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2020
Annual Report for the year
ended 31 December 2020
Stock Code HILS
hsholdings.com
Our purpose is to create
sustainable infrastructure and
safe transport through innovation
The ET Techtonics’s fiberglass reinforced polymer bridge is the longest free standing pultruded bridge in the world.
It helps connect the Bermuda Railway Trail by forming the central span over the Flatts inlet. The 152’ (46.3m)
prefabricated bridge was built in Pennsylvania before being disassembled and then shipped to Bermuda where it
was reconstructed. It will service locals and visitors that enjoying hiking and bicycling the Bermuda Railway Trail.
Stock Code HILS
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Nomination Committee Report
Audit Committee Report
Remuneration Committee Report
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Chair’s Letter
Directors’ Annual Remuneration Report
Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
Financial Statements
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Independent Auditor’s Report
Group Financial Statements
Company Financial Statements
Five Year Summary
Shareholder Information
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Financial Calendar
Shareholder Information
Principal Group Businesses
Directors, Contacts and Advisors
Strategic Report
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Group Highlights
Our Investment Case
Group at a Glance
Chair’s Letter
Chief Executive’s Introduction
Our Sustainable Growth Model
Our Strategy
Our Markets
Capital Discipline
Measuring our Performance
Our Products
Operational & Financial Review
Stakeholder Engagement
Sustainability and Responsibility Report
Risk Management and Assurance
Principal Risks and Uncertainties
Non-financial Information Statement
s172 Statement
Governance Report
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Board of Directors
Executive Board
Introduction to Governance
Governance Report
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Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Audit, Risk and Internal Control
Remuneration
Front cover images:
Top: ArrowMaster Pro-line mobile message sign, supplied by Hill & Smith Inc., USA.
Middle: A bridge fender system constructed by Creative Composites using high-strength
fiberglass pipe piles and installed at Gasparilla Island, Florida, USA.
Bottom: Steel horses, designed by the artist Andy Scott and galvanized by Joseph Ash Limited.
To find out more about Hill & Smith Holdings,
visit our website hsholdings.com
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
1
Group Highlights
• Health, safety and wellbeing of all employees remain our key priority during the COVID-19 pandemic
• Robust performance with good recovery in H2, approaching H2 2019 trading levels
•
Strong cash generation supported by cash preservation actions, resulting in a £69.1m reduction in net debt
• Repayment of all monies received under the UK Coronavirus Job Retention Scheme (£3.6m)
•
FY20 final dividend of 17.5p recommended, taking total dividend for the year to 26.7p
Revenue
£660.5m
Down 5%
*Underlying
operating profit
£69.9m
down 19%
*Underlying
earnings per share
63.2p
down 22%
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Dividend per share
26.7p
The 2019 final dividend of 23.0p
was cancelled as result of the
COVID-19 pandemic.
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Revenue
Underlying*:
• Operating profit
• Operating margin
• Profit before taxation
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Earnings per share
Statutory:
• Operating profit
• Operating margin
• Profit before taxation
• Basic earnings per share
Dividend per share
Net debt
31 December 2020
31 December 2019
Change %
£660.5m
£694.7m
£69.9m
10.6%
£62.6m
63.2p
£42.8m
6.5%
£35.5m
30.2p
26.7p
£86.3m
12.4%
£79.4m
80.7p
£69.2m
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£61.8m
61.1p
10.6p
£146.2m
£215.3m
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* All underlying measures exclude certain non-underlying items, which are as detailed in note 4 to the Financial Statements and described in the Financial Review. References to an underlying
profit measure throughout this announcement are made on this basis. Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors’
judgement, the quantum, nature or volatility of such items gives further information to obtain a proper understanding of the underlying performance of the business. Underlying measures are
deemed alternative performance measures (‘APMs’) under the European Securities and Markets Authority guidelines and a reconciliation to the closest IFRS equivalent measure is detailed
in note 3 to the Financial Statements. They are presented on a consistent basis over time to assist in comparison of performance, with the exception of changes to the presentation of net
financing costs on defined benefit pension obligations and costs incurred as part of significant refinancing activities, which were presented as non-underlying items in 2019 but included in the
underlying results in 2020. This change had no material impact on the results for either period.
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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Our Investment Case
Through our international group of companies, we aim to deliver superior long term value for
stakeholders by creating sustainable infrastructure and safe transport solutions through innovation.
Innovation in niche markets
Hill & Smith Inc. has developed the HS2X™ Asset
Tracking Device
Transportation systems are becoming increasingly connected and road agencies and
operators seek technologies that enable them to remotely monitor roadside hardware
and safety equipment. To meet this growing demand in the market, Hill & Smith Inc.
has developed the HS2X™ Impact Notification and Asset Tracking device family.
These multi-purpose devices, which are available in wireless and wired options, are
ultra-rugged, weatherproof and feature-rich, offering industry-leading GPS tracking,
geofencing, real time impact notification, and more.
The HS2X™ line up complements and enhances all three of Hill & Smith Inc’s product
categories: Roadside Safety, Work Zone Safety, and ITS Smart Work Zone. When
added to the Smart Cushion® impact attenuator or other roadside barrier, HS2X’s on
board accelerometer can detect when the device is impacted, which prompts an alert
to local authorities and maintenance crews. With smart work zones becoming more
prevalent, HS2X™ is an affordable option to connect traditional work zone products,
such as cones and arrow board trailers. This enables users to identify and monitor
lane closures and work zones remotely. Through Hill & Smith Inc’s partnership with
HAAS Alert, location data collected by HS2X™ can be transmitted through the Waze
navigation app to notify drivers of upcoming hazards and work zones. HS2X™ can also
be used as an advanced asset tracker, giving high value equipment owners access to
their asset’s GPS location.
All data collected by HS2X™ devices is visible via Hill & Smith Inc’s HS Connect™
online portal.
Niche markets
We are attracted to niche markets, preferably
with high barriers to entry such as regulation,
where we can deliver significant value to our
customers, whether through sustainable,
safety-related, or time critical applications.
Underlying growth
When identifying the markets in which we
wish to operate, we consider long term
growth drivers both at a macro and market
specific level. See pages 10 and 11 for more
details.
Portfolio management
We have a disciplined approach to our
portfolio of businesses. We seek organic
growth from our existing operations and,
supported by our cash generation, pursue
acquisitions that fit our overall business
model. Where businesses no longer fit either
that model, or the required growth profile, we
will look to either restructure or divest.
Autonomous operating model
Our decentralised autonomous operating
model is a powerful factor and helps attract
high-calibre management teams and
individuals. Our businesses are diversified
across markets, products and customers
and exercise agility and entrepreneurialism,
seeking out opportunities in their own
markets.
Cash generation
We maintain a disciplined financial
framework. Our focus on strong operating
margins and return on capital creates
strong cash generation for reinvestment
and returns to shareholders. 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. See page 12 for more
details.
Progressive dividend
We operate a sustainable and progressive
dividend policy and, whilst the COVID-19
pandemic interrupted many years of
dividend growth with the 2019 final dividend
being cancelled, we were able to pay an
interim dividend for 2020 in July. The Board
is recommending a final dividend for the year
of 17.5p per share.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
3
Group at a glance
Roads & Security
Utilities
Galvanizing Services
Our Roads & Security businesses make
the roads safe for all stakeholders, as
well as improving security at a wide
range of events and locations.
They design, manufacture and supply
products including permanent road
safety barriers, temporary work zone
protection products, hostile vehicle
mitigation products, perimeter security,
predestrian protection products, street
lighting columns, car park and bridge
parapets and techology-supported
road message signs.
These businesses operate from sites
in Australia, France, Sweden, the UK
and the US.
Our Utilities businesses supply
the critical components that Utility
providers need to ensure security and
sustainability.
They design, manufacture and supply
products and services for 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, industrial flooring and
access systems, and FRP composite
products.
These businesses operate from sites
in India, the UK and the US.
Hot-dip galvanizing is a proven steel
corrosion protection coating that has a
minimal economic and environmental
impact, poviding a long term
maintenance free solution.
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 industrial applications.
Our Galvanizing businesses operate
from plants in France, the UK and the
US.
Revenue by segment
Operating profit by segment
Operating profit by location
Roads & Security – 40%
Roads & Security – 19%
Utilities – 32%
Utilities – 30%
Galvanizing Services – 28%
Galvanizing Services – 51%
UK – 26%
US – 71%
ROW – 3%
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Chair’s Letter
Alan Giddins
Chair
“The last 12 months
have demonstrated
the strength of our
business, the quality
and commitment of
the people who work
for Hill & Smith and the
resilience of our end
markets.”
Dear Stakeholder
Over the last 12 months
the coronavirus (COVID-19)
pandemic has provided
a uniquely challenging
environment in which the
Group has had to operate.
In many ways the year can
be divided into three distinct
parts: January-mid March,
during which we saw strong
trading in line with expectations;
mid March-June when we
saw the impact of significant
operational closures; and
July-December when we saw
a gradual improvement in
performance, culminating in a
strong fourth quarter. Against
this backdrop our results
for the year were towards
the upper end of the Board’s
expectations. They reflect the
strength of our management
teams, the commitment
and resourcefulness of our
employees and the robustness
of our business model and
the end markets in which we
operate.
Performance Highlights
Revenue for the year was £660.5m (2019:
£694.7m) and underlying operating profit
was £69.9m (2019:£86.3m). Underlying
operating margin was 10.6% (2019: 12.4%),
while underlying profit before taxation was
£62.6m (2019:£79.4m). Reported profit
before taxation was £35.5m (2019: £61.8m),
and is shown after taking account of certain
non-underlying items.
To put this performance in context,
throughout the first lockdown period a large
number of the Group’s operations in the UK,
France and India were completely closed,
with the result that we were only marginally
profitable during the three month period to
the end of June. The fact that we did not fall
into a loss during this period was testament
to our operating model of devolved decision
making, which enabled our subsidiary
businesses to respond quickly to the
changing market environment. In contrast
the Group saw an improving third quarter
and very strong performance in the fourth
quarter. The only area of activity where
we have not seen a noticeable recovery in
performance is in our security businesses,
which continue to be impacted by ongoing
COVID-19 restrictions on public gatherings
and delayed customer orders.
Cash generation has been strong during the
year and reflects the benefit of the improved
working capital management processes put
in place during 2019, along with the tight
management of both operating costs and
non-essential capital expenditure. As at
31 December 2020, total net debt had come
down to £146.2m against £215.3m at the
start of the year, leaving financing headroom
of £225.1m on the Group’s borrowing
facilities.
We made a conscious decision at the start
of the pandemic to de-prioritise M&A with
the result that we have only completed
one small acquisition during the year. We
continue to build and redefine our pipeline of
possible acquisition targets and on
2 March 2021 we announced the acquisition
of Prolectric Services Ltd.
Strategy
While the core building blocks of our strategy
remain in place, we have redefined our
purpose statement. I think this has been
an extremely helpful exercise and provides
for greater clarity around the markets and
activities we wish to prioritise within the
sustainable infrastructure and transport
safety arenas. Further detail is provided in
Our Strategy on pages 8 and 9.
UK Government Support Schemes
At the start of the first lockdown period
the Group made the decision to furlough a
number of employees in the UK and to claim
under the UK Government’s Coronavirus Job
Retention Scheme. In aggregate, the Group
initially claimed £3.6m under this scheme.
The Board also made the decision to take
advantage of the opportunity to defer our
second quarter VAT payments in the UK.
As our trading improved going into the
last quarter of the year and in particular
having taken account of the stronger than
forecast cash generation, the Board made
the decision in December 2020 to return
the furlough monies and to accelerate the
repayment of the deferred VAT amounts.
Prior to the year end all amounts were repaid
in full and as a consequence do not impact
the results shown in these accounts. In
making this decision the Board took account
of what it felt was the spirit and purpose
behind the UK Government’s decision to put
these schemes in place.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
5
Chair’s Letter
continued
Governance and Board
One of my key responsibilities as Chair is to
ensure good governance for Hill & Smith.
In this regard, I have been extremely well
supported by the members of the Board. I
believe that we have a strong balance of skills
and experience that complement the talents
of our executive team, the benefit of which
has been evident during the current year.
In April 2020 the Group announced that
Derek Muir would be stepping down as Chief
Executive at the end of 2020. Derek joined
Hill & Smith in 1988 and was Chief Executive
for 14 years. He played a pivotal role in the
success of the Group during this period and
is someone with whom I have thoroughly
enjoyed working with. On behalf of the Board
and shareholders, I would like to thank Derek
for all that he has done at Hill & Smith and to
wish him well in his retirement.
Paul Simmons joined as Chief Executive
Designate and a Board Director in September
2020, and, following a well-managed hand-
over from Derek, took over as Chief Executive
in November 2020. Paul was previously
Chief Executive of the Infrastructure Safety
and Process Safety sectors at Halma plc,
operating within a similar decentralised
business model to that of Hill & Smith. Paul
was the outstanding candidate to emerge
from an extensive search process and I have
been hugely impressed by his energy and
clarity of thought since joining the Group.
At the beginning of February 2021, the
Group announced that Leigh-Ann Russell
would be joining the Board as a Non-
executive Director from 1 April 2021.
Leigh-Ann is Chief Procurement Officer for
BP PLC (‘bp’), with responsibility for safety,
compliance and efficiency of bp’s global
supply chain. I am delighted that we have
been able to attract someone of Leigh-Ann’s
capabilities to our Board.
People
More than ever before the Group has
relied on the commitment, resilience and
resourcefulness of its employees over the
last 12 months. The day-to-day operational
challenges our employees have been asked
to work with have been significant, as
have been the challenges placed upon our
subsidiary Managing Directors and their
senior teams. I would like to pay tribute to
Derek Muir, Hannah Nichols and the rest
of the head office team for their tireless
commitment to helping navigate Hill & Smith
through the early stages of the pandemic.
At the beginning of 2021, the Group
announced a new senior management
structure and the establishment of an
Executive Board. Under this new structure
we will have Group Presidents, who will
report into the Chief Executive and through
whom the subsidiary companies will report.
A change in organisational structure is
something that the Board has been looking
at for some time, and I believe it will help
ensure that we are even more fleet of foot
in our decision-making, as well as help
accelerate the delivery of our M&A strategy.
In January 2021, Denise Beachy joined Hill
& Smith as a Group President, based in the
US. Denise will have overall responsibility
for building out our high growth composite
activities as well as for a number of our
other specialist utility businesses. Andrew
Beaney, currently head of the Roads &
Security division, has also been appointed as
a Group President.
Last year we established two Workforce
Advisory Panels. I have been impressed by
the way that the Group has taken the output
from the survey and reflected it in a number
of changes within the organisation. While
we were constrained in our ability to meet
up with these panel members during 2020,
we have reached out to them throughout the
year to get their feedback, and in December
we reconvened the same groups online. I
was pleased to be able to join both of these
meetings.
Health & Safety
The health and safety of the Group’s
employees is a key priority for the Board, and
I have been impressed with the emphasis on
this area which Paul Simmons has brought
with him to the Chief Executive role.
At the outset of the pandemic, COVID-19
risk assessments were made at all locations
and additional safety procedures put in
place. Regular site audits have taken place
throughout the year to ensure that these
measures have been followed. While we
have seen a number of employees off work
due to COVID-19, I am extremely relieved
that we have not suffered any fatalities
amongst our workforce.
A review of health & safety data is
undertaken at every Board meeting, with
a particular focus on those subsidiaries
where safety incidents are above average.
Hill & Smith holds quarterly Health & Safety
Forums, bringing together key safety
professionals from across the Group. This
allows for the sharing of best practice and
the efficient roll-out of specific Group safety
initiatives. The minutes of these meetings
are presented to your Board.
Environmental, Social & Governance (‘ESG’)
Your Board is very conscious of the
importance our shareholders, employees
and other stakeholders place on our
approach to ESG, and the need to continually
improve our performance and disclosure in
this area. During 2021 we will be developing
a new full scope ESG strategy. This initiative
is being led by Paul Simmons, as Chief
Executive, with oversight from the Board.
Dividend and Annual General Meeting
At the height of the first lockdown, and
in line with many other companies, the
Board took the decision to cancel the 2019
final dividend, saving £18.3m. The Board
considered this to be an appropriate and
prudent step to take at a time when it was
extremely difficult to forecast the impact of
the pandemic. Having seen an improving
trading backdrop in the third quarter the
Board made the decision to announce
an interim dividend of 9.2p (2019: 10.6p).
In light of the continued positive trading
through to the end of the year the Board
has proposed a final dividend of 17.5p
(2019: 23.0p, cancelled). It is your Board’s
intention that going forward it will have a
dividend policy which is both sustainable
and progressive.
It was with great regret that we were forced
to hold a virtual Annual General Meeting
last year. I would, however, like to thank all
shareholders who took part in the meeting.
The next Annual General Meeting is due to
be held on 25 May 2021. Based on current
Government guidance this meeting will also
take place virtually, details of which will be
communicated together with the AGM notice.
Looking Ahead
There is no doubt that the last 12 months
have demonstrated the strength of our
business, the quality and commitment of
the people who work for Hill & Smith and
the resilience of our end markets. The world
will, however, continue to face significant
challenges linked to the economic damage
inflicted by COVID-19, and we should not
assume that Hill & Smith will be immune to
the effects of this in the short term.
In the medium to long term I feel very
positive about the prospects for the Group.
Paul Simmons has set out his strategy and
outlined the key building blocks which will
underpin the future growth of the business.
I am confident that his focus on organic
growth, margin enhancement and focused
M&A will serve Hill & Smith well. Our
financial position is sound, we have highly
experienced and energised management
teams across our businesses and I believe
that the infrastructure markets we serve will
continue to see significant investment.
Alan Giddins
Chair
9 March 2021
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Chief Executive’s Introduction
growth and increasing urbanisation. Market-
specific drivers include enabling technology,
sustainable materials, decarbonisation,
infrastructure safety and Vision Zero,
a programme to elimate road deaths.
Combined, these feed into the need for
infrastructure to be upgraded, in a sustainable
way, and for governments to increase
regulation in the area of health & safety. All
this is reflected in our purpose of ‘creating
sustainable infrastructure and safe transport
through innovation’. I have already seen first-
hand some of our products that are a benefit
to society, from flood defence products,
fire-resilient electricity transmission poles and
solar-powered signs, to pedestrian protection
bollards. In turn, this purpose makes us very
conscious of the impact of our production
processes on climate change, and of the
opportunities and risks that climate change
introduces to our strategy.
We will be further developing our ESG
strategy in 2021, including reviewing our
commitments to managing our water and
energy consumption, improving diversity
and inclusion, and continuing to enhance our
health & safety performance. Reinforcing a
culture of responsibility and accountability
across our Group and in each individual
business is an absolute priority for the Board,
and for me personally.
In the following pages we provide more
detail about our business model and our
strategy, our key markets and how we select
them, and our wide range of sustainable
infrastructure and safe transport solutions,
all of which underpin our growth ambitions.
I am delighted to have joined Hill & Smith
as Chief Executive, and I am excited about
the future of the Group. With our renewed
purpose and refined focus, I believe that we
are well positioned for further growth.
Paul Simmons
Chief Executive
9 March 2021
Dear Stakeholder
On joining Hill & Smith in September last
year, my first priority was to meet as
many colleagues and visit as many Group
businesses as possible. Ideally these
meetings would have been face to face but,
due to COVID-19 restrictions, a number,
particularly with overseas sites, inevitably
had to be conducted virtually.
From these, it is clear to me that our
businesses employ extremely committed
people with excellent market and domain
knowledge, and that we operate in resilient
end markets with strong structural growth
drivers.
I am a strong believer in our decentralised
autonomous operating model and
the benefits it brings, including highly
accountable management, agility and
customer intimacy, and the ability to
attract talented people who want to make
a difference. This model operates within a
disciplined financial framework with strong
levels of cash generation and a robust
balance sheet. This is all underpinned by
strong governance and an ambitious and
supportive Board.
In the coming year, we will refine our
strategy to build on the opportunities
across the Group to further enhance our
growth potential. First and foremost, we will
continue to focus on accelerating organic
growth by increasing the rate of innovation
and identifying new niche markets. Second,
we will place greater emphasis on higher
margins and long-term growth, and we
have already fine-tuned our portfolio
management criteria to that effect. The
US and UK will remain our key areas of
geographic focus, both for organic growth
and targeted acquisitions.
We have recently taken steps to organise
for growth and scalability. At the beginning
of 2021, we formed a new Executive Board
and have introduced Group Presidents who
will be responsible for accelerating growth
within their market portfolio and supporting
the business overall. Talented people
are fundamental to the success of our
decentralised model, and with this in mind
we have recruited a Chief People Officer
who will be leading on career and talent
development across the Group. We intend
to recalibrate the incentive schemes for our
people to align with our enhanced growth
ambitions.
As well as the way we operate internally, our
success relies on us focusing on markets
with long-term growth drivers, at both a
macro and market-specific level. Those
macro drivers include climate change,
health & safety regulation, population
Paul Simmons
Group Chief Executive
“I am delighted to have
joined Hill & Smith as
Chief Executive and am
excited about the future
of the Group. With
our renewed purpose
and refined focus, I
believe that we are well
positioned for further
growth.”
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
7
Our Sustainable Growth Model
Our business model is centred on the creation of innovative and sustainable infrastructure and safe
transport solutions for our customers by a portfolio of autonomous, geographically diverse companies.
Through the active management of that portfolio and within a disciplined financial framework and a
strong culture of sustainability, we seek to create long-term value for our stakeholders.
g sustain a ble i n f r a
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Sustainability
Strong financial
controls
Targeted M&A
in higher growth
niches
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High cash
conversion,
strong balance
sheet
Portfolio
management
Shareholder
returns
Talent
development
Operational
excellence, driving
operating margins
Enhancing
organic growth
Management
incentives
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Quick decision
making/agile
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Our Strategy
While many key elements of our strategy remain unchanged, we have redefined our purpose to “creating
sustainable infrastructure and safe transport through innovation”.
We aim to provide safe, high quality jobs
for our employees worldwide providing
the potential for career development and
socio-economic mobility. We are committed,
wherever possible, to ensuring that we
provide stable, inclusive employment for all
members of the community in successful
and sustainable businesses. We ensure that
we meet all environmental regulations and
work towards carbon neutrality.
Our focus is on geographies where there
are historically high levels of investment
in infrastructure for upgrades and
replacements. We currently operate from 76
sites in six countries.
The successful execution of our strategy
drives exceptional shareholder returns,
provides high quality jobs for our employees,
benefits local communities and gives long-
term opportunities for our supply chain
partners.
want to make a difference. Within the Group
we have the potential to offer incredibly
varied career paths to our employees.
The decentralised model, which we have
adopted for many years, is scalable through
the addition of the recently introduced Group
President roles. These end market focused,
senior leaders run their own portfolio of
operating companies, partnering with the
operating companies on organic growth and
the Corporate Development team to add high
quality businesses to their portfolios.
Alongside our decentralised operating model
our financial model has been the foundation
of our long-term success. Our model is
based on delivering greater than 3% organic
revenue growth through the cycle and
achieving Group operating margins in the
range of 12-15%. This leads to businesses
which are highly cash generative, with a
target of 90% underlying cash conversion
and we reinvest this cash to grow our
existing businesses and to fund carefully
considered acquisitions. We also maintain
a strong and flexible balance sheet with a
conservative approach to borrowing and a
target net debt to underlying EBITDA ratio
of 1.5 to 2.0 times. This approach sustains
growth over the longer term and enables us
to pursue a progressive dividend policy and
deliver superior returns to shareholders.
Our purpose, in combination with the
consideration of long-term macro growth
and market drivers, will determine our choice
of markets and applications.
We continue to be attracted to fast growing
niche opportunities that provide significant
value to our customers in their critical
applications, preferably in markets with
high barriers to entry such as regulation.
Our products and services help transport
become safer and infrastructure become
more sustainable, with both the environment
and our customers benefitting through the
value that our diverse offerings provide. Our
decentralised model allows our businesses
to care about small, high growth, high margin
applications in a way that more centralised,
volume driven organisations cannot. We
take a long-term view in the assessment of,
and investment in, our current markets and
potential applications.
We look to capitalise on the extensive
domain knowledge we hold within our
current markets, to minimise risk as we
continue to evolve our portfolio through
organic developments, thoughtful
acquisitions, and targeted disposals. We will
aim to improve the quality of our portfolio
with each iteration.
Our organisation consists of a small, highly
capable central function allowing us to
over-invest in the talent within our operating
companies. We only have around 20 people
(out of c. 4400 global employees) in our head
office. We deliberately place most of our
talent close to our customers because we
believe that this increases market intimacy,
agility, and delivers accountability. Our
decentralised model is also a powerful factor
in the attraction of high calibre people who
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
9
Our Markets
Our businesses serve a wide range of industries, including road, rail, utilities, power distribution and
construction. Our largest markets are the UK and US while we also have businesses in Australia, France,
India and Sweden.
Macro Drivers
Climate Change
The world is experiencing the drastic
effects of climate changes. Greenhouse
gas emissions are more than 50% higher
than 20 years ago. Global warming is
causing long-lasting changes to the Earth’s
climate system.
Health & Safety Regulation
The health & safety market is anticipated
to grow driven by increasing government
regulations and the adoption around the
world of best practices. Furthermore,
rising incidents of natural fires and other
accidents are expected to create further
demand.
Population
The human population is increasing at about
1% per year, meaning that by the mid-2030s
the world’s population will be c. 8.6bn (2020:
7.8bn). This increase in population, an
increasing proportion of whom are aging,
will drive an increase in the need for safe,
sustainable infrastructure.
Urbanisation
The population of people living in towns
and cities is increasing, with more than one
half of the world’s population now living in
urban areas. The UN believes that by 2050,
two-thirds of the world’s population will
live in urban areas, as the world becomes
increasingly urbanised.
Market Drivers
Decarbonisation
As governments accelerate climate
change initiatives to meet the goals of the
Paris Agreement and the UK Government
presents its goal of net zero carbon
emissions by 2050, the scale of renewable
energy development will increase. Long-
term electrification and energy storage
will be key priorities for energy-intensive
sectors and reducing energy waste and
decarbonising heating will become focus
areas for governments generally.
Enabling Technology
The way we live and work is becoming
increasingly data driven. The increasing
availability of 5G and connected networks
is impacting our customers across multiple
industries as the flow of data allows.
Infrastructure Resilience &
Safety
In a rapidly evolving environment, many
communities are asking whether their local
infrastructure assets are resilient and safe
enough. Failures over the years including
recent California wildfires; bridge collapses;
terrorism; and road and rail accidents result
in these communities feeling less confident
about the resilience, safety and security of
their infrastructure. Governments in both
the US and UK are prioritising spending on
increasing the sustainability of infrastructure.
Sustainable Construction
Materials
Construction is under pressure to raise
its sustainability credentials, as it is a big
user of natural resources. Sustainable
construction methods include renewable
and recyclable resources; and the protection
of fabricated materials, reducing total energy
consumption and waste; and creating an
environmentally friendly solution.
Vision Zero
Vision Zero is a strategy to eliminate all
traffic fatalities and severe injuries, while
increasing safe, healthy, equitable mobility
for all. First implemented in Sweden in the
1990s, Vision Zero has proved successful
across Europe and is gaining momentum in
major American cities.
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What does this mean to Hill & Smith?
The macro growth drivers and strong market drivers create
opportunities for the Group through both organic growth and
by acquisition, whilst at the same time the Group is committed
to managing its own impact on climate change (see pages 41
to 43 for more details).
Roads & Security
Utilities
• Major funding available for roads
•
infrastructure:
– UK Road Investment Strategy 2
(‘RIS2’) spend of £27.4bn over five
years to 2025
– US Moving Forward Act spend of
$1.5tn over ten years
• Connected ecosystems to provide
safety and environmental data around
work zones capitalising on the Group’s
deep domain knowledge
•
Increasing standards of road and
transport safety
• Opportunities resulting from the need
to increase safe traffic volumes on
existing roads
•
Strong growth markets in data centre
security
Increased opportunities to reduce the
embedded energy in infrastructure
using resilient composite products
• Mitigation of the impact of climate
change through wildfire resistant
products and flood defences
•
Significant opportunities in electricity
distribution caused by the changing
nature of electricity generation, the
increasing need for electricity and the
need to replace aging infrastructure
• Opportunities to contribute to the
de-carbonisation of electricity
generation
Galvanizing
• Growth in US and UK infrastructure
spending plans is driving the need
for maintenance free, long-life steel
products
• Galvanizing remains a growing
application in the US with the
opportunity to increase our presence
through brownfield development and/
or acquisition
• Providing sustainable, maintenance
free, corrosion resistant opportunities
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Capital Discipline
Cash generation and conservative leverage
Strategy/Target
Progress in 2020
Net Debt: EBITDA
• Deliver annual cash conversion in
excess of 90%
•
Target net debt to EBITDA ratio of
1.5 to 2.0 times
1.3 times
(2019: 1.6)
•
•
•
In 2020, cash conversion was 139%
reflecting tight control over working
capital and robust prioritisation of
capital investment
Leverage reduced to 1.3 times (2019:
1.6 times); no ongoing support from UK
COVID-19 relief measures
Significant headroom of £225.1m above
borrowing facilities, creating capacity for
growth investment
• Committed borrowing facilities have
medium to long maturities, the earliest
expiring in December 2023
Reinvest for organic growth
Strategy/Target
Progress in 2020
Organic revenue growth
• Capital allocation focused on higher
growth, higher return markets
Capital investment in 2020 was £20.4m, 0.9
times depreciation/amortisation, including:
•
•
Investment in innovation key to
progress
Target organic revenue growth in
excess of 3%
•
•
•
£3.2m completion of high-margin US
Galvanizing facility
£3.1m UK traffic safety rental products,
supporting anticipated growth from
forthcoming RIS2 programme
£1.6m expansion of strong-growth US
seismic restraint manufacturing facility
-7%
(2019: +1%)
Targeted acquisitions to enhance growth
Strategy/Target
Progress in 2020
• Acquisition targets must fit our
• Acquisitions deprioritised in H1 2020 in
strategy and purpose
light of the COVID-19 pandemic
•
•
Strength of returns and growth
potential key to investment decisions
Target Group return on invested
capital in excess of 17%
•
•
•
Small US acquisition in H2 to enhance
manufacturing capabilities
£12.5m acquisition of Prolectric Services
Ltd in March 2021 – strong growth
potential in renewable energy lighting
Financial headroom supports further
M&A activity
ROIC
12.6%
(2019: 15.9%)
Progressive earnings and dividend growth
Strategy/Target
Progress in 2020
• Growth and return targets deliver
•
progressive earnings
•
•
Focus on cash generation supports
sustainable dividend growth
Target dividend cover 2.4x underlying
earnings
2019 final dividend prudently cancelled
to conserve cash during initial COVID-19
shock
• Resumption of dividends in H2 2020 with
interim dividend of 9.2p
• Proposed final dividend of 17.5p
reflecting the Board’s confidence in the
outlook
Full-year dividend
26.7p
(2019:10.6p)
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
13
‘Poised’, a sculpture of a leopard, designed and produced by the artist Andy Scott.
Inspired by the leopard symbols on Aberdeen City Council’s historic coat of arms, Poised
was galvanized by Joseph Ash Ltd and sits in Marischal Square, Union Street, Aberdeen.
Measuring Our Performance
The Board has adopted certain 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 KPIs can be found on pages 36 and 43.
The Group uses these performance indicators to measure operational and financial activity in the business. Most 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, with each Managing Director in the Group submitting a monthly report that forms the basis of regular operational meetings. In addition,
during 2020, the Chief Financial Officer has held monthly finance reviews with the individual finance teams around the world.
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.
Health & Safety
Link to strategy
2020 performance
Comment
The health & 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.
KPI definition
Number of lost time injuries recorded
across the Group and the lost time injury
rate (No. of injuries/hours worked x
100,000).
Lost time
injuries
9
1
1
8
0
1
Lost time
injuries rate
%
6
1
.
%
5
1
.
2019
2020
2019
2020
During 2020, the focus was on continuing
to ensure that our employees worked in
safe environments, particularly with the
outbreak of the COVID-19 pandemic. We
also sought to standardise injury reporting
in order that we could compare lost time
injury data. See pages 36 and 37 for more
information.
Organic Revenue Growth
Link to strategy
2020 performance
Comment
Our autonomous operating model, focus on
growth drivers and the premium placed on
talent and innovation are designed to drive
organic growth across all of the Group’s
businesses.
KPI definition
Percentage change in annual revenue
excluding the effects of acquisitions,
disposals and currency translation.
%
3
1
.
2019
2020
%
5
6
-
.
The organic decline in revenues of 7%
reflected the challenges of the COVID-19
pandemic in the first half of the year.
Trading recovered well in the second half,
approaching H2 2019 levels. The Group
targets annual organic revenue growth of
in excess of 3%.
Underlying operating profit margin
Link to strategy
2020 performance
Comment
We focus on investing in higher return
markets and continually examine our
portfolio of businesses, with the aim of
increasing quality at each iteration.
KPI definition
%
4
2
1
.
%
6
0
1
.
Underlying operating profit as a percentage
of revenue.
2019
2020
The underlying operating margin declined
by 180 basis points in 2020, due to the
operational leverage impact of lower
revenues. The Group worked hard during
the year to limit discretionary spend,
preventing further margin deterioration.
The Group targets an underlying operating
margin of in excess of 12%.
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Return on invested capital (‘ROIC’)
Link to strategy
We have a disciplined M&A strategy that
targets businesses with strong growth
and return metrics, alongside a capital
investment programme centred on our
higher growth, higher return end markets.
KPI definition
Underlying operating profit divided by
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.
Underlying cash conversion
2020 performance
Comment
ROIC of 12.6% in 2020 reflected the
impact of COVID-19 on the Group’s
operating profit for the year, and is below
our target of ROIC in excess of 17%. We
anticipate an improvement in 2021 as
trading recovers.
%
9
5
1
.
%
6
2
1
.
2019
2020
Link to strategy
2020 performance
Comment
Our ability to fund both growth investment
and progressive returns to shareholders is
dependent on us operating a cash-generative
model.
KPI definition
Adjusted operating cash flow as a
percentage of underlying operating profit.
The calculation of adjusted operating cash
flow is explained in note 3 to the Financial
Statements.
%
9
3
1
%
4
5
2019
2020
Leverage
Underlying cash conversion in 2020
was very strong at 139%, well ahead of
the Group’s target of at least 90%
conversion. The performance reflected
tight control over working capital, rigorous
prioritisation of capital investment and
measures taken to conserve operational
cash flows.
Link to strategy
2020 performance
Comment
We seek to maintain conservative leverage
that minimises liquidity risk without
compromising our ability to invest for
growth, both organic and acquisitive.
x
6
1
.
x
3
1
.
KPI definition
The ratio of net debt to EBITDA, as defined
in the covenant requirements of the
Group’s borrowing facility agreements.
2019
2020
Greenhouse Gas Emissions
Group net debt fell by £69.1m in the year
to £146.2m, which on a covenant basis
represents 1.3 times EBITDA, well below
the Group’s covenant limit of 3 times.
Whilst this is below our target range of
1.5 to 2.0 times, it creates the capacity for
the Group to invest in future organic and
acquisitive growth.
Link to strategy
2020 performance
Comment
Cost reductions and greater efficiency,
improve not only our operating margins but
also the sustainability of our operations.
KPI definition
CO2 usage year on year (see page 41).
Intensity ratio (‘IR’) calculated as tonnes of
CO2 / Revenue.
CO2e
1
8
2
3
7
,
2
0
4
7
6
,
IR
5
0
1
0
.
2
0
1
0
.
2019
2020
2019
2020
The Group first reported on the success
of its energy reduction initiatives in 2013.
Since that time the Group has continued
to monitor and improve its energy
efficiency. In 2020 more work was done
on understanding the data collected and
reporting the Group’s Intensity Ratio. See
page 41 for more information.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
15
hsholdings.com
Arborfield Cross Relief Road – BEBO Green
Overbridge
case study
This ‘green’ bridge
was designed to
straddle the new
Observer Way relief
road supporting the
new 3,500 home
development at the
Arborfield Garrison.
Find out more about the
company at www.assetint.co.uk/
In collaboration with Balfour Beatty and
Stantec, Asset International Structures,
a division of Hill & Smith Ltd, provided
a green overbridge for their end client
Wokingham Borough Council. The bridge
was designed to straddle above the new
Observer Way relief road supporting the
new 3,500 home development at the
Arborfield Garrison, providing a route
from the A327 Reading Road to the A327
Eversley Road around the villages of
Arborfield and Arborfield Cross. Designing
the bridge concentrated on the necessity
to offer a solution that reduced the
environmental impact on the surrounding
area, allowing wildlife safe movement
and ensuring aesthetic integration
into the surrounding landscape. The
scheme permitted Asset International
Structures to use its experience and
knowledge in green bridge design by
providing a structure that beautifully
embeds itself into the surrounding area,
whilst carefully considering the holistic
approach of construction integration and
environmental preservation.
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Stock Code HILS
Our Products
Our Purpose: Creating sustainable infrastructure and safe transport through innovation.
Waterways and docklands
Dockside camels
Piers & walkways
Pier protection
FRP large diameter pilings and wale
beams are the ideal solution for
pier protection systems designed to
withstand high energy impacts from
both barges and ships
An attractive option to protect both
vessels and piers from damage, Fiber
Reinforced Polymer (FRP) composite
material’s ability to resist corrosion in a
harsh saltwater environment make it an
environmentally friendly solution
FRP composite material does not leach,
flake or rot into water systems and can
replace wood in marina applications
Maritime guide walls
FRP flexible fender system that bends
under vessel contact but then recovers
without breaking
Flood defences
FRP flood protection. Movable dams
that can be raised and lowered during
low water conditions
Rural
Flood doors
Specialist composite flood
doors that significantly reduce
the volumes of water entering a
property in the event of a flood
Agriculture
Galvanized farm
buildings
Green bridges
BEBO Arch System is a standardised patented precast
concrete arch system for the design and construction
of grass covered bridges, tunnels, culverts and other
underground structures
Wetlands boardwalks
Composite low embedded
energy planks for lightweight
environmentally friendly walkway
solutions
Trail bridges
Lightweight, strong,
portable and long-
lasting low embedded
energy FRP bridges for
parks and trails
ENERGY ZONE
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RIANPROTECT I O N Z O
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Roads & security
Utilities
Galvanizing
Suburban
Temporary safety
barrier
Metal and concrete work zone
protection for roadworks and traffic
management
Roadside
barrier
Metal roadside crash
protection
Windfarms
Composite blade
refurbishment and
steel platforms
ENERGY ZONE
Crash cushions
The Smart Cushion® crash
attenuator, with remote
monitoring, is a revolutionary,
speed-dependent product that
varies stopping resistance
during an impact
Bridge
parapets
Bridge-side crash
protection
S
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Bridges
Galvanized road
bridges
Zoneguard
temporary
barrier
Protects road work
employees, whilst
allowing continued safe
traffic flow
Road message
boards
Integrated Traffic Solutions
enhances transportation
and improves safety and
mobility in and around work
zones. Includes internet
connectivity with motor
vehicles
Trailer bodies
Galvanized metal
chassis
Work zone
solar powered
lighting
Sustainable solar
powered lighting
backed up by innovative
technology and
industry-leading remote
monitoring and control
Construction
Galvanized structural
steel
P
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RIANPROTECT I O N Z O
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N
Town
Solar fields
Galvanized steel
frames for solar
panels
Electrical
substation
Electric transmission
solutions using
steel and composite
materials
ENERGY ZONE
LNG Plant
Metal grating and
flooring and pipe
support products
including cryogenic
pipe supports that
provide isolation and
insulation
Composite rail
platforms
GRP & Steel hybrid corrosion-
resistant structures lightweight
panels providing cost effective
and convenient solutions
MASS
temporary
security
fencing
Highly visible
temporary safety
solution protecting
sites, workforces and
pedestrians
S
M
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P
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T
RIANPROTECT I O N Z O
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N
Electrical
transmission
poles
Steel transmission
poles and anti-wildfire
composite poles that
do not biodegrade
Paper Mills
FRP products that have
the durability and abrasion
resistance to outperform
conventional materials
in harsh and acidic
environments
Data centre
security
systems
Palisade perimeter
security fencing,
hostile vehicle and
entry protection
Street signs
Street sign materials
Composite
railcar chassis
FRP lightweight highly
energy efficient floor
panels and door jambs for
refrigerated freight cars
ENERGY ZONE
S
M
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T
W
O
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K
Z
ONE
Flats
(Fire doors)
Fully tested, accredited
flat entrance doors
for use in internal and
external applications
Hotels (A/C)
Modular cooling tower
design delivering low life-
cycle costs, durability and
sustainability
Flats
(Balconies)
Structural shapes
for both residential
and commercial
applications,
with minimum
maintenance
requirements
Hospital (A/C)
Seismic and anti-vibration
cooling towers for critical
rooftop applications, that
bridge the gap between
sustainability and energy
efficiency
Solar powered
street lights
Solar lighting for streets, car
parks and footpaths offering
powerful and reliable year-
round lighting without noise
or emissions
Pedestrian
safety
bollards
Impact tested
security bollards
providing
pedestrian
protection
Street lights
Manufacture and distribution
of steel and aluminium
lighting columns
Sculptures
Galvanized steel works
of art for private and
public display
Masonry
supports and
wind posts
Providing steel
support systems for
buildings
Parking and
security gates
Manufacturers of parking
control equipment
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Electric
charging
points
Charge points
incorporated into our
street lighting columns
Composite
pedestrian
walkways
Low maintenance
lightweight FRP recreational
and public access elevated
boardwalks and sidewalks
Hostile Vehicle
Mitigation
Hostile Vehicle Mitigation
solutions ranging from small
single gate installations to
large state events requiring
a full secure island site
Smart Work Zones
case study
“Smart Work Zones
are essential for a
variety of reasons -
communication to
motorists, reduction
of congestion and
increased safety
for motorists and
roadside workers.”
Find out more about
the Company at
www.hillandsmith.com
Hill & Smith Inc., our US roads business,
offers a diverse line of Smart Work Zone
solutions to solve a variety of roadway
challenges. Smart Work Zones are
essential for a variety of reasons. Not only
do they keep motorists informed of delays
and alternate routes in real time, but they
also help reduce roadway congestion and
increase safety for motorists and roadside
workers while keeping traffic moving
smoothly.
A Smart Work Zone can be as simple
or dynamic as a road project requires.
If traffic detection data is needed from
1 – 22 lanes of traffic, we offer solutions
such as the Queue Detection Trailer
and HS Connected Radar Trailer. If live
cameras are required on site, we offer the
Mobile Video Trailer and HS Connected
Camera Trailer. If a project needs lane
closures or speed changes, we offer the
HS Connected Arrow Board and Variable
Speed Limit Trailer. When remote access
to equipment and traffic data are required,
users can log in to our HS Connect™
software.
With every road construction project
comes unique challenges. Our goal is to
provide custom solutions for all roadway
work zone problems. From real time
travel information and dynamic lane
merge options, to traffic detection and
warning alerts, we provide the solutions
and products to fit any Smart Work Zone
project.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Speed Indicator Device
case study
This data can be used for traffic study
calming measures throughout the local
authority.
“All data is stored
within the unit,
available for download
and can be used for
traffic study calming
measures throughout
the local authority.”
Find out more about
the company at
www.mallatite.co.uk
Alton Community Speed Watch (‘ACSW’)
approached Mallatite Limited (‘Mallatite’), a
Hill & Smith Roads & Security business, to
seek advice about appropriate equipment
to help them with mitigating a problem
with speeding motorists in their town.
The Speed Watch group is very active in
the community and with the support of
Hampshire Police, help promote safer roads
in the community.
To provide the ACSW Group with an
appropriate unit, reliable, simple to operate
and rugged enough for roadside operation,
colleagues from the Mallatite engineering
and technical team visited Alton to meet
their ACSW co-ordinator.
After carefully understanding ACSW’s
specific requirements and an assessment
of the urban location, Mallatite
recommended the Viasis Mini as a
solution. This product offers the flexibility
of recording data with the display switched
off and then offering a comparison when it
is active whilst offering different feedback
such as Slow Down, Smiley Face or
other pre-set information. This perfectly
demonstrates the effectiveness of the units
and their deployment reduces speeding
traffic and saves lives.
All data is stored within the unit, available
for download via the free Android Bluetooth
App. This is compatible with Microsoft
Excel to provide vital information such
as speeds, times and number of vehicles
travelling in excess of the set speed limit.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Zoneguard, installed by Asset VRS, protects the passing public and allows for a 60mph
speed limit on the M6 Junction 13 contraflow, October 2020.
Operational & Financial Review
Chief Executive’s Review
Review of 2020
2020 was a challenging year with the COVID-19 pandemic creating unprecedented economic
conditions for businesses globally. On behalf of the Board, I would like to thank all of our
employees for their significant contribution and determination during these testing times.
The health, safety and wellbeing of our employees remains our key priority and we continue
to follow local public health guidelines across all Group operations with enhanced protocols
in place to ensure our facilities are COVID-19 secure. Actions taken include introducing
enhanced cleaning and hygiene procedures, implementing social distancing and track and
trace procedures, provision of face masks and taking all reasonable steps to help people work
from home where appropriate to do so. In addition, we are mindful of the mental wellbeing of
our employees during this difficult time and have offered appropriate support and assistance.
Given the extent of disruption around the world as a result of the COVID-19 pandemic,
Hill & Smith delivered a robust performance in 2020 with year-end results ahead of the current
analyst forecast range. The 2020 trading performance and ongoing recovery as we enter
2021 demonstrates the strengths of the Group’s business model, our choice of resilient end
markets, the international mix of businesses and the decentralised operating model with high
quality teams who were able to respond quickly to local market conditions as they unfolded
during the year.
The Group made a good start to the year, delivering organic revenue and profit growth in the
first quarter. Trading performance from the middle of March was impacted by COVID-19
related business closures in France, India and certain UK businesses and reduced levels
of demand elsewhere in the Group. All our businesses had reopened by the middle of May
and we experienced a strong recovery in trading in the second half of the year. Despite the
disruption caused by the pandemic, the Group remained profitable throughout the year and
our US businesses, which represented 41% of Group revenues, have proved particularly
resilient, delivering similar levels of revenue and profit to the prior year.
As previously announced, the only area of the Group which has not seen a strong recovery is
our Security sub-division, which continues to face challenges due to COVID-19 restrictions on
public gatherings and delayed customer projects.
During the year we took swift actions to manage costs and conserve operational cashflows
without limiting our longer-term growth prospects. Our businesses acted quickly to limit
discretionary spend and have continued to drive local efficiency plans. Cash preservation
measures included the withdrawal of the final 2019 dividend and focused management
of working capital across the Group. We also carried out a detailed review of capital
expenditure to limit non-essential spend, while still maintaining investment in organic
growth opportunities.
Given the improved trading performance in the second half and the solid levels of cash
generation, the Board made the decision in December 2020 to repay all monies received
earlier in the year from the UK Coronavirus Job Retention Scheme (£3.6m) and to settle UK
VAT liabilities deferred from the second quarter (£6.5m). We are pleased to report that we end
the year with a robust balance sheet and net debt of £146.2m, 1.3x EBITDA on a covenant
basis and a reduction of £69.1m from the end of 2019. We continue to maintain strong
headroom against our committed borrowing facilities which have medium to long maturities,
the earliest expiring in December 2023. This provides the Group with a solid platform to take
advantage of future growth opportunities.
Acquisitions in high growth, high return markets remain a key component of our future
growth strategy and, after the year end, in March 2021, we acquired Prolectric Services
Ltd (‘Prolectric’) for an initial cash consideration of £12.5m, on a debt and cash free basis.
Prolectric is a UK market leader in temporary solar lighting and operates in a market with
excellent long term growth potential, driven by the transition from fossil fuels towards
renewable energies.
In November 2020, Derek Muir stepped down from the Board and his role as Chief Executive,
having announced his intention to retire earlier in the year. Derek has been instrumental
in shaping Hill & Smith’s strategy and has delivered significant returns to shareholders
during his 14-year tenure. I would like to thank Derek for all his support during the well-run
handover process.
Paul Simmons
Group Chief Executive
Hannah Nichols
Group Chief Financial Officer
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After the year end, in February 2021, we were pleased to announce
the appointment of Leigh-Ann Russell as a Non-executive Director
with effect from 1 April 2021. Leigh-Ann’s appointment is part of
the Group’s careful succession planning to recruit non-executive
Directors with the necessary skills, experience and diversity required
to support the Group’s future development.
2020 Headline Results
Change %
In the medium to longer term, we are encouraged by the potential
for a significant infrastructure bill to be passed in the US under
the new Biden Administration. While details and spend levels are
still to be confirmed, we believe our US businesses are well placed
to take advantage of the opportunities arising from the increased
investment. In the UK, the Government’s commitment to increased
levels of funding for Road Investment Strategy 2 (RIS 2) is also
encouraging, with major Smart Motorway schemes expected to
commence in the second half of 2021.
2020
2019
Reported
Organic
Brexit
Revenue
Underlying(1):
£660.5m £694.7m
-5
-7
Operating profit
£69.9m
£86.3m
-19
-20
Operating margin
10.6%
12.4%
-180bps
-180bps
-22
-23
Profit before tax
£62.6m
£79.4m
Earnings per share
63.2p
80.7p
Reported:
Operating profit
£42.8m
£69.2m
-21
-22
-38
Operating margin
6.5%
10.0%
-350bps
Profit before tax
£35.5m
£61.8m
Basic earnings per
share
30.2p
61.1p
-43
-51
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude
certain non-underlying items, which are detailed in note 4 to the Financial Statements.
Revenue for the year of £660.5m (2019: £694.7m) was 7% lower on
an organic basis. Despite the challenges arising from the COVID-19
pandemic, the Group remained profitable throughout the year with
a strong recovery in the second half. Underlying operating profit for
the year was £69.9m (2019: £86.3m), while underlying operating
margin reduced to 10.6% (2019: 12.4%) as a result of operational
leverage on lower revenues. Underlying profit before taxation was
21% lower at £62.6m (2019: £79.4m). Reported operating profit was
£42.8m (2019: £69.2m) and reported profit before tax was £35.5m
(2019: £61.8m). The principal reconciling items between underlying
and reported operating profit are the amortisation of acquisition
intangibles of £6.1m and the write down of goodwill relating to
our French galvanizing business of £17.5m. Both of these are
non-cash items.
Dividend
In March 2020, the Board made the decision to cancel the 2019 final
dividend as a prudent measure to preserve £18m of cash given the
COVID-19 related business closures and high levels of uncertainty.
Given the improving trading performance and more positive outlook
going into the third quarter, we announced the resumption of dividend
payments with the declaration of an interim dividend for 2020 of 9.2p
per share in August 2020. Based on the strong trading performance and
cash generation in the second half, the Board is recommending a final
dividend of 17.5p per share, making a total dividend for the year of 26.7p
per share. Underlying dividend cover remains a conservative 2.4 times.
