2
0
2
1
Stock Code HILS
Annual Report for the year
ended 31 December 2021
HILL & SMITH
Creating sustainable infrastructure and
safe transport through innovation.
Read more on our website
www.hsholdings.co.uk
INVESTMENT CASE
Structural tailwinds in
attractive markets
Opportunity to grow market share in
meaningful high return markets that are
backed by infrastructure investment and long-
term growth drivers.
Solid execution record
Hill & Smith’s autonomous model has
delivered solid performance over the
long term. This inherently agile model was
key in mitigating recent challenges around
supply chain, labour and COVID.
The model has recently been enhanced
to make it scalable and supported by an
ambitious management team.
Focus on high value add
niche applications
Our increasing focus on high value, fast
growing niche markets fuels organic growth
and generates higher gross margins,
permitting investment to improve the quality
of our operating companies and increase our
pricing power.
Portfolio improvement
Our structured and disciplined approach
to acquisitions and disposals means we
are increasing the quality of the operating
companies that make up the Group and
ensuring that they are each aligned to long-
term growth drivers.
Active product management within
our operating companies drives gross
margin improvement and allows sensible
reinvestment in our operating companies in
talent and innovation.
Purpose and sustainability
We have a clear and well-understood purpose.
Our products are focused on increasing the
sustainability of infrastructure and making
transport safer.
Strong balance sheet and
cash generation
High and improving returns convert into
strong cash generation, allowing investment
to further grow the business and deliver a
sustainable, progressive dividend policy.
CONTENTS
STRATEGIC REPORT
Investment Case
Our Purpose and Strategy
Highlights
Group at a Glance
Our Strategy
Our Markets
Our Business Model
Our Products
Measuring Our Performance
Chair’s Letter
Operational & Financial Review
Sustainability Plan
Stakeholder engagement
Risk Management Framework
Principal Risks
Non-financial information statement
GOVERNANCE
Board of Directors
Executive Board
Chair’s Introduction to Governance
Governance Report
Nomination Committee Report
Audit Committee Chair's letter
Audit Committee Report
Remuneration Committee Chair's letter
Directors’ Annual Remuneration Report
Directors' Report
Statement of Directors' Responsibilities
FINANCIALS
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Group Accounting Policies
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Company Principal Accounting Policies
Notes to the Company Financial Statements
Five year summary
SHAREHOLDER INFORMATION
Financial Calendar
Shareholder Information
Principal Group Businesses
Directors, Contacts and Advisors
Shareholder notes
01
02
05
05
06
08
10
13
18
20
22
32
54
56
60
65
66
68
70
72
82
84
86
92
105
110
112
114
123
125
126
127
128
136
174
175
176
180
185
186
187
188
191
192
01
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OUR PURPOSE AND STRATEGY
WHY?
WHERE?
Creating
sustainable
infrastructure
and safe transport
through innovation
01 MACRO DRIVERS
Increasing population
•
• Urbanisation
• Climate change
•
Increasing health and
safety regulations
02 MARKET DRIVERS
• Sustainable materials
• Decarbonisation
Infrastructure safety
•
• Enabling technology
• Vision Zero
03 APPLICATIONS
AND NICHES
• Systematic process
• Faster growing niche
opportunities
• Critical applications
Read more on Our Markets
on pages 8 to 9
Read more on fulfilling Our purpose
in our Case Studies on pages 12, 17 and 25
02
Stock Code HILS
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
HOW?
ORGANIC GROWTH
• Autonomous operating model
• Agility/proximity to market
• Premium on talent
•
Innovation
PORTFOLIO MANAGEMENT
• Disciplined M&A
− Fit with purpose and market drivers
− Strategic rationale
− Fast growing niche markets
− Credible organic growth plan
• Targeted disposals
ESG
• Protecting the world
• Saving and enhancing lives
• Sustainable governance
FINANCIAL MODEL
• Organic profit growth/strong cash
conversion
• Conservative financial leverage
• Allocate capital to high growth/return
opportunities (M&A and organic)
• 2.5x underlying earnings dividend policy
Read more on Our Strategy
on pages 6 to 7
WHAT?
Superior
long-term
stakeholder
value
Read more on Our Investment Case
on page 1
Read more on Our Business Model
on pages 10 to 11
Read more on Our Approach to
Sustainability on pages 32 to 53
Hill & Smith Holdings PLC | Annual Report and Accounts 2021
03
GROUP
HIGHLIGHTS
FINANCIAL HIGHLIGHTS
Revenue
£705.0m
Up 7%
*Underlying operating profit
£86.0m
Up 23%
2021
2020
2019
2018
2017
£705.0m
£660.5m
£694.7m
£637.9m
£585.1m
2021
2020
2019
2018
2017
*Underlying earnings per share
Dividend per share
77.9p
Up 23%
2021
2020
2019
2018
2017
31.0p
Up 16%
77.9p
63.2p
80.7p
77.8p
75.9p
2021
2020
2019
2018
2017
£86.0m
£69.9m
£86.3m
£80.1m
£81.3m
31.0p
26.7
10.6p
31.8p
30.0p
Change
31 December
2021
31 December
2020
Reported
%
Organic Constant
Currency (OCC)**
%
£705.0m
£660.5m
Revenue
Underlying*:
Operating profit
Operating margin
Profit before taxation
Earnings per share
Statutory:
Operating profit
Operating margin
Profit before taxation
Basic Earnings per share
Dividend per share
Net debt
£86.0m
12.2%
£79.9m
77.9p
£57.0m
8.1%
£50.9m
43.0p
31.0p
+7
+23
+10
+29
£69.9m
10.6%
+160bps
+190bps
£62.6m
63.2p
£42.8m
+28
+23
+33
6.5%
+160bps
£35.5m
30.2p
26.7p
+43
+42
+16
£144.7m
£146.2m
• Record constant currency
revenue and underlying
operating profit:
− Strong recovery in all
divisions with margin
improvement and trading
significantly ahead of COVID-
impacted 2020
− Performance ahead of 2019
levels: organic constant
currency growth +4%
revenue and +3% underlying
operating profit
− Successful management of
supply chain headwinds and
input cost inflation
• ESG strategy developed with
seven key priority areas and
commitment to Scope 1 and 2
carbon net zero by 2040
• Progress made on improving
the quality of the portfolio, in
line with refreshed strategy
• Group remains highly cash
generative, with a strong
balance sheet to support future
organic and inorganic growth
opportunities
• Medium term outlook
remains positive; expect to
make good progress in 2022
despite ongoing industry-wide
supply chain and inflationary
challenges
• FY21 dividend 31.0p, an
increase of 16%
* All underlying measures exclude certain non-underlying items, which are as detailed in note 5 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 4 to the Financial Statements. They are presented on a consistent basis over time to assist in comparison of performance.
** Where we make reference to organic constant currency movements, these exclude the impact of currency translation effects and 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. Constant currency amounts are prepared using exchange rates which prevailed in the current year.
04
Stock Code HILS
GROUP AT A GLANCE
OUR DIVISIONS
Roads & Security
Utilities
Galvanizing Services
Supplying products and services to support
road and highway infrastructure including
temporary and permanent road safety
barriers, renewable energy lighting and power
solutions, Intelligent Traffic Solutions, street
lighting columns and bridge parapets. The
security portfolio includes hostile vehicle
mitigation solutions, high security fencing and
automated gate solutions.
Supplying engineered steel and composite
solutions with low embodied energy for a
wide range of infrastructure markets including
energy generation and distribution, marine,
rail and housing. The division also supplies
engineered pipe supports for the water, power
and liquid natural gas markets and seismic
protection solutions.
Supplying a service that dramatically
increases the sustainability and maintenance
free life of steel products. This includes
structural steel work, lighting columns,
bridges, agricultural equipment and other
products for the industrial and infrastructure
markets.
Revenue
by division
28%
REVENUE
£705.0m
40%
32%
Profit
by division
Profit by
plant location
10%
23%
46%
OPERATING
PROFIT
£86.0m
36%
OPERATING
PROFIT
£86.0m
31%
54%
Galvanizing Services
Utilities
Roads & Security
UK
US
RoW
05
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OUR STRATEGY
STRATEGIC
FRAMEWORK
PORTFOLIO
MANAGEMENT
Guided by our purpose, we aim to
deliver high levels of organic growth
and strong cash conversion through
our existing operating companies.
We reinvest this cash in improving
our businesses and in acquiring new
high growth businesses, alongside our
progressive dividend policy. We take
a disciplined approach to portfolio
management both in acquiring and
disposing of businesses, improving
the quality of the Group with each
iteration. Our purpose also ensures
that sustainability is at the forefront of
what we do.
The first criterion that any Hill & Smith operating company needs to meet is that it
must contribute to our purpose. We then rate our current businesses and potential
acquisitions against 13 criteria to determine whether they deserve a place in our
portfolio. If existing businesses fall short, we assess whether we can make the
necessary improvements in reasonable timescales or whether we should dispose of
them. Our businesses need to be capable of delivering sustainable organic profit growth,
generating good margins from high value, niche applications and be led by ambitious,
entrepreneurial management teams. We instigated multiple initiatives to successfully
rebuild our M&A pipeline following the change in our target criteria in late 2020. We now
have a strong pipeline of high-quality targets.
In 2021 we acquired Prolectric Services Ltd, a provider of solar-powered lighting
solutions that supports our customers in their decarbonisation efforts.
We also disposed of our loss-making security covers business, closed our variable
message signs business and carried out the internal re-organisation of several
businesses to accelerate their organic growth.
STRATEGIC OVERVIEW
DIVISIONAL
STRATEGIES
Our existing operating companies are
split across the Group’s three divisions
of Roads & Security, Utilities and
Galvanizing Services.
Roads & Security
Utilities
Galvanizing Services
FINANCIAL
FRAMEWORK
Our financial model is based on strong
cash generation. This allows us to
allocate capital to accelerate organic
growth, to make high quality acquisitions
and to maintain a sustainable,
progressive dividend policy.
SUPPORTING
INITIATIVES
The small central team are responsible
for supporting our decentralised
operating companies in their growth. We
offer support and leadership in several
areas including culture, capital allocation,
health & safety, talent development,
diversity, mentorship, oversight, and
sustainability.
06
Stock Code HILS
DIVISIONAL
STRATEGIES
FINANCIAL
FRAMEWORK
SUPPORTING
INITIATIVES
Cash generation and
conservative leverage
Our objective is to deliver
annual cash conversion in
excess of 90%, targeting a net
debt to EBITDA ratio of 1.5 to
2.0 times.
Reinvesting for
organic growth
We allocate capital to support
organic growth, with the
focus on higher-return niches
and growth markets, while
at the same time investing in
talent and innovation.
Targeted acquisitions
to enhance growth
Acquisitions must fit our
purpose and strategy. The
strength of the returns
and the opportunities for
growth form the basis of all
investment decisions.
Progressive earnings
and dividend growth
The emphasis on growth
and return targets delivers
progressive earnings and our
focus on converting these
returns into cash supports
sustainable dividend growth.
More information can be
found in the Operational
and Financial Review
on pages 22 to 31
and Measuring our
Performance on pages
18 to 19.
Roads & Security
Our portfolio of roads and security
operating companies are based in the UK,
the US, France, Sweden and Australia. Our
products ensure the safe movement of
both people and vehicles on national road
networks, at pedestrian-based events and
other places where the movements of
people and vehicles are combined such
as construction sites and airports.
Our significant domain knowledge allows
us to expand our offering into adjacent,
high growth applications without undue
risk. This is through both innovation at
our operating companies, and through
acquisition. Our recent acquisition of
Prolectric Services Ltd is an example of
this strategy in action.
The US, backed by the Investment in
Infrastructure and Jobs Act, provides
multiple opportunities to increase our
geographical footprint. A recent example
is the 2021 expansion of our facility in
Texas alongside investment in our rental
barrier fleet.
Utilities
Our Utilities operating companies are
based in the UK, the US and India.
They manufacture products that make
infrastructure more sustainable, be that
seismic control supports, fire doors,
composite structures with low embodied
carbon, or engineered supports for water
treatment plants.
Our strategy is to grow market share
organically in our core businesses
through operational excellence,
innovation and service, to organically
expand our breadth of high value
applications in our composite business
and to increase our footprint in our
seismic restraints business.
We plan to further strengthen our Utilities
portfolio through acquisitions that have
strong financials, a clear path to growth,
and a strong strategic fit.
Galvanizing Services
We increase the useful life of steel
products through our galvanizing facilities
that are based in the UK, the US and
France. We will increase our market share
in this attractive, growing space through
increased throughput in our plants,
building new plants and acquiring existing
facilities.
More information on how these
divisions have performed during 2021
can be found in the Operational
and Financial Review on pages
22 to 31.
Health & Safety
The health, safety and wellbeing of our employees is
a key focus across all operating companies. All sites
are committed to minimising the risks that our people
and visitors face daily, ensuring that their policies,
procedures and risk assessments are followed.
Increasingly, the Group adopts measures to maintain a
safe working environment and to ensure work related
risks are effectively identified and controlled. Our
monitoring programmes help to spot issues at the
earliest opportunity and lessons are learned from any
events that occur.
Talent and diversity
Talented people are fundamental to the success of
our decentralised operating model. Over 99% of our
employees are employed by our operating companies.
We place great importance on attracting, developing,
and retaining exceptional people from across the whole
community. We seek to create an environment in which
individual difference is respected and everyone can give
their best.
We have a small Group HR team who advise on
culture and policy, create development programmes,
and manage the career and capability development
of high potential talent. Our operating companies 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.
Sustainability
For decades, most of our revenue has been derived
from products and services that make infrastructure
more sustainable or keep people safe. For example, our
composite products, due to their low weight and high
strength, have lower embodied energy than traditional
materials. Similarly, our galvanizing services extend the
life of the steel products by decades and ensure that at
the end of the product’s life, the steel is fit for recycling.
Our purpose ensures that sustainability is a natural part
of everything that we do.
Within this report we are pleased to commit to our
target to achieve net zero emissions by 2040 for
Scopes 1 & 2 and to commit to introduce a Scope 3
target no later than 2023. Our detailed, costed plan
gives us confidence that we can achieve the 2040
target and deliver strong financial returns. We have
committed to the Science-Based Targets initiative
business ambition for 1.5°C.
To deliver these initiatives we have strengthened our
leadership resource in 2021 with the appointment of a
Group Head of Health & Safety, based in the US, and a
Chief People Officer. Our Group Head of Sustainability
joined us in February 2022.
More information on the Group’s Sustainability
Plan an be found on pages 32 to 53.
07
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OUR MARKETS
OUR MARKETS
NICHE MARKETS
We focus on fast growing niche markets that have high
barriers to entry and deliver high margins.
Our operating companies and M&A activities target fast growing niches within the broad,
long-term supportive markets of sustainable infrastructure and transport safety. We
prefer applications that are of critical importance to our customers and where our offering
is a small part of a larger system. Being niche, these applications are less likely to attract
competitors who rely on economies of scale to compete. The combination of critical
importance to our customers and moderate competition helps us achieve higher margins.
Our decentralised model of multiple small to medium sized businesses allows us to care
about these smaller opportunities.
Read more on fulfilling
Our purpose in our Case
Studies on pages 12, 17
and 25.
Why we focus on these markets
Roads & Security
The Roads market is one in which we have operated and invested over many years and there is a clear
fit with our purpose. Our products make the road networks safer for all users, with our permanent
vehicle restraint products providing safe road containment solutions for all drivers and passengers. Our
temporary vehicle restraint products are designed and rigorously tested to protect road workers and the
travelling public. Other products in the portfolio include smart solar lighting systems, road and rail signs
and intelligent traffic management systems.
In the short to medium term, we see growth opportunities as both the US Government, through the
Investment in Infrastructure and Jobs Act (‘IIJA’), and the UK Government, through Road Investment
Strategy 2 (‘RIS2’), have committed to increased highways investment. Alongside the higher investment,
the sophistication of road networks is increasing and the safety requirements are becoming more
stringent.
The Security market is recovering from the impact of the COVID pandemic as large-scale events are
starting to take place. We see future growth linked to industrial critical national infrastructure (such as
data centres and power infrastructure markets) and urban regeneration projects.
Utilities
Our Utilities businesses span several growing markets:
Our US composites business provides bespoke solutions into industrial applications and projects to
increase environmental resilience. The combination of high strength and low weight make composites a
low embodied carbon solution compared with traditional materials. These qualities mean that they also
have a role to play in modular construction.
The three engineered supports businesses serve critical applications in water treatment, power
generation and chemical processing. One of them specialises in high value seismic applications.
The US electrical transmission and distribution network is set for significant growth due to historical
underfunding and the increased demand for low carbon electricity. Our recently expanded US sub-
station frame business is now well placed to play its part. We expect that the IIJA funding will benefit all
our US Utilities businesses in the short to medium term.
Our two UK businesses predominantly produce steel products that serve growing construction
industries including residential construction and data centres.
Galvanizing Services
Hot-dip galvanizing ensures that steel products last for decades, without the need for retreatment, and
that the steel is fit for recycling when the product eventually reaches the end of its life. It has strong
sustainability credentials. We take great care to ensure that the process does not adversely impact the
environment. See the case study on page 39.
The end markets that galvanized products serve are many and varied including growth industries
such as road and rail infrastructure, water treatment, construction, and electrical transmission and
distribution. We would expect the galvanizing industry to grow at GDP in France and the UK and above
GDP in the US due to the IIJA. Our operating companies target above industry growth rates through
thoughtful investment and superior service.
08
Stock Code HILS MACRO DRIVERS
Increasing population
By the mid-2030s, the world’s
population is forecast to be c.8.6bn
(2020: 7.8bn). This increase in
population, a growing proportion
of whom are aged, will drive an
increase in the need for safe,
sustainable infrastructure.
How this trend affects our markets:
As the population grows, the need for
infrastructure investment increases
accordingly to ensure congestion does
not increase pollution or erode economic
productivity or quality of life.
MARKET DRIVERS
Sustainable materials
Infrastructure safety
Materials that do not deplete
non-renewable resources
and help the construction
industry achieve net zero
carbon emissions are becoming
increasingly required.
High profile incidents such as
bridge failures, wildfires caused
by poor infrastructure resilience
and rail accidents are leading to an
increased focus on infrastructure
safety.
How this trend affects our markets:
How this trend affects our markets:
The drive towards sustainability will impact the
choice of materials placing a premium on low
embodied carbon materials, and materials that
are suitable for the circular economy.
The public is understandably intolerant
of infrastructure failures. This has led to
increased funding to address issues.
Urbanisation
Vision Zero
Decarbonisation
The US, UK and French governments
have all agreed to meet the carbon
reduction goals of the Paris
Agreement.
How this trend affects our markets:
Governments are requiring organisations to
make a net zero commitment and start to
take appropriate action. The impacts of this
are widespread and present an opportunity
to play a meaningful part in the transition and
place a requirement on businesses, including
Hill & Smith, to reduce their own carbon
production.
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
has recently been adopted by the
US Government in their National
Roadway Safety Strategy to reduce
the 40,000 p.a. US road deaths.
How this trend affects our markets:
Road systems are being designed to eliminate
deaths, acknowledging that human error
is inevitable. This places a greater onus on
the road infrastructure and will drive the
implementation of new technology and higher
standards.
Enabling technology
As sensing and data become less
expensive and more prevalent they
can lead to breakthroughs in how
systems function.
How this trend affects our markets:
Within Hill & Smith’s markets, the Roads
market is an early adopter. Connected
technology is used to increase the safety of
road workers and reduce congestion through
road works to minimise the economic impact.
The effect of enabling technology will be felt
across all markets in the medium term.
The population of people living
in towns and cities is increasing,
with more than half of the world’s
population now living in urban
areas. The UN believes that by 2050,
this proportion will increase to two-
thirds.
How this trend affects our markets:
Increasing population density creates
the risk of insufficient infrastructure, and
increased pollution due to industrial activities.
Government and private funding will be
needed to address these concerns.
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.
How this trend affects our markets:
To keep global warming to a minimum of
1.5°C, infrastructure needs to be transitioned
to clean energy sources. To mitigate against
the extreme weather events caused by global
warming, infrastructure needs to become
more resilient.
Health & safety legislation
Health & safety requirements are
increasing across the globe as
people and governments demand
higher standards of safety and
personal health.
How this trend affects our markets:
The impacts of more demanding standards
are seen across our markets from the
implementation of new requirements for crash
barriers to the requirement for transmission
poles to be resistant to wildfires.
09
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OUR BUSINESS MODEL
ENHANCED ORGANIC
GROWTH
Corporate scalability
We are organised for growth and
scalability. Our Executive Board
includes our Group Presidents who
are responsible for companies
across our portfolio and will be
accountable for accelerating growth
within their market portfolio and
supporting the business overall.
• David George – Roads
businesses
• Denise Beachy – Composites,
engineered supports and
construction businesses
• Hooman Javvi – Galvanizing,
electrical transmission and
security businesses
Read more on
Group Presidents
on pages 68 to 69.
PORTFOLIO
MANAGEMENT
Niche markets
We are 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. 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.
Sustainability
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.
Read more on pages 6 to 7 and
pages 32 to 53.
COMPETITIVE
ADVANTAGES
Operating company agility
We operate a decentralised
autonomous operating model, which
benefits from a highly accountable
management, agility and customer
intimacy, with the ability to attract
talented people who want to make a
difference. Our individual operating
companies are encouraged and
incentivised to exercise agility and
entrepreneurialism, and we allow
them room to do so. This approach
ensures that decisions are made
close to the market and that our
businesses can respond rapidly both
to opportunities and to changes in
their competitive environment.
Innovation
Innovation is instrumental in
supporting our long-term organic
profit growth targets and is a new
area of focus. We are committed to
innovating products in the medium
term that meet evolving customer
and market needs. In the short term,
we are building the capability to
accelerate our rate of innovation
through skills development,
recruitment and Group-wide
workshops.
10
Stock Code HILS
VALUE FOR STAKEHOLDERS
Employees
Talented people are
fundamental to the success
of our decentralised model,
and with this in mind we
recruited a Chief People
Officer in June 2021, who is
leading on career and talent
development across the
Group. 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.
Communities
Our devolved business
model of operating
companies being led by
their own independent
management teams means
they can work directly with
their local communities in
supporting not only their
economic aspirations,
but also local charitable
initiatives.
Portfolio companies
In order to achieve
sustainable profitable
organic growth, our
operating companies seek to
create and provide products
that our customers need.
They are supported by the
resources of a larger group
giving them access to cash
for capital investment, for
product innovation, plant and
equipment and development.
In return they must operate
within a disciplined
framework of clear strategic
and financial priorities,
whilst at the same time
applying the appropriate level
of corporate governance
and reporting.
Shareholders
For our investors, we aim to
deliver superior shareholder
returns through our strategy
and scalable business
model. We operate in six
different geographies and
therefore are not dependent
on one economy for our
success. We are focused
on territories where there
are existing high levels
of investment, driven by
the need to upgrade or
replace existing ageing
infrastructure. This drives
high cash generation that
we are able to redistribute to
our shareholders through our
progressive dividend policy.
11
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT PROLECTRIC PROPOWER DELIVERS
SIGNIFICANT REDUCTION IN DIESEL
USAGE AND CO2e EMISSIONS.
Y
D
U
T
S
E
S
A
C
A market leading
solar/hybrid
generator that
reduces fuel
usage, emissions,
overnight noise
and maintenance
requirements.”
By deploying Prolectric’s ProPower solar hybrid generator at the A63
Improvement Scheme, Balfour Beatty achieved huge environmental savings,
including a 2,527 litre reduction in diesel usage, and a 7,000kg reduction in
CO2 output.
Prolectric’s client, Balfour Beatty, was awarded a £75 million contract as part of
a £355 million National Highways major improvement scheme in Hull.
Balfour Beatty deployed the industry’s first electric mini excavators as a trial to
reduce noise and emissions from equipment on site. However, the excavators
needed to be charged each day, and with no mains power on site, this was a
challenge. Previously a diesel generator would have run 24/7 to provide on-
site power, but this would eliminate the environmental benefits of deploying
electric equipment.
So, Prolectric’s ProPower was deployed – a market leading solar/hybrid
generator that reduces fuel usage, emissions, overnight noise and maintenance
requirements. The ProPower packs the latest solar and battery storage
technology into a compact trailer, making it powerful, clean, and easy to deploy.
The project demonstrates how solar power and battery storage technology can
help deliver cleaner, more sustainable worksites by reducing the amount of fuel
used on major projects.
Find out more about the company at
www.prolectric.co.uk
12
Stock Code HILS
OUR PRODUCTS
WATERWAYS AND
DOCKLANDS
Pier protection
Fiber Reinforced Polymer ('FRP') large
diameter pilings and wale beams are
the ideal solution for pier protection
systems designed to withstand high
energy impacts from marine traffic
RURAL
Flood doors
Specialist composite flood
doors that significantly
reduce the volumes of
water entering a property
in the event of a flood
Dockside camels
An attractive option to protect both
vessels and piers from damage,
FRP composite material’s ability
to resist corrosion in a harsh
saltwater environment makes it an
environmentally friendly solution
Piers & walkways
FRP composite material does
not leach, flake or rot into water
systems and can replace wood in
marine 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 changing
water levels
ENERGY ZONE
Wetlands boardwalks
Composite low embodied
energy planks for lightweight
environmentally friendly
walkway solutions
Agriculture
Galvanized
farm buildings
S
M
ART WORKZONE
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
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
13
Trail bridges
Lightweight, strong,
portable and longlasting
low embodied energy
FRP bridges for parks
and trails
Stock Code HILS
Roads and security
Utilities
Galvanizing
SUBURBAN
Temporary safety barrier
Metal and concrete
work zone protection for
roadworks and traffic
management
Zoneguard
temporary barrier
Protects road work
employees, whilst
allowing continued
safe traffic flow
Crash cushions
The Smart Cushion®
crash attenuator, with
remote monitoring, is
a revolutionary, speed-
dependent product
that varies stopping
resistance during
an impact
Roadside barrier
Metal roadside
crash protection
Windfarms
Composite blade
refurbishment and
steel platforms
ENERGY ZONE
S
M
ART WORKZONE
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
Bridge parapets
Bridge-side crash
protection
Road message
boards
Integrated Traffic
Solutions enhance
transportation and
improve safety and
mobility in and around
work zones. Includes
internet connectivity
with motor vehicles
Bridges
Galvanized road
bridges
14
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
Stock Code HILS Solar fields
Galvanized
steel frames for
solar panels
Electrical
substation
Electric transmission
solutions using
steel and composite
materials
ENERGY ZONE
TOWN
LNG Plant
Metal grating and
flooring and engineered
support products,
including cryogenic pipe
supports that provide
isolation and insulation
Composite rail
platforms
FRP corrosion
resistant structures
and lightweight
panels providing
cost effective and
convenient solutions
MASS temporary
security fencings
Highly visible
temporary safety
solution protecting
sites, workforces and
pedestrians
S
M
ART WORKZONE
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
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
Composite
railcar chassis
FRP lightweight highly
energy efficient floor
panels and door
jambs for refrigerated
freight cars
Street signs
Street sign materials
15
Hill & Smith Holdings PLC | Annual Report and Accounts 2021 ENERGY ZONE
S
M
ART WORKZONE
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
Hotels (A/C)
Modular cooling tower
design delivering low
lifecycle costs, durability
and sustainability
Apartments
(Fire doors)
Fully tested,
accredited apartment
entrance doors for
use in internal and
external applications
Solar powered street lights
Solar lighting for streets, car
parks and footpaths offering
powerful and reliable year-
round lighting without noise or
emissions
Apartments
(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
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
Electric charging
points
Charge points
incorporated into our
street lighting columns
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
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
Hill & Smith Holdings PLC | Annual Report and Accounts 2021
16
KVITFJELL SKI RESORT
MP200 MULTIPLATETM SYSTEM
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
Y
D
U
T
S
E
S
A
C
Illustrating our
design and supply
of structures
that embed
themselves into
the environment
whilst considering
the holistic
approach of
construction
integration and
environmental
preservation.”
Located north of Oslo, Norway, the Kvitfjell Ski Resort team wanted to maximise
safety in their resort, allowing skiers to cross over access roads in and around
the resort during the peak snow season. They wanted to improve the skier
experience without impacting the environment and surrounding landscape and
were looking for a suitable sustainable material with which to construct the
structures.
Aesthetic integration, minimising embodied carbon and maximising safety were
the key drivers to the project and Asset International Structures (a division of
Hill & Smith) in collaboration with Brodrene Dahl AS in Norway supplied a robust
design/manufactured solution in our MP200 Multiplate™ system.
The versatility of Asset Multiplate™ in structural shapes and sizes offered our
client the broadest choice to the designer. With its off-site modular construction
and lightweight design, we were able to overcome challenges around the resort
such as difficult terrain and poor access to various sites, by introducing an
efficient, easy to install design that allowed the team to plan the installation
during the autumn months with low impact to the environment prior to the first
snowfall in November.
Find out more about the company at
www.assetint.co.uk/
Hill & Smith Holdings PLC | Annual Report and Accounts 2021
17
MEASURING OUR PERFORMANCE
HEALTH & SAFETY
ORGANIC REVENUE GROWTH
RETURN ON INVESTED CAPITAL (‘ROIC’)
UNDERLYING OPERATING
PROFIT MARGIN
Link to strategy
Link to strategy
Link to strategy
Link to strategy
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.
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.
We focus on investing in higher return markets and continually
We have a disciplined M&A strategy that targets businesses
examine our portfolio of businesses, with the aim of increasing
with strong growth and return metrics, alongside a capital
quality at each iteration.
investment programme centred on our higher growth, higher
KPI definition
KPI definition
KPI definition
Lost time injury rate (No. of injuries divided by hours worked x
100,000).
Percentage change in annual revenue excluding the effects of
acquisitions, disposals and currency translation.
Underlying operating profit as a percentage of revenue.
return end markets.
KPI definition
Underlying operating profit divided by average invested capital.
Invested capital is defined as the sum of intangible assets,
property, plant and equipment, right-of-use assets, assets and
liabilities held for sale, inventories, trade and other receivables,
and trade and other payables.
Performance
2021
2020
Comment
1.7
1.5
The Executive Board has significantly increased the focus on
Health & Safety in 2021. Any operating company that suffers a
lost time injury is required to report the root cause analysis and
corrective actions to the Executive Board. There has also been
an initiative to educate employees on the need to report both
accidents and near misses. See targets on page 41.
Performance
2021
2020
10%
(7)%
Comment
The organic growth in revenue of 10% reflects a strong recovery
in trading across all three divisions following the COVID-related
disruption in 2020. The Group targets annual organic revenue
growth in excess of 3%.
Performance
2021
2020
Comment
12.2%
10.6%
16.8%
12.6%
Performance
2021
2020
Comment
The operating margin improved by 160 basis points to 12.2%
Group ROIC improved significantly to 16.8% (2020: 12.6%),
in 2021, back within the Group’s target range of 12% to
close to the Group’s target of 17%. The improvement reflects
15%. Margins improved across all three divisions, reflecting
a combination of the strong trading performance and our
successful management of the supply chain, labour and
inflation challenges that we experienced during the year.
continued disciplined approach to working capital management
and capital allocation.
UNDERLYING CASH CONVERSION
LEVERAGE
Link to strategy
Link to strategy
Our ability to fund growth investments, both organic and
inorganic, and progressive returns to shareholders is dependent
on us operating a cash-generative model.
We seek to maintain conservative leverage that minimises
liquidity risk without compromising our ability to invest in both
organic and inorganic growth opportunities.
KPI definition
KPI definition
Adjusted operating cash flow as a percentage of underlying
operating profit. The calculation of adjusted operating cash flow
is explained in note 4 to the Financial Statements.
The ratio of net debt to EBITDA, as defined in the covenant
requirements of the Group’s borrowing facility agreements.
A calculation is provided in note 4 of the Financial Statements.
Performance
2021
2020
78%
139%
Performance
2021
2020
1.0x
1.3x
Comment
Comment
The underlying cash conversion of 78% in 2021 reflects
strategic investment in capital that will drive future growth,
particularly in our US roads business where we invested £12.2m
in its temporary barrier rental fleet. Cash conversion excluding
strategic investments in rental assets was 97%. We target
conversion in excess of 90%.
Group net debt at 31 December 2021 was £144.7m,
representing 1.0 times EBITDA on a covenant basis, 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 organic and acquisitive growth.
18
Stock Code HILS HEALTH & SAFETY
ORGANIC REVENUE GROWTH
UNDERLYING OPERATING
PROFIT MARGIN
RETURN ON INVESTED CAPITAL (‘ROIC’)
Link to strategy
Link to strategy
Link to strategy
Link to strategy
The health & safety performance of each subsidiary is key to our
Our autonomous operating model, focus on growth drivers and
management of the Group as a responsible employer and to our
the premium placed on talent and innovation are designed to
reputation in the markets in which we operate.
drive organic growth across all of the Group’s businesses.
We focus on investing in higher return markets and continually
examine our portfolio of businesses, with the aim of increasing
quality at each iteration.
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
KPI definition
KPI definition
Lost time injury rate (No. of injuries divided by hours worked x
Percentage change in annual revenue excluding the effects of
Underlying operating profit as a percentage of revenue.
acquisitions, disposals and currency translation.
Underlying operating profit divided by average invested capital.
Invested capital is defined as the sum of intangible assets,
property, plant and equipment, right-of-use assets, assets and
liabilities held for sale, inventories, trade and other receivables,
and trade and other payables.
1.7
1.5
2021
2020
10%
(7)%
Performance
Comment
The Executive Board has significantly increased the focus on
The organic growth in revenue of 10% reflects a strong recovery
Health & Safety in 2021. Any operating company that suffers a
in trading across all three divisions following the COVID-related
lost time injury is required to report the root cause analysis and
disruption in 2020. The Group targets annual organic revenue
corrective actions to the Executive Board. There has also been
growth in excess of 3%.
an initiative to educate employees on the need to report both
accidents and near misses. See targets on page 41.
Performance
2021
2020
Comment
12.2%
10.6%
Performance
2021
2020
Comment
16.8%
12.6%
The operating margin improved by 160 basis points to 12.2%
in 2021, back within the Group’s target range of 12% to
15%. Margins improved across all three divisions, reflecting
successful management of the supply chain, labour and
inflation challenges that we experienced during the year.
Group ROIC improved significantly to 16.8% (2020: 12.6%),
close to the Group’s target of 17%. The improvement reflects
a combination of the strong trading performance and our
continued disciplined approach to working capital management
and capital allocation.
KPI definition
100,000).
Performance
2021
2020
Comment
UNDERLYING CASH CONVERSION
LEVERAGE
GREENHOUSE GAS EMISSIONS
EMPLOYEE ENGAGEMENT
Link to strategy
Link to strategy
Link to strategy
Our ability to fund growth investments, both organic and
We seek to maintain conservative leverage that minimises
inorganic, and progressive returns to shareholders is dependent
liquidity risk without compromising our ability to invest in both
on us operating a cash-generative model.
organic and inorganic growth opportunities.
Cost reductions and greater efficiency, improve not only our operating margins
but also the sustainability of our operations.
KPI definition
KPI definition
KPI definition
Adjusted operating cash flow as a percentage of underlying
The ratio of net debt to EBITDA, as defined in the covenant
operating profit. The calculation of adjusted operating cash flow
requirements of the Group’s borrowing facility agreements.
is explained in note 4 to the Financial Statements.
A calculation is provided in note 4 of the Financial Statements.
CO2 emissions, year on year, from Scope 1 and Scope 2 on a market-based
usage basis.
Intensity ratio calculated as tonnes of CO2 per £000s of Revenue.
Link to strategy
We need a highly engaged and talented workforce
working within our operating companies to deliver
our purpose and growth ambitions.
KPI definition
The percentage of our worldwide workforce
who feel positively engaged with our Group,
as determined by independent employee
engagement surveys.
Performance
2021
2020
78%
139%
Performance
2021
2020
1.0x
1.3x
Comment
Comment
The underlying cash conversion of 78% in 2021 reflects
strategic investment in capital that will drive future growth,
Group net debt at 31 December 2021 was £144.7m,
representing 1.0 times EBITDA on a covenant basis, well below
particularly in our US roads business where we invested £12.2m
the Group’s covenant limit of 3 times. Whilst this is below our
in its temporary barrier rental fleet. Cash conversion excluding
target range of 1.5 to 2.0 times, it creates the capacity for the
strategic investments in rental assets was 97%. We target
Group to invest in organic and acquisitive growth.
conversion in excess of 90%.
Performance
CO2
2021
2020
Comment
Intensity ratio
64,597
67,402
2021
2020
Performance
0.09
0.10
2021
2019
55%
48%
Understanding the source of the Group’s Scope 1 and Scope 2 emissions has
helped the Executive Board to understand the route to net zero. In August 2021, we
signed up to the SBTi’s business commitment to limit global warming to 1.5°C. The
Company continues to see its Intensity Ratio fall. See pages 36 to 37 and pages 52
to 53 or more details.
Comment
The results of our 2021 survey have shown a
very positive increase in employee engagement,
increasing by seven percentage points from our
first survey in 2019. We did not run a survey in
2020, but we intend to conduct these surveys on
an annual basis from 2022 onwards.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
19
Hill & Smith Holdings PLC | Annual Report and Accounts 2021
CHAIR’S LETTER
Alan Giddins
Chair
DEAR SHAREHOLDER
In a year when we have continued to face challenges presented
by COVID, our strong operational and financial performance
demonstrates the commitment of our people and the strength
of our business model. On behalf of the Board, I would like
to thank all of the Group’s employees for their individual and
collective contributions over the last 12 months.
Performance Highlights
Revenue for the year was £705.0m
(2020: £660.5m) and underlying operating
profit was £86.0m (2020: £69.9m). Underlying
operating margin was 12.2% (2020: 10.6%),
while underlying profit before taxation was
£79.9m (2020 £62.6m). Reported profit
before taxation was £50.9m (2020: £35.5m),
and is shown after taking account of certain
non-underlying items.
The Group continued to be highly cash
generative with cash generated from
operations of £103.1m (2020: £118.3m)
reflecting both the cash-generative nature
of our business model, and the effective
management of both working capital and
capital expenditure. As at 31 December 2021,
total net debt was £144.7m (2020: £146.2m),
leaving financing headroom of £234.4m on
the Group’s borrowing facilities. Return on
capital invested was 16.8% (2020: 12.6%).
Management has remained active in managing
our portfolio of businesses, with the disposal
of Technocover, the closure of our loss-making
Variable Message Signs business and the
acquisition of Prolectric Services. In addition,
we have rebuilt our M&A pipeline, ensuring that
each potential opportunity is closely aligned
with our purpose.
Strategy
In June, the Board and Executive Board met
off-site to undertake a detailed strategy
review. The quality of thought that had gone
into the five-year strategy plan presented
by management was extremely impressive.
Pages 6 to 7 provide further detail on our
strategy.
People
As reported last year, the Group modified its
organisational structure with the introduction
of the Group President role, reporting to the
Chief Executive. This model provides for
far greater agility and focus, while bringing
increased scalability to the organisation. In
January 2022, we announced two new Group
President appointments, Hooman Javvi and
David George, who along with Denise Beachy
will now have all of the Group companies
reporting into them. Hooman and David were
20
The concept
of long-term
sustainability sits
at the heart of our
purpose. In 2021,
we undertook a
full materiality
assessment,
reflecting on
our opportunity
to impact ESG
outcomes, taking
into account not
just our own views
but those of all of
our stakeholders.”
The result of this review can
be found on pages 32 to 53.
Stock Code HILS Health & Safety
The safety and wellbeing of our employees
is of the utmost importance to the Board
and is discussed at every Board meeting. At
all times, and against the background of the
COVID pandemic, the Board has sought to
ensure that health & safety is prioritised at
each of our operational sites. It is, however,
with great sadness that I have to report that
two of our employees in the US died in 2021
due to COVID and our thoughts are with their
families.
In September 2021, we announced the
appointment of Diana Hart as Group Head
of Health & Safety. Diana presented at the
December Board, and I am in no doubt about
the positive impact she is going to have on
our business. During 2021, we have witnessed
increased levels of near miss reporting and
we have started to see an improvement in lost
time injury rates, in a number of our operating
companies. However, there remains more to
do, and this will continue to be an area of key
focus for the Board.
Sustainability
The concept of long-term sustainability sits at
the heart of our purpose. At the start of 2021,
we undertook a full materiality assessment,
reflecting on our opportunity to impact
Environment, Social and Governance (‘ESG’)
outcomes, taking into account not just our
own views but those of our stakeholders.
We engaged with stakeholders from across
our supply chain, customers, suppliers,
banks and investors. This assessment has
featured strongly in the development of a new
sustainability framework, which is covered
in more detail in the Sustainability Report on
pages 32 to 53.
We have established an ESG committee
within the business, comprising
representatives from across the Group to
drive forward our sustainability agenda.
Lucinda Farrington-Parker joined us
in February 2022 as Group Head of
Sustainability.
Your Board is fully committed to ensuring that
Hill & Smith contributes to a more sustainable
world through its operations, culture and
how it engages and works with its third party
stakeholders.
Dividend and Annual
General Meeting
The Board recognises that dividends are an
important part of shareholder returns. The
Board has proposed a final dividend of 19.0p
(2020: 17.5p) which, if approved, would result
in a full year dividend of 31.0p (2020: (26.7p),
keeping dividend cover of around 2.5 times
underlying earnings.
Due to restrictions in place at the time, the
2021 Annual General Meeting was held
virtually via an online platform, which meant
that shareholders could not interact with the
Board in the usual way.
The 2022 Annual General Meeting is to be
held at The Village Hotel, Shirley, B90 4GW
on 24 May 2022, and with the relaxation
of restrictions, we anticipate being able
to welcome shareholders in person. The
meeting is an ideal forum for raising any
questions you may have of your Board and
I hope many of you will take advantage of
this opportunity. I very much look forward to
meeting you there.
Looking Ahead
In the short term it is hard not to reflect on
the significant geo-political uncertainties,
inflationary and supply chain issues which
are impacting businesses around the world.
The risk of further disruption from COVID
also remains. Exactly how these factors will
impact Hill & Smith is hard to judge, but what
is certain is that global economies are seeing
a slowdown in growth against the levels being
forecast only a few months ago.
I remain confident, however, about the
medium term outlook for Hill & Smith as we
have an excellent management team, a clear
strategy, a strong balance sheet and a highly
committed group of employees. Government
commitments to infrastructure spend,
particularly in our core UK and US markets,
are also strong and will underpin a number of
the end markets we serve. So while we may
face some short term disruption, I believe
that the Group’s medium and longer terms
prospects remain very positive.
Alan Giddins
Chair
9 March 2022
the two outstanding candidates to come
through the recruitment process and I am
very positive about the impact their joining
will have on Hill & Smith.
In June 2021, Andrew Park joined the Group
as Chief People Officer, a new role for Hill
& Smith. I have been hugely impressed
by the impact Andrew has had across the
organisation. He has set out a new approach
to talent management within the organisation
and I believe that this will help ensure that
we are able to identify and develop our most
able future leaders. Andrew has also given
considerable thought to how we can improve
diversity within Hill & Smith, something which
your Board is fully committed to.
Listening to and understanding the views of
our employees is critical, particularly when
operating within a decentralised model. We
ran an all-employee Engagement Survey
again this year and were due to hold the
second set of Workforce Advisory Panel
meetings in the fourth quarter of 2021.
Unfortunately, the occurrence of the Omicron
variant of coronavirus meant that these had
to be cancelled at the last minute. These
meetings bring together employees from all
of our businesses to talk through matters
of importance to them and to explain the
Group’s strategy in more detail. We are
currently aiming to hold these rearranged
meetings in May and November 2022.
Governance
The Board continues to be committed to
the highest standards of governance, and
stakeholder considerations remain central
to the Board’s decision-making. Our full
Corporate Governance Report, including
details of our compliance with the UK
Corporate Governance Code, is set out on
pages 70 to 81.
Board
As part of the Nomination Committee role in
reviewing Board composition and succession,
the Committee identified that it would be
beneficial to bring additional operational and
international experience to the Board, and in
particular to add a US based Non-executive
Director.
Leigh-Ann Russell joined the Board on 1
April 2021. Leigh-Ann is BP PLC (‘bp’) EVP
Innovation and Engineering and a member
of its leadership team. On 31 January 2022,
the Group announced that Farrokh Batliwala
would be joining the Board effective from
1 April 2022. Farrokh was formerly President
of Connect and Control Technologies, ITT Inc,
prior to which he held senior management
roles at both Eaton Corporation and Pratt &
Whitney. Farrokh lives on the East Coast of
the US. I feel very fortunate that we have been
able to attract two individuals of Leigh-Ann’s
and Farrokh’s calibre to the Board.
21
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW
Chief Executive’s Review
Paul Simmons
Group Chief
Executive
Hannah Nichols
Group Chief
Financial Officer
REVIEW OF 2021
2021 saw the Group deliver record constant
currency revenue and underlying operating
profit despite the industry-wide headwinds
that we faced. Our strong performance is,
once again, due to a combination of the talent
and motivation of our global team, our choice
of long-term favourable markets and our agile
autonomous operating model. I would like to
thank our employees and business partners
for their excellent contribution.
