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Creating sustainable infrastructure
and safe transport through innovation.
Hill & Smith PLC
Annual Report for the year ended 31 December 2022
Stock Code HILS
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.
Read more on Our Market Place
on pages 8 to 9.
Strong execution track record
Hill & Smith’s autonomous model has delivered
strong performance over the long term. Our
agile business model has been key to mitigating
challenges around supply chain, labour and COVID.
Our model is scalable and supported by an
ambitious management team.
Read more in our Operational and Financial
Review on pages 22 to 31.
Focus on high value
niche applications
Our increasing focus on high value, fast growing
niche markets fuels organic growth and generates
higher gross margins and strong cash conversion.
Read more on Our Divisions
on pages 3 and 13.
Portfolio management
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 management within our operating
companies drives gross margin improvement
and allows reinvestment in areas of talent and
innovation.
Read more on Our Business Model
on pages 10 to 11.
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.
Read more on Our Sustainability Plan
on pages 32 to 57.
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.
Read more in our Operational and Financial
Review on pages 30 to 31.
FIVE-YEAR TRACK RECORD
Revenue1 (£m)
564.2
617.2
588.4
625.2
732.1
2018
2019
2020
2021
2022
Underlying operating profit1 (£m)
732.1
74.4
80.3
77.3
64.7
97.1
2022
2018
2019
2020
2021
2022
1 Continuing operations
Underlying earnings per share (p)
97.1
77.8
80.7
91.9
77.9
63.2
2022
2018
2019
2020
2021
2022
Dividend per share (p)
31.8
26.7
31.0
35.0
80,918
10.6
2018
2019
2020
2021
2022
Scope 1 & 2 Carbon emissions
(market-based consumption) (tonnes)
80,918
73,281
66,774
64,597
58,305
2018
2019
2020
2021
2022
CONTENTS
STRATEGIC REPORT
Highlights
Group at a Glance
Interim Executive Chair’s Letter
Our Purpose and Strategy
Our Market Place
Our Business Model
Our Stakeholders
Our Divisions
Our Products
Measuring Our Performance
Operational and Financial Review
Our Approach to Sustainability
Stakeholder Engagement
Risk Management
Group Principal Risks
Non-financial Information Statement
GOVERNANCE
Board of Directors
Introduction to Governance
Governance Report
Nomination Committee Report
Audit Committee Report
Remuneration Committee Report
Directors’ Remuneration Policy
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
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Statement of Changes in Equity
Notes to the Company Financial Statements
Five year summary
SHAREHOLDER INFORMATION
Financial Calendar
Shareholder Information
Principal Group Businesses
Directors, Contacts and Advisors
Shareholder Notes
02
03
04
06
08
10
12
13
15
20
22
32
58
60
64
69
70
72
74
84
86
92
105
114
116
118
126
128
129
130
131
181
182
183
193
194
195
196
199
200
Composite rail platform, by CCG,
Annadale Station, Staten Island, NYC
01
Stock Code HILSSTRATEGIC REPORT HIGHLIGHTS
GROUP HIGHLIGHTS:
Continuing Operations (1)
Revenue
Operating profit
Operating margin
Profit before tax
Underlying*
31
December
2022
31
December
2021(1)
Reported
%
Change
Constant
Currency
%
Statutory
Change
31
December
2022
31
December
2021(1)
Reported
%
OCC ^ %
£732.1m
£625.2m
£97.1m
£77.3m
+17%
+26%
+12%
+17%
+14%
£732.1m
£625.2m
+14%
£78.5m
£48.9m
+17%
+61%
13.3%
12.4%
+90bps
10.7%
7.8%
+290bps
Earnings per share
85.4p
70.0p
£87.9m
£71.2m
+23%
+22%
£69.3m
£42.8m
66.7p
35.8p
+62%
+86%
Total Group (1)
Earnings per share
Dividend per share
91.9p
35.0p
77.9p
31.0p
+18%
+13%
71.0p
35.0p
43.0p
31.0p
+65%
+13%
1 Continuing operations exclude France Galva, which has been accounted for as a discontinued operation as explained in note 10 to the financial statements. The prior year comparatives have
been restated accordingly. Total Group includes both continuing and discontinued operations.
* 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 refer to organic constant currency (῾OCC’) 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.
KEY HIGHLIGHTS:
• Record trading performance
− 14% organic constant currency
revenue and profit growth
− Growth significantly driven by US
businesses which represented 64% of
Group operating profit
− Operating margin increased by 90bps
to 13.3%, reflecting strong operational
performance, pricing actions and
portfolio evolution
− Strong performance highlights the
resilience of our chosen long term
end markets and focus on higher
growth businesses
• Significant progress on portfolio
• Refreshed financial framework reflecting
management
Group’s growth potential
•
•
Improved cash generation in second
half, with year-end covenant leverage at
0.7 times
Final dividend of 22p proposed, a
16% increase on 2021, in line with the
Group’s sustainable and progressive
dividend policy
• Well-positioned in structurally growing
end markets and expect to make further
progress in 2023, despite macro-
economic uncertainties
− Announcement of two value
enhancing acquisitions in
October 2022:
− National Signal, a high growth US
off grid solar lighting business,
for £24.2m
− Widnes Galvanising, expanding
our galvanizing footprint in the
UK, for £3.9m
− Acquisition of Enduro Composites
in February 2023 for £28.7m further
accelerating our US composites
growth strategy
− Acquisition of Korns Galvanizing in
March 2023 for £9.4m, supporting
growth in attractive US galvanizing
market
− Disposal of France Galva in October
2022 for £62.0m reduces our
exposure to lower growth, lower
margin French galvanizing market
02
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 GROUP AT A GLANCE
GROUP SUMMARY
Our porfolio: As at 31 December 2022,
the Group consisted of 30 companies
operating from 57 sites in five countries,
through which we aim to deliver high
levels of organic growth and strong
cash conversion. These companies are
supported by a head office team who
offer support and leadership in areas
including capital allocation, M&A, health
& safety, tax, legal and sustainability.
Our operating framework: We operate
a decentralised autonomous operating
model, which benefits from high
accountability, agility and customer
intimacy, and helps us to attract talented
people who want to make a difference.
Sustainability built in: Our products and
services help transport become safer and
infrastructure become more sustainable,
with our customers benefitting through
the value that our products and services
provide.
ROADS &
SECURITY
ENGINEERED
SOLUTIONS
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 seismic protection
solutions and engineered pipe supports
for the water, power and liquid natural
gas markets.
Supplying a service that dramatically
increases the sustainability and
maintenance free life of steel products.
This includes structural steelwork,
lighting, bridges, agricultural equipment
and other products for the industrial and
infrastructure markets.
Roads & Security
Engineered Solutions
Galvanizing Services
% Group Revenue
% Group Operating
Profit
36%
19%
40%
24%
36%
45%
03
Stock Code HILSSTRATEGIC REPORT INTERIM EXECUTIVE CHAIR’S LETTER
by our employees on an application basis
and was available to employees in all our
operating jurisdictions. During the year we
have matched donations benefitting causes
such as DEC Ukraine, War Child, Ukraine
Humanitarian Appeal, Cancer Research UK
and many more, and we were delighted to
support these fundraisings.
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 74 to 85. This includes a number of
changes which we have made during the year
to our governance approach to reflect the fact
I have taken on an executive role during the
second half of the year.
As approved at the Company’s AGM, in
November 2022 the Company dropped
"Holdings” from its name and simplified it
to Hill & Smith PLC. We also refreshed the
Group’s logo.
Health & Safety
The importance of health & safety cannot
be over-estimated. Our employees rightfully
expect to be kept safe at work and the Board
of Hill & Smith takes their responsibilities
extremely seriously, with health and safety
being a standing item on each Board agenda.
Lost Time Injury Reports are monitored
carefully, and I have been extremely pleased
by the progress that has been made, with the
Lost Time Injury Rate declining from 1.7 to 1.1
(see pages 20 and 21 for more details).
Strategy
Hill & Smith has a very clear strategy. We
focus our capital into our highest growth
markets, consistent with our purpose, and
behind our best management teams. We
then seek to complement this with selective
M&A. At the heart of our strategy lies our
autonomous business model, which is about
giving ownership to our local teams to drive
performance in their businesses. It is also
about excellence in execution, both when we
are acquiring businesses, but also where we
see underperformance in our portfolio and
there is a need to take proactive performance
and management actions.
M&A Activity
One of the areas I committed to giving greater
focus to was driving our M&A strategy. In
October we announced two acquisitions,
National Signal, a California-based market
leader in solar lighting serving the US market,
and Widnes Galvanising. Widnes Galvanising
gives us a stronger foothold in the
northwest of the UK, and as a result is highly
complementary to our Joseph Ash business.
Alan Giddins
Interim Executive Chair
Dear Stakeholder
2022 has been a year in which
we have delivered record
revenue and profits despite
the challenges of a difficult
macro-economic backdrop.
We have also made significant
progress in delivering on our
M&A strategy.
Performance Highlights
On a continuing operations basis the Group
had revenue of £732.1m (2021: £625.2m) and
operating profit of £97.1m (2021: £77.3m),
representing an organic revenue and operating
profit growth of 14%. Operating margins
improved from 12.4% to 13.3%. Continuing
operations reflects the disposal of France Galva
during the year, with the France Galva results
being shown as discontinued operations in
both the current and prior year figures.
Underpinning these results was a strong
performance across both our Galvanizing
and Engineered Solutions divisions, delivering
organic operating profit growth of 23% and
24% respectively. By contrast, our Roads &
Security division saw broadly flat earnings
during the year, impacted by delays in strategic
road network projects in the UK, and certain
operational issues in our US Roads business.
While we saw lower cash conversion in the
first half of the year as we made a strategic
decision to hold higher levels of stock in the
face of significant supply chain uncertainties,
we saw much improved cash generation in
the second half of the year at 93%, giving rise
to a full year cash conversion of 51%. As at
31 December 2022 total net debt was
£119.7m (2021: £144.7m), leaving financing
headroom of £237.9m on the Group’s
borrowing facilities. Return on capital
employed was 19.2% (2021: 17.1%).
Board and Employees
In July, Paul Simmons stepped down as Chief
Executive of Hill & Smith, and I was asked
by the Board to take on the role of interim
Executive Chair. Paul joined Hill & Smith in
September 2020, and I would like to thank
him for his contribution during this period.
Since the half year we have made five new
Managing Director appointments. These
include our first two female Managing Directors
within the Group, Rachel Preen at Prolectric
Services, our UK solar lighting business and
Rose Mary Clyburn at Hill & Smith Inc., our US
roads business. Being able to attract and retain
key talent is absolutely critical to our business,
and it is something that I and the Board have
as one of our key priorities.
2022 has thrown up a range of challenges for
our wider workforce. In the first half of the year
we faced a number of supply chain challenges,
as well as increased energy costs, particularly
in the UK. In the second half of the year we
have seen significant inflation and related
economic uncertainties. Inflation impacted
input costs into our business, but also created
significant cost of living pressures for our
employees. I am pleased that our businesses
have responded so proactively, using in-year
salary reviews, one-off cost of living payments,
crisis loans and variable pay awards to help
support our lower income employees.
During the year we also set up a Charitable
Donation Matching Programme. The
programme matches charitable funds raised
04
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Hill & Smith has a
very clear strategy.
We focus our capital
into our highest
growth markets,
consistent with
our purpose, and
behind our best
management teams.
We then seek to
complement this with
selective M&A.”
Since the year end we have made two further
acquisitions. In February 2023 we acquired
Enduro Composites, a designer, manufacturer
and supplier of engineered composite
solutions based in Houston, Texas, and in
March 2023 we announced the acquisition
of Korns Galvanizing, which specialises in
spin galvanizing, and is based in Johnstown,
Pennsylvania.
We also made one material disposal during
the year, France Galva SA. The deal received
shareholder approval on 5 September 2022
and completed on 4 October 2022. The
decision to sell France Galva reflected our
view that the French market would continue
to be extremely competitive and as such
we would not be able to meet our targeted
returns through owning the business. Further
information on the disposal can be found on
page 146.
Sustainability and ESG
The Group is mindful of our impact on
climate change and sustainability. This is
felt throughout the business and during the
course of 2022 we have made good progress
in this area. Lucinda Farrington-Parker joined
as Group Head of Sustainability in February
2022 and has been responsible for helping
drive our ESG strategy. Inevitably we are at
the start of a long journey, but I have been
impressed by the progress made to date and
the commitment of our senior management.
Since becoming Executive Chair, I have
joined our ESG Committee, which reports to
the Board.
Dividend and Annual
General Meeting
The Board has proposed a final dividend of
22.0p (2021: 19.0p) which, if approved, would
result in a full year dividend of 35.0p (2021:
31.0p), an increase of 13%, while keeping
dividend cover of around 2.5 times underlying
earnings.
The Annual General Meeting of the Company
will be held at 11.00 a.m. on Thursday 25 May
2023 at Cranmore Park Conference, Event &
Exhibition Centre, Cranmore Avenue, Shirley,
West Midlands, B90 4LF, United Kingdom.
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
Hill & Smith has a very effective business
model and a very strong culture. We are
facing into a number of high growth end
markets driven by infrastructure spend,
particularly in the US, which should allow
us to continue to deliver attractive earnings
growth through the cycle. Combined with a
strong senior management team and a highly
committed workforce, I feel very confident
about the medium and long term prospects
for the Group.
Alan Giddins
Interim Executive Chair
8 March 2023
Stadium at West Ottawa High School Michigan, galvanized by V&S Galvanizing
05
Stock Code HILSSTRATEGIC REPORT
OUR PURPOSE AND STRATEGY
1. WHY?
2. WHERE?
Increasing population
01 Macro drivers
•
• 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 Market Place
on pages 8 to 9.
Creating
sustainable
infrastructure
and safe transport
through innovation
06
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 3. 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
ESG
• Protecting the world
• Saving and enhancing lives
− Health & Safety
− Talent and diversity
• 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 Business
Model on pages 10 to 11.
4. WHAT?
Superior
long term
stakeholder
value
Read more on Our Investment Case
on the inside front cover.
Read more on Our Business Model
on pages 10 to 11.
Read more on Our Approach to
Sustainability on pages 32 to 57.
07
Stock Code HILSSTRATEGIC REPORT WHERE WE OPERATE – OUR MARKET PLACE
ProLight solar power temporary lights, Llanwern, Newport, supplied by Prolectric
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 ecosystem. 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 help us achieve higher
margins. Our decentralised model of multiple small to medium sized businesses allows
us to care about these more niche opportunities.
Why we focus on these markets…
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.
The end markets that our UK and US
galvanizing businesses serve are many
and varied including growth industries
such as road and rail infrastructure,
water treatment, construction,
and electrical transmission and
distribution. Our operating companies
target above industry growth rates
through thoughtful investment and
superior service.
In the US, we expect to benefit
from both increased on-shoring of
manufacturing and high infrastructure
spend as a result of the Investment in
Infrastructure and Jobs Act (‛IIJA’).
ENGINEERED SOLUTIONS
Our Engineered Solutions 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. Similarly, our
three engineered support businesses
serve critical applications in water
treatment, power generation and
chemical processing.
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
US substation frame business is well
placed to play its part.
Our two UK businesses predominantly
produce steel products that serve
construction, oil and gas, and data
centre markets.
Power station, Will County, Illinois.
Supported by TPG
ROADS & SECURITY
Our products make the road network
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, and
the UK Government, through the Road
Investment Strategy 2, have committed
to increased highways investment.
Alongside the increased investment,
the sophistication of road networks is
increasing, and the safety requirements
are becoming more stringent.
In 2022 we have seen the Security
market recover from the impact of
the COVID pandemic as large-scale
events once again start to take place.
We are also seeing strong demand in
our specialist solar businesses, as the
market moves away from the use of
fossil fuels.
08
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 TRENDS
MACRO DRIVERS
MACRO DRIVERS
MARKET DRIVERS
MARKET DRIVERS
INCREASING POPULATION
By the late-2030s the world’s population is forecast to be c. 9.0bn,
compared with 8.0bn in 2022. This increase in population, an
increasing proportion of whom are aged, will drive an increase in the
need for safe, sustainable infrastructure.
Effect
As the population increases, the need for infrastructure investment
increases accordingly to ensure congestion does not increase
pollution or erode economic productivity or quality of life.
Opportunities
The increase in infrastructure investment required is an opportunity for
all our operating companies, as they supply products to the roads, rail,
water treatment, and transmission and distribution markets.
Our galvanizing plants supply products across all sectors.
URBANISATION
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.
Effect
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.
Opportunities
Increased urbanisation generates opportunities for our companies
that supply into roads, rail, water treatment, and transmission &
distribution markets as well as general building construction and
includes products such as galvanized steel, pipe supports and
hangers, and cooling towers.
CLIMATE CHANGE
The world is experiencing the drastic effects of climate change.
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.
Effect
To keep global warming to a minimum of 1.50C, 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.
Opportunities
We produce a number of products that help to reduce climate change
and improve infrastructure resilience, protecting against extreme
weather.
Our galvanized steel is 100% recyclable, reducing the renewal of steel
structures. We also have composite products which are corrosion
resistant and lightweight; including cooling towers which use 25%-
45% less energy than more traditional systems; and fire-resistant
utility poles.
Our solar lighting towers and hybrid generators reduce greenhouse
gas emissions during construction activity.
HEALTH & SAFETY LEGISLATION
Health & safety requirements are increasing across the globe as
people and governments demand higher standards of safety and
personal health.
Effect
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.
Opportunities
More demanding standards create opportunities for a number of our
businesses including seismic restraints, temporary and permanent
crash barrier and utility poles.
SUSTAINABLE MATERIALS
Materials that do not deplete non-renewable resources and help the
construction industry achieve net zero carbon emissions are becoming
increasingly required.
Effect
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.
Opportunities
Our composites products are used in a number of applications including
bridge decks, boardwalks, cooling towers, utility poles and waterfront
infrastructure.
We expect the range of applications to increase as acceptability of the
products continues to increase.
DECARBONISATION
The US and UK Governments have both agreed to meet the carbon
reduction goals of the Paris Agreement.
Effect
Governments are requiring organisations to make a net zero commitment and
start to take appropriate action. The impacts of this are widespread and both
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.
Opportunities
We aim to be at the forefront of decarbonising all processes across our
businesses, so we are the supplier of choice.
ENABLING TECHNOLOGY
As sensing and data become less expensive and more prevalent it can lead
to breakthroughs in how systems function.
Effect
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.
Opportunities
We are actively looking at how this type of technology can be incorporated
into more of our products, having implemented this in our US roads product
portfolio.
VISION ZERO
Vision Zero is a strategy to eliminate all traffic fatalities and severe injuries,
while increasing safe, healthy, equitable mobility for all. First implemented
in Sweden in the 1990s, Vision Zero has proved successful across Europe
and has recently been adopted by the US Government in their National
Roadway Safety Strategy to reduce the 40,000 p.a. US road deaths.
Effect
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.
Opportunities
We aim to be at the forefront of the development of Vehicle Restraint
Systems (‛VRS’) and passive safety systems to respond to the latest trends
in Vision Zero.
Our companies in the US, UK and Australia are active in both temporary and
permanent VRS and passive safety products.
INFRASTRUCTURE SAFETY
Poor infrastructure resilience such as bridge collapses, rail accidents and
wildfires can lead to high profile incidents. This leads to an increased focus
on infrastructure safety.
Effect
The public is understandably intolerant of infrastructure failures. This has
led to increased funding to address issues.
Opportunities
We are focused on further developing our resilient infrastructure products
which include fire resistant utility poles and composite products for the
waterfront and rail markets.
09
Stock Code HILSSTRATEGIC REPORT HOW WE OPERATE – OUR BUSINESS MODEL
DRIVING ORGANIC GROWTH
Autonomous operating model
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.
Premium on talent
Talented people are fundamental to the success of our
decentralised operating model. 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 recruited a Head of Reward and a Head of Talent into our
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.
More information on the Group’s approach to talent and diversity
can be found on pages 44 to 48.
Innovation
Innovation is instrumental in supporting our long term organic
profit growth targets. We are committed to innovating products in
the medium term that meet evolving customer and market needs.
We continue to accelerate our rate of innovation through our
innovation workshops.
PORTFOLIO MANAGEMENT
A disciplined M&A approach
Acquisitions form a key element of the Group’s growth strategy. All potential
acquisitions are tightly evaluated to ensure they fit with our purpose and can
deliver sustainable organic profit growth. During the year we made good progress
in building our M&A pipeline and we will develop this further in 2023.
During 2022, we completed the disposal of France Galva which reduces our
exposure to the lower growth, lower margin French galvanizing market. We
acquired National Signal, a high growth designer and manufacturer of off-grid solar
lighting solutions in California, and Widnes Galvanising, to expand our geographic
footprint into the northwest of the UK.
In early 2023 we have also acquired Enduro Composites and Korns Galvanizing,
both businesses based in the US.
10
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 ESG
Sustainability
The majority of our revenue is 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. In recent
years we have added solar powered
lighting solutions to our portfolio, helping
our customers to reduce their carbon
emissions. Similarly, our galvanizing
services extend the life of steel products
by decades, reducing carbon emissions
by preventing rusting and ensuring 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.
More information on the Group’s approach
to sustainability can be found on pages
32 to 41.
FINANCIAL MODEL
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.
Our objective is to deliver annual cash
conversion above 80% and we seek to
maintain conservative leverage, targeting
a covenant net debt to EBITDA ratio of
1.0 to 2.0 times.
Vehicle safety barrier by Hill & Smith Infrastructure, A9 Drumochter
Governance
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.
More information on the Group’s approach
to sustainable governance can be found
on pages 50 to 57.
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 do occur.
More information on the Group’s approach
to health & safety can be found on pages
42 to 43.
Capital Allocation Priorities
1. Reinvesting for organic growth
We allocate capital to support organic
growth, with the focus on higher
return niches and growth markets.
2. Targeted acquisitions to
enhance growth
Acquisitions must fit with our purpose
and strategy. We follow 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 timeframe.
3. Sustainable and progressive
dividend growth
We understand the importance of
providing consistent and growing
returns to our shareholders, and
the Group’s strong levels of cash
generation allow us to invest in
organic and inorganic growth while
paying a progressive dividend.
We target dividend cover of c. 2.5
times underlying earnings.
We use return on invested capital (‛ROIC’)
to measure our overall capital efficiency
with a target of achieving returns in
excess of 18%, above the Group’s cost of
capital, through the cycle.
11
Stock Code HILSSTRATEGIC REPORT WHAT WE DO –
DELIVER LONG TERM STAKEHOLDER VALUE
Through our international group of companies we aim to deliver long term
value for all our stakeholders by fulfilling our purpose and strategy.
Bridge to the dinosaurs, Crystal Palace Park, London, galvanized by Joseph Ash
EMPLOYEES
PORTFOLIO COMPANIES
Talented people are fundamental to the success
of our decentralised model. We aim to provide safe,
high-quality jobs for our employees worldwide,
offering the potential for career development
and socio-economic mobility. We are committed
to ensuring that we provide stable, inclusive
employment for all members of the community in
successful and sustainable businesses.
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.
COMMUNITIES
CUSTOMERS
AND SUPPLIERS
SHAREHOLDERS
Our autonomous operating
companies can work directly with
their local communities in supporting
their economic aspirations and local
charitable initiatives.
Our Suppliers work closely with our
operating companies and we have
strong relationships that ensure a fair
and equitable financial arrangement.
Our Customers have confidence
in our expertise and our ability to
support critical projects. They benefit
from the value that our diverse range
of products and services provide.
For our investors, we aim to deliver
superior shareholder returns through
our strategy and scalable business
model. We operate across several
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.
12
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
DIVISIONS
CASE STUDY
CASE STUDY
CASE STUDY
Solar LED lights, Burnley
General Hospital
ROADS &
SECURITY
Burnley General Hospital was looking
for reliable year-round lighting to
illuminate its staff car park. With no
mains power supply, they needed
a solution that would save on the
high costs of a Distribution Network
Operator connection to get power to
the site. Prolectric’s AE6 Solar LED
street lights, with smart control and
Passive Infra-Red sensors that ensure
the lights work from dusk until dawn
throughout all seasons, were the
ideal solution. Prolectric designed
the lighting layout to BS 5489-1:2020
highway standards and installed the
lights using their in-house team.
StormStrong® utility poles, Maine
Galvanized pig lift, Pembrokeshire
ENGINEERED
SOLUTIONS
GALVANIZING
SERVICES
A utility company in Maine, USA
contacted our Creative Composites
Group to discuss StormStrong®,
’storm proof’ utility poles. Maine faces
several challenges: it is geographically
dispersed with harsh, unpaved terrain
often in between customers and
power hubs, and is also impacted each
year by deep freezes, thick snow and
ice, and heavy rainfall. StormStrong®
poles are equal to Maine’s toughest
conditions. They absorb significant
impact energy, commonly caused by
severe storms. In addition they are rot
and woodpecker proof.
Beneath the Wood, an award-winning
vegan sanctuary based in Wales,
needed animal lifting equipment that
would help them care for their pigs.
They sought a solution that was strong
and modular enough to accommodate
different size animals. Once this
was designed it was delivered to our
Joseph Ash, Walsall, site to be treated
with a galvanized coating to prolong
the life of the equipment.
Sustainability Improvements
Sustainability Improvements
Sustainability Improvements
The solar powered lights are zero
carbon and need no mains power,
saving energy use from the grid. They
are quick and easy to install with no
trenching, ducting, or cabling and
need no maintenance, so have zero
running costs.
StormStrong®poles, having low
embodied carbon and reducing
reliance on wood, stand up to the
most extreme weather, terrain and
environmental conditions to help
create a resilient grid and to protect
utility customers.
Hot-dip galvanizing provides a
long-life, low-maintenance corrosion
protection, safeguarding the steel from
atmospheric attack, which causes rust
and weakening.
Prolectric Services
www.prolectric.co.uk
Creative Composites Group
www.creativecompositesgroup.com
Joseph Ash
www.josephash.co.uk
Stock Code HILS
13
CASE STUDY
S
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P
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FireStrong™ Self-Monitoring
Composite Pole Systems
The Creative Composites Group’s
Fiber-reinforced polymer (‛FRP’) fire-
resistant utility poles can be used to
protect the grid from the excessive
heat generated by typical brush/
grass fires. FireStrong™ utility poles
maintain their structural integrity
after a fire, so they can be kept in
service. In addition, the integration
of an irreversible temperature
monitoring system helps utility
workers determine whether pole
strength retention was successful.
Utility poles are engineered to
last up to 75 years in some of the
harshest environments with little
to no maintenance. Adding fire-
resistant poles further increases
their durability and longevity in
fire-prone areas. As a result, poles
will be less susceptible to damage
and degradation caused by the
heat from a fire. A third-party
testing agency tested the poles by
simulating a chaparral wildfire. Our
FireStrong™ poles withstood three
minutes at 2,100˚C and retained
100% of their design strength.
FireStrong™ poles include an
irreversible temperature monitoring
system that is placed around the
pole. The system is engineered
to continuously monitor the
temperature experienced by the
pole and permanently record the
highest temperature measured
on its surface. During post-fire
inspections, utility workers can
compare this measurement to a
temperature vs. strength retention
chart for the particular type of FRP
pole, to evaluate whether the utility
pole has to be replaced. This step
helps shorten the amount of time
required for inspections without
sacrificing the quality of the results.
The key benefits of non-
combustible FireStrong™ poles
are ignition prevention, increased
grid resiliency and cost savings.
A grid protected by FireStrong™
power poles will be less likely to
experience a failure due to fire. 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 customers will not need to
suffer through grid downtime.
The key
benefits of non-
combustible
FireStrong™
poles are ignition
prevention,
increased grid
resiliency and
cost savings.”