The Board understands the importance of dividends to our
shareholders and our approach remains on maintaining dividends
that are both sustainable and progressive. The final dividend, if
approved, will be paid on 9 July 2021 to those shareholders on the
register at the close of business on 4 June 2021.
Outlook
We expect to see a good recovery in trading in 2021, albeit we remain
mindful of the potential ongoing disruption of COVID-19, higher raw
material prices and foreign exchange fluctuations on our financial
performance for the full year.
The Group has limited cross border trade activity and to date we
have seen minimal disruption following the end of the transition
period on 31 December 2020, however we continue to closely
monitor and mitigate the related operational and financial risks. In the
longer term, we continue to believe that our strategy of international
diversification, along with our exposure to longer term Government
funded infrastructure investment programmes, will help limit any
potential negative impact on the Group resulting from Brexit.
Operating Review
Roads & Security
Revenue
Underlying operating profit(1)
Underlying operating margin %(1)
Reported operating profit
£m
2019
(restated)(2)
+/-
%
Organic
%
275.3
-4
23.2 -43
-10
-45
8.4%
8.6
2020
263.4
13.2
5.0%
5.6
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude
certain non-underlying items, which are detailed in note 4 to the Financial Statements.
(2) 2019 restated as explained in note 2 to the Financial Statements.
The expanded Roads & Security division was formed on 1 January
2020. The division includes international companies which design,
manufacture and install temporary and permanent safety products
for the roads market, alongside UK-based businesses which
provide a range of security products to protect people, buildings
and infrastructure from attack, including hostile vehicle mitigation
solutions, perimeter fencing and access covers.
The division had a strong first quarter, with revenue and underlying
operating profit both growing organically year on year, however
trading in the second quarter was impacted by COVID-related
disruption. While trading recovered in the second half, we continue to
face significant challenges in our security businesses due to global
restrictions on public gatherings and customers delaying security
projects. As a result, revenue for the period declined organically by
10% to £263.4m after a currency benefit of £0.6m and contribution
from acquisitions of £16.0m. The division remained profitable
throughout the year with underlying operating profit of £13.2m (2019
(restated): £23.2m), however the underlying operating margin fell to
5.0% (2019 (restated): 8.4%). The reduction is mainly attributable to
the COVID-19 related disruption to our Security businesses where,
despite the additional revenue from prior year acquisitions, underlying
operating profits were substantially lower than the prior period. The
reduction in reported operating profit of £3.0m was lower than the
reduction in underlying operating profit mainly due to non-underlying
restructuring and impairment charges of £8.9m in 2019 relating to
the Group’s Scandinavian roads business.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
25
Operational & Financial Review
continued
UK Roads
In March 2020, the UK Government confirmed its commitment
to investment in UK road infrastructure with the announcement
of £27.4bn spend for Road Investment Strategy (‘RIS2’) for the
five years to 2025, an 80% increase compared with RIS1. The
Department of Transport also concluded their review of the safety
concerns on Britain’s Smart Motorways in March 2020 and are
committed to continue construction, with enhancements, as part of
the RIS2 programme. In February 2021, the parliamentary Transport
Committee launched a new inquiry into the benefits and safety of
Smart Motorways and we await the outcome of this. Our current
expectation is that new RIS2 Smart Motorways schemes will
commence in H2 2021.
During the year, our temporary road safety barrier business was able
to operate with minimal disruption. As expected, steel temporary
barrier utilisation levels reduced in the second quarter as RIS1
schemes started to come to an end and continued at a steady level
for the second half. We have seen growing demand for Rebloc
concrete barrier, which complements our Zoneguard steel barrier
offering and can be used on projects where space is restricted, and
during the period we invested £2m in expansion of the concrete
barrier fleet. We continue to expect the lower levels of steel barrier
utilisation to continue into the first half of 2021, with the new RIS2
Smart Motorways projects expected to commence in H2 2021.
Our permanent safety barrier business also proved to be resilient.
During the year we won a number of RIS2 replacement barrier
schemes including some which were released early to take
advantage of the quieter roads. The outlook for 2021 is promising, as
we expect more new UK replacement barrier schemes to be released
and continued demand from our international markets.
The variable message sign business experienced various
headwinds during the year including the delay of new RIS2 Smart
Motorway projects into the second half of 2021. Consequently, we
are currently taking a number of actions to restructure the business
and its cost base which, alongside a more cautious assessment of
its future outlook, led to asset impairment charges at 31 December
2020 of £2.8m.
Our remaining UK roads portfolio consists of street furniture and
lighting columns, bridge parapets, temporary car parks and concrete
arches. While all these businesses remained open to meet essential
customer demand, trading in the second quarter was adversely
impacted by customer delays and deferrals caused by COVID-19
disruption. These businesses saw a gradual recovery in the second
half with customer orders increasing as the restrictions of the first
lockdown eased. The businesses enter 2021 with an encouraging
orderbook and are working hard to minimise the impact of steel cost
increases.
US Roads
Our US roads business was considered “essential” and remained
open throughout the year. As a result, the pandemic had minimal
impact on operations and the team were able to successfully
service customers who worked continuously throughout the year.
Demand for roadside safety products, including crash attenuators
and temporary safety barriers, was particularly strong and as a result
revenue and operating margins increased year on year. We continued
to invest in growth opportunities in US roads including £3.1m in the
expansion of our Zoneguard steel temporary safety barrier fleet and
£0.9m on the acquisition of Morgan Valley Manufacturing, Inc. Based
in Utah, US, the acquisition will enable the inhouse fabrication of
crash attenuators and support the US roads growth strategy.
In September 2020, we were encouraged by the extension of the
Federal road funding bill (FAST Act) for an additional year. We expect
demand for our products to remain stable due to the stimulus bill
passed in December 2020, which will provide the additional state
funding required to ensure project continuity. In 2021, we will also
continue to invest in barrier fleet expansion, product innovation and
operational improvements to support future growth opportunities.
Other International Roads
The restructuring of our roads business in Sweden progressed well
in the first half, with the new management team focusing on cost
reductions and improved pricing. The business faced challenges
in the second half as COVID-19 uncertainty increased in Sweden
and projects were postponed. While revenues were lower year on
year, operating losses were significantly reduced and the team will
continue to take action to right-size and further improve the business
in 2021.
Our lighting column business in France performed well despite the
COVID-19 related closure of the factory from the end of March to
early May. While volumes were lower than prior year, the business
benefited from operational efficiencies and improvements to
the product range. In Australia, we saw an increase in sales of
temporary safety barrier compared to the low sales levels in the
previous year. Looking forward, we are encouraged by the ongoing
investment in Australia’s road infrastructure and the growth
opportunities this may present.
Security
Our security businesses are based in the UK and provide a range
of perimeter security solutions including hostile vehicle mitigation
to both UK and international markets. During the year, the business
experienced a number of headwinds which had a significant adverse
impact on trading.
Our security fencing and access cover businesses closed when the
first COVID-19 lockdown was announced at the end of March 2020.
Both businesses re-opened in May, and while our security fencing
business has seen a gradual recovery in the second half, driven
by demand for data centre security, our access cover business
has experienced challenges due to customers delaying orders and
restricting site access.
Our business which sells security bollards and hostile vehicle
mitigation solutions remained operational throughout the year, but
was significantly impacted by project delays, postponements and
cancellations both in the UK and the Middle East, where the lower
oil price created further uncertainty. COVID-19 has also materially
impacted demand for the operation of the UK Security barrier fleet,
with the cancellation of public gatherings and high-profile events,
however we were able to re-deploy our multiskilled team to support
other barrier activity.
Looking forward into 2021, we are continuing to see good demand for
perimeter security solutions in data centres and opportunities arising
from the pedestrianisation of shopping areas in UK city centres. In
the medium term we believe that the demand for our products to
protect people, buildings and infrastructure will return.
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Utilities
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Reported operating profit
£m
2019
(restated) 2)
+/-
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Organic
%
-5
-2
-2
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222.3
21.3
9.6%
20.0
2020
211.2
20.9
9.9%
20.1
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude
certain non-underlying items, which are detailed in note 4 to the Financial Statements.
(2) 2019 restated as explained in note 2 to the Financial Statements.
Our Utilities segment provides steel and composite products for a
wide range of infrastructure markets including energy generation
and distribution, marine, rail and housing. The division had a strong
start to the year with revenue and profit both growing organically in
the first quarter, however trading in the second quarter was impacted
by COVID-19 related business closures in the UK and India. We
have seen a good recovery in the second half, particularly in our UK
building products business. The US businesses remained operational
and performed well throughout the year, with strong levels of demand
in our composites and electricity distribution businesses.
Revenue declined by 5% to £211.2m (2019 (restated): £222.3m),
including a currency translation headwind of £0.4m and a £5.4m
reduction from prior year disposals. The organic revenue decline
was 2%. Underlying operating profit was £20.9m (2019 (restated):
£21.3m), including a £0.4m benefit from prior year disposals.
Underlying operating margin was ahead of prior year levels at 9.9%
(2019 (restated): 9.6%), reflecting the strong performance in our
higher margin US businesses. Reported operating profit was £20.1m
(2019 (restated): £20.0m).
UK
The performance of our two UK utilities businesses was impacted
by COVID-19 related disruption in the second quarter, however both
businesses recovered well in the second half of the year.
Our building products business, supplying composite residential
doors, steel lintels and builders’ metalwork, closed at the end of
March but reopened in a phased manner during April as customers
reopened and was at full capacity from June onwards. In the second
half, the business benefited from a strong recovery in demand and
lower raw material costs. The outlook for 2021 is encouraging with
housebuilders reporting strong demand and although the business is
currently experiencing challenges relating to global increases in steel
costs, we are managing availability issues and are well placed to pass
on increases to customers.
The industrial flooring business remained open throughout the period
to support essential projects, albeit at reduced activity levels in the
second quarter given the restricted access to customer sites. The
business made a good recovery in the second half, with previous
restructuring actions supporting margins and good levels of demand,
particularly from data centre and distribution centre markets.
USA
Our US utilities businesses were deemed “essential” and remained
open throughout 2020, quickly adapting to run COVID secure
operations. Despite the pandemic, they have continued their
momentum from 2019 and delivered strong organic year on year
revenue and profit growth.
We are continuing to see a growing acceptance of composite
components and systems for use in niche infrastructure
applications, and our team worked hard during the year to develop
and market innovative designs that meet customer needs. In 2020,
demand was strong for our wide range of composite solutions
including waterfront protection, transmission access platforms, rail
car flooring, and heating, ventilation and air conditioning (HVAC)
cooling applications. With some significant projects coming to an
end in 2020, we expect 2021 performance to be flatter, albeit with
further opportunities in mass transit, utility poles and waterfront
protection projects being pursued.
The US electricity distribution substation business delivered another
impressive performance, growing strongly against challenging prior
year comparatives. During 2020 we continued to see growth in
projects for the upgrade of old infrastructure, particularly centred
around the north eastern corridor of the USA. Despite some
headwinds associated with steel price increases, the outlook for
2021 is encouraging given continued upgrades and new installations
and we have taken steps to expand our fabrication facility to support
future growth.
Pipe Supports
In the US, the engineered pipe support and industrial hanger business
was considered “essential’ and remained open throughout the
pandemic. While the business experienced a slowdown in demand
in the second quarter, recovery in the second half was strong,
supported by winning several major projects in water treatment,
clean energy and infrastructure. The focus on efficiencies and
providing superior quality and customer service resulted in improved
margins and year on year profit growth. During the year we invested
£1.6m in the expansion of our seismic restraint device manufacturing
capability and the business enters 2021 with a good backlog and
continues to focus on further growth opportunities.
In India, our industrial pipe business entered the year with a strong
order book, particularly for the cryogenic product range, however a
forced shutdown of operations in March 2020 materially impacted
the first half trading. Operations reopened in May and the team
worked hard to manufacture and deliver products to customers while
operating a COVID secure facility and managing local restrictions. We
enter 2021 with a good order book and are seeing a growing demand
to supply products and engineering services to support key liquified
natural gas developments across the globe. This demonstrates the
growing confidence of customers in our expertise in this area and
the role the Group has to play in supporting the transition towards
cleaner energy.
Galvanizing Services
Revenue
£m
2020
2019
185.9 197.1
Underlying operating profit (1)
35.8
41.8
Underlying operating margin % (1) 19.3% 21.2%
Reported operating profit
17.1
40.6
+/-
%
-6
-14
Organic
%
-6
-14
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude
certain non-underlying items, which are detailed in note 4 to the Financial Statements.
The Galvanizing Services division offers corrosion protection services
to the steel fabrication industry with multi-plant facilities in the USA,
France and the UK. Trading in the second quarter was impacted by
COVID-19, with the complete closure of our French operations for
a month and a slowdown in volumes across all geographies due to
customer closures. Trading gradually recovered in the second half as
customer activity returned. As a result, volumes were 8% lower than
prior year and revenue reduced by 6% to £185.9m (2019: £197.1m)
which included a currency translation benefit of £0.5m. Organic
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
27
hsholdings.com
The Reverberation Bell Project is a large scale exhibition
by San Francisco-based sculptor Davina Semo. Located
at Brooklyn Bridge Park, New York City, it consists of five
4ft bells supported by hot-dip galvanized steel frames
and pull chains galvanized by V&S Galvanizing.
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revenue decline was 6%. Underlying operating profit declined by 14%
to £35.8m (2019: £41.8m). Underlying operating margin was 19.3%
(2019: 21.2%), with operating margins supported by pricing, efficiency
improvements and lower zinc input costs. Reported operating profit
was £17.1m (2019: £40.6m) and included goodwill impairment
charges of £17.5m (2019: £nil) relating to the Group’s French
galvanizing operations.
UK
Our galvanizing businesses are located on 10 sites, four of which are
strategically adjacent to our infrastructure products manufacturing
facilities.
Trading in March 2020 was impacted by COVID-19. Measures were
swiftly deployed to keep employees COVID safe while continuing to
offer a full service to customers to support critical projects. Demand
recovered in the second half, with strong demand in the fourth
quarter. Total volumes galvanized for the year were 7% lower than
2019 levels.
While we enter 2021 with continued uncertainty around the
pandemic, the UK business benefits from a wide sectoral spread of
customers including those who operate in resilient markets such as
infrastructure, construction and agriculture. In addition, the team are
continuing their strategy of focusing on higher margin work which
should position the business well for the year ahead.
USA
Predominantly located in the north east of the country, we are
a market leader with eight strategically located plants offering
local services and extensive support to fabricators and product
manufacturers involved in highways, construction, utilities and
transportation.
All our plants were considered “essential” and continued to operate,
with teams following local state guidelines to ensure facilities
were COVID secure. Trading was impacted by temporary customer
shutdowns and our top two customers, who manufacture temporary
bridges and trailers, were impacted by the COVID-19 slowdown and
project delays. As a result, volumes were 7% lower than prior year.
The team worked hard to maintain average selling prices, which
together with further improvements in plant efficiency and lower zinc
input costs, supported operating margins.
Our new facility in New York State became operational in January
2020. We were successful in winning new customers to create a
good baseload of activity and the plant was profitable for the full year.
Looking forward, in the short term we remain generally cautious due
to the market uncertainty around raw material prices in the US. In the
medium to longer term, the outlook for US galvanizing is positive with
US infrastructure spend levels likely to remain robust across a wide
range of our customer market sectors. As a result, we are actively
assessing industrial locations, often in need of regeneration, for
further expansion.
France
France Galva has 10 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.
Trading was impacted from the middle of March due to the COVID-19
related forced closure of all 10 plants across the country. The plants
were able to re-open in April and while volumes have recovered
gradually, overall volumes were 11% below last year. Operating profits
were also impacted by the plant closures and slowdown in demand.
Although the French economy is expected to recover somewhat in
2021, the outlook for many of the markets served by our galvanizing
business remains challenging and it is likely to take some time for
activity to return to pre-pandemic levels. As a consequence of this
deterioration in the outlook, the Group reassessed the value of the
acquisition goodwill relating to the French galvanizing business
and concluded that an impairment charge of £17.5m was required,
further details of which are set out in notes 4 and 11 to the Financial
Statements.
Financial review
Cash generation and financing
Despite the impact on trading of COVID-19, the Group continued to
be highly cash generative throughout the year, demonstrating the
resilience of its underlying business model and market choices and
also reflecting the measures taken to conserve operational cash
flows without impacting the Group’s longer-term growth prospects.
Cash generated by operations was £118.3m (2019: £98.9m), including
an inflow from working capital movements (before changes in
provisions) of £18.2m (2019: outflow of £12.9m). The Group delivered
a substantial improvement in trade receivable collections during
the year, with debtor days falling to 54 at the year end (2019: 61)
resulting in a cash inflow from receivables of £21.6m (2019: outflow
of £0.4m). Alongside enhancements to our cash collection processes,
the improvement is partly a consequence of fluctuations in customer
mix. Whilst we have not seen any significant changes in collection
profiles in the early part of 2021, we remain mindful of the possible
impacts that unwinding COVID support measures could have as the
year progresses. The decrease in inventories was minimal at £1.0m
(2019: increase of £2.4m), while the outflow from movements in
payables was £4.4m (2019: £10.1m). Working capital cash flows for
the year have not benefitted directly from any UK Government COVID
support measures, the Group having settled VAT payables of £6.5m in
December 2020 that had been deferred from Q2.
Capital expenditure in the year was £20.4m (2019: £47.9m),
representing a multiple of depreciation and amortisation (excluding
amortisation from acquisition intangibles and right of use asset
depreciation) of 0.9 times (2019: 2.3 times) as detailed in note 3 to
the Financial Statements. While a period of lower capital investment
was anticipated in 2020 following significant strategic spend in
2019, a rigorous review of capital expenditure was carried out
through the year to limit non-essential spend during the COVID-19
pandemic while still maintaining investment in key organic growth
opportunities. Significant items of expenditure in 2020 included
£3.2m in completion of the New York galvanizing plant, £3.1m of
new products for the UK temporary safety barrier rental markets
and £1.6m on expansion of the Group’s pipe support manufacturing
facilities in the US.
Net financing costs were similar to the prior year at £7.3m (2019:
£7.4m), however the cash element of financing costs was lower
at £6.2m (2019: £6.9m). The Group has benefitted from reduced
levels of average net debt during the year, particularly in the second
half, with lower UK and US base rates largely offsetting the higher
borrowing cost on the Group’s senior unsecured notes issued in
June 2019. The net cost of pension fund financing under IAS 19
was £0.3m (2019: £0.5m) and the amortisation of costs relating to
refinancing activities was £0.8m (2019: £nil, reflecting amortisation
of £0.9m offset by a gain of £0.9m following refinancing actions
undertaken during that period).
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Operational & Financial Review
continued
The Group measures its overall cash generation performance
based on its underlying cash conversion ratio. In 2020 the Group
delivered an underlying cash conversion ratio of 139% (2019: 54%),
well in excess of our 90% target, with the significant improvement
over 2019 reflecting the strong working capital performance and
our focused approach to capital investment. The calculation of our
underlying cash conversation ratio is set out in note 3 to the Financial
Statements.
Net debt and facilities
Group net debt at 31 December 2020 was £146.2m (2019:
£215.3m), representing a year on year reduction of £69.1m. Since
the onset of the pandemic the Group has taken several measures to
conserve operational cash flows, including curtailing non-essential
capital expenditure, tightly managing working capital and reducing
discretionary spend. The Group also withdrew the 2019 final dividend,
which would have required a cash outlay of c.£18m in July 2020. Net
debt at the year end includes lease liabilities under IFRS 16 of £32.4m
(2019: £40.0m), the reduction being primarily due to lease payments
during the year.
The Group’s principal financing facilities are a headline £280m multi-
currency revolving credit agreement, which expires in December
2023, and $70m senior unsecured notes with maturities in June 2026
and June 2029, together with a further £13.8m of on-demand local
overdraft arrangements. Throughout the year the Group has operated
well within these facilities.
Maturity profile of debt facilities
derivatives is not permitted. Liquidity, interest rate, currency and
other financial risk exposures are monitored weekly. Further details
in respect of the Group’s management of financial risks are set out in
note 22 to the Financial Statements.
Exchange rates
The Group is exposed to movements in exchange rates when
translating the results of its overseas operations into Sterling,
however the effects in 2020 were minimal as average rates were
similar to 2019, notably the US Dollar. Retranslating 2019 revenue
using 2020 average exchange rates would have increased revenue by
only £0.7m with no impact on underlying operating profit.
Whilst future movements are inherently difficult to predict, based on
current US Dollar rates we expect a headwind to the results in 2021.
Retranslating 2020 revenue and underlying operating profit using
average exchange rates for January 2021 (principally £1 = $1.36 and
£1 = €1.12) would reduce revenue by £14.4m (2%) and underlying
operating profit by £3.2m (5%). For the US Dollar, a 1 cent movement
results in a £2.1m adjustment to revenue and a £0.4m adjustment to
underlying operating profit, while the equivalent impacts for a 1 cent
movement in the Euro are £0.7m and £0.1m respectively.
Return on invested capital (‘ROIC’)
The Group’s ROIC in 2020 was 12.6% (2019: 15.9%), below our target
of greater than 17% due to the impact on trading of COVID-19. We
expect ROIC to improve in 2021 as trading activity continues to return
to more normalised levels, supported by the Group’s strategy of
investing in its higher return markets.
2020
2019
Non-underlying items
On demand
2021-2022
2023
2026
2029
£13.8m
On demand
£13.7m
£0.8m
2020-2022
£1.2m
£276.1m
£25.7m
£25.7m
2023
2026
2029
£276.7m
£26.5m
£26.5m
The amount drawn down under these facilities at 31 December
2020 was £139.0m, which together with cash of £22.0m, gave total
headroom of £225.1m.
The principal borrowing facilities are subject to covenants that
are measured biannually in June and December, being net debt to
underlying EBITDA of a maximum of 3.0x and interest cover of a
minimum of 4.0x, based on measures as defined in the facilities
agreements which are adjusted from the equivalent IFRS amounts.
The ratio of net debt to underlying EBITDA at 31 December 2020
was 1.3 times (31 December 2019: 1.6 times) and interest cover was
17.0 times (31 December 2019: 15.7 times), providing the Group
with substantial headroom to enable it to invest in future organic and
acquisitive growth opportunities. 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.
Treasury
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 minimum cost.
The treasury function 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
The total non-underlying items charged to operating profit in the
Consolidated Income Statement amounted to £27.1m (2019:
£17.1m) and were made up of the following:
• An impairment charge of £17.5m in respect of goodwill relating
to France Galva SA, which the Group acquired in 2007. Whilst the
business continues to be a significant contributor to the Group’s
results, in recent years its profitability has gradually declined from
that anticipated at acquisition and the impact of the COVID-19
pandemic on the global and French economic outlook has
resulted in us further reducing our expectations for its future
outturn. Consequently, the impairment review performed at 31
December 2020 concluded that France Galva SA’s expected
future cash flows were not sufficient to support its carrying
value at that date, resulting in an impairment of the acquisition
goodwill.
• An impairment charge of £2.8m in respect of assets in the
variable message signs business. Following a period of weak
trading and a more cautious assessment of the future outlook
for that business, the Group is currently taking several actions
to restructure the operations and the cost base, leading to a
reassessment of asset carrying values at 31 December 2020.
This reassessment resulted in impairment charges of £2.8m
relating to goodwill and intangible assets of £1.1m, tangible fixed
assets of £0.5m, inventories of £0.8m and right-of-use lease
assets of £0.4m.
• Amortisation of acquired intangible fixed assets of £6.1m (2019:
£6.2m).
• Acquisition related expenses of £0.3m (2019: £1.8m) including
£0.2m (2019: net credit of £0.2m) relating to future consideration
payments to previous owners of acquired businesses, the terms
of which require those costs to be treated as a post-acquisition
employment expense in accordance with IFRS 3 (Revised).
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• Past service pension costs of £0.4m. In November 2020 the High
Pensions
The Group operates several defined contribution and defined benefit
pension plans both in the UK and overseas. The IAS19 deficit of
the defined benefit plans as at 31 December 2020 was £19.6m, a
reduction of £0.3m compared to 31 December 2019 (£19.9m).
The Group’s UK defined benefit pension scheme remains the largest
employee benefit obligation within the Group. In common with many
other UK companies, this scheme is mature having significantly more
pensioners and deferred pensioners than participating members
and is closed to new members. The IAS19 deficit of the scheme as
at 31 December 2020 was £14.0m (2019: £14.8m), the reduction
being driven by investment outperformance and deficit recovery
payments during the year, which more than offset the effect of an 80
basis point reduction in the discount rate, in line with movements in
bond yields. The Group remains actively engaged in dialogue with the
Scheme’s Trustees regarding management, funding and investment
strategy, and a formal actuarial valuation of the Scheme as at April
2019 was finalised early in 2020, resulting in the Group agreeing a
deficit recovery plan that requires an increase in cash contributions
to £3.7m per annum (previously £2.5m per annum) until September
2027. The next triennial valuation will be as at April 2022.
Paul Simmons
Group Chief Executive Group Chief Financial Officer
9 March 2021
Hannah Nichols
Court handed down a further judgement relating to equalisation
of Guaranteed Minimum Pensions (GMPs) between male and
female members, following the initial judgement in October 2018.
The latest judgement requires businesses with defined benefit
pension schemes to equalise historical GMPs for members
that have transferred out of schemes. The Group has taken
professional advice as to the impact of this judgement and
concluded that a cost of £0.4m could be incurred.
The net cash impact of the above items was an outflow of £0.1m
in the year, a future cash outflow of £0.6m and a non-cash element
of £26.4m.
During the period the Group amended its accounting policy in respect
of non-underlying items, to exclude net financing costs on defined
benefit pension obligations and costs incurred as part of significant
refinancing activities. These items were presented as non-underlying
items in the prior year. The changes did not have a material impact
on the underlying result for either the current or prior year and the
comparatives have therefore not been restated. Further details are
set out in note 4 to the Financial Statements.
Tax
The Group’s reported tax charge for the year was £11.5m (2019:
£13.4m), including an underlying charge of £12.4m (2019: £15.5m).
The underlying effective tax rate for the Group was 19.8% (2019:
19.5%), 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 and the successful
conclusion of tax uncertainties related to prior years. Assuming no
changes to headline corporate tax rates in the UK or US, we expect
the Group’s underlying effective rate to increase by 1-2 percentage
points in 2021 as our tax strategies evolve.
Cash tax paid was £16.5m (2019: £14.4m), higher than the Group’s
current tax charge for the year of £10.3m (2019: £15.1m) due to
the change in the quarterly payment regime in the UK meaning that
tax payments are substantially made in the year to which the tax
relates. Previously such payments were spread over the current
and following financial years. The Group remains committed to the
timely and correct payment of taxes to authorities in all jurisdictions
in which we operate.
The Group’s net deferred tax liability is £7.6m (2019: £7.7m), which
includes £8.4m (2019: £7.9m) of liabilities in respect of brand
names, customer relationships and other contractual arrangements
arising on acquisitions. These liabilities do not represent future
cash tax payments and will unwind as the brand names, customer
relationships and contractual arrangements are amortised.
Earnings per share
The Board believes that underlying earnings per share (‘UEPS’) gives
the best reflection of performance in the year as it adjusts for the
impact of non-underlying items (as described in note 4). UEPS for
the period under review reduced to 63.2p (2019: 80.7p), reflecting
the impact of COVID-19 on trading, particularly in the second
quarter. The diluted UEPS was 62.9p (2019: 80.3p). Basic earnings
per share was 30.2p (2019: 61.1p). The weighted average number of
shares in issue was 79.5m (2019: 79.2m) with the diluted number of
shares at 79.9m (2019: 79.6m) adjusted for the outstanding number
of dilutive share options.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Stakeholder Engagement
We engage with a wide range of stakeholders, both at Group and subsidiary level. Understanding how
these relationships work is crucial to ensuring our Group’s continued sustainability and ensuring we are
able to adapt and make businesses fit for the future.
Investors
Our Chair, Chief Executive & CFO engage
with our investors through a series of
meetings, site visits and presentations,
ensuring that they set out our strategy for
delivering long-term sustainable profit
growth. Investors also feed back their
views on the major corporate governance
issues of the day.
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.
Customers
Our subsidiaries engage with their
customers on an individual business unit
basis. Most businesses are accredited
with a number of ISO quality standards to
provide comfort to our customers that we
are able to deliver solutions which meet
their exacting requirements.
What matters to investors
•
Long-term sustainable profit growth and
operational efficiency
• Robust corporate governance and business
ethics
• A sustainable and progressive dividend
policy
What we did in 2020
The Chair met with the majority of our major
shareholders on the appointment of our new
Chief Executive. The Chief Executive and
Chief Financial Officer met with shareholders,
analysts and advisors following the preliminary
and interim results announcements.
What matters to employees
• Brand
•
Safe working environment.
• Wellbeing
•
Job security and remuneration
• Career development
What we did in 2020
We continued with our Workforce Advisory
Panels and followed our first ‘all-employee’
engagement survey in 2019, with our
first all-employee Health & Safety Culture
Survey. For more details see page 35. The
COVID-19 pandemic affected our employees
in different ways, and we worked hard to
ensure the ongoing safety and mental well
being of all our staff in what was a difficult
year for them. See page 36 for details.
What matters to customers
• Quality products delivered on time and
to the correct specification
• A strong health & safety culture
• Being treated with respect
• Working as a partnership
What we did in 2020
Our subsidiaries continued to work,
following all jurisdictional Government
guidelines during the COVID-19 pandemic
to ensure that wherever possible, customer
requirements were met and responded
sympathetically where customers closed for
periods during the pandemic.
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Suppliers
We actively engage with our suppliers,
working closely to ensure that they
provide the right quality of raw
materials and services to support
our commitment to quality products
and to maintaining fair cashflow
requirements.
What matters to Suppliers
•
•
•
Mutually beneficial arrangements
Long-term relationships
Fair financial terms
• A strong health & safety culture
What we did in 2020
Subsidiaries across the Group talked to
suppliers to understand any concerns over
Brexit and the impact of COVID-19, and we
continued with our existing payment terms
for our suppliers.
Local Communities
Reflecting the geographical breadth of
the Group and the devolved nature of our
business model, the Group has taken
the decision not to have a Group-based
community programme.
What matters to local communities
•
•
•
Environmental issues
Employment
Safe working environment
What we did in 2020
Our Subsidiaries engaged with their local
communities supporting local charities on a
business-by-business basis.
Governments & Industry
What matters to Governments & Industry
We engage with the Government and our
peers by participating in industry bodies
and meetings to discuss emerging policy,
regulation, innovation and threats in
relation to infrastructure markets.
•
•
•
Innovation
Sustainable products
Environmentally-friendly solutions
What we did in 2020
Representatives of our subsidiaries sat
on a number of different Government and
Industry safety and product committees,
including the British Standards Institute
(‘BSI’); the Vehicle Restraint Manufacturers
Association; the Perimeter Security Suppliers
Association; and the Transport Research
Board in the USA.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
33
Sustainability and Responsibility Report
Hill & Smith Holdings PLC’s approach to
sustainability is defined by our purpose of
creating sustainable infrastructure and safe
transport through innovation, which through
our focus on our well-defined strategy
and key growth drivers helps to deliver
stakeholder value. We recognise that, to play
a positive role in society over the long term,
we need to act responsibly in all our activities
- towards our people, whose health, wellbeing
and career aspirations are important; towards
the environment, both in the resources that
we use and the products and services that we
offer; to wider society, in the way we interact
with Governments and local communities, and
to our customers and suppliers, with which we
have a duty to act responsibly and ethically.
Sustainability review
During the year, the Board has reviewed our
approach to sustainability, recognising the
importance of Environmental, Social and
Governance (‘ESG’). This was supported by
a third-party consultant and our Investor
Relations team, who benchmarked our
performance against our peers and sought
input from a range of shareholders on their
priorities.
As a result of this process, our 2020 focus
was on those topics where we could have
the most impact short term, given what
we do and where we operate. In 2020, key
topics included health & safety, the wellbeing
of our employees, employee engagement
and reducing energy usage, with COVID-19
heightening the focus on the wellbeing
of our employees and engagement. We
also considered our business purpose in
relation to the United Nations Sustainable
Development Goals (‘UN SDGs’) and
determined that the way we create
sustainable infrastructure and safe transport
through innovation using the operational
capabilities of our subsidiaries and their
people contributes directly to Goals 6, 7, 8, 9,
11 and 13.
Having accelerated our ESG agenda, we
intend, during 2021, to develop a full scope
ESG strategy. This initiative will be led by
Paul Simmons, who as Chief Executive,
has been appointed as the Board member
responsible for ESG with oversight from the
full Board. We expect key focus topics to
include limiting climate change, reducing
waste, emissions and water usage, improving
health, safety, diversity and inclusion and
enhancing training and career development
Group wide. We recognise that delivering an
improved performance, and enhancing our
disclosure, is critical and we will report further
as our plans develop.
2020 Progress Highlights
•
Sustainability Framework - Identified six
UN SDGs that align with our corporate
purpose and identified initiatives to
enhance our sustainability performance.
• Health & Safety – New Health &
Safety Management & Reporting tool
introduced into the US, standardising
subsidiary reporting across the Group.
• Our People – Introduction of a Human
Resources toolkit. Available on the
Company’s intranet and providing
Group standards and support to all
subsidiaries.
• Doing business ethically - Modern
slavery-based audit of all temporary
worker providers.
• Climate Change – Improved our CDP
rating to ‘C’.
•
Society – Reviewed and updated our tax
policy and repaid COVID-19 government
support in the UK.
United Nations Sustainable Development Goals
In the table below we identify some examples of how the Group’s activities contribute to a specific UN SDG. The Group’s activities are well
aligned with the UN SDGs as is our purpose of creating sustainable infrastructure and safe transport through innovation.
Clean water and
sanitation
The Group treats wastewater used in its industrial processes, particularly in galvanizing,
to ensure that water re-entering the system is treated and sanitised. Also, galvanized
steel lasts for decades compared to the alternative of painting and has the advantage of
not ‘leaching or flaking’ into water systems, unlike repainting which when undertaken can
damage biodiversity and water usability.
Affordable and
clean energy
A key growth driver is the shift towards a low carbon energy system. The Group’s pipe
support businesses are facilitating LNG expansion, as a transition fuel, as customers look
to shift away from high-carbon oil and coal. Within its Utility business, the Group is well
positioned to support electrical transmission systems.
Decent work and
economic growth
We provide equitably and competitively paid, highly skilled employment and significant
career development opportunities in areas of lower socio-economic attainment across
the geographies in which we operate. We are an integral stakeholder of the communities
in which we operate and deliver significant economic benefits to those communities.
Industry,
innovation and
infrastructure
This is at the Group’s core given the focus on products for road, rail, waterways and
power transmission supporting long term infrastructure and galvanizing services
(compared to painting) that increase asset useful life.
Sustainable cities
and communities
The Group’s permanent and temporary barrier products safeguard lives, whether of those
working on upgrading roads or the general public going about their business. The Group’s
security products, including hostile vehicle mitigation products protect people and
property from terrorist acts.
Combat climate
change
The Creative Composites Group provides low embedded-energy products that are able
to better withstand flooding, hurricanes and wildfires than competitor products. Our
Galvanizing business provides steel protection services that a give 60+ year life and are
fully recyclable.
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Health & Safety
The health, safety and wellbeing of our workers continue to be a key focus across all subsidiaries. All sites are committed to minimising the
risks their workers face on a daily basis, ensuring that their policies, procedures and risk assessments are followed. This also ensures that any
site visitors, contractors and the public are not affected by the work being undertaken within our facilities. 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 & safety help to spot issues at the earliest opportunity and that lessons are learned from any events that do occur.
Our external UK and US based health & safety consultants continue to work alongside the safety specialists in each of our subsidiaries to assist
the Group in achieving its objectives around health & safety.
The use of online health & safety management and reporting tools enables the Board to track various performance ‘lag’ indicators whilst
‘leading’ indicators, including a programme of external audits and regular UK and US Safety Forum meetings, provide opportunities for
improvement.
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Site specific
audit programme
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LTIR now
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All US sites
received initial
baseline
audit
anagem ent a n d r e
Focus on lost
time injures
Management
and reporting
tool implemented
in the US
108 lost time
injuries in the year
(2019: 119)
COVID audits
and risk
assessment
sign-off
Near miss
reporting
encouraged
Global score of
72%, 3% above
industry
average
51% of
global workforce
responds
to survey
COVID-19
safety audits
and precautions
Health & Safety
Culture Survey
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continued
Health & Safety in 2020
Policies
Hill & Smith Holdings PLC’s Health & Safety Policy was last approved by the Board on 26 January 2021, and is available on the Company’s
website https://www.hsholdings.co.uk/about-us/corporate-governance/policies. This statement provides the minimum standards, advice and
guidance acceptable across the Group and forms the basis for each individual subsidiary’s own Health & Safety Policy.
Safety performance
Whilst the COVID-19 pandemic has limited opportunities for the safety teams to meet up on site, our programme of health & safety forums
has continued virtually, and additional safety briefings have also been held covering COVID-19. These safety forums continue to be a vital part
of our safety management regime and help to ensure best practice is regularly shared across all businesses. This approach assists the Group
management and the subsidiaries with the objectives of consistency, best practice and learning lessons from events. The findings from the Health
& Safety Culture Survey and the US’ new health & safety management and reporting tool, that was configured towards the end of 2020 will support
this approach.
The Group companies have continued to work effectively to ensure health & safety requirements are well managed and at the end of 2020 95%
of sites had access to online health & safety management and reporting systems with 37 sites (c. 49% of the Group) either approved to ISO
45001 or are in the process of achieving the certification.
The Group strives to ensure that there is an open and active culture of incident reporting. Initiatives such as the “Don’t Walk By”, “You’ve Been
Caught” and “Good Catches” campaigns all play a vital role in the Group’s aspiration to keep people safe at work. Further work on this proactive
reporting programme is to continue into 2021.
For 2020, the Group received, on a like for like basis, 469 accident reports (2019: 555) with zero fatalities for employers and contractors, the
sixth successive year in which zero fatalities have been recorded.
Given the multi-jurisdictional nature of our Group, the Board has deliberated on the health & safety metrics that best suit our business and has
concluded that as well as total accident numbers the Board should focus on Lost-time injuries and Lost-time injury rates. Over the last five
years these have been:
Number of lost-time injuries
Number of accidents reported
LTI per 100,000 employees
Lost-time injury rate (‘LTIR’)
2020
2019
2018
2017
2016
108
469
119
555
119
464
123
503
178
509
2,456
2,592
2,738
3,022
4,312
1.5
1.6
1.6
1.8
2.6
During 2020, for the first time, we were able to collect data to inform a lost-time injury rate based on hours worked: The number of lost-time
injuries divided by total hours worked multiplied by 100,000. For 2016 to 2019 the rate is an estimate, based on the average hours worked by
the average number of employees employed in that year.
The focus for 2021 is to achieve greater visibility of non-injury events through near miss and safety observation reports across all sites, with the
expectation that by concentrating our employees’ focus on these areas, the number of lost-time injuries will reduce over time.
Wellbeing
During 2020, the Group continued to partner with third party organisations: healthcare providers; occupational health advisors; and Employee
Assistance Programmes. In the UK, Lifeworks provides support to employees and during the pandemic they were reminded that should they
need to take advantages of the service, it offered 24/7/365 access to advice on a range of life topics including physical health, childcare, and
managing finances. The service included counselling sessions; unlimited critical & significant incident support, via telephone, phone apps and
support for dependents. We are looking to roll out this service to other subsidiaries in 2021.
This third-party support was supplemented by on-site mental health first aiders who were trained to identify the signs of mental health
difficulties and to be able to begin a discussion with an individual who they may be concerned about, and to help them refer that individual for
appropriate information and advice.
As a result of the pandemic, some subsidiaries took additional steps in this area, with Joseph Ash Limited, our UK galvanizing business, training
an additional 15 mental health first aiders. During 2021 we will continue to monitor and support the mental health of our employees through
day-to-day engagement and the assistance of third-party expertise.
Our people
Talented people are fundamental to the succes of our decentrailsed business model and help deliver our purpose and growth ambitions. We
need a highly engaged and capable workforce working within our operating companies and this can only be done by sourcing, developing,
supporting and retaining the right people and the subsidiaries are supported by a community of HR professionals who enable the key
employment strategies, programmes, and processes, to ensure that the business attracts and retains the skills and capabilities required to
deliver the strategy.
This objective is achieved through partnership with third parties to attract a diverse range of candidates and to provide development, and
learning experiences that contribute to career development opportunities. Investing in our people helps to ensure we create and retain a skilled
and motivated workforce including a leadership team that will lead our businesses effectively and positively impact on our future success.
Our aim is to continuously develop our Group leadership and management capabilities across the organisation, enabling all our leaders to
effectively manage and motivate the teams in their business.
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COVID-19 Pandemic
Plans supporting how our businesses
needed to respond to the growing pandemic
began to be put in place in Q1 2020. In
particular, agreeing the necessary support
that was required for workers shielding and/
or self-isolating. Whilst at all times following
local Government guidelines, rules, process
and social distancing measures were put
in place in all businesses which over time,
together with inter-Group discussions and
sharing of best practice helped to limit
the direct effect of the pandemic. Our
businesses have embraced and complied
with Country/Regional restrictions, putting
in place Governmental/ local public health
guidance to protect workers.
In Q2, site risk assessments, hygiene and
social distancing measures were formally
set up, alongside regular monitoring
regimes. This, together with ongoing
engagement with the workforce, responding
to their concerns, suggestions and work
methods meant our Health & Safety and HR
teams have continually shared best practice
with the operational teams, throughout the
pandemic, to help maintain operational
capacity whilst ensuring the health, safety
and welfare of our employees, customers
and any site visitors. During this time,
we actively reminded employees of the
wellbeing services available to them. In Q3,
with the UK Government opening up the
economy, all UK sites carried out unique
site based COVID-19 safety surveys before
allowing home workers to return to work.
Our international sites responded to the rules
and legislation appropriate to their location.
Following effective public testing regimes
being established in each country in which
we operate, 218 positive cases have been
reported amongst our workforce in the
period to 31 December 2020 and effective
support and welfare provisions were put
in place for those employees affected.
Fortunately, we have suffered no fatalities
within our workforce.
“The health, safety
and wellbeing of our
employees continues
to be a key focus
across all subsidiaries.”
No. of
COVID
cases
No. of
employees
%
United
Kingdom
United
States
RoW
94
96
28
1,950
4.8%
1,294
7.4%
1,154
2.4%
Early intervention strategies in any positive
cases, with internal track and trace protocols
on site, together with open communication
with and support to any close contacts
has meant local responses were very well
managed. We fully expect these measures
to remain in place until a point in time when
the virus is having only a minimal impact on
society.
The health, safety and wellbeing of our
employees continues to be a key focus
across all subsidiaries. However, the
pandemic has caused some disruption
to the Group safety initiatives that were
planned for 2020, largely due to travel
restrictions which affected site visits and the
Health & Safety Forums.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
37
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continued
views of the participants on a range of themes. The representatives
were encouraged to share their experiences with colleagues in their
business units after the meetings. The Chief Executive also held a
Managing Directors’ Forum to talk about areas for focus in 2021 and
beyond.
Employees are also encouraged to immerse themselves in the work
of their sites and subsidiaries, to collaborate across the subsidiaries
through communications initiatives, and to engage in Group news
and announcements through the Group’s intranet. Everyone is
actively encouraged to communicate and share information with
colleagues. We have recognised Trade Union groups in some of our
plants in France, the UK and the US and value the partnership and
involvement which these Trade Unions bring to our business. We
encourage collaboration with Trade Union groups and negotiate with
them on the terms and conditions for their members and consult
with them on changes within the organisation. Employees can
become affiliated with a Trade Union and their involvement in that
organisation will not affect them in terms of recruitment, promotion,
transfers, development opportunities or any other employment
arrangements. In 2020, c. 18% of our employee had access to a
recognised Trade Union.
Diversity
Our aim is for our workforce to be representative of the communities
in which we operate and for every employee to be respected and able
to give of their best. We are committed to ensuring that everyone
can contribute and reach their full potential, and that they have the
opportunity to share their perspective.
Inclusion forms a key element within our approach to diversity,
and this is demonstrated by equitable treatment throughout the
employment cycle. Everyone should feel welcome and supported,
should be treated with fairness and respect, and feel included. We
seek to create an environment in which individual difference is
respected and everyone matters.
As an employer working across a range cultures and countries,
we seek to replicate the diversity of the communities where our
companies are based, in the profile of our own workforce. We
shall rely on data gathered from employees and by examining
relevant data points in our attraction and engagement processes to
understand where we can improve our approach.
Policies
The policies that set out the Group’s approach to our employees can
be found on the Company’s website, https://www.hsholdings.co.uk/
about-us/corporate-governance/policies. These include policies
relating to Equal Opportunities, Discrimination and Diversity; Training
and Development; and Dignity at Work. The subsidiaries operate
relatively autonomously so Group policies set a framework within
which the subsidiaries can develop and implement their own Policy
arrangements. These are supported by toolkits available to our
Subsidiaries through our intranet, that help the businesses manage
elements within the employee lifecycle. Within this framework,
subsidiaries set their own employee policies to comply with local
laws but with clear guidance from the Group.
Employment
Our Group provides equitably and competitively paid, skilled and
highly skilled employment with the potential for career development
within the communities in which it operates. We are committed to
investing in and promoting our people, attracting and retaining a
diverse workforce, while fostering social mobility.
A number of our subsidiary Managing Directors have progressed their
careers within the organisation, while team members at all levels in
our organisation have achieved long service.
During 2020, the Group employed c. 4,400 people across 76 locations
in six countries. We are conscious that in any organisation people
come and go as opportunities arise, both within and outside the
Group. In 2020, resourcing activity was lower than normal and from
data we have collected, we believe that our overall voluntary turnover
of permanent staff was 6% and that in replacing leavers we were able
to recruit internal candidates to c.18% of all vacancies. The COVID
pandemic had an impact on our business in the first half of 2020, and
as a result, unfortunately, a few employees, c 2.3% of our workforce
were made redundant.
Engagement
The emerging Engagement Strategy includes a commitment
to conduct a cascade briefing process throughout the Group,
supplemented by a range of engagement and communication
mechanisms in the subsidiary businesses. These regular approaches
are supplemented by, in alternate years, an Employee Engagement
Survey and a Health & Safety Culture Survey. The Group-wide
Employee Engagement Survey in 2019 promoted action plans for
the subsidiaries in 2020 and the priority themes were Enabling
Infrastructure, Talent & Staffing, Senior Leadership, and Career
Development.
Communication was a key priority arising from the 2019 survey and the
COVID situation accelerated the progress that subsidiaries were able
to make in this respect. The leadership teams communicated regularly,
the content around social distancing was delivered to employees via a
variety of media, and the use of fast (text) communication increased,
was popular and will continue to be relied upon. In 2020, we ran the
first Group-wide Health & Safety Culture Survey.
In furtherance of the UK Corporate Governance Code, the Group
continued to use Workforce Advisory Panels to give employees the
opportunity to meet with Group senior management and we have
developed our Terms of Reference for this programme of work. In the
latest meetings to take place, employees in the UK and the US met
with the Chair of the Group; the new Chief Executive, Paul Simmons;
the Group CFO; the Group’s HR Director; and the Group Company
Secretary to discuss the breadth of the Group’s activities, the 2020
half-year performance, the Chief Executive’s first impressions; and the
future strategy of the Group. Last year’s sessions were face to face
events. However, in 2020 these sessions were conducted virtually
and included deploying some polling technology to canvass the
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All our policies promote the principles of fairness and equal opportunities and if these are not followed, employees can use an externally hosted
whistleblowing service, which is a confidential email or telephone based ‘hotline’ to report their concerns regarding a broad range of matters.
The Board has overall responsibility for the Company’s Equal Opportunities, Discrimination and Diversity and Dignity at Work policies. As at 31
December 2020, the Group-wide split of male and female employees is shown in the tables below:
Number of PLC Board Directors
Number of subsidiary Directors
Number of senior managers
Total number of Group employees
2020
2019
2018
2017
2016
M
5
66
174
3,972
F
2
5
39
426
M
5
79
221
4,161
F
2
3
40
430
M
5
59
167
3,728
F
1
2
19
366
M
5
71
182
3,538
F
1
3
19
346
M
5
74
162
3,774
2020
2019
2018
2017
2016
Percentage of PLC Board Directors
Percentage of subsidiary Directors
Percentage of senior managers
Total Percentage of Group employees
M
71%
93%
82%
90%
F
29%
7%
18%
10%
M
71%
96%
85%
91%
F
29%
4%
15%
9%
M
83%
97%
90%
91%
F
17%
3%
10%
9%
M
83%
96%
91%
91%
F
17%
4%
9%
9%
M
83%
95%
88%
91%
F
1
4
22
354
F
17%
5%
12%
9%
Gender pay reporting legislation in the UK requires employers with 250 or more employees to publish information every year indicating the pay
gap between their male and female employees. This legislation currently affects three of our UK subsidiaries: Birtley Group Ltd, a galvanizing and
construction business; Joseph Ash Ltd, a galvanizing business; and Hill & Smith Ltd, a road barrier manufacturer.
The gender pay gap indicates the percentage difference in the mean and median base and bonus pay between all men and women in the
workforce. The data for each of the above companies can be found on their websites via www.hsholdings.com.
In 2020, the Group continued to analyse gender pay information across its UK subsidiaries and in doing so recorded a mean gender pay gap of
8.4% (2019: 12.7%). However, the median pay gap which had alternated in previous years to first favouring men and then women was, in 2020,
approximately equal, with a gap of 0.1% in favour of men.
It is important to note that the 2020 Gender Pay data was collected in a week when the COVID pandemic was at its peak impact and as such,
furlough arrangements were in place. Around half of the UK workforce had been furloughed and these employees were in receipt of at least 80% of
their normal pay level.
The Group data can be found on our website www.hsholdings.com along with narrative about the pay gap reports for the three subsidiaries.
Training & development
During 2020, 122 leaders and senior managers attended formal training sessions, of which 17% were women. 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.
Outside these Group-led training schemes our business informed us that they have spent c. £0.4m on providing additional training over c.
4,000 days, amounting to c. 32,000 hours. In 2021, the Group has budgeted c. £1m to cover both Group and subsidiary-based training and
development initiatives.