We have seen a good recovery in trading in
2021, with all three divisions delivering strong
revenue and profit growth compared to 2020
which was more severely impacted by COVID-
related disruption. I am also pleased to report
that the Group delivered 4% revenue and 3%
profit growth on an organic constant currency
basis compared to 2019, our previous record
year, highlighting the resilience and continued
progress of our business.
The trading highlight was in our Utilities
division, which saw strong profit growth
and margin progression despite a
robust comparator, supported by high
levels of demand for US engineered
composite solutions and good progress
in our engineered supports (formerly “pipe
supports”) and UK utility businesses. Our
Galvanizing division continued to deliver
superior operating profit margins at 20%, an
improvement on the prior year, despite a less
favourable country mix, driven by a strong
recovery in the UK and France and solid
performance in the US. The Roads & Security
division also delivered a robust performance
with margin improvement reflecting portfolio
management actions and an encouraging,
albeit partial, recovery in demand in our
security sub-division.
During the year, our operating companies
took swift and appropriate action to manage
supply chain headwinds. Actions taken
included implementing price increases to
offset significant input cost inflation, securing
supply of raw materials and ensuring the
continuity of operations against a backdrop of
labour shortages in certain businesses. As we
enter 2022, we believe we are well positioned
to continue to manage these headwinds.
The Group remains highly cash generative
and maintains a strong balance sheet,
positioning us well for the future as we focus
on developing and funding both organic and
inorganic growth opportunities.
Alongside the strong financial performance,
we have made good progress on the key
elements of our strategy particularly around
talent and organisational development,
portfolio management and ESG.
In January 2021, we established our
Executive Board and introduced the Group
President role, enabling us to scale the Group
without compromising our decentralised
model, providing mentorship for our operating
company leaders and increased oversight.
The Group Presidents are responsible
for growing their portfolio of operating
companies both organically, in partnership
with the operating company Managing
Directors, and inorganically, in partnership
with our Corporate Development team. In
2022, we have further strengthened our Group
President team and expect to add a US-based
M&A Corporate Development executive. Our
intent is to maintain a small, but effective,
central function supporting the operating
companies, bringing high quality businesses
into the Group via acquisition and ensuring
good governance.
22
Alongside the
strong financial
performance, we
have made good
progress on the
key elements
of our strategy;
particularly
around talent and
organisational
development,
portfolio
management,
and ESG.”
Stock Code HILS Our autonomous model places a
disproportionate premium on talent with
over 99% of our people employed by our
operating companies and therefore close to
our customers. During the year, we recruited a
Chief People Officer to help us further develop
our current employees and attract additional
highly talented people into the Group. We also
added a US-based Group Head of Health &
Safety role and in the first quarter of 2022 we
appointed a Head of Sustainability to help us
deliver our ESG commitments, building on the
work of the ESG steering group.
We have rebuilt our M&A pipeline consistent
with our purpose, and against a more
demanding set of financial criteria; the ability
of acquired businesses to deliver long-term
organic profit growth with strong gross
margins is key. We also reviewed our current
portfolio against those same criteria which
highlighted the need for targeted disposals.
Our intent is to continually improve the quality
of our portfolio. A second element of our M&A
approach involves systematically reviewing
new to Hill & Smith niche markets to identify
those aligned with our chosen market drivers
and specific M&A criteria, For niche markets
that meet our criteria, we initiate searches for
potential acquisition targets.
In line with our refreshed strategy, we have
taken actions to enhance the quality of
the portfolio. In March, we were delighted
to acquire solar energy experts, Prolectric
Services Ltd (“Prolectric”). Prolectric has
already made a positive contribution to the
Group and we continue to see excellent long
term growth prospects for the business.
During 2021, we also disposed of our loss-
making security access cover business, and
we closed our small, loss-making UK variable
message sign business. Following a strategic
review of our Swedish road business in the
second half of the year, we are currently in
advanced negotiations to dispose of its rental
division and are assessing the options for the
remaining parts of the business.
Innovation has an increasingly important
role to play in the Group’s longer term
organic profit growth ambitions. Higher
value, more innovative products drive higher
gross margins, which in turn allow sensible
reinvestment by our operating companies.
To teach and share best practice, we
successfully ran our first innovation workshop
in October 2021, with a second operating
company cohort planned for early 2022.
To support the delivery of long-term organic
growth, we changed the operating company
Managing Directors’ annual bonus scheme to
reward organic profit growth and introduced
a new LTIP scheme which replaces a previous
ESOS scheme and enables them to share in
the Group’s long-term success.
OUR ESG STRATEGY
AND COMMITMENTS
The growth of our business is naturally
aligned to ESG: our products and services
make infrastructure more sustainable and
increase transport safety. In last year’s
annual report, I flagged that we would be
developing an environmental, social and
governance (ESG) strategy in 2021. With
this in mind, we established an ESG steering
group to work with our operating companies
to create common sense, actionable plans
with measurable targets. The ESG team
includes myself, our Chief Financial Officer,
our Company Secretary and our Chief
People Officer, alongside a number of Group
employees who are passionate about our
ESG focus areas. I am pleased with the
progress that the team has made; however, I
recognise that we have more to do to improve
our sustainability performance and related
disclosures, and we are committed to making
further progress in 2022 and beyond.
We have taken a materiality-based approach
to ESG, using interviews with 38 of our key
stakeholders, alongside the relevant SASB
materiality maps, to identify our seven priority
areas. For each of the priorities, we have
developed a clear action plan and key metrics
against which we can be held accountable.
Greenhouse gas emissions
and energy efficiency
Greenhouse gases are a major contributor to
global warming, with CO2 emissions being the
most significant for our Group. In recognition
of the Group’s commitment to CO2 reduction,
earlier this year we signed up to the Science
Based Targets initiative (SBTi) to limit global
warming to 1.5 degrees Celsius.
We have developed a carbon reduction plan
which includes clear steps that we will take in
the coming years to achieve net zero Scope
1 and 2 CO2 emissions. These steps include
conversion of natural gas burners used in
galvanizing to an alternative technology
and transition away from the use of diesel
vehicles. Alongside this, we have developed
a detailed costed plan which includes an
assessment of the incremental capital,
energy, carbon taxes and other operating
costs which will support decarbonisation. I
am delighted that the outcome of this process
has provided the Group with the confidence to
commit to achieving a carbon net zero target
by 2040. Our current expectations are that the
financial impact of achieving this will not have
a material effect on the growth prospects for
the Group, with modest levels of incremental
capex required to achieve it. During 2022, we
will continue to develop the plan, including
starting an assessment of our supply chain
Scope 3 emissions which will enable us to
determine our SBTi targets by August 2023.
Sustainable products
In line with our purpose, we are our
committed to ensuring that our products
and services support a sustainable future.
At the end of 2020, we reset our portfolio
management criteria to ensure that all
decision making is guided by our purpose of
creating sustainable infrastructure and safe
transport through innovation.
In addition, during 2021, we have worked
alongside representatives from our operating
companies and a third-party expert to
complete an assessment of three of our
key products and services, to measure their
sustainability and value to society. In 2022,
we will validate our use of the model before
rolling the methodology out to a broader
range of our products. We will then be able to
develop an improvement plan and introduce
key metrics.
Health and safety
The health, safety and wellbeing of our
employees continues to be a key focus across
all operating companies. Health and safety
is a key agenda item for the Executive Board,
which I chair, and our recently appointed
Chief People Officer is accountable for
Group-wide health and safety improvement.
In addition, we have recruited a Group Head
of Health and Safety, who has set a clear
strategy to support our operating companies
with practical advice, training and increasing
awareness.
We have set short and medium-term targets
to improve health and safety across our
organisation, using Lost Time Injury Rate
(LTIR) as the key indicator to track and
monitor our progress. By 2025, we are
targeting to reduce our LTIR to 0.75, with a
further reduction to 0.25 by 2030.
Talent development
and engagement
Talented people are fundamental to the
success of our autonomous operating model.
We need a highly engaged and capable
workforce within our operating companies,
and this can only be achieved by attracting,
developing, supporting, and retaining the right
people.
We are using employee engagement scores
to measure our progress in this area. I am
pleased that the result of our recent survey
showed that employee engagement has
improved to 55% compared to 48% in 2019,
however there is more work to do. Going
forward, we will be measuring employee
engagement annually, with a target to
improve to 66% engagement by 2025 and to
75% by 2030.
23
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW CONTINUED
2021 Headline Results
Revenue
Underlying(1):
Operating profit
Operating margin
Profit before tax
Earnings per share
Reported:
Operating profit
Operating margin
Profit before tax
Basic earnings per share
2021
2020
Reported
Change %
£705.0m
£660.5m
£86.0m
12.2%
£79.9m
77.9p
£69.9m
£62.6m
63.2p
10.6%
+160bps
+190bps
OCC
+10
+29
+7
+23
+28
+23
+33
£57.0m
£42.8m
8.1%
£50.9m
43.0p
6.5%
+160bps
£35.5m
30.2p
+43
+42
(1) Underlying measures are set out in note 4 to the Financial Statements and exclude certain non-underlying
items, which are detailed in note 5 to the Financial Statements.
The Group has seen a strong trading
performance compared to 2020 which
was impacted by COVID-related business
closures and reduced levels of demand from
the middle of March. Revenue for the period
was £705.0m (2020: £660.5m), an increase
of 7% on a reported basis. Organic constant
currency revenue growth was 10%. Underlying
operating profit was £86.0m (2020: £69.9m)
and underlying operating margin recovered
strongly to 12.2% compared to 10.6% in 2020.
Underlying profit before taxation was £79.9m
(2020: £62.6m). Reported operating profit
was £57.0m (2020: £42.8m) and reported
profit before tax was £50.9m (2020: £35.5m).
Underlying earnings per share increased to
77.9p (2020: 63.2p). The diluted underlying
earnings per share was 77.1p (2020: 62.9p).
Reported earnings per share was 43.0p (2020:
30.2p). The weighted average number of
shares in issue was 79.6m (2020: 79.5m) with
the diluted number of shares at 80.6m (2020:
79.9m) adjusted for the outstanding number
of dilutive share options.
The principal reconciling items between
underlying and reported operating profit are
non-cash charges including the impairment
of goodwill and intangibles relating to our
security businesses of £16.0m and the
amortisation of acquisition intangibles of
£6.1m, together with costs associated with
the closure of the UK variable message signs
business of £4.5m. Note 5 of the Financial
Statements provides further details on the
Group’s non-underlying items.
DIVIDEND
Based on the strong trading performance and
cash generation during the year, the Board is
recommending a final dividend of 19.0p per
share, making a total dividend for the year
of 31.0p per share (2020: 26.7p). Looking
forward, we aim to provide sustainable and
progressive dividend growth, targeting a
dividend cover of around 2.5 times underlying
earnings. The final dividend, if approved, will
be paid on 8 July 2022 to shareholders on the
register on 6 June 2022.
OUTLOOK
We expect to make good progress in 2022,
despite the ongoing supply chain and
inflationary headwinds which we continue to
actively manage.
At this stage the consequences for the global
economy of the tragic events in Ukraine are
uncertain. While the Group has no operations
in this part of the world and no direct and
negligible indirect exposure to customers
and suppliers in the region, we are carefully
monitoring the situation.
In the medium to longer term, the positive
outlook is supported by strong market growth
drivers for both sustainable infrastructure
and safe transport. In the US, all our
businesses are well placed to benefit from
the increased spend approved under the
Infrastructure Investment and Jobs Act. In
the UK, the Government remains committed
to the increased levels of funding for Road
Investment Strategy 2 and we expect this to
support medium-term growth.
Diversity and Inclusion
As an organisation we want to employ
the best people for the job and help them
thrive. We know that we can only do this by
considering talented people from the whole
community. Our Chief People Officer is
working with our local HR communities to
develop a series of initiatives to further foster
diversity and inclusion across the Group.
To support this ambition, we have set Group
targets for both gender and ethnic diversity
at a PLC Board, Executive Board and Senior
Leader level. In 2022, we expect further
progress to be made at the Executive and
Senior Leader level.
Climate risks
During the year, we have made good
progress in assessing the financial risks and
opportunities to our business due to climate
change. As a result, we are pleased to issue
our first report in response to the Task Force
on Climate-related Financial Disclosures
(‘TCFD’). The assessment suggests that, while
physical climate change presents a relatively
low risk to our future business operations,
it may present opportunities for the Group.
Given our focus on sustainable infrastructure,
some of our operating companies already
provide products and solutions to address
extreme weather conditions, and we see this
as an opportunity for future growth.
Ethical conduct
As a Group, we are committed to conducting
our business activities responsibly and
ethically, and in accordance with local laws
and regulations. We support this commitment
by providing training and educational
programmes for employees, together with
a Group Code of Business Conduct which
underpins all our activities.
Further details of our new sustainability plan,
targets and TCFD disclosures can be found
on pages 32 to 53 of this Annual Report.
BOARD UPDATES
In the period, we announced the appointment
of Leigh-Ann Russell as a Non-executive
Director, who joined the Board on 1 April
2021. In January 2022, we were also pleased
to announce the appointment of Farrokh
Batliwala as a US based Non-executive
Director, with effect from 1 April 2022. Both
appointments reflect the Group’s careful
succession planning to recruit Non-executive
Directors with the necessary skills, experience
and diversity to support the Group’s higher
quality growth agenda.
24
Stock Code HILS COMPOSITE FIRE POLES
MITIGATING WILDFIRE DISASTERS
Y
D
U
T
S
E
S
A
C
Fire-retardant
engineered
composite
FireSleeves
incorporate a fire
resistant sleeve
which shields
the base FRP
pole from the
excessive heat
generated by
typical brush and
grass fires.”
In response to wild fires in California, which will become increasingly more likely as global
temperatures increase, Creative Composites Group have developed a technology that protects the
Fiberglass Reinforced Polymer (FRP) Poles used to carry electricity, from fire damage. A unique,
patented feature allows the utility companies to determine what the condition of the pole is after a
fire event, thereby keeping the pole in situ longer and reducing cost and disruption.
Standard FRP is often used as a sustainable alternative material for utility poles. While these offer
some degree of inherent fire-retardant properties that protect the pole from fire damage, fire-
retardant engineered composite FireSleeves incorporates a fire resistant sleeve which shields the
base FRP pole from the excessive heat generated by typical brush and grass fires.
FRP utility poles are sustainably engineered to last up to and exceed 80 years in some of the
harshest environments with little to no maintenance. Adding FireSleeves further increases their
durability and longevity in fire-prone areas. A temperature monitoring system is included within
the FireSleeve and this is engineered to continuously monitor the temperature experienced from
forest fires, which can reach up to 2,100˚F. The pole is shielded from these extreme temperatures
and the Firesleeve will record whether there has been any permanent loss of strength.
The key benefit of increased durability and longevity is cost savings. When a fire occurs, utility
poles protected by FRP pole covers will be less likely to experience a permanent loss of strength.
As a result, they will not need to be removed and replaced, meaning utility companies will not
need to invest time and money into performing these operations, and end-users will not need to
suffer through a grid failure.
25
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT
OPERATIONAL AND FINANCIAL REVIEW CONTINUED
Operating Review
GALVANIZING SERVICES
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Reported operating profit
£m
2021
198.3
39.5
19.9%
36.4
2020
185.9
35.8
19.3%
17.1
+/-
%
+7
+10
OCC
%
+11
+18
(1) Underlying measures are set out in note 4 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 5 to the
USA
Predominantly located in the north east of
the country, the US galvanizing business
delivered a solid performance with 3%
organic constant currency revenue growth
and maintained strong margins, reflecting
the benefits of pricing actions, product mix
and good demand for value added coating
services. During the year, the business
experienced lower production volumes than
2020 due to customer project delays related
to component shortages and elevated steel
costs. In addition, labour shortages also
limited production capacity in some plants.
The outlook for 2022 is encouraging, with
labour availability improving and increased
customer project activity.
In the medium to longer term, the outlook
is positive, with investment levels expected
to grow ahead of GDP in a range of US
galvanizing end markets, supported by the
Infrastructure Investment and Jobs Act.
The Group continues to seek both organic
and inorganic growth opportunities in the
attractive US market.
France
French galvanizing services delivered a strong
performance in 2021, particularly in the first
half, supported by buoyant levels of customer
demand compared to 2020, which was
impacted by COVID-related closures in the
first half. As a result, revenue was 15% ahead
of last year on an organic constant currency
basis. The outlook for 2022 is encouraging,
with the team working hard to manage energy
cost inflation.
Financial Statements.
The Galvanizing Services division offers hot-
dip galvanizing and powder coating services
with multi-plant facilities in the USA, France
and the UK. Hot-dip galvanizing is a proven
steel corrosion protection solution which
significantly extends the service life of steel
structures and products. The division benefits
from a wide sectoral spread of customers
who operate in resilient end markets including
road infrastructure, commercial construction,
transportation, agriculture, and energy
transmission and distribution.
The division delivered a good performance,
particularly in the first half, with a strong
recovery in demand compared to H1 2020,
which was impacted by COVID-related
disruption in the UK and the complete closure
of our French operations for six weeks from
the end of March 2020. Demand returned to
more normalised levels in the second half of
the year, despite the US still facing challenges
around customer project delays and labour
shortages. As a result, revenue increased by
11% on an organic constant currency basis
to £198.3m, with volumes 3% higher than
2020. Underlying operating profit increased
significantly to £39.5m (2020: £35.8m),
representing 18% organic constant currency
growth compared to 2020. The division
continued to deliver superior margins, with
underlying operating margin increasing to
19.9% (2020: 19.3%).
UK
The business experienced a strong recovery
in demand, particularly in the first half
of 2021, due to the release of security,
construction and housing projects which
had previously been deferred. UK galvanizing
delivered 17% organic constant currency
revenue growth and record operating profits
in the year. This reflects our strategy of
focusing on higher margin, lower volume
business and pricing actions taken to
address input cost inflation. The outlook for
2022 remains positive, despite inflationary
and labour related headwinds, with robust
demand for galvanizing services to support
sustainable infrastructure.
26
Stock Code HILS UTILITIES
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Reported operating profit
£m
2021
223.7
26.8
12.0%
26.3
2020
211.2
20.9
9.9%
20.1
+/-
%
+6
+28
OCC
%
+12
+38
(1) Underlying measures are set out in note 4 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 5 to the
UK
Our UK businesses experienced a strong
recovery, with 20% revenue growth
compared to a COVID-impacted 2020. The
building products business, supplying steel
lintels, builders’ metal work and composite
residential doors, benefitted from buoyant
market demand during the year. The
industrial flooring business delivered a good
recovery, with a particular focus on data and
distribution centre markets. Both businesses
successfully managed the impact of high
steel input costs with improved margins in the
year and enter 2022 with a positive outlook.
Engineered Supports
Engineered Supports delivered a healthy
recovery in 2021, with revenue 10% ahead
of 2020 on an organic constant currency
basis. The US business delivered a good
performance, supported by a strong rebound
in the commercial construction market. The
expansion of our seismic protection device
manufacturing capability completed in the
second half and the prospects for future
growth are encouraging. Our engineered pipe
support business in India delivered a solid
performance, with continued demand for
products and engineering services to support
key liquified natural gas developments across
the globe.
Financial Statements.
Our Utilities division provides steel and
composite solutions with low embodied
energy for a wide range of infrastructure
markets including energy generation and
distribution, marine, rail and housing. The
division also supplies engineered supports
for the water, power and liquid natural gas
markets and seismic protection solutions for
commercial construction.
The division delivered an impressive
performance in 2021, with 12% revenue
growth and 38% profit growth on an organic
constant currency basis against robust 2020
comparators. Reported operating profit
was £26.3m (2020: £20.1m). The strong
performance was underpinned by a record
performance in the US composite business
and a good recovery in UK utilities and
engineered supports, which were disrupted
by COVID last year. We are pleased with
the continued progress made on margins
across the Utilities portfolio, with underlying
operating margin increasing to 12.0%
(2020: 9.9%).
US
Revenue was 6% ahead of a strong 2020
comparator on an organic constant currency
basis. The composite business delivered a
record performance, with high demand for
engineered composite solutions including
fire resistant utility poles for use in wildfire
areas, waterfront protection and mass transit
infrastructure. During the year, the electricity
distribution substation business faced
challenges due to rising steel prices and
customers delaying non-essential projects,
however demand is starting to recover as
steel prices stabilise. Prospects for future
growth in the US remain encouraging,
supported by market demand for innovative
solutions to protect against extreme weather
and investment to upgrade ageing electricity
infrastructure.
27
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW CONTINUED
ROADS & SECURITY
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Reported operating (loss)/profit
£m
2021
283.0
19.7
7.0%
(5.7)
2020
263.4
13.2
5.0%
5.6
+/-
%
+7
+49
OCC
%
+8
+43
(1) Underlying measures are set out in note 4 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 5 to the
Financial Statements.
The Roads & Security division supplies
products and services to support the delivery
of safe road and highway infrastructure
alongside a range of security products to
protect people, buildings and infrastructure
from attack.
The trading performance was ahead of last
year with 8% organic constant currency
revenue growth and underlying operating
profit increasing to £19.7m (2020: £13.2m),
a 43% increase on an organic constant
currency basis. Underlying operating
margins improved to 7.0% (2020: 5.0%). The
performance reflects a solid recovery in the
UK and good levels of demand in the US. In
the second half, we started to see a recovery
in our UK security businesses as COVID-
related restrictions on public gatherings
eased, which contributed to the improved
H2 2021 margin of 7.4%. The reported loss
of £5.7m included a goodwill and intangible
asset impairment charge of £16.0m in
respect of our UK security businesses, £4.5m
of closure costs relating to the variable
message sign business and a £0.4m loss
on the disposal of the security access cover
business. Further details are set out in note 5
to the Financial Statements.
UK Roads
Revenue was 8% ahead of 2020 on an
organic constant currency basis. During
the year, we provided a range of certified
products and services to support the upgrade
of the strategic road network under Road
Investment Strategy 2 (RIS2) including rental
of temporary safety barrier, permanent safety
barriers, bridge parapets and road safe
support structures. In addition, the division
benefitted from buoyant levels of demand
from local authorities for products to enhance
non-strategic and local road networks.
Investment in the roll-out of smart motorways
represents £4.5bn of the overall RIS2
committed spend of £27.4bn from 2020
to 2025. During the year, our UK business
was awarded primary provider status for
the provision of temporary barrier within
the Smart Motorway Alliance (SMA) and
the first RIS2 smart motorway scheme
commenced in June 2021. In January 2022,
the UK Government issued its response to the
Transport Committee review on the roll-out
and safety of smart motorways, which set
out recommendations including pausing the
roll-out of further all lane running schemes
until sufficient safety data is available
(expected end of 2024) and the retrofit of
additional emergency refuge areas (ERAs).
While we await further scheme details, the
recommendations are broadly in line with
our expectations, with 2022 demand for
the rental fleet to be driven by the retrofit of
ERAs, central reservation upgrade schemes,
including smart motorways, and upgrades to
the wider strategic network.
During the year, we took steps to enhance the
quality of the UK Roads portfolio. In March
2021, we acquired Prolectric, a UK market
leader in off-grid solar energy solutions, for a
net cash consideration of £11.8m. Prolectric
made a positive contribution to the Group in
2021 and we are excited by the prospects for
future growth. As previously announced, in
March 2021 we made the decision to close
our small, loss-making variable message
sign business.
US Roads
US Roads delivered 6% revenue growth
on an organic constant currency basis,
supported by strong demand for roadside
safety products including tested Zoneguard
temporary safety barrier and SmartCushion
crash attenuators. During the year, margins
were impacted by the steep increase in steel
raw materials and freight costs, however
we expect margin improvement in 2022
as the impact of pricing actions takes full
effect and an increased focus on rental and
higher margin roadside safety products
comes through.
In recent years, we have seen a growing
demand for our tested roadside safety
products, with the introduction of new safety
standards and increased levels of state
and federal investment to upgrade US road
infrastructure. During the year, we expanded
our geographical footprint in support of our
growth strategy, with the creation of a new
manufacturing and distribution facility in
Garland, Texas. In addition, in the second
half of the year we invested £12.2m in the
expansion of our temporary barrier fleet,
including £4.3m of assets in the course of
construction relating to further planned fleet
expansion in 2022.
In November 2021, we were encouraged by
the approval of the Infrastructure Investment
and Jobs Act, which includes a five-year
reauthorisation of the US federal highway
programme and investment of c.$348 billion
in highway and bridge improvements through
to 2026.
28
Stock Code HILS Other International Roads
Despite the efforts of the strengthened local
team, the Swedish business continued to
underperform in 2021 due to challenging
market conditions. As a result, we undertook
a further review of the business in the second
half of 2021 and took the decision to dispose
of its rental division, which we expect to
complete in the first half of 2022. We continue
to assess the options for the remaining parts
of the business.
In contrast, the lighting column business
in France delivered a robust performance,
underpinned by a solid order book, and our
Australian road business benefitted from the
development of the traffic safety equipment
rental business.
Security
Our Security businesses are based in the UK
and provide a range of perimeter security
solutions including hostile vehicle mitigation
(‘HVM’) to both UK and international markets.
2021 revenue was 26% ahead of a COVID-
impacted 2020 on an organic constant
currency basis. During the year, demand for
perimeter security solutions in data centres
remained strong and, as COVID restrictions
eased, we saw some recovery in the key
markets for HVM solutions including crowded
place protection, stadiums, airports and
shopping centres. In addition, demand for UK
security barrier rental returned in the second
half with the resumption of high-profile events
including the COP26 Summit in Glasgow. As a
result, second half margins continued to show
improvement and full year underlying operating
profits and margins were ahead of 2020.
In June 2021, we sold Technocover, our loss-
making security access cover business, for a
consideration of £2.2m. The loss recognised
on disposal was £0.4m. In addition, given
the challenging market outlook, the Group
reassessed the value of acquisition goodwill
and intangibles relating to both ATG Access
and Parking Facilities, and concluded that
a total impairment charge of £16.0m was
required across the two businesses. Further
details are set out in notes 5 and 12 to the
Financial Statements.
29
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW CONTINUED
Financial Review
CAPITAL ALLOCATION
PRIORITIES AND ROIC
The Group follows a disciplined approach to
capital allocation. Firstly, we look to allocate
capital to support organic growth, with the
focus on higher return niches and growth
markets. We require our operating companies
to maintain an appropriate level of working
capital that is reflective of growth rates in
their respective businesses. In addition, we
invest in capital projects, innovation and
talent to support future organic growth, with
around £24.8m of FY2021 capex allocated to
growth investments.
Secondly, we seek to allocate capital to make
high quality acquisitions, with a focus on clear
alignment with our purpose, higher gross
margins and long term growth potential.
We are following a structured approach to
acquisitions based on a clear set of financial
criteria and we expect acquisitions to achieve
returns above our Group WACC within a three-
year time frame. This disciplined approach
has resulted in the creation of a higher quality
pipeline of opportunities during the year.
We also aim to provide sustainable and
progressive dividend growth, with a target
dividend cover of 2.5 times underlying
earnings. We understand the importance of
providing consistent and growing returns to
our shareholders as part of our overall capital
allocation framework, and the Group’s strong
levels of cash generation allow us to invest
in organic and inorganic growth while paying
a dividend.
We use return on invested capital (ROIC) to
measure our overall capital efficiency, with a
target of achieving returns in excess of 17%,
comfortably above the Group’s cost of capital,
through the cycle. The Group’s ROIC in 2021
was close to our target at 16.8% (2020: 12.6%),
the improvement reflecting the recovery in
trading, our disciplined approach to capital
investment, and the steps we are taking to
improve the overall quality of the portfolio.
CASH GENERATION
AND FINANCING
The Group continued to be highly cash
generative, with cash generated by operations
of £103.1m (2020: £118.3m). This included
a working capital outflow in the period of
£6.8m, reflecting the increased trading activity
in the year. The Group continues to focus on
maximising working capital efficiency, with
debtor days at 31 December 2021 at 55 days
(31 December 2020: 54 days).
Capital expenditure in the year was
£35.9m (2020: £20.4m), as expected,
representing a multiple of depreciation and
amortisation (excluding amortisation from
acquisition intangibles and right of use
asset depreciation) of 1.6 times (2020: 0.9
times) as detailed in note 4 to the Financial
Statements. During the year, we allocated
capital to support future growth opportunities,
with £12.2m spend on the expansion of our
US temporary barrier fleet, including £4.3m of
assets in the course of construction relating
to 2022 fleet expansion. In addition, we spent
£2.8m on the expansion of our manufacturing
and distribution facilities across our US
operating companies and a further £3.6m on
the expansion of our off grid solar lighting
and power rental fleet in the UK. The Group
invested £1.2m on capitalised development
spend during the year, and while we expect
this to increase in 2022, we are still in the
early stages of our innovation initiative.
Net financing costs for the period were £6.1m
(2020: £7.3m). The cash element of financing
costs was lower than the prior year at £5.1m
(2020: £6.2m), reflecting lower levels of
average net debt during the period due to
the strong cash generation. The net cost of
pension fund financing under IAS 19 was
£0.2m (2020: £0.3m) and the amortisation
of costs relating to refinancing activities was
£0.8m (2020: £0.8m).
The Group generated £51.6m (2020: £82.5m)
of free cash flow in the year, providing us with
funds to support our acquisition strategy and
dividend policy. Underlying cash conversion
was 78% (2020: 139%), reflecting the capital
investment in growth opportunities during the
year. Excluding strategic investment in rental
fleet, the underlying cash conversion was
97%. The calculation of our underlying cash
conversation ratio is set out in note 4 to the
Financial Statements.
30
The Group
generated £51.6m
of free cash flow in
the year, providing
us with funds
to support our
acquisition strategy
and dividend
policy..”
Stock Code HILS NET DEBT AND
FACILITIES HEADROOM
Net debt at the end of the year amounted
to £144.7m (31 December 2020: £146.2m).
Cash outflows during the year included
£21.2m for the 2020 interim and final
dividends and £11.8m on the Prolectric
acquisition. Net debt at the year end includes
lease liabilities under IFRS 16 of £40.6m
(2020: £32.4m), the increase being primarily
due to the expansion of our US roads facility
in Texas and the renewal of the lease on our
UK temporary barrier distribution centre.
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 £13.4m of on-demand
local overdraft arrangements. Throughout
the year, the Group has operated well within
these facilities and at 31 December 2021, the
Group had £234.4m of headroom (£221.2m
committed, £13.2m on demand). In 2022,
we will take steps to assess and extend the
maturity profile of the revolving credit element
of the Group’s financing facilities.
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 3.0 times and interest
cover of a minimum of 4.0 times. The ratio of
covenant net debt to EBITDA at 31 December
2021 was 1.0 times (31 December 2020: 1.3
times) and interest cover was 25.4 times (31
December 2020: 17.0 times).
The Board considers that the ratio of
covenant net debt to EBITDA is a key metric
from a capital management perspective and
targets a ratio of 1.5 to 2.0 times. The Board
would be prepared to see leverage above
the target range for short periods of time if
strategically appropriate.
TAX
The tax charge for the period was £16.7m
(2020: £11.5m) and included a £1.1m credit
(2020: £0.9m) in respect of non-underlying
items, principally relating to the amortisation
of acquisition intangibles. Cash tax paid in
the year was £15.2m (2020: £16.5m). The
Group remains committed to the timely and
correct payment of taxes to authorities in all
jurisdictions in which we operate.
The underlying effective tax rate for the Group
was 22.3% (2020: 19.8%), which is lower than
the weighted average mix of tax rates in the
jurisdictions in which the Group operates
due to 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 be around 23%
in 2022. The reported effective tax rate was
32.8% (2020: 32.4%).
The Group’s net deferred tax liability is
£11.4m (2020: £7.6m), which includes £9.3m
(2020: £8.4m) 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.
EXCHANGE RATES
The Group is exposed to movements in
exchange rates when translating the results
of its overseas operations into Sterling.
Retranslating 2020 revenue and underlying
operating profit using average exchange
rates for 2021 would have reduced revenue
by £22.0m and underlying operating profit by
£4.0m, mainly due to Sterling’s appreciation
against the US Dollar. A one cent movement
in the average US Dollar rate currently results
in an adjustment of approximately £1.9m to
the Group’s annual revenues and £0.4m to
annual underlying operating profit, while the
equivalent impacts for a one cent movement
in the Euro are £0.7m and £0.1m, respectively.
NON-UNDERLYING ITEMS
The total non-underlying items charged to
operating profit in the Consolidated Income
Statement amounted to £29.0m (2020:
£27.1m) and comprised the following:
•
Impairment charges of £16.0m in respect
of goodwill and intangibles relating to two
of our security businesses, ATG Access
and Parking Facilities;
• Amortisation of acquired intangible
assets of £6.1m;
• Costs associated with the closure of the
UK variable message signs business
of £4.5m;
• A loss on disposal of Technocover Ltd,
our small UK security access cover
business of £0.4m; and
•
Expenses related to acquisitions and
disposals of £2.0m.
The non-cash element of these charges was
£23.2m. Further details are set out in note 5
of the Financial Statements.
PENSIONS
The Group operates defined benefit pension
plans in the UK, France and the USA. The
IAS 19 deficit of these plans at 31 December
2021 was £12.3m, a reduction of £7.3m from
31 December 2020 (£19.6m). The deficit of
the UK scheme, the largest employee benefit
obligation in the Group, was lower than the
prior year end at £7.7m (31 December 2020:
£14.0m) due to the Group’s deficit recovery
payments and an increase of 60 basis points
in the discount rate during the period, in line
with increases in bond yields, being partly
offset by slightly lower asset returns. The
deficit of the French scheme was £4.1m
(2020: £4.9m) and the US scheme deficit was
£0.5m (2020: £0.7m).
The Group continues to be actively engaged
in dialogue with the UK schemes’ Trustees
with regards to management, funding and
investment strategies. The next triennial
valuation for the UK scheme will be as at
April 2022.
GOING CONCERN
After making enquiries, the Directors have
reasonable expectations that the Company
and its subsidiaries have adequate resources
to continue in operational existence for the
foreseeable future and for the period to 30
June 2023. Accordingly, they continue to adopt
the going concern principle.
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.
The Group has carefully modelled its cash
flow outlook for the period to June 2023,
considering the ongoing uncertainties in 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 2022,
31 December 2022 and 30 June 2023. The
Group has also carried out “reverse stress
tests” to assess the performance levels at
which either liquidity headroom would fall
below zero or covenants would be breached in
the period to 30 June 2023. The Directors do
not consider the resulting performance levels
to be plausible given the Group’s strong trading
performance in 2021 and the positive outlook
across the infrastructure markets in which it
operates.
Paul Simmons
Group Chief Executive Officer
Hannah Nichols
Group Chief Financial Officer
9 March 2022
31
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT OUR APPROACH TO SUSTAINABILITY
SASB matrix
Engineering &
construction
Road
transport
H&S
materiality study
ESG
Focus
Our purpose to create sustainable
infrastructure and safe transport
through innovation guides our
strategic and tactical decisions,
ensuring that improving
sustainability is woven into our
daily working lives.
Dimension
Category
Ecological impacts
Waste and hazardous materials management
Waste and wastewater management
Environment
Air quality
Energy management
GHG emissions
Selling practices and product labelling
Customer welfare
Product quality and safety
Social Capital
Access and affordability
Data security
Customer privacy
Human rights and community relations
Employee engagement, diversity and inclusion
Talent development/employment practices
Human Capital
Business model
and innovation
Employee health and safety
Labour practices
Physical impacts on climate change
Sustainable products
Materials sourcing and efficiency
Supply chain management
Business model resilience
Product design and lifecycle management
Systemic risk management
Critical incident risk management
Management of the legal and regulatory environment
Competitive behaviour
Business ethics
Leadership and
governance
32
Stock Code HILS OUR APPROACH TO SUSTAINABILITY
Paul Simmons, our CEO has Board
responsibility for ESG and as a member of the
ESG Committee is responsible for translating
our ESG strategy into focused initiatives, near
and medium-term targets and actions.
We determined our ESG focus areas by taking
a materiality-based approach to ESG. The
first step was to commission an independent
materiality study, which involved a selection
of senior managers identifying from a longlist
of possible subject areas, 15 specific ESG
topics that the Group should consider. We
then approached 38 stakeholders from
across our supply chain. We consulted
a diverse range of our employees, major
customers and suppliers, a major bank, and
several significant investors. We then ensured
that each stakeholder group’s key thoughts
were recognised by carrying forward their top
three areas of interest into our analysis.
The next step involved comparing
our stakeholders’ input to the relevant
Sustainability Accounting Standards Board
('SASB') materiality maps. In Hill & Smith’s
case, the two that are most relevant are
Engineering & Construction services and
Road transportation.
This two-stage materiality process identified the following seven sustainability priorities for Hill & Smith,
having combined energy management with Greenhouse Gas emissions:
PROTECTING THE WORLD
01 Greenhouse Gas ('GHG') emissions and energy management
02 Sustainable products – infrastructure
SAVING AND ENHANCING LIVES
02 Sustainable products – safe transport
03 Health & safety
04 Talent development and engagement
05 Diversity and inclusion
SUSTAINABLE GOVERNANCE
06 Climate risks
07 Ethical conduct
In addition to the above priority areas, we will continue to monitor and assess other important areas of the ESG agenda,
e.g. water usage and waste management.
33
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT HILL AND SMITH’S ROLE IN SUSTAINABILITY
Hill & Smith has an important role in
contributing to a sustainable society:
34
34
Stock Code HILS
Stock Code HILS PROTECTING
THE WORLD
We have a key role in protecting the
world through both the provision of our
sustainable infrastructure products and
services and through how we minimise
our environmental impact as we deliver
those products and services.
SAVING AND
ENHANCING LIVES
Our role in saving and enhancing lives
has two elements: 1. We have an
important role in ensuring that the public
are safe when they travel. 2. We have
an opportunity and a responsibility to
enhance the welfare of our employees,
their families and their local communities
through our employment practices,
people development and community
support. We want to be inclusive of all
members of society.
SUSTAINABLE
GOVERNANCE
Sustainable governance ensures that
our plans are credible and that we have
appropriate metrics in place to ensure
that we deliver on our promises over the
long term.
ESG focus areas
• Greenhouse Gas (GHG) emissions
and energy efficiency
ESG focus areas
•
Sustainable products – safe
transport
•
Sustainable products – infrastructure
• Health and safety
ESG focus areas
• Climate risks
•
Ethical conduct
•
•
Talent and engagement
Inclusion and diversity
UN SDGs
UN SDGs
UN SDGs
35
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT PROTECTING THE WORLD
GREENHOUSE GAS EMISSIONS AND ENERGY EFFICIENCY
Why does it matter?
We recognise that greenhouse gases (‘GHG’)
are a major contributor to global warming and
with CO2 being the most significant of these.
We are committed to managing and reducing
the Group’s carbon emissions to support the
Paris Agreement and wider world objective to
limit global warming.
What have we done?
In 2021, we committed to the Science
Based Targets initiative (SBTi) to limit global
warming to 1.5 degrees Celsius.
The Group has been monitoring its energy
usage and Scope 1 and 2 CO2 emissions
since 2008, and first reported its consumption
data in 2013. From a Scope 3 perspective,
the Group measures its water consumption
and monitors the disposal of its waste
products (refer to data table on pages 52 to
53 for more details).
At the end of 2020, we took steps to reduce
our carbon emissions by entering into a
two-year contract to buy all the Group’s UK
electricity requirements from renewable
sources. As a result, in 2021 the Group’s total
Scope 1 emissions were 53,712 tonnes (2020:
52,066 tonnes) and Scope 2 emissions, on
a market-based basis, were 10,885 tonnes
(2020: 15,335 tonnes). A further breakdown of
the Group’s emissions is set out opposite:
Scope 1
% Total CO2
emissions
Scope 2
% Total CO2
emissions
(Market-based)
83%
17%
Scope 1
by fuel type
Scope 2 by
geography
Natural Gas: 75%
UK: 3%
Diesel: 15%
US: 81%
Gas Oil, LPG
and Petrol: 10%
Other: 16%
Consumption of natural gas for use in heating
in the galvanizing process contributes to
82% of the Group’s Scope 1 emissions and
therefore this has been a key focus area
for the carbon reduction plan that we have
developed in 2021. The carbon reduction
plan includes clear steps that we will
take to achieve net zero carbon, including
conversion of galvanizing natural gas burners
to an alternative technology and transition
from the use of diesel vehicles. Alongside
this, we have developed a detailed costed
plan which includes an assessment of the
incremental capital, energy, carbon taxes
and other operating costs to support our
carbon reduction plan. The result of this has
provided us with the confidence to commit to
achieving a carbon net zero target for Scope
1 and 2 by 2040. Our current expectations
are that the financial impact of achieving
this is not expected to have a material
impact on the growth prospects for the
Group, with modest levels of incremental
capex required.
Our carbon reduction ambition is also
supported by our Carbon Reduction forum
that organises local energy savings projects
on a site-by-site basis, based on the findings
of the UK Energy Savings Opportunities
Scheme phase 3 initiative.
In addition, during the year we engaged an
independent third party, Trident Utilities,
to verify our emissions data using BEIS
conversion factors. The validated Scope 1
and Scope 2 emissions data has been used
to prepare our carbon reduction plan. We
have also conducted a limited audit of our
supply chain of the products considered
in the Sustainable Products section of this
report on page 38 to identify a Scope 3 start
point.
What will we achieve?
Based on our 2020 CO2 emissions, we
have committed to achieving net zero
by 2040 and this means removing an
average of c.3,500 tonnes per year from
our manufacturing processes. The high-
level steps we will take to achieve this
commitment are outlined opposite.
36
Stock Code HILS TARGETS
INTENSITY RATIO
(MARKET-BASED)
2022
0.09
2025
0.08
2030
0.06
Scope 2
Scope 1
Other
Scope 1
Natural Gas
Net Zero scope 1 and 2 emissions by 2040
80
60
40
20
0
2021
2025
2030
2035
Zero
2040
)
s
e
n
n
o
t
f
o
s
0
0
0
(
s
n
o
s
s
m
e
2
i
i
O
C
2020-2025
5 galvanizing plants to
alternative technology
Replace forklift truck
fuel with renewables
UK to renewable
electricity
2025-2030
10 galvanizing
plants to alternative
technology
2030-2035
10 galvanizing
plants to alternative
technology
Replace forklift truck
fuel with renewables
Businesses to
renewable electricity
Non-UK businesses
start to move to
renewable electricity
2035-2040
Remaining galvanizing
plants to alternative
technology
Replace diesel in
commercial vehicles
with renewables
During 2022, we will also undertake a more detailed audit of our Group supply chain Scope
3 emissions and we shall use this data and the data from our carbon reduction plan to
determine SBTi targets by August 2023.
How will we measure progress?
While our longer term commitment is to achieve net zero by 2040, we will measure our near
term progress through both reduction in our carbon intensity ratio and the number of tonnes
of CO2 removed. Our near term targets are set out opposite:
NO. OF TONNES OF CO2 REMOVED
(VS. 2020 – THE BASE YEAR)
2022
4,000
2025
11,000
2030
30,000
37
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT
PROTECTING THE WORLD
CONTINUED
SUSTAINABLE PRODUCTS
Why does it matter?
Our products and services help infrastructure
become more sustainable and protect
people as they travel or work in the transport
industries. We have an important role to play
in sustainability. We are focused on ensuring
that we maximise our value to society through
our activities.
What will we achieve?
During 2022, we will verify the outcomes of
our initial study and roll out the assessment
across more of our products and services.
We will develop our key Sustainable Products
metric and develop an action plan to drive
improvement of the metric. This metric will
be an input into future capital allocation
decisions, including acquisitions.
What have we done?
At the end of 2020, we reset our portfolio
management criteria to ensure that our
decision making is guided by our purpose.
We formed a working group from across our
operating companies and, supported by a
third party, Route 2, we have assessed the
sustainability and value to society of three of
the Group’s products and services. We used
a Six Capitals framework to assess Hill &
Smith’s value to society within our supplier
base, in our own manufacturing plants and
finally, downstream when our products are
in use. The Six Capitals are financial, human,
intellectual, manufactured, natural and social
and are used to understand how we create
value for customers, investors, employees
and other stakeholders. The three products
and services selected for the initial study
were UK Galvanizing Services, Zoneguard
temporary road safety barrier and fire-
retardant composite poles.
38
Stock Code HILS CASE
STUDY
GALVANIZING – REDUCING CARBON THROUGH
THE AVOIDANCE OF MAINTENANCE
Galvanizing’s ability to optimise
the durability of steel structures
and components has important
environmental, economic and social
advantages.
There are high economic and
environmental costs associated
with the repeated painting of steel
structures. These burdens can be
significantly reduced by an initial
investment in long-term protection.
The long-term durability provided by
galvanizing is achieved with a low
environmental burden, especially
when compared to the energy value
of the steel it is protecting, meaning
that galvanizing reduces the
embodied carbon of construction.
A recent environmental lifetime
study highlighted marked
differences between two established
corrosion prevention systems for
steel structures. The hot dip galvanizing system had a lower environmental
impact for a steel structure with a long service life, than a traditional paint
system. Long service life and freedom from maintenance, the well known
advantages of hot dip galvanizing, are the basis for these environmental
benefits. In this example, as shown in the table, a saving of 57,100 tonnes
of CO2 was achieved over the 60-year life of the car park.