Stock Code HILS
14
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
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
Rural
Flood doors
Specialist composite flood
doors that significantly
reduce the volumes of
water entering a property
in the event of a flood
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
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T
RIAN PROTECT I O N Z O
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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
15
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
Trail bridges
Lightweight, strong,
portable and longlasting
low embodied energy
FRP bridges for parks
and trails
OUR PRODUCTS
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
Bridges
Galvanized road
bridges
Road message
boards
Integrated Traffic
Solutions enhance
transportation and
improve safety and
mobility in and around
work zones. Includes
internet connectivity
with motor vehicles
16
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
P
E
D
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S
T
RIAN PROTECT I O N Z O
E
N
Town
Solar fields
Galvanized
steel frames for
solar panels
Electrical
substation
Electric transmission
solutions using
steel and composite
materials
LNG Plant
Metal grating and
flooring and engineered
support products,
including cryogenic pipe
supports that provide
isolation and insulation
ENERGY ZONE
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
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N
Electrical
transmission poles
Steel transmission
poles and anti-wildfire
composite poles that
do not biodegrade
Paper mills
FRP products that
have the durability and
abrasion resistance
to outperform
conventional
materials in harsh and
acidic environments
Data centre
security systems
Palisade perimeter
security fencing,
hostile vehicle and
entry protection
Composite
railcar chassis
FRP lightweight highly
energy efficient floor
panels and door
jambs for refrigerated
freight cars
Street signs
Street sign materials
Stock Code HILS
17
ENERGY ZONE
S
M
ART WORKZONE
S
T
R
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G
I
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P
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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
Stock Code HILS
18
CASE STUDY
S
T
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Galvanizing supports sustainable farming
V&S Galvanizing’s Columbus plant
supported a farming project for
Plenty Unlimited based in San
Francisco, California. They use AI
and robots to farm, which uses
99% less land and 95% less water
compared with conventional
farming.
The robotic base needed to be
sustainable and durable. The
V&S team discussed the design
alongside the venting and draining
requirements that were necessary
to make sure that the robotic base
housing would have the best quality
appearance, coating durability and
corrosion performance and be
appropriate for the wet conditions
that occur in indoor vertical
farming.
The robotic design is attached to
the base housing, with the robotic
arm grabbing a row of seedlings
and placing them into a hydroponic
planter. An even larger robot arm
then flips the planter vertically
and sends it to become one small
section of a 20’ tall wall of arugula,
kale and beet leaves. A galvanized
robotic base will last years to
come without worrying about the
durability of the coating system.
The company’s farm is yielding
enough produce to fill 720 acres
of typical farmland, but they are
doing it with just two acres of
vertical farming. Plenty Unlimited
says their farm produces 400
times more food per acre than the
traditional farm. The automated
robotic technology also means
that besides the clear increase in
food production, vegetation can
be produced without the use of
pesticides and without the risk of
extreme weather. Out of season
plants can be grown close to home
without adding the carbon footprint
of transport.
The robotic
base housing
would have the
best quality
appearance,
coating durability
and corrosion
performance and
be appropriate for
the wet conditions
that occur in
indoor vertical
farming."
19
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
MEASURING OUR PERFORMANCE
Health & Safety
Greenhouse gas emissions
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.
KPI definition
Lost time injury rate (No. of injuries divided by hours worked
x 100,000).
Link to strategy
Cost reductions and greater efficiency, improve not only our operating
margins but also the sustainability of our operations.
KPI definition
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.
Performance
1.7
1.1
᾿21
᾿22
Performance
CO2
Intensity
64,597
tonnes
58,305
tonnes
0.09
0.07
Comment
The Executive Board has maintained significant focus on Health &
Safety in 2022. Any operating company that suffers a lost time injury
is required to report the root cause analysis and corrective actions to
the Executive Board and to all operating company Managing Directors.
There are initiatives to educate employees on the need to report both
accidents and near misses in a timely manner.
᾿21
᾿22
᾿21
᾿22
Comment
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,
recognising that the use of natural gas in our galvanizing operations
represents our biggest challenge. However, all our operating companies
are making changes to the way they manage their energy use in order to
support the Group in meeting its targets. By August 2023, we will have
submitted our Scope 1, 2 and 3 targets for validation by the SBTi. See
pages 36 to 39 for more details.
Organic revenue growth
(continuing operations)*
Link to strategy
Our autonomous operating model, focus on growth drivers and the
premium placed on talent and innovation are designed to drive organic
growth across all of the Group’s businesses.
KPI definition
Percentage change in annual revenue excluding the effects of
acquisitions, disposals and currency translation.
Underlying operating profit margin
(continuing operations)*
Link to strategy
We focus on investing in higher return markets and continually examine
our portfolio of businesses, with the aim of increasing quality at each
iteration.
KPI definition
Underlying operating profit as a percentage of revenue.
Performance
14%
10%
Performance
12.4% 13.3%
᾿21
᾿22
᾿21
᾿22
Comment
The organic revenue growth of 14% in 2022 reflects a strong trading
outturn in our Galvanizing and Engineered Solutions divisions,
particularly from our US businesses. The Group targets annual organic
revenue growth in excess of 5%.
Comment
The operating margin improved by 90 basis points to 13.3% in 2022.
Margins improved across both the Galvanizing and Engineered
Solutions divisions, reflecting an improving portfolio mix and successful
management of the inflation challenges that we experienced during
the year.
*KPIs are presented for continuing operations where considered more meaningful than the equivalent measures for the total Group.
20
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
S
T
R
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G
I
C
R
E
P
O
R
T
ROIC
(continuing operations)*
Link to strategy
We have a disciplined M&A strategy that targets businesses with strong
growth and return metrics, alongside a capital investment programme
centred on our higher growth, higher return end markets.
KPI definition
Underlying operating profit divided by average invested capital. Invested
capital is defined as 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.
Underlying cash conversion
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.
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.
Performance
19.2%
17.1%
Performance
78%
51%
᾿21
᾿22
᾿21
᾿22
Comment
Group ROIC improved significantly to 19.2% (2021: 17.1%), ahead of the
Group’s target of 18%. The improvement reflects a combination of the
strong trading performance and a stronger portfolio mix following the
acquisitions and disposals made during the year.
Comment
Underlying cash conversion in the second half of the year improved
significantly to 93%, compared with 2% in H1. The lower conversion
in 2022 reflects working capital absorption to support growth and
increases in inventory driven by material price inflation. Assuming more
typical trading patterns, we expect the Group to deliver improved cash
conversion in 2023, in line with our target level of 80%.
Leverage
Employee engagement
Link to strategy
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
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.
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
1.0
0.7
᾿21
᾿22
Performance
55%
61%
᾿21
᾿22
Comment
Leverage fell in 2022 due to the strong trading performance and the
disposal of France Galva for a cash consideration of £62.0m. The Group
targets a leverage range of between 1.0 and 2.0 times Net Debt/EBITDA.
Comment
The results of our 2022 survey have shown a very positive increase in
employee engagement, increasing by 6ppts on our 2021 survey. We also
increased our participation rate in 2022 to 80% (2021: 62%).
Stock Code HILS
21
OPERATIONAL AND FINANCIAL REVIEW
EXECUTIVE DIRECTOR REVIEW
Alan Giddins
Interim Executive Chair
Hannah Nichols
Group Chief Financial Officer
REVIEW OF 2022
2022 was a successful year, with the Group
achieving record revenue and operating profit.
The strong performance demonstrates the
resilience of our attractive, long term end
markets and the benefits of our portfolio
management actions which have placed
a focus on higher growth, higher margin
businesses. In particular, our US businesses
represented 64% of Group operating profit,
and this is expected to increase further
following our recent acquisitions of National
Signal, Enduro Composites and Korns
Galvanizing. The results are also testament
to our agile operating model and our talented
local teams, who have successfully navigated
the challenges presented by the external
environment.
Organic growth remains a key focus, and we
are pleased to report that the Group delivered
14% revenue and operating profit growth
from continuing operations, on an OCC basis.
In addition, we delivered strong operating
margin progression with FY22 margin
increasing by 90 basis points to 13.3%, which
reflects an improved portfolio mix, operational
gearing and our pricing power offsetting input
cost inflation.
2022 saw the Galvanizing Services division
deliver a standout trading performance, with
strong volume growth in the US and both
geographies benefiting from pricing actions
and a strategic focus on higher margin
customers. Our Engineered Solutions division
(formerly known as Utilities) also delivered
strong growth, underpinned by buoyant
demand across the portfolio, particularly in
our US-based businesses.
In the Roads & Security division, reported
revenue and profit were similar to 2021
levels. As previously highlighted, the US roads
business experienced certain operational
challenges which we have taken action
to address, and we expect an improved
performance in 2023. In the UK, utilisation
of our temporary safety barrier fleet was
lower than 2021 due to further delays in
strategic road network projects, however this
was partly offset by a robust performance
in the wider UK roads and security portfolio
including good growth in our off grid solar
lighting and power business.
The Group delivered much improved cash
conversion in the second half of 93%, with
year end net debt reducing to 0.7 times
EBITDA on a covenant basis. Our strong
balance sheet underpins the resilience of
the Group and provides us with flexibility to
continue to invest in growth. In November,
we successfully completed the refinancing of
our principal bank debt facility on competitive
terms, providing us with certainty of funding
to support the Group’s growth ambitions.
STRATEGIC UPDATE
Our strategic decision making is guided
by our purpose of “creating sustainable
infrastructure and safe transport through
innovation”. Our purpose, alongside
consideration of long term macro and market
drivers, determines our choice of markets and
applications.
Organic growth activities are focused on high
value, fast growing, niche opportunities. Our
decentralised autonomous operating model
drives high levels of accountability, agility
and customer intimacy, and allows us to
focus on these opportunities in a way that a
more centralised, volume-driven organisation
could not.
Acquisitions and Disposals
Acquisitions form a key part of the Group’s
growth strategy. During the year we have
made progress in building our M&A pipeline,
with a continued focus on high quality
businesses with attractive organic growth
potential. In 2023, we will develop the pipeline
further; the Corporate Development team and
Group Presidents will work closely with our
operating company management teams to
unlock attractive acquisition opportunities.
All potential acquisitions are tightly evaluated
to ensure they fit with our purpose and core
strategic goals. Once acquired, we implement
a rigorous and detailed integration plan.
22
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 The strong
performance
demonstrates the
resilience of our
attractive, long term
end markets and
the benefits of our
portfolio management
actions which have
placed a focus on
higher growth, higher
margin businesses.”
In line with our inorganic growth strategy, we
acquired two value enhancing businesses
during 2022. In October we were delighted
to acquire National Signal, a high growth
designer and manufacturer of off-grid solar
lighting solutions in the US, for £24.2m.
The business benefits from the ongoing
transition from fossil fuels to a zero-carbon
economy and is complementary to our
2021 acquisition of Prolectric, a UK market
leader in off-grid solar energy solutions, and
will further accelerate our strategy in this
attractive growth market. In the same month,
we announced our acquisition of Widnes
Galvanising for £3.9m, which further expands
the geographic footprint of our UK galvanizing
business into the north west of the UK.
After the year end, in February 2023, we
announced the acquisition of Enduro
Composites, a designer, manufacturer and
supplier of engineered composite solutions
based in Houston, Texas for £28.7m. Enduro
is highly complementary to our existing
US composites business and will further
accelerate our strategy in the exciting and
growing composites market. In March
2023, we announced the acquisition of
Korns Galvanizing based in Johnstown,
Pennsylvania for £9.4m, strengthening our US
galvanizing market presence.
During 2022 we completed a number of
important and targeted divestments. In
October, we completed the disposal of France
Galva, our French galvanizing and steel
lighting column operations. While France
Galva was a profitable part of the Group,
the forecast growth rates did not meet the
Group’s long term growth ambitions and its
operating margins were below the Group
average. Given our galvanizing operations
serve local geographical markets, the disposal
has no impact on our higher growth, higher
margin galvanizing operations in the UK and
US, both of which we remain committed to
in the long term. In addition, our US Roads
business exited its low margin plastic cones
product line and we completed the disposal of
two of the three divisions in our loss-making
Swedish road business.
Medium Term Financial Framework
Our disciplined financial framework is one of
the key foundations of the Group’s long term
success. Given the significant actions taken
during 2022 to enhance the quality of the
portfolio, we have reviewed and recalibrated
our medium-term financial framework.
Our refreshed annual performance targets
through the cycle are:
•
•
•
•
•
•
organic revenue growth: 5% -7%
total revenue growth including
acquisitions: 10%+
operating profit margin: 15%
return on invested capital: 18%+
cash conversion: 80%+
covenant leverage: 1 to 2 times
This organic growth performance through the
cycle, alongside value enhancing acquisitions,
will deliver superior EPS growth. Our clear
focus on cash generation and returns enables
the cash generated to be re-invested in
high growth, high return opportunities. This
is all delivered within a disciplined capital
allocation framework while maintaining a
strong balance sheet.
ESG
The growth of our business is naturally
aligned to our ESG (Environmental Social
and Governance) agenda: our products
and services make infrastructure more
sustainable and increase transport safety.
In 2021 we outlined our ESG strategy which
identified our seven priority areas, related
action plans and key metrics. This included
our commitment to achieve net zero for
our Scope 1 and 2 emissions by 2040 and
commitment to the Science Based Targets
initiative (SBTi) to limit global warming
to 1.5°C.
In February 2022, we recruited a Head of
Sustainability who has been leading an
extensive project to baseline our Scope
3 carbon emissions, and we are pleased
to report that we are on track to submit
our SBTi targets ahead of the required
August 2023 deadline. Alongside this,
our teams are continuing to drive local
energy saving initiatives and explore green
technology options to underpin our carbon
reduction plan.
Keeping our employees safe while at work
remains our number one priority and in 2022
our operating companies developed local
safety improvement plans, alongside Group
led initiatives, including the implementation
of nine core lifesaving rules and hazard
identification training. While we still have
more work to do, we are pleased that the
actions taken during the year resulted in a
35% reduction in Lost Time Incidents, with
LTIR reducing to 1.1, ahead of our target
of 1.5.
Talent development and engagement are
critical to the success of our autonomous
operating model and a key focus area for our
ESG strategy. With this in mind, we expanded
our talent management programme and
introduced a new approach to development
for our Managing Directors, with growth
mindset, ESG and innovation identified as
priority focus areas. We also ran our second
innovation forum and have further workshops
planned for 2023 to foster innovation and
share best practice. Our annual engagement
survey showed a good improvement in
employee engagement levels to 61% (2021:
55%). During the year we appointed a Head
of Talent to work with our operating company
teams to further improve engagement
in 2023.
As an organisation we want to employ the
best people for the job, and we know that
we can only do this by considering talented
people from the whole community. During the
year, we were delighted to appoint our first
two female Managing Directors and to see an
increase in female senior leaders to 20%. Our
established apprenticeship scheme is also
a key initiative for attracting more diversity
into our business, and in 2022 a third of new
apprentices were female.
23
Stock Code HILSSTRATEGIC REPORT
OPERATIONAL AND FINANCIAL REVIEW continued
BOARD UPDATES
In July 2022 Paul Simmons stepped down
from his role as Chief Executive Officer. Alan
Giddins, the Group’s Chair, has taken over as
interim Executive Chair until the process to
find a permanent CEO has been completed.
During the year, we appointed Farrokh
Batliwala as a US-based Non-executive
Director. Farrokh’s appointment reflects the
Board’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.
RESULTS FROM
CONTINUING OPERATIONS
The Group has delivered a strong set of
results for 2022. Revenue was £732.1m
(2021: £625.2m), an increase of 17% on a
reported basis. Constant currency revenue
growth was 12% and OCC revenue growth
was 14%. Underlying operating profit was
£97.1m (2021: £77.3m), an increase of 26%
on a reported basis. Constant currency
operating profit growth was 17% and OCC
growth was 14%. Operating margins improved
to 13.3% (2021: 12.4%). Underlying profit
before taxation was £87.9m (2021: £71.2m).
Reported operating profit was £78.5m (2021:
£48.9m) and reported profit before tax was
£69.3m (2021: £42.8m). Underlying earnings
per share increased to 85.4p (2021: 70.0p)
and reported earnings per share was 66.7p
(2021: 35.8p).
The principal reconciling items between
underlying and reported operating profit are
non-cash charges including the amortisation
of acquisition intangibles of £6.0m and
the impairment of acquired intangibles
associated with one of our security
businesses of £4.4m. Note 5 of the financial
statements provides further details on the
Group’s non-underlying items.
DIVIDEND
Based on the strong trading performance,
the Board is recommending a final dividend
of 22.0p per share, making a total dividend
for the year of 35.0p per share (2021: 31.0p).
The final dividend, if approved, will be paid on
7 July 2023 to shareholders on the register
on 2 June 2023. Looking forward, we aim to
provide sustainable and progressive dividend
growth, targeting a prudent dividend cover of
around 2.5 times underlying earnings.
OUTLOOK
The Group is well-positioned in a range
of infrastructure markets with attractive,
long term structural growth drivers. The
geographic mix of the portfolio has also
evolved with a stronger weighting towards
US end markets. These factors, alongside the
benefits of our agile, autonomous operating
model, provide the Board with confidence
that Hill & Smith will continue to make
good progress in 2023, despite the macro-
economic headwinds.
In the medium to longer term, the outlook is
supported by strong market growth drivers
for both sustainable infrastructure and safe
transport. In particular, our US businesses
are well placed to benefit from the increased
levels of infrastructure spend approved under
the Infrastructure Investment and Jobs Act
(‛IIJA’).
24
Hot-dip galvanizing, V&S Galvanizing, Owego, NY
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 CASE STUDY
V&S Galvanizing – Owego, NY Plant
V&S Galvanizing’s New York plant,
situated in Owego, New York State, has
since it opened in 2020, developed a
successful local management team that
has significantly increased sales volumes
and improved the customer experience
in 2022.
The team comprises: Eamonn McCarthy,
previously Operations Manager at V&S’
Taunton plant, who as the new Plant
Manager was tasked with bringing a
positive attitude and strong team building
skills to New York; Enrique Vergani, a
twenty-year veteran of the galvanizing
industry, who also transferred from our
Taunton plant and was promoted to
Operations Manager; Lora Stadelman,
a newly-recruited Sales Manager, who
despite being new to the galvanizing
industry has several years’ experience
in steel fabrication markets; and Amber
Jackson, whose career in the company
has progressed from Logistics through
Quality Control to Production Manager.
Building on a great foundation of
baseload customers that include steel
products for the bridge industry, deep
foundation piles and highway drainage
grates, the management team has driven
production and service improvements
that allow for greater volumes of steel to
move quickly through the facility, resulting
in significant volume increases in the
second half of 2022. Large contracts
recently secured include Great Lakes
Cheese Plant expansion (1,400 tons),
MMAST Naval Platforms (2,000 tons)
and The Castleton Bridge repair project
(476 tons). V&S New York is now well-
positioned to see its business continue to
grow over the coming years, with a strong
mix of customer end markets supported
by excellent operational performance and
high levels of service.
V&S New York is
now well-positioned
to see its business
continue to grow
over the coming
years, with a strong
mix of customer end
markets supported
by excellent
operational
performance and
high levels of service.”
25
Stock Code HILSSTRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW continued
OPERATIONAL REVIEW
GALVANIZING SERVICES
Hot-dip galvanizing, V&S Galvanizing, Owego, NY
Continuing Operations2
Revenue
Underlying operating profit1
£m
2022
180.7
44.0
2021
141.8
33.4
Reported
%
+27
+32
Constant
currency
%
+20
+23
OCC
%
+20
+23
Underlying operating margin %1
24.3%
23.6%
Statutory operating profit
42.7
30.9
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.
2 Continuing operations exclude France Galva, which has been reported as a discontinued operation as explained in note 10 to
the Financial Statements. The prior year comparatives have been restated accordingly.
The Galvanizing Services division offers
hot-dip galvanizing and powder coating
services with multi-plant facilities in the USA
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, and energy transmission and
distribution. The division represents 45% of
2022 underlying operating profit.
The division delivered an impressive
performance in 2022, with revenue 20%
higher and underlying operating profit 23%
higher than last year on an OCC basis. The
division maintained superior margins, with
underlying operating margin increasing to
24.3% (2021: 23.6%). The results reflect
strong volume growth in the US, successful
pricing actions taken to offset input cost
inflation and a deliberate focus on higher
margin customers.
US
Predominantly located in the northeast and
midwest of the country, the US galvanizing
business delivered a strong performance,
with 23% OCC revenue growth and record
operating profit. The strong growth is
attributable to an 11% increase in production
volumes, improved pricing to offset cost
input inflation, favourable product mix and
an increased level of value-add coating
services. As a result, the business continued
to maintain superior operating margins, with
customers valuing the excellent quality of
service provided by our local teams.
In March 2023, we were pleased to acquire
Korns Galvanizing for a consideration of
£9.4m. Located in Johnstown, Pennsylvania,
Korns specialises in spin galvanizing and
has a customer base spread across a broad
range of infrastructure related end markets.
Korns will be managed by our existing
US galvanizing team and will expand our
production capacity in the key northeastern
market, and broaden the range of galvanizing
services we can offer to our existing
customer base.
In the medium to longer term, the outlook for
US galvanizing is positive, with investment
levels expected to grow ahead of GDP in
a range of US galvanizing end markets,
supported by the IIJA and a more general
move to the onshoring of certain activities.
We have started to quote on some
IIJA related projects and expect to see
incremental growth in the bridge and highway
market in the second half of 2023.
UK
UK galvanizing delivered 17% organic revenue
growth and record operating profit in 2022.
This reflects a particularly strong first half
with swift pricing actions taken to address
input cost inflation and a focus on higher
margin, service orientated customers. The
second half was more challenging as certain
customers, particularly in the agricultural
sector, have begun to feel the effects of
rising energy costs. Total volumes of steel
galvanized were 9% lower than 2021.
In October 2022, we were pleased to
announce the acquisition of Widnes
Galvanising Limited for consideration
of £3.9m. The acquisition expands the
geographic footprint of our UK galvanizing
business into the northwest of the UK and the
integration of the business is going well.
While mindful of the wider UK macro-
economic backdrop, the 2023 outlook for UK
galvanizing is cautiously positive. Our team
are focused on balancing price and cost
management to ensure plant profitability
is maximised and planned investments in
sales and marketing will further support
the increased focus on high margin market
sectors.
26
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 ENGINEERED SOLUTIONS
StormStrong® sheet pilings supplied by CCG to Lindenhurst Village, NY
Continuing Operations2
Revenue
Underlying operating profit 1
£m
2022
289.9
35.0
2021
223.7
26.0
Reported
%
+30
+35
Constant
currency
%
+21
+24
OCC
%
+21
+24
Underlying operating margin %1
12.1%
11.6%
Statutory operating profit
34.1
25.5
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.
2 Continuing operations exclude France Galva, which has been reported as a discontinued operation as explained in note
7 to the Financial Statements. The prior year comparatives have been restated for the resulting change in allocation of
corporate costs.
Our Engineered Solutions division (formerly
known as Utilities) 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. While the
division has been renamed in 2022, there has
been no change to the portfolio of operating
companies that it includes.
The division continued to deliver good results
in 2022, with 21% revenue and 24% profit
growth on an OCC basis. With a strong second
half performance, operating margins increased
to 12.1% (2021: 11.6%), reflecting the quality of
our faster growing US businesses.
US
Our US businesses delivered 23% OCC
revenue growth and strong profit growth
against robust prior year comparators.
Operating profit generated by our US
businesses represented c. 80% of the total
profit for the division in 2022, highlighting
the increasing importance of the US to the
Group’s growth strategy.
Our composites business was the largest
company within the division in 2022 and
continued to see strong demand for its range
of composite engineered solutions including
utility poles, waterfront protection and mass
transit infrastructure. In February 2023 we
were pleased to acquire Enduro Composites
for a cash consideration of £28.7m.
Located in Texas, Enduro Composites is
a designer, manufacturer and supplier of
engineered composite solutions and is highly
complementary to our existing northeastern
and midwestern US business, further
accelerating our strategy in the exciting and
growing composites market.
Our electricity distribution substation
business delivered impressive profit growth
and a record level of operating profit, with
customer demand increasing as steel price
challenges subsided and pricing actions were
taken to offset inflation. The business enters
2023 with a record order book supported by
high project demand to upgrade electricity
infrastructure.
Our engineered supports business also
delivered record profits with significant
growth due to higher sales volumes in
catalogue hardware, improved pricing and
a richer product mix of project specific
engineered supports for key markets
including water treatment and electric
vehicle production. During the year, the
business successfully navigated supply chain
challenges, which enabled market share
gain, and is well positioned to make further
progress in 2023.
Prospects for future growth in all our US
businesses are very encouraging. We
expect market demand to be supported by
investment to modernise the electricity grid
and solutions to protect against extreme
weather. The outlook is further supported
by multi-year planned government spending
on infrastructure via the IIJA, and private
investment from US manufacturers and
producers to onshore vital components.
UK
Revenue in our UK businesses grew 21%
on an organic basis. The industrial flooring
business, in particular, delivered a record
performance, reflecting buoyant demand
from data centre and oil & gas markets and
successful pricing actions. This business
enters 2023 with a good order book and
healthy sales pipeline.
Our lower margin UK only based building
product business delivered a performance in
line with 2021, having successfully managed
inflationary pressures and supply chain
challenges. The year started strongly with
high levels of customer demand, however
markets cooled in the second half with wider
concerns around interest rates and house
prices. We expect end markets to continue to
be challenging in 2023, however the renewed
focus on customer service and delivery under
a new management team should support
sales growth through market share gains.
27
Stock Code HILSSTRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW continued
ROADS & SECURITY
Smart Cushion® crash attenuator, Highway 285, Sheridan, CO supplied by Hill & Smith Inc
Continuing Operations2
Revenue
Underlying operating profit1
Underlying operating margin %1
Statutory operating profit/(loss)
Reported
%
Constant
currency
%
+1
+1
-1
-4
OCC
%
+5
-17
£m
2022
261.5
18.1
6.9%
1.7
2021
259.7
17.9
6.9%
(7.5)
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.
2 Continuing operations exclude the French lighting column business, which has been reported as a discontinued operation as
explained in note 10 to the Financial Statements. The prior year comparatives have been restated accordingly.
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. In addition, the division now
includes two businesses which are market
leaders in the provision of off-grid solar
lighting and power solutions.
Revenue and profit were broadly in line with
2021 levels, with revenue 1% lower and
underlying operating profit 4% lower on a
constant currency basis. Operating margins
were also maintained at 6.9% (2021: 6.9%).
The 2022 result reflects an underperformance
in our US roads business and as expected,
lower utilisation of the UK temporary safety
barrier fleet, offset by a good performance in
the wider UK Roads & Security portfolio.
UK Roads
Revenue was 3% higher than 2021 on an
organic basis. 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. The requirement
to redesign projects following this
announcement, alongside UK Government
uncertainty in H2, resulted in scheme delays
and lower average utilisation of our temporary
safety barrier during the year. Based on
customer discussions, we expect the lower
level of project starts to continue into the first
quarter of 2023, however our expectation is
that overall fleet utilisation will increase in
2023 as central reservation upgrade projects
commence after redesign work.
In the year, we saw good demand across
the wider UK roads portfolio, particularly for
road safe support structures, with the growth
partly offsetting the shortfall in the rental
barrier fleet. In addition, Prolectric, our off-
grid solar energy business, delivered strong
growth and enters 2023 with a good order
book supported by increasing demand for low
carbon and energy cost saving solutions.
US Roads
Revenue was 10% higher than 2021 on an
OCC basis. Operating profit was lower than
last year, mainly due to operational and cost
challenges as previously outlined. Actions
have now been taken to address the issues
including refreshing the senior management
team. In May 2022, the business exited from
its low margin plastic drums, cones and
channelizers business, which will enable
greater focus on higher margin, higher growth
opportunities. Overall market demand for
roadside safety products remains strong and
we expect the business to make progress in
2023.
In October 2022, we were delighted to
acquire National Signal for consideration of
£24.2m, with further consideration payable
of up to £3.3m conditional on achievement
of financial performance targets in the three
28
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 years post acquisition. National Signal,
located in Fullerton, California, is a designer
and manufacturer of off-grid solar lighting
solutions and traffic management products.
The business benefits from the ongoing
transition from fossil fuels to a zero-carbon
economy, as well as the need to reduce noise
pollution, driven by government legislation
and customer demands. The acquisition is
complementary to Prolectric, our market
leading UK off-grid solar energy business and
will further accelerate our growth strategy
in this attractive market. Trading since
acquisition has been ahead of expectations
and the 2023 order book is at a record level.
The outlook for US roads remains
encouraging, with demand for tested roadside
safety products supported by the introduction
of new safety standards and increased levels
of state and federal investment to upgrade US
road infrastructure. The IIJA includes a five-
year reauthorisation of the US federal highway
programme, and incremental investment of
c. $110bn in highway and bridge
improvements through to 2026. We expect
US roads to be one of the first beneficiaries of
the IIJA spend.
Other International Roads
In Australia, we continue to see good
market demand for traffic safety equipment,
supported by significant government
investment in land transport infrastructure
across Australia through its Infrastructure
Investment Program. During the year
we invested £5.5m in steel and concrete
temporary barrier fleet to support market
demand. In Sweden, we completed the
divestment of the rental and infrastructure
divisions of our loss-making road business
during the year and we are assessing options
for the remaining part of that 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.