The Succession Planning and Talent Management (‘SPTM’) programme for managers continued with a review of the succession plans in many
subsidiaries and particularly in the UK, with the continuation of the Learning programmes, initially face to face and then virtually. The SPTM
learning programmes provide managers within the Group who have the potential to become senior executives, as well as other talented individuals
who the potential for progression, with the necessary skills to prepare them for future roles. These programmes bring together delegates from
across the subsidiaries to collaborate in a learning setting. We have also continued to invest materially in our Apprenticeship Schemes. In 2020,
we have taken on 34 new apprentices and provided related training to another 111 individuals across our UK subsidiaries, of which 10% are
women. Our UK sites are taking advantage of utilising their apprenticeship levy in a variety of areas and we have utilised c. 49% of the levy funds
raised. The greatest impact is through Business Improvement Techniques launched across numerous companies last 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.
Our priority going forward is to invest in the development of a diverse group of individuals with the ambition and potential to develop their careers
within the Group.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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continued
Conducting business ethically
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.
Policies
Our Code of Business Conduct 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 reinforced with additional policies around Supply Chain; Anti-bribery & corruption; Whistleblowing; and
Modern Slavery. These policies are available on the Company’s website https://www.hsholdings.co.uk/about-us/corporate-governance/policies.
Code of
Business
Conduct
The Code of Business Conduct (‘CoBC’) presides over areas such as health & 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 CoBC also extends to the handling and minimisation of conflicts of interest and the protection of the
Group’s valuable intellectual property rights.
The CoBC is not designed to supersede detailed Group policies but rather to supplement and summarise the Group’s compliance
initiatives and 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 annual compliance with the policies issued
by the Group during the year and in particular with the CoBC.
Supply
Chain
The Group benefits from a series of procurement controls, which are embedded in the Group Policy Manual and available to all
subsidiaries through the Group Intranet. These policies that relate to commercial interactions with both our suppliers and customers
include a Sanctioned Countries screening protocol that, in accordance with its legal and financial obligations uses restricted party
screening software to identify any valid international economic sanctions that would prevent us from doing business.
Additional protocols have also been provided to certain subsidiaries to ensure they meet all international obligations when trading in
sensitive geographical areas. These controls are bolstered by a Competition Law compliance programme which includes a manual
and online training to all office-based staff across the Group. The programme is based on requirements of UK law with local variations
applied to non-UK businesses.
Our businesses operate under the above policies and controls, and as devolved business units they are free, within the confines of
our Sanctioned Countries & Restricted Parties Trading Policy, to do business with whoever they deem fit. However, we are conscious
that we should not be contributing to the conflict in the Democratic Republic of Congo and surrounding countries and after seeking
input from our subsidiaries, we are able to confirm that the Group does not purchase Conflict Minerals within its supply chain. Our
commitment to this is covered in our conflict minerals policy.
Anti
Bribery &
Corruption
The Group deploys an Anti-Bribery & Corruption (‘ABC’) Programme which includes:
•
An Anti-Bribery and Corruption Policy which is available on the Company website, that is approved annually by the Board and is a
responsibility of Paul Simmons, as Chief Executive;
•
•
•
A Gifts & Entertainment Policy, which tolerates the provision and receipt of gifts and entertainment within considered parameters
which align with the Group’s legal obligations;
An online ABC training course that is delivered to all office-based staff across the Group and to other relevant employees and was
updated in 2021, with around 2,000 employees participating, c. 100% of all relevant employees; and
Appropriate due diligence investigations of third parties with whom the Group engages.
Whistle-
blowing
Modern
Slavery
Human
Rights
The Group’s Whistleblowing Policy reassures employees that they should not be afraid of reporting their concerns, and that should they
see or know of someone who is doing something illegal, unethical or improper they should report their concerns. Should individuals
wish to raise concerns anonymously they are able to do so via an external confidential, independent compliance hotline and email
facility, which is available in local languages or they can contact senior managers within their business, the Group Company Secretary
or the Chair of the Audit Committee, without fear of reproach. The policy gives assurance that issues will be investigated and resolved
in accordance with the principles of the CoBC and that no employee will suffer retribution when raising genuine concerns that are
reported in good faith. During 2020 three such issues were reported and investigated (2019: 12).
The Board is committed to the Modern Slavery Act 2015 and has continued to support a number of policies and initiatives during 2020 to
supplement the Group’s existing compliance controls in respect of anti-slavery and human trafficking. As we reported in 2019, during 2020
we undertook a review of the Modern Slavery risks associated with the supply of flexible labour force agency workers (‘agencies’) to our
operating units. We identified a total of 76 agencies, of which only four were in the Group’s highest risk jurisdiction of India.
The responses we received from these agencies following our investigations confirm that as a minimum the agencies comply with their
jurisdiction specific legislation and requirements; and that some agencies go beyond these standards to have more sophisticated and
detailed policies and procedures. Further work with these agencies, particularly those in the UK and US will be carried out during 2021.
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. 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, 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.
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 & safety
policies and procedures and be free from substance abuse at all times.
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Climate change
The Group is committed to protecting and enhancing the environment
by managing its manufacturing facilities in a responsible way and by
maximising the positive effects of its products and services.
Each UK business has an ‘Energy Champion’ who is responsible for
ensuring that the Group’s policies on energy and the environment
are promoted throughout its operations and these Champions are
brought together in an Energy Forum twice a year. This initiative will
be rolled out to other subsidiaries as part of our ESG agenda for
2021. All employees are encouraged to report energy saving and
recycling ideas to their local management teams. A programme
of environmental audits is carried out on a regular cycle, by an
independent third-party.
As in previous years, the Group contributed information and data to
the Carbon Development Project, a programme designed to tackle
climate change and in 2020 upgraded its rating to ‘C’.
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. During 2020 we utilised the services of
Trident Utilities, an independent energy management consultancy who
help to collect, collate and verify the data.
Policies
Our Environment and Energy policies, which cover all of our
business units, set out our commitment to protect and enhance
the environment and include our commitment to minimise our
contribution to climate change by reducing our usage of non-
sustainable raw materials, energy and water and our Product
Responsibility policy sets out our philosophy to creating sustainable
infrastructure and safe transport. Both are set and monitored by our
Executive Board.
Energy & Greenhouse Gas Emissions
The Group has been monitoring its energy usage and Greenhouse
Gas (‘GHG’) emissions since 2008, and first reported its consumption
data at the end of its second three-year programme in 2013.
During 2020, all energy consumed in the UK was from non-renewable
sources. However, in November 2020, the Group entered into a two-
year contract to buy all its electricity requirements for its UK sites
from renewable sources.
We recognise that our business can have a direct and indirect
effect upon the environment and are pleased to report that the
cost to our subsidiaries of environmental fines and penalties in
2020 is £Nil (2019: £Nil). The data provided below illustrates how
our carbon footprint is created by our businesses, allowing us to
monitor the impact of our operations on the environment and make
improvements where feasible, and covers 100% of our sites.
Group total GHG emissions by scope
2020
2019
2018
2017
2016
Scope 1 (tCO2e)
UK Sites
Global*
Total Scope 1
Scope 2 (tCO2e)
UK Sites
Global*
Total Scope 2
Total tCO2e
Revenue (£m)
Intensity ratio
*Excludes UK
17,096
34,970
52,066
18,372
35,106
53,478
18,455
38,014
56,469
18,824
38,359
57,183
18,377
39,215
57,592
3,904
11,431
15,335
67,402
5,384
14,419
19,803
73,281
6,397
18,052
24,449
80,918
8,482
14,117
22,599
79,782
9,561
12,390
21,951
79,543
660.5
0.102
694.7
0.105
637.9
0.127
585.1
0.136
540.1
0.147
2020
2019
2018
2017
2016
90,837,780
90,732,984
68,228,587
65,706,514
182,458,683 183,916,541 174,065,843 175,823,725 174,290,395
268,190,068 274,754,321 264,798,827 244,052,313 239,996,909
19,417,329
35,870,117
55,287,447
20,824,815
22,176,349
20,967,912
42,490,854
35,149,090
31,867,116
63,315,669
57,325,439
52,835,028
318,527,334 330,041,768 328,114,496 301,377,752 292,831,857
85,731,385
Scope 1 Consumption (kWh)
UK Sites
Global*
Total Scope 1
Scope 2 Consumption (kWh)
UK Sites
Global*
Total Scope 2
Total
Consumption
(kWh)
16,746,742
33,590,524
50,337,266
*Excludes UK
Currently the Group only collects data in relation to Scope 3 emissions
from water consumption and waste.
Scope 3 (tCO2e)
UK Sites
Global*
Total Scope 3
*Excludes UK
2020
2019
2018
2017
2016
969
1,766
2,735
171
350
521
179
350
529
192
280
472
322
547
869
We engage with a third-party energy consultant who collects energy
based usage data from all our subsidiaries on a monthly or quarterly
basis and this converted into tCO2e using BEIS conversion factors that
were published in June 2020, and updated in July 2020. The apparent
increase in Scope 3 emissions is due to a quadrupling of the BEIS
conversion factors for these emisions. On a like-for-like basis, 2019
total Scope 3 emissions would be 2,410. For more information on
water and waste management, see below.
During 2020, for the first time, the Group was able to collect additional
information on other GHG emissions. During the year we accounted for
81.2tCO2e of CH4 and 193.8tCO2e of N2O.
Water and waste management
Water
Water usage within the Group is either freshwater or recycled water
and where possible our subsidiaries investigate improvements within
the manufacturing process to avoid the use of water, or alternatively
to increase the use of pre-used water to carry out their processes and
also to manage the effect of our operations on the quality of water in
the environment. For example, Medway Galvanising now uses pre-used
water in its rinse process and over the years France Galva has invested
in rainwater treatment plants to remove any impurities that may be
absorbed as rain collects on their sites. As part of our future ESG
strategy we will be considering what more can be done to manage our
use of water and our impact on this essential commodity
Group water
usage by volume
m3
2020
2019
2018
2017
2016
UK Sites
Global*
46,208
42,188
36,896
36,001
39,737
48,885
48,964
50,589
55,475
59,034
Total usage
95,093
91,152
87,485
91,476
98,771
Waste management
The UK operations of the Group comply with the Producer
Responsibility Obligations (Packaging Waste) Regulations 2007 (as
amended). They are fully aware of their legal and environmental
responsibilities to reduce the amount of packaging going to landfill
and seek to reduce, recycle and recover their packaging materials.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
41
hsholdings.com
Turquoise Solar sits on approximatley 180 acres of igneous
rock at Reno Technology Park, Washoe County, Nevada. V&S
Galvanizing provided hot-dip galvanized coating to the legs and
screws that support and anchor the solar racks to the ground.
42
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By securing evidence of recycling through its compliance scheme,
Wastepack, the Group is contributing towards meeting the recycling
and recovery targets set by Defra, as part of the European Union
Directive. Waste management data has been collected from all
UK sites, enabling us to identify waste by-products, with a view to
lowering waste output and developing new opportunities to improve
the manufacturing processes. Wherever possible, these waste
products are sold to be reused in other manufacturing processes,
avoiding the need to use virgin material.
The Group continues to manage its waste disposal, discouraging the
use of landfill sites and uses expert waste disposal companies to
dispose of such waste and to recycle it wherever possible.
Solid waste by
tonnes
Waste to landfill
Recycled waste
Total waste
2020
2019
2018
2017
2016
5,165
19,145
24,310
4,678
22,514
27,192
5,038
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33,817
4,404
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25,140
4,197
18,712
22,909
Sustainable products
Boosting innovation
Our Group creates and maintains work environments that help our
business units to develop and manufacture products, providing well
paid and broad development and career opportunities that meet the
changing nature of industrial manufacture and the urbanisation of
cities and communities. We offer solutions to combat the results of
climate change, whilst at the same time our manufacturing methods
are monitored to measure our effect on the use of energy and other
natural resources. In 2020, the Group spent £2.0m, c. 0.3% of total
revenue on research and development projects (2019: £1.4m, 2018:
£1.2m), in particular developing solar powered solutions for some of
our work zone safety products.
Responsible products and services
Our galvanizing companies provide a hot-dip galvanizing service
that provides long life, low maintenance corrosion protection which
safeguards steel from atmospheric attack. It is an easy, cost effective
and environmentally friendly process that provides steelwork with
a robust, durable and corrosion protective finish that under normal
conditions will last for many years without maintenance, extending
the life of the product for 60+ years. Hot-dip galvanizing does not
just prevent steel from corroding due to environmental damage,
the process bonds the zinc onto the base steel and creates a self-
sacrificing and self-healing barrier to minor impact and damage.
Our Composite Group offers products that have a low embedded
energy production process and provide solutions for mechanical
strength and protection in many market segments such as
transportation, electrical, building and infrastructure, industrial
and energy and have a better ecological footprint than traditional
materials. These materials have a track record of providing useful
benefits including high durability, mechanical performance, design
freedom, low weight, and ease of manufacturing
Our products also support carbon reduction through the delivery of
renewal energy through our electrical transmission products, solar
and windfarm schemes, and LNG projects.
Safe transport is supported through our work zone protection and
pedestrian protection solutions complemented by our permanent and
temporary crash protection systems. Our hostile vehicle mitigation
products offer security to high value assets protecting society from
the effects of data and power outages.
Adding value to society
Hill & Smith Holdings PLC aims to make a positive impact on society,
not only with its products and by employing c. 4,400 staff across six
geographies, but also with governments and local communities.
Policies
The Group’s business activities incur a substantial amount of
different taxes and the Group is committed to complying with tax
laws in the geographies in which it operates and works closely, with
tax authorities in those countries. The Group’s Tax Policy can be
found on the Company’s website https://www.hsholdings.co.uk/
about-us/corporate-governance/policies.
Tax transparency
In line with the Group’s strategy and its values, the core principles
underpinning the Tax Policy are as follows:
• All of our stakeholders stand to benefit when we achieve
sustainable growth and this principle is central to the way we
balance their interests in respect of the management of taxes.
• We are committed to compliance with all local tax legislation and
the timely and correct filing of returns and payment of taxes due
to local authorities in all jurisdictions in which we operate.
• We follow the terms of applicable double taxation treaties and
OECD guidelines in dealing with such matters as transfer pricing
and establishing taxable presence and transfer pricing, which is
conducted at ‘arm’s length’ principles.
Tax is considered in all significant business decisions. This
allows us to understand and acknowledge the tax implications of
such decisions and transactions.
•
• Our focus on costs includes consideration of tax costs. As
such, we seek to conduct our business efficiently from a tax
perspective, which may include responding to Government tax
incentives (both domestically and internationally) and structuring
arrangements in a tax efficient manner.
• We commit not to transfer value created to low tax jurisdictions,
not to use tax structures intended for tax avoidance and not to
use secrecy jurisdictions or so-called ‘tax havens’.
• Where we decide to seek tax efficiencies, the risks associated
with the decision and its implementation are controlled.
• We conduct our dealings with tax authorities with honesty,
integrity, respect and fairness and in a spirit of co-operative
compliance.
• We have the right people, processes and systems in place to uphold
our principles. As part of those processes we will ensure that we
maintain appropriate records and documentation to support our tax
filings. Where additional support is required, due to lack of in-house
expertise or resource, we will engage external advisors.
• We avoid any actions (or omissions) in respect of our
management of taxes which could damage the Group’s
reputation with its key stakeholders. Where the expectations
of those stakeholders conflict, we seek to ensure that they are
balanced responsibly.
The Group does not operate in countries considered as partially
compliant or non-compliant, according to the OECD Tax Transparency
report and blacklisted or grey-listed by the EU, except for Australia,
where the Group has a roads business with strategic intentions to
mirror the success of its UK roads business.
Community
Reflecting the geographical breadth of the Group and the devolved
nature of our business model, the Group has taken the decision not
to have a Group-based community programme, but to encourage
business units to support their local communities. An example of
this is Hardstaff Barriers, a division of Hill & Smith Ltd , supporting a
group of school students to access MyMaths, an online mathematics
learning platform. During 2020 the Group has contributed c. £21,000
to local charities.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
43
Deer Island Waste Water Treatment Plant
case study
Deer Island Waste Water Treatment Plant
is located on Deer Island, one of the Boston
Harbor islands. Deer Island is the second
largest sewage treatment plant in the United
States. The plant was built as part of a
programme to protect Boston Harbor from
pollution from sewer systems under a 1984
court mandate. Waste water from 43 Boston
area communities reaches the plant through
four tunnels. 1.27 billion gallons per day are
treated, separated, clarified, and discharged
into a 9.5-mile-long tunnel and dispersed
into the ocean. The treatment plant you see
extends seven storeys below ground.
Carpenter & Paterson Inc. (‘C&P’), a
Hill & Smith Utilities business, supplied
supports and engineering to the plant.
The supports varied from ½″ (12mm)
standard steel hardware supports to 84″
(2100mm) fabricated pipe cradles. C&P also
supplied many miles of threaded rod with
accompanying nuts, bolts, and anchors. On
the engineering front, the business provided
pipe stress analysis, support design and
drawings, and on-site walkdowns to solve
the unique hanger applications of such a
massive project.
C&P continues to target water treatment
projects as a critical infrastructure market
for strategic growth.
“Deer Island is the
second largest sewage
treatment plant in the
United States, treating,
separating, clarifying,
and discharging 1.27
billion gallons of water
per day.”
Find out more about
the company at
www.pipesupports.com
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The Hill & Smith Tranzflex Transition is tested to EN1317, alongside
the Varley & Gulliver Bridge Parapets. A complete, tested arrangement
of vehicle restraint systems installed in the far north of Scotland.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
45
Risk Management and Assurance
The Group has an established
enterprise-wide risk
management process that
identifies, evaluates, manages
and monitors risk. Several
enhancements have been
implemented during 2020 to
further improve and embed the
risk management process.
Responsibilities
Effective risk management is critical to
the achievement of our strategic drivers
of portfolio management, strong cash
generation, entrepreneurial management
and targeted growth. All our subsidiaries
hold leading positions in the provision of
sustainable infrastructure and transport
safety products. 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 ongoing
discussion of risk and risk management
to the Audit Committee and the Executive
Management, 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
acceptable to our businesses 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 Group Board where appropriate, for
consideration and approval.
The Risk Committee acts as a conduit
between the Group and subsidiary risk
registers, supporting the dissemination of
the Risk Management Framework and risk
appetite down to the subsidiaries from the
Board and flow of assurance back up to
the Board.
The Group operates a tiered approach to
risk management, with risk registers at each
subsidiary linked to the appropriate Principal
Risk and flows of information and assurance
as outlined in Figure 1.
Risk Appetite
A Risk Management Framework operates
across the Group, clarifying how risk is
to be managed in a way that satisfies the
autonomous operating model of the Group
and in particular, roles and responsibilities
at each level (see Figure 1). 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 2020 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 50 to 53.
In common with every successful company,
the Board accepts a level of risk in pursuit of
its strategic objectives. Hill & Smith Holdings
PLC assesses the risk of action (or inaction)
as part of every decision and does not
allow the Company to take risks that would
harm the long-term interests of its strategy,
shareholders and stakeholders, including the
environment. For example, this might mean:
•
•
•
pursuing or not pursuing an acquisition,
or requiring greater assurance and
comfort before proceeding through our
robust due diligence process;
not entering geographic locations where
bribery and corruption is accepted or
tolerated; or
not using certain chemicals or
treatments (or changing existing
treatments) that are harmful to the
environment.
A single statement signifying the risk
appetite of the Group is difficult to articulate
due to its diverse nature, multiple geographic
locations, markets and products. However,
the Board believes that it effectively
demonstrates its risk appetite by the
decisions it has taken (and not taken)
during the course of the year. Top down
assessment of risk appetite by the Board is
now possible with the introduction of Target
Risk scoring and the ability for the Board
to challenge subsidiaries on specific risk
targets.
Figure 1 Risk Management Process
The Board
•
Sets strategy
• Determines overall risk appetite
•
Identifies and manages Principal Risks
Audit Committee
• Oversees the risk management process
• Reviews and challenges risk information and target
positions from subsidiaries
Subsidiary Businesses
•
•
Identify, assess and manage subsidiary level risks
Set risk targets for identified risks
• Complete risk improvement actions
Risk Committee
•
Sets risk management methodology
• Advises subsidiaries on best practice
•
Interrogates and calibrates risk information from
subsidiaries
• Provides challenge and insight
• Reports risk information to the Audit Committee
• Advises the Audit Committee on new and emerging risks
46
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Enterprise Risk Management
Framework
The Enterprise Risk Management
Framework wraps around the compliance
programmes and internal controls and
is supported by the internal and external
audit programmes and a range of external
accreditation schemes. Due to the Group’s
entrepreneurial management individual
businesses can add additional elements.
This ensures risk management is effectively
embedded in a way that fits each specific
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;
evaluates the Group Principal Risks and
oversees their management;
establishes the Group risk appetite; and
directs the external reporting of risk and
viability.
The Audit Committee supports the Group
Board by:
• monitoring and directing the testing
of the Risk Management Framework,
appetite and associated internal
controls, including the influencing
factors of culture and reward;
•
•
ensuring there is a link between the
Group Principal Risks and the Group’s
internal and external audit programmes;
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 and/
or Group Principal Risks; and
•
reviewing the detail of external reporting.
The Risk Committee:
•
•
acts as a conduit between the Group and
subsidiary risk registers, supporting the
dissemination of the Risk Management
Framework and risk 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.
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
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
47
Risk Management and Assurance
continued
Risk in 2020
Risk Committee
The Risk Committee receives reports from
the subsidiaries on their individual risks.
The Committee met formally four times
during the year and comprises the Group
Head of Risk and Internal Audit, the Group
Chief Financial Officer, the Group Financial
Controller, the Group Company Secretary,
the Assistant Company Secretary and the
Group Corporate Development Director, as
well as four representatives from across our
divisions and geographies.
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.
Additionally, as part of our commitment
to continuously evaluate our strategy
and product offering, the Risk Committee
thoroughly considers emerging risks in the
context of future opportunities and threats to
the Group’s business model.
In July 2020, the Risk Committee provided
guidance and analysis on potential medium
and long term impacts from the COVID-19
pandemic to our subsidiaries through a
session facilitated by PwC.
The Risk Committee will continue to evaluate
emerging risk during 2021 and make
appropriate recommendations to the Audit
Committee, if necessary.
Risk Analysis
The Board reviewed in depth feedback from
the subsidiaries and the Risk Committee on
the Group’s Principal Risks. Following detailed
debate, the Board concluded that the Group’s
Principal Risk Register continued to reflect the
principal risks the business faced.
An increase to the exposure from three of
our Principal Risks has been highlighted:
Changes in global outlook and geopolitical
environment, Supply chain failure, and Talent,
development, diversity, recruitment and
retention of key employees. A slight decrease
has been highlighted against Reduction
in Government spending plans, with the
remaining Principal Risks remaining stable.
For further details see pages 50 to 53.
During the year, the Risk Committee and
Board have discussed at length the effect
of Brexit and COVID-19 on the Group and
our Principal Risks. Where applicable further
details have been provided against individual
Principal Risks on pages 50 to 53.
Risk Activities
Activities undertaken to enhance the Group’s
approach to risk in 2020 included:
•
•
•
•
•
revised risk management methodology
to implement revised risk scoring (to
recognise high impact low likelihood
events), Target Risk scoring and the
assignment of multiple causes and
consequences to risks;
launch of the ‘Risk Playbook’ to advise
and guide subsidiaries on best practice
preventative (to reduce likelihood of
risks occurring) and reactive (to reduce
impact if risks do occur) mitigating
controls;
improved Board reporting and
developing reporting tools for our
subsidiaries to help them embed
risk management into their business
processes;
launch of improved risk management
software to improve the quality of risk
information held by subsidiaries and the
reporting process and;
virtual seminars and one to one training
to introduce and launch the new
risk management software and risk
management methodology.
The Universal Composite Submarine Camel berths all classes of submarines
for the US Navy at bases around the world while providing low maintenance,
corrosion resistance, longevity, and operational efficiency.
48
Stock Code HILS
Risk in 2021 and beyond
Risk in 2021 and beyond
The key focus during 2021 will include:
•
•
further work to mature the risk
management methodology used across
the Group, particularly by increasing the
range of methods used to assess the
effectiveness of risk mitigations using
Key Risk Indicators (KRIs);
in-depth review of mitigating controls
and the levels of assurance available
at subsidiary level to ascertain their
effectiveness;
•
•
•
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;
continued evaluation and identification
of emerging risks that might disrupt the
business models and strategies of our
subsidiaries;
further development of the newly
implemented Risk Management
software to continually improve the
efficiency of reporting to the Group from
our subsidiaries; and
•
further alignment of health & safety and
IT reviews with the control effectiveness
assessments performed by subsidiaries.
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FRP composite sheet piles have over 20 years of successfully protecting
piers, harbours, and waterfronts from erosion and storm damage. The
sheet pile wall pictured is in Ocean City, New Jersey.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
49
Principal Risks and Uncertainties
Economic
Economic
Commercial & Financial
Risk: Reduction in
Government spending
plans
Risk: Changes in global
outlook and geopolitical
environment
Risk: Increase in
competitive pressure
Trend:
Slightly lower
Link to strategy
Portfolio management
Trend:
Slightly higher
Link to strategy
Portfolio management
Trend:
No change
Link to strategy
Operational excellence
Enhancing organic growth
Enhancing organic growth
Enhancing organic growth
Agile decision making
Agile decision making
Agile decision making
Description and potential impact
Description and potential impact
Description and potential impact
The Group generates the majority of its
revenues from its operations located in the
UK and the USA and whilst it is possible
that Government spending plans will be
under increasing scrutiny, it is likely that
infrastructure investment will continue to
be a key part of national spending plans,
particularly in the short to medium term.
In March 2020, the UK government
confirmed its commitment to the next
phase of road investment spend (RIS2) at
£27.4bn. In the US, there is optimism for a
Federal-funded road investment bill under
the Biden administration. The Group is well
placed to benefit from these investments
and possible short term “shovel ready”
schemes to stimulate economic growth,
although a reduction in UK or US
Government infrastructure spending, could
reduce demand for our products and
services.
Mitigation
• Our existing entity portfolio contains
diverse products, markets and
territories and we will continue with this
approach.
• 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.
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.
Whilst Brexit has not had a material direct
effect on the Group, it creates the potential
for market disruption in the short term.
The COVID-19 pandemic continues to
create uncertainty in the global economic
outlook. The diverse portfolio of Group
businesses with exposure to a range of
markets and geographies, continues to help
mitigate this exposure.
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 is closely monitoring on
a business-by-business basis, the
identified operational and financial risks
arising from the UK’s exit from the EU.
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 pressure and as
a consequence a loss of sales and reduced
profits.
Mitigation
• The holding of leading positions in niche
markets of sustainable infrastructure
and transport safety 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.
50
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Commercial & Financial
Commercial & Financial
Operational
Risk: Product failure
Risk: Contractual failure
Risk: Supply chain failure
Trend:
No change
Link to strategy
Operational excellence
Sustainability
Trend:
No change
Link to strategy
Strong financial controls
High cash conversion
Trend:
Slightly higher
Link to strategy
Enhancing organic growth
Agile decision making
Description and potential impact
Description and potential impact
Description and potential impact
The Group operates in infrastructure
markets where it is critical that its products
meet customer and legislative requirements
and where the consequences of product
failure are potentially serious.
Significant product failure arising from
component defects or warranty issues
may require remediation including the
replacement of defective components
or complete products, resulting in direct
financial costs to the Group and/or wider
reputational risk.
Mitigation
• Products tested, approved and
accredited by regulatory bodies.
• Quality control protocols fully
implemented and continuously
monitored.
• Contractual controls in place to
minimise economic impacts.
•
Insurance cover maintained globally
with insurance partners.
• Litigation supported/managed by
external legal specialists.
• Thematic Internal Audit review
completed across the Group during
2019 with recommendations
implemented in 2019 and 2020.
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 potential for credit default risk due
to the ongoing COVID-19 pandemic has
been identified, although this has not yet
materialised. The Group continues to
closely monitor the position.
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.
• Trade credit insurance policies in place
in the UK, France and India which
mitigate exposure.
The Group’s businesses depend on the
availability and timely delivery of raw
materials and purchased components,
which could be affected by disruption in
its supply chain. Supply chain failures as a
result of performance, cost, quality and/or
insolvency may have an adverse impact
on the Group’s production capacity and
lead to an inability to meet customer
requirements, resulting in a reduction in
revenues, potential loss of market share
and possible reputational damage.
During 2020 the supply of key raw materials
and components was not impacted by the
COVID-19 pandemic, helped in part by local
contingency planning around buffer stock
levels and supplier sourcing arrangements
as first developed in response to Brexit.
The Group is currently experiencing
challenges relating to the global increases
in steel costs and whilst we are managing
availability issues and are well placed to
pass price increases to customers, we do
recognise an increase in the exposure from
the risk.
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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
51
Principal Risks and Uncertainties
continued
Operational
Risk: IT systems
failure
Trend:
No change
Link to strategy
Agile decision making
Operational excellence
Strong financial controls
Operational
Operational
Risk: Acquisition strategy
failure
Trend:
No change
Link to strategy
Targeted M&A
Portfolio Management
Sustainability
Risk: Lack of investment
in product development
and innovation
Trend:
No change
Link to strategy
Enhancing organic growth
Operational excellence and innovation
Strong financial controls
Description and potential impact
Description and potential impact
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.
Mitigation
• Board approval required for Group
acquisitions, in line with the Group
Board’s Schedule of Matters Reserved.
• Due diligence protocols deployed
in relation to assessment of target
businesses, including financial,
commercial, legal and others where
appropriate.
• Contractual protections and assurances
sought from sellers to mitigate
subsequent identification of risks.
• Post-acquisition integration plans
established for all material acquisitions
with regular performance monitoring
and reporting to the Board.
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.
Poor security controls and procedures
could lead to our businesses being
susceptible to cyber-attack, potentially
resulting in significant IT failure and
associated disruption.
Mitigation
• Business Continuity and 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 which
is a focus area for improvement.
• Ongoing project for the enhancement of
IT security controls and maturity across
the Group.
• Separate IT systems within each
subsidiary means that any illegal
external activity is unlikely to jeopardise
the Group as a whole.
•
IT Director recruited to the Group in
2020, responsible for IT strategy and
cyber security risk.
• Periodic guidance issued to subsidiaries
on current and prevalent cyber-attack
threats.
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.
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.
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Human Resources
Legal & Regulatory
Legal & Regulatory
Risk: Talent, development,
diversity, recruitment &
retention of key employees
Risk: Prevention of harm
or injury to people
Trend:
Slightly higher
Link to strategy
Management incentives aligned
Talent development
Agile decision making
Trend:
No change
Link to strategy
Operational excellence
Sustainability
Agile decision making
Risk: Violation of
applicable laws and
regulations
Trend:
No change
Link to strategy
Operational excellence
Sustainability
Strong financial controls
Description and potential impact
Description and potential impact
Description and potential impact
The changing nature of the demographics
from which we source our employees
and the ways in which they like to work
can make it difficult to attract and retain
both skilled and unskilled labour. We need
to ensure effective recruitment channels
and make the necessary investment to
develop and retain high-quality individuals
in key positions to guarantee the long-term
success of the business. We need to ensure
the diversity of our workforce reflects the
communities in which we work. Without
talented employees we will be unable to
deliver our strategic aims.
During the year some of our subsidiaries
have found it challenging to attract and
retain unskilled labour due to competitive
labour local markets and hence a slight
increase in the risk has been recognised.
Mitigation
•
Implementation of contractual
protections and retentions in
employment contracts of senior
management and other key employees.
• 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.
• Appropriate remuneration and benefits,
together with bonus opportunities and
incentive plans offered to employees.
• Recruitment process developed to
include competency requirements and
skills gap analysis.
The Group operates a number of manufacturing
facilities around the world. A failure in the
Group’s heath & safety procedures could lead
to to injury or to the 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.
During the year the Group has followed all
local guidelines to ensure that our facilities are
COVID secure and our employees are safe.
Actions taken include introducing enhanced
cleaning and hygiene procedures, implementing
social distancing and track and trace
procedures, provision of face masks and taking
all reasonable steps to help people work from
home where appropriate to do so. In addition,
we are mindful of the mental wellbeing of our
employees during this difficult time and have
offered appropriate support and assistance.
Mitigation
• Monthly heath & safety reporting for all
subsidiaries via online tools.
• Regular audits of UK, US, Sweden and India
including assessment of our COVID secure
arrangements.
Local audits completed in France,
periodically overseen by Group.
• Health & Safety Forums to monitor
•
performance and share best practice.
• Culture of zero tolerance in respect of
heath & safety violations promoted by the
Board and disseminated throughout Group
businesses.
External heath & safety accreditations and
relationships maintained with regulatory
bodies.
•
• Health & safety as a priority area of focus
for new acquisitions.
• Monitoring of LTI rates
• Any LTI event is followed up and
investigated thoroughly and improvement
recommendations are implemented to
minimise any reoccurrence.
• Reduction of the Group’s LTI rates is a key
focus for Management and the Board in
2021.
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.
There is no significant concern regarding
legislative changes post Brexit, however
the Group will continue to keep a watching
brief in this area and seek external advice if
necessary.
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 2020.
• Toolkits issued to all UK subsidiaries to
aid compliance with local GDPR.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
53
Non-financial information statement
We aim to comply with the Non-financial Reporting requirements contained in S414CA and S415CB of the Companies Act 2006 and the table
below, and the information it refers to, is intended to help readers understand our position on key non-financial matters.
Those policies marked with an asterix can be found on the Company’s website https://www.hsholdings.co.uk/about-us/corporate-governance/
policies.
Reporting requirement
Policies and standards which govern our
approach
Additional information
See Page No.
Employees
• Group Code of Business Conduct*
• Conducting business ethically
36-40
•
•
Training & Development Policy*
Senior Management Salary Policy
• Health & Safety Policy*
•
Succession planning and talent
management
• Group learning and development
• Health & safety
• Wellbeing
Human Rights
• Recruitment of Employees Policy
• Diversity & inclusion
38-40
•
•
Employment References Policy
• Gender pay
Equal Opportunities & Diversity
Policy*
• Human rights
• Board Diversity Statement*
• Data Protection Policy*
• Modern Slavery Policy*
The Environment
•
•
Environment Policy*
Energy Policy*
•
Sustainability
• Greenhouse gas emissions
• Water & waste
Community
•
Individual subsidiary approach
Anti-Bribery and
corruption
• Anti-bribery & Corruption Policy*
•
International Competition Law Policy
• Gifts & Entertainment Policy
• Whistleblowing Policy*
Description of the
business model
• Our business model
• Our strategy
Description of the
principal risks and
uncertainties and impact
of business activities
• Our business model
• Our markets
• Risk framework
• Principal risks & uncertainties
Non-financial key
performance indicators
• Diversity
• Accidents
• Greenhouse Gas Emissions
• Water & waste
41
43
40
8-9
8
10-11
50-53
38-41
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s172 Statement
Statement by the Directors in performance of their statutory duties in accordance with
s172(1) of the Companies Act 2006, (“the Act”)
The Board of Hill & Smith Holdings PLC
considers that it is suitably composed, with
an appropriate range of pertinent skills
and experience and the Directors consider
that they have acted, both individually
and together, in good faith and in ways
which would be most likely to promote the
success of the Company for the benefit of
its members as a whole, having regard to
stakeholders and matters set out in s172 (1)
(a-f) of the Act.
Our aim is to deliver long term profit growth
by creating sustainable infrastructure and
safe transport through innovation. In so
doing, the Board is collectively responsible
for upholding high standards of corporate
governance and leadership. We place a high
priority on meeting our environmental and
social responsibilities, whilst continuing
to deliver value to all of our stakeholders:
Employees; customers; suppliers; investors;
local communities; and Government. See
pages 32 and 33.
Effective risk management is also critical
to the achievement of our strategy, and our
risk management processes are integrated
into daily business activities. For more
information see pages 46 to 53.
The Board has implemented policies,
systems and procedures or updated existing
ones, to inform and assist its strategic
planning, management and decision-making
in line with its values.
In particular, during the year under review
and the period up to the date of this report
we have:
• Considered the long term consequences
of the Board’s decisions in relation to:
– the cancellation of the 2019 final
dividend;
– the acquisitions of Morgan Valley Inc,
and Prolectric Services Ltd; and
– the COVID-19 pandemic.
•
Engaged with our employees:
•
Engaged with local communities:
– encouraged the sharing of best
practice within our operational teams,
throughout the COVID-19 pandemic,
to ensure the health, safety and
welfare of our employees;
– conducted our first ever all-employee
health & safety engagement survey.
This surveyed all c. 4,400 employees
across six countries and five
languages and followed on from our
first all employee engagement survey
conducted in 2019. The current
intention is to alternate each year with
these surveys;
– held two Workforce Advisory Panel
meetings, where representatives of
our subsidiaries in both the UK and
the US could meet with members of
the Hill & Smith Holdings PLC Board.
Due to the COVID-19 pandemic these
meetings were held virtually, allowing
employees to interact with the Group’s
Chair of the Board, Chief Executive,
Chief Financial Officer and Group
Company Secretary;
– continued to develop management
leadership courses;
– supported local or national charitable
endeavours of our employees and
customers; and
– complied with environmental
legislation, pursued waste-saving
opportunities and reacted promptly to
local community interactions.
•
Engaged with Government and industry
bodies:
– representatives sit on Government
and industry bodies supporting
product development and safety;
– liaised with Government departments
to support funding and export
initiatives; and
– met with Government bodies to
advocate product development.
• Maintained high standards of business
conduct:
– issued revisions to the Group Policy
Manual; and
– issued Anti-Bribery & Corruption,
Modern Slavery and Competition Law
training to c. 2,000 employees
– developed apprenticeships; and
•
Engaged with members:
– carried out health & safety audits
across all our US sites and the
majority of the UK sites.
•
Engaged with suppliers and customers:
– met with major suppliers one or more
times annually. During 2020 most
of these meetings were conducted
virtually;
– supported suppliers through the
COVID-19 pandemic, by maintaining
payment terms;
– took action to prevent involvement in
modern slavery, corruption, bribery
and breaches of competition law.
– our Chair, Chief Executive and Chief
Financial Officer have held meetings
with various shareholders and
analysts;
– held a virtual AGM; and
– following cancellation of the 2019
final dividend due to the uncertainty
around the COVID-19 pandemic,
reinstated the Group’s dividend policy
in July 2020, with a 9.2p interim
dividend in respect of 2020.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
55
Speaking Willow
case study
Designed by artist Rafael Lozano-Hemmer
and galvanized by V&S Galvanizing in Perth
Amboy, New Jersey, USA, the Speaking
Willow celebrates the world’s rich linguistic
diversity. As visitors pass beneath the tree’s
branches, they activate the bell-shaped
speakers suspended directly overhead.
Each speaker has been programmed with
sample recordings of a different language.
Together, they represent the native tongues
of over 99% of the planet’s population. A
walk around Speaking Willow evokes a
journey around the world; reminding us
that language is what defines our specific
communities and connects our many
cultures.
Located in Downtown Washington DC, the
Speaking Willow will be visible to millions
of visitors throughout the year at the Planet
World Museum courtyard. The galvanized
steel used provides decades of maintenance
free corrosion protection that is crucial to
protect the internal electrical components.
The artist also chose to galvanize the
Speaking Willow for aesthetic reasons to
achieve a timeless look for years to come.
The fabrication work required complex
fabrication and unique hot-dip galvanizing
dipping methods to craft the trunk and
branches and to ensure a smooth finish,
free of zinc build-up and smooth to the touch
inside and out, protecting it from visitors
and the 3.6 miles of ethernet cable fed
throughout the tree.
“This fabrication work
required complex
fabrication and unique
hot-dip galvanizing
dipping methods to
craft the trunk and
branches and to ensure
a smooth finish, free
of zinc build-up and
smooth to the touch
inside and out of each
tree branch and trunk.”
Find out more about the
company at
www.hotdipgalvanizing.com
56
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Governance Report
58
60
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64
Board of Directors
Executive Board
Introduction to Governance
Governance Report
64
65
66
69
70
Board Leadership and Company Purpose
Division of Responsibilities
Composition, Succession and Evaluation
Audit, Risk and Internal Control
Remuneration
Nomination Committee Report
Audit Committee Report
Remuneration Committee Report
80
83
Chair’s Letter
Directors’ Annual Remuneration Report
Directors’ Report (other statutory information)
Statement of Directors’ Responsibilities
72
74
80
100
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
57
V&S Galvanizing provide hot-dip galvanizing for trailer
chassis to provide long-term maintenance free protection.
hsholdings.com
Board of Directors
Alan Giddins
Chair
Alan was formerly a Managing Partner and Global Head of Private Equity at 3i Group plc, and
a member of its Executive Committee. He has extensive experience of sitting on the boards of
international businesses. Prior to joining 3i, 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. Alan is also a Non-executive Director of Big Society Capital, a
leading social impact-led investor.
Appointed to the Board
3 October 2017
Committee Membership
Nomination (c), Remuneration
Paul Simmons
Group Chief Executive
Paul joined the Company on 1 September 2020 and was formally appointed Group Chief
Executive on 12 November 2020, following the retirement of Derek Muir. Prior to joining Hill
& Smith, Paul was with Halma plc for 10 years, mostly recently as Chief Executive of the
Infrastructure Safety and Process Safety sectors. Prior to Halma, he spent nine years at 3M
leading businesses in the UK and USA. Paul has a degree in Manufacturing Engineering.
Appointed to the Board
1 September 2020
Committee Membership
Nomination
Hannah Nichols
Group Chief Financial Officer
Hannah joined the Company in September 2019. Prior to joining Hill & Smith, Hannah had a
14-year career in BT Group plc, most recently as Chief Financial Officer, Asia Middle East and
Africa for BT Global Services based in Singapore. Hannah also held a number of commercial
roles at Cable & Wireless prior to joining BT. She qualified as a chartered accountant at Arthur
Andersen in 1999 and has a Classics degree.
Appointed to the Board
16 September 2019
Tony Quinlan
Senior Independent Non-executive
Tony has had a successful international career as a plc Director in major Technology,
Industrial, Energy and Retail companies. He was most recently CEO of Laird plc where he
led a successful turnaround and then took it from listed to private ownership under Advent
International. He has been retained by Advent International as a Non-executive Director
and advisor. In addition, he is a Non-executive Director of Associated British Ports and has
served as Deputy Chairman for the Port of London Authority, where he also Chaired the Audit
Committee. Tony qualified as a Chartered Accountant in 1991 and has a degree in Chemistry
with Business Studies.
Appointed to the Board
2 December 2019
Committee Membership
Audit, Remuneration, Nomination
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Annette Kelleher
Independent Non-executive
Annette has broad senior management experience in the international industrials sector and
is currently Chief Human Resources Officer of Johnson Matthey PLC. Prior to joining Johnson
Matthey she held a number of senior human resource roles in Pilkington Glass and NSG
Group. Previously, Annette was a Non-executive Director of Tribunal Services, part of the UK’s
Ministry of Justice. Annette has a degree in Business Studies and a masters degree in Human
Resource Management.
Appointed to the Board
1 December 2014
Committee Membership
Audit, Remuneration (c), Nomination
Mark Reckitt
Independent Non-executive
Mark is a chartered accountant and was Group Strategy Director of Smiths Group plc from
February 2011 to April 2014, Divisional President, Smiths Interconnect from October 2012 to
April 2014 and Non-executive Director at JD Wetherspoon plc from May 2012 to May 2016.
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
Pete Raby
Independent Non-executive
Pete has been the Chief Executive of Morgan Advanced Materials plc since August 2015. Prior
to that he was the President of the Communications and Connectivity sector within Cobham
plc, following a nine-year career with Cobham where he held a number of senior leadership
roles covering strategy, technology, business transformation, and business leadership. Prior to
Cobham, Pete was a partner at McKinsey & Company in London specialising in strategy and
operations in the aerospace, defence and power and gas sectors. He has a PhD in satellite
navigation and a M.Eng in Electronic and Electrical Engineering.
Appointed to the Board
2 December 2019
Committee Membership
Audit, Remuneration, Nomination
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
59
hsholdings.com
Executive Board
Paul Simmons
Group Chief Executive
Hannah Nichols
Group Chief Financial Officer
Denise Beachy
Group President
Andrew Beaney
Group President
Denise joined Hill & Smith from DuPont in January 2021.
She is based in Detroit, USA
Andrew joined Hill & Smith from Interserve in the Middle
East in August 2019. He is based in Wolverhampton, UK
Joel Whitehouse
Corporate Development Director
Joel joined the Group in 2006. He has held a number of
roles in the business and is currently responsible for the
Group’s M&A delivery. He is based in the Group’s Head
Office, Solihull, UK.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
61
The ProLight solar lighting tower from Prolectric providing sustainable
temporary lighting to the recent Highways England A14 improvements.
hsholdings.com
Introduction to Governance
On behalf of the Board, I am
pleased to introduce Hill &
Smith’s Corporate Governance
Report for 2020. The aim of
this report is to provide a clear
explanation of Hill & Smith’s
governance framework. Good
corporate governance is a
critical component of a well-
run company. It involves being
satisfied that an effective
internal framework of processes
and controls is in place which
clearly defines authority and
accountability, whilst allowing
the management of risk to
appropriate levels.
In this introduction I have set out a
summary of our core areas of focus during
the year and our plans for 2021. The full
report can be found on pages 64 to 70.
Basis of Report
We have used the UK Corporate Governance
Code 2018 (the ‘Code’) to assess our
governance arrangements during 2020.
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: Board Leadership
and Company Purpose; Division of
Responsibilities; Composition, Succession
& Evaluation; Audit, Risk & Internal Control;
and Remuneration. For the financial year
ended 31 December 2020, the Board
considers that it has complied in full with
the provisions of the Code.
Board and Board Committees
As Chair, my primary role is to provide
leadership to the Board and create the
right environment to enable each Director
and the Board as a whole to perform
effectively for the benefit of the business
and its stakeholders. I believe that we have
a highly effective Board and a strong team
of Non-executive Directors who provide
effective challenge and review, bringing wide
experience and a fresh perspective to major
decisions. I am particularly pleased that
Leigh-Ann Russell will be joining the Board
on 1 April 2021, at which point the Board
will comprise six Non-executive Directors,
including myself, and two Executive
Directors.
The Board has established three
Board committees: Audit Committee,
Remuneration Committee and Nominations
Committee. The terms of reference of
these committees can be found on our
website and the reports of each committee,
including attendance at meetings during
2020, can be found on pages 65 to 93.
Key Board Activities
The Board spent significant time during
2020 on the Group’s response to the
challenges posed by COVID-19. The Board’s
key priority throughout the pandemic
has been the health and wellbeing of our
employees, and the safety processes being
put in place across our different operations.
During the first lockdown the Board
instigated weekly calls with management
to review key forward-looking operational,
working capital and cash metrics. I believe
that this tight focus on our performance
served Hill & Smith well during a period
of considerable market uncertainty, and I
would like to thank all of our Non-executive
Directors for their considerable time
commitment during this period.
The Board held a virtual strategy day in
July 2020, which allowed us to look at
some of the more medium and longer
term strategic opportunities available to
the Group. The Board has also undertaken
post-acquisition appraisals of ATG Access,
our new galvanizing plant in Owego and
Work Area Protection Corp. In each case our
focus was on ensuring the robustness of
our diligence processes and that our post
investment implementation plans had been
effectively implemented. More information
on our strategy, our business model and our
markets can be found on pages 8 to 11.
We have continued to focus on our risk
management processes, including investing
in new reporting tools aimed at ensuring the
robustness of the risk submissions from
our subsidiaries. We have also continued to
look at where we can strengthen our internal
control environment and in particular to
evaluate our cyber security defences. Mark
Reckitt, Chair of the Audit Committee, gives
more insight into this in his report on pages
74 to 79.
Board Effectiveness
To deliver sustained value to our
shareholders, employees and wider
stakeholders, the Board must function
effectively in supporting and guiding
management to deliver the Company’s
strategy.
This year we engaged Edge Square Partners
to complete an external Board evaluation.
The evaluation involved Edge Square
Partners meeting with all Board members,
as well as a number of senior executives
within the Group, and attending, as an
Alan Giddins
Chair
“The Board’s key
priority throughout the
pandemic has been the
health and wellbeing of
our employees, and the
safety processes being
put in place across our
different operations.”
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observer, certain Board committee meetings. Notwithstanding the
overall positive feedback from the evaluation, Edge Square Partners
made some helpful recommendations around the operation and
focus of the Board, details of which are set out on page 67.
In 2021 we will undertake an internal Board evaluation process in line
with the requirements of the Code and I will share the outcome of
this evaluation in the next Annual Report.
Executive Director Remuneration
In evaluating Executive Director performance and remuneration
we have been extremely conscious of the challenges the business,
our employees and suppliers have had to deal with. We also made
sure that we have listened to the views of our major institutional
shareholders, while at the same time balancing this against what
has, in the circumstances, been a good performance by the business.
Annette Kelleher, Chair of the Remuneration Committee, explains
more in her report on pages 80 to 93.
Focus for 2021
In the short term the Board’s focus will remain on the operational
and economic impact of COVID-19 and supporting the business
and our wider stakeholders. Given our strong balance sheet we will,
however, not lose sight of the opportunity to continue to build our
M&A pipeline and invest in growth opportunities consistent with the
strategy update set out by Paul Simmons.
The Group has put in place a number of initiatives in relation to
enhancing our reporting around health & safety and sustainability,
and for the continued refinement of how we think about and assess
risk. These are topics which are important to our shareholders,
employees and society in general and will be an important area of
your Board’s focus during 2021.
Finally, over the last 12 months I and the Non-executive Directors
have been limited in our ability to visit subsidiary company sites
and interact with operational management face-to-face. This is
something which I believe is extremely valuable and I hope we will
be able to address in the second half of this year. It will also provide
the opportunity to more formally thank all of our employees for
their extraordinary commitment to support the Group through the
COVID-19 pandemic.
Alan Giddins
Chair
9 March 2021
One Vanderbilt, the tallest office tower in Midtown Manhattan, topped
with a 100-foot architectural spire. Floors 60 upwards consist of 3,200
US tons of structural steel, galvanized by V&S Lebanon.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Governance Report
Board Leadership and Company Purpose
Q. What is the role of the Board?
A. The Board sets the Group’s strategic goals and has ultimate
responsibility for its management, direction and performance. The
Company’s Articles of Association set out the Board’s powers. The
Board has adopted a formal schedule of matters reserved solely
for its decision making and certain decision-making and monitoring
activities have been delegated to Board Committees or management,
through a clearly defined delegated authority matrix.
The Board has established three principal committees - Audit
Committee, Nomination Committee and Remuneration Committee -
which review and monitor key areas on behalf of the Board and make
recommendations for its approval. Each committee operates under
written terms of reference which are approved by the Board and
made available on the Company’s website. Further information on
the activities and composition of each committee is detailed in each
of the committee reports.
Q. The global pandemic affected everyone. How did the Board
respond in relation to COVID-19?
A. Once the scale of the pandemic had become clear, the Group
established a ‘war committee’ of senior executives and managers
to continually monitor the Group’s workforce and financial position.
