9
0.1
0.4
0.1
0.1
-
1.1
£m
£m
0.1
0.9
0.2
1.2
0.1
0.7
0.1
0.9
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
7. Taxation
Current tax
UK corporation tax
Overseas tax at prevailing local rates
Adjustments in respect of prior years
Deferred tax (note 13)
UK deferred tax
Overseas tax at prevailing local rates
Adjustments in respect of prior year
Effects of changes in tax rates and laws
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
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£m
2017
£m
5.3
9.5
(1.2)
13.6
(0.8)
0.4
(0.1)
(0.5)
12.6
0.3
-
0.3
(0.6)
0.6
-
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 (2017: higher) than the standard rate of corporation tax in the
UK. The differences are explained below:
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Profit before taxation
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 19% (2017: 19.25%)
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
Overseas profits taxed at higher rates
Overseas losses not relieved
Withholding taxes
Impacts of rate and law changes
Successful claim following EU challenge regarding tax on French dividends
Adjustments in respect of prior periods
Tax charge
2018
£m
59.8
11.4
0.7
0.4
-
(0.8)
(0.3)
3.0
-
-
(0.5)
-
(1.3)
12.6
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
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
8. Earnings per share
The weighted average number of ordinary shares in issue during the year was 78.8m (2017: 78.6m), diluted for the effects of the outstanding
dilutive share options 79.5m (2017: 79.6m). Underlying earnings per share have been shown because the Directors consider that this provides
valuable additional information about the underlying performance of the Group.
Basic earnings
Non-underlying items*
Underlying earnings
Diluted earnings
Non-underlying items*
Underlying diluted earnings
* Non-underlying items as detailed in note 3.
9. Dividends
2018
Pence
per share
59.9
17.9
77.8
59.3
17.9
77.2
£m
47.2
14.2
61.4
47.2
14.2
61.4
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
Dividends paid in the year were the prior year’s interim dividend of £7.4m (2017: £6.7m) and the final dividend of £16.2m (2017: £14.0m).
Dividends declared after the year end date are not recognised as a liability, in accordance with IAS 10. The Directors have proposed the
following interim dividend and final dividend for the current year, subject to shareholder approval:
Equity shares
Interim
Final
Total
2018
Pence
per share
10.0
21.8
31.8
£m
7.9
17.2
25.1
2017
Pence
per share
9.4
20.6
30.0
£m
7.4
16.4
23.8
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Goodwill
£m
Brands
£m
Customer
lists
£m
Capitalised
development
costs
£m
Contracts,
licences and
other assets
£m
137.9
(4.1)
4.4
-
(4.3)
133.9
3.7
14.0
-
25.3
(1.4)
0.7
-
-
34.4
(0.9)
0.7
-
-
24.6
34.2
0.9
1.1
-
0.7
6.9
-
14.3
(0.9)
-
(4.3)
9.1
0.5
-
1.9
11.0
(0.6)
0.7
-
14.9
(0.9)
2.6
-
11.1
16.6
0.3
0.8
0.3
0.6
3.0
2.5
14.5
-
-
1.3
(2.0)
13.8
-
-
0.8
14.6
10.3
-
0.9
(1.4)
9.8
-
0.8
-
11.5
12.5
22.7
10.6
123.6
124.8
140.1
14.3
13.5
14.1
19.5
17.6
19.1
4.2
4.0
4.0
Total
£m
219.5
(6.5)
5.8
1.3
(6.3)
213.8
5.6
26.5
0.9
7.4
(0.1)
-
-
-
7.3
0.3
4.5
0.1
12.2
246.8
2.5
-
0.8
-
3.3
-
1.1
1.3
5.7
4.9
4.0
6.5
53.0
(2.4)
5.0
(5.7)
49.9
1.4
5.7
6.0
63.0
166.5
163.9
183.8
10. Intangible assets
Cost
At 1 January 2017
Exchange adjustments
Acquisitions
Additions
Disposal of subsidiary
At 31 December 2017
Exchange adjustments
Acquisitions
Additions
Amortisation and impairment losses
At 1 January 2017
Exchange adjustments
Amortisation charge for the year
Disposal of subsidiary
At 31 December 2017
Exchange adjustments
Amortisation charge for the year
Impairment losses
At 31 December 2018
Carrying values
At 1 January 2017
At 31 December 2017
At 31 December 2018
At 31 December 2018
151.6
26.6
41.8
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
10. Intangible assets continued
2018
Work Area Protection Corp
On 8 May 2018 the Group acquired the trade and assets of Work Area Protection Corp (“WAPCO”) to expand the Group’s presence in the US
road safety market. WAPCO specialises in the development, manufacture and distribution of a range of road work safety zone products.
Details of the acquisition are set out below:
Work Area Protection Corp
Intangible assets
Brands
Customer lists
Contracts, licenses and other assets
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
Consideration
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre acquisition
carrying amount
£m
Policy
alignment and
fair value
adjustments
£m
-
-
-
3.4
7.5
7.5
18.4
(4.3)
-
(4.3)
14.1
0.8
4.5
4.0
(0.1)
(0.5)
-
8.7
(0.1)
(0.2)
(0.3)
8.4
Total
£m
0.8
4.5
4.0
3.3
7.0
7.5
27.1
(4.4)
(0.2)
(4.6)
22.5
31.2
8.7
31.2
31.2
Brands, contractual arrangements and customer lists have been recognised as specific intangible assets as a result of the acquisition. The
residual goodwill arising primarily represents the assembled workforce, market share and geographical advantages afforded to the Group.
Fair value adjustments have been made to better align the accounting policies of the acquired 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.
Post acquisition the acquired business has contributed £25.0m revenue and £1.8m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisition had been made on 1 January 2018, the Group’s results for the year would have
shown revenue of £650.7m and underlying operating profit of £81.7m.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
10. Intangible assets continued
Composite Advantage Inc.
On 5 October 2018, the Group acquired the trade and assets of Composite Advantage Inc. (“CA”) to expand the Group’s offering in the
US composites market. CA is a leading pultrusions manufacturer specialising in the production of fibre reinforced polymer products for
infrastructure markets, including waterfront, rail, bridge decks and oil & gas. Details of the acquisition are set out below:
Composite Advantage
Intangible assets
Brands
Customer lists
Contracts, licenses and other assets
Property, plant and equipment
Inventories
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Deferred Consideration
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre acquisition
carrying amount
£m
Policy
alignment and
fair value
adjustments
£m
-
-
-
2.1
1.0
3.2
6.3
(1.6)
(1.6)
4.7
0.3
1.5
0.5
-
-
-
2.3
-
-
2.3
Total
£m
0.3
1.5
0.5
2.1
1.0
3.2
8.6
(1.6)
(1.6)
7.0
10.2
3.2
10.2
(2.2)
8.0
Brands, contractual arrangements and customer lists have been recognised as specific intangible assets as a result of the acquisition. The
residual goodwill arising primarily represents the assembled workforce, market share and geographical advantages afforded to the Group.
Fair value adjustments have been made to better align the accounting policies of the acquired 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.
Post acquisition the acquired business has contributed £3.8m revenue and £0.6m underlying operating profit, which are included in the
Group’s consolidated income statement. If the acquisition had been made on 1 January 2018, the Group’s results for the year would have
shown revenue of £645.4m and underlying operating profit of £80.3m.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
10. Intangible assets continued
Engineered Endeavors Inc.
On 17 August 2018, the Group acquired from Chapter 11 proceedings certain of the business, trade, assets and workforce of Engineered
Endeavors Inc. (“EEI”). Based in Ohio, USA, the business designs and manufactures utility poles for the power distribution and wireless cellular
markets. Details of the acquisition are set out below:
Engineered Endeavors
Intangible assets
Customer lists
Property, plant and equipment
Inventories
Deferred tax
Total assets
Current liabilities
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre acquisition
carrying amount
£m
Policy
alignment and
fair value
adjustments
£m
-
3.8
0.1
-
3.9
-
-
0.5
(0.9)
-
0.1
(0.3)
-
-
3.9
(0.3)
Total
£m
0.5
2.9
0.1
0.1
3.6
-
-
3.6
4.8
1.2
4.8
4.8
Customer lists have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising primarily
represents the assembled workforce, market share and geographical advantages afforded to the Group. Fair value adjustments have been
made to better align the accounting policies of the acquired 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.