Revenue was 6% ahead of 2021 on an OCC
basis. During the year we have seen an
encouraging recovery in UK and international
markets for HVM solutions including public
place protection, airports, rail stations and
ports. Our UK security barrier rental business
performed well, particularly in the second
half, as our security solutions were deployed
to support the Commonwealth Games in
Birmingham.
Our perimeter access security business,
Parking Facilities, continued to experience
challenges during 2022 with increased
competition in the market and, having
reassessed the value of remaining acquisition
intangibles, we have recognised a further
impairment charge of £4.4m. A plan is in
place to improve customer service and
delivery in 2023.
Barkers Engineering’s mesh security fencing, Data Centre, Barcelona
29
Stock Code HILSSTRATEGIC REPORT OPERATIONAL AND FINANCIAL REVIEW continued
FINANCIAL REVIEW
Capital Allocation
The Group follows a disciplined approach to
capital allocation. First, we allocate capital
to support organic growth, with a focus on
higher return niches and growth markets. We
require our operating companies to manage
working capital efficiently, considering their
respective growth rates, and we invest in
capital projects and innovation to support
future organic growth, with around £20m of
2022 capex allocated to growth investments.
Second, we allocate capital to make
high quality acquisitions, with a focus on
businesses which have a clear alignment
with our purpose and have long term growth
potential. We follow 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 timeframe. Based on our highly cash
generative model, we are targeting to reinvest
around £50m - £70m each year on value
enhancing acquisitions. In 2022 we spent
£25.6m on the acquisitions of National Signal
and Widnes Galvanizing. Our acquisition
pipeline is strong, and is focused on high
quality, strategically aligned opportunities.
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
progressive dividend.
We use return on invested capital (ROIC) to
measure our overall capital efficiency, with a
target of achieving returns in excess of 18%,
above the Group’s cost of capital, through
the cycle. We are pleased to report that the
Group’s ROIC from continuing operations in
2022 increased to 19.2% (2021: 17.1%), the
improvement reflecting the strong trading, our
disciplined approach to capital investment,
and the steps we have taken to improve the
overall quality of the portfolio.
Cash generation
As expected, we saw improved cash
conversion in the second half at 93%,
compared to 2% in the first half, with
overall cash conversion for the year at 51%.
Assuming more typical trading patterns, we
expect the Group to deliver improved cash
conversion in 2023, in line with our target level
of 80%+ and consistent with historic levels
averaging 83% over the last ten years. The
calculation of our underlying cash conversion
ratio can be found in note 4 to the financial
statements.
Operating cash flow before movement
in working capital was £129.8m (2021:
£112.8m). The working capital outflow in the
year was £42.6m (2021: £6.8m). The outflow
partly reflects working capital absorption
to support good growth, alongside an
increase in inventory due to cost inflation
and a tactical increase in stock holding in
certain businesses to manage supply chain
challenges. The Group continues to focus on
maximising working capital efficiency, with
working capital as a percentage of annualised
sales at 18%. Debtor days were in line with
expectations at 60 days (2021: 57 days
excluding France Galva).
Capital expenditure of £31.5m (2021: £35.9m)
represents a multiple of depreciation and
amortisation of 1.5 times (2021: 1.6 times).
Significant investment in the year included
£5.5m on temporary barrier fleet to support
growing demand in the Australian roads
market and £3.0m on temporary barrier fleet
for the US Roads market. We also invested
£1.9m on rental assets for Prolectric, our fast-
growing UK off-grid solar lighting and power
business and £2.4m on purchasing a facility
for our US composite business. 2022 spend
was below previous guidance because of
lower investment in the US temporary barrier
fleet due to higher demand for barrier sales in
the second half.
Net financing costs for the period from
continuing operations were £9.2m (2021:
£6.1m), including a charge of £1.6m relating
to costs associated with the Group’s
refinancing of its core revolving credit facility
during the year (in accordance with IFRS 9).
The net cost of pension fund financing under
IAS 19 was £0.1m (2021: £0.2m), and the
amortisation of costs relating to refinancing
activities was £0.8m (2021: £0.8m).
The Group generated £30.4m of free cash
flow in the year (2021: £51.6m), providing
funds to support our acquisition strategy and
dividend policy.
30
Galvanizing pipe extensions at Joseph Ash
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 The Group generated
£30.4m of free cash
flow in the year,
providing us with
funds to support our
acquisition strategy
and dividend policy.”
Net debt and financing
Net debt at the end of the period amounted
to £119.7m (31 December 2021: £144.7m).
Outflows in the year included £24.7m for the
2021 interim and final dividend and £25.6m
for the acquisitions of National Signal and
Widnes Galvanizing. Net debt at the period
end includes lease liabilities under IFRS 16 of
£39.3m (2021: £40.6m).
In November 2022, we were pleased to
report the successful completion of the
refinancing of our principal bank debt facility
on competitive terms. The new syndicated
revolving credit facility of £250m has an
initial maturity of four years with an option
to extend for a further year at the first
anniversary, providing us with continued
certainty of funding to support the Group’s
growth opportunities. The Group’s principal
financing facilities also comprise $70m
senior unsecured notes with maturities in
June 2026 and June 2029, together with a
further £11.5m of on-demand local overdraft
arrangements. Throughout the period the
Group has operated well within these facilities
and at 31 December 2022, the Group had
£237.9m of headroom (£226.4m committed,
£11.5m on demand).
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
2022 was 0.7 times (31 December 2021: 1.0
times) and interest cover was 21.6 times (31
December 2021: 25.4 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 1.0 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 underlying effective tax rate for the
period for continuing operations was 22.4%
(2021: 21.7%). The tax charge for the year
for continuing operations was £16.0m (2021:
£14.4m) and includes a £3.7m credit (2021:
£1.1m) in respect of non-underlying items,
principally relating to the amortisation of
acquisition intangibles. Cash tax paid in the
period was £15.5m (2021: £15.2m).
Exchange rates
The Group is exposed to movements in
exchange rates when translating the results
of its overseas operations into Sterling.
Retranslating 2021 revenue and underlying
operating profit from continuing operations
using average exchange rates for 2022
would have increased revenue by £29.5m
and underlying operating profit by £5.6m,
mainly due to Sterling’s depreciation against
the US Dollar. A one cent movement in the
average US Dollar rate currently results in an
adjustment of approximately £2.5m to the
Group’s annual revenues and £0.6m to annual
underlying operating profit.
Non-underlying items
The total non-underlying items charged to
operating profit from continuing operations
in the Consolidated Income Statement
amounted to £18.6m (2021: £28.4m). The
items were mainly non-cash related and
included the following:
•
Impairment charges of £6.4m, including
£4.4m in respect of acquired intangible
assets of Parking Facilities, one of the
Group’s security businesses
• Amortisation of acquired intangible
assets of £6.0m
•
•
Further costs associated with the
closure of the UK variable message signs
business of £1.5m
Loss on disposal and restructuring of
the divisions in our Swedish business
of £1.3m
• Costs relating to our exit from low-margin
US road traffic control product operation
of £1.1m
•
Expenses related to acquisitions and
disposals of £2.3m
The non-cash element of these charges was
£13.4m. Further details are set out in note 4
of the Financial Statements.
Pensions
The Group operates defined benefit pension
plans in the UK and the USA. The IAS 19
deficit of these plans at 31 December 2022
was £7.2m, a reduction of £5.1m from 31
December 2021 (£12.3m, which included
£4.1m in respect of our French pension
scheme that was disposed of with the France
Galva business during the year). The deficit of
the UK scheme, the largest employee benefit
obligation in the Group, was lower than the
prior year end at £6.5m (31 December 2021:
£7.7m) due to the Group’s deficit recovery
payments and an increase of 310 basis points
in the discount rate during the period, in line
with increases in bond yields, being partly
offset by lower asset returns.
The triennial valuation for the UK scheme
as at April 2022 was finalised at the end of
2022 and confirmed that the current cash
contribution level (£3.7m per annum) was
appropriate to deliver the deficit recovery
plan. The Group continues to be actively
engaged in dialogue with the UK schemes’
Trustees with regards to management,
funding and investment strategies including
buy-in options.
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 2024. 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 2024, 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 2023, 31 December 2023
and 30 June 2024.
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 2024. The Directors
do not consider the resulting performance
levels to be plausible given the Group’s strong
trading performance in the year and the
resilience of the end markets in which we
operate.
Alan Giddins
Interim Executive Chair
Hannah Nichols
Group Chief Financial Officer
8 March 2023
31
Stock Code HILSSTRATEGIC REPORT OUR APPROACH TO SUSTAINABILITY
Following our purpose
of creating sustainable
infrastructure and
safe transport through
innovation, we are
committed to ensuring that
our Environment Social &
Governance (‛ESG’) strategy
provides the foundation
for the successful delivery
of our Group strategy and
business model.
Our sustainability priorities were identified
following a comprehensive materiality
assessment carried out in 2021, which also
included comparing the results to the relevant
Sustainability Accounting Standards Board
(‛SASB’) materiality maps, see page 33 for
more details. We have maintained the same
sustainability priorities for 2022, however
we will continue to review and adapt as our
sustainability strategy evolves.
Our Executive Chair, Alan Giddins, has Board
responsibility for ESG and is also a member
of the ESG Committee. The ESG Committee
works with our operating companies to
create common sense, actionable plans with
measurable near and medium term targets.
We were delighted that Lucinda Farrington-
Parker joined as Group Head of Sustainability
in February 2022. Lucinda is a key member
of the ESG Committee and is leading on the
Group’s carbon reduction plans including
establishing a baseline for the Group’s
Scope 3 emissions. The ESG Committee
also includes the Group CFO and the Group
Company Secretary, alongside a number of
other Group employees who are passionate
about our ESG focus areas. The Committee
reports directly to the Board on a six-monthly
basis, providing updates on progress made
against targets.
32
We have identified seven key priorities for our sustainability plans, across
three key focus areas:
Protecting the world
01 Greenhouse Gas (‛GHG’) emissions and energy efficiency
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.
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 OUR APPROACH TO SUSTAINABILITY
Retaining wall structures, N22 Bypass, Macroom, supplied by AIS, a division of Hill & Smith Infrastructure
Dimension
Category
SASB matrix
H&S
materiality study
ESG
focus
Engineering &
construction
Road
transport
Environment
Ecological impacts
Waste and hazardous materials management
Waste and wastewater management
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 Capital
Human rights and community relations
Employee engagement, diversity and inclusion
Talent development/employment practices
Employee health and safety
Labour practices
Physical impacts on climate change
Sustainable products
Business model
Materials sourcing and efficiency
and innovation
Supply chain management
Business model resilience
Leadership and
governance
Product design and lifecycle management
Systemic risk management
Critical incident risk management
Management of the legal and regulatory environment
Competitive behaviour
Business ethics
33
Stock Code HILSSTRATEGIC REPORT OUR ROLE IN SUSTAINABILITY
We support the United Nations sustainable development agenda
and are utilising their Sustainable Development Goals (‛UN SDGs’)
as a compass to guide our approach to sustainability.
BEBO arch, flood balancing culverts, N22 Macroom, County Cork
34
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
PROTECTING THE WORLD
SAVING AND ENHANCING LIVES
We play 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.
ESG Focus Areas
• GHG emissions and energy efficiency
Sustainable products – Infrastructure
•
Our role in saving and enhancing lives has two elements:
Firstly, we have an important role in ensuring that the public are
safe when they travel, and secondly 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 products – Safe transport
ESG Focus Areas
•
• Health & Safety
•
• Diversity and inclusion
Talent development and engagement
UN SDGs
UN SDGs
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
• Climate risks
•
Ethical conduct
UN SDGs
Stock Code HILS
35
STRATEGIC REPORT PROTECTING THE WORLD
GREENHOUSE GAS EMISSIONS AND ENERGY EFFICIENCY
Why does it matter?
We recognise that greenhouse gases are a
major contributor to the climate crisis and
are committed to managing and reducing
the Group’s emissions to support the Paris
Agreement goals.
What have we done?
In 2021 we committed to develop science-
based targets to reduce our greenhouse gas
emissions under the SBTi ’Business Ambition’
for 1.5°C’. Having already established a
baseline for Scope 1 and 2 emissions in
2020, we have been collating our baseline
Scope 3 emissions during 2022 across the
full scope of our organisation, in line with
the International Greenhouse Gas Protocol
guidance. This comprehensive baselining
project, led by our Head of Sustainability
working closely with our operating
companies, has been very successful. We
are pleased to report that we are on track to
submit our targets ahead of the required SBTi
deadline of August 2023.
Alongside measuring and understanding
Scope 3, we have also further developed our
carbon reduction plans and taken action to
reduce Scope 1 and 2 emissions.
Scope 1 & 2 Emissions (tonnes CO2 e)
Scope 1
Scope 2
Total
2022
2021
2020
49,388
53,712
52,066
8,917
10,885
14,708
58,305
64,597
66,774
Reduction %
10%
3%
n/a
The 10% reduction in our 2022 emissions has
been driven by various local carbon reduction
initiatives (such as installation of solar panels,
switching forklift trucks to electric and use
of HVO in place of diesel) as well as the
disposal of France Galva. We were pleased
that 94% of our UK electricity requirements
were from renewable sources in 2022 and we
are currently working with our US businesses
on state by state plans to move towards
renewable electricity in the next two to
five years.
A further breakdown of the Group’s 2022
emissions is set out below:
2022 GHG Emissions
15%
Scope 1
Scope 2
85%
36
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Temporary bridge, Rio Rinassico Gorge, Trento, galvanized by V&S Galvanizing
Consumption of natural gas for use in heating
in the galvanizing process contributes 62%
of the Group’s total natural gas consumption
and therefore the use of energy in the
galvanizing process is a key focus area
for the Group’s carbon reduction plan. In
2022, we implemented energy efficiency
measures in both our UK and US galvanizing
operations including heat recovery systems,
kettle covers and variable frequency drives,
which will all contribute to our emissions
reduction plan. In addition, during the year we
investigated options to convert galvanizing
natural gas burners to green electricity
using our UK galvanizing site in Telford as a
Breakdown by Energy Type
specific case study. Our findings, based on
this case study, suggest that while electric
gas burner technology is viable, further
upgrades to UK electricity infrastructure or
technology modifications will be required
before this can be considered a feasible
option and we continue to explore possible
solutions. Alongside this, we are investigating
the viability of hydrogen as a potential
technology, working with Cadent and National
Gas Transmission on their Hydrogen Valley
project.
15%
1%
9%
12%
Scope 1 – Natural Gas
Scope 1 – Diesel
Scope 1 – Propane, gas oil and LPG
Scope 1 – Others
Scope 2
63%
37
Stock Code HILSSTRATEGIC REPORT PROTECTING THE WORLD continued
GREENHOUSE GAS EMISSIONS AND ENERGY EFFICIENCY continued
During 2022 we established a Group-wide
Sustainability Forum with representatives
from each of our operating companies, to
collaborate on emissions reduction projects,
share ideas and best practice and provide
feedback on Group initiatives. We also
produced a quarterly ESG newsletter to share
updates with all employees across the Group,
and held our first ESG Week in June to raise
awareness of sustainability issues in a fun
and engaging way.
We have continued to refine our 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 continues to provide
us with the confidence to commit to achieving
a carbon net zero target for Scopes 1 and 2
by 2040. Our current expectations are that the
financial impact of achieving this will not have
a material impact on the growth prospects for
the Group, with modest levels of incremental
capital investment required.
38
What will we achieve?
In 2023 we will submit emission reduction targets for Scopes 1, 2 and 3 to SBTi. In 2021 we
committed to achieve net zero for our Scope 1 and 2 emissions by 2040. The high-level steps we
will take to deliver on this commitment are outlined below.
Net Zero scope 1 and 2 emissions by 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
80
60
40
20
0
2020
2021
2022
2025
2030
2035
2040
Zero
Scope 2
Scope 1
Other
Scope 1
Natural Gas
2020-2025
Implementation of
galvanizing energy
efficiency measures. Trial
alternative galvanizing
burner technologies.
Replace forklift truck gas oil
with renewables
UK to renewable electricity.
US start to move to
renewable electricity
2026-2030
10 galvanizing plants
to alternative burner
technology
Replace forklift
truck LPG oil with
renewables
US moved to
renewable electricity
2031-2035
5 galvanizing plants
to alternative burner
technology
Replace forklift
truck LPG oil with
renewables
Remaining businesses
moved to renewable
electricity
2036-2040
Remaining galvanizing
plants to alternative
burner technology
Replace diesel in
commercial vehicle
with renewables
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
Caption for image
Solar lighting solutions at Prolectric’s headquarters, Clevedon
TARGETS AND ACTUALS
Intensity Ratio (Market-based)
2022 Actual
0.07
0.09
2022 Target
2025 Target
0.08
2030 Target
0.06
No. of tonnes of CO2 removed
(vs. 2020 – the base year)
2022 Actual
8,469
4,000
2022 Target
2025 Target
11,000
2030 Target
30,000
39
Each of our operating companies is also
developing a local carbon reduction plan to
address their own emissions. This includes
Scope 3 which comprises 97% of our overall
GHG emissions. During 2023 we will start
to develop a more detailed strategy to
reduce our Scope 3 emissions, now we have
established our baseline.
How will we measure progress?
We have invested in a sustainability software
solution that we are using to record our GHG
emissions. This will provide greater visibility
of our emissions and allow us to set targets
and measure performance at both a Group-
wide and individual operating company level.
While our longer term commitment is to
achieve net zero (for Scopes 1 and 2) by
2040, we are measuring our near-term
progress through both reduction in our
carbon intensity ratio and the number of
tonnes of CO2 e removed. Our near-term
targets and progress against these targets
are set out opposite.
Hot-dipped galvanized canopy,
Newark Airport, NJ
Stock Code HILSSTRATEGIC REPORT PROTECTING THE WORLD continued
Galvanized frames at a Solar Farm, Mount Olive, NJ
SUSTAINABLE PRODUCTS
Event Lite solar powered light by National Signal
40
Why does it matter?
The world’s population is forecast to be c. 9.0bn by the late-2030s
and this will drive extraordinary demand for climate friendly
solutions in our daily lives. The Paris Agreement and the UN Climate
Panel have defined specific sustainability goals and measures
within areas such as access to raw materials, energy, and
infrastructure. Our sustainable infrastructure products and services
can play an important role in addressing the great challenges
associated with increasing population and urbanisation, climate
change and decarbonisation.
What have we done?
During 2022, we have built on the work we did in 2021, and supported
by a third party, Route 2, using an autonomous framework tool, we
have assessed the sustainability and value to society of c. 55% of the
Group’s products and services by revenue. This analysis uses a Six
Capitals framework to assess the value to society of our products,
looking first at our supplier base, then 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, communities and other stakeholders.
According to our analysis, for every £1 of revenue generated, our
products contribute c. £2 of value to society. The results show
a balanced distribution of economic, human, and environmental
impacts. In each step of the value chain, the benefits of our
business activities substantially exceed the costs to society.
Alongside this, our operating companies have started to undertake
Life Cycle Assessments and we expect this to be an increasing
focus area for our customers going forward.
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 CASE STUDY: Galvanizing – reducing carbon
through the avoidance of maintenance
What will we achieve?
During 2023 we will continue to assess the
sustainability impacts of our products, to
provide our stakeholders confidence that our
products have an environmental, or economic,
or social benefit.
How will we measure progress?
We have disclosed the results of our 2022
work opposite and will continue to disclose
work done to assess the sustainability
impacts of our products on an annual basis.
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
41
Stock Code HILSSTRATEGIC REPORT SAVING AND ENHANCING LIVES
HEALTH & SAFETY
Why does it matter?
Keeping our employees, customers, and
suppliers safe is our number one priority.
Ensuring that our employees work in a safe
environment and can return home to their
loved ones at the end of their working day is
of paramount importance.
What have we done?
We are pleased to report that our 2022 Lost
Time Injury Rate (‛LTIR’) has reduced by 35%
to 1.1 (2021: 1.7). Managing Directors are
required to present the investigation and
findings of all LTIs to the Executive Board,
reinforcing the importance of keeping
employees safe and sharing learning.
During the year, we have introduced nine
lifesaving rules that will create an environment
within our operating companies of zero
tolerance for unsafe acts or conditions,
where behaviours will be recognised and
reinforced, and training is provided to all. We
also introduced hazard identification training,
machine guarding audits, and automated
external defibrillator equipment ensuring
that we can keep ourselves and others free
from harm.
What will we achieve?
Our aim is to significantly reduce the number
of lost time incidents we have across the
organisation. To support this objective, we will:
•
Increase our Near Miss reporting and
Safety Observation activity.
• Continue to improve the identification
of key risk areas as well as our culture
and approach to Health & Safety in our
operating companies.
• Move to a three-tiered auditing approach:
introducing self-assessments against our
Group-wide standards, peer-to-peer site
audits and external behavioural audits
that focus on risk.
• Continue to drive campaigns focusing on
those areas that represent major risks for
the Group’s operating companies.
• Run a Health and Safety survey in 2023.
How will we measure progress?
We will use LTIR as the key indicator to track
and monitor our progress in Health & Safety.
Our LTIR for 2022 was 1.1, well ahead of our
2022 target and a testimony to the work put
into improving health and safety across our
operating companies, particularly those who
implemented safety improvement plans.
TARGETS AND ACTUALS
Lost Time Injury Rate
2022 Actual
1.10
2022 Target
1.50
2025 Target
0.75
2030 Target
0.25
42
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Welders at work, Birtley, County Durham
Nine core lifesaving rules:
Plant Mobile Equipment
Work From Heights
Line of Fire
Access & Egress
(Includes Confined Space)
Lock Out Tag Out (‛LOTO’)
Hazardous Chemical Control
Personal Protective Equipment (‛PPE’)
Lifting & Rigging
Driving Safety
43
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injuries
!
Ensure proper t o o l s
and performa n c e
TOOLS
Stock Code HILSSTRATEGIC REPORT
SAVING AND ENHANCING LIVES
continued
TALENT, DEVELOPMENT AND ENGAGEMENT
Warehouse, ATG Access, Haydock
In 2022 we expanded our Succession
Planning and Talent Management (‛SPTM’)
programme to include more employees.
This enabled us to gain a deeper view of
talent, identify where we have employees
who could potentially move between
operating companies as part of their career
development and identify and mitigate
succession risks. We have seen an increase
in the potential of our senior leadership
population, reflecting the efforts being
placed on developing our leaders, as well as
refreshing this population with high quality
external hires.
We continued to provide management and
leadership development, with programmes
starting at supervisor level, then moving to
first line manager level and finally a leadership
programme for more experienced managers.
64 supervisors and managers completed
the programme in 2022. The programme
content and delivery approach were reviewed
in 2022 and improvements have been
identified for implementation in 2023. We
piloted a new approach to development for
our Managing Directors. They self-selected
onto workstreams covering our ESG agenda,
developing an innovative mindset, and
cultivating a growth culture.
What will we achieve?
Local employee engagement survey action
plans have been developed, focusing on
the key areas identified for improvement in
each operating company. Recognising the
importance of acting on the feedback and
openly sharing progress, greater emphasis
will be placed on keeping the communication
process ongoing during the year.
We plan to complete a further SPTM review,
as well as closing out the actions identified
from the 2022 review. These include
holding career conversations with high
performing senior leaders, increased focus on
personal development planning, identifying
opportunities for moves between operating
companies and identifying mitigation for
succession risks.
How will we measure progress?
We will continue to measure progress through
our engagement survey against our targets
set in 2021. We will also listen to the feedback
that we continue to get from our employees
during the year.
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 autonomous business model
and help deliver our purpose and growth
ambitions. We need a highly engaged and
capable workforce within our operating
companies, and this can only be done by
attracting, 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 on its strategy.
Positive employee engagement and offering
great careers for people and helps increase
our productivity, enhance our reputation, and
deliver our growth plans.
What have we done?
Our engagement levels increased to 61%
in 2022 (2021: 55%), with an improved 80%
participation rate in our annual employee
engagement survey. The results indicated a
strong improvement in leadership qualities,
as evidenced through responses relating
to line managers. We also saw progression
within diversity and inclusion, with the result
on this index increasing to 69% (2021: 63%).
The feedback indicated that reward and
recognition is a universal priority focus area,
and this is something that we have been
proactively reviewing in light of the cost of
living crisis.
44
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 LEVERAGING ESG AND CSR
I’m really passionate about my role.
In an era of climate change, widening
inequality and increasing stakeholder
pressure, ESG remains an often
underutilised, yet critical resource.
My passion is for people and the
planet. Looking after our planet,
and the people on it, is not only the
right thing to do, but engaging with
individuals proactively acts as a
catalyst to increasing efficiency and
effectiveness in other focus areas.”
Major accomplishments include:
• Achieving CSR Gold Accreditation for Hill & Smith
Infrastructure Limited.
•
•
Leading a long term biodiversity and wellbeing initiative in
conjunction with the SMP Alliance (who support delivery
of National Highways construction and maintenance
programmes), which has pledged to prevent the net loss of
biodiversity through its activities.
Supporting Apprentices and committing to being members
of the 5% Club that resulted in being invited to the House
of Lords to accept the accreditation.
• Over 10% of staff now trained as Mental Health First Aiders
and this is increasing each month.
Social value projects include a company-wide challenge to
walk the distance from Nottingham to Ukraine, which raised
over £5,000 for the Humanitarian Appeal, and donating more
than 300 Easter Eggs collected by staff to vulnerable children
in the Midlands.
Other regular employee activities include food bank and
clothing donations, volunteering opportunities and tree
planting.
An increasing number of young people in the workplace are
keen to work for a company that is ethical and we as an
organisation are working towards becoming an employer of
choice; head and shoulders above its competitors when it
comes to contributions to the local environment, workforce
and communities.
45
Kathryn Cooper, Head of ESG
Hill & Smith Infrastructure
As Head of ESG at Hill & Smith Infrastructure, a business
that sits within the Group’s Roads & Security division, I have
been responsible for introducing ESG across all Hill & Smith
Infrastructure’s divisions. This has proved to be an exciting
project and has been more about uncovering activities that
were already taking place naturally, and being able to celebrate
and report the business’ sustainable and socially responsible
accomplishments.
I am responsible for unlocking ESG opportunities in the
areas of people, planet and purpose for Asset VRS, Hardstaff
Barriers, Hill & Smith Barriers and Varley & Gulliver – four of the
UK’s leading vehicle restraint system manufacturers.
Incorporating ESG factors into day-to-day business activities
allows us to meet clients’ needs too, supporting their own
actions to reduce the impact of their activities, ensuring a
long term and sustainable benefit to the environment and the
communities they serve. Environmental protection, equality,
social impact and ethics are at the forefront of everything,
more than ever before.
As a result of recent achievements, the level of service
provided to customers across Hill & Smith Infrastructure
has been strengthened, while a consistent and collaborative
approach to Corporate Social Responsibility (‛CSR’) and
sustainability has been created throughout the business.
In recent months, colleagues have led and participated in
several projects that have benefited the environment and local
communities.
Stock Code HILSSTRATEGIC REPORT SAVING AND ENHANCING LIVES continued
DIVERSITY AND INCLUSION
Why does it matter?
As an organisation, we aim 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 attractive opportunities for
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.
As an employer working across a range of
cultures and countries, we endeavour to
replicate the diversity of the communities
where our companies are based, in the profile
of our own workforce.
Everyone is actively encouraged to
communicate and share information with
colleagues. It is important to us that we
create an inclusive culture, where all voices
and perspectives have an opportunity to
be heard.
What have we done?
We have continued to focus on attracting
more females into our business, which has
led to an increase in female senior leaders in
2022, now at 20%, and in January 2023, we
were delighted to appoint our first two female
Managing Directors, Rachel Preen in the UK
and Rose Mary Clyburn, based in the US. We
will continue to focus on how we can improve
diversity, whilst sticking to our commitment to
always recruit the best candidate for the role.
Progress is also reflected in the improvement
in our 2022 Gender Pay Gap.
Our apprenticeship scheme is another
method of attracting more diversity into our
business. In 2022, our gender splits for new
hire apprentices were 33% female, 67% male.
This includes recruiting females as welding
apprentices, traditionally a role that has
attracted more males. Of our apprenticeship
hires between August 2021 through to June
2022, 16% have a disability, 34% are young
people (being under the age of 24), 3% are
from ethnic minority groups and 11% live in
disadvantaged post codes.
Examples where our operating companies
have taken proactive steps to improve diversity
include Hill & Smith Infrastructure being part
of the 5% Club, a movement committed to
providing ’earn and learn’ skills-led training
opportunities. Lionweld Kennedy, one of
our UK Engineered Solutions businesses, is
now recognised as one of the top 50 SME
apprenticeship employers in the UK.