This committee met weekly. Likewise, the Board initiated weekly
update calls. Your Board specifically focused on three areas during
these calls. First, ensuring the health and safety of our employees.
Secondly, monitoring the short and medium-term financial health of
the business under a range of financial and operational scenarios,
and thirdly, ensuring that the Group utilised, where appropriate,
available government assistance.
In December, having carefully considered the effect that the
pandemic had had on the Group and in light of stronger trading in the
third quarter of the year, the Board took the decision to repay all UK
furlough monies claimed during the year, amounting to £3.6m. At the
same time the Board brought forward the repayment of all deferred
UK VAT payments of £6.5m
Q. What constraints were placed on Board Governance by
COVID-19?
A. The Board was able to fully meet, discuss and vote on matters
in person (when restrictions allowed) or through the use of virtual
meeting software throughout the year. The pandemic did not disrupt
the Board’s schedule of meetings or its decision-making.
The biggest constraint on Board governance related to the 2020
AGM. Due to the restrictions placed upon gatherings by the
Government, and out of concern for the safety of our shareholders
during the pandemic, the AGM was held as a closed meeting in 2020,
with proceedings broadcast through the internet. While shareholders
were invited to submit questions ahead of the AGM, the Board did
not have the opportunity to speak with shareholders at the AGM, as it
customarily does.
Q. How do you define the ‘Company Purpose’?
A. With the arrival of Paul Simmons as Chief Executive Designate in
September 2020, the Board took the decision to re-visit the Group’s
Purpose Statement. As part of this process input was sought from
both senior management and from the members of the Workforce
Advisory Panels. As a result of these discussions the Group’s
purpose statement has been amended to the following: “Creating
sustainable infrastructure and safe transport through innovation”.
The Board believe that this statement more accurately reflects the
activities and strategic focus of the Group.
Q. How do s.172 considerations inform the Board’s strategy
discussions?
A. All Board members are aware of their obligations under s.172 of
the Companies Act 2006 and their decisions and considerations that
have s.172 implications are accurately reflected in Board minutes. The
Board’s 2020 s.172 statement can be found on page 55.
Additionally, three of our largest UK subsidiaries are also required
to make s.172 statements and these can be found within the
Annual Report and Accounts of those entities. Directors of these
subsidiaries have received additional support from the Group in
ensuring that their decisions are fully recorded in Board minutes and
received refresher training on the duties of a Company Director to
ensure that s.172 considerations were at the forefront of their mind
when making decisions.
Q. How does the Board engage with Shareholders?
A. Throughout the year the Chief Executive and Chief Financial
Officer met with institutional shareholder representatives both in
the UK and USA. Following the announcement at the start of April
of the appointment of Paul Simmons as Chief Executive Designate,
the Chair spoke directly with a number of the Group’s major
shareholders.
In addition to regular updates from the Chief Executive, the Board
receives reports from the Company’s brokers and financial public
relations agency on feedback from institutional shareholders
following each of the Group’s results announcements.
Q. What value does the Board place on our AGM?
A. In light of COVID-19 and in common with many other businesses,
we took the decision to hold our 2020 AGM virtually and
shareholders were invited to listen to proceedings via the Internet.
Unfortunately, this arrangement meant that shareholders could not
interact with Board members in the usual way.
The Board is always keen to meet with shareholders and answer
your questions. 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 Chief Financial Officer are able to give a presentation
to all shareholders in attendance and shareholder participation
is encouraged, questions and feedback are invited. Proxy votes
of shareholders for the AGM are tabulated independently by the
Company’s registrars, provided at the AGM and published on the
website shortly after the conclusion of that meeting.
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
Chair and Tony Quinlan, Senior Independent Director, are available to
meet with shareholders concerning corporate governance issues, if so
required. No concerns regarding the running of the Company or any
proposed action were received or recorded from shareholders in the
year under review or to the date of this report.
The Company 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, and Group policies.
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Division of Responsibilities
Q. What is the role of the Chair?
A. The Chair is responsible for the leadership of the Board, and for
building a Board with the appropriate mix of people, skills, knowledge
and experience. The Chair sets the Board agenda, determines how
the Board should use the time available to it during Board meetings
and is responsible for encouraging the active engagement of all
Board members. The Chair also engages with major shareholders to
understand their views on both governance and the Group’s strategy.
The division of responsibilities between the Chair and the Chief
Executive is set out in writing and available at www.hsholdings.com.
Q. What is the role of the Chief Executive?
A. The Chief Executive is responsible for the leadership of the
Executive Board, delivery of the Group’s strategy, meeting financial
objectives, implementing policies and maintaining effective controls.
Along with the Chief Financial Officer, the Chief Executive provides
information to the Board via their regular written reports and
discussion at Board meetings.
In 2020, Paul Simmons was recruited as the successor to Derek Muir
who retired as Chief Executive Officer on 12 November 2020. Paul
joined the Board of Hill & Smith from Halma plc in September 2020
as Chief Executive Designate and formally took up his duties as Chief
Executive when Derek retired at the start of November. Paul took part
in a detailed and structured handover from Derek and led the 2021
budget process.
Q. How do our Non-executive Directors contribute to our Board?
A. The Non-executive Directors take an active role in challenging
strategy and monitoring the performance of the Company. The
Group believes that the Non-executives have the appropriate skills,
experience in their respective disciplines and characteristics to bring
independence and objective judgement to Board discussions.
The Non-executive Directors, led by our Senior Independent Director,
meet independently without the Chair present and also meet with the
Chair, independent of management.
Q. How is our Board supported by our sub-committees?
A. During 2020, the Board was supported by three committees, each
reporting directly to the Board.
The Nomination Committee, comprising the Chair, the four 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 Chair. The
Audit Committee, comprising the four Non-executive Directors, has
responsibility for planning and reviewing the Company’s annual
and interim reports and accounts, and its internal controls and risk
management systems. (See pages 74 to 79 for more information).
The Remuneration Committee, comprising the Chair and four Non-
executive Directors, is responsible for the creation, approval and
implementation of the Company’s Remuneration Policy in respect of
Executive Directors, Group Company Secretary and senior executives.
The Audit Committee is additionally supported by the Risk Committee
that comprises the Group Company Secretary; the Group Financial
Controller; the Corporate Development Director; the Group Head
of Risk and Internal Audit, the Assistant Company Secretary and
representatives from a number of the Group’s subsidiary businesses.
(See pages 46 to 49 for more information).
Q. How frequently did our Board and sub-committees come
together?
A. During 2020, the Board met on 11 occasions and the Audit Committee
on five occasions. The Nomination Committee met on three occasions
and Remuneration Committee met on eight occasions.
Total
Alan Giddins
Derek Muir
Paul Simmons
Tony Quinlan
Annette Kelleher
Mark Reckitt
Pete Raby
Hannah Nichols
Board
meetings *
12
12
Audit
Committee
5
Nomination
Committee
3
3
Remunication
Committee
8
8
10*
3*
12
12
12
12
12
3
3
3
3
3
5
5
5
5
8
8
8
8
* Both Derek Muir and Paul Simmons attended all of the Board meetings they were entilted
to attend.
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 58 and 59. In accordance with the Articles,
the Board authorised the Group 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. How are changes to the Board agreed?
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, making recommendations to the Board. The
terms of reference of the Nomination Committee can be found at www.
hsholdings.com and more information on the work of the Committee
can be found in the Committee Chair’s report on pages 72 and 73.
Q. How is the Board supported and did any Directors feel it
necessary to seek independent advice during the year?
A. The Board is supported by the Group Company Secretary who,
under the direction of the Chair, ensures that communication
and information flows between Board members. The Company
Secretary is also responsible for assisting the Chair in all matters
relating to corporate governance, including the Board evaluation
process. From time to time, other members of the management
team attend Board meetings to present annual budgets, updates
and proposals relating to their areas of responsibility and reporting
on regulatory compliance, risk management and internal controls.
The Directors and management of the Group businesses are also
supported by certain head office functions, including compliance,
risk management, internal audit, treasury, taxation, acquisitions and
corporate development.
All Directors are able to take independent professional advice, when
necessary, at the Company’s expense, although no Director felt it
necessary to seek such advice in the year ended 31 December 2020.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Governance Report
continued
Composition, Succession and Evaluation
Q. Who constituted the Board during 2020?
A. At 31 December 2020, the Board comprised:
• Alan Giddins, Chair;
• Annette Kelleher, Non-executive Director;
• Mark Reckitt, Non-executive Director;
• Pete Raby, Non-executive Director;
•
Tony Quinlan, Non-executive Director;
• Paul Simmons, Group Chief Executive; and
• Hannah Nichols, Group Chief Financial Officer.
Individual biographies for each Director can be found on pages 58 and 59. Derek Muir was a Board member up until his retirement on 12
November 2020.
All Directors were in attendance at all meetings of the Board to which they were entitled.
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 AGM.
Q. How would you evaluate the blend of skills and experience within the Board?
A. Over the last 18 months the Nominations Committee has been focused on recruiting Non-executive Directors with the necessary skills,
experience and diversity required to support the Group’s future development. The biographies of the Directors of the Board are shown on pages
58 and 59 along with any significant other commitments and appointments they may have.
Skills and business experience:
Strategy (6)
Leadership (7)
Supply chain (2)
Marketing (2)
Operating performance & delivery (6)
Risk management and assurance (6)
Mergers & Acquisitions (6)
Financial planning 5)
International markets (7)
Business integration (5)
Information Technology (5)
Health & Safety (4)
Human Resources (4)
Culture & ethics (4)
On 2 February 2021, the Group announced the appointment of Leigh-Ann Russell as a Non-executive Director with effect from 1 April 2021.
Leigh-Ann Russell is Chief Procurement Officer at BP (‘bp’), with responsibility for safety, compliance and efficiency of bp’s global supply chain.
Q. How is Succession Planning undertaken within the business?
A. Each subsidiary is required to have its own succession plan in place, and this is reviewed on a regular basis by each operating board. The
Group’s Nomination Committee retains overall responsibility for succession planning, and it receives regular reports from the Chief Executive in
respect of succession planning at the subsidiary Company level.
The Nomination Committee regularly reviews the composition of the Board, including tenure, skills, diversity and demographic mix. This
robust process ensures that the Board retains knowledge, talent and a diverse range of backgrounds and experience, while at the same time
maintaining a well-managed succession process.
Q. What is the Board’s view on diversity?
A. The Board is committed to ensuring that the Company’s workforce is as diverse as possible, 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, sex or sexual orientation. As part of this commitment, the Company includes in its Annual Report details of
the numbers 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. See page 39 for more details. Where appropriate, the Board will take steps to address any gender or other diversity imbalance,
including (but not limited to) ensuring that the Company’s vacancies are advertised to a diverse labour market.
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Q. How has the Board addressed the recommendations of the
Hampton Alexander Review?
A. The Nominations Committee has over the last 18 months spent
considerable time focused on ensuring that the Board has the
requisite skill to support the future growth of the Group. This included
appointing Tony Quinlan and Pete Raby to the Board in December
2019. Following the appointment of Paul Simmons as Chief
Executive, the Board announced on 2 February 2021 the appointment
of Leigh-Ann Russell as a Non-executive Director, effective from 1
April 2021. Following this appointment, the Board will comprise five
male and three female Directors.
Q. What arrangements are in place for Director training and
development?
A. 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 and best practice. Typical
training experiences for Directors includes attendance at seminars,
forums, conferences and working groups, as well as the provision
of information from the Company Secretary. External speakers are
periodically invited to present to the Board on key governance issues.
Q. Was an independent Board evaluation undertaken during the
year?
A. The Board appointed Verena Kugi, Edge Square Partners (an
independent assessor with no association with the Company) to
undertake an evaluation as to the effectiveness of the Board. In light
of the number of recent Executive and Non-executive appointments
to the Board, the Board specifically asked Ms Kugi to focus on team
effectiveness in the context of a high performing Board.
The review was undertaken between November 2020 and January
2021. The process involved Ms Kugi reviewing previous evaluations
and meeting with all Board members, as well as a number of
senior executives within the Group. These interviews covered
a broad range of topics, including development of the Group’s
strategy, Board composition, Board culture and relationships with
management, Board meetings, agenda and quality of information
and presentations. Ms Kugi also attended, as an observer, the Board
and Committee meetings held in November 2020, which provided an
insight into the work and dynamics in the boardroom.
The review found that the Board worked in an effective and very
collegiate way. It noted that both the Executive and Non-executive
Directors were considered to be highly committed, and that the Non-
executive Directors provided a healthy level of challenge. There was
also a genuine desire from the Executive Directors to seek input from
the Non-executive Directors. Having reviewed the findings, the Board
agreed to focus on the following key areas during 2021:
•
•
•
Looking at new ways to use technology to help provide the
Non-executive Directors with greater access to the subsidiary
businesses. It was felt that this was critical in light of the risk that
travel restrictions could remain in place through much of 2021;
Increasing the time and focus given at Board meetings to the
long-term strategic direction of the Group; and
Ensuring that the delineation of responsibilities works effectively
between the Board and the newly established Executive Board.
Q. Was a formal review of the Chair separately undertaken during
the year?
A. As Senior Independent Director, Tony Quinlan conducted a
review of the Chair, seeking input from each of the Executive and
Non-executive Directors. The output from this review was shared
with the Chair.
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The Queue Detection Trailer by Hill & Smith Inc., seen here near
Salisbury, Maryland, USA, is a portable solar-powered trailer that
provides a versatile and lightweight platform to mount a radar
unit to detect speed, volume, and occupancy for up to 22 lanes
of traffic within a smart work zone.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Hill & Smith Inc. is the exclusive distributor of Rebloc’s temporary barrier systems in North America.
Known as ‘Zonebloc®’ in the US, the revolutionary freestanding temporary concrete barrier is
designed to minimise impact to the traveling public while offering a supreme level of protection in
freestanding applications. With a base width of only 12 inches, the compact design is effective on
projects where space is restricted.
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Governance Report
continued
Audit, Risk and Internal Control
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 100 and the
Independent Auditor’s Report on pages 106 to 116.
Q. What responsibility does our Board have for managing risk?
A. The Board has 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 reviewing the effectiveness of the Group’s internal controls. The
process has been in place throughout 2020, 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 the 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.
More information on the Group’s Principal Risks and Uncertainties is
shown on pages 50 to 53.
Q. What responsibility does our Board have for embedding key
controls?
A. The respective responsibilities of the Board in connection with the
key controls in the business include:
•
Ensuring maintenance of a robust system of internal control and
risk management;
• Reviewing the adequacy and security of the Company’s
arrangements for its employees and contractors to raise
concerns, in confidence, about possible wrongdoing in financial
reporting or other matters. The Board shall ensure that these
arrangements allow proportionate and independent investigation
of such matters and appropriate follow up action;
• Consideration and approval of the half-yearly report, any
other interim management statements and any preliminary
announcement of results.
• Approving of any significant changes in accounting policies or
practices.
• Approving of treasury policies including foreign currency
exposure and the use of financial derivatives.
Q. How does our Internal Audit function support the work of our
Board?
A. During 2020 the Audit Committee reviewed the annual audit plans
for 2021, as prepared by the Group Head of Risk and Internal Audit
and recommended the plans to the Board. The 2020 plan focused
on core baseline controls and key policy compliance, along with
thematic reviews covering strategic and operational risks. Due to
travel restrictions in place for much of 2020, it was not possible to
complete as many physical audits as planned. However, these were
substituted with thorough desktop reviews.
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 2020, and up to the date of approving the Annual Report
and Financial Statements. The risk management and internal
control system is designed to manage, rather than eliminate,
the risk of failing to achieve business objectives and can provide
only reasonable, and not absolute, assurance against material
misstatement or loss. The assessment and control of risk are
considered by the Board to be fundamental to achieving corporate
objectives. An ongoing process for identifying, evaluating and
managing the significant risks faced by the Group and assessing the
effectiveness of related controls has been established by the Board
to ensure an acceptable risk/ reward profile across the Group.
Q. How has the Board assessed the short-term financial
requirements of the Group?
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. The assessment included
a review of both divisional and Group financial forecasts, financial
instruments and hedging arrangements, for the period from the
Balance Sheet date through to 31 March 2022. Key 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.
At 31 December 2020, the Group had £328.3m of committed
borrowing facilities, of which only £1.2m matures before December
2023 at the earliest, and a further £13.8m of on-demand facilities.
The amount drawn down under these facilities at 31 December 2020
was £139.0m, which together with £22.0m of cash resulted in total
headroom of £225.1m. The Group has not made any changes to its
principal borrowing facilities between 31 December 2020 and the
date of approval of these Financial Statements and there have been
no significant changes to liquidity headroom during that period.
The Group has carried out stress tests against the base case to
determine the performance levels that would result in a breach of
covenants or a reduction of headroom against its borrowing facilities
to nil. The Directors do not consider the scenarios required to
breach the covenants to be plausible given the ability of the Group to
continue its operations throughout the COVID-19 pandemic, its ability
to return to more normalised activity levels during the second half of
2020 and early part of 2021, and the positive future outlook across
the infrastructure markets in which it operates.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
69
hsholdings.com
Governance Report
continued
The forecasts show the Group will have sufficient headroom in
the foreseeable future and the likelihood of breaching borrowing
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. The Directors have considered the prospects of the Group over the
three-year period immediately following the 2020 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 14 and 15) 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 50 to 53). This robust assessment
considered the impact of the principal risks on the business model
and on future performance, liquidity and solvency. Stress tests were
applied to the Group’s three-year plan, whereby factors 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;
deterioration in macro-economic conditions leading to a fall in
galvanizing volumes across all geographies;
a reduction in national spend on infrastructure projects, leading
to a reduction in revenues in the Group’s Utilities and Security
businesses in the UK and USA; and
•
continued economic disruption caused by the current pandemic.
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 2020, with a facility headroom of £225.1m and a
history of strong cash generation. The Directors noted that whilst
the Company’s principal borrowing facilities mature in December
2023, slightly before the end of the review period, based on past
experience they have a reasonable expectation that those facilities
will be renewed or renegotiated before that date. 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
2023.
Q. What has the Board done to ensure a fair, balanced and
understandable representation 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 from management detailing how
the Annual 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 the review of these
sections by external advisors was fit for purpose;
that the information given represented the whole story of the
Group’s performance in 2020 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 EY in order to correctly disclose the
performance, controls and prospects of the Group; and
that the document allowed stakeholders to follow the whole
story of the Group’s financial and non-financial performance
in 2020 giving them a clear and understandable picture of the
Group’s business model, key drivers and commercial operations.
Remuneration
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, an annual bonus and a three-year longer-term
incentive arrangement. Whilst we consider our financial performance
in 2020 to be good, given the operational challenges arising from the
effects of COVID-19, the short-term bonus will only pay out 19% or
20% of the maxium bonus opportunity (2019: 94%). The performance
of the three-year long-term incentive arrangement is described in
more detail on page 87 of the Remuneration Report.
Q. Did the Board consider the wider workforce when recommending
increases Executive Director pay increases for 2020?
A. In deciding on the annual increase of 2.0% for the Executive
Directors, the Remuneration Committee reviewed information on the
average increases being given across the Group’s subsidiaries. More
information is available on page 91 of the Remuneration Report.
Q. How has the Board engaged with the wider workforce during
2020?
A. During 2019 the Group undertook its first worldwide Employee
Engagement Survey, the results of which were shared with the
Workforce Advisory Panels (‘WAP’) and with individual subsidiary
management teams. Throughout 2020, each subsidiary was asked
to come up with a clear set of actions to address the outputs from
the survey. These actions, together with progress against them,
were shared with the Board. The WAP met (virtually) in 2020 and
their discussions were complemented by the Group’s first worldwide
Health & Safety Culture Survey. The results of this survey will be
shared with the subsidiary companies in 2021 and will be used to
drive further improvement initiatives during 2021.
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Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
71
The ProLight solar lighting tower from Prolectric providing sustainable temporary lighting with
technology that provides zero carbon, zero noise and zero emissions solutions to its users.
hsholdings.com
Nomination Committee Report
Dear Stakeholder
It is my pleasure to make my report as Chair of the Nomination Committee of Hill & Smith
Holdings PLC and explain to you how the Committee has worked throughout 2020.
Committee Membership
Throughout the year the Committee comprised myself as the Group’s Chair, and the
Non-executive Directors Annette Kelleher, Tony Quinlan, Pete Raby and Mark Reckitt.
Derek Muir, as Chief Executive was on the Committee from 1 January 2020 until his
retirement on 12 November 2020 and our new Chief Executive, Paul Simmons was
on the Committee from 12 November 2020. The Committee met three 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 and ethnicity, taking care that appointees
have enough time available to devote to the position.
All Non-executive Directors and the Chief Financial Officer, as well as the newly appointed
Chief Executive, 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 the 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 of your Board of
Directors see page 66.
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 and all Directors are expected
to be flexible in managing these. Any significant changes to their other commitments are
notified to the Board before they arise. The Board remains satisfied as to the time availability
and commitment of the Non-executive Directors.
Date of Appointment
Length of service at 31 December 2020
Alan Giddins
(as Chair)
3 October 2017
1 October 2019
3 years 3 months
1 year 3 months
Annette Kelleher
1 December 2014
6 years 1 month
Tony Quinlan
1 December 2019
1 year 1 month
Peter Raby
Mark Reckitt
1 December 2019
1 year 1 month
1 June 2016
4 years 7 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 the
need to maintain the right balance of expertise both at Executive Director and Non-executive
Director level and specifically the Committee:
• Oversaw discussions with Derek Muir, Chief Executive, and the resultant succession
planning following his decision in March 2020 to retire from the Board;
• Completed the search for a new Chief Executive, appointing Paul Simmons to the role
from 1 September 2020. We engaged the services of Russell Reynolds to facilitate this
search, an agency which is wholly independent of the Group and for which there was no
conflict of interest;
Alan Giddins
Chair
“The Committee
considered the need
to maintain the right
balance of expertise
both at Executive
Director and Non-
executive Director level.”
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• Completed the search for an additional Non-executive Director
with the skills to support the Company through the next stage
of its strategy, whilst also expanding Board diversity, appointing
Leigh-Ann Russell to the Board with effect from 1 April 2021. The
Committee made the decision to delay this recruitment process
until the end of 2020, so as to allow greater clarity on the impact
of the COVID-19 pandemic;
• Considered succession planning and talent management
elsewhere in the Group;
• Approved the Group’s policy on Equal Opportunities and Diversity;
and
• Revised the Committee’s terms of reference, amending these
terms to reference both the Hampton Alexander and Parker
Review recommendations.
Plans for the year ahead
The Committee intends to remain focused on succession planning
and talent management, both at Board and subsidiary level. We
have 27 entrepreneurial subsidiaries across six geographies and 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.
Alan Giddins
Chair
9 March 2021
The Whitaker Farm Grain storage project located in McGehee,
Arkansas features a total of 5 grain storage bins and 1 load-out
hopper tank. The components for this project were all hot-dip
galvanized by V&S Galvanizing in order to provide maximum
corrosion resistance in the harsh climate.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
73
hsholdings.com
Audit Committee Report
Dear Stakeholder
It is a pleasure to make my report as
Chair of the Audit Committee of Hill &
Smith Holdings PLC and to explain how
the Audit Committee and the Company’s
senior management team have reacted to
the challenges posed by COVID-19 whilst
continuing to develop and enhance our risk
management processes and internal audit
programmes.
As reported in last year ’s report the
Committee had carried out a tender process
to replace KPMG LLP, as the Group’s
external auditor and Ernst & Young LLP
were appointed as the Group’s auditor at the
Company’s AGM in June 2020.
A new Group Head of Risk & Internal Audit
was appointed in January 2020, as the
previous head moved to an operational
finance role elsewhere in the Group. The 2020
Internal Audit plan included both subsidiary-
level reviews of financial, commercial, and
operating controls and a Group-wide thematic
review of project management and cost
accounting processes.
The impact of the COVID-19 pandemic, meant
that it was not possible for the internal audit
team to physically visit our locations across
the Group. The plan had to be adapted during
the first UK lockdown between March and
July 2020 and was adjusted to take account
of restrictions on international travel that
continued to apply throughout the year.
The business model of Hill & Smith
delegates substantial authority to
the business units, which enables an
entrepreneurial approach that allows the
business to respond rapidly to unexpected
events, such as COVID-19. Each business
unit is responsible for ensuring that it has an
effective set of internal controls and control
environment, which places responsibility
on the Managing Director and Finance
Director of each business unit. The Group
Financial Controls Manual launched in 2020
provides detailed guidance on the nature
and frequency of the internal controls
required at each business unit. Regular
visits from Internal Audit, supplemented by
External Audit work, are important for the
audit committee to gain assurance that the
internal controls are operating as intended.
During the first lockdown period the original
audit plan was paused and instead the
Internal Audit team conducted a review
of business unit compliance with the
recently launched Group Financial Controls
Manual, via a series of self-assessment
questionnaires. The results of the
assessments were later validated by the
audit team, whilst operating remotely as well
as during the reduced number of physical
internal audit visits in the latter part of the
year.
As part of the external audit, EY considered
the effectiveness of the Group-wide control
environment. They did not identify any
significant deficiencies in the internal
control environment that warranted the
attention of those charged with governance.
However, as part of the continuous
development of the Group’s control
framework, EY recommended a number
of areas for continued focus iincluding
retention of documentary control evidence,
enhancements to IT capabilities and focus
of the Group’s control framework.
On site fieldwork for UK subsidiaries
recommenced in July, with remote
preparation and sample selection to
minimise time spent on site. Due to the
continued restrictions on international travel,
the Committee approved the use of third
parties to undertake internal audits of our
overseas entities
As noted elsewhere, COVID-19 had a
significant adverse impact on Hill & Smith’s
operations in the second quarter of 2020,
particularly in the UK and France. As part
of its review of the interim results, the
Committee challenged management on both
going concern and the valuation of the key
business units, with a particular focus on
France Galva. Following review and extensive
discussion of management forecasts,
including various scenarios for future
performance in light of the uncertainties
created by COVID-19, the Committee agreed
that adoption of the going concern basis
in preparation of the interim results was
appropriate and that, in respect of France
Galva, no impairment had arisen but that
there were sensitivities that could result in a
future impairment that should be disclosed.
In the second half of the year, the Committee
asked management for further assessments
of the future performance of France Galva
and, in light of challenging conditions in the
Group’s Security markets, also considered the
outlook for ATG Access. These assessments
sought to separate the short-term impact
on the businesses of COVID-19 from factors
that might have a longer-term impact on
future performance. Having reviewed the
assessment for France Galva and challenged
management on their assumptions and
estimates, the Committee agreed that
following a deterioration in the outlook over
the second half of the year, which meant that
recovery was likely to take longer than had
been previously anticipated, an impairment
charge of £17.5m was appropriate alongside
disclosure of the sensitivities that could lead
to an additional future impairment. In respect
of ATG Access, the Committee concurred
that whilst short-term performance had
been adversely impacted by COVID-19, in
the medium to longer term performance
was expected to recover and therefore no
impairment had arisen.
The Committee also reviewed reports from
management on the impact of the decision
Mark Reckitt
Chair
“Despite the challenges
posed by COVID-19 I
am delighted that Hill
& Smith continued to
focus on ensuring the
businesses maintained
an effective control
environment.”
74
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Pine Mountain Ski Jump originally built in 1937,
was a 176ft wooden structure located in Iron Mountain,
Michigan. V&S Galvanizing assisted in providing hot-dip
galvanizing to everypiece of the newly refurbished steel frame
which is set to host the 2022 Word Cup Ski Jump Event.
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taken after the year end to restructure the
VMS business, concurring with the view that
the resulting impairment of the carrying value
of assets of £2.8m was appropriate.
The Executive team, supported by the Audit
Committee, has continued to build upon the
risk assessment methodology which was
implemented across the Group and in 2020
introduced a new online risk management
and reporting tool. Training on how to
use the tool and the development of risk
management thinking as well as continued
training sessions on risk identification,
definition and mitigation actions were
delivered to all senior executives across the
Group. The Committee was pleased with the
initial reports received from the subsidiaries,
giving the Committee a clear line of sight to
the risks being considered by the subsidiaries
and allowing the commencement of a risk
appetite discussion.
The development of this new tool is being
monitored by the Group’s Risk Committee,
who met on four occasions in 2020 and
comprised the Chief Financial Officer,
Group Head of Risk & Internal Audit, Group
Company Secretary, the Group Financial
Controller, the Assistant Company Secretary,
and the Group’s Director of Corporate
Development plus representatives of the
Group’s three business segments and by
invitation the Chief Executive. During these
meetings the Committee has reviewed
information on risks that were reported by
the subsidiaries and that might affect the
Group’s ability to deliver its strategic plan.
This Audit Committee Report explains
how the Committee has discharged its
responsibilities, and considers the specific
topics of:
• Primary areas of judgement considered
by the Committee in relation to the 2020
accounts;
•
Internal controls;
• Risk assessment, management and
mitigation; and
• Assessment of effectiveness of external
audit.
This has been a challenging year for all
involved and on behalf of the Committee
I would like to thank everyone involved
for their exceptional work undertaking
the internal financial controls, audit work
and the work to continue to maintain and
enhance the risk management process.
I trust you will find this report a helpful
insight into the activities undertaken on your
behalf. I should be delighted to answer any
questions you might have, and hope to see
you at our AGM in May 2021.
Mark Reckitt
Chair
9 March 2021
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
75
hsholdings.com
Audit Committee Report
continued
The role and meetings of the Committee
Responsibilities 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 (Chair);
• Annette Kelleher;
•
Tony Quinlan; and
• Pete Raby.
During the year the Committee fully complied with the provisions of
the UK Corporate Governance Code 2018 (‘the Code’), in which Mark
Reckitt is specifically identified, in keeping with the provisions of the
Code, as the Committee member having recent and relevant financial
experience. He is a qualified Chartered Accountant and 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 2020 met on five
occasions: in February to consider the draft Annual Report together
with the external audit findings and approve the Group’s principal
risks and uncertainties for 2019; in May to consider the impact of
the COVID-19 pandemic on the effectiveness of internal controls
and the Internal Audit Plan; in July to consider the half-year results
with particular reference to going concern and potential impairment
of intangible assets, EY’s year end Audit Planning Report; and the
effect of the pandemic on the Group’s Principal Risks; in September
to consider the subsidiaries’ 2020 risk registers and the Group’s
principal risks and uncertainties, receive updates on Internal Audit
work; an update on the development of the online risk management
and reporting tool; and EY’s audit transition plan and approve their
fees; and in December to receive a report from EY on their interim
audit procedures and to approve the internal audit plan for 2021.
Attendees at each of the meetings included by invitation, the Chair;
the Chief Executive; the Group Chief Financial Officer; the Group
Financial Controller; the Group Head of Risk & Internal Audit; the
external auditor, EY and, where appropriate, other advisors. Time is
also allowed for the Committee to speak with the external auditor
and the Group Head of Risk & Internal Audit without the presence of
the executive management.
As Chair of the Audit Committee, Mark Reckitt has maintained
regular contact with the external audit partners at both KPMG
and EY as well as the Group Head of Risk & Internal Audit outside
Committee meetings and without the management of the business
present. In these meetings a wide range of matters are discussed,
including specific issues encountered in their work across the Group
as well as changes in financial reporting and governance landscape,
the Company’s readiness to accommodate these developments, the
effect of the pandemic on the auditing activities undertaken by EY
and the internal audit function and our approach to managing risk
and assurance generally.
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 2020 Annual Report and the 2020 Interim
Report;
• Reviewed the disclosures made in the 2020 Annual Report
in respect of the impact of the COVID-19 pandemic and 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 69);
• Advised the Board on whether the Annual Report and
Financial Statements, taken as a whole, are fair, balanced and
understandable (see page 70); and
• 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).
Primary areas of judgement considered by the Committee in
relation to the 2020 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 117 to 169. 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 amounted to
£141.3m at 31 December 2020. 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 and ATG Access, in note 11
to the Financial Statements on pages 146 and 147. 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,
EY, provides reporting to the Committee. As part of this review, the
Committee considered cash flow projections for the France Galva
CGU, and following challenge of those projections concluded that
a goodwill impairment charge of £17.5m relating to that CGU was
required. The Committee also considered cash flow projections for
the ATG Access CGU and concluded that whilst no impairment was
required, disclosure of the sensitivities that could lead to a material
future impairment was necessary.
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Defined benefit pension scheme valuation
Net defined benefit pension obligations under IAS19 amounted to
£19.6m at 31 December 2020. 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
The Group makes judgements 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.
Going Concern
The Committee advises the Board on whether it believes it
appropriate to adopt the going concern principle in preparing the
Group’s Financial Statements. In making this assessment, the
Committee received and reviewed management forecasts for the
Group’s future cash flow performance, challenging the assumptions
on which those forecasts are based. In 2020, the Committee also
received forecasts based on several alternative scenarios that
reflected different recovery profiles for the Group and in particular,
considered what would be required for the Group to breach its
borrowing covenants or extinguish its borrowing facilities in the
next 12 months. Following a robust assessment of the forecasts,
the Committee concluded that adoption of the going concern
principle was appropriate for both the interim and full year results.
The Committee also reviewed and approved the going concern
disclosures that are included in the Financial Statements.
Risk Management
• Reviewed the outputs from the Group’s risk management
process to ensure that subsidiaries were identifying,
articulating and evaluating their risks and that the mitigating
controls were effective;
• Reviewed reports made via the Group’s whistleblowing
process and the conclusions from any investigations, ensuring
that lessons learned were implemented; and
• 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 70).
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.
A new risk management and reporting tool has helped to provide
the Committee with more information on how subsidiaries perceive
their risks and how they relate to the Group’s Principal Risks. Through
these reports, 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 27 subsidiaries. In this, the Audit Committee is supported by
the Group’s Risk Committee, which includes the Group CFO, Group
Head of Risk & Internal Audit, Group Company Secretary, Group
Financial Controller, Assistant Company Secretary, and the Group’s
Director of Corporate Development plus representatives of the Group’s
three business segments and by invitation the Chief Executive.
The Risk Committee oversees the risk management process, which
is one of continual improvement. A new risk management and
reporting tool was implemented during the first half of the year,
supported by a programme of training for senior management
that was delivered to all management teams across the Group, via
online webinars and training manuals. This year these sessions
complemented the work already done on risk management and
focused further on the concept of the risk “bow tie”, involving causes,
consequences and controls.
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 considered 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 providing updates on
subsidiaries’ risk mitigation activity, together with their attitude to
risk as measured by a ‘target’ risk score. This information is used
by the Committee to determine the risk appetite within the Group’s
subsidiaries and help inform the Board’s overall risk appetite. More
information on the activities of the Risk Committee and the Group’s
principal risks and uncertainties can be found on pages 50 to 53.
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 reporting system and/or a telephone based
whistleblowing hotline or if necessary, to the Company Secretary or
the Chair 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 Group
Company Secretary and resolved appropriately. The Committee
receives reports 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
• Considered the Internal Audit Plan for 2020 as impacted by the
COVID-19 pandemic;
• Agreed to pause the thematic reviews during the pandemic;
• Assessed compliance with the Group’s revised Financial
Controls Manual;
• 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 Head of Risk &
Internal Audit and reviewed the work of the Group’s Internal
Audit function, concluding that it is operating effectively and
was appropriately resourced; and
•
Evaluated and approved the Internal Audit Plan for 2021,
confirming the appropriateness of its focus and scope with
reference to the risk management reporting process.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Audit Committee Report
continued
Internal audit
The Audit Committee and Hill & Smith executive management ensure
that the Group Head of Risk & Internal Audit, who reports to the
Group Chief Financial Officer and the Chair of the Audit Committee,
has free access to the businesses, information and management
within the Group.
Internal audit function
The internal audit function is overseen by the Group Head of Risk &
Internal Audit. The Audit Committee annually reviews and approves
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 that 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 2020 Internal Audit Plan originally balanced the focus of
the function between Group-wide principal risks and subsidiary-
level risks. It included a Group-wide thematic review of project
management and contractual accounting, recognising the increasing
variety and complexity of projects which are now undertaken by
the Group, and multiple subsidiary-level reviews, focusing on the
subsidiaries’ financial, commercial and operational baseline internal
controls. Due to the impact of the COVID-19 pandemic on the Internal
Audit function’s ability to be on site at the Group’s subsidiaries, the
thematic review was put on hold during the first six months of the
pandemic. It recommenced in October 2020 and will be concluded
during 2021.
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 actions to resolve the
issue have either been implemented or are in the process of being
addressed in accordance with agreed timelines. As noted on pages 8
and 9, 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.
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, adjusted to respond to
unexpected events, and received regular progress updates on the
delivery of the objectives of the plan;
•
•
•
•
•
the seven 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 a
review of the Group’s accounting treatment of non-underlying
items;
accounting judgements including the carrying value of goodwill
and intangible assets of France Galva SA, and ATG Access;
external audit reports, including the results of early audit
procedures, a review of the effectiveness of internal controls and
the audit findings in relation to the year end audit; and
reports from the Group’s external professional advisors as
commissioned which, in 2020, included reports on the Group’s
IAS 19 disclosures.
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 by the Audit
Committee.
Throughout the year the Audit Committee discussed the internal
audit function’s outputs with the Group Head of Risk & Internal Audit
and executive management. The Audit Committee was satisfied that
the Internal Audit function is operating effectively and that the level
of experience within the department was appropriate to meet the
Group’s needs during the year.
External Audit and non-audit work
• Reviewed, challenged and agreed with management and
EY the on-boarding process following their appointment as
external auditor in June 2020;
• Considered, along with the external auditor, the key 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 and
ATG Access Limited; provisions for uncertain tax positions; risk
of inappropriate inventory valuation; and risk of inappropriate
valuation of UK pension scheme assets and obligations;
• Reviewed, considered, and agreed the methodology of the
2020 audit work to be undertaken by the external auditor;
• Considered the impact of the COVID-19 pandemic on the
external auditor’s ability to perform the year end audit;
• 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 the level and nature of non-audit services that can
be provided by the external auditor, noting that it might be
appropriate if EY were permitted to undertake those permitted
non-audit/additional services set out in section 5.40 of the
FRC’s Ethical Standard 2019; and
• Reviewed and approved updates to the Non-audit Services
Policy and the Procedure for the External Auditor Policy.
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As mentioned previously EY were appointed as the Group’s auditors
in June 2020 and this is their first audit. They have confirmed to
us, that as the partner in charge Helen McLeod-Jones, subject to
unforeseen changes, will be the lead partner up to and including
the audit for 2024 before being compelled to rotate off the audit to
ensure continued independence by EY.
Non-audit fees
The Committee reviewed its Non-audit Services Policy in December
2020 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/additional services set out in section 5.40 of the
FRC’s ethical standard 2019, the policy provides for approval, by the
Group Chief Financial Officer, of expenditure below £50,000, and
above that level by the 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.
During 2020, there were fees of £3,000 (2019: KPMG - £12,000)
paid to the auditor for non-audit services relating to other assurance
services (2019: KPMG - for assurance reviews). In 2020, non audit
fees represented 0.2% of audit fees of £1,350,000 (2019: 1.1%).
Further details of these amounts are included in note 7 of the
Financial Statements on page 138.
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
Chair
9 March 2021
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
Having been appointed following the Company’s AGM in June
2020, in July 2020 EY provided the Committee with their plan for
transitioning the audit from KPMG and undertaking the 2020 year-
end audit procedures. This highlighted the proposed approach and
scope of the audit and identified the key issues in detail, being the
valuation of goodwill in relation to France Galva S.A; the risk of fraud
in revenue recognition; inventory valuation; 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. As events evolved through the year, the audit risks
have accordingly been re-visited by EY. This led to the inclusion of an
additional key audit risk regarding the valuation of goodwill in relation
to ATG Access being reported on.
In February 2020, the Committee considered an interim report
from the Group’s Chief Financial Officer on the effectiveness of the
performance of the previous external auditor. This report included an
initial 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.
Following discussion, the Committee welcomed the initial view that
EY had to date delivered an effective external audit of the Group’s
financial results, performance reporting and risk identification and
management and looked forward to receiving a more detailed report
later in 2021 when all Group and subsidiary audit activities in relation
to 2020 had been completed.
The external auditor prepared a detailed report of their findings in
respect of the 2020 audit. The Committee discussed the issues raised
in the report, particularly in relation to the areas highlighted, at their
meeting in March 2021. The Committee questioned and challenged
the work undertaken, the findings and the key assumptions made, with
particular attention to the areas of audit risk identified.
Auditor independence and rotation
The external auditor confirmed its policies on ensuring auditor
independence and provided the Committee with a report on their
own audit and quality procedures. This report was reviewed during
the period under review and the Committee remained satisfied of the
auditor’s independence. 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. There were no such
instances during the year.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Remuneration Committee Report
Dear Stakeholder
I would like to share with you our 2020 Directors’ Remuneration Report. At last year’s AGM
shareholders approved our Directors’ Remuneration Policy (the ‘Policy’), and you will find a
summary of the Policy on pages 94 to 98. I am delighted to say that the Policy was strongly
supported, with 95% of the votes in favour of it. Shareholders were similarly supportive of the
Annual Remuneration Report, with 99% in favour.
During 2020, in addition to the Committee’s normal business, there were two key aspects of
focus, being the impact of the COVID-19 pandemic and the succession of our Chief Executive.
Our activities in relation to each of these are described below, with more detail included in the
Annual Remuneration Report.
COVID-19 pandemic – performance and 2020 incentive outturns
Notwithstanding the global pandemic and the associated political and economic uncertainties
the Company reports revenues of £660.5m and underlying operating profit of £69.9m. More
details about the Company’s operational and financial performance can be found on pages
24 to 31. The Board considers this to be a good performance against very challenging global
conditions. Since March 2020, the Committee, via the Board meetings, has been regularly
updated regarding the impact of the pandemic on employees, in relation to their health and
wellbeing.
Annette Kelleher
Chair
The Committee considered the impact of the pandemic on the wider workforce and other
stakeholders when taking decisions in relation to Executive Directors during 2020, having
regard in particular to the following factors:
• whilst regrettably some employees were impacted by the pandemic and furloughed for a
period of time, there were only a very limited number of redundancies due to COVID-19;
•
•
•
although the Company initially took advantage of furlough money under the UK
Government’s Coronavirus Job Retention Scheme, taking into account its view of the
purpose of this support and stronger than forecast cash generation, the Company repaid
all the UK Government furlough monies (£3.6m) and accelerated repayment of deferred
VAT amounts so that prior to the year end all amounts were repaid in full;
the Company’s share price remained resilient – ending the year at £14.10, only slightly
below the 2019 closing price of £14.78; and
although the 2019 final dividend was cancelled, having seen an improving trading
backdrop in the third quarter the Board paid an interim dividend, and in light of the
continued positive trading through to the end of the year has proposed a final dividend for
the year.
2020 bonus
The Executive Directors’ 2020 bonus opportunities were based on 75% financial measures
and 25% personal objectives. The impact of COVID-19 and our decision not to adjust targets
as a result of it means that the financial results were below the bonus thresholds set and
therefore no payment will be made in respect of the financial elements. Notwithstanding that
the financial targets were not met; the Committee was of the opinion that achievements in
relation to the personal objectives set justified the payment of bonuses in respect of those
elements. In coming to this conclusion, the Committee took into account the improving
trading backdrop in the third quarter, continued positive trading through to the end of the year
and very strong performance in the fourth quarter, showing the financial resilience of the
Group and the momentum that has been built going into 2021. The Committee also noted
the Group’s very strong cash conversion at 139% (2019: 54%), well ahead of the target of at
least 90%, which is crucial to our ability to fund growth investment and progressive returns to
shareholders. The Group has not experienced a loss of liquidity and has reduced its net debt
by £69.1m.
Although bonuses were earned for achievement of personal objectives, the Committee
decided not to award any cash payments to the current Directors, but to convert the full bonus
earned into shares. Full details are shown on page 86.
“I believe our new
remuneration policy
will enable long-term
sustainable growth
while ensuring a
responsible approach
to executive pay.”
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2018 LTIP
Derek Muir participated in the 2018 LTIP, which vested by reference to performance assessed over the three years ended 31 December 2020.
Details of the performance outturn are set out on page 87. Reflecting performance over the three years the award will vest at 35.85% and in line
with the Policy, the shares vested will be subject to a holding period and will become exercisable in March 2023.
Board changes
Paul Simmons was appointed as Chief Executive Designate in September 2020 and took over as Chief Executive from Derek Muir, following
Derek’s retirement on 12 November 2020. His remuneration package was determined by the Committee, having consulted with major
shareholders and having regard to the need to recruit a Chief Executive with the necessary skills and experiences to lead the Group.
Paul’s salary was set in line with the market. As is the case for Hannah Nichols, Paul’s pension contribution of 6.5% is in line with that available
to the UK-based wider workforce. Paul’s incentive arrangements are in accordance with the Company’s Policy and the key elements are set out
on pages 94 to 97.
As part of joining Hill & Smith, Paul forfeited remuneration at his former employer. This included both long-term incentives and a bonus. For the
long-term incentives, in line with the Company’s Policy, he was compensated through a buy-out award made in shares. Any bonus payout is to
be based on Hill & Smith performance conditions. For more details see page 84.
Having been on the Board of Hill & Smith Holdings PLC since 2006 and having spent 28 years working for the Group, Derek Muir gave 12
months’ notice on 1 April 2020 of his intention to retire as Chief Executive of the Company. It was later agreed that, following the appointment
of Paul Simmons in September, Derek would stand down from the Board as from 12 November 2020 and remain an employee of the Group
until 31 March 2021. Derek’s salary to 12 November 2020 and his 2020 bonus are disclosed in the CEO’s single figure table. His outstanding
incentives were treated in accordance with the Policy and the plan rules. (See pages 85 and 89 for more details).
2020 LTIP Awards
Due to the economic uncertainty caused by the pandemic, and hence the difficulty in setting appropriate 3-year targets, the grant of the 2020
LTIP awards was deferred until September 2020. Having given consideration to the LTIP measures, the Committee decided to keep the current
measures unchanged, these being 50% of the award based on relative TSR performance and 50% on underlying earnings per share. The
payment at threshold was adjusted to 20% in line with the Policy. Details of the performance measures are set out on page 87.
Corporate Governance
When determining the application of the Policy, the Committee considered the following factors:
• Clarity and simplicity: We follow a well understood UK approach to executive remuneration and apply simple variable pay arrangements
which are subject to clear, well-articulated performance measures.
• Alignment to our culture and values: In reflecting our culture in our Policy, the Committee is aware of the Group’s business model and
entrepreneurial philosophy and clear that the Policy should drive the right behaviours and support the Group’s purpose and strategy.
• Risk: The recovery provisions (malus and clawback), which are now included in all our incentive schemes, enable the Committee to have
due regard for risk and this is complemented by the Committee having discretion to override formulaic outcomes. The bonus deferral,
LTIP holding period, shareholding and post-employment shareholding guidelines align the interests of the Executive Directors with those
of our shareholders. We are mindful that with a new Chief Executive and Chief Financial Officer, they should be given time to build up
such shareholdings so they will retain at least half of any shares earned through incentives until the shareholding requirement is met.
Performance measures and targets are set so that they neither encourage nor reward undue risk-taking.
• Predictability and proportionality: The potential outcomes under the incentive arrangements were clearly articulated in the 2019 Directors’
Remuneration Report in connection with the approval of the new Policy. The outcomes of variable pay performance measures are
dependent upon the achievement of targets that are aligned with the Group’s strategy and the interests of all stakeholders.
The Committee will continue to review the application of the Policy as the strategy and culture develop further under our new Chief Executive.
Wider workforce remuneration
The wider workforce will receive pay increases in 2021 in line with local market movements. The Committee reviewed the results of the Group’s
gender pay work, noting that data had been collected and collated from all 11 UK subsidiaries, three of whom are large enough businesses to
have to publish their own gender pay statement. The overall UK Group’s mean gender pay gap is calculated for 2020 at 8.2% (2019: 12.7%).
This is driven by a large population of our senior management team being male. As our new Chief Executive leads the next phase of the
Company’s strategy, a clear road map to develop a more diverse organisation will be articulated. Positively, in our Utilities division, The Paterson
Group launched a leadership team to support female managers and those women with potential in their organisation to provide a forum to get
support, exchange ideas, and network. The Executive Directors will look to extend this approach across the Company.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Looking forward to 2021
Our usual practice is to review Executive Directors’ salaries on an annual basis. In December the Committee considered their annual salary
increases, effective January 2021. Aligning with the wider workforce, the Committee awarded a 2% pay increase for the Executive Directors.
For 2021 the maximum opportunities for the Chief Executive will be 150% of base salary for both his annual bonus and LTIP award. For our
Chief Financial Officer, the maximum opportunities will be 125% of base salary for both her annual bonus and LTIP award. In line with the Policy,
both Executive Directors have an annual bonus on-target of 50% of maximum, reduced from 60% under the previous policy. Our usual practice
is to grant LTIP awards following the announcement of the prior year results. However, we propose to defer the grants this year and make them
after the announcement of the half year results, which will enable us to consider the outlook as we hopefully emerge from the worst effects of
the pandemic, and set targets accordingly. Our intention is that the performance measures will continue to be based on TSR and EPS, and we
will confirm the details of the measures and targets both in the 2021 Directors’ Remuneration Report and in the announcement we will make
when the awards are granted. Further information in relation to the 2021 bonus is set out on page 93.
The Non-executive Director fees have been increased by 2% with effect from 1 January 2021. See page 93 for more details.
I believe our new remuneration policy will enable long-term sustainable growth while ensuring a responsible approach to executive pay. We
will continue to monitor our incentive arrangements and review the performance conditions as our strategy develops and in light of continuing
uncertain political and macro-economic conditions.
Annette Kelleher
Chair
9 March 2021
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Directors’ Annual Remuneration Report
Policy and strategy
The Company’s strategy is explained in detail on pages 8 and 9. The Company’s Remuneration Policy, approved by shareholders in 2020,
supports the delivery of this strategy.
The policy provides for the payment of base salary, benefits and pension with variable amounts of pay in respect of annual bonuses and Long-
Term Incentive Plans (‘LTIP’) 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:
Leads to:
Measured by Long-Term
Incentive Plan targets of:
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Investment in 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.
Operating margins are an integral measure of the
Group’s success. Our target operating margin for
a business unit is 12% - 15%, although a lower
margin profile may be acceptable if the business’
return on capital employed is above 20%.
Autonomous
operating model
We encourage an entrepreneurial culture in
our businesses, ensuring that they are agile
and responsive to changes in their competitive
environment.
Portfolio
management
Our strategic objective is to develop more
sustainable businesses in each of our chosen
sectors through organic and acquisitive
growth.
Sustainable
profitable growth
Our objective is to deliver balanced profitable
growth through both organic growth and
acquisition opportunities.