Post acquisition the acquired business has contributed £1.4m revenue and £0.3m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisition had been made on 1 January 2018, the Group’s results for the year would have
shown revenue of £641.1m and underlying operating profit of £79.8m.
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10. Intangible assets continued
The Group also made three other smaller acquisitions during the year:
•
•
•
The trade and certain assets of D Gibson Road and Quarry Services Limited, based in the UK, acquired on 1 January 2018;
The trade and certain assets of Signalvakter Syd, based in Sweden, acquired on 28 March 2018; and
The trade and assets of The Grating Company Limited and Pro Composites Limited, based in the UK, acquired on 27 April 2018.
Details of these acquisitions are set out below:
Intangible assets
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
Net cash consideration shown in the Consolidated
Statement of Cash Flows
D Gibson -
Pre acquisition
carrying amount
£m
Signalvakter -
Pre acquisition
carrying amount
£m
The Grating
Company -
Pre acquisition
carrying amount
£m
Policy alignment
and provisional fair
value
adjustments
£m
-
-
0.1
-
0.1
-
-
-
0.1
-
0.3
-
-
0.3
(0.2)
-
(0.2)
0.1
-
-
-
0.5
0.5
(0.2)
-
(0.2)
0.3
0.4
-
-
(0.5)
(0.1)
-
(0.1)
(0.1)
(0.2)
Total
£m
0.4
0.3
0.1
-
0.8
(0.4)
(0.1)
(0.5)
0.3
1.2
0.9
1.2
1.2
Customer lists 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. The fair value of the current assets acquired of £nil relate to trade receivables which have a gross value of
£0.5m.
Post acquisition the acquired businesses have contributed £5.8m revenue and £0.2m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisitions had been made on 1 January 2018, the Group’s results for the year would have
shown revenue of £639.8m and underlying operating profit of £80.3m.
In addition to the above acquisitions, the Group paid a further amount of £0.6m in deferred consideration in respect of acquisitions made in
the prior year.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
10. Intangible assets continued
2017
During the prior 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
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 lists were 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 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. There was 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 acquisition.
In addition to the above acquisitions, the Group paid a further amount of £0.4m in deferred consideration in respect of acquisitions made in
2016.
During the prior year, a further £0.3m of goodwill was recognised in relation to the finalisation of fair value adjustments on acquisitions made
in 2016.
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10. Intangible assets continued
Cash generating units with significant amounts of goodwill
Infrastructure Products – Utilities
US Composites
V&S Utilities
Others <£5m individually
Infrastructure Products – Roads
WAPCO
Hardstaff Barriers
ATA
Mallatite
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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2018
£m
16.1
5.6
5.2
9.1
6.8
6.1
5.7
4.0
30.1
26.6
24.8
140.1
2017
£m
12.1
4.1
6.4
-
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 brand names of £7.9m (2017: £7.5m), 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. The France Galva SA impairment review was
prepared based on the following key assumptions:
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• Budgeted cash flows for 2019, which assume a 0.8% reduction in galvanizing volumes compared with 2018.
•
For the period 2020-2023 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% between 2019 and 2023.
For the period from 2024 onwards the calculations assume annual growth in cash flows of 3%, consistent with the historical long-term
growth rates in France.
•
• A pre-tax discount rate of 11.4%.
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
V&S Utilities
Hardstaff Barriers
ATA
Mallatite
France Galva SA
Galvanizing Services – USA
Galvanizing Services – UK
Goodwill
£m
16.1
5.6
6.8
6.1
5.7
30.1
26.6
24.8
2018
Headroom
£m
63.9
54.5
12.6
31.4
19.0
18.0
327.5
80.0
Discount
rate
10.4%
10.1%
10.5%
10.6%
9.9%
11.4%
10.3%
10.1%
Goodwill
£m
12.1
4.1
6.8
6.3
5.6
29.7
25.0
24.8
2017
Headroom
£m
Discount
rate
40.4
42.4
8.9
12.2
22.4
21.3
266.4
98.5
11.3%
10.7%
10.7%
11.3%
9.8%
11.3%
10.9%
10.1%
*WAPCO is excluded from this table in the current year as the CGU was acquired in the year.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
10. Intangible assets continued
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.
Using the method set out above with a pre-tax discount rate of 14.3%, the impairment review in respect of Technocover Limited concluded
that the carrying values of the assets of the business were less than their recoverable amount by £6.0m, allocated to the goodwill (£1.9m)
and the remaining book value of acquired intangible fixed assets (£4.1m) arising on the acquisition. The Group has therefore recognised an
impairment charge of £6.0m in respect of Technocover Limited, as further explained in note 3 on page 116.
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 Technocover Limited as described above), however the calculations in respect of the goodwill attributable to France Galva SA are
relatively sensitive to the assumptions adopted.
France Galva SA
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 provides information on the impact on calculated headroom of various scenarios for each of the key
assumptions (independently in each case):
Input
Scenario
Base case
Change in 2019 volumes (vs. 2018)
H&S sensitised
Volume growth 2018-2023
Zero headroom
Base case
H&S sensitised
Zero headroom
Base case
Cash flow growth 2024 onwards
H&S sensitised
Pre-tax discount rate
Zero headroom
Base case
H&S sensitised
Zero headroom
Sensitivity
applied %
Sensitised
headroom £m
(0.8)
(5.0)
(5.5)
1.0
0.0
(0.7)
3.0
1.0
0.7
11.4
12.8
13.8
18.0
1.6
-
18.0
6.9
-
18.0
1.8
-
18.0
6.2
-
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Land and buildings £m
Plant, machinery and vehicles £m
Total £m
101.0
(3.5)
-
4.9
0.1
-
(1.5)
101.0
4.6
5.2
6.8
-
(1.2)
(0.2)
116.2
26.1
(0.5)
(0.5)
-
-
3.9
29.0
1.7
(0.1)
-
(0.4)
4.2
34.4
74.9
72.0
81.8
180.4
(2.9)
1.4
13.8
(0.1)
(0.3)
(5.5)
186.8
2.5
3.4
26.5
(2.1)
-
(4.0)
213.1
105.6
(1.6)
(4.3)
-
(0.3)
14.3
113.7
1.8
(3.8)
(1.4)
-
14.4
124.7
74.8
73.1
88.4
281.4
(6.4)
1.4
18.7
-
(0.3)
(7.0)
287.8
7.1
8.6
33.3
(2.1)
(1.2)
(4.2)
329.3
131.7
(2.1)
(4.8)
-
(0.3)
18.2
142.7
3.5
(3.9)
(1.4)
(0.4)
18.6
159.1
149.7
145.1
170.2
11. Property, plant and equipment
Cost
At 1 January 2017
Exchange adjustments
Acquisitions
Additions
Reclassification
Disposal of subsidiary
Disposals
At 31 December 2017
Exchange adjustments
Acquisitions
Additions
Transfer to inventories
Transfers to assets held for sale
Disposals
At 31 December 2018
Depreciation and impairment losses
At 1 January 2017
Exchange adjustments
Disposals
Reclassification
Disposal of subsidiary
Charge for the year
At 31 December 2017
Exchange adjustments
Disposals
Transfers to inventories
Transfers to assets held for sale
Charge for the year
At 31 December 2018
Carrying values
At 1 January 2017
At 31 December 2017
At 31 December 2018
The gross book value of land and buildings includes freehold land of £20.8m (2017: £18.4m). Included in the carrying value of plant,
machinery and vehicles is £nil (2017: £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 £65.3m (2017: £53.4m) and accumulated depreciation of £35.7m (2017:
£33.7m).