We continued with our Workforce Advisory
Panels in 2022, running one face-to-face
session in the UK and one in the US during
May. We then ran virtual sessions in November.
We changed the format to include interactive
sessions that were led by colleagues from our
operating companies or internal subject matter
experts, rather than senior management.
Topics included Health and Safety, ESG,
Diversity and Inclusion, as well as business
updates on performance. We gained valuable
feedback and insights from the process.
46
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Production team at Hill & Smith Infrastructure
We want to build on the success of our
apprenticeships scheme, recognising it is
an important way of attracting and retaining
diverse talent. We will recruit additional
apprentices and upskill existing colleagues
though apprenticeships where feasible to do
so. We will provide managers with additional
information and support, to encourage
increased usage of apprentices in the UK. We
will produce an annual newsletter to celebrate
apprenticeship achievements.
How will we measure progress?
We will continue to measure gender
and ethnic diversity at a senior level and
review the engagement survey scores for
the Inclusion and Diversity index to track
progress.
What will we achieve?
We will focus locally and at a Group level
on increasing levels of diversity, so that we
represent the communities that we serve.
We will continue to bring together HR leaders
from across our operating companies so that
we can share best practice and learn from
each other.
We will be building on the success of our
US Women’s Network, extending it to all
female colleagues, to raise awareness of the
challenges and barriers that some women
may face and to champion them and their
current and future careers.
We will arrange further Workforce Advisory
Panels, where we will be seeking further
feedback on what is working well and where we
can improve. We will provide business updates,
invite colleagues from across the business
to present on important topic areas, and also
encourage sharing of good practice that is
happening within our operating companies.
47
Stock Code HILSSTRATEGIC REPORT SAVING AND ENHANCING LIVES continued
Birtley’s Head of Customer Experience on site, Birtley, County Durham
DIVERSITY AND INCLUSION continued
CASE STUDY:
Diversity
Wendy Dollete: Supply Chain Manager at the
Carpenter and Paterson Group (USA)
Rachel Preen: Managing Director at
Prolectric Services (UK)
Wendy joined the company in 1999, initially in an administrative
role in the Engineering department. She has since undertaken
a number of roles, spanning Project Management and
Procurement. Her current role is Supply Chain Manager which
involves overseeing purchasing and inventory control for all
branches as well as leading the warehouse operations at the
Waggaman site in New Orleans.
Wendy is focused on improving processes and performance. She
is also an active member of the Empowerment Group, a Women
in Leadership network within Hill & Smith that encourages
development and discusses some of the barriers that women
may face.
Wendy says:
“Hill & Smith is a great company to
work for and has actively supported
my career development. I would
definitely recommend working within
the Hill & Smith family to other
women, and encourage them to be
open to opportunities, wherever they
may be.”
Rachel joined Prolectric in 2021 as Commercial Director, having
been inspired during the interview process by the compelling
vision shared with her by Chris Williams, Prolectric’s founder.
Over the past ten years, Prolectric has led the way in sustainable
lighting, power and security solutions for the construction,
infrastructure, rail, and utilities sectors. Prior to joining the Group,
Rachel was working in the renewables sector, making this an
excellent fit for her experience and passion for sustainability.
In January 2023 Rachel was promoted to Managing Director,
where she is excited to lead the business in delivering Prolectric’s
ambitious five year growth plan.
Rachel says:
“Hill & Smith’s sustainability agenda
was an important consideration for
me when I was considering taking
the role at Prolectric.”
She goes on to say that she feels
“supported and lifted by the Group”
with her recent promotion. Her
advice to others in building their
careers is to “be yourself, do your
best and trust in the people around
you to recognise your strengths and
help you go further.”
48
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Senior Leaders
2022 Actual
20%
2022 Target
10%
2025 Target
20-30%
2030 Target
40-60%
Senior Leaders
2022 Actual
16%
2022 Target
5-10%
2025 Target
10-15%
2030 Target
10-15%
TARGETS AND ACTUALS
Gender diversity
PLC Board
2022 Actual
38%
2022 Target
33%
2025 Target
40-60%
2030 Target
40-60%
Ethnic diversity
PLC Board
2022 Actual
13%
2022 Target
10-15%
2025 Target
10-15%
2030
10-15%
Executive Board
2022 Actual
33%
2022 Target
33%
2025 Target
40-60%
2030 Target
40-60%
Executive Board
2022 Actual
17%
2022 Target
10-15%
2025 Target
10-15%
2030 Target
20-25%
Employee engagement
Engagement Score
2022 Actual
Improvement in score
2022 Actual
61%
2022 Target
58%
2025 Target
66%
2030 Target
75%
+6pts
2022 Target
+3pts
2025 Target
+8pts
2030 Target
+9pts
49
Stock Code HILSSTRATEGIC REPORT SUSTAINABLE GOVERNANCE
We recognise that to play
a positive role in society,
we need to act responsibly.
Not just to our employees,
customers, suppliers and
other stakeholders but
also to the environment
and wider society.
Hostile vehicle mitigation barriers, London
CLIMATE RISKS AND 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 to provide updates on our
progress in doing so. To that end, we are pleased to issue
our report in response to the Task Force on Climate-related
Financial Disclosures (‛TCFD’) recommendations.
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 2022 we further developed our approach
to assessing 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 Board receives
quarterly updates on progress around ESG focus areas
including climate related risks and opportunities. In addition,
the annual budget process now includes consideration of
operating company level carbon reduction plans, and we will
be introducing a similar focus into the 2023 strategic planning
process which covers a five year timeframe. The evaluation of
potential acquisitions also includes assessment of the impact
on our carbon reduction targets. 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 six-monthly updates on ESG progress from the ESG
Committee
• Has oversight of TCFD reporting and disclosures (through the
Audit Committee and 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 third party specialists to provide additional insight and
training (including climate change issues)
• Members include: Group CEO / Executive Chair, Group CFO, Head
of Talent, Group Company Secretary, Group Head of Sustainability
and 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 and opportunities and
corresponding mitigation plans to the Audit Committee for
consideration
• Further details about the Risk Committee can be found on page 61.
50
Stock Code HILS
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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 intervention 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 and
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 and 2030
2030 and 2040
During 2021 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 our operational
sites. In 2022, we completed physical climate vulnerability analysis for all new sites acquired during
the year. The 2021 climate vulnerability analysis run for existing sites remains valid given there has
been no change in the underlying climate analysis tool data since last year. The assessment of
transitional risk considered emerging regulatory requirements, such as carbon pricing.
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.
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 being:
Global warming scenario:
1.5°C and 2°C
Risk
As the global economy transitions to a low
carbon state, we have identified several
potential risks and opportunities for the Group:
•
•
•
The availability of greener technology to
adapt to lower emissions
Increased demand for renewable energy
may lead to reduced supply or an
increase in the cost of purchase
The introduction of carbon pricing across
our key geographies increases both our
manufacturing costs and the costs of raw
materials
• 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 53.
Other risks identified, but not considered
significant at this stage, include 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 2022 exit
run rate emissions. Figure as at end of
2021 in brackets.
Annual Impact by 2030
Average annual operating cost increase
assuming no proactive carbon reduction
plans are undertaken based on 2022 exit
run rate emissions. Figure as at end of
2021 in brackets.
1.5°C
£4.7m
(£6.1m)
2.0°C
£4.3m
(£5.6m)
Based on $130 per tonne
Based on $120 per tonne
1.5°C
£7.4m
(£9.6m)
2.0°C
£6.1m
(£8.0m)
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 partly be offset by self-generated energy.
We have completed the assessment of our Scope 3 emissions during 2022 with a view to
disclosing them in our 2023 Annual Report in accordance with the SBTi target. Once more is
known about likely carbon pricing regimes we will be in a better position to estimate the potential
impact on our supply chain costs.
51
Stock Code HILSSTRATEGIC REPORT SUSTAINABLE GOVERNANCE
continued
Rocks Village, Haverhill, MA, composite vehicle bridge deck, supplied by CCG
CLIMATE RISKS AND TCFD 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 on page 53.
Impact analysis
This scenario may include costs relating
to the repair of assets, increased volatility,
business discontinuity and needed resiliency
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 53 of the Group's sites
(2021: 67 sites). A summary of the results is
as follows:
Sites at higher risk**
2021
No of
sites
2022
No of
sites
2022
% total
sites
2040
No of
sites
2040
% total
sites
1
3
5
6
4
3
4
1
3
5
6
4
2
4
13
12
2%
6%
9%
11%
8%
4%
8%
23%
3
3
6
9
4
4
4
18
6%
6%
11%
17%
8%
8%
8%
34%
Hazard
Flood
Wind
Rainfall
Heat
Hail/Thunderstorms
Drought
Wildfire
Total unique sites with one or
more high risk hazards
* Carbon pricing assumptions based on PwC’s estimates for advanced economies in 1.5˚C and 2˚C scenarios.
** 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 70 were deemed higher risk.
Based on the above analysis, at the end of
2022, the Group had 12 sites at higher risk of
one or more climate hazards with heat being
the most significant threat (6 sites, 11%).
The number of sites at higher risk of one or
more climate hazards has reduced compared
to 2021 (13 sites). In 2040 heat is predicted
to remain the most significant threat to the
Group (9 sites, 17%) with heat also seeing the
most significant increase in risk from 2022
to 2040 (3 additional sites). Overall, 34% of
sites have been identified to be at higher risk
from one or more climate hazards by 2040.
These sites represent c. 20% of 2022 Group
revenues, however the revenue at risk is much
lower as the complete loss of annual revenue
from a site following a climate hazard event
is highly unlikely and the sites also have
mitigations in place. During 2022 operating
companies with sites identified as higher
risk progressed their business continuity
measures. In 2023 we will work with them
to further develop their business continuity
measures and to ensure that the necessary
insurance remains in place.
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.
52
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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.
Based on the scenario analysis and impact
assessment outlined above, the Board does
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 page 60 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 are committed to reducing our Scope
1 and Scope 2 CO2e emissions to achieve
our net zero target by 2040. In the near
term, we are measuring progress through
reduction in our CO2e intensity ratio. Refer
to page 39 for further details of progress
to date.
• During 2022, we undertook work to
establish our baseline Scope 3 CO2e
emissions and we are on track to submit
our SBTi targets ahead of the required
August 2023 deadline.
•
In addition, we currently measure water
usage and waste management and
continue to look at ways of minimising
our environmental impact.
We note the guidance issued on cross
industry climate related metric categories and
this is an area we are planning to broaden
going forward.
TCFD Elements
TCFD Recommended Disclosures
Compliant
CASE STUDY
’StormStrong’ Products –
Creative Composites Group, US
StormStrong products include utility poles,
utility crossarms, light poles, waterfront sheet
piles, waterfront pipe piles and FRP cooling
towers. They provide resilience, durability
and corrosion resistance in both grid and
shoreline applications to ensure structural
integrity in extreme weather conditions such
as hurricane-force winds, blizzards and deep
freezes. Creative Composites Group also
manufacture ’FireStrong’ fire resistant utility
poles that can protect the grid from the
excessive heat generated by brush/grass fires
(see page 14 for further details).
Governance
a. Board oversight
b. Management’s role
c. Climate related risks and opportunities
Strategy
d. Impact of climate related risks and opportunities
e. Resilience of the organisation’s strategy in
climate scenarios
f. Risk identification and assessment
Risk Management
g. Managing climate related risks
h. Integration into overall risk management process
i. Metrics for climate related risks and
opportunities
j1. Scope 1 & 2 GHG metrics
Metrics and
Targets
j2. Scope 3 GHG metrics
k1. Climate related targets – Scope 1 & 2
k2. Climate related targets – Scope 3
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.
53
Stock Code HILSSTRATEGIC REPORT SUSTAINABLE GOVERNANCE
continued
Galvanized robots, indoor vertical farming, Virginia
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 Group companies will also comply with
all applicable wage and working-time laws
and other laws or regulations affecting the
employer/employee relationship and the
workplace. We oppose the exploitation of all
workers, children and young people, we will
not tolerate forced labour, or labour which
involves physical, verbal, or psychological
harassment or intimidation of any kind, and
we will not employ child labour in any of our
operations. Nor will we permit the exploitation
of, or discrimination against, any vulnerable
group.
We 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 and blacklisted or grey-listed by the
EU, except for Australia, where the Group has
a roads business with strategic intentions to
mirror the success of its UK roads business.
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 in
which we operate and we have 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
54
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, or
the Chair of the Audit Committee, without
fear of reproach. During 2022, 12 such issues
were reported and investigated (2021: 2).
Specific policies have been developed and the
following are available on the website
www.hsgroup.com:
•
Supply Chain Policy
• Code of Business Conduct
• Anti-Bribery & Corruption Policy
• Modern Slavery Policy
• Whistleblowing Policy
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 What will we achieve?
We will regularly review subsidiaries’ standard
terms and conditions of purchase, and
standard long term supply agreements
across the Group. The terms and agreements
must 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
2022 (2021: 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.
We conduct our dealings with tax authorities
with honesty, integrity, respect, and fairness
and in a spirit of co-operative compliance.
How do we ensure 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
• Continual monitoring of online training
to ensure compliance with relevant
legislation
• Annual certification by Group operating
subsidiaries that they have complied
with policies issued by the Group, and in
particular with the CoBC.
CASE STUDY:
Modern Slavery audit
Management undertook a focused audit
in the second half of the year on selected
zinc and resin suppliers relating to its
Galvanizing and Engineered Solutions
operating companies in the UK and USA.
Arrangements were made for the Group’s
Head of Legal and a local representative
of the relevant operating company to
meet with the major zinc suppliers to the
galvanizing businesses and the principal
resin supplier to the Creative Composites
Group.
The audit consisted of a pre-interview
questionnaire together with questions
and observations made during the
interview, and the historic dealings of the
suppliers with the operating companies.
Notable outcomes concerned the
integration and geographical location of
supply chains, and the appropriateness
of diligence processes, policies and
functions.
The suppliers had a high percentage of
integrated material supply sourced from
countries that were ranked in the top half
of the Global Transparency Index.
No major concerns were identified
during the audit, with suppliers also
demonstrating that they had appropriate
and robust on-boarding due diligence
processes, and their own internal and
supplier policies e.g., codes of conduct,
whistleblowing, and training; and
appropriate internal audit functions.
55
Stock Code HILSSTRATEGIC REPORT SUSTAINABLE GOVERNANCE
continued
Sustainability Data
Sustainable Products
Spend on R&D
Percentage of revenue
GHG Emissions
Environmental penalties
Location-based consumption (tCO2e)
Scope 1
Scope 2
Market-based consumption (tCO2e)
Scope 1
Scope 2*
Intensity Ratio**
2022
2021
2020
2019
2018
£2.8m
0.4%
£1.9m
0.3%
£2.0m
0.3%
£1.4m
0.2%
£1.2m
0.2%
£nil
£nil
£nil
£nil
£nil
49,388
12,404
49,388
8,917
0.07
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
* 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 £000s of revenue.
Health and Safety
No. of workplace fatalities
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 and employment practices
No. of Group employees (as at 31 Dec)
Voluntary (Regrettable) attrition rate
Percentage of employees with access to a recognisable Trade Union
UK Gender Pay Gap
Training spend
No. of training days
No. of training hours
UK Apprenticeships
Employees participating in training and development
Percentage of female employees participating in
training and development
Percentage of UK sites utilising the Apprenticeship Levy
Engagement, inclusion and diversity
Engagement Survey participation
Engagement Score
Inclusion Engagement Score
0
85
1.1
2,217
93%
65%
3,817
14%
11%
-2.8%
£0.8m
5,626
45,010
52
2,386
10%
89%
80%
61%
69%
0
142
1.7
2,126
97%
45%
4,402
14%
18%
2.8%
£0.6m
4,119
32,952
49
156
17%
57%
62%
55%
63%
0
109
1.5
955
95%
46%
4,398
6%
18%
8.4%
£0.4m
4,000
32,000
34
111
10%
49%
n/a
n/a
n/a
0
119
1.6
n/a
n/a
n/a
4,591
n/a
n/a
12.7%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
56%
48%
58%
0
119
1.6
n/a
n/a
n/a
4,094
n/a
n/a
12.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
56
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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
* Senior management population redefined to Managing Directors' direct reports only.
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)
* Market-based analysis.
Ethical conduct
Charitable donations
Whistleblowing reports made by employees
Modern Slavery audits carried out
2022
2021
2020
2019
2018
M
5
4
39
78
62%
67%
85%
80%
90%
F
3
2
7
20
38%
33%
15%
20%
10%
M
5
4
49
201
62%
67%
94%
84%
90%
F
3
2
3
38
38%
33%
6%
16%
10%
M
5
n/a
66
174
F
2
n/a
5
39
M
5
n/a
79
221
F
2
n/a
3
40
M
5
n/a
59
167
F
1
n/a
2
19
71%
29%
71%
29%
83%
17%
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%
B
£nil
84,667
5,138
18,870
78%
3,257
65*
114*
D
£nil
104,795
3,600
13,755
79%
2,040
87
213
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
£62,000
£39,000
£21,000
£39,000
£30,000
12
Yes
2
Yes
3
Yes
19
Yes
11
n/a
Sustainability Policies
The Group has a number of policies that support its Sustainability Plan. These are listed below, and these can be found at https://hsgroup.com/
● Product Responsibility Policy; ● Conflicts Mineral Policy; ● Supply Chain Policy; ● Energy Policy; ● Environmental Policy;
● Health & Safety Policy; ● Equal Opportunities & Diversity Policy; ● Talent & Development Policy; ● Tax Strategy Policy.
57
Stock Code HILSSTRATEGIC REPORT STAKEHOLDER ENGAGEMENT
Our People
What matters to our people
What we did in 2022
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.
• Brand
•
Safe working environment
• Remuneration
• Wellbeing
•
Job security
• Career development
• Carried out our third all-employee
engagement survey – a 6ppts increase in
our engagement score.
• Appointed a Group Head of Sustainability.
• Developed plans for talent development
and inclusion and diversity as part of our
ESG response (see pages 46 to 48 for
details).
Our Companies
What matters to our companies
What we did in 2022
• 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 of our organic
growth and the success of our
Group strategy.
• Acquired a US-based solar-powered lighting
business, National Signal, building on the
domain knowledge acquired with Prolectric
Services in 2021.
• Acquired a UK-based galvanizing business,
Widnes Galvanising, increasing our
presence in UK sustainable infrastructure.
• Monitored operating company
performance.
• Regular site visits by Board members.
• Provided cash to facilitate capital projects.
• Continued our innovation workshops.
Customers
What matters to our customers
What we did in 2022
Our subsidiaries engage with
their customers on an individual
business unit basis. Most
businesses are accredited
with a number of ISO quality
standards to provide comfort to
our customers that we are able
to deliver solutions which meet
their exacting requirements.
• Quality products delivered on time and to the
correct specification
•
ESG
•
•
Invested in product development.
Increased our ESG focus to set a baseline
for our Scope 3 carbon emissions.
• A strong health & safety culture
• Conducted health & safety audits across
• Being treated with respect
• Working as a partnership
80% of our sites.
Suppliers
What matters to suppliers
What we did in 2022
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.
• Mutual beneficial arrangements
•
Long-term relationships
• Quality
• Operating companies regularly met with
existing and potential suppliers to review
continuity and quality of supply.
• Maintained the Group’s payment terms at
61 days (2021: 64).
58
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Governments and Industry What matters to governments and industry What we did in 2022
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 2022
Our operating companies 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.
•
•
Environmental issues
Employment
• Health & Safety
•
Supported our operating companies to
develop local ESG initiatives.
• Matched funding for Ukrainian support
charities.
•
Encouraged our operating companies
to engage with their local communities,
supporting local charities on a business-by-
business basis.
Investors
What matters to our investors
What we did in 2022
Our Executive Chair and CFO
engage with our investors
through a series of meetings,
site visits and presentations,
ensuring that they set out our
strategy for delivering long
term sustainable profit growth.
Investors also feed back their
views on the major corporate
governance issues of the day.
•
Solid dividend performance and long term
share price growth; and long term sustainable
profit growth
• Operational efficiency
•
ESG
• Appointed a Group Head of Sustainability.
•
Improved our response to ESG, resulting in:
− increasing our CDP (‛Carbon Disclosure
Project’) ranking from D to B; and
− increasing our MSCI rating score from
• Robust corporate governance and business ethics
A to AA
•
The Executive Chair and CFO met regularly
with investors and analysts.
• Held an Investor site visit at our Hill & Smith
Infrastructure Limited/Joseph Ash Limited
galvanizing joint site in Bilston, West
Midlands.
59
Stock Code HILSSTRATEGIC 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
2022 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
While 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 Board where appropriate,
for consideration and approval.
Figure 1 Risk Management Process
THE PLC BOARD
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
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 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.
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
60
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 •
ensuring the Board and Audit Committee
are provided with sufficient information to
discharge their responsibilities effectively.
The Executive Board
Supports the 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.
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 below). 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 2022 of the Principal Risks and
Uncertainties that might threaten the Group’s
business model, future performance, solvency
and liquidity (see pages 64 to 68 for the
Group’s Principal Risks).
In common with every successful company,
the Board accepts a level of risk in pursuit
of its strategic objectives. Hill & Smith PLC
assesses the risk of action (or inaction) as
part of every decision and does not allow the
Group 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;
entering or not entering into contracts
that place an onerous contractual or
reputational burden on the Company;
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.
The Audit Committee
Supports the Board by:
• monitoring and directing the testing of the
Enterprise 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 Board
where changes may be needed to the
Enterprise Risk Management Framework
and/or Group Principal Risks; and
•
reviewing the detail of external reporting.
The Risk Committee
Supports the Audit Committee by:
•
•
•
acting as a conduit between the Group
and our operating businesses, 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
Figure 2 Risk Management Framework
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
61
Stock Code HILSSTRATEGIC REPORT RISK MANAGEMENT continued
TCFD
During the year we further developed the 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 50 to 53. During 2022
specific climate change risks were added at
an operating company risk register level.
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 2022 the Risk
Committee continued the approach
developed in 2021 to identify, assess and
monitor emerging risks. A revised list of
potential emerging risks the Group could face,
derived from risk and audit discussion 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
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 2023 Audit
Committee and the prioritised emerging risks
will be monitored throughout 2023.
Emerging Risk
Gas or electricity outage / rationing / security of supply
Step change in public infrastructure strategy resulting in reduced
spend (e.g., Political regime change or fiscal policy rethink)
Timescale
Short (0-2yrs)
Medium (3-10yrs)
Declining interest in manual labour employment and competition with
other employers/industries
Medium (3-10yrs)
Industrial action / strikes
(either our own workforce or suppliers / customers)
Future pandemics and our ability to respond effectively
Global trade disputes (e,g., tensions between China and Taiwan and
implications for operating company supply chain and customer impact
e.g., silicon chip supply)
Ageing workforce
Cyber security controls are outstripped or rendered obsolete by
increasingly sophisticated and frequent attacks
Short (0-2yrs)
Short (0-2yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Medium (3-10yrs)
Increasing expectation for corporates to achieve net zero on a reducing
timescale
Medium (3-10yrs)
Decarbonisation of the economy and the technology to achieve this
Long (10yrs+)
Risk in 2022
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,
Group Financial Controller, Group Head
of Legal, Group IT Director and the Group
Presidents, plus representatives of the
Group’s three business segments. 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 two of our Principal Risks has
been highlighted: Global economic outlook
and IT systems failure. One of our Principal
Risks has seen reduced exposure: Talent,
development, diversity, recruitment, and
retention of key employees. The remaining
Principal Risks have remained stable. For
further details see pages 64 to 68.
Risk Activities
Activities undertaken to enhance the Group’s
approach to risk in 2022 included:
•
•
•
further integration of the Group IT
Controls Manual into the assessment of
the IT Systems Failure Principal Risk;
revision of the ’Risk Playbook’ to provide
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 methodology revisions
and to provide ongoing training on the
principles of risk management and use
of the risk management software.
62
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Risk in 2023 and beyond
The key focus during 2023 will include:
•
•
•
further work to mature the risk
management methodology used across
the Group;
further integration of our climate change
risk assessment process, as developed
for TCFD reporting, into the existing
Enterprise Risk Management Framework;
formalisation and standardisation of
Business Continuity Planning across our
operating companies;
•
•
•
in-depth review of mitigating controls
and the levels of assurance available at
operating companies 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.
Distribution bay substation, New Philadelphia, OH, supported by V&S Utilities
63
Stock Code HILSSTRATEGIC REPORT GROUP PRINCIPAL RISKS 2022
Risk
Description and Potential Impact
Mitigation
Reduction in public
infrastructure
spending
Demand for sustainable infrastructure and transport is
underpinned by Government spending plans. Changes
to these plans could have a detrimental impact on Group
revenues.
The Infrastructure Investment and Jobs Act (‛IIJA’),
enacted into law in November 2021, confirmed a
substantial increase in US federal government spending
across a range of infrastructure areas and is likely to
benefit demand for the Group’s products and services in
the US. Despite the current macro-economic uncertainty
and recent delays in strategic road network projects, we
are confident the UK Government is committed to the
Road Investment Strategy, presenting future opportunity
for our UK roads 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
economic 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.
Material adverse changes in the political and economic
environments in the countries in which we operate, have
the potential to put at risk our ability to execute our
strategy.
As a result of continued global macro-economic
uncertainty and the threat of recession, 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 consequently a
loss of sales and reduced profits.
• Current and future financial performance is
continuously monitored, facilitating rapid response to
changes in market conditions.
•
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.
• Co-operation between Group businesses, leveraging
the Group’s size/international footprint and exploiting
synergies.
• Holding 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.
• 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
customer.
64
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 No change
Increase
Decrease
Risk
Description and 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.
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 failure
The Group delivers its commitments to its customers
through a variety of contractual arrangements of both a
short and medium term nature.
Weaknesses in the contract tendering process,
inappropriate pricing, misalignment of contract terms,
ineffective contract management or failure to comply
with contractual conditions could result in loss of
revenues, pressure on operating margins and wider
reputational damage to the Group.
Supply chain
failure
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 because of performance, cost inflation,
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.
Global warming could place further stress on our supply
chain, with extreme weather events impacting supply
becoming more likely and chronic changes to heat/
rainfall averages potentially impacting where we source
certain materials. Climate change transition costs could
also inflate the price of the goods we purchase.
During the year, our operating companies continued
to take 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.
• Products tested, approved and accredited by
regulatory bodies.
• Quality control protocols fully implemented and
continuously monitored.
• Contractual controls in place to minimise economic
impacts.
•
•
•
Insurance cover maintained globally with insurance
partners.
Litigation supported/managed by external legal
specialists.
Thematic Internal Audit review completed across
the Group during 2021 with recommendations
implemented during 2022
• Group material contract review process ensures
specialist central oversight of key contractual
arrangements.
• 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.
Supply chain resilience has been a focus of the Risk
Committee during 2022 with ongoing monitoring
of operating companies’ ability to respond to the
continued challenges.
• Group wide thematic Internal Audit review of Supply
Chain completed during 2022 with recommendations
to be implemented during 2023.
• Group procurement standards, including robust
due diligence of supply chain partners and the
requirement for dual sourcing where available.
• Regular interaction and assessment of performance/
financial status of key suppliers.
• 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, such as purchasing additional stock of key
raw materials and securing additional supply chain
capacity.
65
Stock Code HILSSTRATEGIC REPORT The Board maintains a watching brief on IT and
cyber risk, and has overseen significant investment
across the Group to enhance IT security controls
and maturity covering areas such as identity
management, IT asset management, backup,
endpoint protection, incident response and
vulnerability management.
• Wholesale network security improvements planned
for 2023.
•
IT controls manual setting out a robust set of
information security controls covering basic cyber
hygiene, system back-up procedures and hardware/
software protection. Reviews of IT controls
compliance were completed by Internal Audit during
2022, with action plans agreed and monitored.
• Quarterly updates established to brief operating
company leadership teams on their responsibilities
relating to IT management and information security.
•
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.
• All potential acquisitions are tightly evaluated
to ensure they fit within our purpose and core
strategic goals.
• Due diligence protocols deployed in relation to
assessment of target businesses, including financial,
commercial, and legal etc.
• Board approval required for Group acquisitions, in line
with its Schedule of Matters Reserved.
• 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.
PRINCIPAL RISKS continued
Risk
Description and 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 undertaking increasingly sophisticated
ransomware and other cyber attacks. 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.