Organic revenue
growth
ROIC
Operating
margins
Organic revenue
growth
Budgeted profit
ROIC
Operating
margins
Budgeted profit
ROIC
Operating
margins
UEPS
Shareholder
value
50% of any award is based
on UEPS, at the end of a
three-year performance
period; and 50% of the
award is based on TSR
performance over a three-
year performance period
relative to an appropriate
comparator group.
The Remuneration Policy referred to above and on pages 94 to 97 is voted on by shareholders approximately every three years, the last
occasion being at last year’s AGM on 23 June 2020. This Annual Remuneration Report is voted on annually by shareholders.
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, Tony Quinlan, Pete Raby 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 2019 and 2020 – further information on the 2020 bonus is given
on page 86;
confirmed the vesting of the LTIP awards granted in 2017, as reported in the 2019 Directors’ Remuneration Report;
• measured the performance conditions of the LTIP awards granted in 2018, confirming that 71.7% of the TSR portion of the award would
vest and that the UEPS portion of the award would lapse, (further information is given on page 87);
•
•
•
•
•
•
approved the 2020 grants under the rules of the LTIP, and in so doing considered the appropriateness of the performance conditions as
discussed on page 87;
approved the award of a new SAYE scheme, to run from December 2020 for a three or five year period;
approved the remuneration arrangements associated with D W Muir’s retirement;
approved a remuneration package for the new Group Chief Executive Officer, appointed in September 2020, (see page 84 for details);
reviewed the base salaries of the Executive Directors and approved a 2% increase, with effect from 1 January 2021, in line with the
increases awarded to the wider workforce;
approved the annual bonus performance measures and targets for the Executive Directors for 2021;
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Report
continued
•
•
•
•
•
reviewed reports on the Group’s approach to the gender pay gap in UK subsidiaries where this was appropriate, approving the Gender Pay
statements for inclusion on the relevant websites;
considered remuneration and benefits data from around the Group’s subsidiaries;
approved the Company’s Annual Remuneration Report for inclusion in the Company’s 2020 Annual Report and Accounts;
approved the Company’s Remuneration Policy to be put before shareholders at the Company’s AGM in June 2020; and
ensured that the Board approved the Committee’s terms of reference taking into account the requirements of the UK Corporate Governance Code.
The terms of reference for the Remuneration Committee can be found at the Group’s website www.hsholdings.com.
Group Chief Executive Officer’s Remuneration on appointment
The following table summarises the key elements of the remuneration package of Paul Simmons, Group Chief Executive Officer, on appointment.
Base salary
£535,000
Pension
A Company contribution of 6.5% of salary, in line with the contribution rate for the wider workforce.
Annual Bonus
150% of salary, with 50% of any bonus earned being deferred for two years and delivered in shares
LTIP
Relocation
allowance
Buy-out awards
150% of salary
Up to £150,000 for expenses incurred in respect of any relocation during the first two years of Mr Simmons’ appointment.
In order to join the Company, Mr Simmons forfeited remuneration at his former employer. The Company agreed to
compensate Mr Simmons in respect of this forfeited remuneration, with the majority of the compensation awarded linked
to Hill & Smith’s performance or share price.
Forfeited long term incentives
Mr Simmons forfeited his 2018 and 2019 long term incentive awards. The Company compensated Mr Simmons for
these awards by granting two awards over Hill & Smith shares, to ensure the ultimate reward is aligned with shareholders’
experience. The awards buyout the 2018 and 2019 plans on a pro-rated basis, from the start of their performance periods
until 31 August 2020 and take into account the Committee’s view of the extent to which the performance conditions
attached to the forfeited awards were assumed to be satisfied. The awards were granted over 28,557 Hill & Smith
Holdings PLC shares and 12,364 Hill & Smith Holdings PLC shares respectively. See page 88 for more details.
Forfeited bonus
Mr Simmons also forfeited his right to participate in his former employer’s annual bonus scheme for its year starting
1 April 2020. We agreed to compensate Mr Simmons for this, but made the compensation subject to the same
performance measures as apply to the Hill & Smith 2020 bonus with a deferral into shares of half of the amount.
Mr Simmons’ Hill & Smith 2020 bonus opportunity was 150% of his salary for the period from 1 September 2020. In
addition, we calculated a further payment in respect of the period 1 April 2020 – 31 August 2020, but applying a notional
salary of £340,000, which was earned subject to the Hill & Smith bonus performance conditions. In the single figure of
remuneration table on page 85, this buy-out is aggregated with the Hill & Smith bonus.
Fixed remuneration
Mr Simmons had agreed to start employment with Hill & Smith on 1 August 2020, and had agreed a leaving date with
his former employer to enable him to do so. However, due to the impact of the COVID-19 pandemic it was agreed to put
Mr Simmons’ start date back to 1 September 2020. Therefore, a one-off payment of £30,000 was agreed as part of Mr
Simmons’ recruitment arrangements, to reflect his loss of fixed remuneration.
Notice period
12 months from either side.
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 that Group’s 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 £43,250 for the year ended 31 December 2020. 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 Group Chief Executive Officer
also attends Remuneration Committee meetings to provide advice and respond to specific questions, but is not in attendance when his own
remuneration is discussed. The Company Secretary acts as Secretary to the Remuneration Committee but is similarly not in attendance when
his own remuneration is discussed.
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Statement of shareholder voting
The Group remains committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. The Company’s 2019
Remuneration Report and a revised Remuneration Policy were put before members at our AGM in June 2020, with shareholder approval of
each as follows.
% of votes
Annual Remuneration Report
(2020 AGM)
Remuneration Policy Report
(2020 AGM)
For
99.27%
95.43%
Against
0.73%
4.57%
Withheld votes
1,389,820 votes were withheld in
relation to this resolution (2.3%)
20,570 votes were withheld in
relation to this resolution (0.03%)
The following parts of the Remuneration Report are subject to audit other than elements explaining the application of the policy in 2021.
How the Remuneration Policy was implemented in 2020 – Executive Directors
Single remuneration figure for 2020
P Simmons (6)
H K Nichols
D W Muir (5)
Total
Base Salary (1)
178,333
339,570
468,125
986, 028
Taxable
Benefits (2)
38,077
12,000
36,308
86,385
Pension
11,592
22,100
113,750
147,442
Total Fixed
Pay
228,002
373,670
618,183
1,219,855
Single remuneration figure for 2019
LTIP (vested in
respect of the
performance
period ended
2020 (4)
-
-
236,429
236,429
Annual
Bonus(3)
90,000
67,914
125,391
283,305
Total
Variable Pay
2020 Total
‘single figure’
90,000
67,914
361,820
519,734
318,002
441,584
980,003
1,739,589
H K Nichols
D W Muir (5)
Total
Base Salary (1)
96, 462
520,000
616,462
(1) The amount of base salary received in the year.
Taxable
Benefits (2)
3,746
45,841
49,587
Pension
6,270
130,000
136,270
Total Fixed
Pay
106,478
695,841
802,319
Annual
Bonus(3)
41,208
277,680
318,888
LTIP (vested in
respect of the
performance
period ended
2019) (4)
–
213,695
213,695
Total
Variable Pay
2019 Total
‘single figure’
41,208
491,375
532,583
147,686
1,187,216
1,334,902
(2) The gross value of benefits 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 £7,077 (2019: £16,340) 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 pay out was
determined can be found on page 86.
(4) LTIP is the value of LTIPs vested in respect of a performance period ended in 2020. A description of the basis on which awards vested and the value can be found on page 87.
(5) D W Muir stepped down as CEO on 12 November 2020 and retired from the Board at the same time. In the 2020 table above, remuneration earned to that date is included, except that for
consistency with the other Executive Directors, the full amount of the 2020 bonus and the full amount of the LTIP vesting by reference to performance in 2020 are included in this table.
Other payments made to him are disclosed on page 89.
(6) P Simmons was appointed on 1 September 2020 and included in his benefits figure is a payment of £30,000 as described on page 84.
2020 annual bonus
Each Executive Director was eligible to earn a bonus for 2020 (up to 125% of salary in the case of D W Muir, up to 100% of salary in the case
of H K Nichols, and up to 150% of salary in the case of P Simmons). For D W Muir and H K Nichols 80% of any bonus earned was to be paid in
cash, with 20% of their bonuses deferred into shares. For P Simmons, 50% of any bonus was to be paid in cash and 50% deferred into shares.
Deferred shares are deferred for two years subject, ordinarily, to continued employment but to no additional performance conditions.
As detailed in the statement from the Remuneration Committee Chair, the impact of COVID-19 and our decision not to adjust targets as a result
of it means that the financial results were below the bonus thresholds set. As set out below, notwithstanding that the financial targets were not
met, the Committee was of the opinion that achievements in relation to the personal objectives set justified the payment of a proportion of the
bonuses in respect of those elements. In coming to this conclusion, the Committee took into account the impact of the pandemic on the wider
workforce and other stakeholders as well as the financial resilience of the Group and the momentum that has been built going into 2021. The
Committee also noted the Group’s very strong cash conversion at 139% (2019: 54%), well ahead of the target of at least 90%, which is crucial
to our ability to fund growth investment and progressive returns to shareholders. The Group has not experienced a loss of liquidity and has
reduced its net debt by £69.1m.
However, reflecting on the effects of the COVID-19 pandemic on the financial performance of the Company, the Committee determined that
for P Simmons and H K Nichols 100% of any bonus earned would be deferred into shares for two years. In the case of D W Muir payout would
rermain at 80% in cash and 20% would be deferred into shares for two years.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Report
continued
The extent to which the Executive Directors bonus was earned is summarised below:
Measure
Weighting Target performance (1) Stretch performance (2) Actual performance
Actual bonus earned
(% of maximum)
Underlying EPS
18.75%
85.4p
Underlying profit before tax
18.75%
£84.5m
Underlying operating margins
18.75%
12.5%
ROIC
18.75%
16.5%
87.4p
£88.7m
12.8%
17.0%
63.2p
£62.6m
10.6%
12.6%
0%
0%
0%
0%
Personal objectives
25%
The bonus earned by reference to the satisfaction of personal objectives was determined by
the Committee based on its assessment of the extent to which the objectives were achieved, as
described below
(1) 60% of opportunity earned in the case of D W Muir and H K Nichols. 50% of opportunity earned in the case of P Simmons
(2) 100% of opportunity earned
The personal objectives set for each Executive Director are summarised below, along with the key achievements.
Executive
Director
Objective
Key achievements
D W Muir
•
To transition successfully to the
new Chief Executive including
maintenance of clear direction and
progress during 2020, in particular,
the second half and an effective
programme of induction and
relationship transfer to the new
Chief Executive. Enabling the new
Chief Executive to build effective
relationships with management
and employees.
• Progress health & safety priorities
including improvements in our
reporting systems and key
performance metrics
P Simmons
• Development of the Group’s
strategy including effective review
of the organisation structure for
the Group, building the foundations
for full scope ESG strategy and
articulation of roadmap for the
medium term.
Successful handover and
onboarding with clear direction set
and progress shown during final
quarter of 2020 and momentum
built for 2021
•
H K Nichols
•
•
•
Review of working capital
processes and implementation
of changes to deliver strong cash
conversion performance and
liquidity for the Group.
Improve the Group’s financial
modelling and reporting
Enhancing the Group’s IT
infrastructure
The Committee noted that Derek Muir had:
•
pro-actively collaborated with Paul Simmons to ensure an effective induction
process across the business, including introductions with key leaders in the UK
and US
ensured an effective handover of relevant key customer relationships and
ensuring Paul Simmons had all necessary information on the customer
relationships
•
• worked with Paul Simmons to ensure an effective introduction to key
•
shareholders and advisors
ensured that COVID-19 risk assessments took place at all locations and that
additional safety procedures were put in place at the start of the pandemic.
The Committee also noted the reduction in both lost time injuries and the lost time
injuries rate.
The Committee recognised the strong start that Paul Simmons made to leading the
Company and in:
•
developing and articulating an updated medium-term strategy and organisation
structure for the Group; and
laying the foundations for the development in 2021 of our new full scope ESG
strategy, recognising the importance to our shareholders, employees and other
stakeholders of ESG matters.
•
The Committee recognised the way that Paul Simmons had worked closely and
collaboratively with Derek Muir to ensure a smooth handover of CEO responsibilities
and, within the constraints of COVID-19, had built relationships throughout the
organisation and with key external stakeholders and advisors.
Very strong financial performance delivered in the fourth quarter and clear
momentum built going into 2021.
Hannah Nichols managed the Group’s working capital and cash to the highest of
standards during an uncertain and complex year. Hannah put in place a well understood
process for managing working capital across the business, ensuring business buy-
in, ownership, and Board approval. Tight control over working capital in the year was
reflected in very strong cash conversion at 139% (2019: 54%), well ahead of the target of
at least 90% and the reduction in the Group’s net debt was £69.1m.
During the year, Hannah implemented a revised finance reporting structure and put
in place various plans to execute with clarity of timelines and any necessary risk
mitigations.
The Committee noted that Hannah Nichols had overseen the development and
articulation of the Group’s IT strategy, including the estimated levels of investment
needed, the timelines and expected returns and the recruitment and integration of a new
head of IT.
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In assessing key achievements set out on page 86 in relation to the personal objectives set, the Committee determined that D W Muir and P
Simmons should receive 75% of this part of the bonus, being 19% of their maximum opportunity and that H K Nichols should receive 80%,
being 20% of her maximum opportunity. Paul’s maximum opportunity was based both on his Company salary and the notional salary referred
to on page 86.
Having determined the extent to which the personal objecvtives had been meet, the Committee in its discretion, deemed it appropriate having
considered the effect of the COVID-19 pandemic on the Group’s performance, that the current Executive Directors should defer 100% of the
earned bonus into shares and D W Muir would continue to defer 20% of his bonus in to shares.
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
P Simmons
H K Nichols
125,391
90,000
67,914
100,313
_
-
Bonus paid as an award of
deferred shares £
25,078
90,000
67,914
LTIP awards vesting in respect of 2020
D W Muir was granted an LTIP award on 12 March 2018 which vested subject to the achievement of performance conditions based on absolute
UEPS growth over the three-year performance period ended 31 December 2020 (as regards 50% of the award) and TSR relative to the FTSE 250
excluding investment trusts and financial services companies (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 as follows:
Performance
Targets
Vesting
UEPS
TSR
Threshold 15%
growth
Maximum 30%
growth
Median
25%
100%
25%
Upper Quartile
100%
Actual
performance
UEPS Growth
of -17%
Actual Vesting
UEPS: 0% of
maximum
TSR Ranked 52 TSR: 71.7%
of maximum
Shares subject
to the Award
Vesting shares
Vested value (1)
47,690
18,048
£236,429
(1) The value of shares is calculated by reference to the share price on 3 March 2021, being £13.10. In accordance with the rules of the LTIP, D W Muir is entitled to a further benefit by
reference to the dividends paid over the period from grant to vesting, amounting to £12,498, and delivered as 954 additional shares.
The following table sets out the amount of the value attributable to the share price at the grant of the awards (£13.31) and the amount that is
attributable to the change in the share price to £13.10 at vesting.
Total value Value attributable to share
price at grant of £13.31
Value attributable to
change in share price to
£13.10 on 3 March 2021
Value attributable to dividends paid
over the period from grant to vesting
D W Muir
236,429
227,521
(3,590)
12,498
Pension contributions
D W Muir received a cash payment in lieu of any pension contribution, equal to £130,000 for the year ended 31 December 2020 (2019:
£130,000). In 2019, the Committee had agreed with D W Muir that his pension contribution would be frozen at its 2019 value. The single figure
of remuneration table includes the proportion of this contribution attributable to his service as a Director to 12 November 2020 (£113,750) with
the balance included on page 89. Both P Simmons and H K Nichols received a pension contribution equal to 6.5% of their base salary, aligned to
the maximum available to the Group’s UK-based workforce.
Other than as stated above, there are no other pension arrangements in place for Executive Directors.
Share awards granted during the year
During the year to 31 December 2020 the Committee approved awards, under the rules of the LTIP, to the Executive Directors as follows:
Date of Award
Type of Award
Number of
Shares
Maximum face
value of Award
Threshold Vesting Performance
P Simmons
H K Nichols
25 September
2020
25 September
2020
Nil cost option
66,819
802,496 (1)
Nil cost option
35,335
424,373 (2)
20%
20%
Period (3)
31 December 2022
31 December 2022
(1) Calculated by reference to a share price of £12.01, being the average of the mid-market prices for the three trading days prior to the grant date and reflecting an award of 150% of base
salary..
(2) Calculated by reference to a share price of £12.01, being the average of the mid-market prices for the three trading days prior to the grant date and reflecting an award of 125% of base
salary.
(3) After the end of the performance period, the LTIP awards will be subject to an additional two-year holding period before they are released.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Report
continued
The performance conditions for these awards are as follows:
Vesting amount
0% Vesting
20 % Vesting*
Maximum Vesting*
Absolute EPS at the end of the performance
period (50% of the award)
TSR (50% of the award)
Less than 85p
85p
100p
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).
Both P Simmons and H K Nichols also received market value options up to a maximum of £30,000, which were granted under the tax-
advantaged part of the ESOS and subject to the same performance conditions as the LTIP award. The resultant ESOS options of 2,497 ordinary
shares have an exercise price of 1201p 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.
As described on page 84, two share awards were granted to P Simmons in connection with forfeited remuneration. The awards and their
vesting dates are set out below:
Buy-Out Award
Buy-Out Award 1
Buy-Out Award 2
Number of Shares (face value) (1)
28,557 (£342,970)
12,364 (£148,492)
Vesting Date
30 July 2021
29 July 2022
(1) Calculated by reference to a share price of £12.01, being the average of the mid-market prices for the three trading days prior to the grant date and reflecting an award of 150% of base
salary.
Share options
The interests of Executive Directors, who served during 2020, in options for ordinary shares in the Company, granted under the Company’s
SAYE schemes, together with options granted and exercised during 2020, are included in the following table:
Executive
Grant price
Awards held
31 December
2019
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Awards held
31 December
2020
Period that option is exercisable
From
To
D W Muir
P Simmons
H K Nichols
£5.60
£8.91
£9.40
£9.60
£9.40
2,003
424
957
-
3,191
-
-
-
3,125
-
-
-
-
-
-
-
-
-
-
-
2,003
1 January 2021
1 July 2021
424
957
3,125
3,191
1 January 2022
1 January 2023
1 January 2026
1 January 2023
1 July 2022
1 July 2023
1 July 2026
1 July 2023
Statement of Executive Directors’ shareholding and interest in shares
Executive
Type
Owned outright
Vested but
unexercised
D W Muir
P Simmons
H K Nichols
Shares
Market value
option (1)
SAYE options (2)
Shares
Market value
option (1)
SAYE options (2)
Shares
Market value
option (1)
SAYE options (2)
217,437
21,980
_
_
_
_
_
1,478
_
_
_
_
_
631
Unvested
Subject to
performance
conditions
103,723
Not subject to
performance
conditions(3)
_
2,281
_
66,819
2,497
_
35,335
2,497
_
_
3,384
40,921
_
3,125
_
3,191
Total as at 31
December 2020
343,140
2,281
3,384
107,740
2,497
3,125
37,444
2,497
3,191
(1) The Market Value options were granted under the tax-advantaged part of the ESOS as part of the LTIP award granted in 2017 for Derek Muir and 2020 for Paul Simmons and Hannah
Nichols and are subject to the same performance conditions as part of that LTIP award as set out on page 87.
(2) A breakdown of SAYE awards is provided above.
(3) On 3 March 2021 the Remuneration Committee approved the vesting of 35.85% of the 2018 LTIP award, being 18,048 shares for D W Muir, as referred to on page 87.
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Shareholding guidelines
The Company’s guidelines require Executive Directors to hold 200% of base salary in shares. In order to fulfil this requirement new Executive
Directors are required to build up such shareholdings so they will retain at least half of any shares earned through incentives arrangements until
the shareholding requirement is met.
Shareholding requirement
Current shareholding as at 31 December 2020
P Simmons
200%
_
Current value (based on share price on 31 December 2020 of £14.10)
Current % of salary (based on salary at 31 December 2020)
_
_
H K Nichols
200%
1,812 (1)
25,549
7.5%
(1) H K Nichols was granted an award of 631 shares on 25 June 2020, under the rules of the Deferred Bonus Plan. The net number of shares is shown here as contributing to her shareholding
requirement.
These figures include those of their spouse or civil partner and infant children, or stepchildren. P Simmons and H K Nichols will be required to
retain at least 50% of any shares earned under the LTIP and the deferred bonus scheme until the shareholding guideline is achieved. There was
no change in these beneficial interests between 31 December 2020 and 3 March 2021.
Non-executive Director shareholding
A C B Giddins
A M Kelleher
A J Quinlan
P Raby
M J Reckitt
2020
9,375
2,164
1,200
1,600
4,000
2019
6,245
2,164
-
-
4,000
These figures include those of their spouses, civil partners and infant children and stepchildren. There was no change in these beneficial
interests between 31 December 2020 and 3 March 2021. 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
D W Muir retired from the Board on 12 November 2020 and will remain an employee until 31 March 2021. His salary, pension allowance
and benefits to 12 November 2020 are included in the single remuneration figure table on page 85, along with the full value of the bonus earned in
respect of 2020 and the value of the LTIP vesting by reference to performance to 31 December 2020. Having regard to his 28 years of service with the
Company, his instrumental role in setting Hill & Smith’s strategy and delivering returns to shareholders, the Board considered it appropriate to provide a
watch as a retirement gift with a value of c. £10,000.
As an employee of the Company, in the period from 12 November 2020 to 31 December 2020, and then in the period from 1 January, Mr Muir
continued to receive his salary, pension allowance and benefits, which will continue to be paid to 31 March 2021. These payments amount to
£255,703 in aggregate and were made in accordance with the terms of his Service Agreement.
Having regard to his long service with the Group, that he is retiring, and the terms of the awards he has been granted, the following treatment will apply.
Deferred Bonus Awards: Mr Muir holds Deferred Bonus Awards granted in March 2019 and June 2020 in respect of bonuses earned in 2018
and 2019 respectively. He will retain each of these awards, which will be released from deferral at the ordinary release date, being in March
2021 and June 2022 respectively.
LTIP awards: Mr Muir holds LTIP awards granted in May 2017, March 2018 and March 2019. The May 2017 award vested by reference to
performance over the three years to 31 December 2019. The March 2018 award will vest by reference to performance over the three years
ending 31 December 2020, see page 87 for more details. Mr Muir will retain the benefit of each award, which will be released, subject, in the
case of the March 2018 award, to the satisfaction of the performance conditions. Because he will have been employed for the whole of the
applicable three-year performance period, no time-based reduction will be made to the number of shares which vest. Each award will be
released on its originally anticipated release date being, March 2022 and March 2023 respectively.
Mr Muir will retain the benefit of the March 2019 award which will vest subject to the satisfaction of performance conditions to be assessed
over the three years ending 31 December 2021. To the extent it vests by reference to the performance conditions, the award will then be
reduced to reflect the proportion of the performance period for which Mr Muir remained an employee of the Group and in line with the policy in
place at the time the award was granted, the award will be released in March 2023.
Transactions with Directors
There were no material transactions between the Group and the Directors during 2020.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Report
continued
How the Remuneration Policy was implemented in 2020 – Non-executive Directors
Non-executive Director single figure comparison
Director
Role
Board Fees Other Fees
Chair
A C B
Giddins
A M Kelleher Chair,
Remuneration
Committee
Senior
Independent
Director
Non-executive
Director
Chair, Audit
Committee
A J Quinlan
P Raby
M J Reckitt
Total
£173,225
£59,450
£59,450
£51,250
£59,450
-
-
-
-
-
Taxable
Benefits
-
Annual
Bonus
-
-
-
-
-
-
-
-
-
LTIP
Pension
-
-
-
-
-
-
-
-
-
-
Total ‘Single
Figure’ 2020 (1)
£173,225 (2)
Total ‘Single
Figure’ 2019
£86,000
£59,450
£58,000
£59,450
£5,000
£51,250
£4,000
£59,450
£58,000
402,825 -
-
-
-
-
£402,825
£211,000
(1) As the Non-executive Directors do not participate in any variable pay arrangement, separate sub-totals for fixed and variable pay are not included.
(2) Alan Giddins was appointed to the position of Chair in October 2019.
The Non-executive Directors do not have service contracts, only letters of appointment, and fees for Non-executive Directors are determined
by the Board, following a recommendation from the Chief Executive, in the 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 2018 against the FTSE SmallCap index and the FTSE 250.
FTSE 250
FTSE Small Cap
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Annual percentage change in remuneration of Directors and employees
The table below shows the percentage change in each Director’s salary/fees, benefits and bonus between the year ended 31 December 2019
and the year ended 31 December 2020, and the average percentage change in the same remuneration over the same period in respect of the
employees of the Company on a full time equivalent basis. Although the regulations require us only to show the average percentage change for
the employees of the Company, we have provided additional disclosure showing the average change for the wider workforce.
The average employee change has been calculated by reference to the mean of employee pay. Paul Simmons was appointed to the Board
during the year ended 31 December 2020 and, accordingly, has been excluded from the table below.
Average
Employee
Wider
workforce (1)
A C B
Giddins
D W Muir (2) H K Nichols (3) A M
Salary/fees
Taxable
benefits
2.9%
N/A
2.9%
N/A
2.5%
N/A
2.9%
-20.8%
2.9%
-6.4%
Kelleher
2.5%
N/A
A J Quinlan
(4)
P Raby (5) M J Reckitt
2.5%
N/A
2.5%
N/A
2.5%
N/A
Annual bonus N/A
4.3%
N/A
-54.8%
-51.8%
N/A
N/A
N/A
N/A
(1) For salary purposes, the wider workforce comparator group looked at increases awarded across the Group at all levels of the workforce. The bonus figures were taken from those senior
executives operating on similar incentivised arrangements to the Executive Directors and capable of influencing the Group’s performance, as well as their own individual businesses’
performance.
(2) D W Muir retired from the Board with effect from 12 November 2020. To enable comparison and to provide a meaningful reflection of the annual percentage change, his remuneration for
the year ended 31 December 2020 for the purposes of the above table is based on remuneration earned to 31 December 2020.
(3) H K Nichols was appointed to the Board with effect from 16 September 2019. To enable comparison and to provide a meaningful reflection of the annual percentage change, her
remuneration for the year ended 31 December 2019 for the purposes of the above table has been annualised.
(4) A J Quinlan was appointed to the Board with effect from 2 December 2019. To enable comparison and to provide a meaningful reflection of the annual percentage change, his
remuneration for the year ended 31 December 2019 for the purposes of the above table has been annualised.
(5) P Raby was appointed to the Board with effect from 2 December 2019. To enable comparison and to provide a meaningful reflection of the annual percentage change, his remuneration for
the year ended 31 December 2019 for the purposes of the above table has been annualised.
Single Figure of the Chief Executive compared to the wider workforce
The Department for Business, Energy & Industrial Strategy’s (‘BEIS’) Pay Ratio regulations require companies to disclose single figure
remuneration data for the wider workforce alongside that of the CEO. The wider workforce is defined as data collated for the 25th, 50th
(median) and 75th percentile employees and the regulations suggest three ways of calculating the data in relation to these employees.
The Company has opted to use option B of the Pay Ratio regulations, and to utilise its most current gender pay gap information, which
has recently been collated to meet our Gender Related Pay Gap (‘GRPG’) reporting requirements for 2020/21, to identify the three relevant
employees. The rationale behind adopting this option is that data required to meet both BEIS and GRPG regulations, in relation to our UK
employees has to be collected from our UK subsidiaries and collated centrally and this option allows both to be completed efficiently and
effectively in the time allowed to make any relevant public statements.
During 2020, D W Muir was CEO until 12 November 2020 and P Simmons was CHief Executive with effect from 13 November. For the
purposes of calculating the ratios, the CEO’s remuneration is the aggregate of the remuneration earned by D W Muir to 12 November and the
remuneration earned by P Simmons from 13 November.
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25th percentile pay ratio
Median Pay ratio
75th percentile pay ration
Year
2020
2019
Method
Option B
Option B
Pay details for the individuals are set out below:
26:1
43:1
2020
Salary
Total Remuneration
CEO
535,000
1,298,005 (*)
25th percentile
23,504
49,990
(*) This represents the single figure totals of both D W Muir and P Simmons.
Relative importance of spend on pay
Dividends paid in respect of the
financial year
Overall spend on pay(2)
2020
£21.2m
£184.2m
2019 (1)
£8.4m
£174.7m
44:1
39:1
Median
29,480
29,480
33:1
38:1
75th percentile
38,712
38,712
% change
+152%
+5%
(1) The final dividend payable in July 2020, in respect of the financial year ended 31 December 2019, was cancelled after the Board considered the financial effects of the COVID-19 pandemic
on the liquidity of the Group.
(2) This includes a 1% increase in the average number of people employed by the Group. See note 5 to the accounts on page 137.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Report
continued
Chief Executive remuneration compared to performance
The graph below shows the TSR performance of the Company over the ten-year period to 1 January 2021 compared to the FTSE 250, FTSE
SmallCap and FTSE All Share indices. These indices were chosen because during this time Hill & Smith Holdings PLC has been a constituent of
both the FTSE 250 and the FTSE SmallCap, and together with the FTSE All Share index, they give an appropriate level of detail through which to
view the Company’s share price performance when comparing it against the CEO’s single figure remuneration.
The table below summarises the Chief Executive’s single figure for the past 10 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.
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020 (1)
(DW Muir)
(P Simmons)
CEO single figure (£’000)
690
941
1,084
1,835
1,894
2,134
2,085
1,506
1,187
980
Annual Bonus (% of
maximum)
LTIP vesting
(% of maximum
number of shares)
30
85
16
100
100
100
94
19
43
19
-
-
50
92.7
97.9
100
100
100
31.2
35.9
318
19
N/A
(1) D W Muir retired as CEO on 12 November 2020 P Simmons took over as CEO. In the table above, their remuneration is for the period each held the office of CEO.
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 Chief Financial Officer do not hold any external Non-
executive Directorships.
How the Remuneration Policy will be implemented for 2021 – Executive Directors
Salary
Base salaries were reviewed in December 2020 and as from 1 January 2021 are:
Chief Executive Officer
Chief Financial Officer
£545,700
£346,300
This represents an increase of 2% which is in line with the increase to other employees within the Group. Salaries will next be reviewed in
December 2021 for the financial year 2022.
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Pension and Benefits
The pension contribution for P Simmons and H K Nichols will remain 6.5% of their base salary.
Annual bonus
The annual bonus opportunity for 2021 will be in line with the policy approved by shareholders at the Company’s AGM in June 2020. The CEO’s
maximum opportunity will be 150% of base salary, whilst the CFO’s maximum opportunity will be 125%. 50% of the opportunity will be earned
for achieving a stretching level of on-target performance and any bonus earned will be paid as to 50% in cash and 50% in deferred shares.
For the 2021 financial year the annual bonus targets will be weighted towards:
• Budgeted underlying operating profit; and
• Achievement of budgeted internal ROIC.
Together representing 80% of the maximum bonus opportunity, with each metric having equal weighting; and
•
20% towards individual performance targets linked to the Company’s strategy and the individual Executive Director’s key responsibilities.
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 2021 Annual Report.
Share plans
The grant of LTIP awards for 2021 will be in line with the policy approved by shareholders at the Company’s AGM in June 2020. As such the
awards in 2021 will be 150% and 125% of base salary for the CHief Executive and CFO respectively. As explained in the statement from the
Committee Chair on page 80, we intend to grant the awards after the announcement of the half year results. Performance conditions will
continue to be based on financial measures which are aligned to the Company’s strategy. It is currently intended that these will continue to be
based on relative TSR and UEPS growth. The measures and targets will be confirmed in the announcement when the awards are granted, and
also in the 2021 Directors’ Remuneration Report.
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.
How the Remuneration Policy will be implemented for 2021 – Non-executive Directors
Fees
The fees of the 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 the Chair’s fees will be approved by the Remuneration Committee with other Non-
executive Director fees being approved by the Board as a whole, following a recommendation from the Chief Executive. In December 2020, the
Board approved an average of a 2.0% increase in the fees for the Chair and Non-executive Directors.
Chair
Non-executive Director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Annette Kelleher
Chair
9 March 2021
2021
£176,690
£52,275
£8,400
£8,400
£8,400
2020
£173,225
£51,250
£8,200
£8,200
£8,200
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Policy Report
The Company’s Directors’ Remuneration Policy was approved at the 2020 AGM and took effect from the close of that meeting. We have
included below the extracts from that policy that we consider shareholders will find most useful updated to reflect that certain aspects of the
policy were relevant only to 2020. The full policy as approved by shareholders is included in the Company’s 2019 Annual Report and Accounts
which is available at https://www.hsholdings.co.uk/investors.
Policy table for Directors’ base salary
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.
Operation
Normally reviewed annually and fixed for 12 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.
Maximum opportunity
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.
Performance metrics
Not applicable.
Benefits
Purpose and link to
strategy
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
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).
Maximum opportunity
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 tax qualifying 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.
Executive Directors may also participate in any other all employee share plan adopted by the Company, on the
same basis as other qualifying employees.
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. The maximum level of participation in any other all-employee share
plan will be determined in accordance with the rules of that plan and will be the same for Executive Directors as
for other qualifying employees.
Performance metrics
Not applicable.
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Pension
Purpose and link to
strategy
Operation
To recruit and retain Executive Directors and to provide post-retirement benefits.
The Group may make a 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.
Maximum opportunity
An amount as a percentage of base salary not exceeding the maximum contribution paid in respect of the UK-
based workforce (currently 6.5% of salary).
Performance metrics
Not applicable.
Annual bonus
Purpose and link to
strategy
Operation
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 output
not produce an appropriate result for either the Executive Directors or the Company, taking account of overall
performance, or because the formulaic output is inappropriate in the context of circumstances that were
unexpected or unforeseen at the start of the performance period.
Where an annual bonus is earned, 50% of the amount 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 will
ordinarily be paid in 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.
Maximum opportunity
The maximum bonus opportunity is up to 150% of base salary for the CEO and up to 125% of base salary for
any other.
Performance metrics
Executive Director. However, for 2020, the maximum opportunity will be 125% of base salary for D W Muir and
100% of base salary for H K Nichols.
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 earnings per share;
•
•
•
budgeted profit;
operating margins; or
return on capital.
At least 50% of bonus will be based on financial measures.
The Remuneration Committee will determine an appropriate vesting schedule for each measure used. Subject
to the Remuneration Committee’s discretion to amend formulaic outputs, for target performance in respect of
financial measures, up to 50% of the maximum opportunity will be earned for threshold performance and 100%
will be earned 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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Directors’ Remuneration Policy Report
continued
Long Term Incentive Plan (‘LTIP’)
Purpose and link to
strategy
Incentivises Executive Directors to achieve higher returns for shareholders over a longer timeframe. A clawback
applies to unvested awards enabling the Company to mitigate risk. The post-vesting holding period aligns the
interests of
Executive Directors with those of the shareholders over a further period.
Operation
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 assessed over at least three years. The Remuneration Committee has the discretion to adjust the
vesting outcome should any formulaic output not reflect overall performance, or because the formulaic output
is inappropriate in the context of circumstances that were unexpected or unforeseen at the grant date, or if
there exists any other reason why an adjustment is appropriate.
Vested shares are 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). Alternatively, the Remuneration Committee
may grant an award on the basis that the Executive Director can acquire shares following vesting but that, other
than as regards sales of shares to cover tax liabilities, the Executive Director is not permitted to dispose of
shares until the end of the two-year holding period.
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.
At its discretion the Remuneration Committee may award dividend equivalents to reflect dividends that would
have been paid over the vesting period and holding period on shares that vest. These dividend equivalents will
ordinarily be paid in 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 a tax qualifying option granted under the Executive Share Option Scheme (‘ESOS’) and an LTIP award.
Approved LTIP awards enable the participant and the Company to benefit from 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. Malus and clawback provisions and the discretion to adjust
the vesting outcome will apply to the tax qualifying option element of an approved LTIP award to the extent
permitted by the relevant tax legislation.
Maximum opportunity
The annual LTIP maximum in respect of any financial year is:
• CEO: 175% of base salary; and
•
any other Executive Director: 150% 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 box under the heading ‘Operation’, the unapproved
LTIP option is scaled back to reflect the gain made on the exercise of the tax qualifying ESOS option.
Performance metrics
Awards vest subject to the achievement of performance measures assessed over the performance period
(normally three financial years). The performance measures are reviewed annually to ensure they remain
relevant and aligned to the Group’s strategy.
Performance measures will be based on financial metrics, and/or share price growth related metrics, and/or
strategic metrics.
Subject to the Remuneration Committee’s discretion to amend formulaic outputs, 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 if the award granted is less than 125% of salary; and
up to 20% of the maximum opportunity will vest if the award granted is equal to or more than 125% of
salary.
For achievement of maximum performance 100% of the maximum opportunity will vest; there is usually
straight-line vesting between threshold and maximum performance.
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, save as required by the applicable tax
legislation.
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Shareholding guidelines
Purpose and link to
strategy
Operation
Promotes alignment to shareholders’ interests and share ownership.
Each Executive Director is required to hold 50% of the shares acquired through the LTIP and any deferred bonus
award (after sales to cover tax and any exercise price) until the value of their total shareholding is equal to 200%
of their base salary.
Shares subject to deferred bonus awards and 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 which are capable of exercise count towards the limit on a net of assumed tax
basis.
Maximum opportunity
Not applicable.
Performance metrics
Not applicable.
Post-employment Shareholding Policy
Purpose and link to
strategy
Operation
Maintains the alignment of Executive Directors’ interests with shareholders’ interests and the performance of
the Company for a period after employment.
The Post-employment Shareholding Policy will apply only to shares acquired pursuant to LTIP and deferred
bonus awards granted in respect of 2020 and future years, but will not apply to shares purchased or acquired
pursuant to all employee share plans and will not apply to LTIP or deferred bonus awards granted in respect of
earlier years.
Post-employment each Executive Director is expected to maintain such of their shares which are subject to
the Postemployment Shareholding Policy as have a value equal to the in-service shareholding guideline (which
requires the holding of shares during employment with a value equal to 200% of salary) for a period of one year
after leaving, and such of those shares as have a value equal to 50% of the in-service guideline for a further year
after leaving.
In either case, the number of relevant shares held at leaving must be retained if this is less than the in-service
guideline.
Maximum Opportunity
Not applicable.
Performance metrics
Not applicable.
Chair and Non-executive fees
Purpose and link to
strategy
Fees are set at a level that reflects market conditions and is sufficient to attract individuals with appropriate
knowledge and experience.
Operation
Fees are reviewed periodically and are determined by the Board.
The fee structure is as follows:
•
•
•
•
•
the Chair 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;
fees may be paid wholly or partly in shares; and
additional fees may be paid for taking on additional roles or for additional time commitments.
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. These benefits may include the reimbursement
of any tax liability if they are reimbursed for expenses incurred in the performance of their duties and those
expenses are considered taxable benefits.
Maximum opportunity
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.
Performance metrics
Not applicable.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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hsholdings.com
Directors’ Remuneration Policy Report
continued
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 for the bonus year;
ii.
the Remuneration Committee reasonably determining that the participant has been guilty of gross misconduct;
iii. an error in assessing any applicable performance condition;
iv. reputational damage to the Group;
v. material corporate failure; or
vi. a failure of acceptable health & safetystandards.
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;
iii. reputational damage to the Group;
iv. material corporate failure; or
v. a failure of acceptable health & safety standards.
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, provides a balanced measurement of performance that encourages
sustainable growth.
The EPS and TSR performance conditions attaching to the LTIP align management’s objectives to those of shareholders and rewards for the
delivery of year-on-year growth and delivery of value to shareholders.
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 whole or in part, in cash. The
Remuneration Committee would only settle an Executive Director’s award in cash in exceptional circumstances (such as where there was
a regulatory restriction on the delivery of shares) or in connection with the settlement of tax liabilities arising in respect of the acquisition of
shares.
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:
•
•
•
98
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.
Stock Code HILS
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
99
Birtley Group are key suppliers to the UK new build market supplying lintels, masonry
support, windposts, composite doors, builders metalwork and plasterers bead.
hsholdings.com
Directors’ Report (other statutory information)
Principal activities and strategic report
The Company acts as a holding company to all the Group’s
subsidiaries.
During 2020 the principal activities of the Group comprised the
manufacture and supply of:
•
Infrastructure Products (Roads & Security and Utilities)
• Galvanizing Services
Pages 2 to 55 contain further details of these areas of the business
and the principal subsidiaries operating within them are set out on
pages 186 to 188.
The Chair’s Statement and the Directors’ Strategic Report include:
Details of the results for the year are shown on the Consolidated
Income Statement on page 117 and the business segment
information is given on pages 130 to 133.
Dividends
The Directors recommend the payment of a final dividend of 17.5p
per ordinary share (2019: Cancelled) which, together with the interim
dividend of 9.2p per ordinary share (2019: 10.6p per ordinary share)
paid on 8 January 2021, makes a total distribution for the year of
26.7p per ordinary share (2019: 10.6p per ordinary share). Subject to
shareholders approving this recommendation at the AGM, the final
dividend will be paid on 9 July 2021 to shareholders on the register at
the close of business on 4 June 2021. The latest date for receipt of
Dividend Re-investment Plan elections is 18 June 2021.
•
Information on S172 CA 2006;
Share capital
• An analysis of the development and performance of the Group’s
business during the financial year;
• Key performance indicators used to measure the Group’s
performance;
•
The position of the Group’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 Group’s business.
Future development
An indication of likely future developments in the Group is given in the
Strategic Report on pages 2 to 55.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2020 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 £35.5m
(2019: £61.8m). Group revenue at £660.5m, 5% lower than the prior
year, impacted by the COVID-19 pandemic. Operating profit at £42.8m,
was 38% lower than for the previous year, impacted by the COVID-19
pandemic (2019: £69.2m).
Share capital summary
Exchange trade
The Company’s ordinary shares are listed
on the Main Market of the London Stock
Exchange
Class
Single class of ordinary shares of 25p each
Issued share
capital 1 January
2020
Total new ordinary
shares issued
during the year
Issued share
capital 31
December 2020
Rights and
obligations
79,369,150
111,705
79,480,855
All issued shares rank equally. Rights and
obligations attaching to the Company’s
shares are set out in the Company’s Articles
of Association
Further details can be found in note 23 on pages 161 and 162 of the
Group Financial Statements.
There is no limitation on share ownership and 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.
Resolutions are sought at each AGM to permit the Company to
allot, subject to shareholder approval, new shares under specific
circumstances. They are a function of addressing funding or share
scheme needs and not a tool for employing anti-takeover measures.
In relation to the purchase by the Company of its own shares
the rules relating thereto are set out in the Company’s Articles of
Association which state that the Directors’ powers to authorise
such purchase by the Company are subject to the provisions of the
relevant statutes and also the UK Listing Authority requirements, as
the Company’s shares are listed on the London Stock Exchange. No
shares were held in treasury.
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 2020 AGM and will be limited by the resolution to
be put to the 2021 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
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23 June 2020 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 23 September 2021.
Political and charitable donations
Charitable donations amounting to £21,000 (2019: £39,000) were
made in the year principally to local charities serving the communities
in which the Group operates. There were no political contributions.
Substantial shareholdings
As at 11 February 2021, 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
Aberdeen Standard
Investments
Mondrian Investment
Partners
Royal London
AXA Investment
Charles Stanley Group
Directors
Number of
ordinary shares
% of issued
share capital
6,356,716
3,962,515
3,478,382
2,842,653
2,770,047
7.98
4.98
4.37
3.57
3.48
The names of the Directors of the Company who served throughout
the year, including brief biographies, are set out on pages pages 58
and 59.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith
Holdings PLC as at 31 December 2020 are set out on page 89.
Appointment and replacement of Directors
The appointment and replacement of Directors of the Company
is governed by its Articles of Association, the UK Corporate
Governance Code, the Companies Acts and related legislation.
Directors can be appointed by ordinary resolution at a general
meeting or by the Board. If a Director is appointed by the Board,
such Director will hold office until the next AGM and shall then be
eligible for election at that meeting.
Conflicts
Under the Companies Act 2006 and the provisions of the Company’s
Articles of Association, the Board is required to consider potential
conflicts of interest. The Company has established formal procedures
for the disclosure and review of any conflicts, or potential conflicts,
of interest which the Directors may have and for the authorisation of
such conflict matters by the Board. To this end the Board considers
and, if appropriate, authorises any conflicts, or potential conflicts, of
interest as they arise and reviews any such authorisation annually.
New Directors are required to declare any conflicts, or potential
conflicts, of interest to the Board at the first Board meeting after his or
her appointment. The Board believes that the procedures established
to deal with conflicts of interests are operating effectively.
Directors’ and officers’ liability
The Company maintains an appropriate level of Directors’ and Officers’
insurance whereby Directors are indemnified against liabilities to third
parties to the extent permitted by the Companies Act 2006.
Financial instruments
The financial risk management objectives and policies are detailed in
note 22 on pages 156 to 161.
Research and development
During the year, the Group spent a total of £2.0m (2019: £1.4m) on
research and development.
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 P Simmons and
H K Nichols.
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 2020
On 1 March 2021, the Group announced the acquisition of Prolectric
Services Ltd.
Annual General Meeting
Based on current Government guidance this meeting will take place
virtually on 25 May 2021, details of which will be communicated
together with the AGM notice. This Notice will be sent to shareholders
separately with this Report, together with an explanation of the special
business to be considered at the meeting and will also be available on
the Company’s website at www.hsholdings.com.
Other important dates can be found in the Financial Calendar on page
184.
By order of the Board.
Alex Henderson
Group Company Secretary
9 March 2021
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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hsholdings.com
The Smart Cushion® impact crash attenuator by Hill & Smith Inc., seen here near Las Vegas,
Nevada, USA, is a speed dependent attenuator that varies stopping resistance during an impact.
It allows lighter and slower-moving vehicles to have longer ridedown distances and lower ridedown
g-forces and can provde real-time data back to its user.
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Statement of Directors’ Responsibilities in respect of the Annual Report,
Strategic Report, the Directors’ Report and the Financial Statements
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
Group Company Secretary
9 March 2021
The Directors are responsible for preparing
the Annual Report, Strategic Report, the
Directors’ Report and the Group and
Parent Company Financial Statements
in accordance with applicable law and
regulations. Company law requires the
Directors to prepare Group and Parent
Company Financial Statements for each
financial year. Under that law they are
required to prepare the Group Financial
Statement in accordance with International
Financial Reporting Standards adopted
pursuant to Regulation (EC) No. 1606/2002
as it applies to 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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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hsholdings.com
Varioguard and Multibloc installed by Hardstaff Barriers (a division of Hill & Smith Ltd)
along roadside kerb at Blackfriars Bridge, London. Delivered through the National Barrier
Asset Framework as Hostile Vehicle Mitiagtion to protect pedestrians following the
London Bridge attack in 2017.
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Financial Statements
106
117
170
181
Independent Auditor’s Report
Group Financial Statements
Company Financial Statements
Five Year Summary
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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A Solar Delta Type A Sign Light provided by Mallatite Ltd, situated within a
notoriously busy industrial environment in Oldbury, West Midlands. Providing
an energy effi cient, cost-friendly alternative to illuminated traffi c signs.
hsholdings.com
To the members of Hill & Smith Holdings PLC
Independent Auditor’s Report
Opinion
In our opinion:
• Hill & Smith Holdings PLC’s Group Financial Statements and Parent Company Financial Statements (collectively 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 2020 and of the Group’s profit
for the year then ended;
•
•
•
the Group Financial Statements have been properly prepared in accordance with International Accounting Standards in conformity with
the requirements of the Companies Act 2006 and International Financial Reporting Standards adopted pursuant to Regulation (EC)
No.1606/2002 as it applies in the European Union;
the Parent Company Financial Statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice; and
the Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the Financial Statements of Hill & Smith Holdings PLC (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2020 which comprise:
Group
Parent Company
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash flows
Related notes 1 to 28 to the Financial Statements, including a
summary of significant accounting policies
Company Balance Sheet
Company Statement of Changes in Equity
Related notes 1 to 14 to the Financial Statements including a
summary of significant accounting policies
The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable law International
Accounting Standards in conformity with the requirements of the Companies Act 2006 and International Financial Reporting Standards
adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union. The financial reporting framework that has been
applied in the preparation of the Parent Company Financial Statements is applicable law and United Kingdom Accounting Standards, including
FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Statements section of our report.
We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial Statements in the
UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the Financial Statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the Financial Statements is appropriate. Our evaluation of the Directors’ assessment of the Group and Parent Company’s ability to continue to
adopt the going concern basis of accounting included:
• We understood the process undertaken by management to perform the going concern assessment, including the evaluation of the ongoing
impact of COVID-19 on the Group and the Group’s access to available sources of liquidity.
• We obtained management’s going concern assessment, including the cash flow forecasts and covenant calculations for the going concern
period to 31 March 2022. We verified these forecasts were consistent with the Board approved forecasts. The Group has modelled a
base case which is consistent with the assumptions used in the Group’s impairment assessments; and two reverse stress tests which a)
determine the additional revenue downside which could be absorbed before the Group runs out of liquidity and b) the revenue downside
which would be required for the Group to breach is financial covenants under its core borrowing facilities.
• We obtained the signed agreements for the Group’s credit facilities and read these to ensure the terms of these, including the level of
facilities and basis of covenants, were consistent with those considered in management’s assessment;
• We recalculated the key assumptions underpinning the Group’s forecasts. In particular, we assessed the achievability of the revenue
projections in management’s base case and downside scenario to the Group’s performance since the onset of the COVID-19 pandemic and
external appraisal industry forecasts;
• We assessed the historical accuracy of management’s forecasting for the past four years to gain assurance over the prospective financial
information included in the going concern assessment;
• We sensitised management’s assessments using our own independently developed assumptions for a severe but plausible downside
impact and confirmed these sensitivities did not give rise to any breach of covenants or the Group running out of liquidity;
• We scrutinised the results of management’s reverse stress test scenario and assessed whether the changes to key assumptions which
resulted in the Group either exhausting all of its liquidity or breaching covenants on the Group’s borrowing facilities were plausible. We also
considered mitigating actions, assessing whether they were within management’s control and whether they were supported by the actual
mitigation achieved in response to COVID-19, to date;
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• We tested the clerical accuracy of the models used to prepare the Group’s going concern assessment through re-computation of the models;
and
• We ensured the appropriateness of the Group’s disclosures concerning the going concern basis of preparation by verifying these met
regulatory and legislative requirements.
We observed that whilst the Group has reported a 5% decline in total revenue for the year ended 31 December 2020, this has not resulted in a loss
of liquidity. The Group has reduced its net debt by £69.1m from £215.3m to £146.2m during 2020. At 31 December 2020, the Group had £328.3m
of committed borrowing facilities, of which only £1.2m matures before December 2023 at the earliest, and a further £13.8m of on-demand
facilities. The amount drawn down under these facilities at 31 December 2020 was £139.0m, which together with cash of £22.0m, gave total
headroom of £225.1m.