Service
Life
(years)
Hot Dip Galvanized
Steel Structure (kg
CO2 equivalent)
Painted Steel
Structure (kg CO2
equivalent)
Saving by hot dip
galvanizing (kg CO2
equivalent)
60
40
20
41,500
41,500
41,500
98,600
71,600
60,500
57,100
30,100
19,000
Extracted from Galvanized Steel and Sustainable Construction: Solutions
for a Circular Economy, publ. EGGA (2021) and reproduced with permission
of EGGA Galvanizers Association. For further information:
www.galvanizing.org.uk/circular-economy
39
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SAVING AND ENHANCING LIVES
icon
We protect and enhance lives by supplying
products that enable people to travel safely,
and by providing good jobs with the potential
for career development in a safe environment.
We support the communities in which we
operate. We are committed to investing in and
promoting our people, attracting, and retaining
a diverse workforce, while fostering social
mobility, and ensuring that our supply chain
partners treat their employees correctly.
HEALTH & SAFETY
Why does it matter?
Keeping our employees, customers, and
suppliers safe is our number one priority. The
ongoing COVID-19 pandemic has continued
to provide challenges around health and
safety. During 2021, our operating companies
had established plans and procedures in
place and adhered to all local guidelines to
ensure that our facilities are COVID secure,
and our employees are safe.
What have we done?
The health, safety and wellbeing of our
workers continues to be a key focus across
all operating companies. Our recently
appointed Chief People Officer (‘CPO’) is now
accountable for health and safety and this is
a key agenda item for the Executive Board.
In addition, we have also recruited a Group
Head of Health and Safety, who reports into
the CPO, and who has set a clear strategy
and is supporting our operating companies
with practical advice, training and increasing
awareness. Our external UK and US based
health & safety consultants now report
directly into the Group Head of Health &
Safety and continue to work alongside the
safety specialists in each of our operating
companies to assist the Group in achieving its
health and safety objectives. Specific actions
include reviewing the detail of every Lost Time
Accident at the monthly Executive Board
meetings and enhancing our safety audit
programme. We have implemented Safety
Behaviour Audits across the Group, and we
have rolled out a new campaign focused on
Near Miss Reporting.
Our Safety and HR teams have continued to
work closely together to ensure local sites
have been able to maintain their operations
while keeping everyone COVID safe. In
response to local restrictions, sites have been
taking all reasonable steps to help people
work from home where appropriate to do
so. Actions at site level have focused on
maintaining the safety measures previously
put in place including cleaning and hygiene
procedures, implementing social distancing,
provision of face masks and as necessary,
procedures for testing and contact tracing.
With the COVID pandemic continuing into
2022, employees have been reminded
about the arrangements the Group offers
to assist with mental wellbeing during this
difficult time. Additionally, during 2021, the
Group continued to partner with third party
organisations including healthcare providers,
occupational health advisors and Employee
Assistance Programmes. In the UK, Lifeworks
has been providing 24/7/365 support for
several years to employees, giving access
to advice on a range of life topics including
physical health, childcare, and managing
finances, including counselling sessions;
unlimited critical & significant incident
support, via telephone, phone apps and
support for dependants. In 2021, this service
was rolled out to Australia and India. In the
US, healthcare arrangements offer a similar
service. 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 where
appropriate.
What will we achieve?
Our aim is to significantly reduce the number
of lost time incidents we have across the
organisation. We will increase our near miss
reporting activity, believing that a near miss
event is often a precursor to a serious injury.
Following various near miss awareness
raising initiatives, in 2021, we saw a doubling
of near miss reports compared to 2020.
For 2022, taking this initiative further and
making better use of safety observations,
we will achieve our desire to keep everyone
safe while at work. We will improve the
identification of key risk areas as well as our
culture and approach to health & safety in our
operating companies. We will drive a series of
campaigns focusing on major risk areas for
us in the coming months/years, with the first
two already planned: Near Miss Reporting &
Forklift Truck User Safety Standards.
How will we measure progress?
We will be using Lost Time Injury Rate (‘LTIR’)
as the key indicator to track and monitor our
progress in Health & Safety. Our targets are
set out opposite.
40
Stock Code HILS CASE
STUDY
ZONEGUARD BARRIER –
KEEPING ROAD WORKERS SAFE
TARGETS
LOST TIME INJURY RATE
The public unintentionally driving
into road works areas is one of
the most deadly risks facing
road workers. In the UK, 250
incursions per month are regularly
reported between operations and
major projects on the strategic
road network, although the true
figure could be much higher.
The consequences of vehicles
entering works and colliding with
people and works vehicles can be
devastating to everyone involved.
The Hill & Smith VSG Group
supply Zoneguard steel barriers
to these work areas. These
barriers can contain vehicles up
to 10,000Kg and, with ten workers
per workzone area, prevent around
25,000 injuries and fatalities
per year based on reported
incidents only.
2022
1.5
2025
0.75
2030
0.25
41
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SAVING AND ENHANCING LIVES
CONTINUED
icon
TALENT, DEVELOPMENT AND ENGAGEMENT
Why does it matter?
Hill & Smith is a global organisation with
a strategy focused on sustainable growth.
Talented people are fundamental to the
success of our decentralised 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. Our operating
companies are supported by a community
of HR professionals who enable the key
employment strategies, programmes and
processes to ensure that the Group attracts
and retains the skills and capabilities required
to deliver its strategy.
Attracting, retaining and developing talent is
key to the future success of the organisation.
Developing and enhancing our employer
brand will also improve our relationships with
our customers, and as a UK listed business,
it is important that we meet (and exceed) all
governance standards for our employees.
Positive employee engagement, a healthy
level of attrition and great careers for talented
people will all increase our productivity,
enhance our reputation, and deliver our
growth plans.
What have we done?
We conducted our second Employee
Engagement Survey in 2021, enabling us
to track and focus on the issues that are
important to our people. Having done our first
survey in 2019, we intend to repeat this on an
annual basis from now on.
42
The results of our 2021 engagement survey
have shown a very positive increase in
employee engagement, increasing by seven
percentage points from 2019. Our most
positive areas include Health & Safety and
the Working Environment. We have had
very clear direction on areas we need to
focus improvement on, including Employer
Branding, Talent and Career Development.
In recent years, we have developed and
implemented a management development
programme, providing employees with
relevant specialist/technical and personal
development appropriate to their roles and
aspirations and in line with the organisational
strategy. Since 2016, 20 senior leaders have
attended the Institute of Directors leadership
programme and 118 employees attended our
management development programmes.
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 have 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. 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.
As we increase the focus on talent in the
business, our new CPO will build on some
of the work that has been done recently on
succession planning, and improve how we
recruit, retain and develop the talent needed
for the future.
What will we achieve?
We will implement a new Global Talent
Framework. To do this, we will identify what
capability and resources we need for the
future, and we will identify "what good looks
like" across the business. We will map where
our talent currently is, and we will design
comprehensive development programmes.
We will also build a full succession plan,
which will in turn enable us to design a
resource plan.
We will ensure that we are legally compliant
across all markets in the way we treat our
people. Our employee practices will be "fit for
purpose" and will ensure we are a fair and
respected organisation.
How will we measure progress?
Progress will be measured by improvement
in employee engagement scores based
on annual survey results. Our targets for
improvement are set out opposite.
Stock Code HILS SAVING AND ENHANCING LIVES
CONTINUED
TARGETS
TARGETS
GENDER DIVERSITY
PLC BOARD
2022
33%
2025
40-60%
2030
40-60%
ETHNIC DIVERSITY
PLC BOARD
2022
10-15%
2025
10-15%
2030
10-15%
EXECUTIVE BOARD
SENIOR LEADERS
2022
33%
2025
40-60%
2030
40-60%
2022
10%
2025
20-30%
2030
40-60%
EXECUTIVE BOARD
SENIOR LEADERS
2022
10-15%
2025
10-15%
2030
20-25%
2022
5-10%
2025
10-15%
2030
10-15%
EMPLOYEE ENGAGEMENT
ENGAGEMENT SCORE
IMPROVEMENT IN SCORE
2022
58%
2025
66%
2030
75%
2022
+3pts
2025
+8pts
2030
+9pts
43
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SAVING AND ENHANCING LIVES
CONTINUED
icon
INCLUSION AND DIVERSITY
Why does it matter?
As an organisation, we want to employ
the best people for the job and help them
thrive. We know that we can only do this
by considering talented people from the
whole community, making our business
attractive for them to join and by providing an
environment where they can be themselves
and give their best. If we can provide decent
work for all of our people and ensure we
have a workforce that is truly diverse, our
business will perform to its absolute potential
and achieve our ambitious economic
growth plans, as well as deliver individual
success. 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.
As an employer working across a range of
cultures and countries, we seek to replicate
the diversity of the communities where our
companies are based, in the profile of our
own workforce. All employees are encouraged
to immerse themselves in the work of
their sites and subsidiaries, to collaborate
across the operating companies 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.
What have we done?
Improvement in how we approach inclusion
and diversity must start with our leaders. In
the last year, we have started the change in
profile of our PLC and Executive Board to
represent broader society. We have seen an
increase in visible, diverse role models and
improvement in our Gender Pay gap. 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.
and the US where a selected group of
employees have the opportunity to meet with
the Group’s Executive and Non-executive
Directors and other members of the Exec
Board, and the Group Company Secretary and
we have developed our Terms of Reference
for this programme of work. During 2020,
these meetings were held virtually and the
feedback from participants was that they
would have preferred to have them face to
face. Unfortunately, due to the arrival of the
Delta and Omicron variants of COVID and
the cancellation of travel between countries
this was unable to happen during 2021.
Consequently, these were postponed until
May and November 2022.
What will we achieve?
Based on the results of this year’s employee
engagement survey, we will develop action
plans with priorities. We will set targets to
improve our scores in specific areas.
We now insist that all recruitment short lists
must be representative of the communities
we work within, and where possible, we
ask for a 50/50 gender split. However, our
principle in recruitment remains "the best
person for the job".
We will review and republish our Equal
Opportunities Policy. We will establish a
working group to understand further our
needs and actions as we become more
focused on building a truly inclusive and
diverse culture.
In furtherance of the UK Corporate
Governance Code, the Group has established
Workforce Advisory Panels both in Europe
How will we measure progress?
Improvement in gender and ethnic diversity.
See page 43 for our targets.
44
Stock Code HILS SAVING AND ENHANCING LIVES
CONTINUED
CASE
STUDY
WOMEN IN LEADERSHIP
Lesley Culkin – Sales & Marketing – The Paterson Group, USA
Lesley has been with the Group
since 2009, when she joined Bergen
Pipe Supports as an entry level
trainee. Over the last 13 years, she
has demonstrated herself to be a
conscientious colleague and has
worked her way up through the
organisation to fill an important
Sales & Marketing role as well as
managing the Group’s Woburn, MA
facility. This involves Lesley
overseeing the day-to-day operations,
including purchasing, inventory
management, sales pricing, inside
and outside sales as well as any
branch HR requirements.
Lesley says: “I have enjoyed the room
to grow throughout my career, with
supportive mentoring and knowledge
transfer that has allowed me to
be successful in the field.” Lesley
forms part of The Paterson Group’s
"Empowerment Group" a women led
leadership initiative to encourage
other women to be successful in the
workplace by sharing experiences
and addressing challenges they are
faced with. Lesley encourages them
all to “work hard and don’t be afraid
to ask questions”.
45
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SUSTAINABLE GOVERNANCE
We recognise that, to play a positive role in
society over the long term activities, we need
to act responsibly in all our activities, not just
towards our people, whose health, wellbeing,
and career aspirations are important; or the
environment, both in the resources that we
use and the products and services that we
offer; but also to wider society.
CLIMATE RISKS TO OUR BUSINESS:
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (‘TCFD’)
Why does it matter?
We recognise that climate change is a pressing
global issue and as a company we are committed
to promoting a sustainable environment and
providing updates on our progress in doing so. To
that end, we are pleased to issue our first report
in response to the Task Force on Climate-related
Financial Disclosures.
What have we done?
The TCFD recommendations encourage companies
to disclose information on their financial risks and
opportunities due to climate change, and how they
are being managed. During 2021, we developed and
implemented an approach to assess the impact
of climate change on our business operations,
strategy, and financial planning.
How do we ensure good governance?
The Board views oversight and effective
management of environmental, social and
governance related risks as essential to the
Group’s ability to execute its strategy and achieve
long term sustainable growth. The PLC Board
receives quarterly updates on progress around
ESG focus areas including climate related risks and
opportunities. The Audit Committee is responsible
for overseeing the management of climate related
risks and opportunities and associated metrics
and targets. In addition, the Risk Committee is
responsible for identifying and assessing climate
related risks and opportunities and during the year
we developed and implemented an approach to
support this assessment.
PLC Board
• Responsible for approving and overseeing the Group’s ESG targets
• Receives quarterly updates on ESG progress from the ESG Committee
• Has oversight of TCFD reporting and disclosures (through the Audit
Committee & Risk Committee)
ESG Committee
• Responsible for defining and delivering the Group’s ESG approach
and 2040 goals
• Formed in 2021, meeting every six weeks to review and oversee
progress against ESG targets
• Use of 3rd party specialists to provide additional insight and training
(including climate change issues)
• Members include Group CEO, Group CFO, Group CPO,
Group Company Secretary, Group Head of Sustainability
(started February 2022) & other senior management
Risk Committee
• Responsible for the methodology to identify and assess climate related
risks and opportunities
• Agrees TCFD metrics and targets with ESG Committee
• Reports significant climate related risks & opportunities and
corresponding mitigation plans to the Audit Committee for consideration
• Further details about the Risk Committee can be found on pages 56 to 57
46
Stock Code HILS WHAT IS THE IMPACT OF CLIMATE RELATED RISKS AND OPPORTUNITIES ON OUR STRATEGY?
To understand the impact that climate could have on our business, we performed a high-level
assessment based on a range of climate change scenarios. The selected scenarios represent a
range of government policy interventions from very low (4°C) to significant (2°C), to aggressive
(1.5°C). The timeframes were selected after consideration of the likely timing of transition risks,
such as carbon pricing, and when significant physical climate changes are expected to materialise:
Scenario
“Global Net Zero by 2050”
Announced pledges Higher warming
Overview
Global warming is limited
to 1.5˚C as the world
reaches global net zero
emissions by 2050.
Transition risks more
prevalent.
Forecasts to what
extent announced
ambitions &
targets are on path
to deliver global
net zero.
High-emissions
scenario, consistent
with a future with no
policy changes to
reduce emissions.
Physical risks more
prevalent.
Temperature
increase
Timeframes
~1.5˚C
~2˚C
~4˚C
2025 & 2030
2030 & 2040
A risk assessment workshop was held with PwC to determine which risks could have a material
impact after considering both potential financial impact and likelihood. The assessment of climate-
related transition risks and opportunities was completed on a sub-divisional and geographic basis,
with physical climate risk vulnerability analysis completed for 67 operational sites. The assessment
of transitional risk considered emerging regulatory requirements, such as carbon pricing.
The output of this assessment has enabled us to identify the material impacts on our business
arising from each of these selected scenarios. The impacts were assessed without considering
any actions that we might take to mitigate or adapt to these future climate change scenarios.
The main impacts of the scenarios are outlined below and on the following page:
Transition Risk (TCFD, 2017):
Transitioning to a lower-carbon
economy may entail extensive policy,
legal, technology, and market changes
to address mitigation and adaptation
requirements related to climate
change. Depending on the nature,
speed, and focus of these changes,
transition risks may pose varying levels
of financial and reputational risk to
organisations.
Physical Risk (TCFD, 2017):
Physical risks resulting from climate
change can be event driven (acute) or
longer-term shifts (chronic) in climate
patterns. Physical risks may have
financial implications for organisations,
such as direct damage to assets and
indirect impacts from supply chain
disruption.
Global warming scenario:
1.5°C and 2°C
Risk
As the global economy transitions to a low
carbon state, we have identified a number of
potential risks and opportunities for the Group:
•
•
The introduction of carbon pricing across
our key geographies increases both our
manufacturing costs and the costs of raw
materials
Increased demand for renewable energy
may lead to reduced supply of renewable
energy or an increase in the cost of
purchasing renewable energy
• Potential opportunities for the Group
given the existing focus on sustainable
infrastructure products, for example
galvanizing and certain composite
applications. Further innovation in new
products and services, in line with our
purpose, will present further growth
opportunities. See case studies on
page 49.
Other risks identified, but not considered
material, include the availability of greener
technology to adapt to lower emissions and
the reputational damage to the Group’s brand
due to climate inaction or negative climate
impact from production/supply chain.
Impact analysis
Under both scenarios operating costs, particularly relating to carbon pricing, could increase if
they are not proactively mitigated. We have therefore assessed the potential financial impact of
carbon pricing relating to our current Scope 1 and Scope 2 emissions.
.
Carbon Pricing* Gross Risk Impact (Scope 1 & 2)
Annual Impact by 2025
Average annual operating cost increase
assuming no proactive carbon reduction
plans are undertaken based on 2021
emissions
Annual Impact by 2030
Average annual operating cost increase
assuming no proactive carbon reduction
plans are undertaken based on 2021
emissions
1.5°C
£6.1m
2.0°C
£5.6m
Based on $130 per tonne
Based on $120 per tonne
1.5°C
£9.6m
2.0°C
£8m
Based on $205 per tonne
Based on $170 per tonne
* Carbon pricing assumptions based on PwC’s estimates for advanced economies in 1.5°C and 2°C scenarios.
The Group is committed to reducing greenhouse gases as demonstrated by our 2040 net
zero ambition, which will substantially mitigate the gross risk exposure to carbon pricing. The
financial impact of carbon pricing has been considered as part of the costed plan relating to
our net zero ambition. The impact of a potential increase in the cost of renewable energy is
not considered material based on the Group’s current renewable energy consumption. As the
Group’s adoption of renewable energy increases, future exposure to renewable energy pricing
will be partly offset by self-generated energy.
We will start to assess our Scope 3 emissions during 2022 with a view to disclosing them in our
2023 Annual Report in accordance with the SBTi target.
47
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SUSTAINABLE GOVERNANCE
CONTINUED
WHAT IS THE IMPACT OF CLIMATE RELATED RISKS AND OPPORTUNITIES ON OUR STRATEGY?
WHAT IS THE IMPACT OF CLIMATE RELATED RISKS AND OPPORTUNITIES ON OUR STRATEGY?
CONTINUED
Global warming scenario: 4°C
Risk
Under this scenario, we expect to see an
increase in the frequency and magnitude of
extreme weather events across our global
operations. This could present multiple
challenges for the Group including:
• Damage to operations from extreme
weather events
• Operational downtime due to severe
weather conditions
• Difficult working conditions, e.g. extreme
temperature could have the potential to
lead to an increase in absenteeism
• Potential for an increase in the number
of injuries or accidents when conducting
operations
There are also potential growth opportunities
relating to Group products and services,
which provide solutions for extreme weather.
See case studies opposite for more details.
Impact analysis
This scenario may include costs relating to
increased volatility, business discontinuity
and needed resilience investments for
addressing more severe and frequent natural
disasters that would occur under a warming
of 4°C. Working alongside PwC, we have
analysed the Group’s exposure to climate
hazards at our 67 sites. A summary of the
results is as follows:
Hazard
Flood
Precipitation
Wind
Heat
Hail/Thunderstorms
Drought
Wildfire
Total unique sites with one or more
high risk hazards
Sites at higher risk**
2021
No of
sites
2021
% total
sites
2040
No of
sites
2040
% total
sites
3
5
3
6
4
3
2
4%
7%
4%
9%
6%
4%
3%
5
6
3
9
4
7
2
13
19%
23
7%
9%
4%
13%
6%
10%
3%
34%
** PwC’s climate analysis tool assigned each site, for each hazard, an absolute hazard score from 1 to 100. Sites
with hazard scores greater than 75 were deemed high risk.
Based on the above analysis, by 2040, heat
is the most significant threat to the Group
(13% of sites), with drought seeing the most
significant increase in risk from 2021 to 2040
(4% of sites increasing to 10% of sites). A
smaller proportion of sites could be exposed
to extreme precipitation (9% of sites) or flood
(7% of sites) by 2040. Overall, 34% of sites
have been identified to be at higher risk from
one or more climate hazards by 2040, which
represents c.24% of Group revenues. During
2022 we will work with the relevant operating
companies to further understand their specific
exposure relating to these risks to ensure that
robust business continuity measures are in
place to mitigate these climate related risks
and that the necessary insurance cover is in
place. These risks will also be added to their
local risk registers as per our established risk
management process.
The results of this analysis indicate the
importance of taking action to reduce
greenhouse gas emissions to minimise
transition related risks. It also suggests that,
while physical climate change presents a
relatively low risk to our future business
operations, it may present opportunities for
the Group. Given our focus on sustainable
infrastructure, some of our operating
companies already provide products and
solutions to address extreme weather
conditions, and we see this as an opportunity
for future growth.
How do we manage risk?
The Risk Committee is responsible for
identifying, assessing, and managing Climate
related risks and opportunities and reporting
significant risks to the Board. This includes
consideration of emerging regulatory
requirements, such as carbon pricing.
48
Stock Code HILS SUSTAINABLE GOVERNANCE
CONTINUED
WHAT IS THE IMPACT OF CLIMATE RELATED RISKS AND OPPORTUNITIES ON OUR STRATEGY?
Based on the scenario analysis and impact
assessment outlined above, the Board do
not currently consider the impact sufficiently
material over the next five years to be deemed
a Group Principal risk, however we are
considering climate change as an emerging
risk and will monitor accordingly.
The impact assessment has however
identified that some of our operating
companies may be more severely impacted
by future climate change scenarios. The Risk
Committee is responsible for actively working
with our operating companies to ensure
that appropriate mitigation strategies are in
place using our established risk management
process (refer to pages 56 to 59 for further
details).
How will we measure progress? –
Group metrics and targets
The Group has set the following metrics and
targets to assess and manage climate related
risks and opportunities:
• We have signed up to the Science Based
Targets initiative and our goal is to reduce
our Scope 1 and Scope 2 CO2 emissions
•
to achieve net zero by 2040. In the near
term, we are measuring progress through
reduction in our CO2 intensity ratio. Refer
to page 37 for further details of progress
to date.
In 2022, we will be undertaking an
initiative to establish our baseline Scope
3 CO2 emissions. The result of this will
help inform the reduction targets. In
addition, we currently measure water
usage, waste management and we are
continuing to look at ways of minimising
the environmental impact.
TCFD Elements
TCFD Recommended Disclosures
Compliant
Next Steps
Governance
a. Board oversight
b. Management’s role
Strategy
d. Impact of climate related risks & opportunities
c. Climate related risks & opportunities
e. Resilience of the organisation’s strategy in climate scenarios
Risk Management
g. Managing climate related risks
f. Risk identification & assessment
h. Integration into overall risk management process
i. Metrics for climate related risks & opportunities
j1. Scope 1 & 2 GHG metrics
Metrics & Targets
j2. Scope 3 GHG metrics
k1. Climate related targets – Scope 1 & 2
k2. Climate related targets – Scope 3
CASE
STUDIES
Continue
Continue
Develop
Develop
Develop
Develop
Develop
Commence
Continue
Continue
Commence
Continue
Commence
Utility Pole Storm
Resilience – Creative
Composite Group, US
StormStrong fiber reinforced
polymer (FRP) poles enhance
infrastructure reliability and can
absorb 10 times the energy of a
steel pole. The properties of FRP
are such that it can return to its
original size and shape following
deformation. Unlike legacy utility
poles that are susceptible to rust,
rot and the damaging effects of
extreme weather, StormStrong
poles are designed and engineered
to withstand Category 5 hurricane
winds of 130 mph.
Seawall Erosion Protection
– Creative Composite
Group, US
The SuperPile, SuperLoc and
SuperWale FRP products offer a
range of sea wall erosion protection
solutions to shield against the
impact of severe weather. The
decay-proof alternative to traditional
retaining walls delivers a high
strength-to-weight ratio and a more
resilient system. The lightweight
composite material allows for quick
installation, has zero maintenance
and a life of up to 75 years.
Rail Track Flood Resilience
– Asset International
Structures, UK
The "Asset BaFix" track ballast
shoulder retention system adds
stability to rail tracks and provides
flood resilience to ensure remote
areas of rail networks are not cut off
during flooding and extreme weather.
HVAC vibration isolation
systems – Novia, US
Novia’s vibration isolation roof
curbs are designed to withstand
significant weather events, such
as hurricanes, to protect Heating,
Ventilation, and Air Conditioning
('HVAC') systems and ensure
life and safety critical facilities
remain open and operational. Such
facilities include hospitals, police
and fire stations, data centres and
educational centres.
49
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SUSTAINABLE GOVERNANCE
CONTINUED
ETHICAL CONDUCT
Why does it matter?
As an international Group, we recognise that
acting ethically towards our employees and
other stakeholders shows our commitment
to doing business in a responsible manner.
Protecting ourselves and our employees,
creating a sense of pride in our employees
that we always "do the right thing", ensuring
transparency when dealing with customers
and suppliers; supporting the communities
in which we work with fair and equitable
employment policies and opportunities,
and maintaining our reputation with all our
stakeholders.
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 operating 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.
We will not employ child labour in any of
our operations, nor or will we permit the
exploitation of, or discrimination against, any
vulnerable group.
We aim to make a positive impact on society
from our operations. 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
does not operate in countries considered
as partially compliant or non-compliant,
according to the OECD Tax Transparency
report or 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.
What have we done?
The Group is committed to conducting its
business activities responsibly and ethically
and in accordance with the laws and
regulations applicable to the jurisdictions,
we which we operate, and has a series of
policies that support this objective. These
are supported by training and educational
programmes for employees, together with
a Group Code of Business Conduct (‘CoBC’)
which underpins all our activities and 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.
For employees who wish to raise concerns
without fear of reprisal or victimisation, we
provide 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,
a Group President or the Chair of the Audit
Committee, without fear of reproach. During
2021, two such issues were reported and
investigated (2020: 3).
50
Stock Code HILS SUSTAINABLE GOVERNANCE
CONTINUED
Specific policies have been developed and
the following are available on the website
www.hsholdings.com:
•
Supply Chain
• Code of Business Conduct
• Anti-Bribery & Corruption Policy
• Modern Slavery Policy
• Whistleblowing Policy
•
Tax Strategy Policy
How do we ensure that
we are compliant?
Annual Modern Slavery audits
Board oversight of all Whistleblowing Reports
Annual approval of all ethical policies by the
PLC Board or Executive Board
Online training to ensure compliance with
relevant legislation
Annual certification by Group operating
companies that they have complied with
policies issued by the Group, and in particular
with the CoBC.
What will we achieve?
We will regularly review subsidiaries’ standard
terms and conditions of purchase, and
standard long-term supply agreements
across the Group. Ensuring the terms
and agreements include a number of
requirements concerning ethical operations,
including provisions addressing a supplier’s
obligation to comply with the UK Modern
Slavery Act or similar local legal obligations.
We will act in accordance with our CoBC,
upholding a zero-tolerance approach to
bribery and corruption. There were Zero
incidents of bribery and corruption reported in
2021 (2020: nil).
We will conduct annual audits to ensure that
we fulfil our obligations under the UK Modern
Slavery Act.
We will monitor and investigate all
Whistleblowing reports as well as learning
the lessons from such incidents in order to
manage such reports to an acceptable level.
CASE
STUDY
MODERN SLAVERY AUDIT
Only the UK based Suppliers had a
“Modern Slavery Policy/Statement”
given the Modern Slavery Act 2015
is a UK specific requirement, but
the USA based Suppliers confirmed
they would be happy to sign a Hill &
Smith Holdings PLC Worker Supply
Agency Charter to demonstrate
commitment to anti-slavery and
anti-exploitation of temporary
workers.
During 2020, we undertook a
review of the Modern Slavery risks
associated with the supply of
flexible labour force agency workers
(‘Suppliers’) to our operating units
and, as we reported in 2020, in
2021, we focused our attention on
those agencies providing temporary
labour to our galvanizing plants.
Management arranged for Suppliers
in the UK and US to be selected for
a questionnaire-based interview,
conducted by our Group Head of
Legal and a local representative of
the relevant operating companies.
Due to the ongoing effects of the
COVID pandemic, these interviews
were conducted on a virtual basis.
Consequently, the audit consisted
of a questionnaire-based interview
together with observations made
during the interview and the historic
dealings of the Suppliers with the
operating companies concerned.
The review concluded that there
were no concerns with any of the
Suppliers. They did not recruit
outside their country of jurisdiction;
conducted at least one face to
face interview with each worker as
part of the recruitment process;
obtained proof of identity and
right to work documentation
in accordance with jurisdiction
specific law; and only paid monies
into an account, cheque or pay
card in the name of the individual.
None of the Suppliers engaged
anyone under the age of 16 and
demonstrated a high awareness of
relevant procedures, legislation, and
requirements.
51
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT SUSTAINABLE GOVERNANCE
CONTINUED
Sustainability Data
Sustainable Products
Spend on R&D
Percentage of revenue
GHG Emissions
Environmental penalties
Location-based consumption (kWh)
Scope 1 Gross
Scope 2 Gross
Market-based consumption (kWh)
Scope 1
Scope 2*
Location-based consumption (tCO2e)
Scope 1
Scope 2
Market-based consumption (tCO2e)
Scope 1
Scope 2*
Intensity Ratio**
2021
2020
2019
2018
2017
£1.9m
0.3%
£2.0m
0.3%
£1.4m
0.2%
£1.2m
0.2%
£1.6m
0.3%
£nil
£nil
£nil
£nil
£nil
276,349,609
268,190,068
274,754,321
264,798,827
244,052,313
53,097,574
50,337,266
55,287,447
63,315,669
57,325,439
276,349,609
268,190,068
274,754,321
264,798,827
244,052,313
36,624,147
47,646,715
55,287,447
63,315,669
57,325,439
53,712
14,383
53,712
10,885
0.09
52,066
15,335
52,066
14,708
0.10
53,478
19,803
53,478
19,803
0.11
56,469
24,449
56,469
24,449
0.13
57,183
22,599
57,183
22,599
0.14
* In November 2020, the Group entered into a two-year contract to buy all its UK electricity requirements from renewable sources. This was backed by Renewable Energy Guarantee of Origin
(‘REGO’). The Scope 2 nett data excludes data relating to this source of electricity.
** Intensity Ratio is defined as total scope 1 & 2 tCO2e expressed as a ratio to £000’s of revenue.
Health & Safety
No. of workplace fatalities
No. of COVID cases
COVID cases as a percentage of workforce
No. of lost time injuries
Lost time injury rate ('LTIR') (The number of lost time injuries divided
by total hours worked multiplied by 100,000)
No. of Near Miss Reports
Percentage of sites with access to online H&S reporting systems
Percentage of sites covered by ISO 45001
Talent & employment practices
No. of Group employees (as at 31 Dec)
Voluntary (Regrettable) attrition rate
Internal recruitment
Percentage of employees with access to a recognisable Trade Union
UK Gender Pay Gap
Training spend
Training budget
No. of training days
No. of training hours
UK Apprenticeships
Employees participating in training & development
52
0
632
14%
142
1.7
2,126
97%
45%
4,402
14%
9%
18%
2.8%
£0.6m
£0.5m
4,119
32,952
49
156
0
130
2.9%
109
1.5
955
95%
46%
4,398
6%
18%
18%
8.4%
£0.4m
n/a
4,000
32,000
34
111
0
n/a
n/a
119
1.6
n/a
n/a
n/a
0
n/a
n/a
119
1.6
n/a
n/a
n/a
0
n/a
n/a
123
1.8
n/a
n/a
n/a
4,591
4,094
3,884
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
12.7%
12.5%
10.2%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Stock Code HILS SUSTAINABLE GOVERNANCE
CONTINUED
Percentage of women employees participating in
training & development
Percentage of UK sites utilising the Apprenticeship Levy
Engagement, inclusion and diversity
Engagement Survey participation
Engagement Score
Inclusion Engagement Score
Gender diversity
PLC Directors
Executive Board
No. of Subsidiary Directors
No. of Senior Managers
Percentage of PLC Directors
Percentage of Executive Board
Percentage of Subsidiary Directors
Percentage of Senior Managers
Total percentage of Group employees
Climate risks to our business
Carbon Disclosure Project (‘CPD’) Rating
Environmental fines incurred
Group Water Usage (m3)
Solid waste to landfill (Tonnes)
Recycled waste (Tonnes)
Percentage of recycled waste
Scope 3 (tCO2e) – from water and waste
Other GHG emissions – CH4 (tCO2e)
Other GHG emissions – N2O (tCO2e)
Ethical conduct
Charitable donations
Whistleblowing reports made by employees
Modern Slavery audits carried out
2021
17%
57%
64%
55%
63%
F
3
2
3
38
M
5
4
49
201
2020
2019
2018
2017
10%
49%
n/a
n/a
n/a
F
2
n/a
5
39
M
5
n/a
66
174
n/a
n/a
56%
48%
58%
F
2
n/a
3
40
M
5
n/a
79
221
M
5
n/a
59
167
n/a
n/a
n/a
n/a
n/a
F
1
n/a
2
19
M
5
n/a
71
182
n/a
n/a
n/a
n/a
n/a
F
1
n/a
3
19
62%
38%
71%
29%
71%
29%
83%
17%
83%
17%
60%
94%
84%
90%
40%
6%
16%
10%
D
£nil
104,795
3,600
13,755
79%
2,040
87
213
n/a
93%
82%
90%
n/a
7%
18%
10%
n/a
96%
85%
91%
n/a
4%
15%
9%
n/a
97%
90%
91%
n/a
3%
10%
9%
n/a
96%
91%
91%
n/a
4%
9%
9%
C
£nil
95,093
5,165
19,145
79%
2,735
81
194
D
£nil
91,152
4,678
22,514
83%
521
n/a
n/a
D
£nil
87,485
5,038
33,817
85%
529
n/a
n/a
D
£nil
91,476
4,404
25,140
82%
472
n/a
n/a
£39,000
£21,000
£39,000
£30,000
£34,000
2
Yes
3
Yes
19
Yes
11
n/a
n/a
n/a
* BEIS conversion factor quadrupled in 2020. On the same basis 2019’s Scope 3 emissions would have been 2,410
Sustainability Policies
The Group has a number of policies that
support its Sustainability Plan. These can be
found at www.hsholdings.co.uk/about-us/
corporate-governance/policies.
Product Responsibility Policy
Conflicts Minerals Policy
Supply Chain Policy
Energy Policy
Environment Policy
Health & Safety Policy
Equal Opportunity & Diversity Policy
Training & Development Policy
Tax Strategy Policy
53
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT STAKEHOLDER ENGAGEMENT
Our People
What matters to our people
What we did in 2021
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.
• Health & Safety
• Brand
•
Safe working environment
• Remuneration
• Wellbeing
•
Job security
• Career development
• Carried out our second All-employee
engagement survey
• Appointed a Chief People Officer
• Appointed a Group Head of Health & Safety
• Commenced a search for Group Head of
Sustainability
• Developed plans for talent development
and inclusion & diversity as part of our ESG
response (see page 42 to 45 for details).
Our Companies
What matters to our companies
What we did in 2021
• Health & Safety
• Operational and financial performance
• Cash allocation
• Product Innovation
•
Talent and development
Our decentralised autonomous
model places our companies
close to their end markets and
under the management of their
own board of directors, providing
agility, customer intimacy and
entrepreneurial activities. Our
companies are able to respond
rapidly to opportunities and to
changes in their competitive
environment and are responsible
for the delivery our organic
growth and the success of our
Group strategy.
• Modified our organisational structure with
the introduction of the Group President role.
•
Increased agility, focus and scalability
across the Group.
• Monitored operating company performance
• Regular site visits by Directors
• Provided cash to facilitate capital projects
•
Introduced Innovation Forum
• Developed plans for talent development as
part of our ESG response (see page 42 to
45 for details).
Customers
What matters to our customers
What we did in 2021
Our operating companies engage
with their customers on an
individual business unit basis.
Most businesses are accredited
with number of ISO quality
standards to provide comfort to
our customers that we are able
to deliver solutions which meet
their exacting requirements.
• Quality products delivered on time and to the
•
Invested in product development
correct specification
•
ESG
• A strong health & safety culture
• Being treated with respect
• Working as a partnership
• Piloted a CSR accreditation scheme
across three Group operating companies,
resulting in:
− One Gold award: Hill & Smith
Limited; and
− Two Silver awards: Mallatite Ltd and
Novia Corporation Inc.
• Conducted health & safety audits across
80% of our sites
• Acquired Prolectric Services Ltd, a provider
of environmentally friendly lighting
solutions.
Suppliers
What matters to suppliers
What we did in 2021
• Mutual beneficial arrangements
• Operating companies regularly met
•
Long-term relationships
• Quality
with existing and potential suppliers to
continuity and quality of supply.
• Maintained the Group’s payment terms at
64 days (2020: 60)
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.
54
Stock Code HILS Governments & Industry
What matters to governments and industry
What we did in 2021
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.
• Development of road infrastructure
• Development of utilities infrastructure
•
•
•
Tested products
Sustainable products
Environmentally friendly solutions
•
Tested Road products to Manual for
Assessing Safety Hardware (‘MASH’) in the
US and Australia and Standard EN1317 in
the UK.
• Represented the Group on Government and
Industry safety and product committees,
including the British Standards Institute
(‘BSI’); the Vehicle Restraint Manufacturers
Association; Perimeter Security Suppliers
Association; and the Transport Research
Board in the USA.
• Discussed the use of composite materials
with US Government officials.
Local Communities
What matters to our local communities
What we did in 2021
Subsidiaries engage with
their local communities on a
business-by-business basis
supporting local charities as
well as engaging with local
authorities when seeking to
develop their businesses.
•
•
ESG
Employment
• Health & Safety
• Provided advice to our operating companies
to help develop local ESG initiatives.
• Operating companies engaged with their
local communities, supporting local
charities on a business-by-business basis.
Investors
What matters to our investors
What we did in 2021
Our Chairman, CEO & 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 feedback their
views on the major corporate
governance issues of the day.
• Progressive dividend performance and long-term
share price growth; and long-term sustainable
profit growth
• Reinstated our dividend policy, following
the cancellation in 2020 of the 2019 final
dividend.
• Operational efficiency
• Developed our ESG Sustainability Plan
• Robust corporate governance and business ethics
• Appointed a Group Head of Sustainability
•
The CEO and CFO met regularly with
investors and analysts
• Held an Investor site visit at our Hill & Smith
Ltd/Joseph Ash galvanizing joint site in
Bilston, West Midlands.
55
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT RISK MANAGEMENT
The Group has an established Enterprise Risk Management Framework that identifies, evaluates,
manages, and monitors risk. Several enhancements have been implemented during 2021 to
further improve and embed the risk management process.
Risk Management
Effective risk management is critical to
the achievement of our strategic drivers
of organic growth, portfolio management,
strong cash generation, and sustainability.
The Group benefits from an Enterprise Risk
Management Framework that is integrated
into the ongoing business activities of our
operating companies.
Responsibilities
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.
Enterprise Risk Management
Framework
The Group operates an Enterprise Risk
Management Framework that ensures a
consistent and proportionate approach
is used to identify, evaluate, manage, and
monitor risks across all our operating
companies. The Framework integrates with
the Group’s internal controls and compliance
policies and is supported by the internal and
external audit programmes. It uses a tiered
approach to risk management, with risk
registers at operating companies linked to the
appropriate Group Principal Risks, with flows
of information and assurance (see Figure 1).
In keeping with the Group’s entrepreneurial
approach, individual operating companies
can record and manage unique risks outside
of the Group’s Principal Risks as they see fit.
This ensures risk management is effectively
embedded in a way that fits each specific
operating environment and risk horizon.
Within the Framework, the following roles and
responsibilities exist:
The PLC 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 PLC 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 operating companies
OPERATING COMPANIES
Identify, assess and manage operating company level risks
•
Set risk targets for identified risks
•
• Complete risk improvement actions
Sets risk management methodology
•
• Advises operating companies on best practice
•
Interrogates and calibrates risk information from operating
companies
• Provides challenge and insight
• Reports risk information to the Audit Committee
• Advises the Audit Committee on new and emerging risks
RISK COMMITTEE
Figure 1 Risk Management Process
56
Stock Code HILS RISK APPETITE
The Enterprise Risk Management Framework
clarifies how risk is to be managed in a way
that satisfies the decentralised operating
model of the Group (see Figure 2 on page
58). The approach has allowed the Board
to consider its appetite in the light of the
Group’s business model and carry out a
robust assessment during 2021 of the
Principal Risks and Uncertainties that might
threaten the Group’s business model, future
performance, solvency and liquidity (see
pages 60 to 65 for the Group’s Principal Risks
and Uncertainties).
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 are 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 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 operating companies on specific
risk targets.
RISK IN 2021
Risk Committee
The Committee met formally five times
during the year and comprises the Group
Chief Financial Officer, Group Head of Risk
& Internal Audit, Group Company Secretary,
Group Director of Corporate Development,
Chief People Officer, Group Financial
Controller and the Group Presidents plus
representatives of the Group’s three business
segments and by invitation the Group Chief
Executive. The Committee reviews and
validates the risk reports from the operating
companies, before presenting a Group-wide
report to the Audit Committee for discussion
on both operating company level risks and
Group risks. 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 the
top down.
Risk Analysis
The Board reviewed in depth feedback
from the operating companies 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 Group faced. An increase to
the exposure from four of our Principal
Risks has been highlighted: Supply chain
failure, IT failure, Changes in global outlook
and geopolitical environment and Talent,
development, diversity, recruitment and
retention of key employees. The remaining
Principal Risks have remained stable. For
further details see pages 60 to 65. During
the year, the Risk Committee and Board have
discussed at length the effect of COVID-19
on the Group and our Principal Risks. Where
applicable further details have been provided
against individual Principal Risks on pages
60 to 65.
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
Supports the Group Board by:
•
•
•
•
acting as a conduit between the Group
and our operating business, supporting
the dissemination of the Enterprise
Risk Management Framework and risk
appetite down from the Board and flow
of information and assurance back up to
the Board;
helping the Executive team to embed the
Enterprise Risk Management Framework
by designing and implementing
supporting systems, procedures, tools
and training;
proactively analysing and challenging
the assessment, management and
monitoring of operating business
risk registers and day-to-day risk
management; and
ensuring the Group Board and Audit
Committee are provided with sufficient
information to discharge their
responsibilities effectively.
The Executive Board
Supports the Audit Committee and PLC
Board by:
•
•
•
ensuring operating companies are
effectively embedding the Group’s
Enterprise Risk Management Framework
and are maintaining live risk registers that
are actively managed;
overseeing completion of all required
Group reporting of risk with escalation
of any significant matters to the Risk
Committee in a timely manner; and
advising the Risk Committee on
appropriate levels of target risk and on
actions that may be required to ensure
effective identification and mitigation
of risk.
57
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT RISK MANAGEMENT CONTINUED
Governance
CULTURE AND STRATEGY
APPETITE
REPORTING AND
ASSURANCE
Core risk management process
IDENTIFY
ASSESS AND
QUANTIFY
MANAGE
MONITOR
Infrastructure
TOOLS, SYSTEMS
AND DATA
POLICIES AND
PROCEDURES
ROLES AND
RESPONSIBILITIES
the initial list. Analysis was then completed
to determine which threats and opportunities
are already being managed through existing
strategic initiatives and which require action
now to mitigate/maximise future impacts.
The results from the emerging risks analysis
were presented at the March 2022 Audit
Committee and the prioritised emerging risks
will be monitored throughout 2022. Going
forwards, this will be an annual cycle, with
a revised list and materiality assessment
completed to refresh the prioritised list.
Figure 2 Risk Management Framework
Risk Activities
Activities undertaken to enhance the Group’s
approach to risk in 2021 included:
•
•
•
•
•
introduction of key risk indicators (KRIs)
to provide an early signal of increasing
risk exposures and to better evidence risk
scoring assessments;
integration of the Group IT Controls
Manual into the assessment of the IT
Systems Failure Principal Risk;
splitting out the assessment of the Talent,
Development, Diversity, Recruitment and
Retention of key employees Principal Risk
into separate risks at operating company
level for recruitment and retention
of management and indirect labour,
recruitment and retention of direct labour
and recruitment and retention of a diverse
workforce;
revision of the "Risk Playbook" to reflect
the above. The Playbook provides a guide
to operating companies on best practice
preventative (to reduce likelihood of risks
occurring) and reactive (to reduce impact
if risks do occur) mitigating controls; and
virtual seminars and one to one sessions
to introduce the methodology revisions
and to provide ongoing training on
risk management and using our risk
management software.
TCFD
During the year, we developed a risk
management approach to understand our
exposure from physical and transitional risks
due to climate change. The details of this can
be found on pages 46 to 49.
During 2022, we will work with the operating
companies to further understand their
specific exposure relating to these risks
to ensure these are reflected at operating
company risk register level and that robust
business continuity measures are in place.
Emerging Risks
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. During 2021, the Risk
Committee established a more formalised
methodology to identify, assess and monitor
emerging risks. An initial list of potential
emerging risks the Group could face, devised
from risk and audit thought papers and
reports, industry papers and internal input,
was compiled. A materiality exercise was
then completed with input from the Risk
Committee, Executive Board and the Chair
of the Audit Committee to produce a group
of prioritised threats and opportunities from
58
Stock Code HILS Emerging Risk
Global economic recession (COVID after-effects, asset bubble collapse, economic cycle etc.)