While there has been a marked enhancement of the
Group’s IT security controls during 2022, the Board
consider the risk to be heightened due to the increasing
sophistication and frequency of cyber threats across
the world.
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.
66
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 No change
Increase
Decrease
Risk
Description and 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 and
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.
Competitive local labour markets and the aftermath of
COVID-19 led to challenging recruitment conditions for
our operating companies in the first half of the year. In
the second half of the year these pressures eased due
to rising unemployment and a more difficult economic
climate, subsequently time to recruit and the number of
vacancies across the Group have both reduced. The issue
does remain though for certain skillsets that are more
challenging to find and retain, e.g., Welders.
Our senior leadership gender diversity has improved
in 2022 to 20%, due to both internal promotions and
external hires. An increased focus on engagement and
corrective actions following the 2021 engagement survey
has led to an improved score for the 2022 engagement
survey, increasing from 55% to 61%. The process to find a
permanent CEO is underway.
Overall, a reduction in the risk has been recognised for the
period.
• Group wide Innovation Framework launched during
2021 to encourage and stimulate more innovation
across the Group. Workshops were run during 2022
to foster innovation and share best practice and
these will continue into 2023.
•
Entrepreneurial culture fostered through a
decentralised management structure, ensuring
that Group businesses are agile and responsive to
changes in their competitive environments.
• Acquisitions add innovate products and technology
to our portfolio.
•
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 Committee.
• Refreshed People Strategy with a greater focus on
internal talent.
• Head of Reward and Head of Talent roles recruited
during 2022.
• 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.
•
Talent review process extended in scope to cover
more employees, increasing our visibility of talent.
67
Stock Code HILSSTRATEGIC REPORT PRINCIPAL RISKS continued
No change
Increase
Decrease
Risk
Description and Potential Impact
Mitigation
Prevention of harm
or injury to people
The Group is committed to preventing all health & safety
incidents and ensuring the health, safety and wellbeing
of all employees and third parties. The Group operates
multiple 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.
LTIR has reduced from 1.7 in 2021 to 1.1 in 2022. Further
improvement is required to reach the 2030 Health &
Safety target of 0.25 and health & safety remains a key
focus area for the Group.
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 modern slavery, 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 the Group having no current direct Russian
customers or 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.
• Culture of zero tolerance in respect of health & safety
violations promoted by the Board and disseminated
throughout Group businesses.
• Reduction of the Group’s LTI rates is a key focus
for Management and the Board, with improvement
metrics now established through the ESG Committee.
• Monthly health & safety reporting for all operating
companies via online tools.
• Monitoring and review of LTI rates by Group with all
LTI events followed up and investigated thoroughly
using the ’five whys’ root cause analysis and
presented to the Executive Board. Improvement
recommendations are implemented to minimise any
reoccurrence.
• Development and roll out (Jan 2023) of our ’nine life-
saving rules’ and ’non-negotiable safety behaviours’
• Programme to add defibrillators to all sites
commenced in 2022.
• Regular health & safety site audits.
• Health & safety forums to monitor performance and
share best practice.
•
External health & safety accreditations and
relationships maintained with regulatory bodies.
• Health & safety is a priority area of focus for new
acquisitions.
• Group Code of Conduct sets out required approach
for all staff.
•
Staff training provided on Modern Slavery red
flags, 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 2022.
•
Toolkits issued to all UK operating companies to aid
compliance with GDPR.
68
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 NON-FINANCIAL INFORMATION STATEMENT
We aim to comply with the Non-financial Reporting requirements contained in S414CA and S415CB of the Companies Act 2006. The table below,
and the information it refers to, is intended to help readers understand our position on key non-financial matters.
Those policies marked with an asterisk can be found on the Company’s website hsgroup.com/who-we-are/governance/our-policies/
Reporting requirement
Environmental matters
Policies and standards which
govern our approach
Additional information
See
Page No.
•
•
Environment policy*
Energy policy*
•
Sustainability Plan including:
32 to 57
• 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 57
•
•
Training and 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 57
•
•
Employment references policy
Equal opportunities and diversity policy*
• Board diversity statement*
• Data protection policy*
• Modern slavery policy*
• Diversity & Inclusion
• Gender Pay
• Human rights
Community
Anti-bribery and corruption
•
Individual subsidiary approach
• Non-financial KPIs
20 to 21
• Anti-bribery & corruption policy*
•
Sustainability Plan including:
32 to 57
•
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 and Uncertainties
•
Employee Engagement
• Diversity
•
Lost time injury rate
• Greenhouse gas emissions
• Water and waste
–
–
–
2 to 12
2 to 12
60 to 65
56 to 57
69
Stock Code HILSSTRATEGIC REPORT BOARD OF DIRECTORS
Alan Giddins
Interim Executive Chair
Hannah Nichols
Group Chief
Financial Officer
Tony Quinlan
Senior Independent
Non-executive
Annette Kelleher
Independent
Non-executive
N
A
N
R
A
N
R
Appointed to the Board
3 October 2017
Appointed to the Board
16 September 2019
Appointed to the Board
2 December 2019
Appointed to the Board
1 December 2014
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.
In July 2022 Alan was asked by
the Board to take on the role of
Executive Chair while a search
was undertaken for a new Chief
Executive.
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.
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.
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. 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.
70
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 A Audit Committee
N Nomination Committee
R Remuneration Committee
Chair
Mark Reckitt
Independent
Non-executive
Pete Raby
Independent
Non-executive
Leigh-Ann Russell
Independent
Non-executive
Farrokh Batliwala
Independent
Non- executive
A
N
R
A
N
R
A
N
R
A
N
R
Appointed to the Board
1 June 2016
Appointed to the Board
2 December 2019
Appointed to the Board
1 April 2021
Appointed to the Board
1 April 2022
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.
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.
Farrokh was formerly President
of the Connect and Control
Technologies division of ITT Inc
("ITT"), a US listed industrials
group. Farrokh has significant
international operational and
leadership experience, combined
with having held senior roles in
both Strategy and M&A. Prior to
joining ITT, Farrokh held senior
management roles at both Eaton
Corporation and Pratt & Whitney.
Farrokh lives on the East Coast
of the US and has a degree in
Mechanical Engineering from
Vanderbilt University and an
MBA from Kellogg School of
Management, Northwestern
University.
71
Stock Code HILSGOVERNANCE REPORT INTRODUCTION TO GOVERNANCE
We will keep risk
high on the Board
agenda, recognising
that a number of the
market challenges
the Group faced in
2022 have flowed
through into 2023."
Alan Giddins
Interim Executive Chair
Dear Stakeholder
I am pleased to introduce
this Governance Report,
setting out how the
business has discharged
its responsibilities during
2022 and its compliance
with the UK Corporate
Governance Code 2018.
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 74 to 83.
Basis of Report
We have used the UK Corporate Governance
Code 2018 (the “Code”) to assess our
governance arrangements during 2022. As a
premium listed issuer on the London Stock
Exchange and in accordance with the listing
rules, Hill & Smith PLC has assessed its
application of the Code under the headings of:
• Board Leadership and Company Purpose;
• Division of Responsibilities;
• Composition, Succession and Evaluation;
• Audit, Risk and Internal Control; and
• Remuneration.
72
Compliance with the UK Corporate
Governance Code
The Board has evaluated its compliance with
the Code and confirms that Hill & Smith PLC
complied with the requirements of the Code,
except in relation to the requirement that the
roles of chair and chief executive should not
be exercised by the same individual. Since
July 2022 these roles were performed by
myself, in the capacity of interim Executive
Chair, following Paul Simmons stepping down
from the Board in July 2022.
After careful consideration of alternative
options, the Board felt that my appointment
as Executive Chair was appropriate. A search
for Paul’s successor was started and several
additional governance safeguards around
this dual role have been implemented. More
information on this can be found in the
Governance Report on page 76.
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 Company; the values and
standards within the business; subsidiary
company management performance;
resources; health & safety; risk management;
and internal controls.
At 31 December 2022, the Board comprised
six Non-executive Directors, myself as
Executive Chair, and one Executive Director.
More information can be found on the Board’s
effectiveness in the Governance Report on
page 80.
Board Committees
Throughout the year, the Board was
supported by an Audit Committee, a
Nomination Committee and a Remuneration
Committee. Outside of the formal Board
structure, an ESG Committee, Risk Committee
and Executive Board all provided input into
the Board decision-making framework.
Board Activities
During 2022 Board members visited 12 of
our sites to meet with the local management
teams and to expand their knowledge of the
relevant operating company’s activities and
end markets. We also undertook our Group
Strategy Day in the US. I will be encouraging
my Board colleagues to continue to take the
opportunity to arrange informal visits to our
operations wherever possible during 2023.
The Board spent time reviewing the M&A
pipeline and portfolio management activities,
ultimately leading to the disposal of our French
galvanizing operations in October as well as a
partial exit of our Swedish roads operations.
The Board also approved the acquisitions of
Widnes Galvanizing and National Signal, both
of which are highly complementary to our
existing portfolio of businesses.
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Health & safety continued to be a priority
focus for the Board, and we were pleased
to see an improved trend in relation to our
health & safety KPIs over the course of the
year. The Board receives an update at each
meeting on health & safety performance and
holds the business to account for any areas
of improvement.
I am pleased to report that ESG is a topic that
has gained significant momentum within Hill
& Smith during the year. The Board received
a number of ESG updates from our Group
Head of Sustainability and the Board has
been pleased with the enthusiasm shown by
our businesses in embracing the changes
necessary to make our business more
sustainable. You can read more about our
ESG progress on pages 32 to 57 of this report.
Looking Ahead
The Board will continue to prioritise good
governance within the Group. We will keep
risk high on the Board agenda, recognising
that a number of the market challenges the
Group faced in 2022 have flowed through
into 2023. Health & safety will also remain a
priority. The Board will continue to challenge
management to ensure that we have the
appropriate level of resource across our
businesses and that where issues arise
appropriate actions and learnings are taken.
Alan Giddins
Interim Executive Chair
8 March 2023
’Westminster’ HVM Bollards, Royal Albert Hall, London, supplied by ATG Access
73
Stock Code HILSGOVERNANCE REPORT GOVERNANCE REPORT
HILL & SMITH PLC BOARD
NOMINATION
COMMITTEE
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
EXECUTIVE
BOARD
RISK
COMMITTEE
ESG
COMMITTEE
GROUP
PRESIDENTS
OPERATING
COMPANY
BOARDS
Hill & Smith PLC is a company
with a premium listing on
the London Stock Exchange.
During 2022, the Company
fully complied with the
provisions of the UK Corporate
Governance Code 2018,
with the exception of the
requirement that the roles
of chair and chief executive
should not be performed by
the same person. Following
Paul Simmons stepping down
from the Board of Hill & Smith
in July 2022, Alan Giddins
was appointed Executive
Chair while a search for Paul’s
successor was undertaken.
BOARD LEADERSHIP
The Board sets the entrepreneurial culture
within which our businesses operate and
is collectively responsible for the long term
success of the Company. The Hill & Smith
PLC group comprises the holding company
and its principal operating companies,
listed on pages 196 to 198. 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 our businesses
report to the Group through a Group President
operating model. The Group Presidents are
members of the Executive Board alongside
other senior executives, the Chief Financial
Officer, the Group Corporate Development
Director and the Executive Chair. Details of
the Group’s business model can be found
on pages 10 to 11.
The Executive Chair and Chief Financial
Officer receive regular reports on the
performance of the operating companies,
and the Group Presidents are responsible
for ensuring a consistent application of
governance, operational procedures, risk
management, and Group policies and
practices.
74
ProPower 3-Phase solar power unit, provided by Prolectric
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Hill & Smith PLC Annual General
Meeting (‛AGM’)
The Hill & Smith PLC AGM was held in person
last year, following two years of government
restrictions on indoor gatherings due to
COVID. While the existence of the virus
continues, the absence of restrictions on
gatherings means we anticipate being able
to welcome shareholders again in person
in 2023. The details of the 2023 AGM can
be found on page 115 and in the Notice of
Meeting.
The Company’s Annual Report and Notice of
Meeting 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 three committees:
Nomination; Audit; and Remuneration.
Membership of these committees is set out
on pages 84, 88 and 94 of this report. The
Board considered whether the Company’s
ESG Committee should be classed as
a ’Board Committee’. In deciding that it
should not be, the Board noted that both the
Executive Chair and the Chief Financial Officer
both sat on the Committee and that the
Board, as a whole, received regular updates
from the Committee.
STRATEGY
• Group strategy and
operating plans
• Business development
including acquisitions and
divestments
• Major capital investments
and divestitures
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
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, Internal
Control and ESG.
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 2022
s.172 Statement can be found on page 78 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 operating companies 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 Executive Chair and Chief Financial
Officer met with institutional shareholder
representatives both in the UK and USA,
including at one of our principal sites in
the West Midlands. Feedback from these
meetings is included within the materials
shared with the Board. The Board also
receives reports from the Company’s broker
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 Company Secretary.
The Executive Chair and Tony Quinlan,
Senior Independent Director are available
to meet with shareholders concerning
corporate governance issues, if so required.
No concerns regarding the running of the
company or any proposed action were
received or recorded from shareholders in the
year under review or to the date of this report.
The Company Secretary also engages with
shareholders and the investor community
as and when required. Copies of all trading
updates and Interim and Annual Reports are
posted on the Company’s website, together
with details of key financial and shareholder
information, governance statements, Group
policies and corporate and organisational
structure.
75
Stock Code HILSGOVERNANCE 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.hsgroup.com. During 2022,
additional measures were implemented
following the appointment of Alan
Giddins as Executive Chair.
2022 Key Points
• Reviewed the role of the Chair;
•
Since July 2022, Alan Giddins
assumed the role of Executive
Chair, while the search for
Paul Simmons’ successor was
undertaken; and
• Reviewed the terms of reference
for our Committees, and the
Matters Reserved for the Board
Role of Executive Chair
(since July 2022)
Following Paul Simmons stepping down in
July 2022, Alan Giddins assumed the role
of interim Executive Chair while a search
for Paul’s successor was undertaken. The
Board agreed that a number of governance
safeguards be implemented, including i) a
formal session at the end of every Board
meeting for Non-executive Directors, which
the Executive Chair is not a part of; and ii)
that the Senior Independent Director should
review all M&A papers independently before
submission to the Board. Since the start of
2023 the Executive Chair has also stepped
down from membership of the Remuneration
Committee.
A formal review of the Chair’s role
was undertaken in October by the
Senior Independent Director, with all
recommendations being implemented.
Role of Chair (January 2022 –
July 2022)
The Chair is responsible for the leadership
and effective working of the Board. The size
Fabrication welding, Lionweld Kennedy, Middlesbrough
76
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
The Chief Executive is responsible for the
management of the Company, executing the
Group’s strategy and development, meeting
financial objectives, implementing policies
and maintaining controls. Along with the Chief
Financial Officer, the Chief Executive provides
information to the Board via written reports
and presentations at Board meetings.
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.
All Non-Executive Directors 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 Group, 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 takes it authority
from the Chief Executive (or their substitute).
It is not a committee of the PLC Board,
nor a decision-making body, but provides
a valuable forum for senior executives to
discuss matters of importance.
Meeting monthly and more often as may
be required, the Executive Board 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.
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Board Committees
HILL & SMITH PLC BOARD
Nomination Committee
Audit Committee
Remuneration Committee
Currently comprises the Executive Chair
(who chairs the Committee), and the six
Non-executive Directors.
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.hsgroup.com and
more information on the work of the
Committee can be found in the Committee
Chair’s report at page 84.
Currently comprises the Chair of the
Committee, and five Non-executive
Directors. The Executive Chair is invited to
attend meetings.
Has responsibility for the creation,
approval and implementation of the
Company’s Remuneration Policy in
respect of Executive Directors, Company
Secretary and senior executives.
The terms of reference of the
Remuneration Committee can be found at
www.hsgroup.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 the Chair of the Committee
and five Non-executive Directors. While
the Executive Chair 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 86 to 91 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 operating companies,
including those in the US.
The terms of reference of the Audit
Committee can be found at www.hsgroup.
com and more information on the work
of the Committee can be found in the
Committee Chair’s report at page 86.
Frequency of meetings
During 2022, the Board met on 10 occasions, the Audit Committee on four occasions, the Nomination Committee met four 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
Farrokh Batliwala*
Paul Simmons*
Hannah Nichols
Board
10/10
10/10
10/10
10/10
10/10
10/10
7/7
5/5
10/10
Audit
Committee
Nominations
Committee
Remuneration
Committee
–
4/4
4/4
4/4
4/4
4/4
3/3
–
–
4/4
4/4
4/4
4/4
4/4
4/4
3/3
1/1
–
6/6
6/6
6/6
6/6
6/6
6/6
4/4
–
–
* Paul Simmons and Farrokh Batliwala attended all meetings they were 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 12 different sites in the UK and US, giving them a detailed insight into the culture and
operations of each business.
77
Stock Code HILSGOVERNANCE REPORT GOVERNANCE REPORT continued
Board decision making (S.172)
The Board’s interaction with key stakeholders is set out on pages 58 to 59. 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 2006, are set out below.
Principal decision and
stakeholders considered
Dividend
Shareholders, potential
investors and lenders.
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
compliance with 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.
Capital allocation
Shareholders, potential investors,
lenders, employees, customers
and operating companies.
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.
Acquisitions and disposals
Shareholders, potential
investors, lenders, operating
companies, customers and
future employees.
The Board receives detailed proposals from the
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 returns, together with
the management and control requirements, while
considering the strategic fit with our purpose, and the
opportunities for geographic or market expansion.
The Group’s portfolio management criteria both
for existing operating companies and potential
acquisition targets requires a structured discipline.
We consider acquisitions which are aligned to our
purpose, and which are in market niches 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, and
society.
The Board recognises the importance of a low
carbon economy and the role that the Group has
to play in achieving this, and is mindful that this
is a high priority for multiple stakeholder groups.
Accordingly, the Board focuses on areas where the
Group could make the most impact. The new Group
Head of Sustainability has focused on establishing
a Scope 3 baseline for our carbon emissions
reduction plan.
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.
All directors have access to the advice and
services of the 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 2022.
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 70 to 71. In accordance
with the Articles, the Board authorised the
Company Secretary to receive notifications
of conflicts of interest on behalf of the Board
and to make recommendations as to whether
the relevant matters should be authorised by
the Board. The Company has complied with
these procedures.
Support available to the Board
The Board is supported by the Company
Secretary who, under the direction of the
Executive Chair, ensures that communication
and information flows between Board
members. The Company Secretary is also
responsible for assisting the Executive 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.
78
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 COMPOSITION, SUCCESSION AND EVALUATION
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.
2022 Key Points
• Appointment of Farrokh Batliwala
to the PLC Board in April 2022;
• Reviewed succession plans
at both the Board and senior
executive level;
• Commenced the search for Paul
Simmons’ successor.
Composition of the Board
The individual biographies of the Board
members can be found on pages 70 to 71.
At 31 December 2022, three quarters of the
Board comprised independent Non-executive
Directors.
In compliance with the Code and the
Company’s Articles of Association, directors
retire at every Annual General Meeting (‛AGM’)
and, if deemed appropriate by the Board,
directors are proposed for re-appointment
by shareholders at the forthcoming AGM.
Following this evaluation of the performance
of the Board, and on the recommendation
of the Nomination Committee, the Board
is proposing that all Directors, with the
exception of Annette Kelleher, who is stepping
down from the Board following the AGM,
should stand for re-election at the Group’s
forthcoming AGM in May 2023.
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 80), are key
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.
At 31 December 2022, the Board comprised:
Alan Giddins
(Interim Executive Chair)
Farrokh Batliwala
(Non-executive
Director)
Annette Kelleher
(Non-executive
Director)
Hannah Nichols
(Chief Financial
Officer)
PLC Board
Pete Raby
(Non-executive
Director)
Mark Reckitt
(Non-executive
Director)
Tony Quinlan
(Non-executive
Director)
Leigh-Ann Russell
(Non-executive Director)
79
Stock Code HILSGOVERNANCE REPORT GOVERNANCE REPORT continued
Numbers represent
Board members
with appropriate
experience
6
6
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Skills and business
experience of the Board
M e r g e r s &
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Financial
Planning
6
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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
Company Secretary.
Evaluating the Board’s performance
This year, the Board performed an internal
evaluation in compliance with the UK
Corporate Governance Code. The results
showed that Board members were satisfied
with how meetings were conducted, that
appropriate attendees and information were
available to them in order to make decisions
and that the Group’s strategy and execution
was kept under appropriate review.
The results of the evaluation were considered
at the March 2023 Board meeting and any
material actions arising will be referred to in
subsequent annual reports.
Succession planning
The Nomination Committee has responsibility
for evaluating medium and long term Board
and Executive Board succession planning,
and for making recommendations to the
Board.
A review of talent was undertaken across the
Group, identifying potential future leaders
and their development needs. A formal
360-degree PDP process was instigated and
the results were presented to the Board.
At a local level, each operating company is
required to have its own succession plan in
place, and these are reviewed on a regular
basis by each operating Board and fed
through to the Executive Board 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, to
enhance the quality of decisions through
differing views and backgrounds.
As part of this commitment, the Group
includes in the annual report, details of the
numbers of men and women at board level;
the number of men and women who are
’senior managers’ (i.e., those employees who
report directly to the Managing Directors of
our operating companies); and the number of
men and women across the organisation as a
whole. See page 49 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 2022, the
Board membership comprised 38% female
and 62% male, and was 13% ethnically diverse.
38%
Board
Diversity –
Gender
Male
Female
62%
80
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
AUDIT, RISK AND INTERNAL CONTROL
Internal Audit
Our Internal Audit team conducted audits
across the breadth of our business, including
a review of compliance with the Group
Financial Controls Manual and Group IT
Controls Manual. The Audit Committee
additionally received updates on actions
arising from prior audits.
The Audit Committee also reviewed and
approved the annual audit plans for 2023, as
prepared by the Head of Risk and Internal Audit.
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 corporate objectives.
An ongoing process for identifying, evaluating
and managing the significant risks faced by
the Group and assessing the effectiveness
of related controls has been established
by the Board to ensure an acceptable risk/
reward profile across the Group. This routinely
identifies areas for improvement. 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
2022, 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 Board members;
review of the corporate risk register in
terms of completeness and accuracy with
the senior management team and the
Executive Directors;
the use of a Risk Committee to monitor,
validate and report on the Group-wide risk
assessment process;
• Audit Committee discussion of the
corporate risk register and the risk
management system with subsequent
reports to the Board; and
•
the embedding of a senior management
top-down approach to complement the
work of the Risk Committee.
More information on the Group’s Principal
risks is shown on pages 64 to 68.
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 2022, 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;
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
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 a period of at least
12 months following the approval of these
Financial Statements. 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
December 2024, 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 2023 and 31
December 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 31 December 2023.
The Directors do not consider the resulting
performance levels to be plausible given the
Group’s strong trading performance in the
first half and the resilience of the end markets
in which we operate.
Summary
A strong audit and internal control
framework, with robust risk
management, which gives confidence
to the Board that Hill & Smith PLC is a
well-run company.
2022 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.
81
Stock Code HILSGOVERNANCE REPORT GOVERNANCE REPORT continued
Viability Statement
The directors have considered the prospects
of the Group over the four-year period
immediately following the 2022 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 81. 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. 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 20 to 21) 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 (all of which are detailed in the Strategic
Report on pages 64 to 68).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:
•
•
•
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
Engineered Solutions businesses in the
UK and US.
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 2022
with a borrowing facility headroom of £237.9m
and a history of strong cash generation, with
cash conversion averaging in excess of 80%
over the last ten years. The Directors noted
that the Company had refinanced its core
revolving credit facility in 2022, entering into
a new agreement with a value of £250m and
an initial maturity of November 2026, shortly
before the end of the four-year assessment
period. However, the facility has an option to
extend the maturity by one year at the first
anniversary and based on past experience and
normal market practice, the Directors have a
reasonable expectation that the extension will
be taken. Taking this information into account,
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 2026.
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:
•
•
•
•
that the process by which the allocation of
responsibility for the preparation of certain
sections of the Annual Report to individuals
in the central team and their review by
external advisors was fit for purpose;
that the information given represented
the whole story of the business’
performance in 2022 and did not mislead
the reader by excluding appropriate bad
news. That the disclosures of the Group’s
business segments, and key messages
are consistently delivered throughout the
document, KPIs are clear and appropriate
and linked to both the Group’s strategy
and remuneration incentives;
that it was a suitable document to inform
both existing and prospective shareholders
about the financial and non-financial
performance of the business, with the
messages delivered in the Directors’ Report,
including the Operating and Financial
Review and the Financial Statements being
balanced and consistent and that the report
set out a detailed and fair representation of
the Group’s activities and performance and
that certain matters have been identified
and discussed between management,
the Audit Committee and the 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 2022 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 116 and the Independent Auditor’s
Report on pages 118 to 125.
82
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 REMUNERATION
About our Remuneration Policy
Summary
A remuneration structure which is
designed to attract and retain talent, to
motivate our leaders and reward their
success.
2022 Key Points
• Mitigation of cost of living
pressures on our employees;
• Consideration of Gender Pay
reporting;
•
2022 LTIP Grant for senior
employees; and
• Approved the change to our
remuneration advisors, following a
competitive tender process.
EXECUTIVE PAY
SALARY
SHORT-TERM
ANNUAL BONUS,
INCLUDING
50% DEFERRED
THREE-YEAR
LONGER-TERM
INCENTIVE
ARRANGEMENT
The current Director’s Remuneration Policy
was last approved by shareholders at the 2020
AGM and will be presented to shareholders for
approval in 2023. 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 do
not reward failure. More information on the
Group’s proposed Remuneration Policy is
available in the Policy Table on pages 105
to 109.
Executive Director salary package
Executive Director pay arrangements are
made up of three fundamental elements as
you can see from the graphic above.
The Group’s Remuneration Committee Report
on pages 94 to 104 sets out the remuneration
of the Executive Directors for 2022.
Pay increases
The Remuneration Committee is acutely
aware of the pressures facing many
employees as a result of high inflation. While
each operating company sets their own pay
policy, the Committee has been impressed
with the thought and care our businesses
have taken in supporting our employees.
These include in-year pay reviews, ’one off’
cost of living awards, crisis loans and also
variable uplifts, meaning that those on lower
incomes receive a greater uplift in salary than
higher earners. More information is available
on page 101 of the Group’s Remuneration
Committee Report.
Heritage ’Westminster’ HVM Bollards, Westminster Bridge, London
83
Stock Code HILSGOVERNANCE REPORT NOMINATION COMMITTEE REPORT
The Committee
is committed to
ensuring that the
Board, Executive
Board and senior
management team
have the right mix
of skills, experience,
knowledge and
background."
Committee membership
Throughout the year the Committee comprised
myself as the Chair, and subsequently
Executive Chair, and the Non-executive
Directors Annette Kelleher, Leigh-Ann Russell,
Tony Quinlan, Pete Raby and Mark Reckitt.
Farrokh Batliwala joined the Committee on his
appointment on 1 April 2022.
The Committee met four 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
5 years 3 months
30 September 2026
Annette Kelleher
1 December 2014
8 years 1 month
30 November 2023
Farrokh Batliwala
1 April 2022
9 months
31 March 2031
Leigh-Ann Russell
1 April 2021
1 year 9 months
31 March 2030
Mark Reckitt
1 June 2016
6 years 7 months
31 May 2024
Pete Raby
1 December 2019
3 years 1 month
30 November 2028
Tony Quinlan
1 December 2019
3 years 1 month
30 November 2028
Alan Giddins
Interim Executive Chair
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.hsgroup.com.
84
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Chief Executive Appointment
In July 2022 Paul Simmons stepped down
from the Board and as Chief Executive of the
Group. I was asked by the Board to take on the
role of interim Executive Chair while a search
was undertaken for a new Chief Executive.
Prior to the appointment of a search firm, the
Nomination Committee spent time evaluating
the key skills and characteristics required of a
successful Chief Executive at Hill & Smith. A
search process is currently ongoing.
Board Composition and Succession
During the year the Committee has spent
time evaluating medium and long term Board
composition and succession and the skills
and experience needed to deliver the Group’s
Strategic Plan. A key recommendation from
this evaluation was the need to add a US
based Non-executive to the Board. On the
Committee’s recommendation the Board
appointed Farrokh Batliwala as a Non-
executive Director, 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. Having
grown up in India, Farrokh now lives on the
East Coast of the US.