Our independent procedures, confirmed that we concur with management’s assessment that for a breach of covenants to occur during the
relevant period, the Group would need to experience a sustained revenue reduction of 30% compared with current expectations throughout the
period from April to December 2021, while a reduction in headroom against borrowing facilities to nil would occur if the Group generated no
revenue between May 2021 and March 2022.
Based on the work we performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the Group and Parent Company’s ability to continue as a going concern for the period to 31 March 2022.
We assessed the appropriateness of the viability statement disclosures within the Governance Report noting the three-year period considered
within this statement aligns to the Group’s Strategic Planning period. We consider the scenarios used in the viability statement – being decrease in
UK Government road infrastructure spend, continued disruption caused by COVID-19, a fall in galvanizing volumes across the Group and reduction
in the Group’s utilities revenues in the UK and US – were consistent with the economic risks faced and as such are appropriate.
In relation to the Group and Parent Company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing material
to add or draw attention to in relation to the Directors’ statement in the Financial Statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a
going concern.
Overview of our audit approach
Audit scope
• We performed an audit of the complete financial information of 5 trading and 1 non-trading components, and audit procedures on specific
balances for a further 14 trading components. In addition, we performed specified procedures over 5 trading components and 22 non-
trading components.
•
•
•
•
•
•
Key audit
matters
Materiality
The components where we performed full or specific audit procedures accounted for 108% of Adjusted Operating Profit (prior to
consolidation adjustments), 92% of Revenue and 73% of Total assets.
Carrying value of goodwill in relation to France Galva and ATG Access
Revenue recognition – the risk of management override through inappropriate manual journals to revenue or inappropriate revenue cut-off
Risk of inappropriate inventory valuation
Accounting for uncertain tax positions.
Overall Group materiality of £3.2m which represents 5% of Adjusted Operating Profit.
First year audit
transition
The year ended 31 December 2020 is our first as auditor of the Group. We commenced transition at the start of the audit professional engagement
period on 3 February 2020. This included shadowing the previous auditor through the 31 December 2019 audit through attendance at certain close
meetings as well as the Audit and Risk Committee meeting in March 2020.
Subsequently, audit transition activities focused on the following areas:
Mobilisation of the global audit team:
• We held onboarding and introduction meetings, attended by the Group audit team and all full scope, specific scope and specified procedure
scope audit teams. All of these meetings were held virtually. The meetings included discussion on Group audit strategy, key audit risks,
deployment of technologies, division of responsibilities between teams for centralised audit procedures and our approach to ensuring
consistent high audit quality.
•
Introduction meetings with local management, attended by the Group audit team and the component teams for all full scope, specific
scope and specified procedures scope audit teams. The Group audit team attended these virtually. Local component teams attended either
virtually or, where local regulation allowed given COVID-19 restrictions, in person. This provided us with the opportunity to develop our
understanding of the business, meet with local management, and provide early direction of the audit strategy.
Establishing our audit base
• We evaluated all key accounting judgement papers and the Group’s accounting policies.
• We undertook reviews of the predecessor auditor files to consider working papers in relation to significant audit risk matters, to identify and
assess the judgements exercised over these risks and to assess the nature, timing and extent of audit procedures performed in forming the
prior year auditor opinion.
•
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As detailed in the relevant sections below, we assessed the risks of management override through inappropriate manual journals to revenue
or inappropriate revenue cut-off as well the risk of inappropriate inventory valuation as being Key Audit Matters. These areas were not included
as Key Audit Matters in the predecessor’s audit opinion. We determined these areas to be of higher risk and where substantial audit effort has
been spent.
Conversely, the predecessor auditor included a key audit matter related to the impact of uncertainties due to the UK exiting the European Union
on the audit. Given the post transition arrangements with the European Union have now been finalised we do not consider this to continue to be
a risk to the Financial Statements and have not included it as a Key Audit Matter.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Independent Auditor’s Report
continued
An overview of the scope of the ParentCompany and Group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each
company within the Group. Taken together, this enables us to form an opinion on the Consolidated Financial Statements. We take into account
size, risk profile, the organisation of the Group and effectiveness of Group-wide controls, changes in the business environment and other
factors such as recent Internal Audit results when assessing the level of work to be performed at each company.
In assessing the risk of material misstatement to the Consolidated Financial Statements, and to ensure we had adequate quantitative coverage
of significant accounts in the Financial Statements, we selected 20 full and specific scope components covering entities within the UK, USA,
France, Sweden and India, which represent the principal business units within the Group.
Of the 20 components selected, we performed an audit of the complete financial information of 6 components (“full scope components”) which
were selected based on their size or risk characteristics. For 14 components (“specific scope components”), we performed audit procedures
on specific accounts within that component that we considered had the potential for the greatest impact on the significant accounts in the
Financial Statements either because of the size of these accounts or their risk profile.
Specified procedures, determined by the primary team, and performed by local audit teams, were performed at 4 trading components in
the USA and at the Group’s trading component in Australia. As a minimum, these included procedures over revenue and receivables at all 5
locations.
Consolidation adjustments, over which we have performed work at Group level, include entries to record goodwill and intangible assets arising
from acquisitions.
The following table illustrates the coverage obtained from the work performed by our audit teams:
Components
Adjusted
Operating Profit
Revenue
Total Assets
Full Scope
Specific Scope
Specified procedures over trading components
Non-trading companies and consolidation adjustments
Overall coverage
6
14
5
22
98%
10%
2%
(8%)
102%
53%
39%
10%
(3%)
99%
45%
28%
10%
16%
99%
The remaining 2 trading components represent (loss of 2%) of the Group’s Adjusted Operating Profit. For these components, we performed
other procedures, including analytical review, testing intercompany eliminations and foreign currency translation recalculations to respond to
any potential risks of material misstatement to the Group Financial Statements.
Involvement with component teams
In establishing our overall approach to the Group audit, we determined the type of work needed to be undertaken at each of the components
by us, as the primary audit engagement team, or by component auditors from other EY global network firms, or non-EY firms, operating under our
instruction.
Of the 6 full scope components, audit procedures were performed on 2 of these directly by the primary audit team. Of the 14 specific scope
components, audit procedures were performed on 12 of these directly by the primary team.
For the remaining 4 full scope components and 2 specific scope components where the work was performed by component auditors, we
determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our
opinion on the Group as a whole.
During the current audit cycle, our planned visits to component teams were cancelled due to the travel restrictions arising from the COVID-19
pandemic. We replaced the planned visits with alternative procedures, including video conference call meetings and remote reviews of our local
component audit teams’ working papers.
The primary team interacted regularly with the component teams during various stages of the audit, reviewed key working papers and were
responsible for the scope and direction of the audit process. We determined the appropriate level of involvement to enable us to determine that
sufficient audit evidence had been obtained as a basis for our opinion on the Group as a whole. The direction, supervision and review of the
component teams, together with the additional procedures performed at Group level, gave us appropriate evidence for our opinion on the Group
Financial Statements.
The Senior Statutory Auditor led the audit of the 2 full scope UK components, as well as 1 specific scope component within the UK businesses,
in addition to the audit of the Group, finance, treasury, pensions and consolidation functions.
We held virtual onboarding and introduction meetings, attended by the Group audit team and all full scope, specific scope and specified
procedure scope audit teams. This included discussion on Group audit strategy, key audit risks, deployment of technologies, division of
responsibilities between teams for centralised audit procedures and our approach to ensuring consistent high audit quality.
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Impact of the COVID-19 pandemic on the execution of the audit
The COVID-19 pandemic and lockdown restrictions occurred part way through the Group’s financial year. We worked proactively with
management to agree, where possible, a revised timetable to enable our audit testing to be performed earlier in the annual audit cycle. This
assisted in providing sufficient time for the audit of judgements and estimates arising from COVID-19 to be considered fully and disclosures
adequately assessed, to reflect the extended time needed for management to conclude on the significant estimates arising in the year, and to
reflect the incremental time associated with completing our audit remotely.
The onset of the pandemic occurred before our audit planning procedures. As such, we evaluated our audit risk assessment, giving particular
attention to the effects of COVID-19 on the Group and significant areas of judgment and estimation arising as a result. We identified the
areas of increased risk and complexity, to understand and evaluate changes in the control environment and to appropriately design our audit
procedures in response.
Of the 16 full and specific scope trading components where inventory was in scope, we attended the physical inventory counts at 14 of these
components with the remaining two components having a virtual inventory count performed.
Our approach to the audit was adapted to allow for fully remote working and procedures implemented to ensure Partner in Charge oversight
throughout. As site visits by the Senior Statutory Auditor were not possible, we increased our interactions with the component teams which
were held virtually through the use of video or teleconferencing facilities.
We held virtual planning meetings before the year end and video conference calls were held with each of our component teams from July 2020
through to the full year results announcement in March 2021.
The audit closing calls for each in scope component were held via video conferencing and were attended by the Senior Statutory Auditor
enabling direct interaction with local management teams as well as local audit teams.
The review of relevant audit workpapers was facilitated by the EY electronic audit platform and screen sharing of work. This allowed
appropriate discussions with the component teams on audit strategy, risk identification and the results of audit procedures performed.
We have maintained oversight of the audit work performed by our non-EY component team (in respect of the French component) through the
use of share screen functionality to allow for the effective review of key audit evidence and also to attend closing meetings via video call.
We engaged with management throughout the audit, using video conference calls, screen-sharing functionality, secure encrypted document
exchanges and data downloads to avoid limitations on our ability to interact with management and obtain the audit evidence we required to
execute and document our audit. All key meetings, such as the closing meetings and Audit Committee meetings, were performed via video
conference calls.
Based upon the above approach we are satisfied that we have been able to perform sufficient and appropriate oversight of our component
teams.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Financial Statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included 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. These matters were addressed in the context of our audit of the Financial Statements as a whole, and in
our opinion thereon, and we do not provide a separate opinion on these matters. See over page.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Independent Auditor’s Report
continued
Risk
Our response to the risk
Carrying value of goodwill and acquired intangible
assets for France Galva (Goodwill carrying value
of £12.3m, PY comparative £28.6m) and ATG
Access (Goodwill carrying value of £15.5m, PY
£15.5m)
Market conditions in France have been challenging
and as a result of their impairment testing,
management have recorded a £17.5m impairment
of the goodwill related to the France Galva CGU.
We examined management’s methodology, as
detailed in Note 11 of the Consolidated Financial
Statements, the model for assessing the valuation
of both the France Galva and ATG Access CGUs
to understand the composition of management’s
future cash flow forecasts, and the process
undertaken to prepare them.
We checked the underlying cash flows were
consistent with the Board approved budgets.
Key observations communicated to the Audit
Committee
Our year end audit procedures did not identify
evidence of material misstatement regarding the
carrying value of goodwill and acquired intangible
assets in the Group. We consider the level of
impairment recorded in respect of the France Galva
CGU to be appropriate.
We consider the disclosures in relation to the
France Galva and ATG Access CGUs to be in line
with the requirements of IAS 36.
The restrictions on public gatherings resulting
from COVID-19, combined with constraints on
capital budgets, has seen a substantial reduction
in demand for ATG Access’ security solutions
increasing the risk around recoverability of the
goodwill related to the ATG Access CGU.
The estimated recoverable amount for both CGUs is
subjective due to the inherent uncertainty involved
in forecasting future growth and profitability of
the CGUs and the rate at which the cash flows
generated by the CGUs should be discounted. A
relatively small change in key assumptions could
give rise to a material change in the estimated
recoverable amount 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 11) disclose the
sensitivity estimated by the Group.
Refer to the Audit Committee Report (page 76);
Accounting policies (pages 123 and 124); and Note
11 of the Consolidated Financial Statements (pages
146 to 148).
We also re-performed the calculations in the model
to test the mathematical integrity.
We performed detailed testing with support from
our valuation specialists to critically assess and
corroborate the key inputs of the forecast cash
flows including:
•
•
•
•
•
•
independently constructed our own
expectation of the discount rates for a market
participant from first principles using input
from our internal specialist valuations team;
analysing the historical accuracy of budgets
versus actual results to determine the reliability
of cash flow forecasting based on past
experience;
assessing the achievability of the budget and
strategic plan results by considering factors
including historic results, the impact of
COVID-19 and performance since lockdown,
drivers of growth, reasonableness of margins,
etc.;
challenging the medium and long-term
forecast growth rates used by considering
evidence available such as industry and
country forecasts and inflation data;
for ATG Access we calculated the degree to
which the key assumptions would need to
fluctuate before an impairment conclusion was
triggered and considered the likelihood of this
occurring; and
analysed available information to identify any
contrary evidence, including consideration of
competitor performance and views provided in
analyst reports.
We assessed the disclosures in respect of goodwill
and intangibles with reference to the requirements
of IAS 36 and confirmed their consistency with the
audited impairment models.
The audit procedures performed to address this risk
have been performed by the Group audit team.
Procedures to respond to this risk were performed
by both the Primary and component teams.
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Key observations communicated to the Audit
Committee
Our audit procedures did not identify evidence
of material misstatements related to revenue
recognition and we found no evidence of
management bias.
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Risk
Our response to the risk
Revenue recognition – the risk of management
override through inappropriate manual journals
to revenue or inappropriate revenue cut-off
(£660.5m, PY comparative £694.7m)
There is a risk of inappropriate revenue recognition
if deliveries or revenue from the provision of
services are recorded in the wrong period. This
includes any estimation of revenue recorded over
time and completion of projects.
Cut-off
We performed the following audit procedures at 5
full and 14 specific scope locations where revenue
is in scope. Revenue at these locations represents
92% of the total revenue balance of £660.5m.
These procedures were additionally performed at
the 5 trading components at which we performed
specified procedures, representing a further 10%
of the total revenue balance before intra-Group
eliminations.
We performed walkthroughs of the process by which
revenue is recognised and recorded at the 5 full and
14 specific scope locations.
For 2 full scope entities and all 14 of the specific
scope components, representing 58% of Group
revenue, we performed data analytics procedures
over the correlation of sales and cash receipts to
test the existence and occurrence of revenue being
recorded in the correct period.
For components where we were unable to perform
data analytical procedures, being for the remaining 3
full scope components that have revenue (covering
34% of the Group’s revenue) and the 5 trading
components at which we performed specified
procedures (representing a further 10% of Group
revenue), we performed tests of detail over revenue
recognised in the year by agreeing a sample of sales
transactions to supporting documentation including
proof of delivery / evidence of service provided to
ensure the revenue had been earned in the correct
period.
We performed cut-off testing procedures at each of
the full and specific scope locations to confirm the
transactions had been appropriately recorded in the
income statement with reference to IFRS 15 and
corroborated that control of the products had been
transferred to the customer by:
•
•
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analysing the contract and terms of the sale
to determine that the Group had fulfilled the
requirements of the contract and earned the
right to revenue at the balance sheet date;
confirming revenue could be reliably measured
by reference to underlying documentation; and
obtaining third party evidence such as delivery
documentation and evidence of customer
acceptance at the year-end date to verify the
revenue had been recorded in the correct period.
For utilities revenue earned on provision of
installation services, for a sample of items we
obtained evidence from the customer to confirm
the stage of completion of the installation at the
year-end to corroborate revenue was recognised
in the correct period and reflective of the level of
installation that had taken place in the year.
Where the Group recognises revenue over time on
non-standard products we confirmed for a sample of
transactions the Group’s right to payment for these
products by agreeing to the terms and conditions of
the signed sales contract to ensure the requirements
of IFRS 15 had been met to recognise revenue in the
current period. We also enquired of manufacturing
personnel and inspected inventory ledgers and
bills of material to confirm the products were
non-standard and that significant re-work would be
required for the product to be sold via other means.
We examined post year end credit notes to assess
any evidence of inappropriate revenue recognition
cut-off for the year ended 31 December 2020.
For all locations we performed analytical
procedures to compare revenue recognised with our
expectations, management’s forecasts and, where
possible, external market data.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Key observations communicated to the Audit
Committee
Our procedures performed did not identify any
unsupported manual adjustments to revenue or any
unexplained anomalies from our revenue analytics.
The basis for the year-end inventory valuation and
the assumptions used in assessing the adequacy
of the excess and obsolete inventory provisions
across the Group are considered appropriate. Our
audit procedures confirmed variances between
standard and actual costs and the overheads
absorbed in the inventory valuation had been
appropriately calculated and accounted for.
hsholdings.com
Independent Auditor’s Report
continued
Risk
As revenue is a key performance indicator for
both external communication and a key input into
management incentives, we also identified a risk
of management override through inappropriate
manual topside revenue journal entries being
processed.
Refer to the Audit Committee Report (page 78);
Accounting policies (pages 126 and 127); and Note
2 of the Consolidated Financial Statements (pages
130 to 133).
Risk of inappropriate inventory valuation
(£96.3m, PY comparative £100.7m)
The valuation of inventory across the Group is
dependent on establishing appropriate valuation
processes. The establishment of standard costing
bases and the assessment of how much excess
and obsolete inventory exists requires judgement to
be applied in finalising the inventory valuation and
level of provisioning required. If these judgements
are not appropriate then there is a risk that
inventory is incorrectly valued.
Refer to the Audit Committee Report (page 78);
Accounting policies (page 126); and Note 16 of the
Consolidated Financial Statements (page 152).
Our response to the risk
Management override
At all in scope components we obtained and
reviewed break-downs of all manual journals and
for all material revenue journals and a sample of
non-material revenue journals we agreed the journal
entries to underlying documentation to verify the
appropriateness of the revenue being recognised.
We assessed for evidence of management bias
by testing all material manual journals either side
of the year end and agreeing journal entries to
appropriate supporting evidence.
Revenue at the full and specific scope components
represents 92% of the total revenue balance.
For all components we performed analytical
procedures to compare revenue recognised with
our expectations, management’s forecasts and,
where possible, external market data
We performed the following audit procedures
at 5 full and 11 specific scope components
where inventory is in scope. Inventory at these
components represents 90% of the total inventory
balance.
We performed walkthroughs of inventory valuation
methods at each of the 5 full and 11 specific scope
components where inventory was in scope.
We performed tests of detail for a sample of
inventory items to check the accumulation of
cost within inventory and to confirm the valuation
reflected the products’ stage of completion.
We agreed our samples from the year-end inventory
counts which we attended to the inventory
subledger and performed rollforward procedures
to year end.
Of the 5 full and 11 specific scope components
in scope for inventory, we were able to physically
attend counts for 14 of those components. For the
remaining 2 components we were able to perform
virtual count procedures.
We obtained evidence to support the standard
costs used and performed procedures to assess
whether only normal production variances had
been capitalised in the year-end inventory balance
and material abnormal inefficiencies had been
appropriately expensed. This included comparing
actual production rates to budget.
We obtained evidence to support that inventory is
held at the lower of cost and net realisable value
by assessing the adequacy of excess and obsolete
provisions held against inventory. This included
comparing forecast product usage to customer
orders, considering historical usage, historical
accuracy of provisioning and understanding
management’s future plans to utilise the inventory.
We performed clerical procedures on the formulaic
calculations to evaluate the accuracy of the
inventory provisioning. On occasion, management
makes adjustments to the formulaic provision
calculations. We evaluated the assumptions and
judgements applied by management in determining
the provision recorded in the Financial Statements.
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Risk
Our response to the risk
Accounting for uncertain tax positions (Provision
for uncertain tax positions – 2020: £4.4m, 2019:
£6.1m)
Management applies judgement in assessing tax
exposures in each jurisdiction in relation to the
interpretation of specific tax law. The effect of this
judgement is that the provisions recorded have a
high degree of estimation uncertainty.
Refer to the Audit Committee report (page 78);
Accounting policies (pages 128 and 129);
Accounting estimates and judgements (page 130);
and Note 7 of the Consolidated Financial Statements
(page 138).
We understood and walked through:
•
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the Group’s process for determining the
completeness and measurement of provisions
for tax;
the methodology for the calculation of the tax
charge; and
• management’s controls over tax reporting.
The Group audit team, including tax specialists,
evaluated the tax positions taken by management
in each significant jurisdiction in the context of local
tax law, correspondence with tax authorities and the
status of any tax audits. Our assessment included
consideration of the past outcome of comparable
cases and look-back analysis on management’s
historic rates of successfully defending tax
positions.
Our work utilised additional support from country
tax specialists in the USA, which outside of the UK,
is the most significant jurisdiction where the Group
has operations, and our UK based International Tax
specialists.
We assessed the Group’s tax provision judgements,
considering the way in which we observed
the Group’s businesses operating and the
correspondence and agreements reached with tax
authorities. We developed our own independent
range of potential provisions for the Group’s tax
exposures, based on the evidence we obtained, and
compared management’s provision to our range.
We assessed whether the Group’s disclosures,
detailing the year-end status of material open tax
inquiries, adequately disclose relevant facts and
circumstances and potential liabilities of the Group.
The audit procedures were designed and led by the
Group audit team, with support from component
teams whose work was reviewed by the Group
audit team.
Key observations communicated to the Audit
Committee
Our year end audit procedures did not identify
evidence of material misstatement regarding
provisions recognised for uncertain tax positions.
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Our application of materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in
forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the Financial Statements. Materiality provides a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be £3.2 million, which is 5% of adjusted operating profit. We believe that adjusted operating profit provides
us with the most relevant performance measure to the stakeholders of the entity and therefore have determined materiality based on this number.
We determined materiality for the Parent Company to be £4.7 million, which is 1.5% of equity.
Starting
basis
Adjustments
Materiality
• Operating Profit – £42.8m
Impairment charge recorded – £20.3m
•
• UK Pension Scheme GMP Equalisation – £0.4m
Totals £63.5m earnings before interest and tax
•
• Materiality of £3.2m (5% of materiality basis)
During the course of our audit, we reassessed initial materiality and concluded that our planned materiality remains appropriate.
The previous auditor determined materiality for the Group to be £3.6m for the external audit for the year ended 31 December 2019.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Independent Auditor’s Report
continued
Performance materiality
The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that
performance materiality was 50% of our planning materiality, namely £1.6m. We have set performance materiality at this percentage due to
this being our initial audit of the Group and the first year audit operated under unusual and unprecedented circumstances which arose due to
COVID-19, leading to uncertainty in market segments and changes in working practices at points throughout the year. Together, these factors
indicate placing performance materiality at 75% of planning materiality would not be appropriate in the first year of audit.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken
based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale
and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year, the
range of performance materiality allocated to components was £0.3m to £1.1m.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £0.16m , which is set at 5% of
planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other
relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the Annual Report set out on pages 1 to 103, other than the Financial Statements
and our auditor’s report thereon. The Directors are responsible for the other information contained within the Annual Report.
Our opinion on the Financial Statements does not cover the other information and, except to the extent otherwise explicitly stated in this report,
we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
Financial Statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the
Financial Statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act
2006.
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and the Directors’ Report for the financial year for which the Financial Statements are prepared
is consistent with the Financial Statements; and
the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit,
we have not identified material misstatements in the Strategic Report or the Directors’ Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us 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.
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Corporate Governance Statement
The Listing Rules require us to review the Directors’ statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group and Company’s compliance with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the Financial Statements or our knowledge obtained during the audit:
• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties
identified set out on pages 69 and 70;
• Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is
appropriate set out on page 70;
• Directors’ statement on fair, balanced and understandable set out on page 70;
• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 46 to 53;
•
•
The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on
page 69; and;
The section describing the work of the audit committee set out on page 76.
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 103, the Directors are responsible for the preparation of
the Financial Statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for 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 the Directors
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 for the audit of the Financial Statements
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 error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these Financial Statements.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of
not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the Company
and management.
• We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group and determined that the most
significant are frameworks which are directly relevant to specific assertions in the Financial Statements are those that relate to the
reporting framework (IFRS, the Companies Act 2006 and UK Corporate Governance Code). In addition, we concluded that there are certain
significant laws and regulations which may have an effect on the determination of the amounts and disclosures in the Financial Statements
being the Listing Rules of the UK Listing Authority, the US Foreign Corrupt Practices Act, Swedish, French and Indian Companies Act
legislation, and those laws and regulations relating to health & safety and employee matters.
• We understood how Hill & Smith Holdings PLC is complying with those frameworks by making enquiries of management, internal audit,
those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of
Board minutes, papers provided to the Audit Committee and correspondence received from regulatory bodies.
• We assessed the susceptibility of the Group’s Financial Statements to material misstatement, including how fraud might occur, by
meeting with management from various parts of the business to understand where it considered there was susceptibility to fraud. We also
considered performance targets and their influence on efforts made by management to manage earnings or influence the perceptions of
analysts. We considered the programmes and controls that the Group has established to address risks identified, or that otherwise prevent,
deter and detect fraud; and how senior management monitors those programmes and controls. Where the risk was considered to be
higher, we performed audit procedures to address each identified fraud risk. These procedures included testing manual journals and were
designed to provide reasonable assurance that the Financial Statements were free from fraud or error.
• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our procedures
involved journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual transactions based
on our understanding of the business; enquiries of internal and external legal counsel, Group management, internal audit, full and specific
scope component management; and focused testing, as referred to in the key audit matters section above.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Independent Auditor’s Report
continued
Component teams reported any non-compliance with laws and regulations through their audit deliverables based on the procedures detailed
in the previous paragraph. Further, the Group team communicated any instances of non-compliance with laws and regulations to component
teams through regular interactions with local EY teams. There were no significant instances of non-compliance with laws and regulations.
A further description of our responsibilities for the audit of the Financial Statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
Other matters we are required to address
Following the recommendation from the Audit Committee, we were appointed by the Company on 14 July 2020 to audit the Financial
Statements for the year ending 31 December 2020 and subsequent financial periods. The period of total uninterrupted engagement including
previous renewals and reappointments is one year as this is the first audit year.
• None of the non-audit services prohibited by the FRC’s Ethical Standard were provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting the audit.
•
The audit opinion is consistent with the additional report to the Audit Committee.
Use of our report
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.
Helen McLeod-Jones
Senior statutory auditor
for and on behalf of Ernst & Young LLP, Statutory Auditor
Birmingham
9 March 2021
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Year ended 31 December 2020
Consolidated Income Statement
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
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
Notes
2
Underlying
£m
660.5
(415.9)
244.6
(34.1)
2020
Non-
underlying*
£m
-
-
-
-
Total
£m
Underlying
£m
660.5
694.7
(415.9)
(438.2)
244.6
(34.1)
256.5
(36.8)
2019
Non-
underlying*
£m
-
-
-
-
Total
£m
694.7
(438.2)
256.5
(36.8)
(142.2)
(27.1)
(169.3)
(135.3)
(17.1)
(152.4)
1.6
69.9
0.6
(7.9)
62.6
-
(27.1)
-
-
(27.1)
1.6
42.8
0.6
(7.9)
35.5
1.9
86.3
0.5
(7.4)
79.4
-
(17.1)
0.9
(1.4)
(17.6)
1.9
69.2
1.4
(8.8)
61.8
(12.4)
0.9
(11.5)
(15.5)
2.1
(13.4)
50.2
(26.2)
24.0
63.9
(15.5)
48.4
30.2p
30.0p
61.1p
60.8p
2, 3
6
6
8
9
9
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 136 and further details on non-underlying items are included in note 4.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Year ended 31 December 2020
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 designated as net
investment hedges
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive expense for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
25
8
2020
£m
24.0
(2.5)
-
(2.3)
0.8
(4.0)
20.0
2019
£m
48.4
(13.1)
2.9
1.0
(0.2)
(9.4)
39.0
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Year ended 31 December 2020
Consolidated Statement of Financial Position
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Current tax assets
Cash and short term deposits
Total assets
Current liabilities
Trade and other liabilities
Current tax liabilities
Provisions
Lease liabilities
Loans and borrowings
Net current assets
Non-current liabilities
Other liabilities
Provisions
Deferred tax liabilities
Retirement benefit obligations
Lease liabilities
Loans and borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Translation reserve
Retained earnings
Total equity
Notes
11
12
14
15
16
17
18
2
19
21
14
19
20
21
15
25
14
20
23
2020
£m
188.5
183.6
30.9
1.4
404.4
96.3
122.7
1.3
22.0
242.3
646.7
(116.7)
(5.5)
(3.3)
(8.6)
(8.6)
(142.7)
99.6
(1.4)
(2.5)
(9.0)
(19.6)
(23.8)
(127.2)
(183.5)
(326.2)
320.5
19.9
38.4
4.9
17.2
240.1
320.5
2019
£m
212.8
190.0
37.9
1.0
441.7
100.7
144.1
-
26.0
270.8
712.5
(120.3)
(10.7)
(0.8)
(10.6)
(0.4)
(142.8)
128.0
(1.3)
(2.5)
(8.7)
(19.9)
(29.4)
(200.9)
(262.7)
(405.5)
307.0
19.9
37.4
4.9
19.7
225.1
307.0
Approved by the Board of Directors on 9 March 2021 and signed on its behalf by:
P Simmons
Director
H K Nichols
Director
Company Number: 671474
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Year ended 31 December 2020
Consolidated Statement of Changes in Equity
Share
capital
£m
Share
premium
£m
Other
reserves†
£m
Translation
reserves
£m
Retained
earnings
£m
Notes
19.8
-
19.8
35.5
-
35.5
4.9
-
4.9
At 1 January 2019
Adoption of IFRS 16
At 1 January 2019 (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 Consolidated
Statement of Changes in Equity
Shares issued
At 31 December 2019
Comprehensive income
Profit for the year
Other comprehensive income for the year
Transactions with owners recognised directly
in equity
Dividends
Credit to equity of share-based payments
Tax taken directly to the Consolidated
Statement of Changes in Equity
Shares issued
At 31 December 2020
-
-
-
-
-
-
-
-
-
-
-
-
-
-
0.1
19.9
1.9
37.4
-
-
-
-
-
-
19.9
-
-
-
-
-
1.0
38.4
10
23
8
23
10
23
8
23
29.9
-
29.9
-
(10.2)
-
-
-
-
-
-
203.1
(2.7)
200.4
48.4
0.8
(25.1)
0.9
(1.4)
0.7
0.4
-
-
-
-
-
-
-
-
-
Total
equity
£m
293.2
(2.7)
290.5
48.4
(9.4)
(25.1)
0.9
(1.4)
0.7
0.4
2.0
4.9
19.7
225.1
307.0
-
-
-
-
-
-
-
(2.5)
24.0
(1.5)
24.0
(4.0)
-
-
-
-
(8.4)
(8.4)
0.8
0.1
-
0.8
0.1
1.0
4.9
17.2
240.1
320.5
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2019: £0.2m) capital redemption reserve.
At 31 December 2019 a total of 23,759 shares 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 £0.3m, was included within retained earnings at that
date. During 2020, 3,831 shares have been issued in settlement of awards to employees, leaving 19,928 shares held at 31 December 2020, at a
cost of £0.3m included within retained earnings.
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Year ended 31 December 2020
Consolidated Statement of Cash Flows
Profit before tax
Add back net financing costs
Operating profit
Adjusted for non-cash items:
Share-based payments
Loss on disposal of subsidiary
Gain on disposal of non-current assets
Gain on disposal of assets held for sale
Depreciation of owned assets
Amortisation of intangible assets
Right-of-use asset depreciation
Gain on lease termination
Impairment of non-current assets
Operating cash flow before movement in working capital
Decrease / (increase) in inventories
Decrease / (increase) in receivables
Decrease 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
Interest paid on lease liabilities
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
Repayments of lease liabilities
New loans and borrowings
Repayment of loans and borrowings
Net cash (used in) / from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations
Cash and cash equivalents at the end of the year
Notes
6
2, 3
5, 23
4
7
13
7, 12
7, 11
7, 14
14
7, 11, 12, 14
13
11
23
10
18
2020
£m
£m
35.5
7.3
42.8
2019
£m
£m
61.8
7.4
69.2
1.2
0.7
(0.1)
(0.5)
19.9
7.4
10.2
-
7.0
(2.4)
(0.4)
(10.1)
(3.2)
0.5
1.0
1.3
(29.7)
(1.9)
(43.9)
(0.7)
2.0
2.0
(0.7)
(25.1)
(2.1)
(10.5)
119.9
(83.2)
0.8
-
(1.9)
-
21.9
7.5
10.4
(0.1)
19.5
1.0
21.6
(4.4)
(0.8)
0.6
6.5
-
(15.5)
(1.8)
(0.9)
-
-
1.0
-
(8.4)
-
(11.1)
-
(74.4)
58.1
100.9
17.4
118.3
(3.1)
(16.5)
(6.0)
(0.8)
91.9
(11.1)
(92.9)
(12.1)
26.0
-
13.9
45.8
115.0
(16.1)
98.9
(16.3)
(14.4)
(6.4)
(0.9)
60.9
(71.4)
0.3
(10.2)
36.9
(0.7)
26.0
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Group Accounting Policies
Hill & Smith Holdings PLC is a Company incorporated in the UK. The Consolidated Financial Statements of Hill & Smith Holdings PLC and its
subsidiaries (the “Group”) are presented for the year ended 31 December 2020.
The Group Financial Statements have been prepared and approved by the Directors in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union. The Company has elected to prepare its Parent Company Financial Statements in
accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (‘FRS 101’); these are presented on pages 170 to 178.
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 1.
Basis of Consolidation
The Consolidated Financial Statements comprise the Financial Statements of the Company, Hill & Smith Holdings PLC, and its subsidiaries as at
31 December 2020. 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. 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.
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. The Group’s Financial Statements are presented in Sterling and all values are stated in million (£m) rounded to one decimal place,
except where otherwise indicated.
Impact of COVID-19 on the Consolidated Financial Statements
As outlined in the Operational and Financial Review on pages 24 to 31, the COVID-19 pandemic has materially affected the Group’s trading
performance in 2020 with the temporary closure of some of its operations and reduced activity levels from the middle of March 2020. Revenue
in the second quarter was 22% below the same period last year. All our businesses had reopened by the middle of May and despite the
challenges arising from the COVID-19 pandemic, the Group remained profitable throughout the year with a strong recovery in the second half.
The Group does not consider it possible to reliably determine the level of trading impact arising specifically from COVID-19, as opposed to other
market factors, and has therefore not attempted to make any such disclosure in these Consolidated Financial Statements.
Given the improved trading performance in the second half and the solid levels of cash generation, the Board made the decision in December
2020 to repay all monies received earlier in the year from the UK Coronavirus Job Retention Scheme (£3.6m) and to settle UK VAT liabilities
deferred from the second quarter (£6.5m).
Going concern and liquidity risk
In determining the appropriate basis of preparation of its Financial Statements, the Directors are required to assess whether the Group can
continue in operational existence for the foreseeable future. When making this assessment, the Group considers whether it will be able to maintain
adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants on those facilities.
At 31 December 2020, the Group had £328.3m of committed borrowing facilities, of which only £1.2m matures before December 2023 at the
earliest, and a further £13.8m of on-demand facilities. The amount drawn down under these facilities at 31 December 2020 was £139.0m, which
together with cash of £22.0m, gave total headroom of £225.1m. The Group has not made any changes to its principal borrowing facilities between
31 December 2020 and the date of approval of these Financial Statements, and there have been no significant changes to liquidity headroom
during that period. The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt
to EBITDA of a maximum of 3.0x and interest cover of a minimum of 4.0x, based on measures as defined in the facilities agreements which are
adjusted from the equivalent IFRS amounts. The ratio of net debt to EBITDA at 31 December 2020 was 1.3 times and interest cover was 17.0
times. Note 22 to the Financial Statements sets out more information on 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 and liquidity risk.
The Group has carefully modelled its cash flow outlook for the period to 31 March 2022, taking account of the current uncertainties created by
COVID-19 and its impact on global economic conditions. In this ‘base case’ scenario, the forecasts indicate significant liquidity headroom will be
maintained above the Group’s borrowing facilities and financial covenants will be met throughout the period, including the covenant tests at 30
June 2021 and 31 December 2021.
The Group has carried out stress tests against the base case to determine the performance levels that would result in a breach of covenants or a
reduction of headroom against its borrowing facilities to nil. For a breach of covenants to occur during the relevant period, the Group would need to
experience a sustained revenue reduction of 30% compared with current expectations throughout the period from May to December 2021, while a
reduction in headroom against borrowing facilities to nil would occur if the Group generated no revenue between May 2021 and March 2022. The
Directors do not consider either of these scenarios to be plausible given the ability of the Group to continue its operations throughout the COVID-19
pandemic (noting that revenues fell by only 22% in the second quarter of 2020, the worst-affected period), its ability to return to more normalised
activity levels during the second half of 2020 and early part of 2021, and the positive future outlook across the infrastructure markets in which it
operates. The Group also has several mitigating actions under its control including minimising capital expenditure to critical requirements, reducing
levels of discretionary spend, rationalising its overhead base and curtailing future dividend payments which, although not forecast to be required,
could be implemented in order to be able to meet the covenant tests and to continue to operate within borrowing facility limits.
After making these assessments, the Directors have reasonable expectation that the Company and its subsidiaries have adequate resources
to continue in operational existence for the foreseeable future and for a period of at least 12 months following the approval of these Financial
Statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.
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New IFRS standards and interpretations adopted during 2020
In 2020 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:
• Amendments to IFRS 3: Definition of a Business;
• Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform;
• Amendments to IAS 1 and IAS 8: Definition of Material; and
• Conceptual Framework for Financial Reporting issued on 29 March 2018.
The amendments noted above have not had a material impact on the Financial Statements.
New IFRS standards and interpretations to be adopted in the future
The following standards and interpretations, which are not yet effective and have not been early adopted by the Group, will, where relevant, be
adopted in future accounting periods:
To be adopted for year-ending 31 December 2021:
• Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest Rate Benchmark Reform Phase 2.
To be adopted for year-ending 31 December 2022:
• Amendments to IFRS 3 – Reference to Conceptual Framework;
• Amendments to IAS 16 – Proceeds before intended use; and
• Amendments to IAS 37 – Onerous contracts – costs of fulfilling a contract.
To be adopted for year-ending 31 December 2023:
• Amendments to IAS 1 – Classification of liabilities as current or non-current.
The above changes are not expected to have a material impact on the Group.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at acquisition date fair value. Acquisition-related costs are expensed as incurred and included in
non-underlying costs (see accounting policy ‘non-underlying items’). 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.
The Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process
that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability
to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to
perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be
replaced without significant cost, effort, or delay in the ability to continue producing outputs.
Intangible assets – Goodwill
Goodwill on acquisition of subsidiaries is initially measured at cost and comprises the excess of the fair value of the purchase consideration
paid for subsidiaries over the Group’s share of the fair value of the identifiable assets and liabilities acquired. After initial recognition, goodwill is
measured at cost less impairment losses (see accounting policy ‘Impairment of assets’).
Intangible assets – Other
Other intangible assets that are acquired by the Group as part of a business combination, such as brands, patents and customer lists,
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, patents and customer lists, amortisation is provided equally over
the estimated useful economic life of the assets concerned, currently up to 20 years. Amortisation of such items are recorded as a non-
underlying item within administrative expenses (note 4).
Where computer software is not an integral part of a related item of computer hardware, the software is treated as an intangible asset.
Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring into use the specific software. An
internally generated intangible asset arising from the Group’s development of computer systems (including websites) is recognised if, and only
if, the costs are directly associated with the production of identifiable and unique software products, controlled by the Group and it is probable
that future economic benefits will flow to the Group. 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.
An intangible asset is derecognised upon disposal (i.e. at the date the recipient obtains control) or when no future economic benefits are
expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net
disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Group Accounting Policies
continued
Intangible assets – Research and development costs
Research costs are expensed as incurred. Development expenditures on an individual project are recognised as an intangible asset when the
Group can demonstrate:
The technical feasibility of completing the intangible asset so that the asset will be available for use or sale;
Its intention to complete and its ability and intention to use or sell the asset;
•
•
• How the asset will generate future economic benefits;
•
•
The availability of resources to complete the asset; and
The ability to measure reliably the expenditure during development.
The expenditure capitalised includes the cost of materials, direct labour and an appropriate amount of directly attributable overheads. Following
initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated
impairment losses (see accounting policy ‘Impairment of assets’). Amortisation of the asset begins when development is complete and the
asset is available for use. It is amortised over the period of expected future benefit. Amortisation is recorded in administrative expenses. During
the period of development, the asset is tested for impairment annually.
Other development expenditure is recognised in the Consolidated Income Statement as an expense as incurred.
Property, plant, equipment and depreciation
Assets are recorded in the Group’s Consolidated Statement of Financial Position at cost less accumulated depreciation and any recognised
impairment loss. Cost includes, where appropriate, directly attributable costs incurred in bringing each asset to its present condition and
location.
Depreciation is provided to write off the cost or deemed cost less the estimated residual value of property, plant and equipment (excluding assets
in the course of construction) by equal instalments over their estimated useful economic lives as follows:
Buildings and leasehold improvements
5 to 50 years
Plant, machinery and vehicles
4 to 20 years
No depreciation is provided on freehold land.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and
adjusted prospectively, if appropriate.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (i.e. at the date the recipient
obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of
profit or loss when the asset is derecognised.
Repair and maintenance costs are recognised in profit or loss as incurred.
Impairment of assets
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. Impairment reviews are undertaken at
the level of each significant cash generating unit, which are no larger than operating segments as defined in IFRS 8 – Segmental reporting.
The carrying amounts of the Group’s other 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. 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.
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.
Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amount will be recovered principally through sale
rather than through continuing use. On initial classification as held for sale, non-current assets and disposal groups are measured at the lower of
the 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. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group),
excluding finance costs and income tax expense.
The criteria for held for sale classification are regarded as met only when the sale is highly probable, and the asset or disposal group is available
for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes
to the sale will be made or that the decision to sell will be withdrawn. The Group must be committed to the plan to sell the asset and the sale
expected to be completed within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items in the Group’s Consolidated Statement of Financial
Position.
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Financial instruments
Financial assets and liabilities are recognised in the Group’s Consolidated Statement of Financial Position when the Group becomes party to
the contractual provisions of the instrument.
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, and in the case of trade receivables, less any impairment losses. Impairment losses are measured using
an expected credit loss model. The Group uses the simplified approach to measure expected credit losses for trade receivables and therefore
does not track changes in credit risk, but instead recognises a loss allowance based on lifetime expected credit losses at each reporting date.
Further details are provided in note 22(e).
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 foreign exchange contracts is the estimated amount that the Group would receive or pay to terminate such contracts at the
year end date, taking into account the forward exchange rates prevailing at that date.
Where derivative financial instruments are used to hedge cash flow risk, such as interest rate swaps, the effective part of any gain or loss on
the fair value of cash flow hedges is recognised in the Consolidated Statement of Comprehensive Income and in the hedge reserve, while any
ineffective part is recognised immediately in the Consolidated Income Statement. Amounts recorded in the hedge reserve are subsequently
reclassified to the Consolidated Income Statement when the interest expense is actually recognised.
To qualify for hedge accounting the hedging relationship must meet several conditions with respect to documentation, probability
of occurrence, hedge effectiveness and reliability of measurement. At the inception of the transaction, the Group documents the
relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking the
hedge transaction. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm
commitments or forecast transactions. The Group also documents its assessment, at hedge inception and on a half yearly basis, as to
whether the derivatives that are used in hedging transactions have been, and are likely to continue to be, effective in offsetting changes in
fair value or cash flows of hedged items.
Interest bearing borrowings are recognised initially at fair value. Subsequent to initial recognition, interest bearing borrowings are stated at
amortised cost with any difference between cost and redemption value being recognised in the Consolidated Income Statement over the period
of the borrowings on an effective interest basis.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part
of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the Consolidated Statement of
Cash Flows.
Foreign currencies
Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Any gain or loss on translation
of monetary foreign currency assets and liabilities arising from a movement in exchange rates subsequent to initial measurement is included
as an exchange gain or loss in the Consolidated Income Statement.
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.
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 and reported in the Consolidated Statement of Comprehensive Income, to the extent that the hedge is effective. To the extent
that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net investment is disposed of, the
associated cumulative amount in the translation reserve is transferred to profit or loss as an adjustment to the profit or loss on disposal.
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Group Accounting Policies
continued
The principal exchange rates used were as follows:
Sterling to Euro (£1 = EUR)
Sterling to US Dollar (£1 = USD)
Sterling to Swedish Krona (£1 = SEK)
Sterling to Indian Rupee (£1 = INR)
Sterling to Australian Dollar (£1 = AUD)
Inventories
2020
2019
Average
Closing
Average
Closing
1.13
1.28
11.80
95.10
1.86
1.11
1.36
11.15
99.73
1.76
1.14
1.28
12.07
89.89
1.84
1.18
1.32
12.29
94.30
1.88
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, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate
can be made of the amount of the obligation. If the effect of the time value of money 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. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
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.
Leases
To the extent that a right-of-control exists over an asset subject to a lease and with a lease term exceeding one year, the Group recognises a
right-of-use asset, representing the underlying lease asset, and a lease liability, representing the Group’s obligation to make lease payments. The
right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made
at or before the commencement date, any initial direct costs incurred and an estimate of the dismantling, removal and restoration costs as
required by the terms of the lease contract.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. If ownership of the leased asset transfers to the Group at the end of the lease
term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-
use assets are also subject to review for impairment (see accounting policy ‘Impairment of assets’).
The lease liability is measured at the present value of the future lease payments discounted using the Group’s incremental borrowing rate, being
the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment
with similar terms and conditions. Future lease payments include: fixed payments, variable lease payments that depend on an index or a rate
(initially measured using the index or rate as at the commencement date), amounts expected to be payable under a residual guarantee and the
exercise price of purchased options where it is reasonably certain that the option will be exercised. Finance charges, representing the unwinding of
the discount rate, are recognised in the Consolidated Income Statement over the period of the lease.
Lease payments for low value assets and short term leases (less than 12 months) are recognised as an expense on a straight-line basis over
the lease term.
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’s contracts
with customers do not contain significant financing components and payment terms are generally customary to the jurisdictions in which each
subsidiary operates.
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.
Utilities and Roads & Security
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.
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Certain of the Group’s businesses in the Utilities and Roads & Security segments 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 businesses in these segments engage in contracts with customers which include variable consideration. This occurs
where the Group provides retrospective sales volume rebates to certain customers once, amongst other matters, the quantity of goods
purchased during a predetermined period exceeds thresholds specified in the sales contract. To estimate the variable consideration for
these expected future rebates, the Group applies the most likely amount method to reflect the consideration that the Group is entitled to.
Variable consideration is only recognised to the extent that it is highly probable that the inclusion will not result in a significant revenue
reversal in the future.
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.
From 1 January 2020, the Group classified proceeds from the sale of scrap products generated in the manufacturing process within revenue.
In 2020 these sales totalled £0.8m. Prior to this date these proceeds were offset against cost of sales. The amount offset against cost of sales
for the year-ended 31 December 2019 was £1.0m. This is not considered material to warrant retrospective adjustment as the change a) is not
material to the line items of revenue or cost of sales; b) has no impact on any monetary profit measure (gross profit, operating profit, pre or
post tax profit or earnings per share); c) has no impact on remuneration or reward of the Directors or management; and d) does not change any
other of the primary Financial Statements.
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
galvanized goods are either despatched or collected by the customer.
From 1 January 2020, the Group classified proceeds from the sale of by-products generated during the galvanizing process within revenue. In
2020 these sales totalled £5.1m. Prior to this date these proceeds were offset against cost of sales. The amount offset against cost of sales
for the year-ended 31 December 2019 was £6.8m. This is not considered material to warrant retrospective adjustment as the change a) is not
material to the line items of revenue or cost of sales; b) has no impact on any monetary profit measure (gross profit, operating profit, pre or
post tax profit or earnings per share); c) has no impact on remuneration or reward of the Directors or management; and d) does not change any
other of the primary Financial Statements.
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.
Contract liabilities
Contract liabilities arise when the Group receives consideration from customers based on an agreed billing schedule, as established in
the contract, which may not correspond with the pattern of performance under the contract. Where consideration has been received but a
performance obligation not satisfied at the reporting date, a contract liability is recorded and presented as Deferred Income in the Consolidated
Statement of Financial Position.
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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Group Accounting Policies
continued
Share-based payment transactions
The Group issues equity settled share-based payments to certain employees. 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 on lease liabilities and financial
expenses related to refinancing. All borrowing costs are recognised in the Consolidated Income Statement using the effective interest method.
Non-underlying items
During the year, the Group amended its accounting policy in respect of non-underlying items to exclude net financing costs on defined benefit
pension obligations and costs incurred as part of significant refinancing activities. Such items were included in non-underlying in the prior year.
The changes did not have a material impact on the underlying result for either the current or prior year and the comparatives have not been
restated. The Group’s revised accounting policy for non-underlying items is as follows:
Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors’ judgement, the quantum,
nature or volatility of such items gives further information to obtain a fuller understanding of the underlying performance of the business. 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 period.
•
•
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, or right-of-use 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.
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 4 to the Financial Statements.
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised in
the Consolidated Income Statement except to the extent that it relates to items either recognised in Other Comprehensive Income or directly
in equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is
calculated using tax rates enacted or substantively enacted at the year end date, and any adjustments to tax payable in respect of previous years.
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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.
Government Grants
Government grant income is recognised where there is reasonable assurance that the grant will be received, and all attached conditions will be
complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related
costs, for which it is intended to compensate, are expensed. Government grant income that is linked to capital expenditure is deferred to the
Consolidated Statement of Financial Position sheet as Deferred Government Grants in Liabilities and credited to the Consolidated Income
Statement over the life of the related asset.
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Notes to the Consolidated Financial Statements
1. Accounting judgements, estimates and assumptions
The preparation of the Group’s Consolidated Financial Statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and reported amounts of income, expenses, assets and liabilities. Actual results may differ from
these estimates.
During the year, the Board has considered the impact of the COVID-19 pandemic on these accounting judgements and estimates. Given the
increased uncertainty over the future economic outlook in the countries and markets in which the Group operates, the Board considers there to
be increased estimation uncertainty this year relating to the assumptions used in the Group’s impairment assessments in respect of goodwill
and intangible assets as noted below.
Impairment of goodwill (note 11)
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 analyses, are included in note 11.
Actuarial assumptions on pension obligations (note 25)
Estimates
In determining the valuation of the defined benefit pension deficit, certain estimates and assumptions about the scheme have been made,
notably the inflation rates, 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 25.
Taxation (notes 8 and 15)
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 and other cross border transactions between subsidiaries in different countries.
Estimates
Management is required to make an estimate of the current tax liability together with an assessment of the temporary differences which
arise as a consequence of different accounting and tax treatments. Liabilities for uncertain tax positions also require management estimates
in respect of the amount of tax that may become payable. Management engages with professional advisors in making its assessment and,
if appropriate, will liaise with the relevant taxation authorities to resolve the matter. The tax liability is reassessed in each period to reflect
management’s best estimate in light of the information available. Included in the current tax payable is a liability of £4.4m (2019: £6.1m) for
uncertain tax positions.