Climate Change Policy (including carbon taxes, renewable incentives etc.) and increasing stakeholder expectation to
achieve net zero on an ever-decreasing timescale
Increasing customer expectations on technological enhancements in our products and operations
Decarbonisation of the economy and the cost/technology to achieve this
Talent management, retention, and engagement in the virtual/hybrid working era
Increasing environmental regulations, with increased fines, zero tolerance & public scrutiny
Future pandemics
Physical climate risks to our businesses – acute, e.g. extreme weather events: hurricanes, floods, heat waves etc.
Physical climate risks to our businesses – chronic, e.g. rising sea levels, increased average temperatures etc.
Natural resources scarcity
Timescale
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Long (10yrs+)
Long (10yrs+)
RISK IN 2022 AND BEYOND
The key focus during 2022 will include:
•
•
•
•
•
•
•
further work to mature the risk management methodology used across the Group;
integration of our climate change risk assessment process, as developed for TCFD reporting, into the existing Enterprise Risk Management
Framework;
in-depth review of mitigating controls and the levels of assurance available at operating business to ascertain their effectiveness;
continued assessment of the Principal Risks facing the Group and operating companies 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 operating companies;
further development of our risk management software to continually improve the efficiency of reporting to the Group from our operating
businesses; and
further alignment of health & safety and IT audits with the control effectiveness assessments performed by operating companies.
59
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT PRINCIPAL RISKS
Risk
Description & Potential Impact
Mitigation
Reduction in
Government
spending plans
Demand for sustainable infrastructure and transport is
underpinned by Government spending plans. Changes
to these plans could have a detrimental impact on Group
revenues.
In November 2021, the Infrastructures Investment
and Jobs Act was agreed, confirming substantial
US Government infrastructure spending with the
associated demand for our products and services in
the US. Despite the announced delay to some SMART
motorway schemes, the UK Government’s confirmed
commitment to the next phase of road investment spend
(RIS2) remains, presenting great opportunity for our UK
businesses.
• 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.
•
Exposure to the benefits from longer term
infrastructure investment programmes.
Changes in
global outlook
and geopolitical
environment
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.
•
The Group has a diverse portfolio of operating
companies 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.
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.
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.
The conflict in Ukraine has created significant
uncertainty. The direct exposure from international
sanctions for the Group is limited, due to no current direct
Russian customers or suppliers. There could however be
consequences on the global economic outlook as well as
supply chains and utility prices. As a result, an increase in
the risk has been recognised.
Increase in
competitive
pressure
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.
•
•
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 operating company Board meetings that
review market and customer activity.
• Our operating companies aim to provide superior
products and high service levels to customers, whilst
aiming to ensure there is no dependency on any one
particular customer.
No change
Increase
Decrease
60
Stock Code HILS
Risk
Description & Potential Impact
Mitigation
Product failure
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 significant.
• Products tested, approved and accredited by
regulatory bodies.
• Quality control protocols fully implemented and
continuously monitored.
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.
• 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.
Contractual failure
The Group delivers its commitments to its customers
through a variety of contractual arrangements of both a
short and medium term nature.
• Group material contract review process ensures
specialist central oversight of key contractual
arrangements.
Supply chain failure
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.
• Contracts training for key staff.
• Dedicated quantity surveyors and contract managers
in operating companies to control contracts and
mitigate risk.
•
•
•
•
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 to mitigate exposure.
Thematic Internal Audit review completed across the
Group during 2021 with further recommendations to
be implemented during 2022.
The Group’s businesses depend on the availability and
timely delivery of raw materials and components, which
could be affected by disruption in its supply chain. Supply
chain failures as a result of performance, inflation 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 the year, our operating companies took swift and
appropriate action to manage supply chain headwinds.
Actions taken included implementing price increases
to offset significant input cost inflation, securing
supply of raw materials and ensuring the continuity of
operations with a backdrop of labour shortages in certain
businesses. Whilst we continue to closely monitor and
manage these headwinds as we enter 2022, we do
recognise a net increase in the risk due to current inflation
pressures. The conflict in Ukraine and potential impact
on global supply chains and utilities prices is likely to add
further inflationary pressure.
• Group procurement standards in place, including
robust due diligence of supply chain partners and the
requirement for dual sourcing where available.
• Maintenance of relationships with key suppliers
through regular interaction and assessment of
performance/financial status.
• Group oversight of material procurement contracts
ensuring robust contractual protections.
• Goods inwards and stock management processes in
place to reduce the likelihood of defects or a shortage
of raw materials.
• Contingency plans in place throughout the supply
chain to mitigate these risks, such as purchasing
additional stock of key raw materials and securing
additional supply chain capacity.
•
•
Supply chain resilience has been a focus of the Risk
Committee during 2021 with ongoing monitoring
of operating companies’ ability to respond to the
continued challenges.
Internal Audit to complete a thematic review on
Supply Chain Resilience during 2022.
61
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT PRINCIPAL RISKS CONTINUED
Risk
Description & Potential Impact
Mitigation
IT systems failure
The Group relies on the information technology systems
used in the daily operations of its operating companies.
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 operating companies being susceptible to cyber-
attack, potentially resulting in significant IT failure and
associated disruption.
During the year, the global cyber threat has continued to
evolve, with increasing numbers of organised criminal
groups carrying out sophisticated ransomware attacks,
for example. As a result of the conflict in Ukraine, the
UK’s National Cyber Security Centre (NCSC) has warned
of heightened cyber risk across UK, US and European
businesses. Whilst there has been enhancement of the
Group’s IT security controls during the year to improve
mitigation against cyber-attacks, we recognise at a net
level there has been an increase in the risk.
Portfolio
Management
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.
Targeted disposals are also required to ensure the
strategic objectives of the Group can be achieved.
• Group CISO recruited in 2021.
• Revised IT controls manual launched during the year
setting out a robust set of IT/information security
controls covering basic cyber hygiene, system back-
up procedures and hardware/software protection.
The Group CISO and Internal Audit monitor
compliance against the controls and work with the
operating companies on remediation plans.
• Ongoing project for significant investment in the
enhancement of IT security controls and maturity
across the Group covering areas such as IT asset
management, backup, endpoint protection, incident
response and vulnerability management.
•
The Board maintains a watching brief on IT risks,
particularly cyber risk which is a focus area for
improvement.
• Group wide monthly IT Operations meeting
established to communicate issues and initiatives to
operating companies.
• Quarterly updates established to brief operating
company leadership teams on their responsibilities
relating to IT management and information security.
• Group IT Steering established to set and approve IT
strategy and improvement plans.
•
Segregated business processing systems within each
operating company means that any disruption due
to illegal external activity is unlikely to jeopardise the
Group as a whole.
• 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 and legal etc.
• Contractual protections and assurances sought from
sellers to mitigate subsequent identification of risks.
• Post-acquisition integration plans established for all
acquisitions with regular performance monitoring
and reporting to the Board.
•
•
Successful integration of Prolectric Services
during 2021.
Targeted disposals of operating companies that fail
to meet our financial criteria.
No change
Increase
Decrease
62
Stock Code HILS Risk
Description & Potential Impact
Mitigation
Lack of investment
in product
development and
innovation
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.
Talent,
development,
diversity,
recruitment &
retention of key
employees
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 operating companies have
continued to find it challenging to attract and retain direct
labour due to very competitive labour local markets
impacted by COVID and hence an increase in the risk has
been recognised.
• Group wide Innovation Framework launched during
2021 to: encourage and stimulate more innovation
across the Group, integrate innovation into Strategic
Plans, improve the tax efficiency of innovation
investment and monitor "innovation health" across
the Group.
•
•
Entrepreneurial culture established through a
decentralised management structure, ensuring
that Group businesses are agile and responsive to
changes in their competitive environments.
Executive Board approval of product development
proposals within the Group’s capital spend approval
policies.
• Active Intellectual Property management within
individual operating companies overseen by Group.
• Dedicated quality compliance resources in
place across operating companies, 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.
•
Two of our ESG focus areas (Talent development
and engagement & Diversity, and inclusion) directly
address the risk, with improvement initiatives and
metrics overseen by the ESG Steering Team.
• Recruitment of Chief People Officer during 2021.
• Refreshed People Strategy with a greater focus on
internal talent.
• Review of base hourly rates, which increased in many
locations during 2021.
• 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.
63
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT PRINCIPAL RISKS CONTINUED
Risk
Description & Potential Impact
Mitigation
Prevention of harm
or injury to people
The Group is committed to preventing all health and
safety incidents and ensuring the health, safety and
wellbeing of all employees and third parties. The Group
operates a number of manufacturing facilities around the
world, a failure in the Group’s health & safety procedures
could lead to injury or to the death of employees or third
parties.
During the year, the Group has followed all local
guidelines to ensure that our facilities are COVID secure
and our employees are safe. Measures first introduced
during 2020 were continued, such as enhanced cleaning
and hygiene procedures, social distancing, 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.
• Health and safety is one of our ESG focus areas,
with improvement initiatives overseen by the ESG
Steering Team.
• Group Head of Health & Safety recruited during 2021.
• Monthly health & safety reporting for all operating
companies 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 health & safety
violations promoted by the Board and disseminated
throughout Group businesses.
•
External health & safety accreditations and
relationships maintained with regulatory bodies.
• Health & Safety is a priority area of focus for new
acquisitions.
• Monitoring and review of LTI rates by Group.
• 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, with improvement
metrics now established through the ESG
Steering Team.
Violation of
applicable laws and
regulations
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.
Our exposure to breaching sanctions placed on Russia
is low due to no current direct Russian customers and
suppliers. Our export compliance software performs
daily screening of our customer and supplier databases
against global sanctioned and denied party lists with any
changes in status flagged.
• 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 operating companies’ 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 2021.
•
Toolkits issued to all UK operating companies to aid
compliance with GDPR.
No change
Increase
Decrease
64
Stock Code HILS 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 asterisk can be found on the Company’s website at www.hsholdings.co.uk/about-us/corporate-governance/policies.
Reporting requirement
Policies and standards which
govern our approach
Additional information
See
Page No.
Environmental matters
•
•
Environment policy*
Energy policy*
•
Sustainability Plan including:
32 to 53
− Our Approach
− Protecting the World
− Saving and enhancing lives
− Sustainable Governance
• Risk: TCFD
• Non-financial KPIs
Employees
• Group Code of Business Conduct*
•
Sustainability Plan including:
32 to 53
•
•
Training & development policy*
Senior management salary policy
• Health & Safety policy*
− Health & Safety
− Succession planning and
talent management
− Group learning and
development
− Wellbeing
• Risk: Talent, diversity, recruitment
and retention of key employees
• Non-financial KPis
Human rights
• Recruitment of employees policy
•
Sustainability Plan including:
32 to 53
•
•
Employment references policy
Equal opportunities & diversity policy*
• Board diversity statement*
• Data protection policy*
• Modern slavery policy*
− Diversity & inclusion
− Gender Pay
− Human rights
Community
•
Individual operating company approach
• Non-financial KPIs
18 to 19
Anti-bribery and corruption
• Anti-bribery & corruption policy*
•
Sustainability Plan including:
32 to 53
•
International competition law policy
• Gifts & Entertainment policy
• Whistleblowing policy*
− Sustainable Governance
• Risk: Violation of applicable laws
and regulations
Description of the
business model
• Our Purpose and Business Model
• Our Strategy
• Our Markets
Description of the principal risk
and uncertainties and impact
of business activities
• Our Business Model
• Our markets
• Risk Framework
Non-financial key performance
indicators
• Principal Risks & Uncertainties
•
Employee Engagement
• Diversity
•
Lost time injury rate
• Greenhouse gas emissions
• Water & waste
–
–
–
2 to 11
2 to 11
52 to 53
65
Hill & Smith Holdings PLC | Annual Report and Accounts 2021STRATEGIC REPORT BOARD OF DIRECTORS
Alan Giddins
Chair
N
R
Paul Simmons
Group Chief
Executive
Annette Kelleher
Independent
Non-executive
Mark Reckitt
Independent
Non-executive
N
A
N
R
A
N
R
Appointed to the Board
3 October 2017
Appointed to the Board
1 September 2020
Appointed to the Board
1 December 2014
Appointed to the Board
1 June 2016
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 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 Chair of
Watkin Jones plc and a Non-
executive Director of Big Society
Capital, a leading social impact-
led investor.
Paul joined the Group in
September 2020 and was
formally appointed Group Chief
Executive on 12 November 2020.
Prior to joining, Paul was with
Halma plc for 10 years, most
recently as Chief Executive of
the Infrastructure Safety and
Process Safety sectors. Prior to
Halma, he spent eight years at
3M leading businesses in the UK
and USA. Paul has a degree in
Manufacturing Engineering.
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 Master’s degree in Human
Resource Management.
Mark is a Chartered Accountant
and was Group Strategy Director
of Smiths Group plc from
February 2011 to April 2014,
Divisional President of Smiths
Interconnect from October 2012
to April 2014 and Non-executive
Director of 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.
66
Stock Code HILS Hannah Nichols
Group Chief
Financial Officer
Tony Quinlan
Senior Independent
Non-executive
Pete Raby
Independent
Non-executive
Leigh-Ann Russell
Independent
Non-executive
A
N
R
A
N
R
A
N
R
Appointed to the Board
16 September 2019
Appointed to the Board
2 December 2019
Appointed to the Board
2 December 2019
Appointed to the Board
1 April 2021
Hannah joined the Group in
September 2019. Prior to joining,
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.
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, Tony is a
Senior Independent Director and
Audit Chair of Costain Group
PLC, Non-executive Director of
Associated British Ports and has
served as Deputy Chair 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.
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.
Leigh-Ann joined bp’s executive
leadership team as EVP
Innovation and Engineering in
March 2022. In this role she
leads bp’s global scientists
and engineers to deliver
technical innovation, providing
assurance through the Safety
and Operational Risk and Digital
Security teams and leads digital
innovation through the IT&S
and Digital disciplines. She was
previously bp’s Chief Procurement
Officer, accountable for a safe,
ethical, and competitive supply
chain of £30bn global annual
spend. Her main career has been
leading large operational, safety
and engineering global teams and
she was formerly Vice President
of Technical Functions. Leigh-Ann
holds a degree in Mechanical
Engineering, is a chartered
engineer and Fellow of the Royal
Academy of Engineering and
Energy Institute.
A Audit Committee N Nomination Committee R Remuneration Committee
Chair
67
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT EXECUTIVE BOARD
Paul Simmons
Group Chief
Executive
Joel Whitehouse
Corporate
Development
Director
Andrew Park
Chief People
Officer
Hooman Javvi
Group President
Joel joined the Group in October
2006. He has held a number
of roles in the Group and is
currently responsible for M&A.
Prior to joining Hill & Smith, Joel
was a Senior Finance Manager
for HSBC’s Global Commercial
Banking division based in London
and Hong Kong and spent four
years in Corporate Finance at Old
Mutual Securities. Joel qualified
as a Chartered Accountant
with Deloitte, is a Fellow of the
Chartered Institute of Securities &
Investments and has a degree in
Pure Mathematics.
Andrew joined the Group in
June 2021. Andrew has over
25 years’ experience in Human
Resources, focused in the utilities,
manufacturing, oil & gas and
automotive industries. Andrew
has led HR functions in the US,
UK and globally, and has lived
and worked extensively overseas.
Andrew is a Fellow of the
Chartered Institute of Personnel &
Development.
Hooman joined the Group in
March 2022. Prior to joining,
Hooman spent more than 10
years with ABB and Hitachi
Energy, most recently as
Senior Vice President for the
Transformer Insulation &
Components business in Europe,
and Managing Director for
Pucaro. Hooman has also held
several management positions at
ABB in Sweden and Germany. He
has a degree in Engineering and
an Executive MBA.
Hannah Nichols
Group Chief
Financial Officer
68
Stock Code HILS Denise Beachy
Group President
David George
Group President
Denise joined the Group in
January 2021 as Group President.
Prior to joining, Denise was with
DowDuPont for 3 years as Vice
President of the Performance
Solutions Business. Prior to
DowDuPont, she spent 3 years
as President and Chairman of
Hemlock Semiconductor and 26
years in various roles within Dow
Corning Corporation. Denise has
a degree in Biochemistry and
further executive studies from
London Business School and IMD.
David joined the Group in
February 2022. Prior to joining,
he spent three and a half years
leading the EMEA and APAC
regions for Sitetracker, a leading
Silicon Valley based SaaS solution
for deploying and operating
critical infrastructure. David also
spent several years in general
management and commercial
leadership roles at Trimble
and Ericsson across multiple
countries in Europe and Asia.
He holds a Bachelor’s degree
in Engineering from Stevens
Institute of Technology and a
Master’s degree from Santa Clara
University.
69
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT INTRODUCTION TO GOVERNANCE
Alan Giddins
Chair
DEAR STAKEHOLDER
I am pleased to introduce the Group’s Governance Report,
setting out how the business has discharged its responsibilities
during 2021 and complied with the UK Corporate Governance
Code 2018 (the ’Code’). Governance is the third strand of ESG
and plays a crucial role in the evolution of any business. At its
best, good governance enables better, more agile decision-
making, adds value to the business, manages informed risk
taking within appropriate parameters and, ultimately, protects
shareholder interests.
The full Governance report can be found on pages 72 to 81.
Basis of Report
We have used the UK Corporate Governance
Code 2018 (the ‘Code’) to assess our
governance arrangements during 2021.
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.
In doing so, the Board can confirm that
for the financial year ended 31 December
2021, the Company complied fully with the
requirements of the Code.
Board dynamics
The Board is fully engaged, has open and
constructive interactions with the Executive
team, and has the skills and experience to
oversee strategy, governance and risk. The
main facets of this responsibility comprise:
consideration of the long-term direction
and strategy of the Group; the values and
standards within the business; subsidiary
company management performance;
resources; health and safety; risk
management; and internal controls.
Despite the effects of the pandemic, the
Board was able to continue to maintain close
oversight of the business. While five of our
Board meetings were conducted virtually, by
giving careful attention to the agendas and a
clear focus on the key issues, we continued to
have very productive meetings.
70
In terms of key
priorities for 2022,
the Board will
be focused on
supporting M&A
activity aligned
with our strategy,
embedding
sustainability into
our Board decision-
making, evaluating
ways to improve
inclusion and
diversity across
the Group, and
continuing to focus
on the health and
wellbeing of our
c. 4,400 employees.”
Stock Code HILS The Board has continued its robust
consideration of Executive remuneration,
ensuring that it is fully aligned with the
Group’s long term strategic development.
Annette Kelleher, Chair of the Remuneration
Committee explains more in her report on
pages 92 to 104.
Looking ahead
The Group has a very strong senior leadership
team that is capable of driving the Group
forward and allowing it to maximise its full
potential. The Board will be fully focused on
supporting management, while also providing
appropriate challenge. In terms of key
priorities for 2022, the Board will be focused
on supporting M&A activity aligned with our
strategy, embedding sustainability into our
Board decision-making, evaluating ways to
improve inclusion and diversity across the
Group, and continuing to focus on the health
and wellbeing of our c. 4,400 employees,
many of whom have worked throughout the
pandemic.
Alan Giddins
Chair
9 March 2022
At 31 December 2021, the Board comprised
six Non-executive Directors, including myself,
as Chair, and two Executive Directors. More
information can be found on the Board’s
effectiveness in the Governance Report on
page 78.
Board Committees
As we have strengthened the Board over the
last two years, we have also increased the
number of Non-executive Board members.
In order to ensure diversity of thought and
challenge on our Committees, all Non-
executive Directors sit on each Committee.
Board activities
During the year, the Board allocated
significant time to reviewing our health
& safety performance. This has included
updating the strategic KPIs reported to the
Board and placing significant emphasis on
health & safety as part of the Board agenda
when we have visited subsidiary companies.
In September 2021, Diana Hart joined the
group as Group Head of Health & Safety,
based in the US. Diana join the December
Board meeting at which she shared her initial
assessment of the Group.
In June 2021, Andrew Park joined the
Group as Chief People Officer. This is a
new role within Hill & Smith and reflects the
importance placed by the Board on talent
development and succession planning.
Andrew has put forward a new People
Strategy for the Group, which the Board
is fully supportive of. This has specifically
included actions to improve diversity across
the business.
In June 2021, the Board had an off-site
strategy day, at which it was joined by each
of the Executive Board members. The key
focus of the strategy discussions was around
driving organic growth through prioritising
those subsidiaries which face into the highest
growth markets, rebuilding our M&A pipeline
and evaluating those parts of the Group which
were considered to be non-core.
The Board has also continued to focus on
the Group’s risk management processes and
reporting. We have started to take important
steps towards improving our IT systems and
cyber security defences. This has included
appointing a Chief Information Security
Officer during the year. I have also been
impressed by the continuing improvement in
the quality of both our internal audit team and
the reports coming to the Audit Committee,
for which Mark Reckitt, Chair of the Audit
Committee, gives more insight in his report
on pages 84 to 90.
71
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT GOVERNANCE REPORT
Hill & Smith Holdings PLC is a company with a premium listing on the London Stock Exchange.
During the course of 2021, the Company fully complied with the provisions of the UK Corporate
Governance Code 2018. This report sets out how the Company fulfilled those requirements.
ABOUT THE BOARD
AND COMPANY
The Board sets the entrepreneurial culture
within which our operating companies
operate and is collectively responsible for the
long-term success of the Company. The Hill
& Smith Holdings PLC Group consists of the
holding Company and its principal subsidiary
companies, listed on pages 188 to 191. The
Group’s businesses are directly supervised by
local operating boards. There are clear lines
of delegated authority and businesses are
given a high degree of autonomy to promote
their activities in an entrepreneurial fashion.
The Managing Directors of the operating
companies report through one of three
Group Presidents. The Group Presidents are
members of the Executive Board alongside
the Executive Directors. The Executive
Directors are accountable to the Board for
the performance of the Group. Details of the
Group’s business model can be found on
pages 10 to 11.
The Executive Directors regularly receive
reports on the performance of the operating
companies, and the Group Presidents
are responsible for ensuring a consistent
application of governance, operational
procedures and Group policies and practices.
HILL & SMITH HOLDINGS PLC BOARD
NOMINATION
COMMITTEE
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
EXECUTIVE
BOARD
RISK
COMMITTEE
GROUP
PRESIDENTS
OPERATING
COMPANY
BOARDS
72
Stock Code HILS Hill & Smith Holdings PLC
Annual General Meeting (‘AGM’)
In light of the continued challenges posed by
the COVID pandemic, Government guidance
meant we took the decision to hold our
2021 AGM virtually and shareholders were
invited to listen to proceedings, including a
presentation from the Chief Executive, via
an online platform. While we appreciate that
this arrangement meant that shareholders
could not interact with the Board in the usual
way, it was felt to be appropriate in light
of the ongoing restrictions set out by the
Government to help restrict transmission of
COVID. Due to a relaxation on restrictions,
we anticipate being able to welcome
shareholders in person for the 2022 AGM.
The Company’s Annual Report and Notice
of AGM are published as soon as the time
required for their printing allows, in order to
provide the maximum time in advance of
the AGM for feedback to be received from
shareholders. 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.
Board framework
The Board operates within a framework of
Board meetings, discussions and site visits.
The Board is supported by the following
three committees: Nomination; Audit;
and Remuneration. Membership of these
committees is set out on pages 82, 85 and 94
respectively.
Our Section 172 Statement
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 2021
s.172 statement can be found on page 76 of
this report.
Where other businesses within the Group are
required to make a s.172 Statement, these
reports can be found within the Annual Report
and Accounts for those entities. Directors of
these subsidiaries have received additional
support from the Group to ensure that their
decisions are fully recorded in Board minutes.
Engagement with shareholders
The Board manages the Group on behalf
of its shareholders and it undertakes this
responsibility in such a way as to maximise
shareholder value over the long-term and to
advance the interests of all of the Group’s
stakeholders. In this respect, during the
year, the Chief Executive Officer and Chief
Financial Officer met with institutional
shareholder representatives both in the UK
and USA. Feedback from these meetings
is included within the materials shared
with the Board. The Board also receives
reports from the Company’s brokers and
financial public relations agency on feedback
from institutional shareholders following
the Group’s interim and full year results
announcements.
Feedback and dialogue
All Board Directors are available to meet with
shareholders to discuss matters and can
be contacted through the Group 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 Group 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, Group policies and corporate and
organisational structure.
The scope of Board decisions
The Board manages the Group with reference
to a formal schedule of matters reserved
for the Board for decision, which is applied
across three key pillars:
STRATEGY
• Group strategy and
operating plans
• Business development
including acquisitions and
targeted disposals
• Major capital investments
INTERNAL CONTROL
• Risk management, financial
reporting and audit
• Financing, treasury and
taxation
• Pension benefits and
liabilities
• Compliance with laws and
regulations
• Cyber security
ENVIRONMENTAL,
SOCIAL AND
GOVERNANCE
• Corporate governance
• Ethical standards
• Health & safety
• Environmental matters
• Succession planning
• Compliance with the
Company’s Code of
Business Conduct
73
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT GOVERNANCE REPORT CONTINUED
DIVISION OF RESPONSIBILITIES
Summary
There is a clear division of
responsibilities between the Chair and
the Chief Executive which is set out in
writing and available at
www.hsholdings.com.
2021 Key Points
• Developed a scalable management
structure using newly created
‘Group Presidents’, each with their
own portfolio of businesses;
• Created an Executive Board, to
better facilitate communication
and decision-making within
the Group;
• Reviewed the Terms of Reference
for our Committees, and the
Matters Reserved for the Board.
Role of Chair
Alan Giddins, as Chair, is responsible for the
leadership and effective working of the Board.
The size of the Board ensures all Directors
contribute fully to discussions and decision-
making. The Chair sets the Board agenda and
determines how the Board should use the
time available to it during Board meetings,
promoting a culture of openness and debate;
facilitating constructive board relations and
effective contribution of Board members;
ensuring directors receive accurate, timely
and clear information; and providing an
opportunity for the Non-executive Directors
to meet without the Executive Directors
present. The Chair seeks engagement with
major shareholders to understand views
on governance and performance against
strategy.
Role of Chief Executive
Paul Simmons, as Chief Executive, is
responsible for the management of the
Company, executing the Group’s strategy and
development, meeting financial objectives,
implementing policies and maintaining
controls. Along with the Chief Financial
Officer, the Chief Executive provides
information to the Board via written reports
and presentations at Board meetings.
Supporting the Chief Executive is the
Executive Board, comprising the Chief
Financial Officer, Chief People Officer,
Corporate Development Director and three
Group Presidents. This model allows the
managerial structure to scale as the business
grows and ensures that our businesses
operate in a cohesive and joined up way.
Role of Non-executive Directors
The Non-executive Directors take an active
role in challenging strategy and monitoring
the performance of the Company, have no
managerial responsibility and are there to
provide challenge, strategic guidance and
specialist support to the Executive Directors.
There exists an appropriate combination
of Executive and Non-executive Directors,
all of whom have sufficient time to meet
their board responsibilities. There are clear
divisions of responsibilities between the
leadership of the Board and the Executive
leadership of the company’s business, and
these have been approved by the Board.
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.
Executive Board
The Executive Board, which is not a
committee of the PLC board, is chaired by
and takes its authority from the
Chief Executive.
This Board, which meets monthly and more
often as may be required, is the senior
management body for the Group and
monitors and manages the performance of
the business, reviews progress against the
strategic objectives and formulates budgets
and proposals on strategy and resource
allocation, receiving regular reports on human
resources, health & safety, internal audit,
compliance, legal, investor relations and
corporate affairs.
74
Stock Code HILS Board Committees
PLC BOARD
Nomination Committee
Audit Committee
Remuneration Committee
Comprises the Chair, five Non-executive
Directors and the Chief Executive.
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 at pages 82 to 83.
Comprises of six Non-executive Directors.
Has responsibility for the creation,
approval and implementation of the
Company’s Remuneration Policy in
respect of Executive Directors, Group
Company Secretary and members of the
Executive Board.
The terms of reference of the
Remuneration 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 at pages 92 to 104.
Comprises of five Non-executive Directors.
While the Chair of the Board is invited to
attend meetings, that individual is not a
formal member of the Audit Committee.
Has responsibility for planning and
reviewing the Company’s audit processes,
interim and full year results, internal
controls and risk management systems.
(See pages 56 to 59 for more information).
The Audit Committee is additionally
supported by the Risk Committee,
comprising employees from across the
Group and representatives from some
of our subsidiary businesses, including
the USA.
The terms of reference of the
Audit 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 at pages 84 to 90.
Frequency of meetings
During 2021, the Board met on 10 occasions, the Audit Committee on four occasions, the Nomination Committee met three times and the
Remuneration Committee met on six occasions. All directors were in attendance at all meetings of the Board to which they were entitled.
Alan Giddins
Tony Quinlan
Pete Raby
Mark Reckitt
Annette Kelleher
Leigh-Ann Russell*
Paul Simmons
Hannah Nichols
Board
10/10
10/10
10/10
10/10
10/10
8/10
10/10
10/10
Audit
Committee
Nominations
Committee
Remuneration
Committee
–
4/4
4/4
4/4
4/4
2/3
–
–
3/3
3/3
3/3
3/3
3/3
2/3
3/3
–
6/6
6/6
6/6
6/6
6/6
4/6
–
–
*Leigh-Ann Russell was appointed to the Board on 1 April 2021 and attended all the meetings she was entitled to.
Board visits to operations
Site visits are an important, regular feature of the Board calendar. They provide an excellent opportunity for the Board to engage with a wide group
of employees and they also facilitate the Non-executive Directors’ understanding of the businesses.
During the year, the Non-executive Directors visited Birtley Group Ltd, Hill & Smith Ltd, Joseph Ash Ltd and Lionweld Kennedy Group in the UK. The
Board also had three virtual meetings with The Paterson Group, Hill & Smith Inc., and V&S Utilities, recognising that in the short term, visits to these
US operations were unlikely to take place.
75
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT GOVERNANCE REPORT CONTINUED
Board decision making (S.172)
The Board’s interaction with key stakeholders is set out on pages 54 to 55. The principal decisions taken by the Board during the year, along with
how the Directors considered stakeholder interests when discharging their duties under section 172 of the Companies Act, is set out below.
Principal decision and
stakeholders considered
Dividend
Shareholders, potential
investors and lenders.
Capital allocation
Shareholders, potential
investors, lenders, employees,
customers, operating
companies.
Portfolio management
Shareholders, potential
investors, lenders, operating
companies, customers and
future employees.
Board’s decision making process
Longer term considerations
Consideration of the financial resources required to
execute our strategy, including organic investment
and acquisition opportunities; the Group’s medium-
term rate of organic constant currency growth; and
borrowing covenants.
Ensuring that the Company’s progressive Dividend
Policy is consistent with the Company’s financial
performance without detriment to the strength of
the balance sheet and future sustainability.
The Group’s budget, approved by the Board, sets the
allocation of capital to deliver our growth strategy
through product innovation, capital expenditure,
acquisitions, targeted disposals and sustainability.
Balancing investment for future growth and
improving the quality of the Group against the
longer term interests of operating companies and
their employees and shareholders.
The Board received detailed acquisition proposals
from the Group Chief Executive and Corporate
Development Director on the long-term implications
of disposals and acquisitions and their effect on
the Group’s stakeholders. The Board balances the
financial commitment required against the risks and
anticipated return, together with the management
and control requirements, while considering the
strategic fit with our purpose, and the opportunities
for geographic or market extension.
The Group’s new portfolio management criteria
both for existing operating companies and potential
acquisition targets requires a structured discipline
in considering targeted disposals and making
acquisitions which are aligned to our purpose,
and which are in niche markets with long-term
growth drivers ensuring that we can continue to
grow sustainable profits for the benefit of all our
stakeholders.
Greenhouse Gas Emissions
Targets
Shareholders, lenders,
employees, operating
companies, customers,
suppliers, government, society.
The Board recognised the importance of a low
carbon economy and the role that the Group has
to play in achieving this and were mindful that
this is a high priority for multiple stakeholder
groups. Accordingly, the Board focused on areas
where the Group could make most impact and
took the decision to sign up to the Science Based
Target initiative and develop a Group wide carbon
reduction plan that targets the Group to be net zero
for Scope 1 and 2 emissions by 2040.
The Board recognises the effect that climate
change is having on the natural and business
world and in keeping with regulation committed
to TCFD scenario analysis. This analysis presents
both risks and strategic opportunities for the
Group. The Board also considered the value to
society as a whole of the Group’s operations and
products, recognising that it must act to minimise
the negative impact from its operations, to ensure a
sustainable future for all, whilst being mindful of the
effect on the Group’s cost base.
Board conflicts
The Board has agreed an approach
and adopted guidelines for dealing with
conflicts. The Board confirms 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 66 and 67. 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.
Support available to the Board
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 Group Company Secretary
is also responsible for assisting the Chair in
all matters relating to corporate governance,
including the Board evaluation process.
At the invitation of the Board, other members
of the management team attend Board
meetings to present annual budgets, updates
and proposals relating to their areas of
responsibility and reporting on regulatory
compliance, risk management and internal
controls. The Directors and management of
the Group businesses are also supported
by the central function which includes
compliance, risk management, internal audit,
treasury, taxation, acquisitions and corporate
development.
All directors have access to the advice and
services of the Group Company Secretary
and 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 2021.
76
Stock Code HILS COMPOSITION, SUCCESSION AND EVALUATION
The individual biographies of the Board
members can be found on pages 66 and
67. Three quarters of the Board consists of
independent Non-executive Directors.
In compliance with the Code and the
Company’s Articles of Association,
Directors retire at every AGM and, if deemed
appropriate by the Board, Directors are
proposed for re-appointment by shareholders
at the forthcoming AGM. Following the
evaluation of the performance of the
Board, and on the recommendation of
the Nomination Committee, the Board is
proposing that all Directors on the Board
on 31 December 2021 should stand for re-
election at the Group’s forthcoming Annual
General Meeting (‘AGM’).
Board profile
Our Directors come from a broad range of
backgrounds across industry, investment
management and professional services. Their
diverse and balanced mix of skills and business
experience (see page 78), are key elements
to the effective functioning of the Board and
its Committees, ensuring matters are fully
and effectively debated and challenged and
no individual or group dominates the Board’s
decision-making processes.
Taking into account the provisions of the Code,
the Board has determined that during the
year under review, none of the Non-executive
Directors had any relationship or circumstance
which would affect their performance and
the Board considers all of the Non-executive
Directors to be independent in character and
judgement. Conflicts of interest are dealt with
by the Board as they arise.
Summary
To ensure that the skills and
experience of the PLC Board and
Executive Board are appropriate to the
delivery of the Group’s strategic plan.
Likewise ensuring that an appropriate
succession plan is in place.
2021 Key Points
• Appointment of Leigh-Ann Russell
to the PLC Board;
• Reviewed succession plans at
both the Board and Executive
Board level;
• Reviewed the structure of our
Board committees; and
•
Invited Edge Square Partners to
meet with the Board to follow up on
recommendations from the 2020
Board Effectiveness Review.
Composition of the Board
At 31 December 2021, the Board comprised:
Alan Giddins
(Chair)
Paul Simmons
(CEO)
Annette Kelleher
(Non-executive Director)
Hannah Nichols
(CFO)
PLC BOARD
Pete Raby
(Non-executive Director)
Mark Reckitt
(Non-executive Director)
Tony Quinlan
(Non-executive Director)
Leigh-Ann Russell
(Non-executive Director)
77
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT GOVERNANCE REPORT CONTINUED
Numbers represent
people within Board
6
7
Y
G
E
T
A
R
T
S
6
H
U
C
U
L
T
E
U
T
R
H
E
I
C
&
S
R
E
S
O
U
M
A
R
C
E
N
S
8
O
E
E
P
P
HIP
S
R
E
D
A
E
L
7
E
C
Y
N
R
G
M
R
L IV
T I N
O
E
A
E
A
R
F
R
& D
6
6
6
6
HEALTH &
SAFETY
D I G I T A L
SKILLS AND BUSINESS
EXPERIENCE
OF THE BOARD
M E R G E R S &
A C Q U I S I T I O N S
FINANCIAL
PLANNING
RIS K
E N T
C E
M
R A N
A N A G E
D A S S U
M
A N
G
TIN
E
K
R
A
M
8
4
I
N
M
T
E
A
R
R
N
K
A
E
T
T
I
O
S
N
A
L
8
B
I
N
U
T
S
I
E
N
G
E
R
S
A
S
T
I
O
N
7
S
U
P
P
L
Y
C
H
A
N
I
4
Director training and development
All Directors are provided with the opportunity
and are encouraged to attend regular
training to ensure they are kept up to date
on relevant legal developments or changes,
best practice and changes to commercial and
financial risks. Typical training experiences
for directors include attendance at seminars,
forums, conferences and working groups,
as well as the provision of information from
the Group Company Secretary. During the
year, the Board received presentations on
capital structure and TCFD, and the Executive
Directors received the benefits of a mentoring
programme.
Evaluating the Board’s performance
An evaluation of the Board’s effectiveness
is undertaken each year. Following on from
an external board effectiveness review
undertaken by Verena Kugi, Edge Square
Partners (an independent assessor with
no association with the Company) in 2020,
the Board invited Edge Square Partners to
re-engage with each Board member during
the year in order to follow up on the key
observations and actions from the previous
review. Ms Kugi presented her 2020 findings
at the January 2021 Board meeting and
attended, as an observer, the September 2021
Board meeting facilitating an open discussion
amongst Board members. Key actions
coming out of these discussions focused on:
i. how to further prioritise strategic
discussions within both the formal
Board agenda and in less formal Board
environments;
ii. ensuring that time is set aside to allow
the Non-executive Directors to visit more
of the operational sites;
iii. spending further Board time in
considering the Group’s risk appetite,
while keeping risk reporting within the
Audit Committee remit; and
iv. ensuring that the structure of the current
Board delegated authorities does not in
any way hinder swift and agile decision
making.
Succession planning
The Nominations Committee has
responsibility for evaluating medium and long
term Board and Executive Board succession,
and for making recommendations to the
Board.
A review of the top 115 managers within the
Group is also undertaken, focused on both
succession planning and talent development.
This process is led by the Chief People Officer
and presented to the Board.
At a local level, each subsidiary is required to
have its own succession plan in place, and
these are reviewed on a regular basis by each
operating company Board and fed through to
the Chief Executive via the Group Presidents.
Group diversity
The Board is committed to ensuring that
recruitment into the Group is undertaken
based on merit, regardless of age, disability,
marital or civil partner status, pregnancy and
maternity, race, colour, nationality, ethnic
or national origin, religion or belief, gender
or sexual orientation. The Board places
significant emphasis on ensuring that greater
diversity is brought into the workforce,
something which the Chief People Office is
prioritising.
As part of this commitment, the Company
includes in the 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
central function or the operating companies);
and the number of men and women across
the organisation as a whole. See page53 for
more details.
Board diversity
The Board is committed to ensuring that
it has the right balance of skills, views and
experience. The Board is cognisant of the
Hampton Alexander Review and the Parker
Review regarding gender and ethnic diversity
within the Board. On 31 December 2021, the
Board membership comprises 38% female
and 62% male.
38%
BOARD
DIVERSITY –
GENDER
62%
Male
Female
78
Stock Code HILS
AUDIT, RISK AND INTERNAL CONTROL
Summary
A strong audit and internal control
framework, with robust risk
management, which gives confidence
to the Board that Hill & Smith Holdings
PLC is a well-run company.
2021 Key Points
• On-site audits with clear reporting
and proportionate measures;
• Continued development of our risk
management processes; and
• Clear and accurate Board reports,
detailing the financial performance
of the business.
Internal Audit
As work restrictions eased during 2021, our
Internal Audit team were able to conduct
more on-site audits than in 2020. Where
this has not been possible due to travel
restrictions, the Group has engaged third
party accounting firms to undertake certain
internal audit reviews. Audits of compliance
with the Group Financial Controls Manual
and Group IT Controls Manual were also
completed across multiple sites and reports
and recommendations were presented to the
Audit Committee.
and managing the significant risks faced by
the Group and assessing the effectiveness
of related controls has been established
by the Board to ensure an acceptable risk/
reward profile across the Group. This routinely
identifies areas for improvement. The Board
has neither identified nor been advised of any
failings or weaknesses during the year which
it has determined to be material or significant.
This process has been in place throughout
2021, 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
operating companies detailing the risks
they have identified and what controls
and assurances they have in place to
mitigate these risks;
regular meetings to identify and discuss
key risks and mitigations with a broad
sample of the senior management team
and the Executive Directors;
review of the corporate risk register in
terms of completeness and accuracy with
the senior management team and the
Executive Directors;
the use of a Risk Committee to monitor,
validate and report on the Group-wide risk
assessment process;
Additionally, the Audit Committee reviewed
and approved the annual audit plans for 2022,
as prepared by the Head of Risk and Internal
Audit.
• Audit Committee discussion of the
corporate risk register and the risk
management system with subsequent
reports to the Board; and
Risk management
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 internal
control, and reviewing the effectiveness of
these processes.
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 the Group’s strategic objectives.
An ongoing process for identifying, evaluating
•
•
the embedding of a senior management
top-down approach to complement the
work of the Risk Committee; and
review of the risks and opportunities
identified by the TCFD workstream.
More information on the Group’s key risks and
uncertainties is shown on pages 60 to 64.
Internal controls
The Board maintains overall responsibility
for embedding key controls within the Group.
Together with the Audit Committee, the Board
reviewed the effectiveness of the Group’s risk
management and internal control systems in
accordance with the UK Governance Code for
the year ended 31 December 2021, and up to
the date of approving the Annual Report and
Financial Statements.
Additionally, the Board:
•
•
•
•
•
•
•
ensured maintenance of a sound system
of internal control and risk management;
reviewed 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 continues
to ensure that these arrangements
allow proportionate and independent
investigation of such matters and
appropriate follow up action;
considered and approved the half-yearly
report, any other interim management
statements and any preliminary
announcement of results;
approved the dividend policy;
declared the interim dividend and
recommended the final dividend;
approved any significant changes in
accounting policies or practices; and
approved treasury policies including
foreign currency exposure and the use of
financial derivatives.
Going Concern
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 a period of
18 months from the Balance Sheet date.
Major assumptions have been compared
to external reference points such as
infrastructure spend forecasts across our
chosen market sectors, government spending
plans on road infrastructure, zinc and steel
prices and economic growth forecasts. This
assessment showed that 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. See page 31 for more
details.
79
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT GOVERNANCE REPORT CONTINUED
Longer term outlook
The Directors have considered the prospects
of the Group over the four-year period
immediately following the 2021 financial
year. This longer-term assessment process
supports the Board’s statements on both
viability, as set out below, and going concern,
as set out on page 79. A four-year period was
determined as the most appropriate as it is
the remaining 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.
Strategic plans are prepared mid-year and
encompass the current year and the following
four years. The Board concluded that a
period of longer than four 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 18 to 19) in addition to
net debt, liquidity and financing requirements.
In conducting the review of the Group’s
prospects, the Directors assessed the
four-year plan alongside the Group’s current
financial position, the Group’s strategy and
the principal risks facing the Group’s strategy
and the principal risks facing the Group (all
of which are detailed in the Strategic Report
on pages 1 to 65). 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 four-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:
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 2021 with a borrowing
facility headroom of £234.4m and a history
of strong cash generation. The Directors
noted that whilst the Company’s principal
bank borrowing facilities mature in December
2023, before the end of the review period, the
Group intended to renegotiate these facilities
in 2022 and based on past experience, they
have a reasonable expectation that such
a refinancing would be completed in that
time frame. 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 2025.
Fair, balanced and understandable
financial reporting
The Board received a recommendation from
the Audit Committee that the Group’s position
and prospects had been assessed and
reported on in the Annual Report in a way that
was fair, balanced and understandable. Prior
to making the recommendation to the Board,
the Committee reviewed a report received
from the management responsible for the
preparation of the Annual Report detailing
how the report had been compiled. The
Committee considered the information laid
out in the Annual Report and concluded:
•
•
•
a decrease in the UK Government’s Road
infrastructure spend;
•
a fall in galvanizing volumes across all
geographies; and
a reduction in revenues in the Group’s
Utilities businesses in the UK and USA.
that the process by which the allocation
of responsibility for the preparation of
certain sections of the Annual Report to
individuals in the central function and
their review by external advisors was fit
for purpose;
•
•
•
that the information given represented
the whole story of the business’
performance in 2021 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 Ernst & Young
LLP (‘EY’) in order to correctly disclose the
performance, controls and prospects of
the Group; and
that the document allowed shareholders
to follow the whole story of the
Group’s financial and non-financial
performance in 2021, giving them a
clear and understandable picture of the
Group’s business model, key drivers and
commercial operations.
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 112 and the Independent Auditor’s
Report on pages 114 to 122.
80
Stock Code HILS REMUNERATION
Summary
A remuneration structure which is
designed to attract and retain talent, to
motivate our leaders and reward their
success.
2021 Key Points
• Appointed a Reward specialist to
ensure that our compensation and
benefits packages are fair and in
line with the market norm; and
• Replaced awards under the Group’s
Executive Share Option Scheme
with awards under the Long Term
Incentive Plan (‘LTIP’) scheme for
senior managers aligned with the
Executive Directors.