12. Assets held for sale
Land and buildings
2018
£m
0.8
2017
£m
0.7
During the year, the property presented in assets held for sale at 31 December 2017 was disposed of for consideration of £0.6m resulting in
an impairment charge of £0.1m. In addition, a further property has been actively marketed for disposal and has therefore been classified as
held for sale at 31 December 2018. This property is expected to be sold in 2019.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
13. Deferred taxation
Intangible
assets
£m
Property, plant
and equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
At 1 January 2017
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)
At 31 December 2017
Adoption of new accounting standards
At 1 January 2018 (restated)
Exchange adjustments
Acquisitions of businesses
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)
Charged for the year in the Consolidated Statement of
Changes in Equity (note 7)
(9.8)
0.3
(0.5)
0.1
2.0
-
-
(7.9)
-
(7.9)
(0.2)
(0.4)
1.4
-
-
At 31 December 2018
(7.1)
(5.9)
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
(6.5)
0.2
0.1
-
0.9
-
0.3
-
1.3
(1.0)
-
-
(4.9)
-
(4.9)
(0.2)
0.2
-
-
0.2
-
0.2
-
-
5.3
(0.1)
-
-
(0.3)
(0.2)
-
4.7
-
4.7
0.1
-
Total
£m
(7.8)
0.3
(0.1)
0.1
2.3
(0.1)
-
-
(0.1)
1.9
-
(0.2)
0.2
2.3
(0.3)
2.0
-
-
0.2
(5.6)
(0.3)
(5.9)
(0.3)
(0.2)
(1.0)
(0.2)
(0.1)
0.9
1.0
-
-
-
-
-
(0.3)
-
4.4
-
(0.3)
(0.6)
2.3
(0.6)
(6.3)
2018
£m
0.5
(6.8)
(6.3)
2017
£m
0.9
(6.5)
(5.6)
No deferred tax asset has been recognised in respect of tax capital losses of £10.7m (2017: £10.5m) 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 2016. In line with the prior
year, the deferred tax balance in respect of UK entities has been calculated at 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 the French entities has therefore been mainly calculated at 25% (2017: 25%) on the basis that the majority of the balances will
reverse after 2022.
14. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2018
£m
46.5
8.7
41.4
96.6
2017
£m
44.1
9.2
31.3
84.6
The amount of inventories expensed to the Consolidated Income Statement in the year was £371.5m (2017: £320.9m). The value of
inventories written down and expensed in the Consolidated Income Statement during the year amounted to £0.1m (2017: £nil).The amount of
inventories held at fair value less cost to sell included in the above was £nil (2017: £nil).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
15. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments and accrued income
Other receivables
Contract assets
2018
£m
129.5
7.2
2.4
2.9
142.0
2017
£m
107.4
6.2
2.9
-
116.5
The charge to the Consolidated Income Statement in the year in respect of the expected loss of trade receivables was £0.8m (2017: £0.3m).
The Group does not require collateral in respect of trade and other receivables. The Group does not have trade receivables or contract assets
for which no loss allowance is recognised because of collateral.
Loss rates are based on actual credit loss experience over the last four years. These rates are multiplied by scalar factors to reflect
differences between economic conditions during the period over which data has been collected, current conditions and the Group’s view of
economic conditions over the expected lives of the receivables.
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 and assets held for sale
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 (increase)/decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Adoption of new accounting standards
Net debt at the beginning of the year (restated)
Net debt at the end of the year
2018
£m
36.9
36.9
(0.4)
(169.4)
(132.9)
65.2
31.2
96.4
(6.3)
(2.4)
87.7
(13.3)
(3.9)
(32.8)
1.2
38.9
(23.6)
(45.8)
-
(1.0)
(2.7)
1.5
(32.7)
(3.3)
(99.0)
2.1
(96.9)
(132.9)
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)
-
(112.0)
(99.0)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
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 (as previously reported)
Adoption of new accounting standards
At 1 January (restated)
New loans and borrowings
Repayments of loans and borrowings
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 consideration on acquisitions
Deferred government grants
132
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2018
£m
2017
£m
115.4
(2.1)
113.3
78.3
(26.8)
51.5
4.0
1.0
169.8
2018
£m
0.4
-
0.4
76.5
12.3
27.4
-
4.7
127.6
-
127.6
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
120.9
104.8
2018
£m
2017
£m
169.4
-
169.4
1.3
1.4
2.7
115.1
-
115.1
-
0.5
0.5
19. Provisions for liabilities and charges
At 1 January 2017
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2017
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2018
Amounts due within one year
Amounts due after more than one year
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Environmental
£m
Restructuring
£m
2.8
(0.1)
-
-
(0.2)
2.5
0.1
-
-
-
2.6
2.6
-
2.7
(3.2)
-
2.1
-
0.2
(1.1)
-
1.2
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Other
£m
0.4
-
-
-
-
0.4
-
-
Total
£m
5.8
(0.1)
2.7
(3.2)
(0.2)
5.0
0.1
0.2
(0.2)
(1.3)
-
0.2
2018
£m
1.3
2.7
4.0
-
4.0
2017
£m
2.1
2.9
5.0
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
20. Financial instruments continued
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises from cash and cash equivalents, derivative financial instruments and principally from the Group’s receivables from
customers. The maximum exposure to credit risk for receivables and other financial assets is represented by their carrying amount.
It is the Group’s policy to insure a substantial part of the Group’s trade receivables. Any residual risk is spread across a significant number
of customers. As such the impairment losses are not significant. Purchase limits are established for each customer, which represent the
maximum open amount without requiring approval from the Board and are reviewed regularly. Customers that fail to meet the Group’s
benchmark creditworthiness may transact with the Group only on a prepayment basis. The Group’s UK companies represent the most
significant geographical trade receivable at 31 December 2018 with 47% (2017: 56%) and currently the only geographical region that does not
generally insure trade receivables is the USA, which represents 31% (2017: 23%) of the Group’s trade receivables. Subsidiaries in the USA have
a policy of taking out trade references before granting credit limits and selectively insuring where it is deemed appropriate 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 2018 all such debt was covered by cash and cash equivalents netting to £36.5m positive current liquidity (2017: £16.1m).The
Group’s principal UK revolving credit facility is a multicurrency agreement with a value at 31 December 2018 of £230.5m (2017: £225.5m),
based on year end exchange rates. As set out on page 25, on 10 January 2019 the size of this facility was increased to £280m and the
maturity date extended to January 2024. Along with various other on demand lines of credit, including bank overdrafts and finance leases, the
Group has access to facilities of £244.0m at 31 December 2018 (2017: £237.3m).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the
Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary
course of business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the
guidelines set by the Board.
Counterparty risk
A group of relationship banks provides the bulk of the banking services, with pre-approved credit limits set for each institution. Financial
derivatives are entered into with these core banks and the underlying credit exposure to these instruments is included when considering the
credit exposure to the counterparties. At the end of 2018 credit exposure including cash deposited did not exceed £13.6m with any single
institution (2017: £4.8m).
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 the USA. 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 2018 the proportion of gross borrowings subject to fixed interest rate swaps was 0% (2017: 0%).
Insurance
The Group purchases insurance for commercial, legal and contractual reasons. The Group retains insurable risk where external insurance is
not commercially viable.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 2018 and 2017, as set out in the Operational and Financial Review on pages 18 to 28.