The liability includes an amount of £2.0m (2019: £3.5m) relating to the pricing of intercompany goods and services and other cross border
transactions 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 £5.0m (2019:
£nil to £9.1m) 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 8 and note 15.
2. Segmental information
Business segment analysis
Following the acquisitions of ATG Access Limited and Parking Facilities Limited in 2019, both of which have a broad portfolio of security and
perimeter protection products, in December 2019 the Board considered the other companies in the Group that also have security products in
their portfolio and determined that their operations, markets and strategies were closely aligned with those of the existing businesses in the
Group’s Roads segment. Consequently, the Group formed a new Roads & Security division at the end of 2019. This includes the businesses
previously reported in the Roads segment, the acquisitions noted above and the businesses of Barkers Engineering Limited and Technocover
Limited, which were previously part of the Utilities segment but whose product portfolios contain a range of security access and perimeter
protection solutions.
As a result, the Group has reassessed its reportable segments under IFRS 8 Operating Segments and has determined that these are now Roads
& Security, Utilities, and Galvanizing Services. As was the case prior to the change, 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 reporting segment on
the basis of the following economic characteristics:
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2. Segmental information (continued)
•
•
•
The Roads & Security segment contains a group of businesses supplying products designed to ensure the safety and security of roads
and other national infrastructure, many of which have been developed to address national and international safety standards, to customers
involved in the construction of that infrastructure;
The 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; 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.
Corporate costs are allocated to reportable segments in proportion to the revenue of each of those segments.
The revised segmental structure was effective from 1 January 2020, from which date information was reported to the Chief Operating Decision
Maker, who is the Chief Executive, under the new segments. As required by IFRS 8, comparative information has been restated as indicated by
“restated” throughout these Consolidated Financial Statements. The revision does not result in any change to the consolidated Group results.
Segmental Income Statement
Roads & Security
Utilities
Galvanizing Services
Total Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
2020
2019 (restated)
Revenue
£m
Reported
operating profit
£m
Underlying
operating profit*
£m
Revenue
£m
Reported
operating profit
£m
Underlying
operating profit*
£m
263.4
211.2
185.9
660.5
5.6
20.1
17.1
42.8
(7.3)
35.5
(11.5)
24.0
275.3
222.3
197.1
694.7
13.2
20.9
35.8
69.9
(7.3)
62.6
(12.4)
50.2
8.6
20.0
40.6
69.2
(7.4)
61.8
(13.4)
48.4
23.2
21.3
41.8
86.3
(6.9)
79.4
(15.5)
63.9
* Underlying operating profit is stated before non-underlying items as defined in the Group Accounting Policies on pages 122 to 129 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.
Transactions between operating segments are on an arm’s length basis similar to transactions with third parties. Galvanizing Services sold
£5.2m (2019 (restated): £5.6m) of products and services to Roads & Security and £1.7m (2019 (restated): £1.6m) of products and services
to Utilities. Utilities sold £2.2m (2019 (restated): £2.6m) of products and services to Roads & Security. Roads & Security sold £0.2m (2019
(restated): £0.1m) of products and services to Utilities. These internal revenues, along with revenues generated from within their own segments,
have been eliminated on consolidation.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
2. Segmental information (continued)
In the following tables, revenue from contracts with customers is disaggregated by primary geographical market, major product/service lines
and timing of revenue recognition. Revenue by primary geographical market is defined as the end location of the Group’s product or service.
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
Roads & Security
Utilities
Galvanizing
Total
2020
£m
140.7
53.9
58.0
5.2
0.8
4.8
2019
(restated)
£m
145.6
63.0
54.2
8.2
1.4
2.9
2020
£m
59.6
6.0
138.2
1.4
5.4
0.6
2019
(restated)
£m
77.3
5.6
131.4
0.9
5.4
1.7
2020
£m
59.2
50.9
75.8
-
-
-
2019
£m
62.2
54.6
80.3
-
-
-
2020
£m
259.5
110.8
272.0
6.6
6.2
5.4
2019
£m
285.1
123.2
265.9
9.1
6.8
4.6
263.4
275.3
211.2
222.3
185.9
197.1
660.5
694.7
240.4
251.4
211.2
222.3
-
-
451.6
473.7
-
23.0
263.4
-
23.9
275.3
-
-
-
-
185.9
197.1
-
-
211.2
222.3
185.9
197.1
185.9
23.0
660.5
197.1
23.9
694.7
201.6
208.0
107.9
124.0
185.9
197.1
495.4
529.1
61.8
67.3
103.3
98.3
-
-
165.1
165.6
The Group has no material unsatisfied or partially satisfied performance obligations at the balance sheet date that have an expected duration
of more than one year and therefore has taken the practical expedient under IFRS 15 not to disclose such details.
263.4
275.3
211.2
222.3
185.9
197.1
660.5
694.7
Additional segmental analysis
Capital expenditure and amortisation/depreciation
Roads & Security
Utilities
Galvanizing Services
Total Group
Property, plant and equipment (note 12)
Intangible assets (note 11)
Total Group
2020
2019 (restated)
Capital expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
7.1
3.9
8.5
19.5
17.7
1.8
19.5
16.0
4.1
28.4
48.5
22.4
26.1
48.5
26.3
4.5
17.5
48.3
46.4
1.9
48.3
19.5
4.4
10.2
34.1
19.9
14.2
34.1
The 2020 amounts for impairment losses, amortisation and depreciation relating to the Roads & Security segment include goodwill, intangible
and tangible impairment losses of £1.6m relating to our variable message signs business (2019: £6.8m impairment losses for goodwill and
acquired intangible assets relating to ATA Hill & Smith AB). The 2020 amounts for impairment losses, amortisation and depreciation relating to
the Galvanizing Services segment include a goodwill impairment loss of £17.5m relating to our French galvanizing business.
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2. 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
2020
£m
288.2
96.0
245.7
12.7
4.1
646.7
2020
£m
198.5
50.3
152.3
3.2
0.1
404.4
2020
£m
9.0
3.2
7.1
0.2
-
19.5
2019
£m
321.5
118.1
258.0
11.5
3.4
712.5
2019
£m
212.4
68.2
156.1
3.5
1.5
441.7
2019
£m
24.5
5.8
17.5
0.1
0.4
48.3
3. Alternative Performance Measures
The Group presents Alternative Performance Measures (‘APMs’) in addition to its statutory results. These are presented in accordance with the
Guidelines on APMs issued by the European Securities and Markets Authority. The principal APMs are:
• Underlying profit before taxation;
• Underlying operating profit;
• Underlying operating profit margin;
• Organic measure of change in revenue and underlying operating profit;
• Underlying cash conversion ratio;
• Capital expenditure to depreciation and amortisation ratio; and
• Underlying earnings per share. A reconciliation of statutory earnings per share to underlying earnings per share is provided in note 9.
All underlying measures exclude certain non-underlying items, which are detailed in note 4. References to an underlying profit measure 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 gives further information to obtain a fuller understanding of the underlying performance of the business.
Other than for the change in presentation of certain financing items as detailed in the Group Accounting Policies on pages 122 to 129, APMs
are presented on a consistent basis over time to assist in comparison of performance.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
3. Alternative Performance Measures (continued)
Reconciliation of underlying to reported profit before tax
Underlying profit before tax
Non-underlying items included in operating profit (note 4)
Non-underlying items included in financial income and expense (note 4)
Reported profit before tax
Reconciliation of underlying to reported operating profit
2020
£m
62.6
(27.1)
-
35.5
Underlying operating profit
Non-underlying items:
Amortisation of intangible fixed
assets
Business reorganisation costs
Gain on disposal of assets held for
sale
Impairment of assets
Acquisition related expenses
Pension past service expense
Loss on disposal of subsidiary
Reported operating profit
Roads & Security
Utilities
Galvanizing
Total
2020
£m
13.2
(4.3)
-
-
(2.8)
(0.3)
(0.2)
-
5.6
2019
(restated)
£m
23.2
(4.2)
(1.9)
0.5
(7.0)
(2.0)
-
-
8.6
2020
£m
20.9
2019
(restated)
£m
21.3
2020
£m
35.8
2019
£m
41.8
2020
£m
69.9
(0.7)
(0.8)
(1.1)
(1.2)
(6.1)
-
-
-
-
(0.1)
-
20.1
-
-
-
0.2
-
(0.7)
20.0
-
-
(17.5)
-
(0.1)
-
17.1
-
-
-
-
-
40.6
-
-
(20.3)
(0.3)
(0.4)
-
42.8
2019
£m
79.4
(17.1)
(0.5)
61.8
2019
£m
86.3
(6.2)
(1.9)
0.5
(7.0)
(1.8)
-
(0.7)
69.2
Calculation of underlying operating profit margin
Underlying operating profit
Revenue
Underlying operating profit margin (%)
Roads & Security
Utilities
Galvanizing
Total
2020
£m
13.2
263.4
5.0%
2019
(restated)
£m
23.2
275.3
8.4%
2020
£m
20.9
211.2
9.9%
2019
(restated)
£m
21.3
222.3
9.6%
2020
£m
35.8
185.9
19.3%
2019
£m
41.8
197.1
21.2%
2020
£m
69.9
660.5
10.6%
2019
£m
86.3
694.7
12.4%
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3. Alternative Performance Measures (continued)
Organic measure of change in revenue and underlying operating profit
Organic measures 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.
Roads & Security
Utilities
Galvanizing
Total
Underlying
operating
profit
£m
Revenue
£m
Underlying
operating
profit
£m
Revenue
£m
Underlying
operating
profit
£m
Revenue
£m
Underlying
operating
profit
£m
23.2
222.3
21.3
197.1
41.8
694.7
Revenue
£m
275.3
0.6
-
(0.4)
-
0.5
-
0.7
275.9
16.0
(28.5)
263.4
-10%
23.2
221.9
21.3
197.6
41.8
695.4
0.5
(10.5)
13.2
(5.4)
(5.3)
211.2
-45%
-2%
0.4
(0.8)
20.9
-4%
-
(11.7)
185.9
-6%
-
(6.0)
35.8
-14%
10.6
(45.5)
660.5
-7%
2019 (restated)
Impact of exchange rate
movements from 2019 to 2020
2019 translated at 2020
exchange rates (A)
Acquisitions and disposals
Organic decline (B)
2020
Organic decline %
(B divided by A)
Calculation of underlying cash conversion ratio
Underlying operating profit
Calculation of adjusted operating cash flow:
Cash generated by operations
Less: Purchase of assets for rental to customers
Less: Purchase of property, plant and equipment
Less: Purchase of intangible assets
Less: Repayments of lease liabilities
Add: Proceeds on disposal of non-current assets and assets held for sale
Add back: Defined benefit pension scheme deficit payments
Add back: Cash flows relating to non-underlying items
Adjusted operating cash flow
Underlying cash conversion (%)
Calculation of capital expenditure to depreciation and amortisation ratio
Calculation of capital expenditure:
Purchase of assets for rental to customers
Purchase of property, plant and equipment
Purchase of intangible assets
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment (note 7)
Amortisation of development costs (note 7)
Amortisation of other intangible assets (note 7)
Capital expenditure to depreciation and amortisation ratio
2020
£m
69.9
118.3
(3.1)
(15.5)
(1.8)
(11.1)
6.5
3.6
0.6
97.5
139%
2020
£m
3.1
15.5
1.8
20.4
21.9
1.2
0.2
23.3
0.9x
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-
86.3
0.9
(17.3)
69.9
-20%
2019
£m
86.3
98.9
(16.3)
(29.7)
(1.9)
(10.5)
2.3
2.5
1.2
46.5
54%
2019
£m
16.3
29.7
1.9
47.9
19.9
1.1
0.1
21.1
2.3x
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Notes to the Consolidated Financial Statements
continued
4. Non-underlying items
Included in operating profit
Amortisation of acquisition intangibles
Business reorganisation costs a
Impairment of assets b
Acquisition related expenses c
Profit on disposal of property asset held for sale
Pension past service expense d
Loss on disposal of Group’s plastic drainage pipe business, Weholite Limited
Notes:
2020
£m
(6.1)
-
(20.3)
(0.3)
-
(0.4)
-
(27.1)
2019
£m
(6.2)
(1.9)
(7.0)
(1.8)
0.5
-
(0.7)
(17.1)
a)
b)
In 2019, business reorganisation costs of £1.9m related to actions taken in Scandinavia following the disappointing performance in 2019.
In Sweden we closed underperforming depots and restructured the management team, while in Norway we closed the business and
exited that geography.
In 2020, an impairment charge of £17.5m in respect of goodwill relating to France Galva SA, which the Group acquired in 2007. Whilst
the business continues to be a significant contributor to the Group’s results, in recent years its profitability has gradually declined from
that anticipated at acquisition and the impact of the COVID-19 pandemic on the global and French economic outlook has resulted in us
further reducing our expectations for its future outturn. Consequently, the impairment review performed at 31 December 2020 concluded
that France Galva SA’s expected future cash flows were not sufficient to support its carrying value at that date, resulting in an impairment
of the acquisition goodwill. In addition, an impairment charge of £2.8m in respect of assets in the variable message signs business.
Following a period of weak trading and a more cautious assessment of the future outlook for that business, the Group is currently taking
several actions to restructure the operations and the cost base, leading to a reassessment of asset carrying values at 31 December 2020.
This reassessment resulted in a write down of the asset base to the expected recoverable amount, comprising of goodwill and intangible
assets of £1.1m, tangible fixed assets of £0.5m, inventories of £0.8m and right-of-use lease assets of £0.4m.
In 2019, an impairment charge of £7.0m reflected a full impairment of the goodwill and intangible assets of £6.8m, and £0.2m impairment
in the right-of-use lease assets relating to the Group’s acquisitions in Sweden, which comprised the acquisition of ATA Bygg-Och
Markprodukter AB in 2011 and the smaller acquisitions of FMK Traffikprodukter AB and Signalvakter Syd, in 2016 and 2018 respectively,
all of which were integrated into a single business unit.
c) Acquisition related expenses of £0.3m (2019: £1.8m), which include £0.2m (2019: credit of £0.2m) 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).
d)
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’s results in 2018 included a non-
underlying charge of £1.0m in respect of the likely cost to be incurred in equalising GMPs arising in prior years. During 2020, there has
been a further hearing in relation to members who have transferred out of schemes, which concluded that schemes do need to revisit
historical transfers for GMP equalisation. The Group took professional advice as to the impact of this judgement and has recognised a
further cost of £0.4m during the year.
Included in financial income and expense
There are no non-underlying items included in financial income or expense in the current year.
In 2019, non-underlying items included in financial income represented a gain on refinancing of £0.9m under IFRS 9, and included in financial
expense represented the net financing cost on pension obligations of £0.5m and a £0.9m charge in respect of amortisation of costs associated
with refinancing.
5. Employees
The average number of people employed by the Group during the year
Roads & Security
Utilities
Galvanizing Services
Total Group
2020
No.
2019 (restated)
No.
1,470
1,547
1,482
4,499
1,491
1,545
1,502
4,538
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5. Employees (continued)
Total employee benefits expense for the year
Wages and salaries
Share-based payments (note 23)
Social security costs
Pension costs (note 25)
Directors’ remuneration
Directors’ remuneration
Loss of office
Amounts receivable under long term incentive schemes
Company contributions to money purchase pension plans
2020
£m
152.9
0.8
25.5
5.0
184.2
2020
£m
1.8
-
-
0.2
2.0
2019
£m
145.3
1.2
24.0
4.2
174.7
2019
£m
1.5
0.5
0.4
0.2
2.6
The aggregate amount of gains made by Directors on exercise of share options in the year is nil (2019: £1.2m).
Further details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 83 to 93.
6. Net financing costs
Underlying
£m
Non
underlying
£m
2020
£m
Underlying
£m
Non-
underlying
£m
2019
£m
Interest on bank deposits
Financial gain relating to refinancing
Financial income
Interest on loans and borrowings
Interest on lease liabilities (note 14)
Financial expenses related to refinancing
Interest cost on net pension scheme deficit (note 25)
Financial expense
Net financing costs
0.6
-
0.6
6.0
0.8
0.8
0.3
7.9
7.3
-
-
-
-
-
-
-
-
-
0.6
-
0.6
6.0
0.8
0.8
0.3
7.9
7.3
0.5
-
0.5
6.5
0.9
-
-
7.4
6.9
-
0.9
0.9
-
-
0.9
0.5
1.4
0.5
0.5
0.9
1.4
6.5
0.9
0.9
0.5
8.8
7.4
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
7. Expenses and auditor’s remuneration
Income statement charges
Depreciation of property, plant and equipment
Right-of-use asset depreciation
Short term leases
Low value leases
Research and development expenditure
Amortisation of acquisition intangibles
Amortisation of development costs
Amortisation of other intangible assets
Impairment losses:
Intangible fixed assets
Tangible fixed assets
Right-of-use lease assets
Income statement credits
Profit on disposal of assets held for sale
Profit on disposal of non-current assets
Foreign exchange gain
Grants receivable
Other rental income
A detailed analysis of the Auditor’s Remuneration worldwide is as follows:
Audit of the Company’s Annual Accounts
Audit of the Company’s subsidiaries
2020
£m
21.9
10.4
0.4
-
0.5
6.1
1.2
0.2
18.6
0.5
0.4
-
1.9
-
0.1
1.5
2020
£m
0.4
1.0
1.4
2019
£m
19.9
10.2
0.3
0.1
0.4
6.2
1.1
0.1
6.8
-
0.2
0.5
0.1
0.1
-
1.5
2019
£m
0.1
1.0
1.1
A description of the work of the Audit Committee is set out in the Audit Committee Report on pages 74 to 79 and includes an explanation of
how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor. Non audit assurance services for
the year totalled £3,000. Prior year fees were paid to the previous auditors, KPMG LLP.
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8. Taxation
Current tax
UK corporation tax
Overseas tax at prevailing local rates
Adjustments in respect of prior years
Deferred tax (note 15)
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 15)
Relating to defined benefit pension schemes
Tax on items taken directly to Other Comprehensive Income
Current tax
Relating to share-based payments
Deferred tax (note 15)
Relating to share-based payments
Tax taken directly to the Consolidated Statement of Changes in Equity
2020
£m
2019
£m
2.0
10.1
(1.8)
10.3
(0.5)
1.1
(0.2)
0.8
1.2
11.5
(0.8)
(0.8)
(0.1)
-
(0.1)
6.3
10.8
(2.0)
15.1
0.3
(2.2)
0.2
-
(1.7)
13.4
0.2
0.2
(0.5)
0.1
(0.4)
The tax charge in the Consolidated Income Statement for the period is higher (2019: higher) than the standard rate of corporation tax in the UK.
The differences are explained below:
Profit before taxation
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 19.0%
(2019: 19.0%)
Expenses not deductible/income not chargeable for tax purposes
Non-deductible goodwill impairment
Non-taxable loss on disposal of UK subsidiary
Benefits from international financing arrangements – current and prior years
Local tax incentives
Overseas profits taxed at higher rates
Recognition of losses
Overseas losses not relieved
Impacts of rate and law changes
Release of liability for unremitted earnings in France
Adjustments in respect of prior periods
Tax charge
2020
£m
35.5
6.7
0.6
4.9
-
(1.2)
(0.1)
1.8
(0.6)
0.6
0.8
-
(2.0)
11.5
2019
£m
61.8
11.7
0.8
1.2
0.1
(0.6)
(0.2)
2.7
-
0.3
-
(0.8)
(1.8)
13.4
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
9. Earnings per share
The weighted average number of ordinary shares in issue during the year was 79.5m (2019: 79.2m), diluted for the effects of the outstanding
dilutive share options 79.9m (2019: 79.6m). Diluted earnings per share takes account of the dilutive effect of all outstanding share options
disclosed in note 23, calculated using the treasury share method. 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 4.
10. Dividends
Dividends paid during the year
2020
2019
Pence per share
£m
Pence per share
30.2
33.0
63.2
30.0
32.9
62.9
24.0
26.2
50.2
24.0
26.2
50.2
61.1
19.6
80.7
60.8
19.5
80.3
Interim dividend paid in relation to year-ended 31 December 2018
Final dividend paid in relation to year-ended 31 December 2018
Interim dividend paid in relation to year-ended 31 December 2019
Total
Dividends declared in respect of the year
Interim dividend declared in relation to year-ended 31 December 2019
Final dividend proposed in relation to year-ended 31 December 2019 *
Interim dividend declared in relation to year-ended 31 December 2020
Final dividend proposed in relation to year-ended 31 December 2020
Total
2020
Pence per
share
-
-
10.6
10.6
2020
Pence per
share
-
-
9.2
17.5
26.7
2019
Pence per
share
10.0
21.8
-
31.8
2019
Pence per
share
10.6
-
-
-
10.6
£m
-
-
8.4
8.4
£m
-
-
7.3
13.9
21.2
£m
48.4
15.5
63.9
48.4
15.5
63.9
£m
7.9
17.2
-
25.1
£m
8.4
-
-
-
8.4
The final dividend for the year was proposed after the year end date and was not recognised as a liability at 31 December 2020, in accordance
with IAS 10.
* The proposed final dividend for 2019 of 23.0p per share was withdrawn and will not be paid.
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11. Intangible assets
Cost
At 1 January 2019
Exchange adjustments
Acquisitions
Additions
At 31 December 2019
Exchange adjustments
Transfers from property, plant and
equipment
Acquisitions
Additions
At 31 December 2020
Amortisation and impairment losses
At 1 January 2019
Exchange adjustments
Amortisation charge for the year
Impairment losses
At 31 December 2019
Exchange adjustments
Transfer from property, plant and
equipment
Amortisation charge for the year
Impairment losses
At 31 December 2020
Carrying values
At 1 January 2019
At 31 December 2019
At 31 December 2020
Goodwill
£m
Brands
£m
Customer
Lists
£m
Capitalised
Development
Costs
£m
Contracts,
licences and
other assets
£m
151.6
(4.0)
21.6
-
169.2
0.1
-
(0.2)
-
169.1
11.5
(0.4)
-
5.8
16.9
0.6
-
-
17.8
35.3
140.1
152.3
133.8
26.6
(0.9)
4.5
-
30.2
(0.2)
-
-
-
41.8
(0.9)
15.5
-
56.4
-
-
-
-
30.0
56.4
12.5
(0.5)
0.9
0.2
13.1
-
-
1.0
0.1
14.2
14.1
17.1
15.8
22.7
(0.6)
3.8
0.8
26.7
0.1
-
3.5
-
30.3
19.1
29.7
26.1
14.6
(0.1)
-
1.0
15.5
(0.3)
1.0
-
1.5
17.7
10.6
-
1.1
-
11.7
(0.2)
-
1.2
0.7
13.4
4.0
3.8
4.3
12.2
(0.2)
4.2
0.9
17.1
(0.3)
0.4
-
0.3
17.5
5.7
(0.1)
1.6
-
7.2
(0.2)
0.2
1.8
-
9.0
6.5
9.9
8.5
Total
£m
246.8
(6.1)
45.8
1.9
288.4
(0.7)
1.4
(0.2)
1.8
290.7
63.0
(1.6)
7.4
6.8
75.6
0.3
0.2
7.5
18.6
102.2
183.8
212.8
188.5
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
11. Intangible assets (continued)
2020
Morgan Valley
On 28 September 2020 the Group acquired the trade and assets of Morgan Valley Manufacturing, Inc. and Morgan Valley Metals, LLC (‘Morgan
Valley’). Based in Utah, US, the acquisition will enable the inhouse fabrication of crash attenuators and support the US roads growth strategy.
Details of the acquisition are set out below:
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
Provisional
policy alignment
and fair value
adjustments
£m
0.4
0.2
0.2
0.8
(0.3)
(0.3)
0.5
0.4
-
-
0.4
0.1
0.1
0.5
Total
£m
0.8
0.2
0.2
1.2
(0.2)
(0.2)
1.0
1.0
-
1.0
(0.1)
0.9
Post acquisition the acquired business has contributed £0.9m revenue and £0.2m underlying operating profit, which are included in the Group’s
Consolidated Income Statement. If the acquisition had been made on 1 January 2020, the Group’s results for the year would have shown
revenue of £661.8m and underlying operating profit of £70.0m.
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11. Intangible assets (continued)
2019
ATG Access
On 22 February 2019 the Group acquired 100% of the share capital of Cobaco Holdings Limited and its subsidiaries, including ATG Access
Limited (‘ATG’). 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 (automated, static, impact and non-impact tested), road blockers, barriers and
gates. Details of the acquisition are set out below:
Intangible assets
Brands
Customer lists
Contracts, licenses and other assets
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Cash
Total assets
Lease liabilities
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Goodwill
Cash flow effect
Consideration
Cash acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre-acquisition
carrying amount
£m
Policy alignment
and fair value
adjustments
£m
-
-
-
0.5
-
3.9
5.7
0.2
10.3
-
(9.0)
(0.1)
(9.1)
1.2
3.6
5.2
4.2
-
0.6
(1.0)
(4.4)
-
8.2
(0.6)
0.8
(1.4)
(1.2)
7.0
Total
£m
3.6
5.2
4.2
0.5
0.6
2.9
1.3
0.2
18.5
(0.6)
(8.2)
(1.5)
(10.3)
8.2
23.7
15.5
23.7
(0.2)
23.5
Brands, patents and associated intellectual property, contractual arrangements and customer lists were recognised as specific intangible
assets as a result of the acquisition. The residual goodwill arising primarily represents the assembled workforce, market share and
geographical advantages afforded to the Group. Fair value adjustments have been made to better align the accounting policies of the
acquired 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 included £1.9m of trade receivables which had a gross value of £2.1m. The policy alignment adjustments included
adjustments to align ATG’s accounting methodology with International Financial Reporting Standards. Prior to acquisition, ATG adopted FRS
102. The main changes related to IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 16 ‘Leases’.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
11. Intangible assets (continued)
Parking Facilities
On 27 September 2019 the Group acquired 100% of the share capital of AAJG Holdings Limited and its trading subsidiary, Parking Facilities
Limited (‘PF’). Based in the UK, PF specialises in the design, manufacture and supply of a market-leading range of parking and access control
products including cantilever, bi-fold and swing gates, automatic and manual barriers, automatic bollards, rising kerbs, speed ramps and
access control equipment. PF also offers a bespoke service from design to manufacture, supplying custom-built products to match existing
surroundings. Details of the acquisition are set out below:
Intangible assets
Brands
Customer lists
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Cash
Total assets
Lease liabilities
Current liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the prior year
Goodwill
Cash flow effect
Consideration
Cash acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre-acquisition
carrying amount
£m
Policy alignment
and fair value
adjustments
£m
-
-
0.5
-
2.1
4.6
0.2
7.4
-
(2.4)
(0.2)
(2.6)
4.8
0.9
9.1
(0.1)
2.8
(0.5)
(0.2)
-
12.0
(2.8)
(0.1)
(1.5)
(4.4)
7.6
Total
£m
0.9
9.1
0.4
2.8
1.6
4.4
0.2
19.4
(2.8)
(2.5)
(1.7)
(7.0)
12.4
14.2
1.8
14.2
(0.2)
14.0
Brands and customer lists were recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising primarily
represents the assembled workforce, market share and geographical advantages afforded to the Group. Fair value adjustments have been
made to better align the accounting policies of the acquired 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 included £2.8m of trade receivables which had a gross value of
£2.9m.
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11. Intangible assets (continued)
Signpost Solutions
On 3 December 2019 the Group acquired 100% of the share capital of Signpost Solutions Limited (‘SPS’). Based in the UK, SPS is a leading
distributor and manufacturer of products for the highways industry, including sign supports and signal poles, sign fixings, bollards, chevrons
and passive safety solutions. Details of the acquisition are set out below:
Intangible assets
Customer lists
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Cash
Total assets
Lease liabilities
Current liabilities
Deferred tax
Provisions
Total liabilities
Net assets
Consideration
Consideration in the prior year
Goodwill
Cash flow effect
Consideration
Cash acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre-acquisition
carrying amount
£m
Policy alignment
and fair value
adjustments
£m
-
0.6
0.1
0.9
1.9
0.6
4.1
(0.1)
(1.7)
-
-
(1.8)
2.3
1.2
-
0.8
-
(0.1)
-
1.9
(0.8)
0.1
(0.2)
(0.2)
(1.1)
0.8
Total
£m
1.2
0.6
0.9
0.9
1.8
0.6
6.0
(0.9)
(1.6)
(0.2)
(0.2)
(2.9)
3.1
7.0
3.9
7.0
(0.6)
6.4
Customer lists were recognised as a specific intangible asset as a result of the acquisition. The residual goodwill arising primarily represented
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 included £1.8m of trade receivables which had a gross value of £1.9m.
In 2019, in addition to the above acquisitions, the Group paid a further amount of £0.7m in deferred consideration in respect of acquisitions
made in 2018. A further £0.4m of goodwill was also recognised in relation to the finalisation of fair value adjustments on acquisitions made
in 2018.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
11. Intangible assets (continued)
Cash generating units with significant amounts of goodwill
Utilities
US Composites
V&S Utilities
Others <£5m individually
Roads & Security
ATG Access
H&S Inc
Hardstaff Barriers
Mallatite
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
2020
£m
15.6
5.3
5.0
15.5
8.5
6.8
5.7
9.3
12.3
25.0
24.8
133.8
2019
£m
16.0
5.4
5.1
15.5
8.8
6.8
5.7
9.8
28.6
25.8
24.8
152.3
Goodwill impairment reviews have been carried out at an operating segment level on all cash generating units (CGUs) to which goodwill is
allocated.
Methodology and assumptions
Impairment tests on the carrying values of goodwill and certain brand names of £7.5m (2019: £7.7m), which are the Group’s only other
indefinite life intangible assets, are performed by analysing the carrying value allocated to each significant CGU against its value in use. All
goodwill is allocated to specific CGUs, which are in all cases no larger than operating segments. Value in use is calculated for each CGU 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 strategic plans for the following year, both of which 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. Having been prepared during 2020, both
the budgets and strategic plans reflect the estimated short- and medium-term impacts of COVID-19. The cash flows beyond the strategic plan
period use growth rates which reflect the long-term historical growth in GDP of the economies in which each CGU is located, excluding 2020
given the sharp economic decline in the year. The long-term growth rates vary between 1.6% and 2.5%.
These assumptions are applied to all CGUs with the exception of France Galva SA and ATG Access.
France Galva SA
The onset of COVID-19 resulted in a temporary cessation of operations in France in March 2020, and whilst activity levels recovered gradually
over the remainder of the year, overall volumes galvanized were 11% lower than 2019 resulting in a deterioration in profitability and cash
flows. Future cash flows are most sensitive to changes in galvanizing volumes and therefore the impairment test focused on the pace at
which volumes are expected to recover in the short to medium term. To assess this the Group took account of external economic projections,
principally from the International Monetary Fund (IMF), in addition to internal forecasts. GDP projections are considered an appropriate
indicator of future galvanizing volumes as, in the Group’s experience, galvanizing activity tends to closely follow general economic conditions.
The impairment review used the following methodology:
• Cash flows for 2021 assume a 6.6% increase in galvanizing volumes compared with 2020. At the time of publication of the Group’s
Financial Statements, the IMF has forecast a 6% increase in French GDP in 2021, broadly in line with our assumptions;
• Cash flows for the period 2022-2025 assume annual growth in galvanizing volumes of between 0% and 1%. These growth rates were
initially derived from the IMF projections for the relevant periods (broadly in the range 1.5% - 3%) but were risk-adjusted to reflect the
inherent uncertainties resulting from COVID-19 and its impact on global economic conditions. Based on these assumptions, we estimate
galvanizing volumes in 2025 to remain approximately 3% below those for 2019;
•
For the period from 2025 onwards the calculations assume annual growth in cash flows of 1.6%, consistent with the historical long-term
growth rates in France (excluding 2020 as an outlier year); and
• A pre-tax discount rate of 18.7%.
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11. Intangible assets (continued)
ATG Access
The restrictions on public gatherings resulting from COVID-19, together with constraints on capital budgets and delays to projects, have caused
a substantial reduction in demand for ATG’s perimeter security solutions during 2020 resulting in a deterioration in profitability and cash flows.
Notwithstanding this outcome, the Group believes that ATG’s underlying market fundamentals remain intact and in the short to medium term,
we believe that the demand for our products to protect people, buildings and infrastructure from attack will return. The impairment review,
which is most sensitive to assumptions on revenues and gross margins, used the following methodology:
• Cash flows for 2021 are based on budget cash flow information, which assume a 33% increase in revenues compared with 2020. The
Group has taken account of order backlogs, pipeline of projects and recent enquiry levels in making this assessment and has therefore
reflected customer as well as internal expectations;
• Cash flows for the period 2022 and 2023 assume annual growth in revenues of 11% and 8% respectively, reflecting an expectation of
further recovery in market activity levels albeit more gradually than in 2021. The compound annual growth in revenues for the period 2021-
2023 is 17%;
•
•
For the period from 2024 onwards the calculations assume annual growth in revenues of 2%, consistent with the historical long-term
growth rates in the UK (excluding 2020 as an outlier year);
The gross profit margin percentage was modelled to grow by 570 basis points, to 31.5%, between 2021 and 2023, reflecting the leverage
impact of revenue growth, before stabilising into the period from 2023 onwards; and
• A pre-tax discount rate of 15.7%.
The outcome of these assumptions is that by 2023, ATG’s profitability and cash flows will recover to the levels anticipated at the time of its
acquisition in 2019, which are broadly in line with those achieved prior to the onset of COVID-19.
Summary of results of goodwill impairment reviews
The calculated headroom between value in use and carrying value of each of the Group’s CGUs with significant amounts of goodwill, together
with the pre-tax discount rates applied, is set out below. The pre-tax discount rates are derived from a market participant’s cost of capital and
risk adjusted for individual CGUs’ circumstances. Similar discount rates are applied in determining the recoverable amounts of other CGUs.
US Composites
V&S Utilities
Hardstaff Barriers
ATG Access
Mallatite
H&S Inc
France Galva SA
Galvanizing Services – USA
Galvanizing Services – UK
2020
Headroom/
(impairment)
£m
Goodwill
£m
2019
Discount
rate %
Goodwill
£m
Headroom
£m
Discount
rate %
15.6
5.3
6.8
15.5
5.7
8.5
29.8
25.0
24.8
78.2
61.8
155.6
4.4
26.1
35.4
(17.5)
203.9
41.6
19.4%
21.8%
16.0%
15.8%
16.1%
19.9%
18.7%
19.5%
16.2%
16.0
5.4
6.8
*
5.7
8.8
28.6
25.8
24.8
105.4
61.2
152.0
*
28.0
80.4
18.2
287.7
105.7
14.9%
16.4%
16.6%
*
12.9%
14.5%
13.7%
16.5%
12.8%
* No impairment assessment was carried out for ATG Access in 2019 as the business had been acquired during the year and no indications of impairment had been identified.
Based on the methodology set out above, the impairment review for France Galva SA concluded that the carrying values of the assets of the
business exceed their recoverable amount by £17.5m. The Group has therefore recognised an impairment charge of £17.5m in respect of
France Galva SA, as detailed in note 4, all of which has been allocated to the goodwill arising on acquisition. In addition, whilst not included in
the table above due to its quantum, the impairment review for the variable message signs business concluded that the remaining goodwill of
£0.2m was fully impaired.
Sensitivities
The Group has applied sensitivities to assess whether any reasonable possible changes in assumptions could cause an impairment of the
goodwill in any CGU that would be material to these Consolidated Financial Statements. The sensitivity analyses did not identify any potential
impairment for any CGU, with the exception of France Galva SA and ATG Access.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
147
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Notes to the Consolidated Financial Statements
continued
11. Intangible assets (continued)
France Galva SA
The pace of recovery in galvanizing volumes, long term cash flow growth rates and the discount rate are the key assumptions on which the
goodwill impairment review is most sensitive. The Group’s sensitivity analyses modelled several scenarios for the pace of galvanizing volume
recovery between 2021 and 2025, reflecting the relatively wide range of recovery outcomes that are possible given the uncertainties arising
due to COVID-19, together with variations in the rate of future cash flow growth and possible discount rates. The following table provides
information on additional impairment charges that may arise in those scenarios, for each of the key assumptions (independently in each case):
Input
Reduction in 2025 galvanizing volumes
compared with 2019
Scenario
Base case
H&S sensitivity 1
H&S sensitivity 2
Base case
Annual cash flow growth 2026 onwards
H&S sensitivity 1
Pre-tax discount rate
ATG Access
H&S sensitivity 2
Base case
H&S sensitivity 1
H&S sensitivity 2
Sensitivity
applied %
Sensitised impairment
charge £m
Additional impairment
charge £m
(2.5)
(4.0)
(6.0)
1.6
1.0
0.0
18.7
19.6
20.2
(17.5)
(20.9)
(24.7)
(17.5)
(20.7)
(25.0)
(17.5)
(22.3)
(25.2)
-
(3.4)
(7.2)
-
(3.2)
(7.5)
-
(4.8)
(7.7)
Whilst the Group believes that ATG will return to historical levels of profitability once the impacts of COVID-19 begin to recede, this view is to
some extent dependent on future public and customer behaviour which is currently inherently difficult to predict. It is plausible that the pace
of recovery could be more gradual than that assumed in the impairment tests that have been carried out, in which case a material impairment
could arise. Revenue growth, gross margins, long-term cash flow growth 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 those key assumptions (independently in each case):
Input
Scenario
Base case
Compound annual revenue growth 2021-2023
H&S sensitised*
Gross profit margin 2023 onwards
Zero headroom
Base case
H&S sensitised+
Zero headroom
Base case
Annual 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/(impairment)
£m
17.0
11.6
15.1
31.5
25.8
29.4
2.0
1.5
0.8
15.7
16.5
17.1
4.3
(4.9)
-
4.3
(7.7)
-
4.3
2.3
-
4.3
2.0
-
* This scenario assumes annual growth in revenues beyond the 2021 budget period of 2%, being the historical long-term growth rate in the UK (excluding 2020 as an outlier year). This equates
to compound annual growth in revenues for the period 2021-2023 of 11.6%. As explained above, cash flows for the period 2022 and 2023 in the base case assume annual growth in revenues
of 11% and 8% respectively, reflecting an expectation of further recovery in market activity levels albeit more gradually than in 2021. The compound annual growth in revenues for the period
2021-2023 in the base case is 17%.
+ This scenario assumes no growth in the gross profit margin percentage between 2021 and 2023. As explained above, the gross profit margin percentage in the base case was modelled to
grow by 570 basis points, to 31.5%, between 2021 and 2023.
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12. Property, plant and equipment
Cost
At 1 January 2019
Exchange adjustments
Acquisitions
Disposal of subsidiaries
Additions
Transfers to inventories
Disposals
At 31 December 2019
Exchange adjustments
Acquisitions (note 11)
Additions
Transfers to intangible fixed assets
Transfers from inventories
Disposals
At 31 December 2020
Depreciation and impairment losses
At 1 January 2019
Exchange adjustments
Disposal of subsidiaries
Disposals
Transfers to inventories
Charge for the year
At 31 December 2019
Exchange adjustments
Transfers to intangible fixed assets
Disposals
Charge for the year
Impairment charge
At 31 December 2020
Carrying values
At 1 January 2019
At 31 December 2019
At 31 December 2020
Land and
buildings
£m
Plant, machinery
and vehicles
£m
116.2
(3.7)
0.6
-
8.5
-
(0.4)
121.2
(0.2)
0.8
7.9
-
0.2
(2.4)
127.5
34.4
(1.5)
-
(0.3)
-
4.6
37.2
0.5
-
-
5.6
0.4
43.7
81.8
84.0
83.8
213.1
(4.7)
0.9
(8.1)
37.9
(1.0)
(11.7)
226.4
0.9
-
9.8
(1.4)
3.4
(9.4)
229.7
124.7
(2.2)
(6.3)
(10.9)
(0.2)
15.3
120.4
0.5
(0.2)
(7.2)
16.3
0.1
129.9
88.4
106.0
99.8
Total
£m
329.3
(8.4)
1.5
(8.1)
46.4
(1.0)
(12.1)
347.6
0.7
0.8
17.7
(1.4)
3.6
(11.8)
357.2
159.1
(3.7)
(6.3)
(11.2)
(0.2)
19.9
157.6
1.0
(0.2)
(7.2)
21.9
0.5
173.6
170.2
190.0
183.6
The gross book value of land and buildings includes freehold land of £20.4m (2019: £21.3m). Included within plant, machinery and vehicles are
assets held for hire with a cost of £74.0m (2019: £78.2m) and accumulated depreciation of £30.2m (2019: £37.5m).
13. Assets held for sale
There were no assets held for sale at 31 December 2020. During 2019, the property presented in assets held for sale at 31 December 2018 was
disposed of for net consideration of £1.3m resulting in a profit on disposal of £0.5m.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
149
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Notes to the Consolidated Financial Statements
continued
14. Leases
The leases held by the Group can be split into two categories: land and buildings and plant and equipment. The Group leases various properties
for its manufacturing and distribution activities. Plant and equipment includes all other leases, such as vehicles and machinery.
The movements in the carrying value of the right-of-use assets and lease liabilities in the year ended 31 December 2019 and 31 December 2020
were as follows:
Right-of-use assets
At 1 January 2019
Recognition on initial adoption of IFRS 16
Additions
Terminations
Charge for the year
Impairment
Disposal of subsidiary undertakings
Acquisitions
Re-measurement
Effect of movements in foreign exchange
At 31 December 2019
Additions
Terminations
Charge for the year
Impairment
Re-measurement
Effect of movements in foreign exchange
At 31 December 2020
Lease liabilities
At 1 January
Recognition on initial adoption of IFRS 16
Additions
Terminations
Interest expense
Disposal of subsidiary undertakings
Acquisitions
Lease payments
Re-measurement
Effect of movements in foreign exchange
At 31 December
Land and
buildings
£m
Plant and
equipment
£m
-
22.0
3.1
-
(4.8)
(0.2)
(0.2)
4.0
0.6
(0.4)
24.1
0.1
(0.4)
(4.7)
(0.4)
0.5
0.3
19.5
-
12.1
7.4
(0.2)
(5.4)
-
(0.2)
0.3
-
(0.2)
13.8
3.3
(0.3)
(5.7)
-
0.1
0.2
11.4
2020
£m
40.0
-
3.4
(0.8)
0.8
-
-
(11.9)
0.6
0.3
32.4
Total
£m
-
34.1
10.5
(0.2)
(10.2)
(0.2)
(0.4)
4.3
0.6
(0.6)
37.9
3.4
(0.7)
(10.4)
(0.4)
0.6
0.5
30.9
2019
£m
-
36.0
10.5
(0.2)
0.9
(0.4)
4.3
(11.4)
0.7
(0.4)
40.0
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14. Leases (continued)
The following table shows the breakdown of the lease expense between amounts charged to operating profit and amounts charged to finance
costs:
Depreciation of right-of-use assets
Short-term lease expense
Low-value lease expense
Sublease income
Charged to operating profit
Interest expense relating to lease liabilities
Charged to profit before taxation
The maturity of the lease liabilities at 31 December was as follows:
Due within one year
Due between one and two years
Due between two and three years
Due between three and four years
Due between four and five years
Due after more than five years
Total lease liabilities
2020
£m
10.4
0.4
-
(1.1)
9.7
0.8
10.5
2020
£m
8.6
7.3
5.8
3.7
2.3
4.7
32.4
2019
£m
10.2
0.3
0.1
(1.0)
9.6
0.9
10.5
2019
£m
10.6
8.2
6.5
4.9
3.1
6.7
40.0
The Group has several lease contracts that include extension and termination options. These options are negotiated by management to provide
flexibility in managing the leased asset portfolio and align with the Group’s business needs. Management exercise judgement in determining
whether these extension and termination options are reasonably certain to be exercised.
Set out below are the undiscounted potential future rental payments relating to periods following the exercise date of extension and termination
options that are not included in the lease term:
Extension options expected not to be exercised
Termination options expected to be exercised
Within five
years
£m
More than
five years
£m
3.2
2.8
5.8
2.5
Total
£m
9.0
5.3
The Group has lease contracts that have not yet commenced as at 31 December 2020. The total future lease payments for these non-
cancellable lease contracts are £5.6m.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
151
hsholdings.com
Notes to the Consolidated Financial Statements
continued
15. Deferred taxation
Property,
plant
and
equipment
£m
Intangible
Assets
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
At 31 December 2018
Adoption of IFRS 16
At 1 January 2019 (restated)
Exchange adjustments
Acquisitions of businesses
Credited/(charged) for the year in the
Consolidated Income Statement (note 8)
Charged for the year in the Consolidated Statement
of Comprehensive Income (note 8)
Charged for the year in the Consolidated
Statement of Changes in Equity (note 8)
At 31 December 2019
Exchange adjustments
Adjustments to prior year acquisitions
Credited/(charged) for the year in the
Consolidated Income Statement (note 8)
Charged for the year in the Consolidated
Statement of Comprehensive Income (note 8)
(7.1)
-
(7.1)
0.2
(4.0)
1.1
-
-
(9.8)
0.1
-
0.2
-
(5.9)
-
(5.9)
0.2
-
(0.5)
-
-
(6.2)
0.2
-
(1.9)
-
At 31 December 2020
(9.5)
(7.9)
-
-
-
-
0.1
0.3
-
-
0.4
-
-
0.2
-
0.6
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
4.4
-
4.4
(0.1)
-
(0.3)
(0.2)
-
3.8
0.1
-
(0.6)
0.8
4.1
2020
£m
1.4
(9.0)
(7.6)
Total
£m
(6.3)
0.3
(6.0)
0.2
(3.3)
1.7
2.3
0.3
2.6
(0.1)
0.6
1.1
-
(0.2)
(0.1)
(0.1)
4.1
-
0.1
0.9
(7.7)
0.4
0.1
(1.2)
-
0.8
5.1
(7.6)
2019
£m
1.0
(8.7)
(7.7)
The deferred tax asset of £5.1m in respect of other timing differences includes £0.9m in relation to tax losses and £1.0m in relation to share
based payments.
No deferred tax asset has been recognised in respect of other tax losses of £13.1m net (2019: £11.8m net) as their future use is uncertain.
There is no time limit on the carrying forward of the losses. The losses are predominantly capital losses.
No deferred tax liability is recognised on temporary differences of £1.1m relating to the unremitted earnings of overseas subsidiaries as the
Group is able to control the timings of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable
future. The Group does not expect this to crystallise into a cash expense in the near future.
The UK Finance Act 2016 included a reduction in the main rate of UK corporation tax from 19% to 17% from 1 April 2020. However, in the UK
budget on 11 March 2020, it was announced that the tax rate reduction to 17% would not occur and the UK corporation tax rate would instead
remain at 19%. As the 19% rate was substantively enacted by the balance sheet date, deferred tax balances relating to the UK have been
calculated at 19% (2019: 17%).
In the UK Budget on 3 March 2021 it was announced that legislation will be introduced in Finance Bill 2021 to increase the main rate of UK
corporation tax from 19% to 25%, effective 1 April 2023. As any substantive enactment will be after the balance sheet date, UK related deferred
tax balances as at 31 December 2020 continue to be measured at a rate of 19%.
16. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2020
£m
52.6
8.8
34.9
96.3
2019
£m
52.8
9.2
38.7
100.7
The amount of inventories expensed to the Consolidated Income Statement in the year was £364.1m (2019: £388.1m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £0.2m (2019: £0.3m). The amount of
inventories held at fair value less cost to sell included in the above was £1.8m (2019: £nil).
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17. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments
Other receivables
Contract assets
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2020
£m
106.8
6.5
1.1
8.3
122.7
2019
£m
130.7
7.1
2.8
3.5
144.1
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The movements in contract assets, and deferred income (note 19), during the year correspond to the completion of performance obligations
partially satisfied as at 31 December 2019 offset by contracts that are in progress at 31 December 2020.
18. Cash and borrowings
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and short term deposits
Bank overdrafts
Cash and cash equivalents
Interest bearing loans and other borrowings
Amounts due within one year (note 19)
Amounts due after more than one year (note 20)
Lease liabilities due within one year (note 14)
Lease liabilities due after more than one year (note 14)
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 10)
Acquisitions (note 11)
Disposals
Amortisation of costs associated with refinancing activities (note 6)
Purchase of shares for employee benefit trust
Issue of new shares (note 23)
New leases and lease remeasurements
Interest on lease liabilities
Net debt decrease / (increase)
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Adoption of IFRS 16 in 2019
Net debt at the beginning of the year
Net debt at the end of the year
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
2020
£m
22.0
(8.1)
13.9
(0.5)
(127.2)
(8.6)
(23.8)
(146.2)
42.8
58.1
100.9
18.2
(0.8)
118.3
(16.5)
(5.4)
(20.4)
6.5
82.5
(8.4)
(0.9)
-
(0.8)
-
1.0
(3.2)
(0.8)
69.4
(0.3)
(215.3)
-
(215.3)
(146.2)
2019
£m
26.0
-
26.0
(0.4)
(200.9)
(10.6)
(29.4)
(215.3)
69.2
45.8
115.0
(12.9)
(3.2)
98.9
(14.4)
(5.9)
(47.9)
2.3
33.0
(25.1)
(48.9)
2.4
-
(0.7)
2.0
(11.1)
(0.9)
(49.3)
2.9
(132.9)
(36.0)
(168.9)
(215.3)
153
hsholdings.com
Notes to the Consolidated Financial Statements
continued
18. Cash and borrowings (continued)
Reconciliation of movements in financial liabilities to cash flows arising from financing activities
Interest bearing loans and other borrowings and lease liabilities
2020
£m
2019
£m
At 1 January (as previously reported)
Adoption of IFRS 16 in 2019
At 1 January (restated)
New loans and borrowings
Repayments of loans and borrowings
Payment of lease liabilities
Costs associated with financing
Cash flows (used in)/from financing activities
Other changes
Effect of exchange rate fluctuations
Financial gain relating to refinancing
Financial expenses relating to financing
Lease changes:
New leases
Terminations
Revaluations
Acquisitions
Disposals of subsidiaries
Interest expense
Interest paid
At 31 December
19. Current liabilities
Interest bearing loans and borrowings
Loans and borrowings
Bank overdrafts
Trade and other current liabilities
Trade payables
Other taxation and social expenses
Accrued expenses
Deferred income
Fair value derivatives
Other payables
241.3
-
241.3
-
(74.4)
(11.1)
-
(85.5)
0.4
-
0.8
3.4
(0.9)
0.6
-
-
0.8
(0.8)
160.1
2020
£m
0.5
8.1
8.6
62.7
14.0
30.2
6.1
0.1
3.6
116.7
169.8
36.0
205.8
119.9
(83.2)
(10.5)
(2.1)
24.1
(3.5)
(0.9)
0.9
10.5
(0.2)
0.7
4.3
(0.4)
0.9
(0.9)
241.3
2019
£m
0.4
-
0.4
73.0
12.8
28.4
2.6
0.1
3.4
120.3
The amount of contract liabilities included in deferred income as at 31 December 2020 was £6.1m (2019: £2.6m). During the year, £2.6m of
revenue was recognised in respect of contract liabilities present as at 1 January 2020.