EXECUTIVE PAY
SALARY
THREE-YEAR
LONGER-TERM
INCENTIVE
ARRANGEMENT
SHORT-TERM
ANNUAL BONUS,
INCLUDING A 50%
DEFERRED
BONUS
Share options
Alongside the pay of our Executive Directors,
the Remuneration Committee has also
reviewed the types of share options available
to senior management, to bring them into line
with the Executive Directors. This move aligns
the benefits of senior management to those
of the Executive Directors, and therefore
retains talent in the organisation.
Pay increases
In deciding on the annual increase of 3% for
the Executive Directors, the Remuneration
Committee received information on the
average increases being given across the
Group’s 29 subsidiaries. More information
is available on page 102 of the Group’s
Remuneration Report.
About our Remuneration Policy
The current Director’s Remuneration Policy
was last approved by shareholders at the
2020 AGM. The purpose of this policy is to be
able to recruit and retain Executive Directors
of sufficient calibre to develop and deliver
our business strategy and create shareholder
value; to ensure remuneration arrangements
are in the best interests of the Group, in line
with the wider workforce and do not pay
more than is appropriate; and does not pay
for failure. More information on the Group’s
Remuneration Policy is available in the Policy
Table on pages 105 to 109 of the Group’s
Remuneration Report.
Our Executive Director salary
package
Our Executive Directors’ pay arrangements
are made up of three fundamental elements
as indicated by the graphic above.
The Group’s Remuneration Report on pages
92 to 104 and sets out the remuneration of
the Executive Directors for 2021.
81
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT NOMINATION COMMITTEE REPORT
DEAR STAKEHOLDER
It is my pleasure to make my report as Chair of the Nomination
Committee. This report is intended to give an account of the
Committee and its activity. The core responsibilities of the
Committee are succession planning and appointments at Board
level, oversight of appointments and succession planning to the
Executive Board and making recommendations to the Board
on the composition of the Board’s committees. The full terms
of reference of the Committee can be found on the Company’s
website www.hsholdings.com.
Committee membership
Throughout the year, the Committee
comprised myself as the Group’s Chair, and
Non-executive Directors Annette Kelleher,
Tony Quinlan, Pete Raby and Mark Reckitt,
and our CEO, Paul Simmons. Leigh-Ann
Russell joined the Committee on her
appointment on 1 April 2021. The Committee
met three times in the financial period under
review with all eligible members of the
Committee being present on each occasion.
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. All Non-executive Directors are
independent, as was I on appointment.
Date of appointment
Length of service
Expected end date
Alan Giddins
3 October 2017
4 years 3 months
30 September 2026
Annette Kelleher
1 December 2014
7 years 1 month
30 November 2023
Leigh-Ann Russell
1 April 2021
9 months
31 March 2030
Mark Reckitt
1 June 2016
5 years 7 months
31 May 2025
Pete Raby
1 December 2019
2 years 1 month
30 November 2028
Tony Quinlan
1 December 2019
2 years 1 month
30 November 2028
82
Alan Giddins
Chair
During the year,
the Committee
has spent time
evaluating medium
and long term
Board composition
and succession.”
Stock Code HILS Diversity and inclusion
The Committee is committed to ensuring
that the Board, Executive Board and senior
management team have the right diverse
mix of skills, experience, knowledge and
background. In considering diversity, gender
plays an important role but the Board
also takes into account social and ethnic
background, and other cognitive and personal
strengths. New appointments are made on
merit, and take into account what is required
from a diversity and inclusion perspective
to ensure a balanced Board composition
and considering the diversity benefit each
candidate can bring.
From 1 April 2022, being the date when
Farrokh Batliwala joins the Group, the Board
will comprise three female directors (33%)
and six male directors (67%), with one Board
director from a minority background (11%).
Plans for the year ahead
Through a number of external appointments
over the last two years, I believe that we have
a highly capable Board and Executive Board
with the appropriate skills and experience to
deliver on the Group’s ambitions. While the
Committee will continue to remain focused
on medium and long term succession
planning within this group, the success of Hill
& Smith is reliant on the Company’s ability to
identify and develop the next generation of
business leaders from within the organisation,
and this will be a particular area of focus for
the Committee during 2022.
Alan Giddins
Chair
9 March 2022
Board composition and succession
During the year, the Committee has spent
time evaluating medium and long term
Board composition and succession. The
Committee has specifically looked at the
current skills and experience of the Board
against delivery of the Group’s Strategic Plan.
A key recommendation from this review was
that it would be beneficial to bring additional
operational and international experience
to the Board, and in particular to add a US
based non-executive to the Board. On the
committee’s recommendation, the Board
made two appointments during the year and
in the period to the date of this report:
•
Leigh-Ann Russell joined the Board
effective from 1 April 2021. Leigh-Ann is
bp’s EVP Innovation and Engineering. She
has significant international operational
and leadership experience, and in 2019,
was awarded a fellowship of the Royal
Academy of Engineering.
• On 31 January 2022, the Company
announced the appointment of Farrokh
Batliwala effective from 1 April 2022.
Farrokh was formerly President, Connect
and Control Technologies, ITT Inc, prior
to which he held senior management
roles at Eaton Corporation and Pratt &
Whitney. Farrokh now lives on the East
Coast of the US. Farrokh holds an MBA
from Kellogg School of Management,
Northwestern University.
Executive Board appointments and
succession planning
The Committee has worked with the Chief
Executive to evaluate potential new Executive
Board appointments. This included the
appointment of a Chief People Officer and
two new Group Presidents. These were well
run processes leading to the appointment in
June 2021 of Andrew Park as Chief People
Officer and the announcement in January
2022 of David George and Hooman Javvi’s
appointments as Group Presidents effective
from February 2022 and March 2022,
respectively.
The Committee also undertook a review of
succession planning within the Executive
Board. This showed that while there was
good cover for a number of roles, it also
highlighted the importance of developing the
next generation of senior leaders within the
business.
83
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT AUDIT COMMITTEE REPORT
Mark Reckitt
Chair
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
your Audit Committee and the Group’s senior management team
have managed and continued to develop and enhance our risk
management processes and internal audit programmes through
the prolonged pandemic.
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.
Each operating company 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
operating company. The Group Financial
Controls Manual was launched in 2020 and
provides detailed guidance on the nature and
frequency of the internal controls required at
each business unit. This was supplemented in
2021 with the launch of the Group IT Controls
Manual which sets out the minimum level of
IT controls required at each business unit to
ensure IT resilience and cyber security. The
level of challenge from the Audit Committee
and Board has enhanced awareness of the
need for improvement in the IT infrastructure
and related controls. This has resulted in a
plan for investment in IT and cyber security
and ensured the availability of sufficient
resource to enable swift implementation.
84
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, and the Committee
receives regular reports on this matter.
The work of Internal Audit during 2021 was
a mixture of remote self-assessments and
onsite fieldwork for UK operating companies,
with remote preparation and sample selection
to minimise time spent on site. Unfortunately,
international travel restrictions hampered
our ability to visit our overseas sites and the
Committee approved the use of third parties
to undertake internal audits of some of our
overseas entities. In December 2021, the
Committee approved an internal audit plan for
2022 which includes a Supply Chain thematic
review and fraud risk assessment, whilst
continuing the primary work of monitoring
our operating companies compliance with our
Group policies and controls.
In 2021, in response
to potential cyber
risk exposure,
we launched the
Group IT Controls
Manual, providing
detailed guidance
to our operating
companies on
the nature and
frequency of the
internal controls
required.”
Stock Code HILS This Audit Committee Report explains
how the Committee has discharged its
responsibilities during 2021, and considers
the specific topics of:
• Primary areas of judgement considered
by the Committee in relation to the 2021
Financial Statements;
•
Internal controls;
• Risk assessment, management, and
mitigation; and
• Assessment of effectiveness of
external audit.
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 2022.
Mark Reckitt
Chair
9 March 2022
The Risk Committee, as requested by the
Audit Committee, has continued to build
upon the risk assessment methodology using
the online risk management and reporting
tool which was implemented across the
Group in 2020, such that each business
units’ mitigation actions are collated and
evidenced. The Committee is building a
clear picture of the risks being considered
by the operating companies as well as the
actions to mitigate risk, which is facilitating
risk appetite discussion. More information
on the risk management process adopted
by the Company can be found on pages 56
to 59. In March 2022, the Audit Committee
considered the impact of the Ukrainian crisis
on the Group’s Principal Risks, as assessed by
the operating companies, the Risk Committee
and the Executive Board. It was agreed that,
although difficult to assess, it was possible
that it might have an adverse effect on the
Principal Risks of Changes in global outlook
and geopolitical environment, Supply chain
failure, IT systems failure and Violation
of applicable laws and regulations. More
information can be found on pages 60 to 64.
Following Ernst & Young LLP (‘EY’) completing
their first audit of the Group’s financial
statements in relation to the year-ended 31
December 2020, the Committee met EY’s lead
partner to assess the lessons learned and the
improvements that might be implemented
for this year’s audit. In August 2021, we
discussed and agreed the plan for their year-
end audit procedures and in December 2021,
approved the fee for their work in 2021. The
audit of our 2021 Financial Statements is the
second audit that EY have conducted, and the
Committee remain pleased with their levels
of independence, objectivity and professional
judgement and the oversight they give to our
financial statements.
During 2021, the Financial Reporting Council
(‘FRC’) completed a thematic review on viability
and going concern disclosures. The Group was
included in their sample of 30 companies with
an accounting period end between December
2020 and March 2021. The FRC had no
questions or queries in relation to the Group’s
disclosures and in their published report they
highlighted the Group’s disclosures on reliance
on facilities and reverse stress testing as
examples of good practice.
85
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT AUDIT COMMITTEE REPORT CONTINUED
Committee membership
and purpose
During the year, and to the date of this report,
the Audit Committee comprised:
Mark Reckitt;
Annette Kelleher;
Pete Raby;
Tony Quinlan; and
Leigh-Ann Russell (appointed 1 April 2021).
Attendees at each of the meetings included
by invitation, the Chair of the Board; the Group
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.
The overall purpose of the Audit Committee is
one of oversight and monitoring of the entire
financial reporting and control process, to
ensure the integrity of the Group’s Financial
Statements and assurance over them. The
Committee fulfils this remit by undertaking
the following roles and responsibilities:
• monitoring the integrity of the Financial
Statements of the Company and
reviewing significant financial reporting
judgements contained in them;
•
•
reviewing areas of the financial
statements that require particular
judgement;
providing advice (where requested by
the Board) on whether the Financial
Statements and Annual Report, taken
as a whole, is fair, balanced, and
understandable, and provides the
information necessary for shareholders to
assess the Company’s financial position,
performance, business model and
strategy;
•
reviewing the Company’s internal financial
controls and internal control and risk
management systems;
• monitoring and reviewing the
effectiveness of the Company’s
internal audit function and making
recommendations to the Board;
•
•
approving the Internal Audit Charter and
audit plan;
reviewing outputs from the Group’s
risk management process, ensuring
that operating companies are correctly
identifying, articulating and measuring
their risks and mitigating controls;
• making recommendations to the Board
about the appointment, re-appointment,
and removal of the External Auditor, and
approving the remuneration and terms of
engagement of the External Auditor;
•
reviewing and monitoring the External
Auditor’s independence and objectivity;
86
As Chair of the Audit Committee, Mark
Reckitt has maintained regular contact
with the external audit partners at 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.
During the year, the Committee met on four
occasions according to the requirements of
the Company’s financial calendar, covering
the following agenda items:
•
•
reviewing the effectiveness of the external
audit process, taking into consideration
relevant UK professional and regulatory
requirements;
developing and implementing policy on
the engagement of the External Auditor to
supply non-audit services, ensuring there
is prior approval of non-audit services,
considering the impact this may have on
independence; and
•
reporting to the Board on how it has
discharged its responsibilities.
Governance
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 Chair and Senior
Independent Director at Cranswick plc.
March
• Key risks and judgements relating to the 2020 Financial Statements
• Report from External Auditors on the Financial Statements for the year ended
31 December 2020
•
Financial Statements and Annual Report for year ended 31 December 2020,
including the statements on Going Concern, Viability and Fair, Balanced and
Understandable
•
Internal Audit update and review of the Group’s Principal Risks
August
• Key Issues and Judgements relating to the Interim Results
•
•
•
•
•
•
•
External Audit planning report including results of early audit procedures
External Auditor quality and independence
Interim Results for the six months ended 30 June 2021
Internal Audit and Risk Management update
September
External Auditor’s corporate governance update
Internal Audit update
IT Controls Framework
• Group Risk and Principal Risks review
December
•
•
Internal Audit update, including contract management thematic review and 2022
Internal Audit plan
Internal Audit Charter
• Goodwill impairment
•
External Auditor report on interim audit procedures
• Update on TCFD work completed with assistance from PwC
Stock Code HILS Primary areas of judgement
considered by the Committee in
relation to the 2021 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 125 to 173. 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 £134.4m at 31 December
2021. 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 current uncertain economic
conditions around the world increase the
risk of impairment and the Committee
addresses this by performing half-yearly and
annual impairment testing on the carrying
value of goodwill and other capital intangible
assets across the relevant cash generating
units. In 2021, the Committee reviewed the
results of these calculations and in particular,
considered and challenged management’s
assessment of the sensitivities to these
assumptions and the impact that those
sensitivities may have. 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
the assessments made in respect of ATG
Access Ltd, France Galva SA and Parking
Facilities Ltd.
• ATG Access – when preparing the Group’s
interim results, management concluded
that the pace of ATG’s post-pandemic
recovery was likely to be slower than had
previously been anticipated, mainly due
to the expectation of prolonged inactivity
in several of its key sectors and also
reflecting increased competition in the
market. As a result, an impairment charge
of £10.8m was recognised in the interim
results. Whilst trading improved in the
second half of the year, management
noted that results continued to be
below previous expectations and that
notwithstanding the relaxation of
restrictions on public gatherings, the pace
of post-pandemic recovery remained
uncertain. Management concluded that
there had been no significant change
in the market outlook since it made
its assessment at the half year and
therefore that no further impairment
was recommended at 31 December
2021. After challenging management on
•
aspects of the business plan and related
sensitivities, the Committee supported
management’s recommendation.
France Galva – in 2020, the Group
recognised an impairment charge of
£17.5m in respect of goodwill relating to
France Galva and made further disclosure
of the sensitivities that could lead to
additional future impairment. In 2021,
France Galva’s performance improved
on 2020 due principally to a recovery in
demand and successful pricing actions
taken to offset cost inflation. After
taking this improvement into account
and reassessing the longer term outlook
for the business with reference to both
internal forecasts and external economic
data, management determined that
there were no indications of deterioration
in the outlook and therefore that no
further impairment was required at
31 December 2021. Management did,
however, note that there remained
sensitivities that could lead to future
impairment. The Committee challenged
management on its forecasts and the
disclosure of sensitivities in the Annual
Report, concluding that management’s
judgements were appropriate.
87
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT AUDIT COMMITTEE REPORT CONTINUED
• Parking Facilities – following a trading
period in 2020 that was impacted by
COVID disruption in security markets,
the business’s performance in 2021 has
improved but not to the levels that were
anticipated at the time of its acquisition.
Management’s impairment assessment
identified supply chain and raw material
price inflation pressures as being likely
to continue to impact demand and
margins in the short term, while new
market entrants in 2021 were noted
as being likely to lead to an increase in
competition in the medium to longer
term. Management’s assessment
concluded that an impairment charge
of £5.2m in respect of the goodwill and
other acquired intangible assets relating
to the acquisition was required. After
reviewing management’s forecasts for
future performance and challenging the
assumptions adopted, the Committee
agreed with management’s conclusions.
Additional disclosures made in respect of the
sensitivities around impairment calculations
can be found in note 12 to the Financial
Statements on pages 147 to 152.
Defined benefit pension scheme valuation
Net defined benefit pension obligations under
IAS19 amounted to £12.3m at 31 December
2021. 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 2021, the Committee
continued to receive forecasts based on
various scenarios and in particular, considered
what would be required for the Group to
breach its borrowing covenants or extinguish
its borrowing facilities in the period to 30 June
2023. 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
Whilst not considered to be primary areas of
judgement, the Committee’s discussions in
relation to the 2021 accounts also included
the following:
• Noting that the External Auditor, EY,
had identified inventory valuation as a
Key Audit Matter in their audit opinion,
members of the Committee discussed this
with the audit engagement partner in the
context of the Group’s view that this was
not a primary area of judgement for the
Group. Following discussion and noting
the effective operation of controls in this
area and the dispersed nature of inventory
across the Group due to its decentralised
structure, it was concluded that inventory
valuation should not be considered a
primary area of judgement for the Group.
• Given the significant value of non-
underlying items in 2021, the
Committee challenged management
on the presentation of those items.
The discussion focused largely on the
costs of the Group’s activity on actual or
potential acquisitions and disposals, and
costs relating to closure of the variable
message signs business. The Committee
concurred with management’s view,
noting that the work of the External
Auditor in this area also supported
that view.
•
The Committee challenged management
on the treatment of the rental business of
ATA as a disposal group held for sale. It
noted the confidence of management in
the likelihood of a sale being achieved in
2022 given the existence of an identified
purchaser and the advanced status of
negotiations.
Internal audit
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 evaluate the
effectiveness of internal controls, risk
management and governance processes
independently and objectively; 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 time frame.
88
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 conducting 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.
Internal control
The Audit Committee is responsible for
ensuring that the Group’s system of internal
control is embedded within all operating
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 11 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 IT Controls and Cyber Risk
mitigation activities;
accounting judgements including the
carrying value of goodwill and intangible
assets of ATG Access Ltd, France Galva
SA and Parking Facilities Ltd; and
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.
The 2021, Internal Audit Plan balanced the
focus of the function between Group-wide
Principal Risks and operating company-level
risks. It included a Group-wide thematic
review of contract management, recognising
the increasing variety and complexity of
projects which are now undertaken by the
Group, and multiple operating company-
level reviews, focusing on the operating
companies’ financial, commercial and
operational baseline internal controls. Due
to the impact of the COVID pandemic on the
internal audit function’s ability to be on site at
the Group’s operating companies, a number
of operating company-level reviews were
completed remotely, and one was outsourced
to BDO, USA.
Stock Code HILS The contract management thematic review
took place within those operating companies
where contracting makes up a significant
amount of their revenues and resulted in six
businesses being reviewed. It focused on the
inception and acceptance of contracts, their
execution, and post completion activities. In
its report to the Audit Committee, Internal
Audit identified the sales focus of contract
management as being a potential barrier to
the successful inclusion of protective terms
within the contract, and that the Group’s
Delegated Authorities should be revised
to provide better clarity around approval
requirements. Its work highlighted areas of
good practice which would, if applied to all
relevant companies, improve the quality and
consistency of contract execution. Finally,
the report noted that contract completion
procedures would benefit from formalisation.
During 2022, Internal Audit will be working
with the Group’s internal support functions to
educate colleagues on compliance with the
Group’s Delegated Authorities and standard
terms, and with the Group Presidents to
identify where improvements in process and
capability can be made.
Operating company-level reviews, focusing
on baseline internal controls, were conducted
at nine business units during the year. Where
internal audit work found instances of control
weakness, or non-compliance with Group
Policy, the findings were discussed at the
Audit Committee. Such control weaknesses
are taken seriously by management and the
Audit Committee seek to ensure that their
cause is understood, and mitigating actions
are taken to limit the potential for recurrence.
Plans are discussed and timelines agreed
with the relevant businesses, and these are
monitored by the Internal Audit function
to ensure compliance. In view of the work
of internal audit, external audit and Group
management, it is considered unlikely that a
weakness at an individual operating company
would have a material impact when taken in
the context of the Group as a whole.
Where operating companies fail to implement
internal control corrective actions within
a reasonable period as agreed, the Audit
Committee is informed, and further escalation
measures are taken. In 2021, Mark Reckitt,
Chair of the Committee, visited three
businesses to see for himself the issues that
confronted these businesses and noted that
most of the outstanding actions would be
resolved by imminent IT enhancements.
Risk management
The risk management process is
continually kept under review to ensure that
outcomes from the operating companies’
risk submissions provide the necessary
information for the Audit Committee
to conduct a robust assessment of the
risks affecting the Group as a whole. A
risk management and reporting tool has
helped to provide the Committee with more
information on how operating companies
perceive their risks and how they relate to
the Group’s Principal Risks. Through these
reports, operating company 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 are
correctly identified by virtue of a top-down/
bottom-up approach using the experiences
of the Audit Committee and the Group’s
operating companies. In this, the Audit
Committee is supported by the Group’s Risk
Committee, whose membership can be found
on page 57.
The Risk Committee oversees the risk
management process, which is one of
continual improvement. The risk management
and reporting tool, launched in 2020, was
further developed during the year supported
by a programme of training that was delivered
to all management teams across the Group,
via online webinars and training manuals.
The developments included the introduction
of Key Risk Indicators, to assist with the risk
assessment process, and alignment with the
Group IT Controls Manual.
The Risk Committee reviews, discusses and
validates the risk submission data received
from the operating companies. Any risks
submitted by operating companies 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 updates on operating
companies’ risk mitigation activity, together
with their attitude to risk as measured by a
“target” risk score. The Committee uses this
information to determine the risk appetite
within the Group’s operating companies and
help inform the Board’s overall risk appetite.
During 2021, the Committee directed that
particular attention be paid to the Principal
Risks around Health & Safety, IT failure and
Talent, Development, Diversity, Recruitment
and Retention of key employees. The
Committee noted that the prevention of harm
or injury to employees was a major area of
focus across the Group and that it was a
regular topic of discussion within the recently
formed Executive Board as well as the Board
itself. In reviewing the operating companies’
submissions in relation to this risk, the high
number of mitigating actions that were
implemented at business unit level were
discussed and a strong appetite to improve
was observed. The appointment of a Group
Head of Health & Safety in September 2021
will support this.
During the year, the Committee received
regular updates regarding IT resilience and
cyber security from the Group IT Director
and the Chief Information Security Officer (a
role appointed in March 2021). The Group
IT Controls Manual was launched during the
year and the Committee has received updates
regarding compliance from Internal Audit.
In the area of Human Resources, the
Committee acknowledged that the risk of
Talent, Development, Diversity, Recruitment
and Retention of key employees was a
wide-ranging risk and requested that at
an operating company level the risk be
considered separately as: recruitment and
retention of management and indirect labour;
recruitment and retention of direct labour;
and recruitment and retention of a diverse
workforce. The appointment of a Group Chief
People Officer in June 2021 has already
helped the continued mitigation of these
risks. It was therefore agreed that the risk
management and reporting tool would be
aligned to these separate issues, but that the
Group Principal Risk Register would continue
to report on the combined risk.
More information on the activities of the Risk
Committee and the Group’s Principal Risks
can be found on pages 56 to 64.
TCFD
The TCFD (Taskforce for Climate-related
Financial Disclosures) recommendations,
published in 2017, encourage companies to
disclose information on their financial risks
and opportunities because of climate change,
and how these are being managed.
The Group engaged PwC to perform analysis
to enable a better understanding of our
climate related risks, by identifying transitional
and physical risks and opportunities in future
climate scenarios. The results from PwC’s
work were reviewed and discussed at the
December 2021 Audit Committee and the
Committee approved the disclosures relating
to TCFD, which can be found in the Group’s
Sustainability Plan on pages 46 to 49.
89
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT AUDIT COMMITTEE REPORT CONTINUED
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.
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 Group Company
Secretary or a Group President or the Chair
of the Audit Committee. This policy can be
found on the Group’s 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. Reports
raised by the Group Company Secretary on
these cases, on the investigative process,
the conclusions, and any lessons to be
learned from these events are shared with the
whole Board.
Audit and Non-audit fees
At the December 2021 meeting, the
Committee discussed and approved the
proposed audit fee for 2021. The Committee
noted that the c.8% increase in the fee was
predominantly reflective of the inflationary
cost increases observed across the
professional services industry in the past 12
months.
The Committee maintained the approach of
minimising the non-audit work carried out by
the External Auditor. The Committee reviewed
its Non-Audit services policy in December to
ensure compliance with the FRC’s Ethical and
Auditing Standards in respect of the scope of
services permissible and maximum permitted
level of fees incurred for non-audit services
provided by EY.
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 2021, there were fees of £4,000 (2020:
£3,000) paid to the auditor for non-audit
services relating to other assurance services.
In 2021, non audit fees represented 0.2% of
audit fees of £1.5m (2020: 0.2%). Further
details of these amounts are included in note
8 of the Financial Statements on page 144.
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 2022
Assessment of effectiveness of
external audit
There are a number of areas that the
Committee considers in relation to the
External Auditor: performance in discharging
the audit and interim review of the Financial
Statements; independence and objectivity;
and reappointment and remuneration.
External Auditor performance
The External Auditor, EY, provided the
Committee with their plan for undertaking the
2021 year-end audit during the Committee
meeting in August 2021. 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 ATG
Access Ltd and France Galva SA; the risk
of fraud in revenue recognition; inventory
valuation; 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 Parking Facilities Ltd being reported on.
The External Auditor prepared a detailed
report of its findings in respect of the 2022
audit. The Committee discussed the issues
raised in the report, particularly in relation
to the areas highlighted, at their meeting in
March 2022. 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 were 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.
EY were appointed as the Group’s auditors in
June 2020, and 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.
90
Stock Code HILS 91
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT
Annette Kelleher
Chair
As ESG matters
become more
embedded within
our organisation,
the Committee
will be looking
at the inclusion
of more specific
non-financial
metrics into the
Group’s incentive
arrangements.”
DEAR STAKEHOLDER
As Chair of the Remuneration Committee and on behalf of the
Board, I am pleased to share with you our report on Directors’
remuneration for 2021. The annual report on remuneration,
describing how the Remuneration Policy has been applied
for the year ended 31 December 2021 and how we intend to
implement the policy for 2022, is provided on pages 94 to
104. Our Annual Remuneration Report 2020 was approved by
shareholders at the 2021 AGM and received 95% of votes in
favour. A summary of our Remuneration Policy, which was
approved at our 2020 AGM, with 95% support, is provided on
pages 105 to 109.
A copy of the complete Remuneration Policy can be found on our website at
https://www.hsholdings.co.uk/about-us/corporate-governance/policies.
Linking Executive Directors’
remuneration with our purpose
and strategy
Our Remuneration Policy is designed to
be transparent and straightforward and to
promote effective stewardship that is key to
the delivery of the Group’s strategy.
The Group has a history of focusing on
financial performance measures; however,
to provide even more specific focus, we
introduced personal objectives into the
Executive Directors’ annual bonus plans in
2020. In particular, these included developing
the Group’s ESG strategy and implementing
the Group’s IT and cyber risk strategy
with milestones appropriate to 2021. The
Committee were of the view that these
objectives should form part of a non-financial
series of activities that would support the
Company’s overall strategy. More information
can be found on page 97 to 98. Progress
against both the financial metrics and the
relevant milestones is measured using our
KPIs, which are largely embedded within
the Executive remuneration framework as
illustrated by the information on page 95.
92
Stock Code HILS Performance outcomes in 2021
After what was a challenging year in 2020,
due to the COVID pandemic, the Group has
responded well to post-pandemic market
conditions, reporting revenue of £705.0m
and underlying operating profit of £86.0m.
The 2021 annual bonus opportunities for the
Executive Directors were based on financial
measures (80% of the opportunity) and
personal objectives (20% of the opportunity).
Details of the outturns against the financial
performance measures are set out on page
94. The Committee considered the outturn for
these elements against the formulaic targets
and agreed that these were appropriate
having regard to overall performance. The
Committee assessed achievements against
personal objectives as set out on page 97
to 98 and used its judgement to determine
the amount of the bonus earned. Half of the
bonus earned by each Executive Director
will be deferred into shares for two years, to
ensure alignment over time with the interests
of shareholders.
LTIP 2021
During the year, the Committee considered
the two option plans operated by the
Company, the Long-Term Incentive Plan
(‘LTIP’) and the Executive Share Option
Scheme (‘ESOS’). The former had previously
included only Executive Directors, whilst the
latter included the Group’s senior managers
and options were only awarded every three
years. Following the strategy review, in which
the strategic direction of the Group was
refined, the Committee determined that it was
now appropriate to align the Senior Manger
population with the Executive Directors. As a
result, the Committee approved the granting
of a total of c.283,000 LTIP awards to 65
participants in September 2021. Having
considered the LTIP performance 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,
and that these would apply to all participants.
More details of these performance measures
can be found on page 100.
As reported in our 2020 Annual Report,
due to the economic uncertainty caused
by the pandemic in 2020, together with
the continuing development of the Group’s
strategy, it was decided to defer the granting
of the 2021 LTIP awards until after the
Group’s strategy review in June 2021 and, as
described above, these awards were made in
September 2021.
However, the Committee acknowledged
that the usual date for granting of awards
was March and noted the increase in the
Company’s share price between March and
September 2021. Following discussion, the
Committee concluded that this increase had
been driven by the performance of the new
management team and that consequently,
in line with the Policy and LTIP rules, the
share price used to determine the number of
shares subject to the awards was based on
the price in March 2021, as is the Company’s
usual approach. Additionally, the Committee
concluded that for all future awards,
irrespective of the actual date they are
awarded, the share price in March of the year
of the award should be that used to calculate
the number of shares under award, other than
in exceptional circumstances.
Looking forward to 2022
Our usual practice is to review Executive
Directors’ salaries on an annual basis. In
December, the Committee considered their
annual salary increases, effective January
2022. Aligning with the wider workforce, the
Committee awarded a 3% pay increase for
the Executive Directors. The new salaries are
Paul Simmons £562,071 and Hannah Nichols
£356,689.
The maximum opportunity for the variable
elements of remuneration remains
unchanged as:
• Annual Bonus: 150% of salary for Paul
Simmons and 125% of salary for Hannah
Nichols
•
•
LTIP: 150% of salary for Paul Simmons
and 125% of salary for Hannah Nichols
The Non-executive Director base fees
have been increased by 3% with effect
from January 2022. See page 104 for
more details.
I believe our approach to remuneration will
help to enable long-term sustainable growth
while ensuring a responsible approach to
executive pay. As the Group continues to
refine its strategy and ESG matters become
more embedded within our organisation,
the Committee will be looking at the Group’s
Remuneration Policy to ensure it remains
aligned to the delivery of that strategy and this
will include looking at the inclusion of more
specific non-financial metrics into the Group’s
incentive arrangements. We shall report more
on this work in our 2022 Annual Report.
Annette Kelleher
Chair
9 March 2022
93
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT CONTINUED
Area of focus in 2021
During the year to 31 December 2021, the Remuneration Committee consisted of Annette
Kelleher as Chair, Alan Giddins, Mark Reckitt, Pete Raby, Tony Quinlan and Leigh-Ann Russell,
who was appointed from 1 April 2021. During the year, the Committee considered the following:
January and March
• Determination of variable pay outturns for the 2020 bonus and 2018 LTIP as
reported in last year’s Directors’ Remuneration Report
ESOS 2018 Award – measurement of performance conditions
Executive Directors’ bonus plan for 2021, including agreement of personal
objectives. The bonus outturns are set out on page 94 and pages 97 to 98
August and September
Expansion of the population that participates in the LTIP to below Board level
managers, replacing the ESOS
•
•
•
• Consideration of appropriate LTIP targets
• Approval of LTIP 2021 award
• Approval of SAYE 2021 award
December
•
•
2022 salary review for Executive Directors and members of the Group’s
Executive Board
Executive Directors’ bonus plan for 2022, including agreement of personal objectives
Remuneration at a glance
To incentivise our employees to achieve our strategy, we provide market competitive
remuneration which is aligned with our shareholders’ experience.
Remuneration Policy and structure summary
More details can be found on pages 96 to 101.
Reward linked to performance
Operating Profit –
outcome against target 106%
(at budgeted foreign exchange rates)
Actual
£90m
Target £85m
Return on Invested Capital –
outcome against target 108%
(At budgeted foreign exchange rates)
Actual
17.2%
Target 15.9%
Total annual bonus plan –
outcome, including
achievement of personal
objectives, see pages 96 to 99.
Base Salary and benefits
Enables the Company to recruit and retain Executive Directors.
Pension
To provide post-retirement benefits for Executive Directors.
Annual Bonus
Performance measures and targets are reviewed and set
annually by the Remuneration Committee. At least 50% of
bonus will be based on financial measures.
Paul Simmons
88%
of maximum opportunity
50% of any bonus is deferred into shares for two years.
Hannah Nichols
LTIP
50% relative TSR
50% growth in UEPS
Three-year performance period, with a further two-year holding
period.
87%
of maximum opportunity
Shareholding guidelines
200% for all Executive Directors.
Post-employment guidelines apply.
94
Stock Code HILS The following chart shows Hill & Smith’s Total Shareholder Return during 2021.
150
140
130
120
110
100
90
80
70
60
50
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
Jan21
Feb21
Mar21
Apr21
May21
Jun21
Jul21
Aug21
Sep21
Oc21
Nov21
Dec21
Jan22
Hill & Smith
Financial performance
Alignment with shareholders
Alignment with the wider workforce
Organic revenue growth
10.0%
Underlying operating
profit margin
12.2%
Cash conversion
78%
Dividends paid to shareholders
in respect of 2021
£24.7m
Proportion of annual bonus
received in shares
Salary increase for
Executive Directors
50%
3.0%
Shareholding guidelines
200%
Executive Board members have a
100% Shareholder guidelines
Proportion of Executive LTIP
awards subject to a mandatory
two-year holding period
100%
No. of Senior Managers now
included in LTIP Award
65
Average salary increases for
the wider workforce
Direct 5.7%
Indirect 3.8%
Pension contributions for
Executive Directors
6.5%
Maximum available for
UK employees
6.5%
95
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT CONTINUED
The following parts of the Remuneration Report are subject to audit
HOW THE REMUNERATION POLICY WAS IMPLEMENTED IN 2021
Executive Directors
Single remuneration figure for 2021
Paul Simmons
Hannah Nichols
Total
Base Salary
(1)
Taxable
Benefits (2)
Pension (3)
545,700
346,300
892,000
15,608
12,608
28,216
35,471
22,509
57,980
Single remuneration figure for 2020
LTIP (vested
in respect
of the
performance
period ended
2021)(5)
Total
Variable
Pay
2021
Total
“single
figure”
463,766
1,184,090
1,780,869
–
376,601
758,018
Total Fixed
Pay
596,779
381,417
Annual
Bonus (4)
720,324
376,601
978,196
1,096,925
463,766
1,560,691
2,538,887
Paul Simmons
Hannah Nichols
Total
Base Salary
(1)
Taxable
Benefits (2)
Pension (3)
Total Fixed
Pay
178,333
339,570
517,903
38,077
12,000
50,077
11,592
22,100
33,692
228,002
373,670
601,672
Annual
Bonus (4)
90,000
67,914
157,914
LTIP (vested in
respect of the
performance
period ended
2020
–
–
–
Total
Variable
Pay
90,000
67,914
157,914
2020
Total
“single
figure”
318,002
441,584
759,586
(1) The amount of base salary received in the year.
(2) The taxable 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 £Nil (2020: £nil) was paid to P Simmons in the form of subsistence, which is subject to PAYE and NIC
deduction.
(3) Pension contributions for the Executive Directors represent 6.5% of their base salary.
(4) 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 94 and pages 97 to 98.
(5) The LTIP figure for Paul Simmons for 2021 reflects the vesting on 30 July 2021 of Buy-Out Award 1 granted to him over 28,557 shares in connection with an LTIP
award forfeited when he joined Hill & Smith, as set out in the 2020 Directors’ Remuneration Report. During 2021, it was confirmed that the award would vest in full.
The value of £463,766 is the product of the number of vested shares and the share price of £16.24 on the date of vesting.
2021 annual bonus
Each Executive Director was eligible to earn a bonus for 2021, up to 150% of salary in the case of Paul Simmons and up to 125% of salary in the
case of Hannah Nichols. 50% of any bonus is paid in cash and the remaining 50% is delivered in shares that are deferred for two years subject,
ordinarily, to continued employment but to no additional performance conditions.
The extent to which the Executive Directors’ bonuses were earned is summarised below:
Measure
Underlying operating profit
Return on invested capital
Personal objectives
Weighting(1)
Target
performance (2)
Stretch
performance(3)
Actual
performance (4)
Actual bonus
earned
(% of
maximum)
50%
30%
20%
£85.0m
15.9%
£92.0m
17.1%
£89.5m
17.2%
82
100
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) In March 2021, the Remuneration Committee approved a different weighting in respect of the financial measures than the 50/50 that had been applied across
financial measures in previous years.
(2) 50% of bonus opportunity is earned.
(3) 100% of bonus opportunity is earned.
(4) Underlying operating profit and Return on invested capital are calculated at budgeted rates of exchange for the purpose of the annual bonus calculation.
96
Stock Code HILS The personal objectives set for each Executive Director are summarised below, along with the key achievements.
Executive Director
Objectives
Key achievements
Paul Simmons
Set the appropriate tone
within the organisation
around health & safety
leadership. Implement
an accountability
process for safety
performance. Lead and
drive the beginnings of
a step change in safety
performance.
Develop an updated
long-term strategy,
capable of targeting
a 5% organic revenue
CAGR across
the plan period.
Establish an effective
and compelling
communication of that
strategy to investors
and key stakeholders.
Implement and imbed
the new organisation
structure into the
business.
Establish a clear
framework around
how the organisation
thinks about ESG and
agree with the Board
an updated set of KPIs
against which the
Group should report.
Agree and publish a
costed transition plan
by the end of 2021.
Feedback from the business is that the focus on Health & Safety has increased, evidenced by the
employee engagement survey in 2021 which recorded Safety and Wellbeing as having increased by
11%. Health & Safety has been defined as one of the seven focus areas in our ESG strategy developed
in the year.
The Board and Committee recognised Paul Simmons’ strong personal leadership in this area, in
particular following up on guarding concerns raised at the Workforce Advisory Panel meetings,
ensuring safety is an area of focus on every factory visit, attending every UK & US Safety Managers’
meeting and ensuring resources are available to run factory safety audits.
During the year, a new accountability process for safety performance has been implemented, including
action plans for those subsidiaries with higher than average safety incident levels.
The importance of Health & Safety to the Group was recognised in the appointment of a new Group
Head of Health & Safety during 2021. Her proposed strategy was well received by the Board and as
part of the Group initiative there are plans to drive improvements in behavioural safety in line with best
practice. In the near term, the seven businesses with the highest incidences of Lost Time Injury Rates
have developed plans to improve safety incident levels. However, there is still much to do to improve
the culture of health and safety across the group.
The articulation of the strategic framework was very well received by our analyst and investor
community in March. The Board reviewed and approved the strategic planning process and noted the
ambition shown by the operating businesses.
The Executive Directors oversaw the framework being rolled out to the Managing Director community
and beginning to penetrate to deeper levels within the businesses. Innovation is a key element of our
organic growth strategy and during 2021 a Group-wide initiative was launched to accelerate our rate of
innovation.
In line with our refreshed strategy, a number of actions were taken in the year to enhance the quality
of the portfolio, including the acquisition of Prolectric Services Ltd which operates in a market with
strong long term growth potential.
We established the Executive Board in early 2021 and introduced Group Presidents responsible for
accelerating organic growth within their market portfolio and acquiring high quality businesses, as we
create a structure that will scale as the business continues to grow. The development of the Executive
Board continued during the year with the appointments of Denise Beachy our first Group President
in the USA and Andrew Park as our Chief People Officer. Two forums were held with the Group’s
Managing Directors during the year where the new organisation structure and strategy was cascaded
to operating companies’ Managing Directors.
In 2021, we established an ESG Committee to drive the development of the Group’s ESG Plan and to
translate those plans into practical initiatives, near-term targets and actions for operating businesses.
An independent ESG materiality study was completed in June 2021, following a consultation with 38
diverse stakeholders including employees, customers, suppliers, investors and our major lending
bank. We used the findings of this study to identify our seven key ESG focus areas: greenhouse gas
emission and energy management; sustainable products; health and safety; talent development and
employment practices; engagement, diversity and inclusion; physical and transitional climate risks;
and ethical conduct. We have a clear plan and key measures for each of the seven areas.
We have signed up for Science Based Targets initiatives and have complied with the Taskforce on
Climate-related Financial Disclosure.
The costed plan to achieve Net Zero by 2040 is largely complete. The Group ran a recruitment process
for a Head of Sustainability during the year and our first choice candidate joined in early 2022.
Achievement
85%
97
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT CONTINUED
Executive Director
Objectives
Key achievements
Hannah Nichols
Develop an updated
long-term strategy,
capable of targeting
a 5% organic revenue
CAGR across
the plan period.
Establish an effective
and compelling
communication of that
strategy to investors
and key stakeholders.
Ensure the organisation
demonstrates material
progress towards
delivery on the next
stages of its IT and
cyber security strategy,
and specifically delivers
on a successful Birtley
ERP implementation.
Continue to
demonstrate
improvements in
working capital
management and
financial forecasting
at the subsidiary level.
Agree with the Board an
updated set of forward
looking KPIs and
implement reporting
against these.
Work with the Group
Presidents to ensure
we have sufficient
resources and
appropriate processes
within the subsidiaries
to ensure an acceptable
environment for the
maintenance of, and
adherence to, key
financial controls.
The articulation of the strategic framework was very well received by our analyst and investor
community in March. The half-year strategic planning process was well received by the Board and
satisfied the 5% long term organic growth target. The Board noted the ambition shown by the operating
businesses.
The Executive Directors oversaw the framework being rolled out to the Managing Director community
and beginning to penetrate to deeper levels within the businesses. The Group Presidents continue to
evolve and develop the existing sub-divisional strategies.
Innovation is a key element of our organic growth strategy and during 2021, a Group-wide initiative was
launched to accelerate our rate of innovation.
In line with our refreshed strategy, a number of actions were taken in the year to enhance the quality of
the portfolio, including the acquisition of Prolectric Services Ltd, which operates in a market with strong
long term growth potential.
During 2021, good progress has been made around IT strategy with a particular focus on information
security and establishing baseline controls.
A Group Chief Information Security Officer was recruited in March 2021 as part of our actions to develop
our cyber security controls. Following this appointment, we have taken significant steps to understand
and improve the Group’s information security landscape. The workstreams are ongoing but good
progress has been made to date (e.g. Endpoint management daily patches have reduced from 15k to 4k
per day) with high levels of engagement from the operating companies.
The Group’s first IT Controls manual was created in H1 2021 and launched in July. In H2, the operating
companies completed their first self-assessment against this framework and internal audit also
completed three validation audits. Control weaknesses have been identified and remediation actions
put in place. The baselines established as part of this process will be important in the implementation of
future assessments and validations.
During 2021, a strategic approach to ERP was agreed and an ERP playbook developed to support
operating companies, with the first successful implementation based on this approach taking effect
from 1st January 2022. The Birtley ERP implementation has been put on hold, in collaboration with the
MD’s view and in line with the playbook approach which requires sufficient dedicated resource to be in
place prior to project commencement.
2020 to 2021 working capital outflow was £6.8m (at budgeted foreign exchange rates) which reflects
the increased trading activity during the period.
Group weighted average working capital as a % of annualised sales as at 31 December 2021 was
15.2% compared to 15.3% at 31 December 2020. Debtor days at 31 December 2021 were 55 compared
to 54 days at the end of 2020 and 61 days at the end of 2019, reflecting the continued focus on cash
collection.
An updated set of forward-looking KPIs was agreed with the Board. Given the supply chain challenges
in 2021, supply chain surveys/temperature checks were proactively run during the year with the output
shared with the Board.
The effectiveness of the operating company financial control environment was improved during the year
by various actions. These included:
•
Revisions to the Group Financial Reporting Control Framework to disaggregate certain key controls
to emphasise their importance;
Group Financial Control specific focus and support provided to operating companies; and
•
• Working to address specific resourcing challenges which were impacting control environment
effectiveness and providing specific IT focus and support to address data disaster recovery
arrangements.
Overall control effectiveness percentage has remained consistent, but there has been an underlying
improvement in the rigour in which local finance teams have performed against the Group Finance
Controls manual.
Achievement
80%
In assessing the key achievements set out above in relation to personal objectives, the Committee determined that Paul Simmons should receive
17% of this part of the bonus, being 85% of his maximum opportunity and that Hannah Nichols should receive 16% of this part of the bonus, being
80% of her maximum opportunity.
98
Stock Code HILS The cash bonus and deferred bonus earned in respect of 2021 by each Executive Director is as follows:
Executive Director
Paul Simmons
Hannah Nichols
Total bonus
earned
Bonus paid in
cash (£)
Bonus paid
as an award
of deferred
shares (£)
720,324
376,601
360,162
183,301
360,162
183,300
LTIP awards vesting in respect of 2021
Neither of the Executive Directors received an award vesting in respect of the performance period ending 31 December 2021. See page 100 for
details of awards made to past Directors.
Executive Director shareholding guidelines
The Company’s guidelines are that Executive Directors must hold 200% of their base salary in shares. In order to meet this requirement, Directors
are required to build up such by retaining at least half of any shares earned through incentive arrangements until that shareholding requirement is
met. Shares awarded as part of the deferred bonus arrangements also count towards this requirement.
Shareholding requirement
Current shareholding on 31 December 2021
Deferred shares on 31 December 2021 (amounts net of tax and social security)(1)
Total shares
Share value based on share price on 31 December 2021
Current % of salary (based on salary on 31 December 2021)
Paul
Simmons
Hannah
Nichols
200%
4,999
18,558
23,557
200%
1,478
2,918
4,396
£423,084
£78,952
77.5%
22.8%
(1) This includes the shares subject to any deferred bonus awards and in the case of Paul Simmons the shares subject to his Buy-Out Award 1 granted to him in
connection with an LTIP award forfeited when he joined Hill & Smith as detailed in the 2020 Annual Report. In each case, the number of shares is net of assumed tax.