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
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 2018
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
Fair value hierarchy
-
-
-
-
-
-
-
-
-
-
-
-
(0.1)
-
-
(0.1)
Fair value
£m
36.9
(0.4)
36.9
(0.4)
36.9
(0.4)
(169.4)
(169.4)
(169.4)
-
-
131.9
(108.6)
(109.6)
16.4
(0.3)
-
-
131.9
(108.6)
(109.6)
16.4
(0.3)
-
-
131.9
(108.6)
(109.6)
16.4
(0.3)
(115.1)
(115.1)
(115.1)
-
-
110.3
(93.9)
(82.6)
-
(0.1)
110.3
(93.9)
(82.7)
-
(0.1)
110.3
(93.9)
(82.7)
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 2018
Derivative financial assets
Derivative financial liabilities
Total at 31 December 2017
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
-
-
-
-
-
-
-
-
-
-
(0.1)
(0.1)
-
-
-
-
-
-
-
-
-
-
(0.1)
(0.1)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
20. Financial instruments continued
At 31 December 2018 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 and US Dollar
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 £17.7m (2017: £10.7m) and US Dollar £74.2m (2017: £49.6m)
denominated interest bearing loans, which are predominantly used to fund the Group’s European and United States operations and include
£91.9m (2017: £60.3m) designated as a hedge of the net investment in a foreign operation. The foreign currency loss of £4.7m (2017: gain
of £4.9m) 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 2018
US Dollar at 31 December 2018
Sterling at 31 December 2017
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
6.5
4.0
6.5
0.1
1.6
1.1
(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:
Effective
interest rate
Carrying
amounts
£m
Contractual
cash flows
£m
Secured bank borrowings
Floating
Unsecured bank borrowings
Floating
Other liabilities
Derivative liabilities
n/a
n/a
2.2
167.6
108.6
-
(2.2)
(179.4)
(108.6)
-
Due within
one year
£m
(0.4)
(4.2)
(108.6)
-
Total at 31 December 2018
278.4
(290.2)
(113.2)
Secured bank borrowings
Floating
2.0
(2.0)
Unsecured bank borrowings
Floating
113.4
(121.2)
Other liabilities
Derivative liabilities
Total at 31 December 2017
n/a
n/a
93.9
0.1
(93.9)
(0.1)
209.4
(217.2)
(0.3)
(2.2)
(93.9)
(0.1)
(96.5)
Due between
one and
two years
£m
(0.4)
(4.2)
-
-
(4.6)
(0.3)
(2.2)
-
-
Due between
two and
five years
£m
(1.3)
(171.0)
-
-
(172.3)
(1.1)
(116.6)
-
-
Due after
more than
five years
£m
(0.1)
-
-
-
(0.1)
(0.3)
(0.2)
-
-
(2.5)
(117.7)
(0.5)
The unsecured bank borrowings bear interest based on LIBOR/EURIBOR, plus a margin (as defined in the facilities agreement) which varies
depending on the Group’s ratio of net debt to EBITDA. The secured bank borrowings are held by subsidiaries in the USA and bear interest at
varying rates linked to underlying US bond markets.
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20. Financial instruments continued
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
2018
£m
2017
£m
60.8
111.4
(d) Fair values
The fair value of forward currency exchange contracts realised in the Consolidated Income Statement as part of fair value derivatives
amounted to £nil (2017: nil). The fair values of the Group’s other financial instruments at 31 December 2018 and 2017 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 £0.1m were recognised in respect of the asset held for sale, as detailed in note 12. In addition, impairment charges of
£6.0m were recognised in respect of the carrying values of non-current assets, as detailed in note 10.
(e) Credit risk
Exposure to credit risk
The exposure to credit risk is substantially mitigated by the credit insurance employed by the Group. In the absence of this insurance the
maximum credit exposure on the carrying value of financial assets at the reporting date was:
Carrying amount
Amortised cost
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
2018
£m
131.9
36.9
168.8
2018
£m
61.5
23.0
40.7
4.3
2017
£m
110.3
16.4
126.7
2017
£m
60.2
19.0
24.3
3.9
129.5
107.4
2018
£m
42.0
55.2
97.2
32.3
2017
£m
32.3
43.1
75.4
32.0
129.5
107.4
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
20. Financial instruments continued
Impairment losses
The Group maintains a substantial level of credit insurance covering the majority of its trade receivables which mitigates against possible
impairment losses, therefore such impairment losses are not significant.
The ageing of trade receivables at the reporting date was:
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
Gross
£m
87.6
28.6
8.1
8.3
132.6
2018
Provisions
£m
(0.1)
-
(0.6)
(2.4)
(3.1)
Net
£m
87.5
28.6
7.5
5.9
Gross
£m
76.7
20.2
8.6
4.7
129.5
110.2
2017
Provisions
£m
(0.1)
-
(0.3)
(2.4)
(2.8)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2017
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2017
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2018
Net
£m
76.6
20.2
8.3
2.3
107.4
£m
3.5
(0.1)
-
0.3
(0.9)
2.8
-
0.1
0.8
(0.6)
3.1
(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 £1.7m (2017: £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 £4.3m (2017: £3.9m) and the impact on equity would have been an increase of £25.4m (2017: £19.3m).
• 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 £3.5m (2017: £3.2m) and the impact on equity would have been a decrease of £20.7m (2017: £16.4m).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
21. Called up share capital
Allotted, called up and fully paid
79.0m ordinary shares of 25p each (2017: 78.7m)
2018
£m
2017
£m
19.8
19.7
In 2018 the Company issued 0.3m shares under its various share option schemes (2017: 0.2m), realising £1.5m (2017: £0.6m).
Options outstanding over the Company’s shares
2014 LTIP Award (granted May 2018)*
2014 LTIP Award (granted May 2017)*¥
2014 LTIP Award (granted March 2016)*
2014 LTIP Award (granted March 2015)*
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)*^
2018 grant of 2014 Approved Executive Share
Option Scheme (granted August 2018)*^
2018 grant of 2014 Unapproved Executive
Share Option Scheme (granted August 2018)*^
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)*†
2018 grant of 2014 Savings Related Share
Option Scheme (granted September 2018)*†
2018 grant of 2014 Savings Related Share
Option Scheme (granted September 2018)*†
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
98,838
103,925
116,563
-
3,586
10,514
2018
Option
price (p)
-
-
-
-
316
316
Number
of shares
-
103,925
116,563
153,290
2017
Option
price (p)
-
-
-
-
Date first exercisable
Expiry date
§
§
§
§
§
§
§
§
3,586
316
19 April 2015
19 April 2022
10,514
316
19 April 2015
19 April 2022
63,554
685
126,991
685 12 August 2018
12 August 2025
138,767
685
238,009
685 12 August 2018
12 August 2025
53,920
1,113
546,080
1,113
-
-
- 21 August 2021
21 August 2028
- 21 August 2021
21 August 2028
4,225
355
216,920
355
1 June 2018 1 December 2018
-
429
1,257
429
1 August 2017
1 February 2018
112,350
429
122,557
429
1 August 2019
1 February 2020
135,243
560
145,821
560 1 January 2019
1 July 2019
134,253
560
140,807
560 1 January 2021
1 July 2021
90,773
963
117,543
963 1 January 2020
1 July 2020
48,622
963
60,328
963 1 January 2022
1 July 2022
69,443
1,021
123,784
1,021 1 January 2021
1 July 2021
27,541
1,021
54,879
1,021 1 January 2023
1 July 2023
891
891
240,412
123,489
2,122,098
220,646
1,901,452
2,122,098
-
- 1 January 2022
1 July 2022
- 1 January 2024
1 July 2024
-
1,736,774
15,357
1,721,417
1,736,774
† 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,
otherwise awards will vest if the participants continue to be in employment.
^ Vesting of awards under the ESOS schemes is subject to various performance criteria that are based on the profitability of subsidiary businesses.
§ 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 2019
for the 2016 grant, 1 January 2020 for the 2017 grant and 1 January 2021 for the 2018 grant.
¥ The 2017 LTIP award granted in May 2017 includes 6,843 shares under the Group’s 2014 Executive Share Option Scheme that may be awarded to participants in the Long-Term
Incentive Plan.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
21. Called up share capital continued
The remaining weighted average life of the outstanding share options is 4 years 9 months (2017: 3 years 3 months).
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)
2018
518
933
(307)
(854)
739
Millions
of options
2018
1.7
1.1
(0.5)
(0.2)
2.1
Weighted
average
exercise
price (p)
2017
443
649
(189)
(761)
518
Millions
of options
2016
1.8
0.3
(0.3)
(0.1)
1.7
The weighted average share price on the dates of exercise of share options during the year was 1314p (2017: 1347p), and the weighted
average fair value of options and awards granted in the year was 236p (2017: 610p). The weighted average exercise price of outstanding
options exercisable at the year end was 655p (2017: 325p).
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.