Annette Kelleher, Chair of the Remuneration
Committee, joined as a Non-executive
Director in December 2014 and is stepping
down from the Board following the May
2023 AGM. In considering an appropriate
individual to replace Annette as Remuneration
Committee Chair, the Board felt that it would
be beneficial to consider whether this role
could be undertaken by an existing Board
member. Following appropriate consideration,
Tony Quinlan, who has served on the
Remuneration Committee since December
2019, has been invited to take over from
Annette Kelleher as Chair of the Committee.
Mark Reckitt, who is Chair of the Audit
Committee is to step down from the Board
following the May 2024 AGM. Towards the
end of this year the Committee will begin the
process of looking for a new Non-executive
Director who could take on the Audit
Committee Chair role, while ensuring that
there is an appropriate handover period.
Executive Board and Succession
During the year the Committee undertook a
review of the Executive Board and the skills
required to ensure that the Group is able to
deliver on its Strategic Plan. While there was
appropriate succession in place for certain
roles, the review highlighted the importance
of developing the next generation of senior
leaders within the business, and this will be a
key focus for the Committee during 2023.
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.
As at 31 December 2022 and the date of
this report, the Board will comprise three
female directors (38%) and five male directors
(62%), with one Board director from an ethnic
minority background (13%).
Plans for the year ahead
The Committee’s focus in 2023 will be
to conclude the search for a Group Chief
Executive and to ensure the Board is
organised to meet its listed company
obligations. The Committee will also give
particular emphasis in the current year
towards ensuring appropriate development
plans are in place for each member of
the Executive Board and that appropriate
consideration is being given to succession
planning at the Managing Director level within
our operating companies.
Alan Giddins
Interim Executive Chair
8 March 2023
Solar street lights and solar bollards, Farnborough, supplied by Prolectric
85
Stock Code HILSGOVERNANCE REPORT AUDIT COMMITTEE REPORT
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."
Mark Reckitt
Chair
Dear Stakeholder
It is a pleasure to make
my report as Chair of the
Audit Committee of Hill &
Smith 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.
The business model of Hill & Smith delegates
substantial authority to the business units,
which enables an entrepreneurial approach.
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 operating company. 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
operating company to ensure IT resilience
and cyber security. IT infrastructure and
related controls remains a key focus area
for the Committee, resulting in the current
investment plan in IT and cyber security.
During 2021 internal audit work was
completed remotely for overseas operating
companies and on-site for UK operating
companies. Internal Audit were able to
recommence the completion of on-site
fieldwork for overseas operating companies
during 2022 due to the removal of COVID
travel restrictions. In December 2022, the
Audit Committee approved an internal audit
plan for 2023 which includes a Purchase
Contracts thematic review and development
of an Audit and Assurance Policy, while
continuing the primary work of monitoring our
business units’ compliance with our Group
policies and controls.
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. The Committee is building a clear
picture of the risks being considered by the
operating companies as well as the actions
to mitigate these risks, which is facilitating
risk appetite discussion. More information on
the risk management process adopted by the
Group can be found on pages 60 to 63.
Following Ernst & Young LLP’s (‛EY’) audit of
the Group’s financial statements in relation
to the year-ended 31 December 2021, 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 July 2022, we discussed and agreed
the plan for their year-end audit procedures
and the fee for their work in 2022. The audit
of our 2022 financial statements is the
third audit that EY have conducted, and the
Committee remain satisfied with their levels
of independence, objectivity and professional
judgement and the oversight they give to
our financial statements. The FRC’S Audit
Quality Review team reviewed the audit of
the Group’s 31 December 2021 consolidated
financial statements. No findings arose from
this review.
This Audit Committee Report explains
how the Committee has discharged its
responsibilities during 2022, and considers
the specific topics of:
• Primary areas of judgement considered
by the Committee in relation to the 2022
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 on 25 May 2023.
Mark Reckitt
Chair
8 March 2023
86
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 LTS Hybrid Solar Light Tower, National Signal
87
Stock Code HILSGOVERNANCE 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;
Leigh-Ann Russell; and
Farrokh Batliwala (appointed 1 April 2022).
Attendees at each of the meetings included
by invitation, the Chair of the PLC Board; the
Group Chief Executive (and the Executive
Chair following CEO’s departure); 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 PLC Board) on whether the 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, internal control, and risk
management systems;
• monitoring and reviewing the
effectiveness of the Company’s
internal audit function and making
recommendations to the PLC 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 PLC
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;
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 PLC 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 Chairman and Senior
Independent Director at Cranswick plc.
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, and our approach to managing
risk and assurance generally.
Primary areas of judgement
considered by the Committee in
relation to the 2022 accounts
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 126 to 180. 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 £139.9m at 31 December
2022. 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 PLC 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 intangible assets across
the relevant cash generating units. In 2022,
the Committee reviewed the results of these
calculations and 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 PLC 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 paid particular
attention to the assessments made in respect
of Parking Facilities Ltd, ATG Access Ltd, and
Hill & Smith Inc.
Parking Facilities – the COVID pandemic
resulted in a weak trading period in 2020 as
several customer contracts were cancelled
or postponed and whilst the business saw
a marginal improvement in revenue and
profitability in 2021, ongoing constraints on
customer budgets continued to weigh on
demand. In 2022, customer activity continued
to be weak and supply chain challenges,
input cost inflation and operational
issues led to a deterioration in margins.
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 increasing competition in the medium
to longer term. Management’s assessment
concluded that following the impairment
charge of £5.2m recognised in 2021, a
further deterioration in the outlook meant
that an additional charge of £4.4m in respect
of the remaining intangible assets relating
to the acquisition was required in 2022.
After reviewing management’s forecasts
for future performance and challenging the
assumptions adopted, the Committee agreed
with management’s conclusions.
ATG Access – in 2021, management’s
impairment assessment 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 2021 results. Trading in
2022 improved on 2021 and ATG’s outturn
for the year was marginally ahead of previous
expectations, with robust order intake rates
and consistent order backlogs. Taking this
performance into account, management’s
impairment assessment in 2022 concluded
that there had been no significant change
in the market outlook since the prior year
88
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 During the year, the Committee met on four occasions according to the requirements of
the Company’s financial calendar, covering the following agenda items.
March 2022
• Key risks and judgements relating to the 2021 Financial Statements
• Report from External Auditors on the Financial Statements for the year ended
31 December 2021
•
Financial Statements and Annual Report for the year ended 31 December 2021,
including the statements on Going Concern, Viability, and Fair, Balanced and
Understandable
•
Internal Audit update
• Group Risk and Principal Risks review
• Review of the 2021 TCFD disclosure
• Potential impacts of the Russia-Ukraine conflict
July 2022
• 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 2022
Internal Audit update
September 2022
External Auditor update on audit planning
Internal Audit update
• Group Risk and Principal Risks review
December 2022
•
•
•
•
Internal Audit update, including Supply Chain Resilience thematic review
2023 Internal Audit Plan
2023 Internal Audit Charter
External Auditor verbal update on audit progress
and therefore that no impairment was
recommended in the year to 31 December
2022. Management acknowledged, however,
that the cash flow projections were sensitive
to the assumed rates of revenue and profit
growth post-2022 and that there were
plausible scenarios that could result in
a further impairment in the future. After
challenging management on aspects of the
business plan and the sensitivity disclosures
in the financial statements, the Committee
supported management’s view.
Hill & Smith Inc. – whilst underlying US roads
market conditions remain healthy, Hill & Smith
Inc.’s performance in 2022 was impacted
by operational and cost input challenges.
The new MD, who joined the business in
January 2023, prepared an updated business
plan which was presented to the PLC Board
in March 2023. Board members reviewed
the plan and challenged management, in
particular on aspects of market segmentation,
customer focus and operational execution.
The Board also received and reviewed
the output of an independent study that
management had commissioned to assess
the outlook for the US temporary road safety
barrier market over the next 5-10 years, which
was considered when preparing the updated
business plan. The financial projections
included in the updated plan assume that
actions taken to address the operational
issues will be successful, and that short to
medium term revenue growth will be above
long term averages due to the anticipated
federal and state highway spend over the
next five years. The resulting impairment
calculations indicated headroom of £9.6m
(2021: £21.3m). The Committee further
challenged management on the basis for the
projections included in the updated plan and
in conclusion, concurred with management’s
view that no impairment was required. The
Committee also studied the sensitivities to
the forecasts and the impact of possible
changes in assumptions, and reviewed
the disclosures of those sensitivities in the
financial statements, concluding that they
were appropriate.
The disclosures made in respect of the
sensitivities around impairment calculations
can be found in note 13 to the Financial
Statements on pages 152 to 158.
Defined benefit pension scheme
valuation
Net defined benefit pension obligations under
IAS19 amounted to £7.2m at 31 December
2022. 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 PLC 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. For 2022, the Committee
received forecasts based on various
scenarios and considered what would be
required for the Group to breach its borrowing
covenants or extinguish its borrowing
facilities in the next 18 months. Following
a robust assessment of the forecasts, the
Committee concluded that adoption of the
going concern principle was appropriate for
both the interim and full year results. The
Committee also reviewed and approved the
going concern disclosures that are included in
the financial statements.
89
Stock Code HILSGOVERNANCE REPORT AUDIT COMMITTEE REPORT continued
Whilst not considered to be primary areas of
judgement, the Committee’s discussions in
relation to the 2022 accounts also included
the following:
• Given the relatively significant value
of non-underlying items in 2022, the
Committee challenged management
on the presentation of those items. The
discussion focused largely on the costs
of the Group’s activity on acquisitions
and disposals, and costs relating to
restructuring actions taken in the VMS,
ATA and Hill & Smith Inc businesses.
The Committee concurred with
management’s view, noting that the work
of the external auditor in this area also
supported that view.
•
Following the acquisitions of National
Signal and Widnes Galvanising during
the year, the Committee challenged
management on the acquisition
accounting, focussing on the
appropriateness of fair value adjustments
and the approach taken to valuation of
acquisition intangibles. The Committee
concurred with management’s approach,
noting the work of independent valuations
experts in relation to the purchase price
allocation under IFRS 3.
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.
how the function will discharge its
responsibility, primarily by preparing
and executing a risk-based audit plan,
identifying opportunities to improve
internal control, risk management
and governance processes and by
verifying that improvements agreed with
management are implemented within a
reasonable timeframe.
In accordance with the Internal Audit
Charter, the Audit Committee and executive
management ensure that the internal audit
function has free and unrestricted access
to the Group’s records, physical properties,
and personnel pertinent to 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 is aligned to the Principal Risks
of the business, adjusted to respond to
unexpected events, and receives regular
progress updates on the delivery of the
objectives of the plan;
the 22 internal audit reports and findings
presented throughout the year together
with the progress made 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;
accounting judgements including the
carrying value of goodwill and intangible
assets of ATG Access Ltd, Parking
Facilities Ltd, and Hill & Smith Inc; and
external audit reports, including the results
of early audit procedures and the audit
findings in relation to the year end audit.
The 2022 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 supply chain resilience. The review
concluded that while operating companies,
generally, responded well to supply chain
pressures over the last 18 months and
continued to fulfil customer orders, the
approach was reactive and that the operating
companies needed to be more proactive
in their planning around supply chain
vulnerability and risk mitigation.
Operating company-level reviews, focusing
on baseline internal controls were conducted
at 21 business units during the year (seven in
relation to financial controls and 14 in relation
to IT controls). 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.
Where operating companies fail to implement
such corrective actions within a reasonable
period as agreed, the Audit Committee is
informed, and further escalation measures
are taken.
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.
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 function was
appropriate to meet the Group’s needs during
the year.
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 PLC
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 62.
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 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
90
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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 PLC
Board’s overall risk appetite.
During 2022, the Committee directed that
particular attention be paid to the Principal
Risks around Health & Safety, IT Failure,
Recruitment and Retention, and Product
Failure. 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 Executive Board as well as the
PLC Board itself. While the LTIR performance
has seen an improvement across the Group
during 2022, health & safety remains a
key focus area for the Committee and the
appetite for improvement remains.
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. Regular
updates on operating company compliance
with the Group IT Controls Manual were
provided by internal audit.
More information on the activities of the Risk
Committee and the Group’s Principal Risks
can be found on pages 60 to 68.
TCFD
The TCFD (Taskforce on Climate-related
Financial Disclosures) recommendations,
published in 2017, encourage companies
to disclose information on their financial
risks and opportunities arising from climate
change, and how these are being managed.
In 2021 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.
In 2022 PwC were engaged to perform
assessment of the physical risks for
operational sites acquired in the year. The
results from PwC’s work were reviewed at
the March 2023 Audit Committee, following
which the Committee approved the 2022
disclosures relating to TCFD which can be
found in the Group’s Sustainability Plan on
pages 32 to 57.
Whistleblowing
The Group has a written policy which
states that if any employee in the Group
has reasonable grounds to believe that the
Group’s Code of Business Conduct is being
breached by any person or group of people,
they are able to report such incidents through
an externally hosted internet reporting system
and/or a telephone-based whistleblowing
hotline or if necessary, to the Company
Secretary or a Group President or the Chair
of the Audit Committee. This policy can be
found on the Group website.
Any incidents reported, whether through the
whistleblowing hotline or direct to the Company
Secretary or any other member of Group-level
management, are investigated under the
supervision of the Group Company Secretary
and resolved appropriately. 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 PLC Board.
Assessment of effectiveness
of external audit
There are several 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
2022 year-end audit during the Committee
meeting in July 2022. 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 Parking
Facilities, ATG Access Ltd and France Galva
S.A; the risk of fraud in revenue recognition; and
inventory valuation. 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 Hill & Smith Inc being reported on, and the
exclusion of the risk relating to France Galva’s
goodwill following its disposal in October 2022.
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 2023. The Committee questioned and
challenged the work undertaken, the findings
and the key assumptions made, paying
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 auditor 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.
Audit and Non-audit fees
At the December 2022 meeting the
Committee discussed and approved the
proposed audit fee for 2022.
The Committee maintained the approach of
minimising the non-audit work carried out
by the external auditor. The Committee’s
Non-audit Services Policy meets the detailed
requirements of audit legislation, which
restrict the use of the external auditor for
activities including compiling accounting
records, certain aspects of internal audit,
IT consultancy, tax services except in
exceptional circumstances, and advice to the
Remuneration Committee.
For any non-audit/additional services set out
in section 5.40 of the FRC’s ethical standard
2019, the policy provides for approval, by the
Group Chief Financial Officer, of expenditure
below £50,000, and above that level by the
Audit Committee. A report is also submitted
to the Audit Committee of any non-audit
services carried out by the external auditor,
irrespective of value to ensure that the
aggregated spend with the external auditor
will not exceed 70% of the audit fee.
During 2022, there were fees of £3,000 (2021:
£4,000) paid to the auditor for non-audit
services relating to other assurance services.
In 2022, non-audit fees represented 0.2% of
audit fees of £1.6m (2021: 0.2%). Further
details of these amounts are included in note
8 of the Financial Statements on page 148.
Mark Reckitt
Chair
8 March 2023
91
Stock Code HILSGOVERNANCE REPORT REMUNERATION COMMITTEE REPORT
The Group has
delivered record
revenue and profits
in 2022, which
demonstrates the
business’ resilience
to the challenging
headwinds of supply,
inflation and a post
COVID marketplace."
Annette Kelleher
Chair
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
the year ended 31 December
2022.
During 2022, the Committee
had a full agenda including
the triennial review of the
Directors’ Remuneration
Policy, which will be
presented to our shareholders
for approval at our 2023
Annual General Meeting
(‛AGM’) on 25 May 2023.
The Annual Report on Remuneration (pages
94 to 104), describes how the current
Remuneration Policy (the ’Policy’) has been
operated during 2022 and the proposed
operation in 2023 (subject to approval of the
updated Policy). The updated Policy is set
out pages 105 to 113. Shareholders will be
asked to approve both the Annual Report on
Remuneration, and the updated Policy at our
2023 AGM.
92
Business context
The Group has delivered record revenue
and profits in 2022, which demonstrates
the business’ resilience to the challenging
headwinds of supply, inflation and a post
COVID marketplace. The Group is reporting,
from continuing operations, revenues of
£732.1m and operating profits of £97.1m.
In addition to delivering robust financial
performance, 2022 has been a year of solid
progress in improving the quality of our
portfolio of businesses. We successfully
disposed of our lower growth, lower margin
French galvanising and lighting column
business, exited our Swedish rental and
infrastructure contract businesses and
the low margin road traffic control product
portfolio in the US. At the same time, we have
successfully completed acquisitions in high
growth markets to complement our existing
businesses. National Signal specialises in
off-grid solar lighting solutions and Widnes
Galvanising expands the geographic coverage
of our galvanising business in the UK.
A number of Board changes have also been
made during the year, including Paul Simmons
stepping down from his role as Chief
Executive Officer (‛CEO’) and from the Board
on 18 July and then ceasing employment with
the Group following a period of garden leave.
Alan Giddins, our Non-Executive Chair took
over as Executive Chair and will remain so
until a permanent CEO is appointed.
In respect of the period Alan Giddins has
served as Executive Chair he has received
a fee equivalent to the previous CEO’s base
salary of £562,071 per annum with the role
being undertaken on a full time basis. This will
be increased by 4% to £584,544 for 2023, and
until a CEO is appointed, at which point his fee
will revert to the typical Non-executive Chair
fee. Alan Giddins was not eligible to participate
in any variable remuneration arrangements
during 2022 and will also not participate during
2023. Details of exit arrangements for Paul
Simmons can be found on page 100.
2022 remuneration outcomes
Annual bonus
The 2022 annual bonus for the Executive
Directors was based on financial measures
(80% weighting) and personal objectives (20%
weighting). The formulaic outturn ranged
between 70% and 80% of the maximum
bonus available.
Details of the outturns against the financial
performance measures are set out on page 97.
The Committee assessed achievements
against personal objectives as set out on
page 97. Half of the bonus earned by each
Executive Director will be deferred into shares
for two years, to ensure long term alignment
with the interests of shareholders.
The Group has a history of focusing on
financial performance measures, however
recently, to recognise specific focus on
key matters we have introduced personal
objectives into the Executive Directors’ annual
bonus plans. In particular these included
the continued development of the Group’s
ESG strategy and implementing the Group’s
IT and cyber risk strategy with milestones
appropriate to 2022. The Committee was of
the view that these objectives should form
part of a non-financial series of activities
since they are initiatives that will strengthen
our underlying business, support the
Company’s overall strategy and facilitate the
delivery of long term sustainable growth.
More information can be found on page 97.
Progress against both the financial metrics
and the relevant milestones is measured
using our KPIs, which are embedded within
the executive remuneration framework as
illustrated by the information on page 97.
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 The Committee considered the outturn for
these elements against the formulaic targets
and agreed that these were appropriate
having regard to overall performance and
experience of stakeholders.
Long term incentive outcomes
With regard to our long term performance, our
2020 long term incentive award is eligible to
vest based on performance from 1 January
2020 to 31 December 2022. The portion of
this award vesting was determined based
on performance against Earnings Per Share
(‛EPS’) and Relative Total Shareholder Return
(‛TSR’) targets.
Based on EPS growth of 14.5% over the
performance period, and delivering a TSR
that placed the Company between median
and upper quartile versus the FTSE 250
constituents (excluding Investment Trusts
and financial services companies), the award
will vest at 43% of the maximum.
In determining vesting, the Committee
considered the potential for windfall gains
and concluded that the value on vesting of the
2020 award did not benefit from windfall gains.
In reaching this conclusion the Committee
noted that the granting of the 2020 award was
delayed until 25 September 2020, by which
time the Company’s share price had largely
recovered from the market wide fall that took
place in the first half of 2020 (the 2020 share
awards were granted based on a September
share price of £12.01 versus the March COVID
low of £9.01 and the 2019 award price of
£11.60). Furthermore, the Company’s share
price was broadly consistent with the grant
price at the end of the 2022 financial year
(i.e. it had not benefitted from a post Covid
bounce from September 2020). As a result
of the share price at the end of the three year
performance period, and noting the number
of shares comprised in the award at grant, the
Committee was comfortable that there was no
windfall gain associated with the vesting of the
2022 long term incentive plan award and that
vesting was consistent with the performance
of the Company through the period.
Given the combination of financial
performance and non-financial progress
achieved during the year, the Committee
awarded variable pay awards in line with the
formula-based outcomes. The Committee is
satisfied that the Remuneration Policy has
operated as intended and in reaching this
conclusion took into account overall Company
performance and other information such as
internal pay ratios and shareholder feedback.
Our new Directors’
Remuneration Policy
Our current Policy was approved by
shareholders at the 2020 AGM receiving
95.4% support. The 2023 AGM will mark the
third anniversary of the existing Policy and as
a result we will seek shareholder approval for
an updated Policy at the AGM.
During 2022, the Committee conducted
a review of the existing Policy and how
effectively it had operated during the current
Policy cycle. The Committee concluded
that the existing Policy, subject to minor
refinements, remains appropriate considering
the Group’s remuneration philosophy and will
continue to support the long term sustainable
growth strategy of the Group. The other
factors noted by the Committee in reaching
the decision to roll over our Policy
included that (i) the current Policy takes
account of current institutional investor ’best
practice’ expectations and aligns with relevant
corporate governance requirements, (ii) the
Policy provides market consistent flexibility
to refine the future choice of performance
metrics as strategy evolves, and (iii) the
Policy is expected to provide the appropriate
flexibility to facilitate the appointment of a
new permanent CEO.
In the event there was a need to make any
changes to the Policy within the next three-
year Policy period, recognising a new CEO
will be appointed, the Committee would in the
first instance undertake appropriate dialogue
with investors at that time.
To date, shareholders who provided feedback
understood the rationale for the proposed roll
forward of the Policy and were supportive
of the Committee’s approach. However,
feedback also indicated that the Group’s
Policy was not fully aligned to some of our
investors’ expectations concerning our post-
employment shareholding guidelines. Our
current guidelines were structured so that
shares were held equivalent to 200% of final
year salary (or if less to the maximum held)
for at least one year before the requirement
reduced to 100% of salary. In light of the
feedback received, the stepdown to 100%
of salary after a year post cessation of
employment will be removed and so the 200%
of salary guideline (or less to the maximum
held) will operate for two years post cessation
of employment bringing the guideline into full
IA compliance. This updated guideline applies
to shares acquired (after tax) through vested
LTIP and deferred bonus awards granted in
and from 2020.
Employee pay and stakeholder
engagement
With exceptionally high levels of inflation,
especially in our major markets in the UK and
US, we took a range of actions to support
our employees in 2022. Our responses varied
by location based on our understanding of
local needs. The actions taken included lump
sum payments, targeted salary adjustments
and voucher programmes as well as
increased financial education. In light of the
exceptionally high levels of inflation in 2022,
the Company has set salary increase budgets
at between 5% and 10% for 2023, depending
on country and local circumstances.
Our Board visited 12 of our operating sites
during the year and solicited feedback on
the Company and discussed a broad range
of topics that included remuneration and
how our structures align with strategy.
These visits, allied to the operation of our
annual engagement survey, ensure the Board
understands the views of all employees and
can act as needed to ensure we continue to
have an engaged and motivated workforce.
With regards to engagement with
shareholders, as detailed above, we
concluded a wide-ranging shareholder
consultation process from late 2022 as part
of our 2023 remuneration Policy renewal.
Looking forward to 2023
Our usual practice is to review Executive
Directors’ salaries on an annual basis. In
December, the Committee considered their
annual salary increases, effective January
2023. The Committee, recognises that when
Hannah Nichols was appointed in 2019 it was
her first PLC CFO role and she started on a
below market rate. Since then Hannah has
grown significantly in her role and in addition
she has taken responsibility for the delivery
of the Company’s IT and Cyber strategy. To
reflect this she has been awarded a 5% pay
increase and her annual long term incentive
award opportunity is to be increased. Her
salary increase is at the bottom end of the
majority of wider workforce pay rises of
between 5% and 10%. The Committee felt
it was also appropriate also to increase her
long term incentive arrangement grant from
125% of salary to 150% of salary for 2023,
and on an ongoing basis. The above changes,
both of which can be accommodated within
our existing Policy, will move her towards
the market rate for an experienced FTSE 250
Chief Financial Officer which is considered
appropriate in light of her calibre, her
performance in post and current experience.
With regard to the operation of the annual
bonus plan in 2023, there will be no change
to the maximum opportunity for the CFO at
125% of salary. However, we have refined
our choice of performance metrics to better
reflect our increased focus on profitability,
cash and efficiency in 2023. As a result,
the performance metrics will be underlying
operating profit (50%), operating cash
conversion (30% and replacing Return on
Invested Capital) and personal objectives set
against a basket of ESG measures (including
carbon reduction and health and safety) and
individual key responsibilities (20%).
The long term incentive awards granted in
2023 will remain subject to an equal split of
earnings per share growth targets and relative
total shareholder return targets. Having
considered internal plans and external market
expectations for our future performance, plus
the higher annual award level for the CFO for
the 2023 award, the Committee increased the
range of EPS growth targets from 3% - 11%
p.a. to 4% - 12% p.a. With the share price at
the time of writing within 5% to 10% of the
2022 grant price the Committee does not
envisage there to be the potential for windfall
gains arising from the 2023 award. However,
it will undertake a final review of the terms
of the award prior to granting and retains
discretion on vesting to adjust formula-based
outcomes (e.g. in the event of a perceived
windfall gain).
The Non-executive Director fees, including
additional fees, have been increased by 3%
with effect from January 2023. See page 104
for more details.
On a personal note, 2023 will mark the end
of my third term as Non-executive Director
with Hill & Smith and therefore I will be
stepping down from the Board following the
2023 AGM. Our Senior Independent Director,
Tony Quinlan, will succeed me in the role as
Committee Chair. I wish Tony the best of
luck in this role and thank our shareholders
for their support during my tenure as
Committee Chair.
I believe our approach to remuneration will
help to enable long term sustainable growth
while ensuring a responsible approach to
executive pay, and I look forward to receiving
your support on Resolutions 2 and 3 at our
2023 AGM.
Annette Kelleher
Chair
8 March 2023
93
Stock Code HILSGOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
Area of focus in 2022
During the year to 31 December 2022 the Remuneration Committee consisted of Annette
Kelleher as Chair, Alan Giddins, Mark Reckitt, Pete Raby, Tony Quinlan, Leigh-Ann Russell,
and Farrokh Batliwala, who was appointed from 1 April 2022. During the year the Committee
considered the following:
January and March
• Confirmation of the Executive Directors’ annual bonus targets and objectives
for 2022.
• Determination of variable pay outturns for the 2021 bonus and 2019 LTIP as
reported in last year’s Directors’ Remuneration Report.
• Approval of LTIP 2022 award.
• Amendment of the Company’s Deferred Bonus Plan rules to cover awards made to
senior non-UK based executives.
• Consideration of the Group’s Gender Pay statement.
July and September
• Approval of the ex-CEO’s Settlement Agreement and S430(B) Statement.
Details can be found on page 100.
• Appointment of Korn Ferry as new advisors to the Remuneration Committee.
• Approval of SAYE 2022 award.
• Consideration of remuneration trends as provided by Korn Ferry.
November and December
• Approval to roll over existing Remuneration Policy and consideration of shareholder
consultation letter (see pages 105 to 113 for more details).
• Consideration of possible variable pay outturns for the 2022 bonus and 2020 LTIP.
The bonus outturns are set out on pages 97 to 98.
•
•
2023 salary review for Executive Directors and members of the Group’s Executive Board
Executive Directors’ bonus plan for 2023, including personal objectives.
• Consideration of remuneration trends as provided by Korn Ferry.
Reward linked to performance
Operating Profit (at budgeted FX
rates) – outcome against target
Actual
£87.8m
Target £84.9m
Return on Invested Capital (at
budgeted FX rates) –
outcome against target
Actual
18.7%
Target 17.9%
Total annual bonus plan – Outcome,
including achievement of personal
objectives, see page 97.
Paul Simmons
72%
of maximum opportunity
(prorated to 18 July 2022)
Hannah Nichols
77%
of maximum opportunity
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 95 to 104)
Element
Purpose/structure
Base Salary and benefits
Enables the Company to recruit and retain Executive
Directors.
Operation for 2023
CFO – £374,525 (5% increase)
Executive Chair – £584,554 (4% increase)
Pension
Annual Bonus
To provide post-retirement benefits for Executive
Directors.
CFO – 6.5% of salary
Executive Chair – n/a
Performance measures and targets are reviewed and
set annually by the Remuneration Committee. At least
50% of bonus will be based on financial measures.
2023 performance measures: Budgeted underlying
operating profit (50%); budgeted cash conversion (30%);
and individual personal objectives (20%).
50% of any bonus is deferred into shares for two years.