These figures include those of their spouse or civil partner and infant children, or stepchildren.
Paul Simmons and Hannah 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 2021 and 9 March 2022.
Share awards granted during the year
During the year to 31 December 2021 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
Period end date(3)
Paul Simmons
16 September 2021
Nil cost option
Hannah Nichols
16 September 2021
Nil cost option
58,762
31,075
818,555(1)
432,875(2)
20%
20%
31 December 2023
31 December 2023
(1) Calculated by reference to a share price of £13.93, being the average of the mid-market prices for the three trading days prior to 16 March 2021, which were also
the first three trading days following the preliminary announcement of the Group’s 2020 results on 10 March 2021. This is the date on which the awards would have
been granted but for the decision to defer the grants as discussed on page 93, and reflect an award of 150% of base salary.
(2) Calculated by reference to a share price of £13.93, being the average of the mid-market prices for the three trading days prior to 16 March 2021, which were also
the first three trading days following the preliminary announcement of the Group’s 2020 results on 10 March 2021. This is the date on which the awards would have
been granted but for the decision to defer the grants as discussed on page 93. and reflect 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.
99
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT CONTINUED
The performance conditions for these awards are as follows:
Vesting amount
0% Vesting
20 % Vesting*
Maximum Vesting*
Absolute UEPS at the end
of the performance period
(50% of the award)
Less than 82p
82p
102p
TSR (50% of the award) **
Below median
Median
Upper quartile
* Straight line vesting will apply between these two points.
** Relative to the FTSE 250 (excluding investment trusts and financial services companies).
SAYE
The interests of Executive Directors, who served during 2021, in options for ordinary shares in the Company, granted under the Company’s SAYE
schemes are included in the following table:
Period that option is exercisable
Paul Simmons
Hannah Nichols
Grant Price
£9.60
£9.40
Awards
held at
31 December
2020
3,125
3,191
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Awards
held at
31 December
2021
From
To
–
–
–
–
–
–
3,125
1 Jan 2026
1 July 2026
3,191
1 Jan 2023
1 July 2023
Statement of Executive Directors’ shareholding and interest in shares
Paul Simmons
Hannah Nichols
Unvested
Owned
Outright
Vested but not
exercised
Subject to
performance
conditions
Not subject to
performance
conditions
Total at
31 December
2021
4,999
28,557
125,581
12,364
171,801
2,497
3,125
1,478
5,505
66,410
2,497
2,497
3,125
73,393
2,497
3,191
3,191
Type
Shares
Market value
options(1)
SAYE
Options(2)
Shares
Market value
options(1)
SAYE
Options(2)
(1) The Market Value options were granted under the tax-advantaged part of the ESOS as part of the LTIP award granted in 2020 to Paul Simmons and Hannah Nichols
and are subject to the same performance conditions as that LTIP award.
(2) A breakdown of SAYE awards is shown above.
Loss of office payments and payments to former directors
There were no loss of office payments made to past Directors during the year ended 31 December 2021.
As disclosed in the 2020 Directors’ Remuneration Report, Derek Muir retained the benefit of his LTIP award granted in March 2019 over 56,034
shares, which vested subject to performance to 31 December 2021. As set out below, 39% of the total award vested and this was then reduced
pro-rata to reflect the proportion of the performance period for which Mr Muir remained an employee of the Group. Mr Muir will therefore receive
16,391 shares, plus a further 982 shares in respect of dividends paid over the performance period on the vested shares. The award will be released
in March 2023 and dividend equivalents will continue to be earned over the period to release.
Performance Targets
Vesting
Actual Performance
Actual Vesting
Shares subject
to Award
Vesting Shares
(after time based
reduction)
UEPS
TSR
Threshold:
15% growth
Maximum:
30% growth
Median
Upper Quartile
100
25%
100%
25%
100%
UEPS growth
of 0%
UEPS:
0% of maximum
28,017
0
TSR ranked 44
(out of 134)
TSR:
78% of maximum
28,017
16,391
Stock Code HILS
Non-executive Directors
Non-executive Director single figure comparison
Director
Alan Giddins
Role
Chair
Chair,
Remuneration
Committee
Non-executive
Director
Chair, Audit
Committee
Non-executive
Director
Senior
Independent
Director
Annette Kelleher
Leigh-Ann Russell(2)
Mark Reckitt
Pete Raby
Tony Quinlan
Total
Board
Fees
176,690
60,675
39,206
60,675
52,275
60,675
450,196
Other
Fees
Taxable
Benefits
Annual
Bonus
LTIP
Pension
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
“Single
Figure”
20211
Total
“Single
Figure”
2020
176,690
173,225
60,675
59,450
39,206
–
60,675
59,450
52,275
51,250
60,675
59,450
450,196
402,825
(1) As the Non-executive Directors do not participate in any variable arrangements, separate sections for fixed and variable pay are not included.
(2) Leigh-Ann Russell was appointed on 1 April 2021.
The Non-executive Directors do not have service contracts, only letters of appointment. Fees for Non-executive Directors are determined by the
Executive Directors in light of market best practice and with reference to the time commitment and responsibilities associated with the role. The
Non-executive Directors do not participate in any decisions 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.
Non-executive Director shareholding
Alan Giddins
Annette Kelleher
Leigh-Ann Russell (1)
Mark Reckitt
Pete Raby
Tony Quinlan
2021
15,220
3,948
–
4,000
1,600
1,200
2020
9,375
2,164
–
4,000
1,600
1,200
(1) Leigh-Ann Russell was appointed to the Board on 1 April 2021.
These figures include those of their spouses, civil partners and minor children and stepchildren. There was no change in these beneficial interests
between 31 December 2021 and 9 March 2022. 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.
101
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT CONTINUED
The following parts of the Remuneration Report are not subject to audit
Annual percentage change in remuneration of Directors and employees
The table below shows the annual percentage change in each Director’s salary/fees, benefits and bonus between the year ended 31 December
2020 and the year ended 31 December 2021, 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. Leigh-Ann Russell was appointed to the Board
during the year ended 31 December 2021 and, accordingly, has been excluded from the table below.
Average
employee
Wider
workforce
Paul
Simmons
Hannah
Nichols
Alan
Giddins
Annette
Kelleher
Mark
Reckitt
Pete
Raby
Tony
Quinlan
Salary/
fees
Taxable
benefits
Annual
bonus
2020–2021
2019–2020
2020–2021
2019–2020
2020–2021
2019–2020
4.1% 2.0 - 9.0%
2.9%
n/a
n/a
n/a
n/a
2.9%
n/a
n/a
340.3%
4.3%
3.0%
n/a
-59.0%
n/a
3.0%
2.9%
5.0%
-6.4%
700.0%
454.5%
n/a
-51.8%
3.0%
2.5%
n/a
n/a
n/a
n/a
3.0%
2.5%
n/a
n/a
n/a
n/a
3.0%
2.5%
n/a
n/a
n/a
n/a
3.0%
2.5%
n/a
n/a
n/a
n/a
3.0%
2.5%
n/a
n/a
n/a
n/a
Single figure of the Chief Executive compared to the wider workforce
This is our third year of reporting the CEO pay ratio and the table below sets out our CEO pay ratio figures in respect of 2019, 2020 and 2021.
As in previous years, the Company has opted to use option B of the Pay Ratio regulations, and to use its most current gender pay gap information,
which has recently been collated to meet our Gender Related Pay Gap (‘GRPG’) reporting requirements for 2021/22, to identify the three relevant
employees. The rationale behind adopting this option is that data required to meet both BEIS and GRPG regulations has to be collected for our
UK-based employees and this option allows both to be completed efficiently and effectively in the time allowed to make any relevant public
statements.
Method
25th percentile pay ratio
Median pay Ratio
75th percentile pay ratio
Year
2021
2020
2019
Option B
Option B
Option B
68:1
26:1
43:1
Pay details for the individuals are set out below.
2021
Salary
Total remuneration
CEO
545,700
1,780,869
25th percentile
25,798
25,798
63:1
44:1
39:1
Median
28,167
28,167
41:1
33:1
38:1
75th percentile
41,799
42,549
A significant proportion of the CEO’s total remuneration is performance related. Therefore, the ratios vary year on year depending upon the extent
to which performance related remuneration is earned by reference to the satisfaction of the applicable conditions. The changes in the ratios
between 2020 and 2021 also reflect the inclusion in the 2021 single total figure of remuneration for the CEO of the vesting value of “Buy-Out Award
1” as set out on page 96. The Committee considers that the median ratio for 2021 is consistent with the pay, reward and progression policies for
employees as a whole.
Pay for performance
The ten-year graph opposite shows the Company’s TSR performance over the ten years to 31 December 2021 as compared to the FTSE 250. In
previous years, the Company’s performance has been compared with the FTSE 250, FTSE Small Cap and the FTSE All-share indices. However, in
June 2021, the Company had been a constituent of the FTSE 250 for five years and therefore it was decided that simply showing performance
relative to the FTSE 250 was the most appropriate metric. It also reflects the Company’s LTIP award TSR comparator group.
The table below details the CEO’s single figure remuneration and actual variable pay outcomes over the same period.
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
CEO single figure (£000)
941
1,084
1,835
1,894
2,134
2,085
1,506
1,187
Annual bonus (% of max.)
LTIP Vesting (% of max)
85
–
16
50
100
93
100
98
100
100
94
100
19
100
43
31
Derek
Muir
Paul
Simmons
980
19
36
318
19
N/A
1,781
88
100
(1) P Simmons joined the board on 1 September 2020 and took over as CEO with effect from 12 November 2020. The CEO single figure for 2020 for P Simmons reflects
his remuneration earned from appointment, and not just for that part of the year for which he was CEO and the LTIP vesting in 2021 refers to his Buy-Out Award 1 as
set out on page 96.
102
Stock Code HILS The following chart shows Hill & Smith’s Total Shareholder Return during the ten years to 2021.
1000
)
0
0
1
o
t
d
e
s
a
b
e
r
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
900
800
700
600
500
400
300
200
100
0
Jan12
Jan12
Jan12
Jan13
Jan14
Jan15
Jan16
Jan17
Jan18
Jan19
Jan21
Jan22
Hill & Smith
FTSE 250
Relative importance of spend on pay
Dividends paid in respect of the financial year
Overall spend on pay (1)
2021
2020
% change
£24.7m
£21.2m
£183.2m
£184.2m
+16.5%
-0.5%
(1) This includes a 2.5% reduction in the average number of people employed by the Group. See note 6 to the accounts on page 143.
Statement of shareholder voting
The following table shows the results of the vote on the Annual Remuneration Report at the 2021 AGM and the binding vote on the current
Remuneration Policy at the 2020 AGM.
Remuneration Policy (2020)
% of votes cast
Remuneration Report (2021)
% of votes cast
For
95.43%
Against
4.57%
95.24%
4.76%
Withheld
20,570 votes were withheld in
relation to this resolution (0.03%)
7,413 votes were withheld in
relation to this resolution (<0.01%)
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 £27,000 for the year ended 31 December 2021. 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.
103
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT CONTINUED
How the Remuneration Policy will be implemented for 2022
Executive Directors
Salary
Base salaries were reviewed on 21 December 2021 and as from 1 January 2022 are:
Paul Simmons
Hannah Nichols
£562,071
£356,689
This represents an increase of 3% which is in line with the increase to other employees within the Group. Salaries will next be reviewed in
December 2022 for the financial year 2023.
Pension and benefits
The pension contribution for Paul Simmons and Hannah Nichols will remain 6.5% of their base salary.
Annual Bonus
The annual bonus opportunity for 2022 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 50% in cash and 50% in deferred shares.
For the 2022 financial year, the annual bonus metrics will be:
•
Underlying operating profit; and
• Return on invested capital.
Together representing 80% of the maximum opportunity, and weighted 50% and 30% respectively; and
•
20% towards individual personal objectives linked to the Company’s purpose and strategy and the individual Executive Director’s key
responsibilities.
Share plans
The grant of LTIP awards for 2022 will be in line with the policy approved by shareholders at the Company’s AGM in June 2020. As such, the
awards in 2022 will be 150% and 125% of base salary for the CEO and CFO, respectively. The awards will be subject to performance conditions
based on relative TSR and UEPS growth as set out below.
Vesting amount
UEPS compound annual growth rate over three years (50% of the award)
TSR* (50% of the award)
0% vesting
20% vesting
100% vesting
Less than 3%
3%
11%
Below median
Median
Upper quartile
* Relative to the FTSE 250 (excluding investment trusts and financial services companies).
Non-executive Directors
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 2021, the Board
approved a 3% increase in the basic fees for the Chair and Non-executive Directors.
2022
2021
£181,990
£176,690
£53,840
£52,275
£9,000
£9,000
£9,000
£8,400
£8,400
£8,400
Chair
Non-executive Director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
Annette Kelleher
Chair
9 March 2022
104
Stock Code HILS 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
Operation
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.
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
Performance metrics
Not applicable.
Ordinarily salary increases will not
exceed the range of salary increases
awarded to other employees in
the Group (in percentage of salary
terms). However, salary increases
may be above this level in certain
circumstances as required, for
example to reflect:
•
•
•
increase in scope or
responsibility;
performance in role; or
an Executive Director being
moved to market positioning
over time.
No maximum salary opportunity
has been set out in this policy report
to avoid setting expectations for
Executive Directors.
Benefits
Purpose and link
to strategy
Operation
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.
Executive Directors are entitled to various benefits
including but not limited to, membership of the Group’s
healthcare scheme, personal accident insurance, ill
health, life assurance and car (or equivalent cash
allowance).
Other benefits may be provided based on individual
circumstances. Such benefits may include but are not
limited to expatriate, housing, relocation allowances or
overseas tax support.
The SAYE is a 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.
Pension
Purpose and link
to strategy
Operation
Maximum opportunity
Performance metrics
Not applicable.
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.
Maximum opportunity
Performance metrics
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.
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).
Not applicable.
105
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT DIRECTORS’ REMUNERATION POLICY REPORT
CONTINUED
Annual bonus
Purpose and link
to strategy
Operation
Maximum opportunity
Performance metrics
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 maximum bonus opportunity
is up to 150% of base salary for the
CEO and up to 125% of base salary
for any other Executive Director.
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.
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.
106
Stock Code HILS Long Term Incentive Plan (‘LTIP’)
Purpose and link
to strategy
Operation
Maximum opportunity
Performance metrics
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.
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.
Incentivises Executive
Directors to achieve
higher returns for
shareholders over a
longer time frame.
A clawback applies
to unvested awards
enabling the Company
to mitigate risk. The
post-vesting holding
period aligns the
interests of Executive
Directors with those of
the shareholders over a
further period.
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.
107
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT DIRECTORS’ REMUNERATION POLICY REPORT
CONTINUED
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.
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
Post-employment 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.
Chair and Non-executive fees
Purpose and link
to strategy
Operation
Fees are set at a
level that reflects
market conditions
and is sufficient to
attract individuals with
appropriate knowledge
and experience.
Fees are reviewed periodically and are determined by
the Board.
The fee structure is as follows:
•
•
•
•
•
the 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.
108
Maximum opportunity
Performance metrics
Not applicable.
Not applicable.
Maximum opportunity
Performance metrics
Not applicable.
Not applicable.
Maximum opportunity
Performance metrics
Not applicable.
Fees are subject to an overall cap as
set out in the Company’s Articles of
Association from time to time.
Fees are based on the time
commitment and responsibilities of
the role.
Fees are appropriately positioned
against comparable roles in
companies of a similar size and
complexity in the relevant market.
Stock Code HILS Differences in the Group’s policy for the
remuneration of employees generally
The Group aims to provide a remuneration
package that is market competitive in the
employee’s jurisdiction of employment
and which:
•
•
•
is appropriate to attract, retain, motivate
and reward, without paying more than
necessary;
is fairly and consistently applied; and
includes an element of incentive to
share in the financial success of the
Group through: annual bonuses, based
upon the performance of individual
business units; executive share options;
and a UK SAYE scheme, all of which are
aligned to the strategic objectives and
performance of the Group.
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 & safety
standards.
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.
109
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT DIRECTORS’ REPORT
(other statutory information)
Principal activities and
strategic report
The Company acts as a holding company to
all the Group’s subsidiaries.
During 2021, the principal activities of the
Group comprised the manufacture and
supply of:
•
Infrastructure Products (Roads & Security
and Utilities); and
• Galvanizing Services.
Pages 1 to 65 contain further details of
these areas of the business and the principal
subsidiaries operating within them are set out
on pages 188 to 191.
The Chair’s Letter and the Directors’ Strategic
Report include:
•
Information on S172 CA 2006;
• An analysis of the development and
performance of the Company’s business
during the financial year;
• Key performance indicators used to
measure the Group’s performance;
•
The position of the Company’s business
at the end of the financial year;
• A description of the principal risks and
uncertainties faced by the Group; and
• Main trends and factors likely to affect
the future development, performance and
position of the Company’s business.
Future development
An indication of likely future developments in
the Group is given in the Strategic Report on
pages 1 to 65.
Statement on corporate governance
The Directors’ Report for the year ended 31
December 2021 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 £50.9m (2020: £35.5m). Group
revenue at £705.0m, 7% up on the COVID-
impacted year of 2020. Operating profit at
£57.0m, up 33% on an the COVID-impacted
year of 2020, being £42.8m.
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
79,480,855
Total new ordinary shares
issued during the year
312,028
Issued share capital
31 December 2020
Rights and obligations
79,792,883
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 24 on
pages 166 and 167 of the Group Financial
Statements.
Details of the results for the year are shown
on the Consolidated Income Statement
on page 123 and the business segment
information is given on pages 136 to 138.
Dividends
The Directors recommend the payment of
a final dividend of 19.0p per ordinary share
(2020: 17.5p) which, together with the
interim dividend of 12.0p per ordinary share
(2020: 9.2p per ordinary share) paid on 7
January 2022, makes a total distribution
for the year of 31p per ordinary share
(2020: 26.7p per ordinary share). Subject to
shareholders approving this recommendation
at the AGM, the final dividend will be paid on
8 July 2022 to shareholders on the register
at the close of business on 6 June 2022.
The latest date for receipt of Dividend Re-
investment Plan elections is 17 June 2022.
Share capital
There are no restrictions on the transfer of
shares in the Company provided they are
fully paid up and the Company does not hold
any lien over them and as the shares rank
equally none of them carry any special rights
with regards to control of the Company.
Such equal rights apply to shares acquired
through any of the Company’s employee
share schemes and those shares so acquired
carry no lesser or greater rights than shares
acquired in the Company in any other way.
Accordingly, there are no restrictions on
voting rights attaching to any shares, whether
relating to the level of shareholding or
otherwise.
The Company is not aware of any
arrangements between shareholders of the
Company that may result in restrictions on
the transfer of ordinary shares or voting
rights.
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 2021
AGM and will be limited by the resolution
to be put to the 2022 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.
110
Stock Code HILS •
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 25 May 2021 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 August 2022.
Substantial shareholdings
As at 8 February 2022, 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:
Number of
ordinary
shares
% of issued
share
capital
7,912,742
3,901,112
3,878,183
3,808,845
9.9%
4.9%
4.9%
4.8%
3,731,541
4.7%
Shareholder
abrdn
BlackRock
Invesco
AXA Framlington
Investment
Managers
Royal London
Asset
Management
Vanguard Group
3,554,627
Mondrian
Investment
Partners
2,911,964
Charles Stanley
2,838,674
2,371,896
JPMorgan Asset
Management
Legal & General
Investment
Management
4.4%
3.6%
3.6%
3.0%
2,266,286
2.8%
Directors
The names of the Directors of the Company
who served throughout the year, including
brief biographies, are set out on pages 66
and 67.
Directors’ interests
The interests of the Directors in the share
capital of Hill & Smith Holdings PLC as at 31
December 2021 are set out on page 99 and
page 101.
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 23 on pages 161
and 166.
Research and development
During the year, the Group spent a total
of £1.9m (2020: £2.0m) on research and
development.
Political and charitable donations
Charitable donations amounting to £39,000
(2020: £21,000) were made in the year
principally to local charities serving the
communities in which the Group operates.
There were no political contributions.
Employment policies
Details of the Group’s employment policies
are available on the Company’s website.
Change of control/significant
agreements
There are no agreements between the Group
and its Directors or employees providing
for compensation for loss of office or
employment that occurs because of a change
of control, other than revised notice periods
and termination payments for 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 2021
There were no post-Balance Sheet events.
Annual General Meeting
The Annual General Meeting of the Company
will be held at 11.00 a.m. on Tuesday 24 May
2022 at The Village Hotel, The Green Business
Park, Shirley, Solihull, B90 4GW. Notice is sent
to shareholders separately with this Report,
together with an explanation of the special
business to be considered at the meeting and
is also available on the Company’s website at
www.hsholdings.com.
Other important dates can be found in the
Financial Calendar on page 186.
By order of the Board
Alex Henderson
Company Secretary
9 March 2022
111
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
•
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.
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 2022
STATEMENT OF DIRECTORS’
RESPONSIBILITIES IN
RESPECT OF THE ANNUAL
REPORT, STRATEGIC
REPORT, THE DIRECTORS’
REPORT AND THE
FINANCIAL STATEMENTS
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
Statements in accordance with UK adopted
International Accounting Standards and
applicable law and have elected to prepare
parent Company financial statements in
accordance with UK accounting standards,
including FRS 102 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 UK adopted international
accounting standards;
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
112
Stock Code HILS
113
Hill & Smith Holdings PLC | Annual Report and Accounts 2021GOVERNANCE REPORT INDEPENDENT AUDITOR’S REPORT
OPINION
In our opinion:
• Hill & Smith Holdings PLC’s Group Financial Statements and Parent Company Financial
Statements (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 2021 and of the Group’s profit for
the year then ended;
•
•
•
the Group Financial Statements have been properly prepared in accordance with UK
adopted international accounting standards;
the Parent Company Financial Statements have been properly prepared in accordance with
UK 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 2021 which comprise:
Group
Parent company
Consolidated Income Statement
Company Balance Sheet
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 27 to the Group Financial
Statements, including the Group Accounting Policies
Company Statement of Changes in
Equity
Related notes 1 to 15 to the Parent
Company Financial Statements
including the Company Principal
Accounting Policies
The financial reporting framework that has
been applied in the preparation of the Group
Financial Statements is applicable law and UK
adopted international accounting standards.
The financial reporting framework that has
been applied in the preparation of the Parent
Company Financial Statements is applicable
law and UK Accounting Standards, including
FRS 101 “Reduced Disclosure Framework”
(UK 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 believe that the audit evidence we
have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We are independent of the Group and Parent
Company 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.
The non-audit services prohibited by the
FRC’s Ethical Standard were not provided to
the Group or the Parent Company and we
remain independent of the Group and the
Parent company in conducting the audit.
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 and other current global macro-
economic factors 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 30 June
2023. We verified these forecasts were
consistent with the Board approved
forecasts ensuring the operating
profit, working capital adjustments
and resultant cashflows in the going
concern assessment matched those in
the forecasts. The Group has modelled
a base case, which is consistent with
the assumptions used in the Group’s
impairment assessments. Additionally,
two reverse stress tests have been
modelled, which determine a) the
114
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 its financial covenants under its
core borrowing facilities;
• We obtained the signed agreements
for the Group’s credit facilities and read
these to confirm the terms of these,
including the level of facilities and basis
of covenants, were consistent with
those considered in management’s
assessment;
• We assessed the reasonableness of
the key assumptions underpinning
the Group’s forecasts in the context
of other supporting evidence gained
from our audit procedures on goodwill
impairment reviews including trends in
Group performance and other external
market data, such as analyst and industry
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 pandemic
and external industry forecasts;
• We assessed the historical accuracy
of management’s forecasting for the
past four years, by comparing the
Group’s actual results to Board approved
budgets and, for COVID impacted 2020
performance, re-forecasts to further
challenge 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. This was achieved by
considering the drop in revenues required
for the Group to either run out of liquidity
or breach covenants and comparing this
reduction to the fall in the Group’s actual
results achieved through the course
of the pandemic. 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, to date;
Stock Code HILS • 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.
Note 1 to the consolidated financial
statements provides details of the Group’s
net debt position as at 31 December 2021,
along with the level of committed borrowing
facilities and the headroom on those facilities
as at 31 December 2021.
Our independent procedures confirmed that
for a breach of covenants to occur during
the relevant period, the Group would need
to experience a sustained revenue reduction
of 20% compared with current expectations
throughout the period from May 2022 to June
2023, while a reduction in headroom against
borrowing facilities to nil would occur if the
Group experience a reduction in revenue of
53% between May 2022 and June 2023.
Based on the work we have 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 30 June 2023.
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
Key audit matters
Materiality
• We performed an audit of the complete financial information of
5 trading components 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 23 non-trading components.
•
•
•
•
•
The components where we performed full or specific audit
procedures accounted for 95% of adjusted operating profit (prior to
consolidation adjustments), 93% of revenue and 72% of total assets.
Carrying value of goodwill in relation to France Galva, ATG Access and
Parking Facilities
Revenue recognition – the risk of management override through
inappropriate manual journals to revenue or inappropriate revenue
cut-off
Risk of inappropriate inventory valuation
Overall Group materiality of £3.7m which represents 5% of adjusted
operating profit.
AN OVERVIEW OF THE SCOPE
OF THE PARENT COMPANY
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 component within the Group.
Taken together, this enables us to form an
opinion on the Group 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 component.
In assessing the risk of material
misstatement to the Group Financial
Statements, and to ensure we had adequate
quantitative coverage of significant accounts
in the Group Financial Statements, we
selected 20 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
the remaining 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 Group Financial
Statements either because of the size of
these accounts or their risk profile.
Specified procedures, determined by the
primary audit 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 cash 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 for the year ended 31
December 2021:
Components
Adjusted
operating profit
Revenue
Total assets
Full scope
6 (2020: 6) 79% (2020: 98%) 53% (2020: 53%) 43% (2020: 45%)
Specific scope
14 (2020: 14) 16% (2020: 10%) 40% (2020: 39%) 28% (2020: 28%)
Specified
procedures over
trading components
Non-trading
companies and
consolidation
adjustments
Overall coverage
5 (2020: 5)
7% (2020: 2%) 10% (2020: 10%)
7% (2020: 10%)
23 (2020: 22)
(3%) (2020: (8%))
(4%) (2020: (3%)) 20% (2020: 16%)
99% (2020: 102%) 99% (2020: 99%) 98% (2020: 99%)
115
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
The audit scope of the specific scope
components included in the table above may
not have included testing of all significant
accounts of the component but will have
contributed to the coverage of significant
accounts tested for the Group.
The remaining 3 (2020: 2) trading
components represent nil profit (2020: 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
that needed to be undertaken at each of
the components by us, as the primary audit
team, or by component auditors from other
EY global network 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 audit 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 continued to
be disrupted by travel and government
restrictions arising from the COVID
pandemic. However in January 2022, a visit
was undertaken by the primary audit team
to the component team in France (non
EY component team). This visit involved
discussing the audit approach with the
component team and any issues arising from
their work, meeting with local management,
attending closing meetings and reviewing key
audit working papers.
Where we were unable to visit the component
teams due to restrictions, we replaced the
visits with alternative procedures, including
video conference call meetings and remote
reviews of our local component audit teams’
working papers. The primary audit 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 meetings, attended by
the primary audit team and all full scope,
specific scope and specified procedure
scope component 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.
Impact of the COVID pandemic on
the execution of the audit
The COVID pandemic and lockdown
restrictions imposed during 2020 continued
through the Group’s financial year. We worked
proactively with management to agree, where
possible, and safe to do so in accordance
with relevant government guidelines, a
revised audit plan to enable flexibility in
our audit procedures to be performed via a
combination of on-site and remote testing.
We continued to identify any areas of
increased risk and complexity as a result
of the COVID pandemic, to understand
and evaluate any changes in the control
environment and to appropriately design
our audit procedures in response. Although
COVID restrictions continued throughout
2021, we attended physical inventory counts
at the 15 full and specific scope trading
components where inventory was in scope.
The review of relevant audit workpapers was
facilitated by the EY electronic audit platform.
This allowed appropriate in person or virtual
discussions with the component teams on
audit strategy, risk identification and the
results of audit procedures performed.
In addition to engaging with management
on-site throughout the audit, we engaged
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. Key meetings, such as the closing
meetings and Audit Committee meetings,
were performed via a combination of in
person meetings and 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.
116
Climate change
There has been increasing interest from
stakeholders as to how climate change will
impact the Group. The Group has determined
that the most significant future impacts
from climate change on its operations will
be from transitioning to a lower-carbon
economy (transition risk) and the physical
risk resulting from climate change, whether
event driven or longer-term shifts in climate
patterns (physical risk). These are explained
on pages 46 to 49 in the required Task Force
for Climate related Financial Disclosures
and on pages 60 to 64 in the principal risks
and uncertainties, which form part of the
“Other information,” rather than the audited
financial statements. Our procedures on
these disclosures therefore consisted solely
of considering whether they are materially
inconsistent with the financial statements or
our knowledge obtained in the course of the
audit or otherwise appear to be materially
misstated.
Governmental and societal responses to
climate change risks are still developing,
and are interdependent upon each other,
and consequently financial statements
cannot capture all possible future outcomes
as these are not yet known. The degree of
certainty of these changes may also mean
that they cannot be taken into account when
determining asset and liability valuations
and the timing of future cash flows under the
requirements of UK adopted international
accounting standards.
As part of our audit, we made enquiries of
management to understand the extent of
transition and physical risks to the Group,
including reviewing management’s climate
change risk assessment, which was prepared
with support from external consultants. Our
audit effort in considering climate change
was focused on ensuring that the effects of
material climate risks disclosed on pages
46 to 49 have been appropriately reflected
in asset values and associated disclosures
where values are determined through
modelling future cash flows, as explained in
the basis of preparation note. We considered
in particular how climate change risks and
the impact of climate change pledges made
by the Group could impact the assumptions
used in management’s forecasts used in
the goodwill impairment assessments. Our
procedures did not identify any material
impact on our key audit matters for the
year ended 31 December 2021. We also
challenged the Directors’ considerations
of climate change in their assessment of
going concern and viability and associated
disclosures.
Stock Code HILS The Group has stated its commitment to the
aspirations of the Paris Agreement to achieve
net zero emissions by 2040. Governmental
and societal responses to climate change
risks are still developing, and, as a result, the
Group is currently unable to fully determine
the future economic impact on their business
model, operational plans and customers to
achieve this. Therefore, as set out above,
the potential future impacts cannot be fully
incorporated in these financial statements.
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.
In the prior year, our auditor’s report
included a key audit matter in relation to the
accounting for uncertain tax positions. In
the current year, the estimation uncertainty
associated to uncertain tax positions has
reduced and therefore this is no longer
considered to be a key audit matter.
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 in the
Group. We consider the level of
impairment recorded in respect
of the ATG Access and Parking
Facilities CGUs to be appropriate.
Risk
Our response to the risk
Carrying value of goodwill in relation to France Galva
(£11.8m*, 2020: £12.3m), ATG Access (£4.7m, 2020:
£15.5m) and Parking Facilities (£nil, 2020: £1.6m)
* Movement since 2020 relates to changes in exchange rates only.
In 2020, market conditions in France were challenging
and as a result of their impairment testing, management
recorded a £17.5m impairment of the goodwill related to
the France Galva CGU. Given the market conditions for
2021continue to be challenging, a risk remains around
the recoverability of the goodwill related to the France
Galva CGU.
The restrictions on public gatherings resulting from
COVID has seen a substantial reduction in demand
for ATG Access’ security solutions and as a result of
their impairment testing, management recorded a
£10.8m impairment of the goodwill related to the ATG
Access CGU.
Parking Facilities manufactures and sells a range of
perimeter access security products, which have been
impacted by increased commercial competition and
reduced gross margins. As a result of their impairment
testing, management recorded a £1.6m impairment of
the goodwill related to the Parking Facilities CGU.
The estimated recoverable amount for 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 12) disclose the
sensitivity estimated by the Group.
The level of risk associated to this key audit matter is
unchanged from the prior year.
Refer to the Audit Committee Report (page 86);
Accounting policies (pages 129 to 130); and note 12
of the Consolidated Financial Statements (pages 148
to 152).
We examined management’s methodology and
the model used for assessing the valuation of the
France Galva, ATG Access and Parking Facilities
CGUs to understand the composition of future
cash flow forecasts and the process undertaken to
prepare them.
We checked the underlying cash flows were
consistent with the Board approved budgets.
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 constructing 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
and performance since lockdowns, 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 France Galva 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 primary audit team.
117
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS 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.
INDEPENDENT AUDITOR’S REPORT CONTINUED
Risk
Our response to the risk
Revenue recognition – the risk of management
override through inappropriate manual journals
to revenue or inappropriate revenue cut-off
(£705.0m, 2020: £660.5m)
Procedures to respond to this risk were performed by both
the primary audit team and component teams.
Cut-off
Cut-off
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.
We performed the following audit procedures at 5 full and 14
specific scope locations where revenue is in scope. Revenue
at these locations represents 93% of the total revenue
balance of £705.0m. 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 all but one trading component at which we performed
specified procedures, data analytics procedures were
performed over the correlation of sales and cash receipts to
test the existence and occurrence of revenue being recorded
in the correct period.
For the component, representing 1% of total revenue, where
we were unable to perform data analytical procedures, 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:
•
•
•
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
recognized in the correct period and reflective the level of
installation that has 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 bill of materials 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 2021.
For all locations we performed analytical procedures to compare
revenue recognised with our expectations, management’s
forecasts and, where possible, external market data.
118
Stock Code HILS 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 is 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.
Risk
Our response to the risk
Management override
Management override
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.
The level of risk associated to this key audit
matter is unchanged from the prior year.
Refer to the Audit Committee Report (page 86);
Accounting policies (page 133); and note 2 of the
Consolidated Financial Statements (pages 137
to 138)
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 these in scope components represents 93% 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.
Risk of inappropriate inventory valuation
(£108.1m, 2020: £96.3m)
Procedures to respond to on this risk were performed by both
the primary audit team and component team.
There is a risk of inappropriate revenue 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.
The level of risk associated to this key audit
matter is unchanged from the prior year.
Refer to the Audit Committee Report (page 86);
Accounting policies (page 132); and note 17 of the
Consolidated Financial Statements (page 157).
We performed the following audit procedures at 5 full and
10 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 10 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 components in scope for inventory, we were able
to physically attend all counts. In addition, we attended a
physical inventory count for one specified procedures trading
component.
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.
119
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
In the prior year, our auditor’s report
included a key audit matter in relation to the
accounting for uncertain tax positions. In
the current year, the estimation uncertainty
associated to uncertain tax positions has
reduced and therefore this is no longer
considered to be a key audit matter.
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
£3.7 million (2020: £3.2 million), which is 5%
(2020: 5%) of adjusted operating profit. We
believe that adjusted operating profit provides
us with the most relevant performance
measure to the stakeholders of the Group as
it excludes material non-recurring items and
therefore have determined materiality based
on this number.
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 75%
(2020: 50%) of our planning materiality,
namely £2.8m (2020: £1.6m). We have set
performance materiality at this percentage
due to our expectation of misstatements
being low. We set performance materiality
at 50% for 2020 due to the audit being our
initial audit of the Group and the unusual and
unprecedented changes occurring in the year
as a result of the COVID pandemic.
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 £0.2m to £1.8m (2020:
£0.3m to £1.1m).
120
We determined materiality for the Parent Company to be £5.0 million (2020: £4.7 million),
which is 1.5% (2020: 1.5%) of equity.
STARTING BASIS
Operating profit – £57.0m
ADJUSTMENTS
Impairment charge recorded – £16.0m
MATERIALITY
Totals £73.0m adjusted operating profit (materiality basis)
Materiality of £3.7m (5% of materiality basis)
During the course of our audit, we reassessed initial materiality which was calculated to be
£3.8m and concluded that our revised materiality of £3.7m was appropriate.
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 this gives rise to 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.
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 £0.19m (2020:
£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.
Stock Code HILS 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.
Corporate Governance Statement
We have reviewed the Directors’ statement in
relation to going concern, longer-term viability
and that part of the Corporate Governance
Statement relating to the Group and Parent
Company’s compliance with the provisions of
the UK Corporate Governance Code specified
for our review by the Listing Rules.
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 page 79;
• Directors’ explanation as to its
assessment of the Group’s prospects,
the period this assessment covers and
why the period is appropriate set out on
page 80;
• Director’s statement on whether it has a
reasonable expectation that the Group
will be able to continue in operation and
meets its liabilities set out on page 79;
• Directors’ statement on fair, balanced and
understandable set out on page 80;
• Board’s confirmation that it has carried
out a robust assessment of the emerging
and principal risks set out on pages
56 to 64;
•
•
The section of the Annual Report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 79; and;
The section describing the work of the
audit committee set out on page 86.
Responsibilities of Directors
As explained more fully in the Directors’
responsibilities statement set out on page
112, 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
Group and management.
• We obtained an understanding of the
legal and regulatory frameworks that are
applicable to the Group and determined
that the most significant 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 the 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.
121
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT CONTINUED
Use of our report
This report is made solely to the Parent
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 Parent 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 Parent Company and
the Parent 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 2022
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 Group 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 2 years, covering the years ending 31
December 2020 to 31 December 2021.
•
The audit opinion is consistent with the
additional report to the audit committee.
• 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.
122
Stock Code HILS CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2021
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
3
3, 4
7
7
9
10
10
2021
Non-
underlying*
£m
Underlying
£m
705.0
(442.7)
262.3
(36.5)
(140.5)
0.7
86.0
0.6
(6.7)
79.9
(17.8)
–
–
–
–
(29.0)
–
(29.0)
–
–
(29.0)
1.1
2020
Non-
underlying*
£m
Underlying
£m
660.5
(415.9)
244.6
(34.1)
(142.2)
1.6
69.9
0.6
(7.9)
62.6
(12.4)
–
–
–
–
(27.1)
–
(27.1)
–
–
(27.1)
0.9
Total
£m
705.0
(442.7)
262.3
(36.5)
(169.5)
0.7
57.0
0.6
(6.7)
50.9
(16.7)
Total
£m
660.5
(415.9)
244.6
(34.1)
(169.3)
1.6
42.8
0.6
(7.9)
35.5
(11.5)
62.1
(27.9)
34.2
50.2
(26.2)
24.0
43.0p
42.5p
30.2p
30.0p
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 134 and further details on non-underlying
items are included in note 5 on page 141.
123
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2021
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 gain/(loss) on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive income/(expense) for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
26
9
2021
£m
34.2
(2.3)
0.6
3.5
–
1.8
36.0
2020
£m
24.0
(2.5)
–
(2.3)
0.8
(4.0)
20.0
124
Stock Code HILS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2021
Non-current assets
Intangible assets
Property, plant and equipment
Right-of-use assets
Corporation tax receivable
Deferred tax assets
Current assets
Assets held for sale
Inventories
Trade and other receivables
Current tax assets
Cash and cash equivalents
Total assets
Current liabilities
Liabilities held for sale
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
Approved by the Board of Directors on 9 March 2022 and signed on its behalf by:
P Simmons
Director
Company Number: 671474
H K Nichols
Director
Notes
12
13
15
9
16
14
17
18
19
3
14
20
22
15
20
21
22
16
26
15
21
24
2021
£m
177.4
193.3
38.2
1.6
1.4
2020
£m
188.5
183.6
30.9
–
1.4
411.9
404.4
3.6
108.1
130.2
0.7
18.8
261.4
673.3
(1.9)
(132.7)
(4.3)
(4.0)
(8.8)
(1.9)
(153.6)
107.8
(1.5)
(2.4)
(12.8)
(12.3)
(30.1)
(121.0)
(180.1)
(333.7)
339.6
20.0
40.9
4.9
15.5
258.3
339.6
–
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
125
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021
At 1 January 2020
Comprehensive income
Profit for the year
Other comprehensive expense
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
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
Own shares held by employee
benefit trust
Satisfaction of long term
incentive and deferred bonus
awards
Tax taken directly to the
Consolidated Statement of
Changes in Equity
Shares issued
At 31 December 2021
Notes
Share
capital
£m
19.9
Share
premium
£m
37.4
Other
reserves†
£m
Translation
reserve
£m
Retained
earnings
£m
4.9
19.7
225.1
Total
equity
£m
307.0
24.0
(4.0)
–
(2.5)
24.0
(1.5)
–
–
–
–
–
–
19.9
–
–
–
–
–
–
–
–
–
–
–
1.0
38.4
–
–
–
–
–
–
–
0.1
20.0
–
2.5
40.9
11
24
9
24
11
24
9
24
–
–
–
–
–
–
–
–
–
–
(8.4)
(8.4)
0.8
0.1
–
0.8
0.1
1.0
4.9
17.2
240.1
320.5
–
–
–
–
–
–
–
–
–
(1.7)
34.2
3.5
34.2
1.8
–
–
–
–
–
–
(21.2)
(21.2)
2.5
(1.5)
2.5
(1.5)
(0.3)
(0.3)
1.0
–
1.0
2.6
4.9
15.5
258.3
339.6
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2020: £0.2m) capital redemption reserve.
At 31 December 2020 a total of 19,928 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 2021, 7,665 shares have been issued in settlement of awards to employees and a further 98,821 shares have been purchased at a
cost of £1.8m, leaving 111,084 shares held at 31 December 2021, at a cost of £1.8m included within retained earnings.
126
Stock Code HILS CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2021
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
Depreciation of owned assets
Amortisation of intangible assets
Right-of-use asset depreciation
Gain on lease termination
Release of accrued contingent consideration
Notes
7
3, 4
6, 24
5
8
8, 13
8, 12
8, 15
15
5
Impairment of non-current assets
5, 8, 12
Operating cash flow before movement in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(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
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisition of subsidiary
Disposal of subsidiary
Net cash used in investing activities
Issue of new shares
Purchase of shares for employee benefit trust
Dividends paid
Repayment of lease liabilities
New loans and borrowings
Repayment of loans and borrowings
Net cash used in financing activities
12
5
24
11
Net increase/(decrease) in cash and cash equivalents net of
bank overdraft
Cash and cash equivalents net of bank overdraft at the beginning
of the year
Effect of exchange rate fluctuations
Cash and cash equivalents net of bank overdraft at the end of the
year
19
2021
£m
£m
50.9
6.1
57.0
2020
£m
£m
35.5
7.3
42.8
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)
2.8
0.4
(1.1)
20.9
7.5
10.3
(0.1)
(0.9)
16.0
(13.6)
(7.9)
14.7
(2.9)
0.6
3.7
(17.8)
(1.4)
(11.8)
1.6
2.6
(1.8)
(21.2)
(10.3)
55.3
(61.0)
55.8
112.8
(9.7)
103.1
(16.7)
(15.2)
(4.7)
(0.8)
65.7
(25.1)
(36.4)
4.2
13.9
–
18.1
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
127
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS GROUP ACCOUNTING POLICIES
1. 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 2021.
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 UK-adopted International Financial Reporting Standards. 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 174 to 183.
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 2.
Basis of preparation
The consolidated financial statements comprise the financial statements of the Company, Hill & Smith Holdings PLC, and its subsidiaries as at
31 December 2021. 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.
In preparing the consolidated financial statements, management has considered the impact of climate change, taking into account the relevant
disclosures in the Strategic Report, including those made in accordance with the recommendations of the Taskforce on Climate-related Financial
Disclosures. This included an assessment of assets with indefinite and long lives and how they could be impacted by measures taken to address
global warming. As outlined in the Chief Executive’s Review on page 22, physical climate change presents a relatively low risk to the Group’s future
business operations. As such, no issues were identified that would impact the carrying values of such assets or have any other impact on the
financial statements.
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 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 on the consolidated financial statements
As outlined in the Operating and Financial Review on pages 22 to 31, the Group has seen a strong recovery in 2021 across all operating divisions
compared with 2020, which was materially affected by temporary business closures and reduced activity levels as a result of the COVID pandemic.
As such, whilst the impact of COVID on the consolidated financial statements is significantly lower than in prior year, the Group does not consider
it possible to reliably determine the level of any trading impact arising specifically from COVID in 2021, as opposed to other market factors, and
has therefore not attempted to make any such disclosure in these consolidated financial statements.
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 2021, the Group had £327.6m of committed borrowing facilities, of which only £1.8m matures before December 2023 at the
earliest, and a further £13.4m of on-demand facilities. The amount drawn down under these facilities at 31 December 2021 was £125.4m, which
together with cash and cash equivalents £18.8m gave total headroom of £234.4m (£221.2m committed, £13.2m on demand). The Group has not
made any changes to its principal borrowing facilities between 31 December 2021 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 2021 was 1.0 times and interest cover was 25.4 times. Note 23 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 30 June 2023, taking account of the current uncertainties created by
COVID 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 2022, 31 December 2022 and 30 June 2023.
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 24% compared with current expectations throughout the period from May 2022 through June 2023.
A reduction in headroom against borrowing facilities to nil would occur if the Group experienced a sustained revenue reduction of 50% compared
with current expectations between May 2022 and June 2023. 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 pandemic (noting that revenues fell by only 22% in the second quarter of 2020,
the worst-affected period). 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.