2018 grant
of 2014 LTIP
Award
2017 grant
of 2014 LTIP
Award
2016 grant
of 2014
LTIP
Award
2015 grant
of 2014
LTIP
Award
Sept 2018
grant
of 2014
Savings
Related
Share
Option
Scheme
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
2018
grant of
2014
Executive
Share
Option
Schemes
2015
grant of
2014
Executive
Share
Option
Schemes
2012
grant of
2005
Executive
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 (%)
1,318p/745p
1,388p/850p 862p/606p 671p/434p 194p/197p 317p/322p 309p/374p 123p/159p
93p/98p
83p
131p
80p
41p
1,318p
1,388p
862p
671p
1030p
1241p
1163p
691p
512p
429p
1068p
700p
316p
0p
22%
0p
0p
0p
891p
1021p
963p
560p
429p
355p
1113p
685p
316p
21%
19%
20%
26%/24%
32%/28%
34%/37%
18%/24%
22%/21%
26%
26%
20%
28%
3
3
3
3
3/5
3/5
3/5
3/5
3/5
5
3
3
3
0.0%
0.9%
0.0%
0.0%
0.0%
2.9%
2.1%
1.8%
2.6%
3.1%
3.5%
2.8%
2.6%
4.2%
0.2%
0.7%
0.9% 0.8%/1.0% 0.5%/0.8% 0.1%/0.2% 0.8%/1.2% 1.2%/2.0%
0.7%
0.8%
1.0%
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
2018
£m
1.1
-
1.1
2017
£m
1.3
0.5
1.8
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
22. Guarantees and other financial commitments
(a) Guarantees
The Group had no financial guarantee contracts outstanding (2017: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
(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
2018
Land and
buildings
£m
5.8
5.0
8.5
7.6
26.9
Other
£m
4.4
3.4
3.7
0.1
11.6
2018
£m
7.0
2017
Land and
buildings
£m
4.9
4.4
10.0
5.9
25.2
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
23. Pensions
2018
Land and
buildings
£m
0.4
0.4
0.1
0.9
Other
£m
9.3
3.5
-
12.8
2017
Land and
buildings
£m
0.4
0.7
-
1.1
2017
£m
0.9
Other
£m
3.8
3.4
4.1
0.1
11.4
Other
£m
6.0
0.3
0.1
6.4
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
United Kingdom
UK
£m
55.2
(72.8)
-
(17.6)
Overseas
£m
2.9
(8.0)
(0.3)
(5.4)
2018
£m
58.1
(80.8)
(0.3)
(23.0)
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)
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 £2.8m (2017: £1.8m), which includes
the costs of the defined contribution and the defined benefit sections of the Scheme. The charge includes an amount of £1.0m (2017: £nil)
relating to the expected cost of settling historical guaranteed minimum pensions (as explained in note 3).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
23. Pensions continued
The Scheme exposes the Group to a number of risks, the most significant being:
Risk
Description
Volatile asset returns
Changes in bond yields
Inflation risk
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 equity 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.
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 Liability Driven Investment and bond
funds.
A significant proportion of the defined benefit obligation is indexed in line with price inflation, with higher inflation
leading to higher liabilities. This risk will be partially offset by the Scheme’s Liability Driven Investments, which
will increase in value in line with market inflation expectations.
Life expectancy
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 2018 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
2018
n/a
3.2%
2.8%
3.3%
2.3%
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%
105%102%
105%102%
116%120%
116%120%
116%120%
S2PACM12017
S2PACM12016
S2PACM12015
S1PACM12015
S1PACM12014
(1.25%)
(1.25%)
1%
1%
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
2018
2017
2016
2015
2014
22.9 years
23.0 years
21.8 years
21.7 years
21.9 years
25.3 years
25.2 years
24.0 years
23.9 years
24.4 years
21.8 years
21.9 years
20.8 years
20.7 years
20.9 years
23.8 years
23.8 years
22.7 years
22.7 years
23.1 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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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:
Assets
Equities
Bonds
With profits policies
Liability Driven Investment funds
Cash
Total fair value of Scheme assets
Present value of Scheme funded obligations
Retirement benefit obligation
Market value
2018
£m
Market value
2017
£m
Market value
2016
£m
Market value
2015
£m
Market value
2014
£m
6.7
27.0
1.3
20.0
0.2
55.2
(72.8)
(17.6)
29.0
18.4
1.3
10.2
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)
In 2017 the Group and the Trustees undertook an investment review of the Scheme. The intention of the revised strategy for the Scheme is to
reduce a proportion of interest rate and inflation risk by investing a portion of the Scheme’s assets in Liability Driven Investment funds. This
strategy resulted in an initial shift between bonds and LDI funds in the asset categories in 2017. Continuation of the strategy in the year to 31
December 2018 has resulted in a further increase in LDI funds and a reduction in equities.
Assets in the bonds, equities and LDI funds categories, which account for approximately 97% of total Scheme assets, have quoted market
prices in active markets.
Total expense recognised in the Consolidated Income Statement
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Current service costs
Past service cost
Expenses
Charge to operating profit
Interest on net Scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2018
Defined
benefit
schemes
£m
1.3
-
0.2
1.5
-
1.5
-
1.0
0.3
1.3
0.5
1.8
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
Total
£m
1.3
1.0
0.5
2.8
0.5
3.3
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Past service cost
Interest cost
Actuarial (gain)/loss arising from:
Financial assumptions
Demographic assumptions
Experience adjustment
Benefits paid
Closing defined benefit obligations
2018
£m
81.9
1.0
1.9
(3.5)
(0.3)
(0.3)
(7.9)
72.8
Total
£m
1.2
-
0.6
1.8
0.5
2.3
2017
£m
90.9
-
2.2
1.2
0.7
0.5
(13.6)
81.9
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
23. Pensions continued
Changes in fair values of Scheme assets
Opening fair value of assets
Interest income
Return on plan assets excluding interest income
Employer contributions
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/(loss) on Scheme obligations
Changes in assumptions underlying the present value
of Scheme obligations
Annual amount recognised
Total amount recognised
% of Scheme
assets/
liabilities %
(4)
-
5
3
2018
£m
(2.1)
0.3
3.8
2.0
(41.0)
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)
% of Scheme
assets/
liabilities %
(1)
3
1
6
2017
£m
1.9
(0.5)
(1.9)
(0.5)
(43.0)
2015
£m
(0.4)
2.2
3.2
5.0
(29.0)
2018
£m
61.1
1.4
(2.1)
2.7
(7.9)
55.2
(0.7)
2.9
1.1
% of Scheme
assets/
liabilities %
3
-
(17)
(14)
% of Scheme
assets/
liabilities %
4
-
(7)
(3)
2017
£m
68.5
1.7
1.9
2.6
(13.6)
61.1
3.6
2.9
1.0
2016
£m
2.0
-
(15.5)
(13.5)
(42.5)
2014
£m
3.1
-
(6.1)
(3.0)
(34.0)
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 2018
Increase in
pensions payment
(+0.1% p.a.)
£m
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
Life expectancy
(+1 year)
£m
(72.8)
55.2
(17.6)
(73.2)
55.2
(18.0)
(73.8)
55.2
(18.6)
(73.3)
55.2
(18.1)
(75.8)
55.2
(20.6)
A formal actuarial valuation of the Scheme as at April 2016 was finalised during the prior 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.
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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 £1.3m (2017: £0.8m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.7m (2017: £1.1m), 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 2018.