Maximum opportunity: CFO: 125% of salary. Executive
Chair: n/a
LTIP
Three-year performance period, with a further two-year
holding period.
2023 performance measures: Relative TSR (50%) and
growth in UEPS (50%).
Grant size: CFO: 150% of salary. Executive Chair: n/a
Shareholding guidelines
To encourage shareholder alignment both during and
after employment.
200% shareholding for Executive Directors during
employment and for two years after employment ends.
94
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 The following chart shows Hill & Smith’s Total Shareholder Return during 2022
)
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
120
100
80
60
40
20
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Hill & Smith
Financial performance
Alignment with shareholders
Alignment with the
wider workforce
Organic revenue growth
14%
Underlying operating
profit margin
13.3%
Cash conversion
51%
Dividends payable to
shareholders in respect of 2022
£28.0m
Proportion of annual bonus
received in shares
Salary increase for
Executive Directors
50%
Shareholding guidelines
200%
Group Presidents have a 100%
Shareholding guideline
5.0%
(See page 103 for more details)
Salary increases for the
majority of the wider workforce
5%–10%
Proportion of Executive LTIP awards
subject to a mandatory two-year
holding period
Pension contributions for
Executive Directors
100%
No. of Group employees with
an interest in long term share
awards
121
6.5%
Maximum available for
UK employees
6.5%
95
Stock Code HILSGOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT continued
Implementation of the Remuneration Policy during 2022
Single remuneration figure
Base Salary
/ fees (1)
Taxable
Benefits (2)
Pension (3)
Alan Giddins (7)
Hannah Nichols
Paul Simmons (10)
Totals
Year
2022
2021(9)
2022
2021
2022
2021
2022
2021
257,241(8)
–
356,689
346,300
304,005
545,700
917,935
892,000
–
–
12,639
12,608
15,639
15,608
28,278
28,216
Total Fixed
Pay
257,241
–
392,513
381,417
356,179
596,779
Annual
Bonus (4)
–
–
Total
Variable
Pay
–
–
Total
“single
figure”’
257,241
–
LTIP
–
–
345,213
213,002
558,215
950,728
376,601
–
376,601
758,018
330,758
110,991(5)
441,749
797,928
720,324
463,766(6)
1,184,090
1,780,869
–
–
23,185
22,509
36,535
35,471
59,720
1,005,933
675,971
323,993
999,964
2,005,897
57,980
978,196
1,096,925
463,776
1,560,691
2,538,887
(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 (2021: £Nil) was paid to P Simmons in the form of subsistence, which is subject to PAYE and NIC deduction.
(3) Pension contributions for eligible 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 97.
(5) The LTIP figure for Paul Simmons for 2022 reflects the vesting on 29 July 2022 of Buy-Out Award 2 granted to him over 12,364 shares in connection with an LTIP
award forfeited when he joined Hill & Smith, as set out in the 2020 Directors’ Remuneration Report. During 2022, it was confirmed that 31.8% of the award would lapse
and therefore that 8,434 shares would vest. The value of £110,991 is the product of the number of vested shares and the share price of £13.16 on the date of vesting.
(6) 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.
(7) Following Paul Simmons stepping down from the Board on 18 July 2022, the Non-executive Chair, Alan Giddins, became Executive Chair. To reflect the additional
responsibilities associated with the role of Executive Chair his annual fee was increased from £181,990 to £562,071. He was not eligible to receive any variable
remuneration in respect of 2022.
(8) These amounts relate to the period which Alan Giddins served as Executive Chair.
(9) Alan Giddins served as Non-executive Chair in 2021 and the fees paid to him for his services amounted to £176,690. See page 100 for more details.
(10) Paul Simmons stepped down as CEO and from the Board on 18 July 2022. In the 2022 table above, remuneration earned to that date is included, except that for
consistency with the other Executive Directors, the full amount of the 2022 bonus, taxable benefits and pension are included in this table. Other payments made to
him are disclosed on page 100.
2022 annual bonus
Paul Simmons and Hannah Nichols were eligible to earn a bonus for 2022 of up to 150% and up to 125% of salary respectively. In line with the
Policy, 50% of any bonus is paid upfront in cash and the remaining 50% is deferred into shares for two years, with no performance conditions, and
subject, ordinarily, to continued employment.
Any bonus paid to Paul Simmons in respect of 2022, is pro-rated to his date of stepping down from the Board, being 18 July 2022.
96
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 The extent to which the Executive Directors’ bonuses were earned is summarised below:
Measure
Underlying operating profit (1)
Return on invested capital (1)
Personal objectives
Weighting
Target – 50% of
maximum (2)
50%
30%
£84.9m
17.9%
Maximum
– 100% of
maximum (2)
£92.9m
18.9%
Actual
performance
Actual bonus
earned
(% of maximum)
£87.8m
18.7%
34.1%
26.9%
20% 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) Underlying operating profit and return on invested capital are calculated at budgeted rates of exchange for the purposes of calculating the annual bonus
(2) The targets were restated to include the impact of material acquisitions and divestments during the year so that the targets were based on continuing operations
and were no more or less challenging than when originally set
The personal objectives set for each Executive Director are summarised below, along with the key achievements.
Executive Director
Objectives
Key achievements
Paul Simmons
Cause a step change in the Group’s health and safety
performance and culture. Improve the Group’s LTIR to 0.90 for
accident rates across the Group. Ensure the implementation
of Health & Safety training programme for all Executive Board
members and MDs.
Ensure progress against the Group sustainability plan as
disclosed in last year’s Annual Report.
Work with the Group Presidents to develop an M&A map aligned
with the Group’s strategy. Ensure the Group sees a strong pipeline
of high-quality opportunities and puts itself in a position to
execute on the most attractive opportunities. Ensure a successful
disposal of France Galva.
Work with the Group President to ensure that there is a clear plan
to assure delivery of the strategy for the US roads
sub-division. Ensure that the sub-division is set up for long term
success through the existence of (i) a well thought through
strategic plan, (ii) a strong management team, (iii) a number of
new product development initiatives, and (iv) strong M&A pipeline.
Objective substantially achieved with good progress made
during the year, with clear and improved reporting up to the
Executive Board and PLC Board. LTIR decreased by 35%
in 2022.
Objective substantially achieved with good progress made
against the Group’s ESG agenda, including reporting a
baseline for Scope 3 carbon emissions. See pages 36 to 38
for more details.
Objective partly achieved. An M&A map being developed but
with a pipeline that was only somewhat progressed. France
Galva exit completed in the year.
This objective was not achieved. Operational issues identified
post Paul’s departure, giving rise to a number of senior
management changes at Hill & Smith Inc., and necessitating a
detailed strategic review in H2.
Achievement
57.5%
Hannah Nichols
Cause a step change in the Group’s health and safety
performance and culture. Improve the Group’s LTIR to 0.90 for
accident rates across the Group. Ensure the implementation
of Health & Safety training programme for all Executive Board
members and MDs.
Ensure progress against the Group sustainability plan as
disclosed in last year’s Annual Report.
Drive further improvement in the Group’s ability to accurately
forecast out on a three-month and six-month basis, thereby
providing the Board with a high level of confidence in the
forecasts contained within the Board pack
Provide clear leadership in the delivery of the Group’s information
security and ERP strategy. Ensure that the six-monthly IT
update presentations are focused on hard deliverables. Ensure
specific delivery against i) information security roll out plan (with
completion of critical Email and Web Filtering workstreams by
end 2022) ii) Microsoft 365 programme delivery by end H1 2022
and iii) ERP strategy development: complete a full assessment
of the Group ERP estate to provide a clear road map for future
change requirements based on business need and cost/benefits.
Objective substantially achieved with good progress made
during the year, with clear and improved reporting up to the
Executive Board and PLC Board. LTIR decreased by 35%
in 2022.
Objective substantially achieved with good progress made
against the Group’s ESG agenda, including reporting a
baseline for Scope 3 carbon emissions. See pages 36 to 38
for more details.
Objective achieved between target and maximum. The month
end reporting requirements have been further enhanced.
Introduced a monthly risk and opportunity assessment vs
forecast for each operating company. Greater degree of
forecast accuracy evidenced.
Objective achieved between target and maximum. Strong
IT leadership demonstrated throughout the year. End point
management tools introduced across the Group. Secure
Access Service Edge (‛SASE’) project agreed, to be rolled out
in 2023. Individual operating company ERP assessments
undertaken and project plans produced.
Achievement
82.5%
97
Stock Code HILSGOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
In assessing the key achievements set out above in relation to personal objectives, the Committee determined that Paul Simmons should receive
57.5% of this part of the bonus, being 11.5% of his maximum opportunity (pro-rated to the date he stepped down from the Board, being 18 July
2022), and that Hannah Nichols should receive 82.5% of this part of the bonus, being 16.5% of her maximum opportunity.
The Committee considered the formulaic outturn of the annual bonus for 2022 to be appropriate and reflected the financial and non-financial
performance of the business during the year, therefore no discretion was applied.
The cash bonus and deferred bonus earned in respect of 2022 are as follows.
Executive Director
Paul Simmons
Hannah Nichols
Total bonus
earned
Bonus paid in
cash (£)
Bonus paid
as an award
of deferred
shares (£)
£330,758
£165,379
£165,379
£345,213
£172,607
£172,606
LTIP awards vesting in respect of 2022
Paul Simmons and Hannah Nichols were made LTIP awards in 2020 over 66,819 and 35,335 shares respectively. These vested subject to the
achievement of performance conditions based on absolute UEPS growth over the three-year performance period ended 31 December 2022 (as regards
50% of the award) and TSR relative to the FTSE 250 excluding investment trusts and financial services companies (as regards 50% of the award).
Paul Simmons’ 2020 LTIP award lapsed in totality when he stepped down from the Board on 18 July 2022.
On 2 March 2023, the Remuneration Committee approved the extent to which the awards vested, and the value included in Hannah Nichols’ single
figure of remuneration table as a result is set out below:
Performance Targets
Vesting
UEPS
TSR
Threshold 85p
Maximum 100p
Median
Upper Quartile
20%
100%
20%
100%
Actual
performance
UEPS of 91.9p
TSR Ranked 64
out of 135
Actual Vesting
UEPS: 56.80%
of maximum
TSR: 29.55%
of maximum
Shares subject to
the Award
Hannah Nichols
35,335
Vesting shares
Vested value(1)
15,258
213,002
(1) The value of shares is calculated by reference to the share price on 2 March 2023, being £13.96. In accordance with the rules of the LTIP, Hannah Nichols is entitled
to a further benefit by reference to the dividends paid over the period from grant to vesting, amounting to £11,056, and delivered as 792 additional shares.
As detailed in the Chair’s Introductory Statement, the Committee considered the potential for any windfall gains associated with the vesting of the
2020 award and concluded that this was not the case having considered both the number of shares at grant and the value on vesting. As a result,
the Committee did not use any discretion in relation to the vesting of the award.
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.
Although not subject to shareholding requirements, the Executive Chair, Alan Giddins, has been included in the table below.
Shareholding requirement
Current shareholding on 31 December 2022
Deferred shares on 31 December 2022 (amounts net of tax and social security)
Total shares
Share value based on share price on 31 December 2022
Current % of salary (based on salary on 31 December 2022)
Alan
Giddins
Hannah
Nichols
n/a
23,600
–
200%
3,106
9,966
23,600
13,072
Paul
Simmons
Existing
unvested
options
n/a
16,904
16,904
£276,592
£153,204
£198,115
n/a
43%
n/a
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 2022 and 8 March 2023.
Under the Company’s current Remuneration Policy, Paul Simmons is required to maintain a post-employment shareholding in respect of shares
acquired pursuant to LTIP and deferred bonus awards to a value equal to 200% of his base salary for a period of one year after leaving, and 50% of
this 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.
98
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Share awards granted during the year
During the year to 31 December 2022 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 (1)
Threshold
Vesting
Performance
Period end date(3)
Paul Simmons
16 March 2022
Nil cost option
Hannah Nichols
16 March 2022
Nil cost option
59,541
31,487
878,825(2)
464,748
20%
20%
31 December 2024
31 December 2024
(1) Calculated by reference to a share price of £14.76, being the average of the mid-market prices for the three trading days prior to 16 March 2022.
(2) This award lapsed when Paul Simmons stepped down from the Board on 18 July 2022.
(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.
The performance conditions for these awards are as follows:
Vesting amount
0% Vesting
20% Vesting*
Maximum Vesting*
Compound annual growth in
UEPS over the performance
period
(50% of the award)
Less than 3%
3%
11%
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 the Executive Director at 31 December 2022, in options for ordinary shares in the Company, granted under the Company’s SAYE
schemes are shown in the following table:
Period that option is exercisable
Hannah Nichols
Year Grant Price
2022
2019
£7.94
£9.40
Awards
held at
31
December
2021
Granted
during the
year
Exercised
during the
year
Lapsed
during the
year
Awards
held at
31 December
2022
From
To
–
3,191
3,778
–
–
–
–
3,191
3,778
1 Jan 2028
1 July 2028
–
1 Jan 2023
1 July 2023
Alan Giddins does not participate in the SAYE.
Statement of Executive Directors’ shareholding and interests in shares
Hannah Nichols
Type
Shares
Market value
options(1)
SAYE
Options(2)
Unvested
Owned
Outright
Vested but
not exercised
Subject to
performance
conditions
Not subject to
performance
conditions
Total at
31 December
2022
3,106
18,803
97,897
–
–
–
–
2,497
–
–
119,806
2,497
–
3,778
3,778
(1) The Market Value options were granted under the tax-advantaged part of the ESOS as part of the LTIP award granted in 2020 and are subject to the same
performance conditions as that LTIP award.
(2) A breakdown of SAYE awards is shown above.
99
Stock Code HILSGOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
Loss of office payments and payments to former directors
Paul Simmons stepped down from the Board on 18 July 2022 and remained an employee until 31 December 2022. His salary, pension allowance
and benefits to 18 July 2022 are included in the single figure table on page 96, along with the pro-rated bonus earned in respect of 2022.
As an employee of the Company, Paul Simmons continued to receive his salary, pension allowance and benefits during his period of garden leave
(from 18 July 2022 to 31 December 2022). For the period 1 January 2023 to 17 July 2023, being the balance of his 12 months’ notice period, he
will continue to receive his basic salary, paid monthly. This amounts to £304,904. He also received a contribution of £5,000 in relation to any legal
fees that may have been incurred.
In terms of any share awards that were made to Mr Simmons, the Remuneration Committee operated the relevant plans in line with the terms of
the plans and exercised discretion where awards had been previously earned against performance targets while in employment as follows:
Existing Buy-Out Award: Paul Simmons held an award over 12,364 Hill & Smith shares. The award was granted on commencement of
employment to compensate him for the forfeiture of a long term incentive award granted by his previous employer. Mr Simmons retained this
award and it vested on its normal release date in July 2022 while Mr Simmons remained in employment. The number of shares which vested was
reduced to reflect, in the opinion of the Committee, the level of actual vesting achieved for the underlying former employer award that was bought-
out and in July 2022, the Committee determined that only 68.2% of the award should vest.
2022 Annual Bonus: For the period of his active employment to 18 July 2022, noting that Paul Simmons would remain an employee of the
Company at the end of the 2022 financial year, the Committee determined that he would be eligible for a pro-rata bonus to 18 July 2022 on the
basis of what was earned based on the targets set at the start of the financial year, with 50% paid in cash at the normal time and 50% deferred for
the normal two year deferral period.
Existing Deferred Bonus Awards: On the basis that the awards granted under the Deferred Bonus Plan in 2021 and 2022 in respect of bonuses
earned in 2020 and 2021 had been previously earned the Committee determined that the awards would be retained and will be released from
deferral at their ordinary time, being two years from the date of grant.
Long term Incentive Plan Awards: On the basis that the awards granted under the LTIP in 2020, 2021 and 2022 totalling 185,122 shares had not
been earned as at the date of stepping down from the Board, the Committee lapsed the awards.
No further payments are to be made to Paul Simmons in connection with his loss of office or the cessation of his employment. There were no
other loss of office payments or payments made to former Directors during the year ended 31 December 2022.
All payments made were permitted within the Remuneration Policy.
Non-executive Directors
Non-executive Director single figure comparison
Director
Alan Giddins
Role
Chair
Annette Kelleher
Chair,
Remuneration
Committee
Board
Fees
98,695(2)
62,840
Farrokh Batliwala(3) Non-executive
40,238
Director
Leigh-Ann Russell(4) Non-executive
53,840
Mark Reckitt
Pete Raby
Tony Quinlan
Director
Chair, Audit
Committee
Non-executive
Director
Senior
Independent
Director
62,840
53,840
62,840
Total
435,133
Other
Fees
Taxable
Benefits
Annual
Bonus
LTIP
Pension
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
“Single
Figure”
2022(1)
98,695
62,840
Total
“Single
Figure”
2021
176,690
60,675
40,238
–
53,840
39,206
62,840
60,675
53,840
52,275
62,840
60,675
435,133
450,196
(1) As the Non-executive Directors do not participate in any variable arrangements separate sections for fixed and variable pay are not included.
(2) The annual fee for the Non-executive Chair for 2022 was set at £181,990. These fees represent those earned by Alan Giddins as Non-Executive Chair from 1 January
2022 – 18 July 2022. He became Executive Chair on 18 July 2022.
(3) Farrokh Batliwala was appointed on 1 April 2022.
(4) Leigh-Ann Russell was appointed on 1 April 2021.
The Non-executive Directors do not have service contracts, only letters of appointment, and fees for Non-executive Directors are determined by the
Executive Directors in light of market best practice and with reference to the time commitment and responsibilities associated with the role. The
Non-executive Directors do not participate in any decision in relation to the determination of their fees and are not eligible for performance related
bonuses or the grant of awards under any Group incentive scheme. No pension contributions are made on their behalf.
100
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Non-executive Director shareholding
Annette Kelleher
Farrokh Batliwala(1)
Leigh-Ann Russell
Mark Reckitt
Pete Raby
Tony Quinlan
2022
3,948
2,000
2,000
4,000
3,100
1,200
2021
3,948
–
–
4,000
1,600
1,200
(1) Farrokh Batliwala was appointed to the Board on 1 April 2022
There was no change in these beneficial interests between 31 December 2022 and 8 March 2023. 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.
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
2021 and the year ended 31 December 2022, 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 Group’s wider workforce.
The average employee change has been calculated by reference to the mean of employee pay. Farrokh Batliwala was appointed to the Board
during the year ended 31 December 2022 and, accordingly, has been excluded from the table below.
Average
employee
Wider
workforce
Hannah
Nichols
Alan
Giddins
Annette
Kelleher
Leigh Ann
Russell
Mark
Reckitt
Salary/
fees
Taxable
benefits
Annual
bonus
2021–2022
2020–2021
2019–2020
2021–2022
2020–2021
2019–2020
2021–2022
2020–2021
2019–2020
4.1%
2.9%
2.9%
n/a
n/a
n/a
n/a
n/a
n/a
2.0%–9.0%
2.9%
2.9%
n/a
n/a
n/a
44.5%*
340.3%*
112.0%*
3.0%
2.0%
2.9%
0.3%
5.0%
n/a%
-8%%
454.4%
n/a
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
Pete
Raby
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
Tony
Quinlan
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
* The bonus figures were taken from those senior executives operating on similar incentivised arrangements to the CEO and capable of influencing
the Group’s performance.
Single figure of the Chief Executive compared to the wider workforce
This is our fourth year of reporting the CEO pay ratio and the table below sets out our CEO pay ratio figures in respect of 2019, 2020, 2021 and 2022.
As in previous years, the Company has opted to use option B of the Pay Ratio regulations. Gender Pay Gap information 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.
Approach to calculation of CEO remuneration for 2022
Year
Method
25th percentile pay ratio
2022
2021
2020
2019
Option B
Option B
Option B
Option B
39:1
68:1
26:1
43:1
Pay details for the individuals are set out below:
2022
Salary
Total remuneration
CEO
25th percentile
£562,071(1)
£1,055,169(2)
£23,256
£26,797
Median pay Ratio
75th percentile pay ratio
37:1
63:1
44:1
39:1
Median
£28,385
£28,385
32:1
41:1
33:1
38:1
75th percentile
£33,098
£33,098
(1) Paul Simmons stepped down from the Board on 18 July 2022. This amount represents his annualised base salary.
(2) Represents the total of both the CEO’s and Executive Chair’s single figure (see page 96 for more details).
A significant proportion of the CEO’s 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 Committee considers that the
median ratio for 2022 is consistent with the pay and reward policies for employees as a whole.
101
Stock Code HILSGOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
Pay for performance
The graph below shows the Company’s TSR performance over the ten years to 31 December 2022 as compared to the FTSE 250. In previous years
the Company’s performance has been compared with the FTSE250, FTSE Small Cap and the FTSE All-share indices. However, as the Company has
been a constituent of the FTSE250 for six years it was decided that showing performance relative to just 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.
The following chart shows Hill & Smith’s Total Shareholder Return during the ten years to 2022.
600
500
400
300
200
100
0
)
£
(
e
u
a
V
l
31/12/2012 31/12/2013 31/12/2014 31/12/2015 31/12/2016 31/12/2017 31/12/2018 31/12/2019 31/12/2020 31/12/2021 31/12/2022
Hill & Smith
FTSE 250
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Derek
Muir
Paul
Simmons (1)
Paul
Simmons
Alan
Giddins
1,084
1,835
1,894
2,134
2,085
1,506
1,187
980
318
1,781
798
257
16
50
100
100
100
94
19
93
98
100
100
100
43
31
19
36
19
88
n/a
100
72
Nil
n/a
n/a
Director
CEO single figure
(£000)
Annual bonus
(% of max.)
LTIP Vesting
(% of max)
(1) Paul 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.
Relative importance of spend on pay
Dividends paid in respect of the financial year
Overall spend on pay (continuing operations)(1)
2022
2021
% change
£28.0m
£24.7m
£173.2m
£160.8m
+13.4%
+7.7%
(1) This includes a 1% reduction in the average number of people employed by the Group. See note 6 to the accounts on page 147.
102
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
Statement of shareholder voting
The following table shows the results of the vote on the Annual Remuneration Report at the 2022 AGM and the binding vote on the current
Remuneration Policy at the 2020 AGM.
Remuneration Policy (2020)
% of votes cast
Remuneration Report (2022)
% of votes cast
For
95.43%
Against
4.57%
98.35%
1.65%
Withheld
20,570 votes were withheld in
relation to this resolution (0.03%)
3,845 votes were withheld in
relation to this resolution (<0.01%)
Advisors
The Committee assesses from time to time whether the appointment of its advisors 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. During the year and
following a review of four potential advisors including Deloitte LLP as the incumbent advisors, the Committee determined, in consideration of good
governance practises and Deloitte’s tenure as advisors, to appoint Korn Ferry as the Committee’s advisors from 1 October 2022.
Korn Ferry provided independent advice to the Committee, having been appointed by the Committee following a competitive tender process
during the year. Korn Ferry provided advice on market and best practice as part of supporting the Committee with its review of the Directors’
Remuneration policy. The fees paid to Korn Ferry for providing advice to the Committee in relation to Directors’ remuneration were £42,418. Korn
Ferry provided other human capital related services during the year to a separate part of the business, but these services were carried out by a
team separate to the remuneration advisory team. As a result, the Committee is satisfied that the advice received was objective and independent.
Korn Ferry is a member of the Remuneration Consultants Group and abides by the voluntary code of conduct of that body, which is designed to
ensure objective and independent advice is given to remuneration committees.
Deloitte LLP had been retained to provide independent advice to the Remuneration Committee as required for in excess of ten years and they
are a member of the Remuneration Consultants’ Group and, as such, voluntarily operate that group’s Code of Conduct in relation to executive
remuneration consulting in the UK. From 1 January 2022 – 30 September 2022 Deloitte 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 £21,700 for
the year ended 31 December 2022.
The Group Chief Executive Officer and Executive Chair also attend Remuneration Committee meetings to provide advice and respond to specific
questions but are not in attendance when their 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.
How the Remuneration Policy will be implemented for 2023
Executive Directors
Salary
Base salaries were reviewed on 16 December 2022 and as from 1 January 2023 are:
Alan Giddins
Hannah Nichols
£584,544
£374,523
This represents a 4% increase for Alan Giddins. This is in line with other Executive Board members and below the range of increases awarded to
the wider workforce.
Hannah Nichols received an increase in her base salary of 5%. See page 93 for more details.
Salary budget increases for the majority of the Group’s operating companies ranged between 5% and 10% of relevant payrolls.
Pension and benefits
Alan Giddins is not eligible to receive a pension. The pension contribution for Hannah Nichols will remain 6.5% of her base salary.
Annual Bonus
Alan Giddins will not be eligible to receive an annual bonus during 2023.
The maximum opportunity for Hannah Nichols, will be 125%. 50% of the opportunity will be earned for achieving a stretching level of on-target
performance and any bonus earned will be paid as to 50% in cash and 50% in deferred shares.
For the 2023 financial year the annual bonus metrics will be:
• Underlying operating profit; and
• Cash conversion
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.
103
Stock Code HILSGOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
LTIP
Alan Giddins will not be eligible to receive a grant under the LTIP during 2023.
The annual LTIP award for Hannah Nichols, CFO will be increased from 125% of salary, to 150% of salary for 2023. This award will be subject to
performance conditions based on relative TSR and UEPS growth as set out below.
UEPS compound annual
growth rate over three
years (50% of the award)
Less than 4%
4%
12%
TSR* (50% of the award)
Vesting amount
Below median
Median
Upper quartile
0% vesting
20% vesting
100% vesting
* Relative to the FTSE 250 (excluding investment trusts and financial services companies).
Further details relating to the metric choices and 2023 incentives are set out in the Chair’s introductory letter.
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 2022, the Board
approved a 3% increase in the fees for the Chair and Non-executive Directors.
Chair
Non-executive Director
Senior Independent Director
Audit Committee Chair
Remuneration Committee Chair
2023
2022
£187,450
£181,990
£55,455
£53,840
£9,270
£9,270
£9,270
£9,000
£9,000
£9,000
Upon appointment of a replacement CEO, the Executive Chair will revert to being the Non-executive Chair, with fees reducing accordingly.
Annette Kelleher
Chair
8 March 2023
104
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 DIRECTORS’ REMUNERATION POLICY
to be approved by shareholders at the 2023 AGM
The Directors’ Remuneration Policy has been subject to a full review by the Committee in
2022 and will be put to shareholders at the 2023 AGM for approval. As outlined in the Chair’s
Statement, the Committee feel that given the current Policy has delivered a fair relationship
between performance and reward it remains fit for purpose with the only changes limited
to minor amendments to the Policy wording to take account of market developments, best
practice, and feedback from a recent shareholders’ consultation. As a result, with flexibility
included in the Policy to evolve performance metrics with the Company’s strategy, the intention
is to roll over the existing Policy. In the event that there was considered a need to make any
changes to the Policy within the next three-year Policy period, the Committee would undertake
appropriate dialogue with investors at that time.
The table below sets out how the proposed Policy specifically addresses the provisions of the UK Corporate Governance Code.
Alignment of the Remuneration Policy to the provisions of the 2018 Corporate Governance Code
Clarity
Simplicity
Risk
•
The Policy aligns delivery of our strategic
goals to the remuneration outcomes of
Executive Directors
• Remuneration rewards long term and
sustainable growth in shareholder value
•
The Policy aligns with standard FTSE
market practice and is made up of:
− Fixed remuneration – base salary,
appropriate benefits and pension
− Short-term element – annual bonus
based on performance during the
financial year against financial and
non-financial measures
− Long term incentive – vests
over three years according to
the achievement of stretching
performance measures
•
•
The long term incentive provides
a link between the performance of
Executive Directors and long term
sustainable growth
Executive Directors are subject to
shareholding requirements during and
post-employment
• Malus and clawback provisions mitigate
behavioural risks by enabling payments
to be reduced or reclaimed in specific
circumstances
Predictability
Proportionality
Alignment to culture
• Maximum opportunity levels for each
component of variable remuneration are
defined within the Policy
•
Transparent performance measures and
targets make clear the possible range
of remuneration outcomes and these
potential outcomes are illustrated in
the Policy
• Performance measures are linked to
the Company’s strategy and aligned
with long term creation of value for
shareholders
•
•
Stretching targets ensure that payments
are only made for strong financial and
non-financial performance
The Committee has discretion to override
formulaic outcomes to ensure that
remuneration appropriately reflects
overall performance
• Variable remuneration is based on the
achievement of financial and non-
financial measures which link to the
overall business strategy, culture and
values. As demonstrated through the
inclusion of ESG within the Annual Bonus
105
Stock Code HILSGOVERNANCE REPORT DIRECTORS’ REMUNERATION POLICY continued
Directors’ Remuneration Policy Report (not audited)
This part of the Report sets out the proposed Directors’ Remuneration Policy, which, subject to shareholder approval at the 2023 AGM, shall take
binding effect from the close of that meeting. Note, the Policy applies only to permanent Executive Directors. The policy has been determined by
the Company’s Remuneration Committee.