128
Stock Code HILS 1. GROUP ACCOUNTING POLICIES CONTINUED
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 the period to 30 June 2023. Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report and Financial Statements.
New IFRS standards and interpretations adopted during 2021
The following amendments and interpretations apply for the first time in 2021, and therefore were adopted by the Group:
• Covid-19-Related Rent Concessions beyond 30 June 2021 – Amendments to IFRS 16
•
Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
• Attributing Benefit to Periods of Service – IAS 19 Interpretation
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 2022:
• Amendments to IFRS 3 – Reference to Conceptual Framework
• Amendments to IAS 16 – Proceeds before intended use
• 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
• Amendments to IAS 8 – Definition of Accounting Estimates
• Amendments to IAS 1 – Disclosure of Accounting Policies
• Amendments to IAS 12 – Deferred Tax related to Assets and Liabilities arising from a Single Transaction
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 is recorded as a non-underlying item within
administrative expenses (note 5).
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.
129
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS GROUP ACCOUNTING POLICIES CONTINUED
1. GROUP ACCOUNTING POLICIES CONTINUED
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 Consolidated Income Statement.
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
Property, plant and equipment 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.
Assets in the course of construction are stated at cost, net of any accumulated impairment losses.
Certain of the Group’s Roads businesses routinely generate revenue from the rental of assets to customers. Such assets are accounted for as
plant and equipment. If an asset that is held for rental is sold, the asset is transferred from property, plant and equipment to inventories at the
carrying amount when the asset ceases to be rented. The proceeds from the sale of such assets are recognised as revenue in the Consolidated
Income Statement.
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
Plant, machinery and vehicles
5 to 50 years
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 Consolidated Income
Statement when the asset is derecognised.
Repair and maintenance costs are recognised in the Consolidated Income Statement 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, or when indicators of
impairment exist, and an impairment loss is recognised, where appropriate, 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.
130
Stock Code HILS 1. GROUP ACCOUNTING POLICIES CONTINUED
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 Consolidated 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, intangible assets and right-of-use 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.
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 23(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, where there is a right of offset, 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.
131
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS GROUP ACCOUNTING POLICIES CONTINUED
1. GROUP ACCOUNTING POLICIES CONTINUED
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.
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)
2021
2020
Average
Closing
Average
Closing
1.16
1.38
11.80
101.71
1.83
1.19
1.35
12.21
100.21
1.86
1.13
1.28
11.80
95.10
1.86
1.11
1.36
11.15
99.73
1.76
Inventories
Inventories are stated at the lower of cost and net realisable value. In determining the cost of raw materials, consumables and goods purchased
for resale, 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.
132
Stock Code HILS 1. GROUP ACCOUNTING POLICIES CONTINUED
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. It includes consideration
received from the customer for freight activities only if the transportation activities are required to fulfil a performance obligation. If the
transportation activities are determined to be a separate performance obligation, an entity will only recognise the consideration as revenue if the
entity is determined to be acting as principal in the agreement, otherwise the consideration received from the customer for transport costs is
recognised net of the related cost, rather than as revenue. 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.
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 routinely generate revenue from the rental of assets to customers. Revenue from these rental
agreements is recognised over the period over which the assets are available to the customer. If an asset that is held for rental is sold, the asset is
transferred from property, plant and equipment to inventories at the carrying amount when the asset ceases to be rented. The proceeds from the
sale of such assets are recognised as revenue in the Consolidated Income Statement.
The Group classifies proceeds from the sale of scrap products generated in the manufacturing process within revenue.
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.
The Group classifies proceeds from the sale of by-products generated during the galvanizing process within revenue.
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.
133
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS GROUP ACCOUNTING POLICIES CONTINUED
1. GROUP ACCOUNTING POLICIES CONTINUED
Retirement benefits
The Group operates pension schemes under which contributions by employees and by the sponsoring companies are held in trust funds
separated from the Group’s finances.
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the Consolidated Income Statement as
incurred.
The Group’s net obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating the amount of
future benefit that employees have earned in return for their service in the current and prior periods. This benefit is discounted to determine its
present value, and the fair value of any scheme assets is deducted. The discount rate is the yield at the year end date on AA rated bonds that have
maturity dates approximating to the terms of the Group’s obligations. The calculation is performed by a qualified actuary using the projected unit
method. Scheme assets are valued at bid price.
In the Consolidated Income Statement current and past service costs are recognised in operating profit and the interest cost on the net defined
benefit obligations is included in financial expense.
All actuarial gains and losses in calculating the Group’s obligation in respect of defined benefit schemes are recognised annually in reserves and
reported in the Consolidated Statement of Comprehensive Income.
Share-based payment transactions
The Group issues equity settled share-based payments to certain employees, including those in the form of buy-out awards or deferred bonus
awards. 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
The Group’s 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 and disposals, comprising professional fees incurred, any consideration which, under IFRS 3 (Revised)
is required to be treated as a post-acquisition employment expense, and changes in contingent consideration payable on acquisitions.
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 5 to the Financial Statements.
134
Stock Code HILS 1. GROUP ACCOUNTING POLICIES CONTINUED
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised in the
Consolidated Income Statement except to the extent that it relates to items either recognised in other comprehensive income or directly in equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the Consolidated
Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability for current tax is
calculated using tax rates enacted or substantively enacted at the year end date, and any adjustments to tax payable in respect of previous years.
Deferred taxation
Deferred tax is provided in full using the Consolidated Statement of Financial Position liability method and represents the tax expected to be
payable or recoverable on the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes,
the initial recognition of assets and liabilities not resulting from a business combination that affects neither accounting or taxable profit, and
differences relating to investments in subsidiaries to the extent that they will not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the year end date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be
utilised. The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle
its current tax assets and liabilities on a net basis.
Ordinary dividends
Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders.
Own shares held by Employee Benefit Trust (‘EBT’)
Transactions of the Group-sponsored EBT are included in the Group Financial Statements. In particular, the Trust’s purchases of shares in the
Company are debited directly to equity.
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 as Deferred Government Grants in Liabilities and credited to the Consolidated Income Statement
over the life of the related asset.
Financial guarantee contracts
Where the Group enters into financial guarantee contracts to guarantee the indebtedness of subsidiary companies, the Group considers these to
be insurance contracts and treats the guarantee contract as a contingent liability until such time as it becomes probable that the Group will be
required to make a payment under the guarantee.
2. 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.
Impairment of goodwill (note 12)
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,
is included in note 12.
Actuarial assumptions on pension obligations (note 26)
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 26.
135
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS CONTINUED
Taxation (notes 9 and 16)
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 £4.7m (2020: £4.4m) for uncertain tax positions.
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 £6.1m (2020: £nil to £7.4m) 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. Further information is set out in note 9 and note 16.
3. SEGMENTAL INFORMATION
Business segment analysis
The Group has three reportable segments which are Roads & Security, Utilities and Galvanizing Services. 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:
•
•
•
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.
Segmental Income Statement
Roads & Security
Utilities
Galvanizing Services
Total Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
Revenue
£m
283.0
223.7
198.3
705.0
2021
Reported
operating
profit
£m
Underlying
operating
profit*
£m
(5.7)
26.3
36.4
57.0
(6.1)
50.9
(16.7)
34.2
19.7
26.8
39.5
86.0
(6.1)
79.9
(17.8)
62.1
Revenue
£m
263.4
211.2
185.9
660.5
2020
Reported
operating
profit
£m
Underlying
operating
profit*
£m
5.6
20.1
17.1
42.8
(7.3)
35.5
(11.5)
24.0
13.2
20.9
35.8
69.9
(7.3)
62.6
(12.4)
50.2
* Underlying operating profit is stated before non-underlying items as defined in the Group Accounting Policies on page 134 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 £6.5m
(2020: £5.2m) of products and services to Roads & Security and £1.6m (2020: £1.7m) of products and services to Utilities. Utilities sold £3.0m
(2020: £2.2m) of products and services to Roads & Security. Roads & Security sold £nil (2020: £0.2m) of products and services to Utilities. These
internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.
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.
136
Stock Code HILS 3. SEGMENTAL INFORMATION CONTINUED
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
2021
£m
165.2
52.8
56.8
3.2
0.6
4.4
2020
£m
140.7
53.9
58.0
5.2
0.8
4.8
2021
£m
72.0
6.0
137.3
0.6
7.1
0.7
2020
£m
59.6
6.0
138.2
1.4
5.4
0.6
2021
£m
69.6
56.5
72.2
–
–
–
2020
£m
59.2
50.9
75.8
–
–
–
2021
£m
306.8
115.3
266.3
3.8
7.7
5.1
2020
£m
259.5
110.8
272.0
6.6
6.2
5.4
283.0
263.4
223.7
211.2
198.3
185.9
705.0
660.5
260.7
240.4
223.7
211.2
–
–
–
22.3
283.0
–
23.0
263.4
–
–
–
–
198.3
185.9
–
–
223.7
211.2
198.3
185.9
484.4
198.3
22.3
705.0
451.6
185.9
23.0
660.5
223.2
201.6
120.2
107.9
198.3
185.9
541.7
495.4
59.8
283.0
61.8
263.4
103.5
223.7
103.3
211.2
–
–
198.3
185.9
163.3
705.0
165.1
660.5
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.
Additional segmental analysis
Capital expenditure and impairment losses,
amortisation and depreciation
Roads & Security
Utilities
Galvanizing Services
Total Group
Property, plant and equipment (note 13)
Intangible assets (note 12)
Total Group
2021
2020
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment losses,
amortisation and
depreciation
£m
24.4
4.4
8.3
37.1
35.7
1.4
37.1
30.3
3.8
10.3
44.4
20.9
23.5
44.4
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
The 2021 amounts for impairment losses, amortisation and depreciation relating to the Roads & Security segment include goodwill and intangible
asset impairment losses of £10.8m relating to ATG Access Limited and £5.2m relating to Parking Facilities Limited (2020: £1.6m impairment
losses for goodwill, intangible and tangible assets relating to our variable message signs business).
The 2020 amounts for impairment losses, amortisation and depreciation relating to the Galvanizing Services segment included a goodwill
impairment loss of £17.5m relating to France Galva SA, our French galvanizing business.
137
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3. SEGMENTAL INFORMATION CONTINUED
Geographical analysis
Total assets
UK
Rest of Europe
North America
Asia
Rest of the world
Total Group
Non-current assets
UK
Rest of Europe
North America
Asia
Rest of the world
Total Group
Capital expenditure
UK
Rest of Europe
North America
Asia
Rest of the world
Total Group
2021
£m
290.8
90.7
273.2
13.6
5.0
673.3
2021
£m
192.0
43.2
169.8
3.2
3.7
411.9
2021
£m
11.1
3.6
20.9
0.1
1.4
37.1
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
4. 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;
• Covenant net debt to EBITDA ratio; and
• Underlying earnings per share. A reconciliation of statutory earnings per share to underlying earnings per share is provided in note 10.
All underlying measures exclude certain non-underlying items, which are detailed in note 5. 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. APMs are
presented on a consistent basis over time to assist in comparison of performance.
138
Stock Code HILS 4. ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Reconciliation of underlying to reported profit before tax
Underlying profit before tax
Non-underlying items included in operating profit (note 5)
Reported profit before tax
2021
£m
79.9
(29.0)
50.9
2020
£m
62.6
(27.1)
35.5
Reconciliation of underlying to reported operating profit
Roads & Security
Utilities
Galvanizing
Total
Underlying operating profit
Non-underlying items:
Amortisation of acquisition
intangibles
Business reorganisation costs
Impairment of assets
Expenses related to acquisitions
and disposals
Pension past service expense
Loss on disposal of Technocover
Reported operating profit
2021
£m
19.7
(4.5)
(4.5)
(16.0)
–
–
(0.4)
(5.7)
2020
£m
13.2
2021
£m
26.8
2020
£m
20.9
2021
£m
39.5
2020
£m
35.8
2021
£m
86.0
2020
£m
69.9
(4.3)
–
(2.8)
(0.3)
(0.2)
–
5.6
(0.5)
(0.7)
(1.1)
–
–
–
–
–
26.3
–
–
–
(0.1)
–
20.1
–
–
(2.0)
–
–
36.4
(1.1)
–
(6.1)
(4.5)
(6.1)
–
(17.5)
(16.0)
(20.3)
–
(0.1)
–
17.1
(2.0)
–
(0.4)
57.0
(0.3)
(0.4)
–
42.8
Calculation of underlying operating profit margin
Underlying operating profit
Revenue
Underlying operating profit
margin (%)
Roads & Security
Utilities
Galvanizing
Total
2021
£m
19.7
283.0
2020
£m
13.2
263.4
2021
£m
26.8
223.7
2020
£m
20.9
211.2
2021
£m
39.5
198.3
2020
£m
35.8
185.9
2021
£m
86.0
705.0
2020
£m
69.9
660.5
7.0%
5.0%
12.0%
9.9%
19.9%
19.3%
12.2%
10.6%
139
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
4. 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
Underlying
operating
profit
£m
Revenue
£m
Underlying
operating
profit
£m
Revenue
£m
Revenue
£m
2020
263.4
13.2
211.2
20.9
185.9
35.8
660.5
69.9
Impact of exchange rate
movements
2020 translated at 2021
exchange rates (A)
Acquisitions and disposals
Organic growth (B)
2021
Organic growth % (B divided by A)
(4.6)
(0.3)
(10.6)
(1.5)
(6.8)
(2.2)
(22.0)
(4.0)
258.8
2.7
21.5
283.0
8.3%
12.9
1.2
5.6
19.7
43.4%
200.6
–
23.1
223.7
11.5%
19.4
–
7.4
26.8
38.1%
179.1
–
19.2
198.3
10.7%
33.6
–
5.9
39.5
17.6%
638.5
2.7
63.8
705.0
10.0%
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
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 8)
Amortisation of development costs (note 8)
Amortisation of other intangible assets (note 8)
Capital expenditure to depreciation and amortisation ratio
140
2021
£m
86.0
103.1
(16.7)
(17.8)
(1.4)
(10.3)
3.7
3.7
2.7
67.0
78%
2021
£m
16.7
17.8
1.4
35.9
20.9
1.1
0.3
22.3
1.6x
65.9
1.2
18.9
86.0
28.7%
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
Stock Code HILS 4. ALTERNATIVE PERFORMANCE MEASURES CONTINUED
Calculation of covenant net debt to EBITDA ratio
Reported net debt (note 19)
Lease liabilities (note 15)
Amounts related to refinancing under IFRS 9
Covenant net debt (A)
Underlying operating profit
Depreciation of owned assets (note 13)
Right-of-use asset depreciation (note 15)
Amortisation of development costs (note 12)
Amortisation of other intangible assets (note 12)
Underlying EBITDA
Adjusted for:
Lease payments (note 15)
Share-based payments expense (note 24)
Annualised EBITDA of subsidiaries acquired/disposed
Covenant EBITDA (B)
Covenant net debt to EBITDA (A divided by B)
5. NON-UNDERLYING ITEMS
Included in operating profit
Amortisation of acquisition intangibles
Business reorganisation costs a
Impairment of assets b
Expenses related to acquisitions and disposals c
Loss on disposal of the Group’s access cover business, Technocover Limited d
Pension past service expense e
2021
£m
144.7
(40.6)
2.5
106.6
86.0
20.9
10.3
1.1
0.3
2020
£m
146.2
(32.4)
3.4
117.2
69.9
21.9
10.4
1.2
0.2
118.6
103.6
(11.1)
(11.9)
2.8
0.4
110.7
1.0
2021
£m
(6.1)
(4.5)
(16.0)
(2.0)
(0.4)
–
(29.0)
0.8
–
92.5
1.3
2020
£m
(6.1)
–
(20.3)
(0.3)
–
(0.4)
(27.1)
Notes:
a) Business reorganisation costs of £4.5m represent the costs of closing the UK variable message sign business, following the strategic decision taken by the Group in
March 2021. £1.3m of this charge represents cash costs during the year, with a provision of £3.2m for costs expected to be incurred in 2022, principally in respect of
remaining contractual and property-related obligations. Non-cash impairment charges of £2.8m relating to the assets of the business were recognised in 2020 and
are included within ’impairment of assets’ in the table above.
b) In 2021, goodwill and intangible asset impairment charges of £10.8m in respect of ATG Access Limited (‘ATG’) and £5.2m in respect of Parking Facilities Limited
(‘Parking Facilities’), two of the Group’s UK Security businesses, have been recognised.
ATG operates in niche security markets, manufacturing and distributing hostile vehicle mitigation and related products that protect both public and private
developments such as transport hubs, commercial buildings and infrastructure sites from the threat of attack. The COVID pandemic has had two significant impacts
on ATG’s markets: firstly, the restrictions on public gatherings across the world and secondly, a constraint on customer budgets resulting in them de-prioritising
significant security projects. Following a challenging trading period in 2020, results in 2021 remained well below previous expectations leading the Board to reassess
the business’s future prospects. This reassessment concluded that the pace of ATG’s recovery is likely to be slower than had previously been anticipated, mainly due
to an expectation of prolonged inactivity in several of its key sectors and also reflecting increased competition in the market. Consequently, the impairment review
concluded that ATG’s expected future cash flows were not sufficient to support its carrying value, resulting in an impairment of the acquisition goodwill.
Parking Facilities manufactures and sells a range of perimeter access security products, predominantly to specialist security installers in the UK. Similar to ATG,
the COVID pandemic resulted in a weak trading period in 2020 as several customer contracts were cancelled or postponed. Whilst the business saw a marginal
improvement in revenue and profitability in 2021, ongoing constraints on customer budgets continue to weigh on demand. The Board’s reassessment of the future
outlook for Parking Facilities, which also took into account the impact on gross margins of recent changes in the competitive landscape, concluded that there was
a limited prospect of the business returning to the levels of profitability anticipated at the time of its acquisition and therefore that the expected future cash flows
were not sufficient to support the carrying value. The resulting impairment charge of £5.2m comprises £1.6m in respect of goodwill, £3.3m in respect of acquired
customer lists and £0.3m in respect of acquired brand names.
In 2020, an impairment charge of £17.5m was made in respect of goodwill relating to France Galva SA following a reassessment of the outlook for the business. A
further £2.8m impairment charge was made in relation to the closure of the variable message signs business as explained in a) above.
141
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
5. NON-UNDERLYING ITEMS CONTINUED
c) Expenses related to acquisitions and disposals of £2.0m (2020: £0.3m) comprise professional fees and other similar costs in respect of acquisitions and disposals
that the Group either concluded or considered during the year, including £0.4m relating to the acquisition of Prolectric Services Limited (‘Prolectric’) in March
2021 and £0.4m relating to the disposal of Technocover Limited in June 2021. The net cost also includes a credit of £0.9m in respect of contingent consideration
relating to the Prolectric acquisition. The agreement for the acquisition included contingent consideration, dependent on Prolectric’s adjusted operating profit for the
12-month period to 31 March 2022. As at the acquisition date, the fair value of the contingent consideration was estimated to be £0.9m, calculated on a probability-
weighted basis. At 31 December 2021, despite a positive contribution from Prolectric since acquisition the Group has reassessed the fair value of the contingent
consideration to be £nil.
d) On 15 June 2021 the Group completed the disposal of Technocover Limited, our small, loss-making security access covers business, at a loss of £0.4m. Details of
the disposal are set out below.
Disposal of Technocover
Property, plant and equipment
Right-of-use assets
Inventories
Trade debtors
Cash
Lease liabilities
Trade creditors and accruals
Net assets disposed
Consideration
Consideration received
Loss on disposal
Cash flow effect
Consideration received
Cash disposed of
Net cash consideration shown in the Consolidated Statement of Cash Flows
£m
1.7
0.1
0.5
1.9
0.6
(0.1)
(2.1)
2.6
2.2
(0.4)
2.2
(0.6)
1.6
e) 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. In 2020 there was 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 recognised a
further cost of £0.4m in 2020.
Included in taxation
The tax effect of the above items is a credit to the income statement of £1.1m (2020: £0.9m).
142
Stock Code HILS 6. EMPLOYEES
The average number of people employed by the Group during the year
Roads & Security
Utilities
Galvanizing Services
Total Group
Total employee benefit expense for the year
Wages and salaries
Share-based payments (note 24)
Social security costs
Pension costs (note 26)
Remuneration of key management personnel
Remuneration in relation to short term benefits
Company contributions to money purchase pension plans
2021
No.
1,343
1,515
1,528
4,386
2021
£m
149.4
2.8
26.7
4.3
183.2
2021
£m
3.0
0.2
3.2
2020
No.
1,470
1,547
1,482
4,499
2020
£m
152.9
0.8
25.5
5.0
184.2
2020
£m
1.8
0.2
2.0
Key management personnel are those persons having authority and responsibility for planning, directing, and controlling the activities of the Group,
directly or indirectly, including any directors (whether executive or otherwise) of the Group. At the beginning of 2021, as noted in the 2020 Annual
Report & Accounts, the Group announced a new senior management structure and the establishment of an Executive Board. The new structure
includes the Executive Directors, Group Presidents, the Corporate Development Director and the Chief People Officer, who all report into the Chief
Executive. As of 1 January 2021, key management personnel are considered to be the Board of Directors of Hill & Smith Holdings PLC and the
members of the Executive Board who are not also Directors of the Group. Prior to 1 January 2021, only the Board of Directors were considered to
be key management personnel.
Further details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 94 to 104.
7. NET FINANCING COSTS
Interest on bank deposits
Financial income
Interest on loans and borrowings
Interest on lease liabilities (note 15)
Financial expenses related to refinancing
Interest cost on net pension scheme deficit (note 26)
Financial expense
Net financing costs
2021
£m
0.6
0.6
(4.9)
(0.8)
(0.8)
(0.2)
(6.7)
(6.1)
2020
£m
0.6
0.6
(6.0)
(0.8)
(0.8)
(0.3)
(7.9)
(7.3)
143
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
8. 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
Foreign exchange gain
Profit on disposal of non-current assets
Grants receivable
Sublease income (note 15)
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
2021
£m
(20.9)
(10.3)
(0.4)
(0.1)
(0.7)
(6.1)
(1.1)
(0.3)
(16.0)
–
–
0.1
1.2
0.1
0.6
£m
0.5
1.0
1.5
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
1.1
£m
0.4
1.0
1.4
A description of the work of the Audit Committee is set out in the Audit Committee Report on pages 86 to 90 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 totalled
£4,000 (2020: £3,000).
144
Stock Code HILS 9. TAXATION
Current tax
UK corporation tax
Overseas tax at prevailing local rates
Adjustments in respect of prior years
Deferred tax (note 16)
UK deferred tax
Overseas tax at prevailing local rates
Adjustments in respect of prior years
Effects of changes in tax rates and laws
Tax on profit in the Consolidated Income Statement
Deferred tax (note 16)
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 16)
Relating to share-based payments
Tax taken directly to the Consolidated Statement of Changes in Equity
2021
£m
2020
£m
4.1
11.1
(1.8)
13.4
0.1
0.2
0.6
2.4
3.3
16.7
–
–
(0.2)
(0.8)
(1.0)
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)
The tax charge in the Consolidated Income Statement for the period is higher (2020: 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% (2020: 19.0%)
Expenses not deductible/income not chargeable for tax purposes
Non-deductible goodwill impairment
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
Adjustments in respect of prior years
Tax charge
2021
£m
50.9
9.7
0.9
2.4
(0.5)
(0.6)
3.3
(0.1)
0.5
2.3
(1.2)
16.7
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
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. The amount was paid in full in February 2021. Based on the current status of the case in both the UK and EU
jurisdictions, we have concluded that it is appropriate to recognise this amount as a tax receivable at 31 December 2021.
145
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
10. EARNINGS PER SHARE
The weighted average number of ordinary shares in issue during the year was 79.6m (2020: 79.5m), diluted for the effects of the outstanding
dilutive share options 80.6m (2020: 79.9m). Diluted earnings per share takes account of the dilutive effect of all outstanding share options
disclosed in note 24, 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 5.
11. DIVIDENDS
Dividends paid during the year
Interim dividend paid in relation to year-ended 31 December 2019*
Interim dividend paid in relation to year-ended 31 December 2020
Final dividend paid in relation to year-ended 31 December 2020
Total
* A final dividend for 2019 of 23.0p per share was proposed but was withdrawn and not paid.
Dividends declared in respect of the year
Interim dividend declared in relation to year-ended 31 December 2020
Final dividend declared in relation to year-ended 31 December 2020
Interim dividend declared in relation to year-ended 31 December 2021
Final dividend proposed in relation to year-ended 31 December 2021
Total
2021
2020
Pence
per share
43.0
34.9
77.9
42.5
34.6
77.1
£m
34.2
27.9
62.1
34.2
27.9
62.1
Pence
per share
30.2
33.0
63.2
30.0
32.9
62.9
2021
2020
Pence
per share
–
9.2
17.5
26.7
£m
–
7.3
13.9
21.2
Pence
per share
10.6
–
–
10.6
2021
2020
Pence
per share
–
–
12.0
19.0
31.0
£m
–
–
9.6
15.1
24.7
Pence
per share
9.2
17.5
–
–
26.7
£m
24.0
26.2
50.2
24.0
26.2
50.2
£m
8.4
–
–
8.4
£m
7.3
13.9
–
–
21.2
The final dividend for the year was proposed after the year end date and was not recognised as a liability at 31 December 2021, in accordance with
IAS 10.
146
Stock Code HILS 12. INTANGIBLE ASSETS
Cost
At 1 January 2020
Exchange adjustments
Transfers from property, plant and equipment
Acquisitions
Additions
At 31 December 2020
Exchange adjustments
Acquisition of subsidiary
Additions
Disposal of subsidiary
At 31 December 2021
Amortisation and impairment losses
At 1 January 2020
Exchange adjustments
Transfer from property, plant and equipment
Amortisation charge for the year
Impairment losses
At 31 December 2020
Exchange adjustments
Disposal of subsidiary
Amortisation charge for the year
Impairment losses
At 31 December 2021
Carrying values
At 1 January 2020
At 31 December 2020
At 31 December 2021
Goodwill
£m
Brands
£m
Customer
Lists
£m
Capitalised
Development
Costs
£m
Contracts,
licences and
other assets
£m
169.2
0.1
–
(0.2)
–
169.1
(1.7)
5.5
–
(1.9)
171.0
16.9
0.6
–
–
17.8
35.3
(1.7)
(1.9)
–
12.4
44.1
152.3
133.8
126.9
30.2
(0.2)
–
–
–
30.0
(0.2)
0.7
–
(0.3)
30.2
13.1
–
–
1.0
0.1
14.2
(0.2)
(0.3)
1.0
0.3
15.0
17.1
15.8
15.2
56.4
–
–
–
–
56.4
(0.2)
3.0
–
(3.9)
55.3
26.7
0.1
–
3.5
–
30.3
(0.3)
(3.9)
3.4
3.3
32.8
29.7
26.1
22.5
15.5
(0.3)
1.0
–
1.5
17.7
–
–
1.2
–
18.9
11.7
(0.2)
–
1.2
0.7
13.4
(0.1)
–
1.1
–
14.4
3.8
4.3
4.5
17.1
(0.3)
0.4
–
0.3
17.5
–
1.6
0.2
(1.8)
17.5
7.2
(0.2)
0.2
1.8
–
9.0
–
(1.8)
2.0
–
9.2
9.9
8.5
8.3
Total
£m
288.4
(0.7)
1.4
(0.2)
1.8
290.7
(2.1)
10.8
1.4
(7.9)
292.9
75.6
0.3
0.2
7.5
18.6
102.2
(2.3)
(7.9)
7.5
16.0
115.5
212.8
188.5
177.4
147
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. INTANGIBLE ASSETS CONTINUED
2021
Prolectric Services Limited
On 1 March 2021 the Group acquired 100% of the share capital of Prolectric Services Limited (“Prolectric”) and its dormant subsidiaries for an
initial consideration of £12.0m. Further consideration of up to £5.7m is payable depending on Prolectric’s achievement of financial performance
targets in the 12-month period to 31 March 2022. Prolectric, located in Clevedon, North Somerset, is a UK market leader in off-grid solar energy
solutions, aligning closely with the Group’s purpose of creating sustainable infrastructure and providing new technology that the Group can
leverage in its existing markets. Details of the acquisition are set out below:
Intangible Assets
Brands
Customer lists
Contracts, licences and other assets
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Cash
Total assets
Lease Liabilities
Current liabilities
Current interest bearing liabilities
Deferred tax
Total liabilities
Net assets
Consideration
Consideration in the year
Fair value of contingent consideration due within one year
Goodwill
Cash flow effect
Consideration in the year
Cash acquired within the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre-
acquisition
carrying
amount
£m
Policy
alignment
and fair value
adjustments
£m
–
–
0.1
2.6
–
0.4
1.9
0.2
5.2
–
(1.0)
(1.2)
(0.1)
(2.3)
2.9
0.7
3.0
1.5
(1.5)
2.4
–
–
–
6.1
(1.8)
–
1.2
(1.0)
(1.6)
4.5
Total
£m
0.7
3.0
1.6
1.1
2.4
0.4
1.9
0.2
11.3
(1.8)
(1.0)
–
(1.1)
(3.9)
7.4
12.0
0.9
5.5
12.0
(0.2)
11.8
Brands, customer lists, contracts, licences and other assets have been recognised as specific intangible assets as a result of the acquisition.
The residual goodwill arising, which has been allocated to the Roads & Security segment, primarily represents the highly skilled workforce, future
technological advantages and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been
made to align the accounting policies of the acquired business with the Group’s accounting policies and to reflect the fair value of assets and
liabilities acquired. In respect of leases, the Group measured the acquired lease liabilities using the present value of the remaining lease payments
at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the terms of
the leases relative to market terms. The fair value of the current assets acquired includes £1.3m of trade receivables, which have a gross value
of £1.3m.
As part of the acquisition agreement, contingent consideration has been agreed. The amount of contingent consideration is dependent on
Prolectric’s adjusted operating profit for the 12-month period to 31 March 2022. Below the ‘trigger’ (as defined in the Share Purchase Agreement),
no additional consideration is due. If the ‘trigger’ is achieved, additional consideration of £2.2m becomes payable. Above this level, there are
several targets between which the additional consideration increases linearly. Should Prolectric achieve the ‘cap’ (as defined in the Share Purchase
Agreement), a maximum additional consideration of £5.7m will become payable. As at the acquisition date, the fair value of the contingent
consideration was estimated to be £0.9m, calculated on a probability-weighted basis. As explained in note 5, despite a positive contribution from
Prolectric since acquisition, the Group has reassessed the fair value of the contingent consideration at 31 December 2021 and determined it to be
£nil, resulting in a non-underlying credit to the Consolidated Income Statement of £0.9m.
Post-acquisition the acquired business has contributed £7.0m revenue and £1.4m operating profit, which are included in the Group’s Consolidated
Income Statement. If the acquisition had been made on 1 January 2021, the Group’s results for the year would have shown revenue of £706.2m,
underlying operating profit of £86.3m and reported operating profit of £57.3m.
148
Stock Code HILS 12. 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 has enabled the inhouse fabrication of crash attenuators and supports 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
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
The acquired business contributed £0.9m revenue and £0.2m underlying operating profit in 2020 post acquisition, which were included in the
Group’s Consolidated Income Statement. If the acquisition had been made on 1 January 2020, the Group’s results for 2020 would have shown
revenue of £661.8m and underlying operating profit of £70.0m.
Cash generating units with significant amounts of goodwill
2021
£m
2020
£m
Utilities
US Composites
V&S Utilities
Others <£5m individually
Roads & Security
ATG Access
H&S Inc.
VRS Solutions Group
Mallatite
Prolectric
Parking Facilities
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
Goodwill impairment reviews have been carried out on all CGUs to which goodwill is allocated.
15.7
5.3
5.0
4.7
8.6
10.4
5.7
5.5
–
4.2
11.8
25.2
24.8
126.9
15.6
5.3
5.0
15.5
8.5
10.4
5.7
–
1.6
4.1
12.3
25.0
24.8
133.8
149
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. INTANGIBLE ASSETS CONTINUED
Methodology and assumptions
Impairment tests on the carrying values of goodwill and certain brand names of £7.5m (2020: £7.5m), 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 2023 through 2025, 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. 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 and 2021 given
the sharp economic movements in those years due to COVID. The long-term growth rates vary between 1.6% and 2.5%.
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, are 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.
US Composites
V&S Utilities
VRS Solutions Group
ATG Access
Mallatite
Parking Facilities
H&S Inc.
France Galva SA
Galvanizing Services – USA
Galvanizing Services – UK
2021
Headroom/
(impairment)
£m
Goodwill
£m
Discount
rate
Goodwill
£m
2020
Headroom/
(impairment)
£m
15.7
5.3
10.4
15.5
5.7
1.6
8.6
11.8
25.2
24.8
106.7
70.1
104.4
(10.8)
27.1
(5.2)
21.3
12.5
207.6
84.3
13.1%
14.0%
13.0%
13.0%
13.0%
13.0%
14.1%
12.4%
14.0%
13.0%
15.6
5.3
10.4
15.5
5.7
1.6
8.5
29.8
25.0
24.8
78.2
61.8
155.6
4.4
26.1
12.8
35.4
(17.5)
203.9
41.6
Discount
rate*
13.2%
13.3%
11.8%
11.7%
11.8%
11.8%
13.4%
12.7%
13.3%
11.9%
* The value in use for each CGU is determined using post-tax cash flows and applying a post-tax discount rate. The tax cash flows are then removed from this
calculation and, by iteration, an equivalent pre-tax discount rate is derived for disclosure purposes. The 31 December 2020 pre-tax discount rate disclosure has been
restated due to an error in the iteration process used to derive it. There is no impact on the previously reported value in use, impairment charges, headroom amounts
or any other disclosures in the financial statements.
Based on the methodology set out above, as explained in note 5, the impairment reviews for ATG Access and Parking Facilities concluded that the
carrying values of the businesses exceeded their recoverable amounts and accordingly impairment charges of £10.8m in respect of ATG Access
and £5.2m in respect of Parking Facilities Limited have been recognised.
ATG operates in niche security markets, manufacturing and distributing hostile vehicle mitigation and related products that protect both public
and private developments such as transport hubs, commercial buildings and infrastructure sites from the threat of attack. The COVID pandemic
has had two significant impacts on ATG’s markets: firstly, the restrictions on public gatherings across the world and secondly, a constraint on
customer budgets resulting in them de-prioritising significant security projects. Following a challenging trading period in 2020, results in 2021
remained well below previous expectations leading the Board to reassess the business’s future prospects. This reassessment concluded that the
pace of ATG’s recovery is likely to be slower than had previously been anticipated, mainly due to an expectation of prolonged inactivity in several of
its key sectors and also reflecting increased competition in the market. Consequently, the impairment review concluded that ATG’s expected future
cash flows were not sufficient to support its carrying value, resulting in an impairment of the acquisition goodwill.
Parking Facilities manufactures and sells a range of perimeter access security products, predominantly to specialist security installers in the UK.
Similar to ATG, the COVID pandemic resulted in a weak trading period in 2020 as several customer contracts were cancelled or postponed. Whilst
the business has seen a marginal improvement in revenue and profitability in 2021, ongoing constraints on customer budgets continue to weigh
on demand. The Board’s reassessment of the future outlook for Parking Facilities, which also took into account the impact on gross margins of
recent changes in the competitive landscape, concluded that there was a limited prospect of the business returning to the levels of profitability
anticipated at the time of its acquisition and therefore that the expected future cash flows were not sufficient to support the carrying value. The
resulting impairment charge of £5.2m comprises £1.6m in respect of goodwill, £3.3m in respect of acquired customer lists and £0.3m in respect
of acquired brand names.
150
Stock Code HILS 12. INTANGIBLE ASSETS CONTINUED
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, ATG Access and Parking Facilities.
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 2022 and 2026, reflecting the relatively wide range of recovery outcomes that are possible given the ongoing economic
uncertainties, together with variations in the rate of future cash flow growth and possible discount rates. The following table provides information
on impairment charges that may arise in those scenarios, for each of the key assumptions (independently in each case):
Input
Scenario
Base case
Increase/(decrease) in 2026 galvanizing volumes compared with 2019
Zero headroom
Annual cash flow growth/(decline) 2026 onwards
Pre-tax discount rate
H&S Sensitivity
Base case
Zero headroom
H&S Sensitivity
Base case
Zero headroom
H&S Sensitivity
Sensitivity applied
%
Sensitised headroom/
(impairment) £m
2.7%
(4.4%)
(7.3%)
1.6%
(0.6%)
(2.0%)
12.4%
14.9%
16.3%
12.5
–
(5.5)
12.5
–
(5.5)
12.5
–
(5.5)
ATG Access
ATG’s future performance is largely dependent on the pace of post-pandemic recovery in UK and global security products markets, which itself is
inherently dependent on public and customer behaviour. 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 further 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
Compound annual revenue growth 2021-2026
Gross profit margin
Annual cash flow growth 2026 onwards
Pre-tax discount rate
Scenario
Base case
H&S sensitivity 1*
H&S sensitivity 2*
Base case
H&S sensitivity 1**
H&S sensitivity 2**
Base case
H&S sensitised
Base case
H&S sensitised
Sensitivity applied
%
Additional impairment
charge £m
4.7%
2.0%
0.0%
27.3%
24.2%
21.1%
2.0%
0.0%
13.0%
16.0%
–
(4.7)
(8.4)
–
(3.1)
(7.4)
–
(1.4)
–
(2.3)
* Illustrates the impacts of compound revenue growth at 2% (consistent with long-term UK growth rates) and 0% (i.e., revenues do not grow from 2021).
** The base case assumes a gradual increase in gross profit margin from 21.1% through to 27.3% in 2026. H&S Sensitivity 2 assumes no growth in gross profit margin
from 2021. H&S Sensitivity 1 shows the mid-point between the two.
151
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
12. INTANGIBLE ASSETS CONTINUED
Parking Facilities
Similar to ATG, Parking Facilities’ future performance is dependent on the pace of post-pandemic recovery in the UK security market, as well as the
evolution of other competitive pressures that exist in the market. 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
Compound annual revenue growth 2021-2026
Gross profit margin
Annual cash flow growth 2026 onwards
Pre-tax discount rate
Scenario
Base case
H&S sensitivity 1*
H&S sensitivity 2*
Base case
H&S sensitivity 1**
H&S sensitivity 2**
Base case
Zero headroom
Base case
H&S sensitised
Sensitivity applied
%
Additional impairment
charge £m
3.1%
2.0%
0.0%
29.9%
27.9%
25.9%
2.0%
0.0%
13.0%
16.0%
–
(1.8)
(4.3)
–
(2.2)
(5.4)
–
(1.3)
–
(1.9)
* Illustrates the impacts of compound revenue growth at 2% (consistent with long-term UK growth rates) and 0% (i.e., revenues do not grow from 2021).
** The base case assumes a gross profit margin of 29.9% every year from 2022 through 2026. The sensitivity scenarios show a 200-basis point and 400-basis point
reduction in gross profit margin in the period 2022 through 2026.
152
Stock Code HILS 13. PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2020
Exchange adjustments
Acquisitions (note 12)
Additions
Transfers to intangible fixed assets
Transfers from inventories
Disposals
At 31 December 2020
Exchange adjustments
Acquisition of subsidiary (note 12)
Additions
Disposal of subsidiary (note 5)
Transfers from inventories
Disposals
Transfers to assets held for sale (note 14)
At 31 December 2021
Depreciation and impairment losses
At 1 January 2020
Exchange adjustments
Disposals
Transfers to intangible fixed assets
Charge for the year
Impairment charge
At 31 December 2020
Exchange adjustments
Disposal of subsidiary (note 5)
Disposals
Transfers to assets held for sale (note 14)
Charge for the year
At 31 December 2021
Carrying values
At 1 January 2020
At 31 December 2020
At 31 December 2021
Land and
buildings
£m
Plant,
machinery
and vehicles
£m
Total
£m
121.2
(0.2)
0.8
7.9
–
0.2
(2.4)
127.5
(1.6)
–
6.6
(1.7)
–
(1.2)
–
129.6
37.2
0.5
–
–
5.6
0.4
43.7
(1.1)
(0.3)
(1.0)
–
4.9
46.2
84.0
83.8
83.4
226.4
347.6
0.9
–
9.8
(1.4)
3.4
(9.4)
229.7
(2.7)
1.1
29.1
(1.1)
1.6
(13.3)
(6.6)
237.8
0.7
0.8
17.7
(1.4)
3.6
(11.8)
357.2
(4.3)
1.1
35.7
(2.8)
1.6
(14.5)
(6.6)
367.4
120.4
157.6
0.5
(7.2)
(0.2)
16.3
0.1
129.9
(1.7)
(0.8)
(10.9)
(4.6)
16.0
1.0
(7.2)
(0.2)
21.9
0.5
173.6
(2.8)
(1.1)
(11.9)
(4.6)
20.9
127.9
174.1
106.0
99.8
109.9
190.0
183.6
193.3
The gross book value of land and buildings includes freehold land of £17.0m (2020: £20.4m). Included within plant, machinery and vehicles are
assets held for rental with a cost of £98.9m (2020: £83.7m) and accumulated depreciation of £46.7m (2020: £39.9m).
The gross book value of plant, machinery and vehicles includes assets under construction of £15.3m (2020: £1.1m).
153
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14. ASSETS AND LIABILITIES HELD FOR SALE
Plant, machinery and vehicles
Right-of-use assets
Total Assets held for sale
Lease liabilities
Other liabilities
Total Net Assets held for sale
2021
£m
2.0
1.6
3.6
(1.7)
(0.2)
1.7
2020
£m
–
–
–
–
–
–
Following a strategic review, in Q4 2021 the Group took the decision to seek a buyer for the rental division of ATA Hill & Smith AB, the Group’s
Swedish roads business. At 31 December 2021 the Group had committed to a sale, actively marketed the business and entered into negotiations
with interested parties. Those negotiations have continued in early 2022 and the Group expects to conclude the sale in the first half of 2022. In
accordance with IFRS 5, the assets and liabilities of the business have been recognised as a disposal group held for sale at 31 December 2021 and
reported separately in the Consolidated Statement of Financial Position. Cumulative exchange differences relating to these assets and liabilities
have accumulated in equity and amount to £0.3m at 31 December 2021.
15. 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 years ended 31 December 2020 and 31 December 2021
were as follows:
Land and
buildings
£m
Plant and
equipment
£m
24.1
0.1
(0.4)
(4.7)
(0.4)
0.5
0.3
19.5
0.6
12.7
–
(0.3)
(5.2)
0.9
–
(0.2)
28.0
13.8
3.3
(0.3)
(5.7)
–
0.1
0.2
11.4
1.8
4.1
(0.1)
(0.2)
(5.1)
–
(1.6)
(0.1)
10.2
Total
£m
37.9
3.4
(0.7)
(10.4)
(0.4)
0.6
0.5
30.9
2.4
16.8
(0.1)
(0.5)
(10.3)
0.9
(1.6)
(0.3)
38.2
Right-of-use assets
At 1 January 2020
Additions
Terminations
Charge for the year
Impairment
Re-measurement
Effect of movements in foreign exchange
At 31 December 2020
Acquisition of subsidiary
Additions
Disposal of subsidiary
Terminations
Charge for the year
Re-measurement
Transfers to assets held for sale (note 14)
Effect of movements in foreign exchange
At 31 December 2021
154
Stock Code HILS 15. LEASES CONTINUED
Lease liabilities
At 1 January
Additions
Terminations
Interest expense
Disposal of subsidiary
Acquisition of subsidiary
Lease payments
Re-measurement
Transfers to liabilities held for sale (note 14)
Effect of movements in foreign exchange
At 31 December
2021
£m
32.4
16.7
(0.6)
0.8
(0.1)
1.8
(11.1)
0.9
(1.7)
(0.2)
38.9
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
2021
£m
10.3
0.4
0.1
(0.6)
10.2
0.8
11.0
2021
£m
8.8
7.2
5.0
3.9
2.9
11.1
38.9
2020
£m
40.0
3.4
(0.8)
0.8
–
–
(11.9)
0.6
–
0.3
32.4
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
155
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15. LEASES CONTINUED
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 that are not included in the lease
term; and
• Undiscounted future rental payments relating to periods that are included in the lease term as the break clauses are not expected to be
exercised.
Extension options expected not to be exercised
Termination options expected not to be
exercised
Within five
years
£m
0.1
3.0
2021
More than
five years
£m
6.5
4.3
Total
£m
6.6
7.3
Within five
years
£m
3.2
2.8
2020
More than
five years
£m
5.8
2.5
Total
£m
9.0
5.3
The Group has lease contracts that have not yet commenced as at 31 December 2021. The total future lease payments for these non-cancellable
lease contracts are £2.6m (2020: £5.6m).