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%
2018
France
2.00%
USA
0.00%
2017
France
2.00%
4.15%
1.6%/1.45%
3.50%
1.6%/1.45%
0.00%
2.00%
0.00%
2.00%
USA
0.00%
4.15%
0.00%
2016
France
2.00%
1.40%
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%
4.60%
0.00%
2015
France
2.00%
2.00%
2.00%
USA
0.00%
4.75%
0.00%
2014
France
2.00%
2.50%
2.00%
2014 SOA
TH 00-02,
94 GAR
TH 00-02,
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
2018
£m
2.9
2.9
(8.0)
(0.3)
(5.4)
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)
Cash and other insured fixed interest assets – where assets are held in cash or a policy with a fixed interest asset allocation, the expected
long term rate of return is taken to be the yields generally prevailing on such assets as at the year end date.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
23. Pensions continued
Total expense recognised in the Consolidated Income Statement
Current service cost
Past service cost
Charge to operating profit
Interest on net pension scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2018
Defined
benefit
schemes
£m
1.3
-
1.3
-
1.3
0.3
0.1
0.4
0.1
0.5
Defined
contribution
schemes
£m
2017
Defined
benefit
schemes
£m
0.8
-
0.8
-
0.8
0.3
-
0.3
0.2
0.5
Total
£m
1.6
0.1
1.7
0.1
1.8
Change in the present value of the defined benefit obligation
2018
£m
7.8
0.2
0.1
0.2
0.2
(0.1)
(0.4)
0.3
8.3
2018
£m
3.0
(0.2)
0.1
(0.1)
(0.2)
0.3
2.9
(0.1)
-
1.3
Opening defined benefit obligation
Current service costs
Past service cost
Interest cost on scheme obligations
Actuarial (gains)/losses arising from:
Financial assumptions
Demographic 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
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Total
£m
1.1
-
1.1
0.2
1.3
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
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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
%
1
(7)
(2)
-
(4)
2018
£m
0.1
(0.2)
(0.2)
-
(0.3)
(2.6)
Experience gain 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
% of scheme
assets/
liabilities
%
4
-
(4)
-
-
% of scheme
assets/
liabilities
%
(2)
-
(5)
(12)
(15)
% of scheme
assets/
liabilities
%
-
-
(10)
-
(10)
2017
£m
0.4
0.3
(0.1)
(0.1)
0.5
(2.3)
2015
£m
0.2
-
(0.2)
-
-
(1.6)
2016
£m
(0.2)
-
(0.4)
(0.6)
(1.2)
(2.8)
2014
£m
-
-
(0.6)
-
(0.6)
(1.6)
The Group considers that any reasonable sensitivities applied to the overseas scheme assumptions would not have a material impact on the
Consolidated Statement of Financial Position.
24. Accounting 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.
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.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Consolidated Financial Statements (continued)
24. Accounting judgements, estimates and assumptions continued
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 £8.3m (2017: £7.8m) for
uncertain tax positions.
The liability includes an amount of £4.6m (2017: £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 £10.0m (2017: £nil to £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. Contingent liability
In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK controlled
foreign company legislation. In common with other UK-based international companies, the Group may be affected by the outcome of this
investigation and is therefore monitoring developments. If the preliminary findings of the European Commission’s investigations into the UK
legislation are upheld, we have estimated the Group’s maximum potential liability to be £2.5m as at 31 December 2018 (2017: £1.7m). Based
on the current status of the investigation, we have concluded that no provision is required in relation to this amount.
26. 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 73 to 82 and in note 4 to the financial statements on page 117.
27. Subsequent events
On 10 January 2019, the Group completed an amendment to its principal UK revolving credit facility, extending the term to January 2024 and
increasing the size of the facility by £50m to c. £280m. Further details are set out in note 20.
On 22 February 2019, the Group announced the acquisition of 100% of the share capital of Cobaco Holdings Limited, the parent company of
ATG Access Limited (“ATG”) for a cash consideration of £22.5m. Based in the UK and exporting to over 30 countries, ATG specialises in the
development, manufacture and installation of hostile vehicle mitigation perimeter security solutions including bollards, road blockers, barriers
and gates. The combination of our existing security products with those of ATG provides a strong platform to accelerate the expansion of
both our existing UK and international roads businesses. Under IAS 10 ‘Events After the Reporting Period’, this has been treated as a non-
adjusting event as no conditions existed at the end of the reporting period. There is no impact to the going concern basis of accounting due to
this event. This transaction will be treated as a business combination under IFRS 3 and full details of the financial effects will be included in
the Group’s next set of financial statements, as the Group have yet to finalise the initial accounting and to agree this with the vendors.
148
Stock Code HILS
Year ended 31 December 2018
Company Balance Sheet
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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
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
2018
£m
2017
£m
3
4
5
6, 7
6
7
9
10
-
325.0
325.0
87.4
0.1
87.5
(0.5)
(52.5)
(53.0)
34.5
359.5
(61.9)
(0.4)
-
297.2
19.8
35.5
0.2
241.7
297.2
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
Approved by the Board of Directors on 6 March 2019 and signed on its behalf by:
D W Muir
Director
M Pegler
Director
Company Number: 671474
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Year ended 31 December 2018
Company Statement of Changes in Equity
Balance at 1 January 2017
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 acquired by employee benefit trust
Tax taken directly to the Statement of Changes in Equity
Issue of shares
At 31 December 2017
Adoption of new accounting standards
At 1 January 2018 (restated)
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
Tax taken directly to the Statement of Changes in Equity
Shares issued
At 31 December 2018
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Total
equity
£m
19.7
33.5
0.2
242.6
296.0
-
-
-
-
-
-
-
-
19.7
-
-
-
-
-
-
-
-
0.6
34.1
-
19.7
34.1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.8
1.4
35.5
-
-
-
-
-
-
-
-
19.2
0.1
19.2
0.1
(20.7)
(20.7)
1.3
(2.5)
(0.1)
(0.1)
-
1.3
(2.5)
(0.1)
(0.1)
0.6
0.2
-
0.2
239.8
293.8
1.1
1.1
240.9
294.9
-
-
-
-
-
-
-
-
26.5
(0.3)
26.5
(0.3)
(23.6)
(23.6)
1.1
(2.9)
0.2
(0.2)
-
1.1
(2.9)
0.2
(0.2)
1.5
0.2
241.7
297.2
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.
Profit for the year of £26.5m includes a credit of £9.7m reflecting amounts receivable from subsidiary undertakings in relation to defined
benefit pension scheme deficit payments. In previous years the Company had recognised a charge in its income statement for the total
deficit recovery payments made to the scheme during that year. This treatment has been corrected in the current year by the recognition of
a receivable from subsidiary undertakings representing the amounts that should have been reimbursed by participating employers of the
scheme.
Distributable reserves
The Company maintains a policy of recognising gains arising from intra-group transactions as distributable only once a formal legal opinion
has been sought to confirm the position, after all steps required to execute a transaction have been duly completed. The legal opinions
required under this policy will be sought no later than the point at which the reserves in question are required to be accessed for the purposes
of distribution. In line with this policy the Company has available to it distributable reserves of not less than £50.5m, representing 2.1 times
cover of the current year proposed dividend. When required the Company can receive dividends from its subsidiaries to further increase its
distributable reserves; the Company’s UK trading subsidiaries currently have reserves of approximately £40m available for distribution at 31
December 2018. Further reserves are available for distribution from trading subsidiaries located overseas, subject to local regulations.
150
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Company Statement of Cash Flows
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Profit before tax
Less dividends received
Loss before tax and dividends received
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
(Increase)/decrease in receivables
(Decrease)/increase in payables
Decrease in provisions
Change in amounts due to/from Group undertakings
Net movement in working capital
Cash (used in)/generated from operations
Income taxes paid
Interest paid
Net cash (used in)/generated from operating activities
Interest received
Dividends received
Disposal of subsidiaries
Investments in subsidiaries
Repayment of capital in subsidiaries
Net cash from investing activities
Issue of new shares
Purchase of shares for employee benefit trust
Dividends paid
Costs associated with refinancing of revolving credit facility
New loans and borrowings
Repayment of loans and borrowings
Net cash used in financing activities
Net increase in cash
Cash at the beginning of the year
Cash at the end of the year
2018
Notes
£m
1.1
0.1
-
-
(0.1)
(1.5)
(0.4)
(8.1)
-
29.0
-
10.6
(10.5)
1.5
(2.7)
(23.6)
-
33.0
(15.0)
10
2
£m
25.4
(29.0)
(3.6)
1.8
(1.8)
1.2
(0.6)
(10.1)
(10.7)
(3.2)
(1.7)
(15.6)
£m
17.8
(22.5)
(4.7)
1.6
(3.1)
4.8
1.7
10.7
12.4
(3.3)
(1.6)
7.5
2017
£m
1.3
-
2.8
0.7
0.8
1.0
(0.1)
9.0
-
22.5
2.5
-
-
28.9
25.0
0.6
(2.6)
(20.7)
-
26.0
(34.0)
(6.8)
6.5
(6.9)
(0.4)
(30.7)
1.8
(8.7)
(6.9)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Company Principal Accounting Policies
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the
Company’s Financial Statements, except as noted below.