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20. Non-current liabilities
Interest bearing loans and borrowings
Loans and borrowings
Other non-current liabilities
Deferred consideration on acquisitions
Deferred government grants
Accrued expenses
21. Provisions
At 1 January 2019
Exchange adjustments
Acquisitions
Charged during the year
Utilised during the year
Released during the year
At 31 December 2019
Charged during the year
Utilised during the year
At 31 December 2020
Amounts due within one year
Amounts due after more than one year
Environmental provisions
2020
£m
127.2
127.2
0.3
0.9
0.2
1.4
Environmental
£m
Restructuring
£m
Other
£m
2.6
(0.1)
-
-
-
(0.4)
2.1
-
-
2.1
1.2
-
-
0.6
(1.0)
-
0.8
0.8
(0.9)
0.7
0.2
-
0.2
-
-
-
0.4
2.6
-
3.0
2020
£m
3.3
2.5
5.8
2019
£m
200.9
200.9
0.2
1.1
-
1.3
Total
£m
4.0
(0.1)
0.2
0.6
(1.0)
(0.4)
3.3
3.4
(0.9)
5.8
2019
£m
0.8
2.5
3.3
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.
The charge in the year of £2.6m relates to the anticipated settlement of contractual dilapidation obligations on two leased properties that the
Group expects to incur in 2021.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
22. 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.
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 2020 with 44% (2019: 47%) and currently the only significant geographical region
that does not generally insure trade receivables is the USA, which represents 29% (2019: 28%) 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 2020 all such debt was covered by cash and cash equivalents netting to £13.4m positive current liquidity (2019: £25.6m).
The Group’s principal UK revolving credit facility is a multicurrency agreement with a value at 31 December 2020 of £275.4m (2019: £276.0m),
based on year end exchange rates. Along with various other on demand lines of credit, including bank overdrafts, the Group has access to bank
borrowing facilities of £289.2m at 31 December 2020 (2019: £291.5m).
In addition, on 25 June 2019 the Group signed an agreement with an institutional investor for a private placement of $70m new senior
unsecured notes (“Senior Unsecured Notes”). The issue consisted of two equal tranches with maturities in June 2026 and June 2029
respectively.
At 31 December 2020, the Group’s total committed borrowing facilities were £328.3m (2019: £330.9m) and the amount undrawn at this date
was £190.8m (2019: £125.5m).
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and commodity prices will affect the Group’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimising the return on risk. The Group buys and sells derivatives in the ordinary course of
business, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the
Board. Refer to note 22(f) for further details.
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 2020 credit exposure including cash deposited did not exceed £5.7m with any single
institution (2019: £7.0m).
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22. Financial instruments (continued)
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
minimise currency risk. The Group does not apply hedge accounting to these derivative financial instruments.
The Group has hedged its investment in its US and European operations by way of financing the acquisitions through like denominations of
its multi-currency banking facility and the Senior Unsecured Notes. 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’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 2020 the proportion of gross borrowings subject to fixed interest rate swaps was 0% (2019: 0%). At the current time, the Group has
determined that there is no significant benefit of entering into such contracts. In addition, the Group currently feels that using fixed interest
rates for short-term day-to-day trading is not appropriate.
The Senior Unsecured Notes account for 38% (2019: 26%) of the Group’s outstanding gross borrowings at 31 December 2020 and attract a
fixed rate of interest averaging 3.92% (2019: 3.92%) per annum.
Insurance
The Group purchases insurance for commercial, legal and contractual reasons. The Group retains insurable risk where external insurance is not
commercially viable.
Capital management
The Board maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the
business. The Board monitors both the demographic spread of shareholders, as well as the return on capital, which the Group defines as total
shareholders’ equity and the level of dividends to ordinary shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages
and security afforded by a sound capital position.
There are financial covenants associated with the Group’s borrowings, which are interest cover and EBITDA to net debt. The Group comfortably
complied with these covenants in 2020 and 2019, as set out in the Operational & Financial Review on pages 24 to 31.
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.
Cash and cash equivalents
Loans and other borrowings due within one year
Loans and borrowings due after more than one year
Lease liabilities due within one year
Lease liabilities due after more than one year
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2020
Cash and cash equivalents
Loans and borrowings due within one year
Loans and borrowings due after more than one year
Lease liabilities due within one year
Lease liabilities due after more than one year
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2019
Designated
at fair value
£m
-
-
-
-
-
(0.1)
-
-
(0.1)
-
-
-
-
-
(0.1)
-
-
(0.1)
Amortised cost
£m
13.9
(0.5)
(127.2)
(8.6)
(23.8)
-
107.9
(96.5)
(134.8)
26.0
(0.4)
(200.9)
(10.6)
(29.4)
-
133.5
(107.4)
(189.2)
Total carrying
value
£m
13.9
(0.5)
(127.2)
(8.6)
(23.8)
(0.1)
107.9
(96.5)
(134.9)
26.0
(0.4)
(200.9)
(10.6)
(29.4)
(0.1)
133.5
(107.4)
(189.3)
Fair value
£m
13.9
(0.5)
(127.2)
(8.6)
(23.8)
(0.1)
107.9
(96.5)
(134.9)
26.0
(0.4)
(200.9)
(10.6)
(29.4)
(0.1)
133.5
(107.4)
(189.3)
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
22. Financial instruments (continued)
Fair value hierarchy
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
•
•
•
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either as a direct price or
indirectly derived from prices.
Level 3: inputs for the asset or liability that are not based on observable market data.
Derivative financial liabilities
Total at 31 December 2020
Derivative financial liabilities
Total at 31 December 2019
Level 1
£m
-
-
-
-
Level 2
£m
(0.1)
(0.1)
(0.1)
(0.1)
Level 3
£m
-
-
-
-
Total
£m
(0.1)
(0.1)
(0.1)
(0.1)
At 31 December 2020 the Group did not have any liabilities classified at Level 1 or Level 3 in the fair value hierarchy (2019: nil). 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 US Dollar denominated
Senior Unsecured Notes. Floating rate financial liabilities comprise Sterling, Euro and US Dollar bank loans and overdrafts, and lease liabilities.
The floating rate bank loans and overdrafts bear interest at rates related to bank base rates or LIBOR/EURIBOR/US LIBOR. The Group is aware
of the replacement of LIBOR as a reference rate that will occur in 2021 and, whilst we do not believe the changes will have a material impact on
the Group, we are in discussions with our lenders and legal advisors to reflect the necessary changes in our facility documentation. The floating
rates of the lease liabilities are determined using the Group’s incremental borrowing rate, being the rate that the lessee would have to pay to
borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
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 £16.2m (2019: £21.2m) and US Dollar £51.5m (2019: £60.6m)
denominated interest bearing loans, which are predominantly used to fund the Group’s European and United States operations and include
£67.7m (2019: £81.8m) designated as a hedge of the net investment in a foreign operation. The foreign currency loss/gain of £nil (2019: gain of
£2.9m) for the effective portion was recognised in the Consolidated Statement of Comprehensive Income netted against exchange differences
on translation of foreign operations. Any ineffective portion recognised in the Consolidated Income Statement is insignificant.
Fixed rate financial liabilities
US Dollar at 31 December 2020
US Dollar at 31 December 2019
Weighted average
interest rate
%
Weighted average period for
which rate is fixed
Years
3.9
3.9
7.0
8.0
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22. Financial instruments (continued)
(c) Maturity profile
The table below sets out the contractual cash flows associated with the Group’s financial liabilities, including estimated interest payments,
analysed by maturity:
Secured loans and borrowings
Unsecured loans and borrowings
Senior Unsecured Notes
Lease liabilities
Other liabilities
Derivative liabilities
Total at 31 December 2020
Secured loans and borrowings
Unsecured loans and borrowings
Senior Unsecured Notes
Lease liabilities
Other liabilities
Derivative liabilities
Total at 31 December 2019
Effective
interest
rate
Floating
Floating
3.9%
Floating
n/a
n/a
Floating
Floating
3.9%
Floating
n/a
n/a
Carrying
amounts
£m
Contractual
cash flows
£m
Due within
one year
£m
Due
between
one and
two years
£m
Due
between
two and
five years
£m
Due after
more than
five years
£m
1.4
83.2
51.2
32.4
103.1
0.1
271.4
1.9
146.8
52.6
40.0
107.7
0.1
349.1
(1.4)
(89.3)
(67.7)
(35.6)
(0.4)
(9.2)
(2.0)
(9.2)
(103.1)
(102.6)
(0.1)
(0.1)
(0.4)
(1.1)
(2.0)
(7.8)
(0.5)
-
(297.2)
(123.5)
(11.8)
(1.9)
(162.7)
(71.8)
(43.9)
(107.7)
(0.1)
(0.4)
(3.1)
(2.1)
(11.3)
(107.3)
(0.1)
(0.4)
(3.1)
(2.1)
(8.8)
(0.4)
-
(0.6)
(79.0)
(6.1)
(12.5)
-
-
(98.2)
(0.9)
(156.5)
(6.2)
(15.6)
-
-
-
-
(57.6)
(6.1)
-
-
(63.7)
(0.2)
-
(61.4)
(8.2)
-
-
(388.1)
(124.3)
(14.8)
(179.2)
(69.8)
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 loans and borrowings are held by subsidiaries in the USA and bear interest at
varying rates linked to underlying US bond markets.
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
2020
£m
190.8
2019
£m
125.5
(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 £0.1m (2019: £0.1m). The fair values of the Group’s other financial instruments at 31 December 2020 and 2019 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 £19.5m (2019: £7.0m) were recognised in respect of the carrying values of non-current assets as detailed in notes 11,
12 and 14.
(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
Trade and other receivables and contract assets at amortised cost
Cash on short term deposits
Total
2020
£m
116.2
22.0
138.2
2019
£m
137.0
26.0
163.0
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
22. Financial instruments (continued)
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
Roads & Security
Utilities
Galvanizing Services
Total
Impairment losses
2020
£m
46.5
20.0
31.5
8.8
106.8
2020
£m
45.8
31.6
29.4
106.8
2019
£m
61.5
23.8
36.7
8.7
130.7
2019
(restated)
£m
59.3
40.3
31.1
130.7
The Group maintains a level of credit insurance covering a significant part of its trade receivables which mitigates against possible impairment
losses. An impairment assessment is performed at each reporting date to assess whether there has been a significant increase in the credit
risk. Expected credit loss rates are calculated individually for each business within the Group and are based on historical observed default
rates, adjusted for forward-looking information. Due to COVID-19, forecast economic conditions are expected to deteriorate over the next year
which the Group considers could lead to an increased number of defaults. As a result, the Group has updated default loss rates to incorporate
forward-looking information based on available macroeconomic information. The assessment of the correlation between forecast economic
conditions and expected future credit losses is an estimate but is not determined to be a significant estimate as the Group does not expect
future credit losses to be materially different to the credit losses estimated at the end of the reporting date. The charge to the Consolidated
Income Statement in the year in respect of the expected loss of trade receivables was £2.2m (2019: £2.6m). 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.
The ageing of trade receivables at the reporting date was:
Net
£m
70.6
23.5
9.0
3.7
2019
Gross
£m
Provisions
£m
93.0
25.7
10.0
7.2
(0.5)
(0.1)
(0.8)
(3.8)
(5.2)
106.8
135.9
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
2020
Gross
£m
Provisions
£m
71.4
23.7
9.2
8.8
113.1
(0.8)
(0.2)
(0.2)
(5.1)
(6.3)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2019
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2019
Charged in the year
Utilised during the year
At 31 December 2020
Net
£m
92.5
25.6
9.2
3.4
130.7
£m
3.1
(0.1)
0.4
2.6
(0.8)
5.2
2.2
(1.1)
6.3
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22. Financial instruments (continued)
(f) Market Risk – 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 £2.4m (2019: £1.9m), which would directly impact on the Consolidated Income Statement.
• Based on a 10% weakening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement would
have been a gain of £4.8m (2019: £4.5m) and the impact on equity would have been an increase of £12.8m (2019: £12.7m).
• 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 £3.9m (2019: £3.7m) and the impact on equity would have been a decrease of £13.1m (2019: £12.9m).
23. Called up share capital
Allotted, called up and fully paid
79.5m ordinary shares of 25p each (2019: 79.4m)
2020
£m
19.9
2019
£m
19.9
In 2020 the Company issued 0.1m shares under its various share option schemes (2019: 0.4m), realising £1.0m (2019: £2.0m).
Each ordinary share carries equal voting rights and there are no restrictions on any share.
Options outstanding over the Company’s shares
The Group operates a number of employee share schemes categorised as follows:
•
•
Save As You Earn (‘SAYE’) schemes – SAYE is a tax qualifying 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. Such schemes are typically issued annually, are either three or five
years and are offered to employees in the UK;
Long Term Incentive Plans (‘LTIP’) and Executive Share Option Schemes (‘ESOS’) – The Remuneration Committee may, at its discretion,
structure awards as approved awards comprising both a tax qualifying option granted under the ESOS and LTIP awards. LTIP awards are at
nil cost and ESOS is a costed option; and
• Buy-out awards – On joining the Company as CEO Designate in September 2020, Paul Simmons forfeited his 2018 and 2019 long term
incentive awards at his previous employer. The Company compensated Mr Simmons for these awards by granting two awards over Hill
& Smith shares, to ensure the ultimate reward is aligned with shareholders’ experience. The awards are at nil cost. Further details are
provided in the Directors’ Remuneration Report on page 88.
The number of options outstanding by scheme are as follows:
SAYE schemes †
LTIP awards
ESOS awards ^
Buy-out awards
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
2020
Option price range
(p)
560p to 1,021p
-
316p to 1,113p
-
Number
of shares
844,616
232,267
639,443
40,921
1,757,247
71,443
1,685,804
1,757,247
2019
Option price range
(p)
429p to 1,021p
-
316p to 1,113p
-
Number
of shares
802,767
194,437
666,001
-
1,663,205
88,280
1,574,925
1,663,205
† 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 including the profitability of subsidiary businesses.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
161
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Notes to the Consolidated Financial Statements
continued
23. Called up share capital (continued)
The remaining weighted average life of the outstanding share options is 4 years 2 months (2019: 4 years 8 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)
2020
Millions of
options
2020
Weighted
average exercise
price (p)
2019
Millions of
options
2019
842
520
(723)
(509)
810
1.7
0.4
(0.1)
(0.2)
1.8
739
732
(436)
(647)
842
2.1
0.3
(0.5)
(0.2)
1.7
The weighted average share price on the dates of exercise of share options during the year was 1,417p (2019: 1,221p), and the weighted
average fair value of options and awards granted in the year was 541p (2019: 372p). The weighted average exercise price of outstanding
options exercisable at the year end was 612p (2019: 625p).
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.
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. Other than
the LTIP and Buy-out awards, the strike price for the option is made based on the market values of shares at the date the option is offered.
The key assumptions for the grants in the current and prior year were as follows:
Expected share price volatility (%)
Dividend yield (%)
Option life (years)
Risk free interest rate (%)
SAYE
17%/15%
2.8%
3/5
2020
LTIP
33%
0.0%
2019
SAYE
Buy-out
awards
0%
17%/19%
0.0%
3
0.8/1.8
2.6%
3/5
-0.1%/0.0%
-0.1%
0%
0.4%/0.4%
The total expense recognised for the period arising from share-based payments is as follows:
Equity-settled
Cash-settled
Total expensed during the year
2020
£m
0.8
-
0.8
The carrying amount of the liability in relation to cash-settled share based payments at the end of the year was £0.7m (2019: £0.7m).
LTIP
26%
0.0%
3
0.8%
2019
£m
0.9
0.3
1.2
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24. Guarantees and other financial commitments
(a) Guarantees
The Group had no financial guarantee contracts outstanding (2019: £nil).
(b) Capital commitments
Contracted for but not provided in the accounts
(c) Operating lease receivables
2020
£m
3.6
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
25. Pensions
Total
2020
Land and
Buildings
£m
0.2
-
0.1
0.3
2019
Land and
Buildings
£m
0.4
0.1
0.1
0.6
Other
£m
5.2
0.7
-
5.9
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
Overseas
£m
62.0
(76.0)
-
(14.0)
3.2
(8.6)
(0.2)
(5.6)
2020
£m
65.2
(84.6)
(0.2)
(19.6)
UK
£m
Overseas
£m
57.7
(72.5)
-
(14.8)
3.1
(8.0)
(0.2)
(5.1)
2019
£m
3.6
Other
£m
13.7
2.0
-
15.7
2019
£m
60.8
(80.5)
(0.2)
(19.9)
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 and is subject to the statutory scheme specific funding
requirements outlined in UK legislation. The average duration of the defined benefit plan obligation at the end of the reporting period is
approximately 15 years (2019: 15 years).
The assets of the Scheme are administered by Trustees and are kept entirely separate from those of the Group. Full 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.
The last full actuarial valuation was carried out as at 5 April 2019. The results of this valuation have been incorporated in the updated IAS 19
position at 31 December 2020 by a qualified actuary. All actuarial gains and losses are recognised immediately in the Consolidated Statement
of Comprehensive Income.
There are also separate personal pension plans.
The Consolidated Income Statement for the year includes a pension charge within operating profit of £3.6m (2019: £2.9m), which includes the
costs of the defined contribution and the defined benefit sections of the Scheme.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
25. Pensions (continued)
The Scheme exposes the Group to a number of risks, the most significant being:
Risk
Description
Volatile asset returns
The defined benefit obligation is calculated using a discount rate set with reference to high quality corporate
bond yields. If assets underperform against this discount rate, this will create a plan deficit. The Scheme holds
a proportion of its assets in 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 in the Consolidated Statement of Financial Position.
The allocation to growth assets is monitored to ensure it remains appropriate given the Scheme’s long term
objectives.
Changes in bond yields
A decrease in corporate bond yields will increase the funding and accounting liabilities, although this will be
partially offset by an increase in the value of the Scheme’s investments in Liability Driven Investment and bond
funds.
Inflation risk
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.
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
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
2020
£m
n/a
2.9%
1.2%
3.0%
2.2%
2019
£m
n/a
3.0%
2.0%
3.1%
2.1%
114%117%
105%102%
CMI 2019
S2PACM12018
(1.25%)
(1.25%)
2020
£m
22.5 years
24.8 years
21.2 years
23.3 years
2019
£m
22.7 years
25.1 years
21.6 years
23.6 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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25. 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 in respect of the defined benefit scheme, which are not intended to be realised in the short term and
may be subject to significant change before they are realised are detailed below. In addition, the value of the Scheme liabilities, which is derived
from cash flow projections over an average period of approximately 15 years (the weighted average duration of the Scheme) and which is
therefore inherently uncertain is also set out below.
Assets
Equities
Bonds
With profits policies
Liability Driven Investment (‘LDI’) funds
Cash
Total fair value of Scheme assets
Present value of Scheme funded obligations
Retirement benefit obligation
2020
£m
6.8
26.9
0.9
22.2
5.2
62.0
(76.0)
(14.0)
2019
£m
17.4
20.4
1.6
17.7
0.6
57.7
(72.5)
(14.8)
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. This strategy was reassessed as part of the
April 2019 triennial valuation exercise, which resulted in a further shift from growth assets to bonds in 2020, reducing the level of risk in the
Scheme’s asset strategy. The Scheme’s LDI investment is structured as investment in a number of unit-linked funds of short and long-dated
nominal and index-linked government bonds, some of which are leveraged, held with the Scheme’s investment manager. This is designed to
reflect the size and shape of the Scheme’s interest rate and inflation exposure.
Assets in the bonds and equities categories, which account for approximately 54% (2019: 66%) of total Scheme assets, have quoted market
prices in active markets.
Total expense recognised in the Consolidated Income Statement
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
2.3
-
0.6
2.9
-
2.9
2020
Defined
benefit
schemes
£m
-
0.4
0.3
0.7
0.3
1.0
Defined
contribution
schemes
£m
2.0
-
0.5
2.5
-
2.5
Total
£m
2.3
0.4
0.9
3.6
0.3
3.9
2019
Defined
benefit
schemes
£m
-
-
0.4
0.4
0.5
0.9
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
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
2020
£m
72.5
0.4
1.4
7.6
(2.3)
-
(3.6)
76.0
Total
£m
2.0
-
0.9
2.9
0.5
3.4
2019
£m
72.8
-
2.0
6.0
(0.9)
(2.5)
(4.9)
72.5
165
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Notes to the Consolidated Financial Statements
continued
25. 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
2020
£m
57.7
1.1
3.2
3.6
(3.6)
62.0
4.3
3.9
1.7
Amounts recognised in the Consolidated Statement of Comprehensive Income
Return on plan assets excluding interest income
Experience gain on Scheme obligations
Changes in assumptions underlying the present value of
Scheme obligations
Amount recognised in the year
% of Scheme
assets/ liabilities
%
5
-
(7)
(3)
2020
£m
3.2
-
(5.3)
(2.1)
% of Scheme
assets/ liabilities
%
6
3
(7)
1
The table below shows the sensitivity of the Consolidated Statement of Financial Position to certain changes in the significant pension
assumptions:
2019
£m
55.2
1.5
3.4
2.5
(4.9)
57.7
4.9
4.1
1.4
2019
£m
3.4
2.5
(5.1)
0.8
Value of funded obligations
Fair value of plan assets
Deficit
Balance at
31 December
2020
(76.0)
62.0
(14.0)
Increase in
pensions
payment
(+0.1% p.a.)
£m
(76.4)
62.0
(14.4)
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
Life expectancy
(+1 year)
£m
(77.1)
62.0
(15.1)
(76.6)
62.0
(14.6)
(79.0)
62.0
(17.0)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit obligation
as a result of reasonable changes in key assumptions occurring at the end of the year. The sensitivity analyses are based on a change in a
significant assumption, keeping all other assumptions constant. As such the sensitivity analyses may not be representative of an actual change
in the defined benefit obligation as it is unlikely that changes in assumptions would occur in isolation from one another.
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 2019 was finalised in 2020, alongside an update to the investment strategy, resulting in the
Group agreeing a deficit recovery plan with the Trustees that requires an increase in cash contributions to £3.7m per annum (previously £2.5m
per annum) until September 2027. The next triennial valuation will be as at April 2022.
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.
Overseas
The Group operates two overseas pension schemes in France and the USA.
In France, France Galva SA provides certain long term benefits and operates post employment defined benefit plans which provide lump sum
benefits at retirement in accordance with collective bargaining agreements. Some of those plans are funded with insurance companies. The
average duration of the defined benefit plan obligation at the end of the reporting period is approximately 19 years (2019: 19 years) for the
funded scheme and 9 years (2019: 9 years) for the unfunded scheme.
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25. Pensions (continued)
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 average duration of the defined benefit plan obligation at the end of the reporting period is approximately 10 years (2019:
10 years).
The Group also operates defined contribution plans in a number of other overseas operations. The amount contributed to these plans during
the year was £1.0m (2019: £1.0m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.4m (2019: £1.3m), which includes the
costs of the defined contribution schemes and the defined benefit schemes.
Actuarial valuations of the above schemes were carried out by independent actuaries as at 31 December 2020. All actuarial gains and losses
are recognised immediately in the Consolidated Statement of Comprehensive Income.
The principal assumptions used by the actuaries
Rate of increase in salaries
Discount rate
Inflation
Mortality table
Assets and liabilities
USA
0.00%
2.40%
0.00%
2020
France
2.50%
0.45%/0.45%
2.00%
USA
0.00%
3.15%
0.00%
2019
France
2.50%
0.8%/0.4%
2.00%
2014 SOA
TH00-02, TF00-02
2014 SOA
TH00-02, TF00-02
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 2020
£m
Market Value 2019
£m
3.2
3.2
(8.6)
(0.2)
(5.6)
3.1
3.1
(8.0)
(0.2)
(5.1)
Cash and other insured fixed interest assets – where assets are held in cash or a policy with a fixed interest asset allocation, the expected long
term rate of return is taken to be the yields generally prevailing on such assets as at the year end date.
Total expense recognised in the Consolidated Income Statement
Current service cost
Charge to operating profit
Interest on net pension scheme deficit
Total charged to profit before tax
Defined
contribution
schemes
£m
2020
Defined
benefit
schemes
£m
1.0
1.0
-
1.0
0.4
0.4
-
0.4
Defined
contribution
schemes
£m
1.0
1.0
-
1.0
Total
£m
1.4
1.4
-
1.4
2019
Defined
benefit
schemes
£m
0.3
0.3
-
0.3
Total
£m
1.3
1.3
-
1.3
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Consolidated Financial Statements
continued
25. Pensions (continued)
Change in the present value of the defined benefit obligation
Opening defined benefit obligation
Current service costs
Interest cost on scheme obligations
Actuarial (gains)/losses arising from:
Financial assumptions
Demographic adjustments
Experience adjustment
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
Employer contributions
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
2020
£m
8.2
0.3
0.1
0.7
(0.5)
0.4
(0.5)
0.1
8.8
2020
£m
3.1
0.4
0.1
0.1
(0.1)
(0.2)
(0.2)
3.2
0.5
-
1.0
Amounts recognised in the Consolidated Statement of Comprehensive Income
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 year
% of scheme
assets/liabilities
%
(5)
13
(2)
(5)
(6)
2020
£m
(0.4)
0.4
(0.2)
(0.3)
(0.5)
% of Scheme
assets/liabilities
%
9
13
(11)
4
5
2019
£m
8.3
0.2
0.2
1.3
(0.4)
(0.7)
(0.3)
(0.4)
8.2
2019
£m
2.9
0.4
0.2
0.1
(0.1)
(0.2)
(0.2)
3.1
0.6
-
1.0
2019
£m
0.7
0.4
(0.9)
0.2
0.4
The Group considers that any reasonable sensitivities applied to the assumptions for the overseas schemes would not have a material impact
on the Consolidated Statement of Financial Position.
26. Contingent liability
In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK Controlled Foreign
Company (‘CFC’) legislation. On 2 April 2019 the Commission announced that it believed that in certain circumstances the UK’s CFC regime
constituted state aid. In common with other UK-based international companies, the Group may be affected by the outcome of this case. In
January 2021 the Group received a charging notice from HMRC requiring it to pay £1.6m in respect of state aid that HMRC considers had been
unlawfully received in previous years. Based on the current status of the case in both the UK and EU jurisdictions, we have concluded that no
provision is required at 31 December 2020 in relation to this amount.
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27. 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 83 to 93 and in note 5 to the Financial Statements on page 137.
28. Subsequent events
After the year end, in March 2021, the Group acquired Prolectric Services Ltd (‘Prolectric’) for an initial cash consideration of £12.5m, on a
debt and cash free basis. Prolectric is a UK market leader in temporary solar lighting and operates in a market with excellent long term growth
potential, driven by the transition from fossil fuels towards renewable energies.
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Company Balance Sheet
Fixed assets
Tangible assets
Right-of-use assets
Investments
Current assets
Debtors
Cash
Creditors: amounts falling due within one year
Bank loans and overdrafts
Lease liabilities
Other creditors
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Provisions
Pension liabilities
Net assets
Share capital and reserves
Called up share capital
Share premium
Capital redemption reserve
Profit and loss account
Equity shareholders’ funds
Notes
3
4
5
6
7, 8
4
7
8
10
11
2020
£m
0.1
0.4
329.8
330.3
89.6
0.1
89.7
(8.5)
(0.1)
(55.5)
(64.1)
25.6
355.9
(43.5)
(0.4)
312.0
19.9
38.4
0.2
253.5
312.0
2019
£m
-
0.5
338.8
339.3
97.6
6.7
104.3
-
(0.1)
(55.9)
(56.0)
48.3
387.6
(103.1)
(0.4)
284.1
19.9
37.4
0.2
226.6
284.1
The Company has taken advantage of the exemption permitted by section 408 of the Companies Act 2006 not to publish its individual profit
and loss account and related notes. The Company made a profit attributable to the equity shareholders of £34.6m in the year (2019: £9.8m).
Approved by the Board of Directors on 9 March 2021 and signed on its behalf by:
P Simmons
Director
H K Nichols
Director
Company Number: 671474
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Company Statement of Changes in Equity
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
Total equity
£m
Balance at 1 January 2019
Adoption of IFRS 16
At 1 January 2019 (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 acquired by employee benefit trust
Tax taken directly to the Statement of Changes in Equity
Issue of shares
At 31 December 2019
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
Issue of shares
At 31 December 2020
19.8
-
19.8
-
-
-
-
-
-
-
0.1
19.9
-
-
-
-
19.9
35.5
-
35.5
-
-
-
-
-
-
-
1.9
37.4
-
-
-
1.0
38.4
0.2
-
0.2
-
-
-
-
-
-
-
-
241.7
-
241.7
9.8
-
(25.1)
0.9
(1.4)
0.7
-
-
297.2
-
297.2
9.8
-
(25.1)
0.9
(1.4)
0.7
-
2.0
0.2
226.6
284.1
-
-
-
-
0.2
34.6
(0.1)
(8.4)
0.8
-
253.5
34.6
(0.1)
(8.4)
0.8
1.0
312.0
Details of share options and related share-based payments are contained in note 23 to the Group Financial Statements.
Transactions of the Group sponsored Employee Benefit Trust (‘EBT’) are included in the Company Financial Statements. In particular, the EBT’s
purchase of shares in the Company to satisfy shares awarded under the Long Term Incentive Plan is debited directly to equity.
Distributable reserves
The Company maintains 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 £73.5m
(2019: £46.7m), representing 3.5 times (2019: 1.9 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 had reserves
of approximately £49.4m available for distribution at 31 December 2020. Further reserves are available for distribution from trading
subsidiaries located overseas, subject to local regulations.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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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 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own Income Statement.
As the Consolidated Financial Statements include the equivalent disclosures, the Company has taken the available exemptions under FRS 101
in respect of the following disclosures:
•
IFRS 2 Share Based Payments in respect of Group settled share based payments;
• A Cash Flow Statement and related notes;
• Disclosures in respect of transactions with wholly owned Group companies; and
•
The effects of new but not yet effective IFRSs.
The Accounting Policies set out on pages 122 to 129 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 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.
Accounting judgements, estimates and assumptions
The preparation of the Company’s Financial Statements requires management to make judgements, estimates and assumptions that affect
the application of accounting policies and reported amounts of income, expenses, assets and liabilities. Actual results may differ from these
estimates.
Significant estimates are required in determining whether impairment of the Company’s investments exists, which requires estimation of the
investments’ value in use. A process similar to the impairment review performed on the Group’s goodwill and other indefinite life intangible
assets is undertaken. Key assumptions include the estimation of future cash flows, growth factors and discount rates.
There are no significant judgements used by management in preparing the Company’s Financial Statements.
Investments in subsidiary undertakings
In the Company’s Financial Statements, investments in subsidiary undertakings are carried at cost less impairment.
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 Company’s cash management are included as a component of cash and cash equivalents.
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. Foreign exchange differences arising on translation are recognised in the Profit and
Loss Account.
Financial instruments
Trade and other debtors and amounts owed by subsidiary undertakings
Trade and other debtors and amounts owed by subsidiary undertakings 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.
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Trade and other creditors and amounts owed to subsidiary undertakings
Trade and other creditors and amounts owed to subsidiary undertakings 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.
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
To the extent that a right-of-control exists over an asset subject to a lease and with a lease term exceeding one year, the Company recognises:
a right-of-use asset, representing the underlying lease asset, and a lease liability, representing the Company’s obligation to make lease
payments. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, any initial direct costs incurred and an estimate of the dismantling, removal and restoration
costs as required by the terms of the lease contract.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. If ownership of the leased asset transfers to the Company at the end of the lease
term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use
assets are also subject to impairment.
The lease liability is measured at the present value of the future lease payments discounted using the Company’s incremental borrowing
rate, being the rate that the lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic
environment with similar terms and conditions. Future lease payments include: fixed payments, variable lease payments that depend on an
index or a rate (initially measured using the index or rate as at the commencement date), amounts expected to be payable under a residual
guarantee and the exercise price of purchased options where it is reasonably certain that the option will be exercised. Finance charges,
representing the unwinding of the discount rate, are recognised in the Income Statement over the period of the lease.
Lease payments for low value assets and short term leases (less than 12 months) are recognised as an expense on a straight-line basis over
the lease term.
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.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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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.
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Notes to the Company Financial Statements
1. Profit before taxation
Fees paid to Ernst & Young LLP and its associates (2019: 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 during the year
Interim dividend paid in relation to year-end 31 December 2018
Final dividend paid in relation to year-ended 31 December 2018
Interim dividend paid in relation to year-ended 31 December 2019
Total
Dividends declared in respect of the year
Interim dividend declared in relation to year-ended 31 December 2019
Final dividend proposed in relation to year-ended 31 December 2019*
Interim dividend declared in relation to year-ended 31 December 2020
Final dividend proposed in relation to year-ended 31 December 2020
Total
2020
Pence
per share
-
-
10.6
10.6
2020
Pence
per share
-
-
9.2
17.5
26.7
2019
Pence
per share
10.0
21.8
-
31.8
2019
Pence
per share
10.6
-
-
-
10.6
£m
-
-
8.4
8.4
£m
-
-
7.3
13.9
21.2
£m
7.9
17.2
-
25.1
£m
8.4
-
-
-
8.4
The final dividend for the year was proposed after the year end date and was not recognised as a liability at 31 December 2020, in accordance
with IAS 10.
* The proposed final dividend for 2019 of 23.0p per share was withdrawn and will not be paid.
3. Tangible fixed assets
Cost or valuation
At 1 January 2020
Additions
At 31 December 2020
Depreciation
At 1 January 2020
Charge for the year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
Short leasehold
properties
£m
Plant, machinery
and vehicles
£m
0.1
-
0.1
0.1
-
0.1
-
-
0.4
0.1
0.5
0.4
-
0.4
0.1
-
Total
£m
0.5
0.1
0.6
0.5
-
0.5
0.1
-
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Company Financial Statements
continued
4. Leases
The movements in the carrying value of the right-of-use assets and lease liabilities in the year ended 31 December 2020 is as follows:
Right-of-use assets
Balance at 1 January 2020
Charge for the year
At 31 December 2020
Lease liabilities
Balance at 1 January 2020
Lease payments in period
At 31 December 2020
Land and buildings
£m
0.5
(0.1)
0.4
Total
£m
0.5
(0.1)
0.4
Total
£m
0.5
(0.1)
0.4
The following table shows the breakdown of the lease expense between amounts charged to operating profit and amounts charged to finance
costs:
Depreciation of right-of-use assets
Charged to operating profit
Charged to profit before taxation
The maturities of the lease liabilities at 31 December were as follows:
Due within one year
Due between one and two years
Due between two and five years
Total lease liabilities
5 Fixed asset investments
Cost
2020
£m
0.1
0.1
0.1
2020
£m
0.1
0.1
0.2
0.4
Shares in subsidiary
undertakings
£m
2019
£m
0.1
0.1
0.1
2019
£m
0.1
0.1
0.3
0.5
Total
£m
At 1 January 2020 and at 31 December 2020
379.6
379.6
Provisions
At 1 January 2020
Impairment
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
40.8
9.0
49.8
329.8
338.8
40.8
9.0
49.8
329.8
338.8
A list of the businesses owned by the Company is given in note 14. All of the Company’s subsidiaries are wholly owned.
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6. Debtors
Amounts owed by subsidiary undertakings (including £7.0m (2019: £7.0m) due after more than
one year)
Corporation tax
Deferred tax (note 9)
Other debtors
Prepayments and accrued income
7. Creditors amounts falling due within one year
Bank loans and overdrafts (note 8)
Bank overdrafts
Other creditors
Trade creditors
Other taxation and social security
Accruals
Other creditors
Amounts owed to subsidiary undertakings
2020
£m
82.7
5.9
0.3
0.4
0.3
89.6
2020
£m
8.5
8.5
2.2
0.2
3.7
1.3
48.1
55.5
2019
£m
94.1
2.1
0.2
0.8
0.4
97.6
2019
£m
-
-
2.4
0.2
3.8
0.3
49.2
55.9
8. 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 22 of the Group Financial Statements.
Bank loans
Lease liabilities
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 7)
Amounts due after more than one year:
Between one and two years
Between two and five years
2020
£m
43.2
0.3
43.5
2020
£m
8.5
-
43.2
43.2
51.7
2019
£m
102.7
0.4
103.1
2019
£m
-
-
102.7
102.7
102.7
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Company Financial Statements
continued
9. Deferred tax
Deferred tax asset – At 1 January
(Credit) / Charge for the year in the Income Statement
Deferred tax asset – At 31 December
Other timing differences
2020
£m
(0.2)
(0.1)
(0.3)
(0.3)
2019
£m
(0.3)
0.1
(0.2)
(0.2)
10. 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 25 to the Group
Financial Statements. There are also separate personal pension plans.
The Company’s profit for the year includes a pension charge of £0.4m (2019: £0.3m), which includes the costs of the defined contribution
schemes and the defined benefit schemes.
11. Called up share capital
Allotted, called up and fully paid
79.5m Ordinary Shares of 25p each (2019: 79.4m)
2020
£m
19.9
2019
£m
19.9
In 2020 the Company issued 0.1m shares under its various share option schemes (2019: 0.4m), realising £1.0m (2019: £2.0m). Details of share
options and related share-based payments are contained in note 23 to the Group Financial Statements.
Each ordinary share carries equal voting rights and there are no restrictions on any share.
12. Guarantees
The Company had no financial guarantee contracts outstanding (2019: £nil).
The Company guarantees the bank loans, overdrafts and other borrowings of certain subsidiary undertakings. The amount outstanding at 31
December 2020 was £81.9m (2019: £120.9m).
13. 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 5 to the Group Financial Statements.
The Company has taken the available exemption under FRS 101 not to disclose transactions with wholly owned Group companies.
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Redman Architectural Metalwork Limited (D)
Redman Fisher Engineering Limited (U)
Safety and Security Barrier Holdings Limited (H)
Signature Limited (D)
Signpost Solutions Limited (R)
Technocover Ltd (R)
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)
VMS Newco Limited (R)
Western Galvanizers Limited (D)
Wombwell Foundry Limited (D)
All of the above subsidiaries have a year end date of 31 December
and are included in the consolidated results of the Group. The
Company holds 100% of the share capital of all businesses, either
directly or indirectly, unless otherwise stated. All of the above
subsidiaries have a registered office address at Westhaven House,
Arleston Way, Shirley, Solihull, B90 4LH, England.
14. Subsidiaries
Incorporated in the UK
AAJG Holdings Limited (H)
Access Design & Engineering Limited (D)
ALSIPI Limited (D)
Ash & Lacy Limited (H)*
Ash & Lacy Manufacturing Limited (H)
Ash & Lacy Services Limited (H)
Asset International Limited (D)
ATG Access Ltd (R)
A W Thorne Limited (D)*
Barkers Engineering Limited (R, G)
Bergen Pipe Supports Group Limited (H)*
Bergen Pipe Supports Limited (H)
Berry Safety Systems Limited (D)*
Bipel Group plc (D)
Birtley Group Limited (U, G)
Bromford Steel Limited (D)
Bytec Limited (D)
Carrington Packaging Limited (D)
Cobaco Holdings Limited (H)
Cobaco Limited (D)
Cooper Securities (Dudley) Limited (D)
Cooper Securities Limited (D)
Dee Organ 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 (H)
Hill & Smith (Americas) 3 Limited (H)
Hill & Smith (France) Limited (H)*
Hill & Smith (Treasury) Limited (H)*
Hill & Smith (USA) Limited (H)
Hill & Smith Galvanized Products Limited (H)
Hill & Smith Holdings PLC (H)
Hill & Smith (International) Limited (H)
Hill & Smith Infrastructure Products Group Limited (D)
Hill & Smith Limited (R)*
Hill & Smith Overseas Limited (H)*
Hill & Smith Pension Trustees Limited (D)
H2S2 Limited (R) **
J. & F. Pool Limited (D)
Jevons Tools Limited (D)
Joseph Ash Limited (G)
Lionweld Steel Limited (D)
Lionweld Kennedy Flooring Limited (U)*
Mallatite Limited (R)*
MB Tech Limited (D)
Medway Galvanising Company Limited (G)
Parking Facilities Ltd (R)
Pipe Supports Overseas Limited (H)*
Post & Column Limited (D)
Premier Galvanizing Limited (G)
(U) Utilities
(R) Roads & Security
(G) Galvanizing
(D) Dormant
(H) Holding Company
* Directly held by Hill & Smith Holdings PLC
** 50% owned Joint Venture
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes to the Company Financial Statements
continued
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 New York 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.
14. 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
Hill & Smith (Jersey) Limited (H)
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
180
Stock Code HILS
Five year summary
As reported
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
2020
£m
660.5
69.9
62.6
320.5
Pence
63.2
26.7
2019
£m
694.7
86.3
79.4
307.0
Pence
80.7
10.6*
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
*The proposed final dividend for 2019 of 23.0p per share was withdrawn and will not be paid.
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181
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Asset International Structures provided a rapid, effi cient MP200 Multiplate™ Superspan Arch
system to Network Rail, located 300 metres west of Brockley Whins Metro Station on the
Longlands, Eaglescliffe and Newcastle Line (LEN3).
182
182
Stock code HILS
Shareholder
Information
184
185
186
189
Financial Calendar
Shareholder Information
Principal Group Businesses
Directors, Contacts and Advisors
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
183
Bowater Doors supply Stonebridge Homes composite doors across all of their
new build sites. Each home is built to the highest possible specification using
modern materials and building techniques.
hsholdings.com
Financial Calendar
Trading Update
Annual General Meeting
Ex-dividend date for 2020 final dividend
Record date 2020 final dividend
Dividend Reinvestment Plan – last date for election
Final 2020 dividend payable
Announcement of 2021 interim results
Trading Update
Ex-dividend date for 2021 interim dividend
Record date 2021 interim dividend
Dividend Reinvestment Plan – last date for election
Payment of 2021 interim dividend
Tuesday 25 May 2021
Tuesday 25 May 2021
Thursday 3 June 2021
Friday 4 June 2021
Friday 18 June 2021
Friday 9 July 2021
Wednesday 11 August 2021
Thursday 25 November 2021
Thursday 2 December 2021
Friday 3 December 2021
Tuesday 14 December 2021
Friday 7 January 2022
184
Stock Code HILS
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%
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0.38
1.92
6.16
4.66
24.41
16.11
46.17
100
%
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95.61
0.03
100
2016
8.5
17.9
26.4
Shareholder Information
Shareholder base
Holdings of ordinary shares at 1 March 2021
Range of shareholders
Number of holders
%
Number 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 1,000,001
Totals
Shareholder base
Individuals
Institutions
Other corporate
Totals
713
397
648
353
52
85
19
17
2,284
31.22
17.38
28.37
15.46
2.28
3.72
0.83
0.74
100
151,571
300,561
1,527,905
4,902,396
3,713,422
19,436,352
12,830,079
36,766,310
79,628,596
Number of holders
%
Number of shares
1384
894
6
2,284
60.60
39.14
0.26
100
2018
10.0
21.8
31.8
3,473,648
76,132,929
22,019
79,628,596
2017
9.4
20.6
30.0
Dividend History – proposed dividends per share
Interims
Final
Total
2020
9.2
17.5
26.7
2019
10.6
-
10.6
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
The AGM will be held virtually on Tuesday 25
May 2021. 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.
•
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.
You will be able to:
• View all your holding details
for companies registered with
Computershare.
• View the market value of your portfolio.
• Update your contact address and
personal details online.
• Access current and historical market
prices.
• Access trading graphs.
• Add additional shareholdings to your
portfolio.
Share dealing
Share dealing services are available through
Computershare Investor Services PLC.
Log on to www.computershare.com/
sharedealingcentre for internet share dealing
and for telephone dealing ring 0370 703 0084.
Dividend Reinvestment Plan ‘DRIP’
The Company offers shareholders the facility
to reinvest their cash dividends to buy more
shares in the Company.
– Click on ‘Register’ to sign up to the
Investor Centre. This will allow you to
carry out a number of share related
transactions online, including opting
for the DRIP.
– You will be required to fill in your SRN
and your postcode, together with
your email address. You will also be
asked to select a user name (ID) and
password of your choice.
– Once registered select ‘Dividend
Plans’ from the left hand menu and
amend your current cash dividend
instruction, confirming acceptance of
the DRIP terms and conditions.
• New shares will be purchased as soon as
possible on or after the dividend pay date.
Shareholder helpline number
There is a helpline for shareholders who have
enquiries about their shareholdings. The
dedicated helpline number is 0370 707 1058.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Principal Group Businesses
Roads & Security
United Kingdom
ATG Access Ltd*
Manufacture and installation of hostile
vehicle mitigation and perimeter security
solutions including bollards, road blockers,
barriers and gates
Cobaco House, North Florida Road
Haydock Industrial Estate, Haydock
Merseyside, WA11 9TP
Tel: +44 (0) 8456 757574
www.atgaccess.com
Hill & Smith Limited
Highway and off-highway safety barriers,
permanent and temporary solutions
for vehicle restraints, and retained earth
systems for Highway & Rail construction
sectors.
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
Barkers Engineering Limited*
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
Mallatite Limited
Manufacture of lighting columns, bespoke
support structures, traffic sign columns,
posts and associated lighting products
Holmewood Industrial Estate, Hardwick
View Road, Holmewood, Chesterfield,
Derbyshire, S42 5SA
Tel: +44 (0) 1246 593280
Fax: +44 (0) 1246 593281
sales@mallatite.co.uk
www.mallatite.co.uk
Parking Facilities Ltd*
Design, manufacture and supply of parking
and access control products including
gates, barriers, bollards, rising kerbs and
speed ramps
Unit One, Kingsbury Link
Trinity Road, Tamworth
Staffordshire
B78 2EX
Tel: +44 (0) 1827 870250
Fax: +44 (0) 1827 870251
www.parkingfacilities.co.uk
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
Varley & Gulliver Limited
Vehicle and pedestrian parapets,
and passive sign supports
Ridgacre Road
West Bromwich
B71 1BB
Tel: +44 (0) 121 773 2441
Fax: +44 (0) 121 766 6875
sales@v-and-g.co.uk
www.v-and-g.co.uk
Rest of the World
ATA Hill & Smith AB*
Road safety barriers, road signage
and traffic safety solutions
Incorporated in Sweden
Staffans väg 7, 192 78,
Sollentuna, Sweden
Tel: +46 10 440 71 01
Fax: +46 (0) 8 29 25 15
info@ata.se
www.ata.se
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
work zone protection providing smart, safe,
innovative solutions for the traffic safety and
highway infrastructure businesses
Incorporated in the USA
987 Buckeye Park Road, Columbus,
Ohio, 43207, USA
Tel: +1 (614) 340 6294
Fax: +1 (614) 340 6296
info@hillandsmith.com
www.hillandsmith.com
Hill & Smith Pty Ltd*
Wire rope and temporary safety barriers
Incorporated in Australia
Unit 1, 242 New Cleveland Road,
Tingalpa, QLD 4173, Australia
Tel: +61 (0) 7 3162 6078
hsroads.com.au
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
(D) Operating division only, not a limited company.
186
Stock Code HILS
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V&S Utilities**
Fabrication of electrical transmission
and substation structures and supplier of
substation packaging services
987 Buckeye Park Road, Columbus,
Ohio, 43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
info@vsschuler.com
www.vsschuler.com
Bergen Pipe Supports, Inc.*
Manufacture and supply of pipe supports
solutions, including constant and variable
effort supports
484 Galiffa Drive, Donora,
Pennsylvania, 15033, USA
Tel: +1 (724) 379 5212
Fax: +1 (724) 379 9363
www.pipesupports.com
Carpenter & Paterson, Inc.*
Industrial pipe hangers, metal framing
channel and fasteners
225 Merrimac Street, Woburn,
Massachusetts, 01801, USA
Tel: +1 (781) 935 2950
Fax: +1 (781) 935 7664
www.pipehangers.com
Novia Associates (D)
Vibration and seismic control manufacturer
www.cp-novia.com
India
Bergen Pipe Supports (India) Private Ltd*
Manufacture and supply of pipe supports
solutions, including cryogenic supports
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
Utilities
United Kingdom
Birtley Group Limited*
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 Limited
Open steel flooring, handrailing and
ancillary products
Marsh Road, Middlesbrough, TS1 5JS
Tel: +44 (0) 1642 245151
Fax: +44 (0) 1642 224710
sales@lk-uk.com
www.lk-uk.com
United States of America
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
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)
Manufacture of 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
www.creativecompositesgroup.com
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except where indicated, the
undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
* The Company’s effective interest is held indirectly for these undertakings.
** Trading name for V&S Schuler Engineering Inc and V&S Schuler Tubular Products LLC, both are indirectly held, wholly owned and incorporated in the USA.
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Principal Group Businesses
continued
United States of America
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
France Galva SA*
Galvanizing and powder coaters of steel
Z.I. La Saunière BP70, 89600
Saint Florentin, France
Tel: +33 (0) 3 86 43 82 30
Fax: +33 (0) 3 86 43 82 29
contact@francegalva.fr
www.francegalva.fr
Galvanizing Services
United Kingdom
Joseph Ash Limited*
Galvanizing services
Alcora Building 2, Mucklow Hill
Halesowen, West Midlands, B62 8DG
Tel: +44 (0) 121 504 2560
Fax: +44 (0) 121 504 2599
sales@josephash.co.uk
www.josephash.co.uk
Medway Galvanising Company Limited*
Galvanizing, shotblasting and powder
coating services
Castle Road, Eurolink Industrial Centre,
Sittingbourne, Kent, ME10 3RN
Tel: +44 (0) 1795 479489
Fax: +44 (0) 1795 477598
info@medgalv.co.uk
www.medgalv.co.uk
Premier Galvanizing Limited*
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 Limited*
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 Limited*
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.
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Directors, Contacts and Advisors
Directors
Alan Giddins
Chair
Paul Simmons
Chief Executive
Hannah Nichols
Chief Financial Officer
Tony Quinlan
Senior Independent Non-executive
Annette Kelleher
Non-executive
Mark Reckitt
Non-executive
Pete Raby
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
Professional Advisors
Auditor
Ernst & Young LLP
No. 1 Colmore Square
Birmingham
B4 6HQ
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
Engine MHP
60 Great Portland Street
London
W1W 7RT
Hill & Smith Holdings PLC – Annual Report for the year ended 31 December 2020
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Notes
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Hill & Smith Holdings PLC
Westhaven House
Arleston Way
Shirley
Solihull
B90 4LH
+44 (0)121 704 7430