16. DEFERRED TAXATION
Property,
plant
and
equipment
£m
Intangible
assets
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
At 1 January 2020
Exchange adjustments
Adjustment to prior year acquisitions
Credited/(charged) for the year in the
Consolidated Income Statement (note 9)
Credited for the year in the Consolidated
Statement of Comprehensive Income (note 9)
At 31 December 2020
Exchange adjustments
Acquisition of subsidiary (note 12)
Credit/(charge) for the year in the
Consolidated Income Statement (note 9)
Credit for the year in the Consolidated
Statement of Changes in Equity (note 9)
At 31 December 2021
(9.8)
0.1
–
0.2
–
(9.5)
–
(1.0)
(0.5)
(6.2)
0.2
–
(1.9)
–
(7.9)
–
(0.3)
(1.8)
–
(11.0)
–
(10.0)
0.4
–
–
0.2
–
0.6
–
–
(0.6)
–
–
3.8
0.1
–
(0.6)
0.8
4.1
(0.1)
–
(0.9)
–
3.1
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
4.1
–
0.1
0.9
–
5.1
(0.1)
0.2
0.5
0.8
6.5
2021
£m
1.4
(12.8)
(11.4)
Total
£m
(7.7)
0.4
0.1
(1.2)
0.8
(7.6)
(0.2)
(1.1)
(3.3)
0.8
(11.4)
2020
£m
1.4
(9.0)
(7.6)
The deferred tax asset of £6.5m (2020: £5.1m) in respect of other timing differences includes £0.9m (2020: £0.9m) in relation to tax losses and
£2.4m (2020: £1.0m) in relation to share based payments.
No deferred tax asset has been recognised in respect of other tax losses of £16.9m net (2020: £13.1m 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 £1.2m (2020: £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 headline corporation tax rate for the year was 19.0% (2020: 19.0%). In the Spring Budget of 2021, the UK Government announced that from
1 April 2023 the rate of UK corporation tax will increase from 19% to 25%. This new law was substantively enacted on 24 May 2021. Therefore, UK
deferred tax assets and liabilities have been calculated at a rate of 25% (2020: 19%).
156
Stock Code HILS 17. INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2021
£m
64.3
10.7
33.1
108.1
2020
£m
52.6
8.8
34.9
96.3
The amount of inventories expensed to the Consolidated Income Statement in the year was £388.8m (2020: £364.1m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £0.4m (2020: £0.2m). The amount of inventories
held at fair value less cost to sell included in the above was £nil (2020: £1.8m).
18. TRADE AND OTHER RECEIVABLES
Trade and other current receivables
Trade receivables
Prepayments
Other receivables
Fair value derivatives
Contract assets
2021
£m
2020
£m
112.3
106.8
7.3
1.2
0.2
9.2
6.5
1.1
–
8.3
130.2
122.7
The movements in contract assets, and deferred income (note 20), during the year correspond to the completion of performance obligations
partially satisfied as at 31 December 2020 offset by contracts that are in progress at 31 December 2021.
157
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19. CASH AND BORROWINGS
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and cash equivalents
Bank overdraft (note 20)
Cash and cash equivalents net of bank overdraft
Interest bearing loans and other borrowings
Amounts due within one year (note 20)
Amounts due after more than one year (note 21)
Lease liabilities classified as liabilities held for sale (note 14)
Lease liabilities due within one year (note 15)
Lease liabilities due after more than one year (note 15)
Net debt
Change in net debt
Operating profit
Non-cash items
Operating cash flow before movement in working capital
Net movement in working capital
Changes in provisions and employee benefits
Operating cash flow
Tax paid
Net financing costs paid
Capital expenditure
Proceeds on disposal of non-current assets
Free cash flow
Dividends paid (note 11)
Acquisition of subsidiary (note 12)
Disposal of subsidiary (note 5)
Amortisation of costs associated with refinancing activities (note 7)
Purchase of shares for employee benefit trust
Issue of new shares (note 24)
New leases and lease remeasurements (note 15)
Interest on lease liabilities (note 15)
Net debt decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
158
2021
£m
18.8
(0.7)
18.1
(1.2)
(121.0)
(1.7)
(8.8)
(30.1)
(144.7)
57.0
55.8
112.8
(6.8)
(2.9)
103.1
(15.2)
(4.1)
(35.9)
3.7
51.6
(21.2)
(13.6)
1.6
(0.8)
(1.8)
2.6
(17.1)
(0.8)
0.5
1.0
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)
(146.2)
(144.7)
(215.3)
(146.2)
Stock Code HILS 19. 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
At 1 January
New loans and borrowings
Repayments of loans and borrowings
Payment of lease liabilities
Cash flows used in financing activities
Other changes
Effect of exchange rate fluctuations
Financial expenses relating to financing
Lease changes:
Effect of exchange rate fluctuations
New leases
Terminations
Revaluations
Acquisition of subsidiary
Disposal of subsidiary
Interest expense
Interest paid
At 31 December
20. 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
2021
£m
160.1
55.3
(61.0)
(10.3)
(16.0)
(0.8)
0.8
(0.2)
16.7
(0.6)
0.9
1.8
(0.1)
0.8
(0.8)
162.6
2021
£m
1.2
0.7
1.9
79.3
9.5
35.5
4.7
–
3.7
2020
£m
241.3
–
(74.4)
(11.1)
(85.5)
0.1
0.8
0.3
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
The amount of contract liabilities included in deferred income as at 31 December 2021 was £4.7m (2020: £6.1m). During the year, £6.1m (2020:
£2.6m) of revenue was recognised in respect of contract liabilities present as at 1 January 2021.
132.7
116.7
159
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
21. NON-CURRENT LIABILITIES
Interest bearing loans and borrowings
Loans and borrowings
Other non-current liabilities
Deferred consideration on acquisitions
Deferred government grants
Accrued expenses
22. PROVISIONS
At 1 January 2020
Charged during the year
Utilised during the year
At 31 December 2020
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2021
Amounts due within one year
Amounts due after more than one year and less than five years
2021
£m
121.0
121.0
0.2
1.0
0.3
1.5
Environmental
£m
Restructuring
£m
Other
£m
2.1
–
–
2.1
(0.1)
–
–
–
2.0
0.8
0.8
(0.9)
0.7
–
4.5
(1.5)
(0.1)
3.6
0.4
2.6
–
3.0
–
0.4
(2.6)
–
0.8
2021
£m
4.0
2.4
6.4
2020
£m
127.2
127.2
0.3
0.9
0.2
1.4
Total
£m
3.3
3.4
(0.9)
5.8
(0.1)
4.9
(4.1)
(0.1)
6.4
2020
£m
3.3
2.5
5.8
Environmental provisions
Environmental provisions recognise the estimated cost of remediating contaminated land at a number of the Group’s operating sites, where it
is considered probable that the Group will be obliged to carry out the necessary remediation work. Primarily the issues identified relate to sites
acquired through acquisitions of businesses. As a consequence of the nature of the liabilities, the timescales are uncertain and the provisions
represent the Directors’ best estimate of the associated costs. The Group has sought expert external valuations where appropriate.
Restructuring provisions
Restructuring provisions represent the cash costs of closing or rationalising operations. The provisions represent the Directors’ best estimate
of the liabilities arising and are expected to be settled within the next twelve months. The charge of £4.5m in 2021 relates to the closure of the
Group’s variable message sign business.
Other provisions
Other provisions relate to various obligations including obligations in respect of onerous leases, property dilapidations and claims or disputes.
The provision utilised in the year of £2.6m relates to the contractual dilapidation obligations on two leased properties which were settled during
the year.
160
Stock Code HILS 23. 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 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 2021 with 49% (2020: 44%) and currently the only
significant geographical region that does not generally insure trade receivables is the USA, which represents 30% (2020: 29%) 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 loans and borrowings maturing within the next 12 months.
As at 31 December 2021 all such debt was covered by cash and cash equivalents netting to £16.9m positive current liquidity (2020: £13.4m).
The Group’s principal UK revolving credit facility is a multicurrency agreement with a value at 31 December 2021 of £273.9m (2020: £275.4m),
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 £287.3m at 31 December 2021 (2020: £289.2m).
In addition, in 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 2021, the Group’s total committed borrowing facilities were £327.6m (2020: £328.3m) and the amount undrawn at this date was
£202.4m (2020: £190.8m).
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 23(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 2021 credit exposure including cash deposited did not exceed £6.2m with any single institution (2020: £5.7m).
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 US. 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.
161
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. FINANCIAL INSTRUMENTS CONTINUED
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 2021 the proportion of gross borrowings subject to fixed interest rate swaps was 0% (2020: 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 42% (2020: 38%) of the Group’s outstanding gross borrowings at 31 December 2021 and attract a fixed
rate of interest averaging 3.92% (2020: 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 Group 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, 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 2021 and 2020, as set out in the Operational & Financial Review on pages 22 to 31.
There were no significant changes in the Group’s approach to capital management during the year.
(b) Total financial assets and liabilities
The table below sets out the Group’s accounting classification of its financial assets and liabilities and their fair values as at 31 December. The fair
values of all financial assets and liabilities are not materially different to the carrying values.
Designated at
fair value
£m
Amortised
cost
£m
Total carrying
value
£m
Fair value
£m
18.1
(1.2)
18.1
(1.2)
18.1
(1.2)
(121.0)
(121.0)
(121.0)
(1.7)
(8.8)
(30.1)
–
113.5
(118.6)
(149.8)
13.9
(0.5)
(1.7)
(8.8)
(30.1)
0.2
113.5
(118.6)
(149.6)
13.9
(0.5)
(1.7)
(8.8)
(30.1)
0.2
113.5
(118.6)
(149.6)
13.9
(0.5)
(127.2)
(127.2)
(127.2)
(8.6)
(23.8)
–
107.9
(96.5)
(134.8)
(8.6)
(23.8)
(0.1)
107.9
(96.5)
(8.6)
(23.8)
(0.1)
107.9
(96.5)
(134.9)
(134.9)
–
–
–
–
–
–
0.2
–
–
0.2
–
–
–
–
–
(0.1)
–
–
(0.1)
Cash and cash equivalents net of bank overdraft
Loans and other borrowings due within one year
Loans and borrowings due after more than one year
Lease liabilities classified as held for sale
Lease liabilities due within one year
Lease liabilities due after more than one year
Derivative assets
Other assets
Other liabilities
Total at 31 December 2021
Cash and cash equivalents net of bank overdraft
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
162
Stock Code HILS 23. 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 assets
Total at 31 December 2021
Derivative financial liabilities
Total at 31 December 2020
Level 1
£m
Level 2
£m
Level 3
£m
Total
£m
–
–
–
–
0.2
0.2
(0.1)
(0.1)
–
–
–
–
–
–
–
–
At 31 December 2021 the Group did not have any assets or liabilities classified at Level 1 or Level 3 in the fair value hierarchy (2020: 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 SONIA/SOFR/EURIBOR.
Where the Group’s funding requirements allow longer term investment of surplus cash, management will review available options to obtain the
best possible return whilst maintaining an appropriate degree of access to the funds.
The Group’s financial liabilities, excluding short term creditors, are set out below. Fixed rate financial liabilities comprise 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 SONIA/SOFR/EURIBOR. 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. The
financial assets and liabilities not denominated in the functional currency of these entities are insignificant to the Group.
Certain UK subsidiaries hold Euro £9.7m (2020: £16.2m) and US Dollar £51.9m (2020: £51.5m) denominated interest bearing loans, which are
predominantly used to fund the Group’s European and United States operations and include £61.6m (2020: £67.7m) designated as a hedge
of the net investment in a foreign operation. The foreign currency loss/gain of £nil (2020: £nil) 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 2021
US Dollar at 31 December 2020
Weighted average
interest rate
%
Weighted average
period for
which rate is fixed
Years
3.9
3.9
6.0
7.0
163
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. 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:
Effective
interest rate
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
Secured loans and borrowings
Unsecured loans and borrowings
Senior Unsecured Notes
Lease liabilities
Lease liabilities classified as held
for sale
Other liabilities
Total at 31 December 2021
Secured loans and borrowings
Unsecured loans and borrowings
Senior Unsecured Notes
Lease liabilities
Other liabilities
Derivative liabilities
Total at 31 December 2020
Floating
Floating
3.9%
Floating
Floating
n/a
Floating
Floating
3.9%
Floating
n/a
n/a
1.8
69.5
51.6
38.9
1.7
123.7
287.2
1.4
83.2
51.2
32.4
103.1
0.1
271.4
(1.8)
(73.6)
(64.0)
(38.9)
(1.7)
(125.0)
(305.0)
(1.4)
(89.3)
(67.7)
(35.6)
(103.1)
(0.1)
(297.2)
(1.1)
(1.7)
(2.0)
(8.8)
(0.6)
(124.5)
(138.7)
(0.4)
(9.2)
(2.0)
(9.2)
(102.6)
(0.1)
(123.5)
(0.5)
(71.9)
(2.0)
(7.2)
(0.6)
(0.5)
(82.7)
(0.4)
(1.1)
(2.0)
(7.8)
(0.5)
–
(0.2)
–
(31.5)
(11.8)
(0.5)
–
(44.0)
(0.6)
(79.0)
(6.1)
(12.5)
–
–
–
–
(28.5)
(11.1)
–
–
(39.6)
–
–
(57.6)
(6.1)
–
–
(11.8)
(98.2)
(63.7)
The unsecured bank borrowings bear interest based on SONIA/SOFR/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
2021
£m
202.4
2020
£m
190.8
(d) Fair values
The fair value of forward currency exchange contracts realised in the Consolidated Income Statement as part of fair value derivatives amounted
to nil (2020: £0.1m). The fair values of the Group’s other financial instruments at 31 December 2021 and 2020 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 £16.0m (2020: £19.5m) were recognised in respect of the carrying values of non-current assets as detailed in note 12.
(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 and cash equivalents at the end of the year
Total
2021
£m
122.7
18.8
141.5
2020
£m
116.2
22.0
138.2
164
Stock Code HILS 23. FINANCIAL INSTRUMENTS CONTINUED
Carrying value of trade receivables by geography
UK
Rest of Europe
North America
Rest of the world
Total
Carrying value of trade receivables by business segment
Roads & Security
Utilities
Galvanizing Services
Total
2021
£m
54.7
19.8
34.1
3.7
112.3
2021
£m
47.6
32.6
32.1
112.3
2020
£m
46.5
20.0
31.5
8.8
106.8
2020
£m
45.8
31.6
29.4
106.8
Impairment losses
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. Whilst there has been some economic recovery in 2021, uncertainty remains in the economy following
the COVID global pandemic. As such, the Group believes the risk of an increased number of defaults still exists. Accordingly, default loss rates
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 reporting date. The charge to the Consolidated Income
Statement in the year in respect of the expected loss of trade receivables was £0.7m (2020: £2.2m). 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:
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
2021
Gross
£m
Provisions
£m
74.9
25.6
9.9
6.1
116.5
(0.2)
(0.1)
(0.3)
(3.6)
(4.2)
Net
£m
74.7
25.5
9.6
2.5
Gross£m
71.4
23.7
9.2
8.8
112.3
113.1
2020
Provisions
£m
(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 2020
Charged in the year
Utilised during the year
At 31 December 2020
Disposal of subsidiary
Charged in the year
Utilised during the year
At 31 December 2021
Net
£m
70.6
23.5
9.0
3.7
106.8
£m
5.2
2.2
(1.1)
6.3
(0.1)
0.1
(2.1)
4.2
165
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23. 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 £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 and the impact on equity would have been an increase of £24.9m.
• Based on a 10% strengthening in Sterling against all currencies throughout the year, the impact on the Consolidated Income Statement would
have been a loss of £3.9m and the impact on equity would have been a decrease of £21.5m.
24. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid
79.8m ordinary shares of 25p each (2020: 79.5m)
2021
£m
2020
£m
20.0
19.9
In 2021 the Company issued 0.3m shares under its various share option schemes (2020: 0.1m), realising £2.6m (2020: £1.0m).
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 a tax qualifying option granted under both 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 pages 96 to 104. Similar awards may be made to other employees appointed to senior management
positions.
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
2021
2020
Number
of shares
Option
price range (p)
Number
of shares
Option
price range
(p)
714,243 891p to 1,485p
844,616
560p to 1,021p
499,741
–
232,267
–
389,489 316p to 1,113p
639,443
316p to 1,113p
45,955
1,649,428
451,715
1,197,713
1,649,428
–
40,921
–
1,757,247
71,443
1,685,804
1,757,247
† 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 at the vesting date.
^ Vesting of awards under the LTIP and ESOS schemes is subject to various financial performance criteria.
The remaining weighted average life of the outstanding share options is 3 years 0 months (2020: 4 years 2 months).
166
Stock Code HILS 24. CALLED UP SHARE CAPITAL CONTINUED
The movement and weighted average exercise prices of share options during the year are as follows:
Outstanding at the beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Weighted
average
exercise
price (p)
2021
810
471
(843)
(907)
696
Millions of
options
2021
1.8
0.4
(0.3)
(0.2)
1.7
Weighted
average
exercise
price (p)
2020
842
520
(723)
(509)
810
Millions of
options
2020
1.7
0.4
(0.1)
(0.2)
1.8
The weighted average share price on the dates of exercise of share options during the year was 1,597p (2020: 1,417p), and the weighted average
fair value of options and awards granted in the year was 1167p (2020: 541p). The weighted average exercise price of outstanding options
exercisable at the year end was 566p (2020: 612p).
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.
As explained in the Directors Remuneration Report on page 99, bonuses awarded to the Executive Directors include an element awarded in shares,
deferred for a period of two years. The Group has determined the fair value of such awards to be equal to their cash equivalent. The resulting
charge is included in the expense arising from share-based payments in the year to which the awards relate.
The key assumptions for the grants in the current and prior year were as follows:
2021
2020
Expected share price volatility (%)
Dividend yield (%)
Option life (years)
Risk free interest rate (%)
SAYE
26%/16%
1.55%
3/5
0.5%/0.1%
LTIP
32%
0.0%
3
0.2%
Buy-out
awards
0%
0.0%
0.8
0%
SAYE
17%/15%
2.8%
3/5
-0.1%/0.0%
The total expense recognised for the period arising from share-based payments is as follows:
Equity-settled
Cash-settled
Total expensed during the year
LTIP
33%
0.0%
3
-0.1%
2021
£m
2.5
0.3
2.8
Buy-out
awards
0%
0.0%
0.8/1.8
0%
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 (2020: £0.7m).
167
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
25. GUARANTEES AND OTHER FINANCIAL COMMITMENTS
(a) Guarantees
Subsidiary audit exemptions
Hill & Smith Holdings Plc has issued guarantees over the liabilities of the following non-trading UK subsidiaries as at 31 December 2021 under
Section 479C of the Companies Act 2006.These entities are exempt from the requirements of the Act relating to the audit of individual accounts by
virtue of Section 479A of the Act:
Company Name
Bergen Pipe Supports Limited
Hill & Smith (International) Limited
Hill & Smith (Americas) 2 Limited
Hill & Smith (Americas) 3 Limited
Hardstaff Barriers Limited
Cobaco Holdings Limited
Company Number
00926644
11331411
10783462
12060645
02791285
08317210
The Group had no financial guarantee contracts outstanding as at 31 December 2020.
(b) Capital commitments
Contracted for but not provided in the accounts
(c) Operating lease receivables
The total future minimum commitments receivable under non-cancellable operating leases are analysed as follows:
2021
£m
3.0
2020
£m
3.6
Group
Within one year
Between one and five years
After five years
26. PENSIONS
Total
The total Group retirement benefit assets and obligations are detailed below:
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
UK
£m
61.8
(69.5)
–
(7.7)
Overseas
£m
3.4
(7.8)
(0.2)
(4.6)
2021
2020
Land and
Buildings
£m
0.1
–
–
0.1
2021
£m
65.2
(77.3)
(0.2)
(12.3)
Other
£m
4.6
1.1
–
5.7
Land and
Buildings
£m
0.2
–
0.1
0.3
UK
£m
62.0
(76.0)
–
(14.0)
Overseas
£m
3.2
(8.6)
(0.2)
(5.6)
Other
£m
5.2
0.7
–
5.9
2020
£m
65.2
(84.6)
(0.2)
(19.6)
168
Stock Code HILS 26. PENSIONS CONTINUED
United Kingdom
The Group operates one main pension scheme in the UK, the Hill & Smith 2016 Pension Scheme (‘the Scheme’), providing benefits on a
defined benefit and defined contribution basis. The Scheme is closed to future accrual 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 (2020: 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 2021 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 £3.1m (2020: £3.6m), which includes the
costs of the defined contribution and the defined benefit sections of the Scheme.
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
2021
n/a
3.3%
1.8%
3.5%
2.7%
2020
n/a
2.9%
1.2%
3.0%
2.2%
114%117%
114%117%
CMI 2020
CMI 2019
(1.25%)
(1.25%)
2021
2020
22.4 years
22.5 years
24.8 years
24.8 years
21.1 years
21.2 years
23.3 years
23.3 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.
169
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26. 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
Alternatives*
Total fair value of Scheme assets
Present value of Scheme funded obligations
Retirement benefit obligation
Market value
2021
£m
Market value
2020
£m
7.3
25.8
0.9
16.6
5.2
6.0
61.8
(69.5)
(7.7)
6.8
26.9
0.9
22.2
5.2
–
62.0
(76.0)
(14.0)
* Alternatives are investments in asset classes other than traditional equities, bonds, property and cash. They include investments in private equity, private credit, hedge
funds, infrastructure, and renewable energy investments.
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% (2020: 54%) 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
2021
Defined
benefit
schemes
£m
2.1
–
0.5
2.6
–
2.6
–
–
0.5
0.5
0.2
0.7
Defined
contribution
schemes
£m
2020
Defined
benefit
schemes
£m
2.3
–
0.6
2.9
–
2.9
–
0.4
0.3
0.7
0.3
1.0
Total
£m
2.1
–
1.0
3.1
0.2
3.3
Total
£m
2.3
0.4
0.9
3.6
0.3
3.9
170
Stock Code HILS 26. PENSIONS CONTINUED
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
Benefits paid
Closing defined benefit obligations
Changes in fair values of Scheme assets
Opening fair value of assets
Interest income
Return on plan assets excluding interest income
Employer contributions
Benefits paid
Closing fair value of assets
Actual return on Scheme assets
Expected employer contributions in the following year
Defined benefit scheme
Defined contribution schemes
2021
£m
76.0
–
0.9
(3.3)
(0.1)
(4.0)
69.5
2021
£m
62.0
0.7
(0.5)
3.6
(4.0)
61.8
0.2
4.1
2.0
Amounts recognised in the Consolidated Statement of Comprehensive Income
Return on plan assets excluding interest income
Changes in assumptions underlying the present value of Scheme obligations
Amount recognised in the year
% of Scheme
assets/
liabilities %
(1)
5
4
% of Scheme
assets/
liabilities %
5
(7)
(3)
2021
£m
(0.5)
3.4
2.9
The table below shows the sensitivity of the Consolidated Statement of Financial Position to certain changes in the significant pension
assumptions:
2020
£m
72.5
0.4
1.4
7.6
(2.3)
(3.6)
76.0
2020
£m
57.7
1.1
3.2
3.6
(3.6)
62.0
4.3
3.9
1.7
2020
£m
3.2
(5.3)
(2.1)
Value of funded obligations
Fair value of plan assets
Deficit
Balance at
31 December
2021
(69.5)
61.8
(7.7)
Increase in
pensions
payment
(+0.1% p.a.)
£m
(70.0)
61.8
(8.2)
Discount rate
(-0.1% p.a.)
£m
Inflation rate
(+0.1% p.a.)
£m
(70.5)
61.8
(8.7)
(70.0)
61.8
(8.2)
Life
expectancy
(+1 year)
£m
(72.3)
61.8
(10.5)
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 cash contributions of £3.7m per annum until September 2027. The next
triennial valuation will be as at April 2022.
171
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26. PENSIONS CONTINUED
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 (2020: 19 years) for the funded
scheme and 9 years (2020: 9 years) for the unfunded scheme.
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 (2020: 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 (2020: £1.0m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.2m (2020: £1.4m), 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 2021. 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
2021
USA
0.00%
2.75%
0.00%
France
2.50%
0.98%/0.5%
2.00%
2020
USA
0.00%
2.40%
0.00%
France
2.50%
0.45%/0.45%
2.00%
2014 SOA TH00–02, TF00–02
2014 SOA
TH00–02, TF00–02
Assets and liabilities
The fair values of scheme assets, which are not intended to be realised in the short term and may be subject to significant change before they are
realised, and the value of the scheme liabilities, which is derived from cash flow projections over long periods and which is therefore inherently
uncertain, are as follows:
Assets
Cash and other insured fixed interest assets
Total fair value of scheme assets
Present value of scheme funded obligations
Present value of scheme unfunded obligations
Retirement benefit obligation
Market
Value
2021
£m
Market
Value
2020
£m
3.4
3.4
(7.8)
(0.2)
(4.6)
3.2
3.2
(8.6)
(0.2)
(5.6)
Cash and other insured fixed interest assets – where assets are held in cash or a policy with a fixed interest asset allocation, the expected long
term rate of return is taken to be the yields generally prevailing on such assets as at the year end date.
Total expense recognised in the Consolidated Income Statement
Defined
contribution
schemes
£m
1.0
1.0
–
1.0
2021
Defined
benefit
schemes
£m
0.2
0.2
–
0.2
Defined
contribution
schemes
£m
1.0
1.0
–
1.0
Total
£m
1.2
1.2
–
1.2
2020
Defined
benefit
schemes
£m
0.4
0.4
–
0.4
Total
£m
1.4
1.4
–
1.4
Current service cost
Charge to operating profit
Interest on net pension scheme deficit
Total charged to profit before tax
172
Stock Code HILS 26. 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
2021
£m
8.8
0.2
0.1
(0.4)
(0.3)
0.1
(0.2)
(0.3)
8.0
2021
£m
3.2
–
0.1
–
(0.1)
–
0.2
3.4
0.1
–
1.0
Amounts recognised in the Consolidated Statement of Comprehensive Income
Experience loss on scheme obligations
Return on plan assets excluding interest income
Changes in assumptions underlying the present value of scheme obligations
Exchange rate adjustment on assets and liabilities
Amount recognised in the year
% of scheme
assets/
liabilities
%
(1)
–
9
9
13
% of scheme
assets/
liabilities
%
(5)
13
(2)
(5)
(6)
2021
£m
(0.1)
–
0.6
0.5
1.0
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
2020
£m
(0.4)
0.4
(0.2)
(0.3)
(0.5)
The Group considers that any reasonable sensitivities applied to the assumptions for the overseas schemes would not have a material impact on
the Consolidated Financial Statements.
27. RELATED PARTY TRANSACTIONS
As explained in note 6, the key management personnel are considered to be the Board of Directors of Hill & Smith Holdings PLC and the members
of the Executive Board who are not also Directors of Hill & Smith Holdings PLC. The Board of Directors’ remuneration can be seen in the Directors’
Remuneration Report on pages 94 to 104. The combined remuneration of key management personnel can be seen in note 6 to the financial
statements on page 143.
173
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS COMPANY BALANCE SHEET
Fixed assets
Tangible assets
Right-of-use assets
Investments
Current assets
Debtors
Cash and cash equivalents
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
Retained earnings
Total equity
Notes
4
5
6
7
8, 9
5
8
9
11
12
2021
£m
0.1
0.4
329.8
330.3
107.0
0.1
107.1
(1.2)
(0.1)
(69.8)
(71.1)
36.0
366.3
(36.9)
(0.2)
329.2
20.0
40.9
0.2
268.1
329.2
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
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 (2020: £34.6m).
Approved by the Board of Directors on 9 March 2022 and signed on its behalf by:
P Simmons
Director
H K Nichols
Director
Company Number: 671474
174
Stock Code HILS COMPANY STATEMENT OF CHANGES IN EQUITY
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
19.9
37.4
0.2
226.6
Balance at 1 January 2020
Comprehensive income
Profit for the year
Other comprehensive expense 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
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 and deferred bonus awards
Tax taken directly to the Statement of Changes in Equity
–
–
–
–
–
19.9
–
–
–
–
–
–
–
–
–
–
1.0
38.4
–
–
–
–
–
–
Total
equity
£m
284.1
34.6
(0.1)
(8.4)
0.8
1.0
–
–
–
–
–
34.6
(0.1)
(8.4)
0.8
–
0.2
253.5
312.0
–
–
–
–
–
–
–
34.6
0.1
34.6
0.1
(21.2)
(21.2)
2.5
(1.8)
0.4
–
2.5
(1.8)
0.4
2.6
0.2
268.1
329.2
Issue of shares
At 31 December 2021
0.1
20.0
2.5
40.9
Details of share options and related share-based payments are contained in note 24 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 Long Term Incentive Plans and other remuneration agreements 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 £88.1m (2020: £73.5m), representing 3.6 times (2020:
3.5 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 £44.2m available for distribution at 31 December
2021 (2020: £49.4m). Further reserves are available for distribution from trading subsidiaries located overseas, subject to local regulations.
175
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS COMPANY PRINCIPAL ACCOUNTING POLICIES
1. 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 UK (‘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 profit and loss account.
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 128 to 135 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, where there is a right of offset, 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.
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.
176
Stock Code HILS 1. COMPANY PRINCIPAL ACCOUNTING POLICIES CONTINUED
Provisions
A provision is recognised in the Balance Sheet when the Company has a present legal or constructive obligation as a result of a past event, that
can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined
by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Tangible fixed assets and depreciation
Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of tangible fixed assets have different useful lives, they are accounted for as separate items of tangible fixed assets.
Depreciation is charged to the profit and loss account on a straight-line basis over the estimated useful lives of each part of an item of tangible
fixed assets. Land is not depreciated. The estimated useful lives are as follows:
Leasehold improvements
Plant, machinery and vehicles
life of the lease
4 to 20 years
Depreciation methods, useful lives and residual values are reviewed at each Balance Sheet date.
Leases
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 profit and loss account 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.
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.
177
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS COMPANY PRINCIPAL ACCOUNTING POLICIES CONTINUED
1. COMPANY PRINCIPAL ACCOUNTING POLICIES CONTINUED
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 are recognised in the Financial Statements in the period in which they are approved by the Company’s shareholders. Dividend income is
recognised in the Profit and Loss Account on the date the Company’s right to receive payment is established.
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.
2. PROFIT BEFORE TAXATION
Fees paid to Ernst & Young 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.
3. DIVIDENDS
Dividends paid during the year
Interim dividend paid in relation to year-ended 31 December 2019*
Interim dividend paid in relation to year-ended 31 December 2020
Final dividend paid in relation to year-ended 31 December 2020
Total
*A final dividend for 2019 of 23.0p per share was proposed but was withdrawn and not paid.
Dividends declared in respect of the year
Interim dividend declared in relation to year-ended 31 December 2020
Final dividend declared in relation to year-ended 31 December 2020
Interim dividend declared in relation to year-ended 31 December 2021
Final dividend proposed in relation to year-ended 31 December 2021
Total
2021
2020
Pence
per share
–
9.2
17.5
26.7
£m
–
7.3
13.9
21.2
Pence
per share
10.6
–
–
10.6
2021
2020
Pence
per share
–
–
12.0
19.0
31.0
£m
–
–
9.6
15.1
24.7
Pence
per share
9.2
17.5
–
–
26.7
£m
8.4
–
–
8.4
£m
7.3
13.9
–
–
21.2
The final dividend for the year was proposed after the year end date and was not recognised as a liability at 31 December 2021, in accordance with
IAS 10.
178
Stock Code HILS 4. TANGIBLE FIXED ASSETS
Cost or valuation
At 1 January 2021
Additions
At 31 December 2021
Depreciation
At 1 January 2021
Charge for the year
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
5. LEASES
Short
leasehold
properties
£m
Plant,
machinery
and vehicles
£m
0.1
–
0.1
0.1
–
0.1
–
–
0.5
–
0.5
0.4
–
0.4
0.1
0.1
The movements in the carrying value of the right-of-use assets and lease liabilities in the year ended 31 December 2021 are as follows:
Right-of-use assets
Balance at 1 January 2021
Charge for the year
At 31 December 2021
Lease liabilities
Balance at 1 January 2021
Lease payments in period
At 31 December 2021
Land and
buildings
£m
0.4
–
0.4
Total
£m
0.6
–
0.6
0.5
–
0.5
0.1
0.1
Total
£m
0.4
–
0.4
Total
£m
0.4
–
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
2021
£m
0.1
0.1
0.1
2021
£m
0.1
0.1
0.2
0.4
2020
£m
0.1
0.1
0.1
2020
£m
0.1
0.1
0.2
0.4
179
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
6. FIXED ASSET INVESTMENTS
Cost
At 1 January 2021 and at 31 December 2021
Provisions
At 1 January 2021 and at 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Shares in
subsidiary
undertakings
£m
Total
£m
379.6
379.6
49.8
49.8
329.8
329.8
329.8
329.8
A list of the businesses owned by the Company is given in note 15. All of the Company’s subsidiaries are wholly owned.
7. DEBTORS
Amounts owed by subsidiary undertakings (including £7.0m (2020: £7.0m) due after more than one year)
Corporation tax
Deferred tax (note 10)
Other debtors
Prepayments and accrued income
8. CREDITORS AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loans and overdrafts (note 9)
Bank overdrafts
Other creditors
Trade creditors
Other taxation and social security
Accruals
Other creditors
Amounts owed to subsidiary undertakings
180
2021
£m
99.9
4.7
1.3
0.3
0.8
107.0
2021
£m
1.2
1.2
1.4
0.2
5.1
0.9
62.2
69.8
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
Stock Code HILS 9. 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 23 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 8)
Amounts due after more than one year:
Between one and two years
Between two and five years
10. DEFERRED TAX
Deferred tax asset – At 1 January
Credit for the year in the profit and loss account
Credit for the year directly in equity
Deferred tax asset – At 31 December
Other timing differences
11. PENSION LIABILITIES
2021
£m
36.6
0.3
36.9
2021
£m
1.2
36.6
–
36.6
37.8
2021
£m
0.3
0.6
0.4
1.3
1.3
2020
£m
43.2
0.3
43.5
2020
£m
8.5
–
43.2
43.2
51.7
2020
£m
0.2
0.1
–
0.3
0.3
The Company contributes to the Group’s Hill & Smith 2016 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 26
to the Group Financial Statements. There are also separate personal pension plans.
The Company’s profit for the year includes a pension charge of £0.3m (2020: £0.4m), which includes the costs of the defined contribution
schemes and the defined benefit schemes.
12. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid
79.8m Ordinary Shares of 25p each (2020: 79.5m)
2021
£m
2020
£m
20.0
19.9
In 2021 the Company issued 0.3m shares under its various share option schemes (2020: 0.1m), realising £2.6m (2020: £1.0m). Details of share
options and related share-based payments are contained in note 24 to the Group Financial Statements.
Each ordinary share carries equal voting rights and there are no restrictions on any share.
181
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
13. GUARANTEES
Subsidiary audit exemptions
Hill & Smith Holdings Plc has issued guarantees over the liabilities of the following non-trading UK subsidiaries as at 31 December 2021 under
Section 479C of the Companies Act 2006. These entities are exempt from the requirements of the Act relating to the audit of individual accounts
by virtue of Section 479A of the Act:
Company Name
Bergen Pipe Supports Limited
Hill & Smith (International) Limited
Hill & Smith (Americas) 2 Limited
Hill & Smith (Americas) 3 Limited
Hardstaff Barriers Limited
Cobaco Holdings Limited
Company Number
00926644
11331411
10783462
12060645
02791285
08317210
These guarantees did not exist as at 31 December 2020.
The Company guarantees the bank loans, overdrafts and other borrowings of certain subsidiary undertakings. The amount outstanding at 31
December 2021 was £108.2m (2020: £81.9m).
14. 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 6 to the Group Financial Statements.
The Company has taken the available exemption under FRS 101 not to disclose transactions with wholly owned Group companies.
182
Stock Code HILS 15. SUBSIDIARIES
Incorporated in the UK
AAJG Holdings Limited (H)
Access Design & Engineering 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)
Bowater Doors Limited (D)
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)
Forgen Renewables Ltd (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 (VSG) Limited (D)
H&S Expamet 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)*
Mallatite Minor Structures & Products Limited (D)
Medway Galvanising Company Limited (G)
Parking Facilities Ltd (R)
Pipe Supports Overseas Limited (H)*
Post & Column Limited (D)
Premier Galvanizing Limited (G)
Prolectric Services Limited (R)
Redman Architectural Metalwork Limited (D)
Redman Fisher Engineering Limited (U)
Safety and Security Barrier Holdings Limited (H)
Signature Limited (D)
Signpost Solutions Limited (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.
Hill & Smith Galvanized Products Limited (H)
Hill & Smith Group Limited (D)
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)
(U) Utilities
(R) Roads & Security
(G) Galvanizing
(D) Dormant
(H) Holding Company
* Directly held by Hill & Smith Holdings PLC
** 50% owned Joint Venture
183
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS 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
Incorporated in Norway
ATA Hill & Smith AS (R)
Jacob Borchsgate 6, 3012 Drammen
184
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 Spain
Prolectric Solar Lighting SL (D)
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.
(U) Utilities
(R) Roads & Security
(G) Galvanizing
(D) Dormant
(H) Holding Company
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
2021
£m
705.0
86.0
79.9
339.6
Pence
77.9
31.0
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
* The proposed final dividend for 2019 of 23.0p per share was withdrawn and not paid.
185
Hill & Smith Holdings PLC | Annual Report and Accounts 2021FINANCIAL STATEMENTS FINANCIAL CALENDAR
Annual General Meeting
Trading Update
Tuesday 24 May 2022
Tuesday 24 May 2022
Ex-dividend date for 2021 final dividend
Wednesday 1 June 2022
Record date 2021 final dividend
Monday 6 June 2022
Dividend Reinvestment Plan – last date for election
Friday 17 June 2022
Final 2021 ordinary dividend payable
Friday 8 July 2022
Announcement of 2022 interim results
Wednesday 3 August 2022
Trading Update
Thursday 24 November 2022
Ex-dividend date for 2022 interim dividend
Thursday 1 December 2022
Record date 2022 interim dividend
Friday 2 December 2022
Dividend Reinvestment Plan – last date for election
Tuesday 13 December 2022
Payment of 2022 interim dividend
Friday 6 January 2023
186
Stock Code HILS SHAREHOLDER INFORMATION
SHAREHOLDER BASE
Holdings of shares at 25 February 2022:
Range of shareholders
1 -500
501 – 1000
1001 – 5000
5001 – 50,000
50,001 – 100,000
100,001 – 500,000
500,001 – 1,000,000
Above 1,000,001
Total
Number of
holders
679
340
593
345
62
74
18
18
%
31.89
15.97
27.85
16.20
2.91
3.48
0.85
0.85
Number of
shares
139,801
260,859
1,388,739
5,025,289
4,504,436
15,519,907
12,088,250
12,088,250
%
0.17
0.33
1.74
6.29
5.63
23.17
15.12
15.12
2,129
100.00
76,946,022
100.00
SHAREHOLDER BASE
Individuals
Institutions
Other corporate
Total
Number of
holders
1,390
706
33
2,129
%
65.29
33.16
1.55
Number of
shares
3,416,318
76,277,112
252,592
%
4.27
95.41
0.32
100.00
76,946,022
100.00
DIVIDEND HISTORY – PROPOSED DIVIDEND PER SHARE
Interims
Final
Total
2021
12.0
19.0
31.0
2020
2019
2018
9.2
17.5
26.7
10.6
–
10.6
10.0
21.8
31.8
2017
9.4
20.6
30.0
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 on Tuesday 24 May
2022 at 11.00am at The Village Hotel,
The Green Business Park, Shirley, Solihull,
B90 4GW. Full details are contained within
the Notice of AGM. A proxy card is also
enclosed with this statement for voting.
Alternatively, you can vote electronically as
explained below.
ELECTRONIC PROXY VOTING
To lodge your proxy vote via the internet, log
on to www.investorcentre.co.uk/eproxy. You
will need the Control number, Shareholder
Reference number (‘SRN’) and PIN number
printed on your Form of Proxy where you will
find the full instructions.
SHAREHOLDING ONLINE
Computershare Investor Centre gives access
to view your holdings online. To register click
on Investor Centre on the Computershare
home page www.computershare.com and
follow the instructions.
You will be able to:
• View all your holding details
for companies registered with
Computershare.
• View the market value of your portfolio.
• Update your contact address and
personal details online.
• 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-uk.computershare.com/
Investor/#ShareDealingInfo for internet and
postal dealing information.
DIVIDEND REINVESTMENT
PLAN (‘DRIP’)
The Company offers shareholders the facility
to reinvest their cash dividends to buy more
shares in the Company.
•
The service allows you to increase
your shareholding in an easy and
convenient way.
• Online application process enables
you to participate easily and securely:
www.investorcentre.co.uk.
− Click on ‘Register’ to sign up to the
Investor Centre. This will allow you to
carry out a number of share related
transactions online, including opting
for the DRIP.
− You will be required to fill in your SRN
and your postcode, together with
your email address. You will also be
asked to select a user name (ID) and
password of your choice.
− Once registered select ‘Dividend
Plans’ from the left hand menu and
amend your current cash dividend
instruction, confirming acceptance of
the DRIP terms and conditions.
• New shares will be purchased as soon as
possible on or after the dividend pay date.
SHAREHOLDER
HELPLINE NUMBER
There is a helpline for shareholders who have
enquiries about their shareholdings. The
dedicated helpline number is 0370 707 1058.
187
Hill & Smith Holdings PLC | Annual Report and Accounts 2021SHAREHOLDER INFORMATION PRINCIPAL GROUP BUSINESSES
ROADS & SECURITY
UNITED KINGDOM
ATG Access Limited*
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
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
www.mallatite.co.uk
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
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) 1902 499400
Fax: +44 (0) 1902 499419
www.hill-smith.co.uk
Tel: +44 (0) 1827 870250
Fax: +44 (0) 1827 870251
www.parkingfacilities.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
www.barkersengineering.com
Prolectric Services Limited
UK’s leading expert on sustainable lighting,
power and security
35 Hither Green, Industrial Estate, Clevedon
BS21 6XU
Tel: +44 (0)1275400570
www.prolectric.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
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
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
www.hillandsmith.com
Hill & Smith Pty Ltd*
Wire rope and temporary safety barriers
Incorporated in Australia
Unit 1, 242 New Cleveland Road, Tingalpa,
QLD 4173, Australia Tel: +61 (0) 7 3162 6078
www.hsroads.com.au
Notes:
The above lists the Company’s subsidiary undertakings, except for some intermediate holding companies and certain other undertakings of minor importance. Except
where indicated, the undertakings are subsidiaries incorporated in Great Britain and the share capital consists of ordinary shares only.
*
The Company’s effective interest is held indirectly for these undertakings.
188
Stock Code HILS UTILITIES
UNITED KINGDOM
UNITED STATES OF AMERICA
Birtley Group Limited*
Galvanized lintels, construction fittings,
composite doors, builders’ metalwork &
plasterers’ accessories
Mary Avenue, Birtley, County Durham,
DH3 1JF
Tel: +44 (0) 191 410 6631
Fax: +44 (0) 191 410 0650
www.birtleygroup.co.uk
Creative Pultrusions, Inc.*
Manufacture of fibre reinforced polymer
(FRP) composite profiles
214 Industrial Lane, Alum Bank, Pennsylvania,
15521, USA
Tel: +1 (814) 839 4186
Toll-free: # 888-CPI-PULL (274-7855)
www.creativepultrusions.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
Lionweld Kennedy Flooring Limited
Open steel flooring, handrailing and ancillary
products
E.T. Techtonics (D)
Design and construction of fiberglass bridge
and boardwalk systems
Carpenter & Paterson, Inc.*
Industrial pipe hangers, metal framing
channel and fasteners
Marsh Road, Middlesbrough, TS1 5JS
www.ettechtonics.com
225 Merrimac Street, Woburn,
Massachusetts, 01801, USA
Tel: +44 (0) 1642 245151
Fax: +44 (0) 1642 224710
www.lk-uk.com
Kenway Composites (D)
Advanced custom composite manufacturing
and professional field services for various
industries
Tel: +1 (781) 935 2950
Fax: +1 (781) 935 7664
www.pipehangers.com
www.kenway.com
Tower Tech (D)
Manufacture of cooling tower products
that effectively bridge the gap between
sustainability and energy efficiency
www.towertechinc.com
Novia Corporation, Inc.
Vibration and seismic control manufacturer
1 Northwestern Drive, Salem, NH 03079, USA
www.cp-novia.com
INDIA
Composite Advantage (D)
A leading manufacturer for Fibre Reinforced
Polymer composite bridge, waterfront and rail
infrastructure markets
www.creativecompositesgroup.com
Bergen Pipe Supports (India)
Private Limited*
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
www.pipesupports.com
V&S Utilities**
Fabrication of electrical transmission
and substation structures and supplier of
substation packaging services
987 Buckeye Park Road, Columbus, Ohio,
43207, USA
Tel: +1 (614) 449 8281
Fax: +1 (614) 449 8851
www.vsschuler.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.
(D) Operating division only, not a limited company.
189
Hill & Smith Holdings PLC | Annual Report and Accounts 2021SHAREHOLDER INFORMATION
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
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
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
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
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
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
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
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.
190
Stock Code HILS
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
Leigh-Ann Russell
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
Numis Securities Limited
45 Gresham St
London
EC2V 7BF
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
191
Hill & Smith Holdings PLC | Annual Report and Accounts 2021SHAREHOLDER INFORMATION SHAREHOLDER NOTES
192
Stock Code HILS The production of this report supports the work of the Woodland Trust,
the UK’s leading woodland conservation charity. Each tree planted will
grow into a vital carbon store, helping to reduce environmental impact
as well as creating natural havens for wildlife and people.
Hill & Smith Holdings PLC
Westhaven House
Arleston Way
Shirley
Solihull
B90 4LH
+44 (0)121 704 7430