Basis of preparation
These Financial Statements were prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’).
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 available 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 152 to 154 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 fair value through other
comprehensive income, 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).
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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.
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
life of the lease
Plant, machinery and vehicles 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.
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Company Principal Accounting Policies (continued)
Share-based payments
Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are
accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair value of the awards granted
is measured using an option valuation model, taking into account the terms and conditions upon which the awards were granted. The amount
recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related
service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected
and actual outcomes.
Share-based payment transactions in which the Company receives goods or services by incurring a liability to transfer cash or other assets
that is based on the price of the Company’s equity instruments are accounted for as cash-settled share-based payments. The fair value of the
amount payable to employees is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees
become unconditionally entitled to payment. The liability is remeasured at each Balance Sheet date and at settlement date. Any changes in
the fair value of the liability are recognised as personnel expense in profit or loss.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except to the extent
that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the Balance Sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised.
Ordinary dividends
Dividends payable are recognised as a liability in the period in which they are approved by the Company’s shareholders. Dividends receivable
are accounted for on a cash accounting basis.
Financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of subsidiary companies, the Company
considers these to be insurance contracts and treats the guarantee contract as a contingent liability until such time as it becomes probable
that the Company will be required to make a payment under the guarantee.
154
Stock Code HILS
Notes to the Company Financial Statements
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
1. Profit before taxation
The profit is stated after charging:
Operating lease rentals – land and buildings
2018
£m
0.1
2017
£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 £7.4m (2017: £6.7m) and the final dividend of £16.2m (2017: £14.0m).
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 2017
Additions
At 31 December 2018
Depreciation
At 31 December 2017
Charge for the year
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
4. Fixed asset investments
Cost
At 31 December 2017
Reclassification
Additions
Repayment of capital
At 31 December 2018
Provisions
At 31 December 2017
Reclassification
At 31 December 2018
Net book value
At 31 December 2018
At 31 December 2017
2018
Pence
per share
10.0
21.8
31.8
2017
Pence
per share
9.4
20.6
30.0
£m
7.9
17.2
25.1
Short leasehold
properties
£m
Plant, machinery
and vehicles
£m
0.1
-
0.1
-
0.1
0.1
-
0.1
0.4
-
0.4
0.4
-
0.4
-
-
Shares in
subsidiary
undertakings
£m
337.7
0.3
10.6
(10.5)
338.1
12.8
0.3
13.1
325.0
324.9
£m
7.4
16.4
23.8
Total
£m
0.5
-
0.5
0.4
0.1
0.5
-
0.1
Total
£m
337.7
0.3
10.6
(10.5)
338.1
12.8
0.3
13.1
325.0
324.9
During the year Hill & Smith (France) Limited, a direct subsidiary, repaid capital previously given to it by the Company following an extension of
its external debt facilities and a restructuring of the entity.
A list of the businesses owned by the Company is given in note 13. All of the Company’s subsidiaries are wholly owned.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Company Financial Statements (continued)
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
2018
£m
83.7
2.7
0.3
0.5
0.2
87.4
2018
£m
0.5
0.5
1.8
0.1
3.1
0.7
46.8
52.5
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
2018
£m
61.9
61.9
2018
£m
0.5
-
61.9
61.9
62.4
2017
£m
44.0
44.0
2017
£m
6.9
-
44.0
44.0
50.9
156
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
2018
£m
(0.7)
0.1
(0.6)
0.1
0.2
(0.3)
(0.3)
2017
£m
(0.8)
-
(0.8)
-
0.1
(0.7)
(0.7)
8. Deferred tax
At 1 January
Adoption of new accounting standards
At 1 January (restated)
Charged for the year in the Income Statement
Charged for the year directly in equity
At 31 December
Other timing differences
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 Company’s profit for the year includes a pension charge of £0.3m (2017: £2.9m), which includes the costs of the defined contribution
schemes and the defined benefit schemes.
Profit for the year of £26.5m includes a credit of £9.7m reflecting amounts receivable from subsidiary undertakings in relation to defined
benefit pension scheme deficit payments. In previous years the Company had recognised a charge in its income statement for the total
deficit recovery payments made to the Scheme during that year. This treatment has been corrected in the current year by the recognition of
a receivable from subsidiary undertakings representing the amounts that should have been reimbursed by participating employers of the
Scheme.
10. Called up share capital
Allotted, called up and fully paid
79.0m Ordinary Shares of 25p each (2017: 78.7m)
2018
£m
2017
£m
19.8
19.7
In 2018 the Company issued 0.3m shares under its various share option schemes (2017: 0.2m), realising £1.5m (2017: £0.6m). 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 (2017: £nil).
The Company guarantees the bank loans and overdrafts of certain subsidiary undertakings. The amount outstanding at 31 December 2018
was £121.6m (2017: £88.8m).
(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
2018
Land and
buildings
£m
0.1
0.1
0.2
0.3
0.7
2017
Land and
buildings
£m
0.1
0.1
0.3
0.5
1.0
Other
£m
-
-
-
-
-
Other
£m
-
-
-
-
-
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Notes to the Company Financial Statements (continued)
12. Related party transactions
The Company has related party relationships with its key management personnel and with its subsidiaries (either directly or indirectly
controlled).
The related party transactions with key management personnel are considered by the Company to be the same as those of the Group and are
set out in note 25 to the Group Financial Statements.
The transactions with subsidiaries are summarised below.
Transactions with other Group companies
Amounts due from subsidiaries
Amounts due to subsidiaries
Highest during
the year
£m
Balance at
31 December 2018
£m
Highest during
the year
£m
Balance at
31 December 2017
£m
83.7
(46.8)
83.7
(46.8)
77.3
(75.0)
72.5
(50.4)
Transactions with other Group companies typically comprise management and interest charges, dividend receipts and other recharges of
administrative expenses.
The disclosure of the year end balance and the highest balance during the year is considered to provide a meaningful representation of
transactions between the Company and fellow Group undertakings during the year. The highest balance due is generally at the end of each
financial year as this is the time at which the Company levies its management and interest charges.
Related party transactions reported in the Income Statement
Dividends received
Recharge of operating expenses
Net interest income
2018
£m
29.0
7.8
0.3
2017
£m
22.5
7.5
0.3
158
Stock Code HILS
13. Subsidiaries
Incorporated in the UK
Access Design & Engineering Limited
ALSIPI Limited
Ash & Lacy Limited (H)*
Ash & Lacy Manufacturing Limited
Ash & Lacy Overseas (Holdings) Limited
Ash & Lacy Services Limited
Ash Plastic Products Limited
Asset International Limited
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)*
Bipel Group plc (D)
Bipel Limited (D)
Birtley Group Limited (U, G)
Bowater Doors Limited (U)
Bromford Steel Limited (D)
Bytec Limited (D)
C.I.C. Ralphs Limited (D)
Carrington Packaging Limited (D)
Cooper Securities (Dudley) Limited (D)
Cooper Securities Limited (D)
Dee Organ Limited (D)
Eurogrid Access Design Limited (D)
Expamet Building Products Limited (D)
Expamet 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) **
J. & F. Pool Limited (D)
Jevons Tools Limited (D)
Jones of Oswestry Limited (D)
Joseph Ash Limited (G)
Lionweld Kennedy Flooring Limited (U)*
Mallatite Limited (R)*
MB Tech Limited (D)
Medway Galvanising Company Limited (G)
Pipe Supports Overseas Limited (H)*
Post & Column Limited (D)
Premier Galvanizing Limited (G)
Redman Architectural Metalwork Limited (D)
Redman Fisher Engineering Limited (U)
Royston Steel Fencing Limited (D)
Safety and Security Barrier Holdings Limited (H)
Signature Limited (D)
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Technocover Limited (U)
Tegrel Limited (R)
The Global Tank and Foundry (Wolverhampton) Limited (D)
Variable Message Signs Limited (D)
Varley & Gulliver Limited (R)
Vista Galvanizing (UK) Limited (D)
Western Galvanizers Limited (D)
Wombwell Foundry Limited (D)
All of the above subsidiaries have a year end date of 31 December
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.
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(U) Utilities
(R) Roads
(G) Galvanizing
(D) Dormant
(H) Holding company
* Directly held by Hill & Smith Holdings PLC
** 50% owned Joint Venture
hsholdings.com
159
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 the USA
Bergen Pipe Supports, Inc. (U)
Carpenter & Paterson, Inc. (U)
Creative Pultrusions, Inc. (U)
CPK Manufacturing LLC (U)
CPCA 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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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 Jersey
Vista Limited (H)
Second Floor, No. 4 The Forum,
Grenville Street, St. Helier
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
160
Stock Code HILS
Five Year Summary
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
2018
£m
637.9
80.1
76.3
293.2
Pence
77.8
31.8
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
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hsholdings.com
161
ATG Access, acquired by the Group on 22
February 2019, has developed “Surface
Guard”; a high security, fast deployed
vehicle barrier to protect temporary
sporting, music and special events.
The barriers have been deployed
at more than 300 events in
the last 18 months and
the picture shows
the barriers being
used in Belgravia
Street,
London.
162
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Shareholder
Information
164 Financial Calendar
165 Shareholder Information
166 Principal Group Businesses
169 Directors, Contacts and Advisors
Top: Zoneguard and crash cushion on M1 Gateway
project, Brisbane, Australia.
Bottom: The Rampion windfarm consists of 116
turbines and is located 8 miles off the Sussex Coast.
Lionweld Kennedy Flooring were specified on
the project and supplied the steel gratings and
handrail systems.
hsholdings.com
163
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Financial Calendar
Annual General Meeting 2019
Trading Update
Ex-dividend date for 2018 final dividend
Record date 2018 final dividend
Dividend Reinvestment Plan – last date for election
Final 2018 ordinary dividend payable
Announcement of 2019 interim results
Trading Update
Payment of 2019 interim dividend
16 May 2019
16 May 2019
23 May 2019
24 May 2019
10 June 2019
1 July 2019
7 August 2019
21 November 2019
3 January 2020
164
Stock Code HILS
Shareholder Information
Shareholder base
Holdings of ordinary shares at 1 March 2019
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 16 May 2019 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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Number of holders
750
419
686
388
40
79
17
18
2,397
%
31.29
17.48
28.62
16.19
1.67
3.29
0.71
0.75
100.00
Number of shares
166,584
318,976
1,585,290
5,730,592
3,023,084
18,119,332
12,224,394
37,965,280
79,133,532
Number of holders
%
Number of shares
1,480
912
5
2,397
61.74
38.05
0.21
100.00
3,971,715
75,153,070
8,747
79,133,532
2018
10.0
21.8
31.8
2017
9.4
20.6
30.0
2016
8.5
17.9
26.4
2015
7.1
13.6
20.7
• Access current and historical market prices.
• Access trading graphs.
• Add additional shareholdings to your portfolio.
%
0.21
0.40
2.00
7.24
3.82
22.90
15.45
47.98
100.00
%
5.02
94.97
0.01
100.00
2014
6.4
11.6
18.0
Share dealing
Share dealing services are available through Computershare
Investor Services PLC. Log on to www.computershare.com/
sharedealingcentre for internet share dealing and for telephone
dealing ring 0370 703 0084.
Dividend Reinvestment Plan ‘DRIP’
(Latest date for election is 10 June 2019)
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.
• View the market value of your portfolio.
• Update your contact address and personal details online.
Shareholder helpline number
There is a helpline for shareholders who have enquiries about their
shareholdings. The dedicated helpline number is 0370 707 1058.
hsholdings.com
165
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Principal Group Businesses
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
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 Ltd. (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 Safety Systems Ltd. (D)
Car park and industrial barriers, spring steel
barriers, protection bollards, speed ramps
and 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
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
Work Area Protection Corp (D)
Provides smart, safe, innovative solutions for
the traffic safety and highway infrastructure
businesses
www.workareaprotection.com
Hill & Smith Pty Ltd*
Wire rope and temporary safety barriers
Incorporated in Australia
Unit 1, 242 New Cleveland Road,
Tingalpa, QLD 4173, Australia
Tel: +61 (0) 7 3162 6078
hsroads.com.au
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
(D) Operating division only, not a limited company.
166
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Infrastructure Products – Utilities
United Kingdom
United States of America
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
Creative Pultrusions, Inc.*
Manufacture of fibre reinforced polymer
(FRP) composite profiles
214 Industrial Lane, Alum Bank,
Pennsylvania, 15521, USA
Tel: +1 (814) 839 4186
Toll-free: # 888-CPI-PULL (274-7855)
Fax: +1 (814) 839 4276
crpul@pultrude.com
www.creativepultrusions.com
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
E.T. Techtonics (D)
Design and construction of fiberglass bridge
and boardwalk systems
www.ettechtonics.com
Kenway Composites (D)
Advanced custom composite manufacturing
and professional field services for various
industries
www.kenway.com
Tower Tech (D)
Manufactures cooling tower products
that effectively bridge the gap between
sustainability and energy efficiency
www.towertechinc.com
Composite Advantage (D)
A leading manufacturer for Fibre Reinforced
Polymer composite bridge, waterfront and
rail infrastructure markets
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
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Carpenter & Paterson, Inc.*
Industrial pipe hangers, metal framing
channel and fasteners
225 Merrimac Street, Woburn,
Massachusetts, 01801, USA
Tel: +1 (781) 935 2950
Fax: +1 (781) 935 7664
www.pipehangers.com
Novia Associates (D)
Vibration and seismic control manufacturer
www.cp-novia.com
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
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Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
** Trading name for V&S Schuler Engineering Inc and V&S Schuler Tubular Products LLC, both are indirectly held, wholly owned and incorporated in the USA.
hsholdings.com
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
Principal Group Businesses (continued)
Galvanizing Services
United Kingdom
United States of America
France
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
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
Medway Galvanising Company Ltd*
Galvanizing, shotblasting and powder
coating services together with monohinge
gates
Castle Road, Eurolink Industrial Centre,
Sittingbourne, Kent, ME10 3RN
Tel: +44 (0) 1795 479489
Fax: +44 (0) 1795 477598
info@medgalv.co.uk
www.medgalv.co.uk
Premier Galvanizing Ltd*
Galvanizing and powder coating services
Unit 25, Stoneferry Business Park
Foster Street, East Riding of Yorkshire,
HU8 8BT
Tel: +44 (0) 1482 587587
Fax: +44 (0) 1482 588599
info@premiergalv.co.uk
www.premiergalv.co.uk
Barkers Engineering Ltd*
Galvanizing and powder coating services
Duke Street, Fenton, Stoke-on-Trent,
Staffordshire, ST4 3NS
Tel: +44 (0) 1782 343811
Fax: +44 (0) 1782 344974
sales@barkersgalvanizing.com
www.barkersgalvanizing.com
Birtley Group Ltd*
Galvanizing services
Mary Avenue, Birtley, County Durham,
DH3 1JF
Tel: +44 (0) 191 410 4421
Fax: +44 (0) 191 492 1817
info@birtleygalvanizing.co.uk
www.birtleygalvanizing.co.uk
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
168
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2018
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)
A C B Giddins FCA
(Senior Independent Non-executive)
A M Kelleher MSc, BA
(Non-executive)
M J Reckitt BCom, CA
(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
C A Henderson FCIS
Auditor
KPMG LLP
1 Snowhill
Snow Hill Queensway
Birmingham
B4 6GH
Brokers and Financial Advisors
Investec Investment Banking
30 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
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Notes
170
Stock Code HILS
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Hill & Smith Holdings PLC
Westhaven House, Arleston Way, Shirley,
Solihull, B90 4LH, United Kingdom
Tel: +44 (0) 121 704 7430
Fax: +44 (0) 121 704 7439
www.hsholdings.com | Stock code HILS