All Policy changes are considered to be minor / administrative and therefore a tabular summary of Policy changes is not provided.
Base Salary
To recruit and retain Executive Directors. Provides fixed remuneration for the Executive Directors, which reflects the individual’s experience and the
size and scope of the Executive’s responsibilities.
Operation
Normally reviewed annually and fixed for twelve months.
Salaries are determined by the Remuneration Committee taking
into account a range of factors, which may include but are not
limited to:
Maximum opportunity
Ordinarily salary increases will not exceed the range of salary increases
awarded to other employees in the Group (in percentage of salary terms).
However, salary increases may be above this level in certain circumstances
as required, for example to reflect:
•
•
•
•
•
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.
Benefits
•
•
•
increase in scope or responsibility;
performance in role; or
an Executive Director being moved to market positioning over time.
No maximum salary opportunity has been set out in this policy report to
avoid setting expectations for Executive Directors.
Performance measures
Not applicable
To recruit and retain Executive Directors. Ensures the overall package is competitive. Participation in the SAYE promotes staff alignment with the
Group and a sense of ownership.
Operation
Executive Directors are entitled to various benefits including but not
limited to, membership of the Group’s healthcare scheme, personal
accident insurance, ill health, life assurance and car (or equivalent cash
allowance).
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.
Maximum opportunity
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 level of
participation in any other all-employee share plan will be determined
in accordance with the rules of that plan and will be the same for
Executive Directors as for other qualifying employees.
Performance measures
Not applicable
106
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Pensions
To recruit and retain Executive Directors and to provide post-retirement benefits.
Operation
The Group may make a payment either into a defined contribution
plan or as a separate cash allowance. Group contributions or cash
allowances are determined as a percentage of base salary.
Maximum opportunity
An amount as a percentage of base salary not exceeding the typical
contribution available in respect of the location of employment of
the Director (e.g., currently the typical rate available to the UK-based
workforce is 6.5% of salary).
Performance measures
Not applicable
Annual Bonus
Rewards the achievement of annual financial targets and/or the delivery of strategic/individual objectives.
Operation
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 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% 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 awarded under the deferred bonus plan. These
dividend equivalents will ordinarily be paid in shares and may assume the
reinvestment of dividends.
Deferred bonus plan will vest in the event of a change of control.
Malus and clawback provisions apply to the annual bonus as described
below this table.
Maximum opportunity
The maximum bonus opportunity is up to 150% of base salary for the
CEO and up to 125% of base salary for any other Executive Director.
Performance measures
The bonus will be based on the achievement of targets related to key
business objectives, with the 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.
Subject to the Remuneration Committee’s discretion to amend
formulaic outputs, for financial targets, normally 0%of the maximum
is payable for achieving the threshold performance target (0% below
threshold), 50% at the target level of performance and 100% at
maximum. 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.
107
Stock Code HILSGOVERNANCE REPORT DIRECTORS’ REMUNERATION POLICY continued
Long Term Incentive Plan
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 Executive Directors with the interests of shareholders over a
further period.
Operation
The Remuneration Committee may grant awards as conditional share
awards, nil cost share options or forfeitable shares or such other form
as has the same economic effect.
Maximum opportunity
The annual LTIP maximum in respect of any financial year is:
• CEO: 175% of base salary; and
• Any other Executive Director: 150% of base salary
Shares subject to a tax qualifying option granted as part of an approved
LTIP award are not taken into account for the purposes of this limit
because, as referred to in the box above under the heading ’Operation’,
the unapproved LTIP option is scaled back to reflect the gain made on
the exercise of the tax qualifying ESOS option.
Performance measures
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 20% of the maximum opportunity will vest for each element.
For achievement of maximum performance 100% of the maximum
opportunity will vest; there is usually straight-line vesting between these
performance points.
Where an option under the ESOS is granted as part of an Approved LTIP
award, the same performance condition applies to the ESOS option
as applies to the LTIP award, save as required by the applicable tax
legislation.
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 (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 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
on page 109.
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 up to £60,000 (from April
2023) 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 apply to the entire LTIP as described
on page 109.
108
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Shareholding requirements
To encourage strong shareholder alignment both during and after employment with the Company.
Operation
Each Executive Director is required to hold 50% of the shares acquired
through the LTIP and any deferred bonus plan award (after sales
to cover tax and any exercise price) until the value of their total
shareholding is equal to 200% of their annual base salary.
Maximum opportunity
Not applicable
Performance measures
Not applicable
Shares subject to award under the deferred bonus plan 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.
In addition, a post-employment shareholding requirement will apply
only to shares acquired pursuant to LTIP and the deferred bonus plan
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 plan 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 two years 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.
Share ownership guidelines only apply to permanent Executive Director
positions and in exceptional circumstances the Committee may
disapply the post-employment share ownership guideline (e.g. death).
Recovery provisions
The Committee may, at any time within two years following the determination of the annual bonus, or two years following vesting of the LTIP,
determine that malus and / or clawback shall apply 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) corporate failure; or
(vi) a failure of acceptable health and safety standards.
Before the vesting of an LTIP award, the Remuneration Committee may also decide to reduce or cancel the award if any of the above events occur.
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 measures such as underlying EPS and profit before tax are closely aligned to the Group’s key
performance metrics and, in conjunction with other annual bonus 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.
109
Stock Code HILSGOVERNANCE REPORT DIRECTORS’ REMUNERATION POLICY continued
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.
Statement of considerations elsewhere in the Company
When setting the policy for Directors’ remuneration, the Remuneration Committee has regard to the pay and employment conditions elsewhere
within the Group, although employees are not formally consulted on the Directors’ remuneration policy.
When developing this Policy, the Remuneration Committee considered the general workforce remuneration, related policies, and the alignment of
incentives and rewards with the Group’s culture and values.
Differences in the group’s policy for the remuneration of employees generally
The Group’s remuneration principles underpin remuneration across the Group, including the remuneration structures below Executive Director level.
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;
reflects the roles, responsibilities, experience, skills and performance of the individual.
is fairly and consistently applied; and
includes an element of incentive to share in the financial success of the Group through annual bonuses, based upon the performance of individual
business units; executive share options; and a UK SAYE scheme, all of which are aligned to the strategic objectives and performance of the Group.
Illustrative performance scenarios for 2023 (all £000s)
£2,000K
£1,800k
£1,600k
£1,400k
£1,200k
£1,000k
£800k
£600k
£400k
£200k
£0
£1,722k
16%
£1,441k
39%
33%
32%
29%
27%
24%
£585k
£585k
£585k
100%
100%
100%
£758k
15%
31%
£411k
100%
54%
Below target
Target
Maximum
Below target
Target
Maximum
Executive Chair
CFO
Maximum plus
share price
appreciation
Fixed Pay Annual Bonus LTIP LTIP with 50% Share price growth
The illustrative performance charts above are based on the proposed Remuneration Policy as set out on pages 105 to 113. Note, the Executive Chair
who is not subject to the Remuneration Policy, has been included. Upon appointment of a new CEO an updated scenerio chart will be presented.
110
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 In developing the scenarios, the following assumptions have been made for the CFO:
Minimum
Consists of total fixed pay – i.e., base salary, benefits and pension
• Base salary is the latest salary effective at 1 January 2023.
•
Taxable benefits as per single figure table for the year ended 31 December 2022.
• Pension is 6.5% of salary in the case of the CFO.
In-line with
expectations
Consists of:
•
Total fixed pay, as set out above.
• Annual bonus pays out at 50% of maximum for target performance (i.e., 62.5% of base salary based on a
maximum potential for 2023 of 125% of base salary).
•
LTIP pays out at 20% of maximum for threshold vesting (i.e., 30.0% of base salary based on a maximum for
2023 of 150% of base salary).
Maximum
Consists of:
Maximum plus share
price appreciation
•
•
•
Total fixed pay, as set out above.
Full pay-out of annual bonus – i.e., 125% of base salary.
Full vesting of LTIP awards – i.e., 150% of base salary.
Consists of:
•
•
•
Total fixed pay, as set out above.
Full pay-out of annual bonus – i.e., 125% of base salary.
Full vesting of LTIP awards – i.e., 150% of base salary and an assumed 50% increase in the share price for the
purposes of the LTIP award valuation.
Approach to recruitment remuneration
The objective of this policy is to allow the Remuneration Committee to offer remuneration packages which:
•
•
•
facilitate the recruitment of individuals of sufficient calibre to develop and deliver the business strategy and shareholder value;
offer a remuneration package that reflects the key principles of the Group’s wider remuneration philosophy; and
seek to ensure that arrangements are in the best interests of the Company and not to pay more than is appropriate.
Individuals will be subject to a remuneration package that is consistent with the policy set out above. However, the Remuneration Committee
retains the discretion to provide the following elements for inclusion in a recruitment package for an Executive Director:
Compensation for
forfeited awards on
leaving a previous
employer
The Remuneration Committee may make awards on hiring an external candidate to compensate the candidate for
the forfeiture of any award entered into with a previous employer. In determining any such ’buy-out’ the Remuneration
Committee will consider all the relevant factors regarding the forfeited arrangements which may include the likelihood
of the awards vesting should the external candidate have remained in their previous employment, the form in which they
were granted (e.g., cash or shares) and the time over which they would have vested. Generally, buy-out awards will be
made on a comparable basis to those remuneration arrangements forfeited.
Where considered appropriate, buy-out awards will be subject to forfeiture or claw back on early departure.
Initial
incentive awards
Subject to the overall maximum variable remuneration limit set out below and to the overall plan LTIP limits set out under
the policy elements on page 108, incentive awards may be granted within the first twelve months of appointment above
the normal maximum annual award opportunity set out on page 108. The Remuneration Committee will ensure that any
such awards are linked to the achievement of appropriate and challenging performance targets (that may differ from
those set as part of ongoing policy having had regard to the circumstances of their appointment) and will be forfeited if
performance or continued employment conditions are not achieved.
The Remuneration Committee may also alter the performance measures, performance period and any deferral
arrangements or holding period applying to the annual bonus and LTIP if the circumstances of the recruitment merit
such an alteration; the rationale will be clearly explained in a subsequent Directors’ Remuneration Report.
Maximum variable
remuneration
(excluding buy-out
awards)
The maximum level of variable remuneration which may be awarded to the CEO, is 325% of base salary (consisting
of 150% annual bonus and 175% LTIP).
The maximum level of variable remuneration which may be awarded to any other Executive Director, is 275% of base
salary (consisting of 125% annual bonus and 150% LTIP).
111
Stock Code HILSGOVERNANCE REPORT DIRECTORS’ REMUNERATION POLICY continued
The Remuneration Committee would seek to implement any share awards referred to in this section under the Company’s existing share plans.
However, in connection with the recruitment of an Executive Director, the Remuneration Committee may implement a new arrangement in
accordance with paragraph 9.4.2 of the Listing Rules.
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be allowed to continue
according to the original terms, with the exception of pension contributions which will be reduced in line with this policy. Where necessary, the
Group will pay appropriate relocation costs and the Remuneration Committee will seek to ensure that no more than necessary is paid.
Fees payable to a newly appointed Chairman or Non-executive Director will be in line with the fee policy in place at the time of appointment.
Service contracts and loss of office payments
The policy on Executive Director service contracts and payment for loss of office is summarised below. For the avoidance of doubt, the leaver
provisions summarised below in relation to the LTIP apply to LTIP awards in respect of 2023 and later years, with earlier awards being subject to
the policy applying at the date of the award.
Notice period for
termination by
the company
Notice period for
termination by
the employee
Payment in lieu
of notice
Other incentives
Each current Executive Director is entitled to 12 months’ notice
The Remuneration Committee may set a notice period of between six months and 12 months for any future Executive
Director
Each current Executive Director is required to give 12 months’ notice of termination.
The Remuneration Committee may set a notice period of between six months and 12 months for any future Executive
Director.
Base salary, pension contributions and benefits for the duration of the notice period.
The Remuneration Committee also has discretion to incorporate payments under the performance-linked elements of the
package under ’good leaver’ scenarios.
•
If the Executive Director leaves during the annual bonus performance year, a bonus payment may be made at
the Remuneration Committee’s discretion. Typically for ’good leavers’, bonus amounts (as determined by the
Remuneration Committee) will be pro-rated for time in service during the bonus year and will, subject to performance,
be paid at the usual time, although the Remuneration Committee retains discretion not to apply time pro-rating and to
accelerate the payment of bonuses in appropriate circumstances. Where bonus deferral would otherwise apply, the
Remuneration Committee retains discretion to pay the whole of the bonus for the year of cessation in cash.
• Under the Company’s LTIP:
− If a participant leaves as a “good leaver” before an award has vested, that award will ordinarily continue until
the ordinary vesting date, when the extent of vesting will be determined by reference to the extent to which the
performance conditions have been satisfied, although the Remuneration Committee retains discretion to vest
the award sooner (and assess performance conditions accordingly). The extent to which the award vests will
ordinarily be reduced to reflect the proportion of the performance period for which the Executive Director was
employed, but the Remuneration Committee has discretion not to apply this proportionate reduction. The award
will ordinarily be released to the participant at the end of the originally anticipated holding period, although the
Remuneration Committee retains discretion to release the award sooner but would do so only in exceptional
circumstances (including cessation due to death or ill-health).
− If a participant leaves for any reason (other than summary dismissal, in which case the award will lapse) after
an award has vested but before it has been released (i.e., if the participant leaves during that holding period), the
award will ordinarily be released to them on the ordinary release date, although the Remuneration Committee
retains discretion to release the award sooner.
• Where a deferred bonus plan is granted, if the participant leaves as a “good leaver” during the deferral period, the
award will ordinarily continue and be released at the ordinary release date, although the Remuneration Committee
retains discretion to release the award at the date of cessation or to shorten the deferral period. Otherwise, the award
shall lapse.
•
For the purposes of the LTIP and any deferred bonus plan, ’good leaver’ means cessation due to death, injury, ill-health,
redundancy, or any other circumstance that the remuneration committee deems appropriate.
• Were an award to be made in accordance with Listing Rule 9.4.2. then the leaver provisions would be determined at
the time of the grant.
Other payments
In appropriate circumstances, other payments may be made in the event of a termination of an Executive Director’s
employment in respect of, for example, accrued holiday and legal and outplacement fees. SAYE options may be exercised
on termination of employment to the extent permitted by the rules of the scheme, which do not provide discretion for the
Remuneration Committee in respect of the treatment on termination. Awards under any other all employee share plan
would be treated in accordance with the rules of that plan.
If H K Nichols service agreement is terminated within one year of a change of control, she shall be paid her salary and an
amount equal to the value of her benefits for a 12-month period (less the period of any notice given).
112
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Appointments for Non-executive Directors are governed by letters of engagement. Under the terms of their engagement, the notice period to be
given by the Non-executive Directors to the Company is three months and the Company is obliged to give the same length of notice. Discretion is
retained to terminate with or without due notice or paying any payment in lieu of notice dependent on what is considered to be in the best interests
of the Company in the particular circumstances.
Where the Remuneration Committee retains discretion, as outlined above, it will be used to provide flexibility in certain situations, taking into
account the particular circumstance of the Directors departure and recent performance of the company.
Discretion and existing contractual arrangements
The Remuneration Committee reserves the right to make any remuneration payments and payments for loss of office (and to exercise any
discretion in respect of any such payment) notwithstanding that they are not in line with the policy, set out above, where the terms of the payment
were agreed:
(i) before the policy came into effect, provided that the terms of the payment were consistent with any applicable shareholder-approved directors’
remuneration policy in force at the time they were agreed or were otherwise approved by shareholders; or
(ii) at a time when the relevant individual was not a Director of the Company (or other person to whom the policy set out above applies) and, in
the opinion of the Remuneration Committee, the payment was not in consideration for the individual becoming a Director of the Company (or
other such person).
For these purposes “payments” includes the Remuneration Committee satisfying awards of variable remuneration and, in relation to an award over
shares, the terms of the payment are “agreed” at the time the award is granted.
Statement of consideration of shareholder views
The Company is committed to ongoing dialogue and seeks shareholder views ahead of making significant changes to its remuneration policies.
The Remuneration Committee consulted with major shareholders in connection with the determination of this policy and took into account
feedback received when finalising its approach.
113
Stock Code HILSGOVERNANCE 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 2022 the principal activities of the
Group comprised the manufacture and
supply of:
• Galvanizing Services
•
Engineered Solutions
• Roads & Security products and services
Pages 1 to 69 contain further details of
these areas of the business and the principal
subsidiaries operating within them are set out
on pages 196 to 198.
The Executive 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
•
The 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 69.
Statement on corporate governance
The Directors’ Report for the year ended
31 December 2022 comprises sections
of the Annual Report referred to under
’Strategic Report’, and ’Governance Report’,
which are incorporated into the Directors’
Report by reference.
Results (from continuing
operations)
The Group profit before taxation for the year
amounted to £69.3m (2021: £42.8m). Group
revenue at £732.1m, was 17% up on 2021,
(£625.2m). Operating profit at £78.5m, was
up 61% on 2021 (£48.9m).
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 2022
79,792,883
Total new ordinary shares
issued during the year
224,700
Issued share capital
31 December 2022
Rights and obligations
80,017,583
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 25 on
pages 172 and 173 of the Group Financial
Statements.
Details of the results for the year are shown
on the Consolidated Income Statement
on page 126 and the business segment
information is given on pages 139 to 141.
Dividends
The Directors recommend the payment of
a final dividend of 22p per ordinary share
(2021: 19.0p) which, together with the
interim dividend of 13.0p per ordinary share
(2021:12.0p per ordinary share) paid on 6
January 2023, makes a total distribution
for the year of 35p per ordinary share
(2021: 31.0p per ordinary share). Subject to
shareholders approving this recommendation
at the AGM, the final dividend will be paid on
7 July 2023 to shareholders on the register
at the close of business on 2 June 2023.
The latest date for receipt of Dividend
Re-investment Plan elections is 16 June 2023.
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 2022
AGM and will be limited by the resolution
to be put to the 2023 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.
114
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 •
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 24 May
2022 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 22 August 2023.
Substantial shareholdings
As at 31 January 2023, 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
Shareholder
Aberdeen
Standard
Investments
Blackrock
Royal London
Asset
Management
7,299,529
5,027,312
4,212,710
AXA Framlington
3,695,955
Vanguard Group
3,608,240
Invesco
Mondrian
Investment
Partners
3,534,625
3,384,450
Charles Stanley
2,915,602
9.12%
6.28%
5.26%
4.62%
4.51%
4.41%
4.23%
3.64%
Directors
The names of the Directors of the Company
who served throughout the year, including
brief biographies, are set out on pages
70 to 71.
Directors’ interests
The interests of the Directors in the share
capital of Hill & Smith PLC as at 31 December
2022 are set out on 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 24 on pages 167
to 172.
Research and development
During the year, the Group spent a total
of £2.8m (2021: £1.9m) on research and
development.
Political and charitable donations
Charitable donations amounting to £62,000
(2021: £39,000) 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 change of control, other
than revised notice periods and termination
payments for H K Nichols.
The Group has a revolving credit facility and
unsecured notes, which include change of
control provisions. Under these provisions, 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 they 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 2022
On 17 February 2023, the Group acquired
Enduro Composites, Inc for cash
consideration of £28.7m. Located in Houston,
Texas, Enduro is a designer, manufacturer
and supplier of engineered composite
solutions focused on industrial and
infrastructure market segments.
On 6 March 2023, the Group acquired Korns
Galvanizing for cash consideration of £9.4m.
Located in Johnstown, Pennsylvania, Korns
offers hot-dip galvanizing services for steel
fabricators and iron foundry products.
Annual General Meeting
The Annual General Meeting of the Company
will be held at 11.00 a.m. on Thursday 25 May
2023 at Cranmore Park Conference, Event &
Exhibition Centre, Cranmore Avenue, Shirley,
West Midlands, B90 4LF, United Kingdom.
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.hsgroup.com.
Other important dates can be found in the
Financial Calendar on page 194.
By order of the Board
Alex Henderson
Company Secretary
8 March 2023
115
Stock Code HILSGOVERNANCE REPORT STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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 comply
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
8 March 2023
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 101 Reduced Disclosure
Framework. Under company law the Directors
must not approve the Financial Statements
unless they are satisfied that they give a true
and fair view of the state of affairs of the
Group and Parent Company and of their profit
or loss for that period. In preparing each of
the Group and Parent Company Financial
Statements the Directors are required to:
•
select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that are
reasonable, relevant, reliable and prudent;
•
•
•
•
for the Group Financial Statements, state
whether they have been prepared in
accordance with 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
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.
116
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 V&S Galvaining’s plant in Owego, NY
117
Stock Code HILSGOVERNANCE REPORT INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF HILL & SMITH PLC
Opinion
In our opinion:
• Hill & Smith 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 2022 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
United Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
We have audited the financial statements of Hill & Smith PLC (the ’parent company’) and its
subsidiaries (the ’group’) for the year ended 31 December 2022 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 29 to the financial statements,
including a summary of significant accounting policies
Company Statement of Changes
in Equity
Related notes 1 to 16 to the financial
statements including a summary of
significant accounting policies
The financial reporting framework that has
been applied in the preparation of the group
financial statements is applicable law 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 United Kingdom Accounting
Standards, including FRS 101 “Reduced
Disclosure Framework”.
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 the
cost of living crisis and other current
global macro-economic factors on
the Group and the Group’s access to
available sources of liquidity;
118
• We obtained management’s going
concern assessment, including the cash
flow forecasts and covenant calculations
for the going concern period to 30 June
2024. 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 primary reverse stress tests have
been modelled, which determine a) the
additional revenue downside which could
be absorbed before the Group runs out
of liquidity and b) the revenue downside
which would be required for the Group to
breach its financial covenants under its
core borrowing facilities;
• We obtained the signed agreements,
including for the new revolving credit
facility signed during the year, 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 studies and 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 and external industry
forecasts;
• We assessed the historical accuracy of
management’s forecasting for the past
six years, by comparing the Group’s
actual results to Board approved budgets
and 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;
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 • 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
historical actual mitigation achieved;
Overview of our audit approach
• 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.
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 a period to 30 June 2024.
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.
AUDIT SCOPE
• We performed an audit of the complete financial information of 5 trading components and 1 non-trading
component and audit procedures on specific balances for a further 13 components.
•
The components where we performed full or specific audit procedures accounted for 88% of adjusted
operating profit, 94% of Revenue and 71% of Total assets.
KEY AUDIT MATTERS
• Carrying value of goodwill in relation to ATG Access, Parking Facilities and Hill & Smith Inc.
• Revenue recognition – the risk of management override through inappropriate manual journals to revenue or
inappropriate revenue cut-off
• Risk of inappropriate inventory valuation
MATERIALITY
• Overall Group materiality of £4.1m 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 company within the Group.
Taken together, this enables us to form
an opinion on the consolidated financial
statements. We take into account size,
risk profile, the organisation of the group
and effectiveness of group-wide controls,
changes in the business environment, other
factors such as recent Internal audit results
when assessing the level of work to be
performed at each company.
In assessing the risk of material
misstatement to the Group financial
statements, and to ensure we had adequate
quantitative coverage of significant accounts
in the financial statements, we selected 19
components covering entities within the
UK, US, France, Sweden and India which
represent the principal business units within
the Group.
Of the 19 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 13 components (“specific
scope components”), we performed audit
procedures on specific accounts within
that component that we considered had
the potential for the greatest impact on
the significant accounts in the financial
statements either because of the size of
these accounts or their risk profile.
The reporting components where we
performed audit procedures accounted for
98% (2021: 99%) of the Group’s adjusted
operating profit 99% (2021: 99%) of the
Group’s Revenue and 99% (2021: 99%) of the
Group’s Total assets.
For the current year, the 6 full scope
components contributed 57% (2021: 79%)
of the Group’s adjusted operating profit 48%
(2021: 53%) of the Group’s Revenue and 42%
(2021: 43%) of the Group’s Total assets.
The 13 specific scope components
contributed 31% (2021: 16%) of the Group’s
adjusted operating profit 46% (2021: 40%)
of the Group’s Revenue and 29% (2021:
28%) of the Group’s Total assets. The audit
scope of these components 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. For a further 6 trading
components, we performed specified
procedures which as a minimum, included
procedures over revenue and cash at all 6
components
Of the remaining 3 trading components
that together represent 2% of the Group’s
adjusted operating profit none are individually
greater than 1% of the Group’s adjusted
operating profit. For these components,
we performed other procedures, including
analytical review, testing of consolidation
journals and intercompany eliminations and
foreign currency translation recalculations
to respond to any potential risks of material
misstatement to the Group financial
statements.
119
Stock Code HILSFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF HILL & SMITH PLC
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Components
Adjusted operating profit
Revenue
Total assets
Full scope
Specific scope
Specified procedures over trading
components
Specified procedures over non-trading
components and consolidation
adjustments
Overall coverage
2022
2021
6
13
6
23
6
14
5
23
2022
57%
31%
2021
79%
16%
2022
48%
46%
2021
53%
40%
2022
42%
29%
2021
43%
28%
5%
7%
8%
10%
12%
7%
5%
98%
(3%)
99%
(3%)
99%
(4%)
99%
16%
99%
20%
99%
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.
responsible for the scope and direction of
the audit process. This, together with the
additional procedures performed at Group
level, gave us appropriate evidence for our
opinion on 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 engagement 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 13 specific
scope components, audit procedures were
performed on 10 of these directly by the
primary audit team
For the remaining 4 full scope 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.
The Group audit team continued to follow a
programme of planned visits that has been
designed to ensure that the Senior Statutory
Auditor visits the full scope component
locations. During the current year’s audit
cycle, visits were undertaken by the primary
audit team to the component teams in
France and the US. These visits 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. For France, the
visit occurred earlier in the year given the
component was being disposed of, to align
with the planned audit procedures.
The primary team interacted regularly with
the component teams where appropriate
during various stages of the audit,
reviewed relevant working papers and were
Climate change
Stakeholders are increasingly interested in
how climate change will impact the Group.
The Group has determined that the most
significant future impacts from climate
change on their 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 50 to 53 in the required Task Force for
Climate related Financial Disclosures and
on pages 60 to 68 in the principal risks and
uncertainties. All of these disclosures form
part of the “Other information,” rather than the
audited financial statements. Our procedures
on these unaudited 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, in line with our
responsibilities on “Other information”.
In planning and performing our audit we
review management’s assessment of the
potential impacts of climate change on the
Group’s business and any consequential
material impact on its financial statements.
The group has explained in their Group
Accounting Policies note how they have
reflected the impact of climate change
in their financial statements and in their
Sustainability Plan and how this aligns with
their commitment to the aspirations of the
Paris Agreement to achieve a carbon net
zero target by 2040 for Scopes 1 and 2 .
Governmental and societal responses to
climate change risks are still developing
with likely larger impact felt in the future as
these crystallise, and, as a result, the Group
currently continues to monitor the future
economic impact on their business model,
operational plans, suppliers and customers
to achieve this. Therefore, as set out above,
the potential future impacts are currently
determined to be of low risk in these financial
statements for the current year.
Our audit effort in considering the impact of
climate change on the financial statements
was focused on evaluating management’s
assessment of the impact of climate
risk, physical and transition, their climate
commitments, the effects of material
climate risks disclosed on pages 50 to 53
and whether these have been appropriately
reflected in judgements and estimates
following the requirements of UK adopted
international accounting standards. As part
of this evaluation, we performed our own
risk assessment, supported by our climate
change internal specialists, to determine
the risks of material misstatement in the
financial statements from climate change
which needed to be considered in our audit.
We also challenged the Directors’
considerations and completeness of
climate change risks in their assessment of
going concern and viability and associated
disclosures.
Based on our work we have not identified the
impact of climate change on the financial
statements to be a key audit matter or to
impact a key audit matter.
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.
120
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Risk
Our response to the risk
Revenue recognition – the
risk of management override
through inappropriate manual
journals to revenue or
inappropriate revenue cut-off
(£732.1m, 2021: £625.2m)
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.
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.
Procedures to respond to this risk were performed by both the primary audit team and
component teams.
Cut-off
We performed the following audit procedures at 5 full and 13 specific scope locations
where revenue is in scope. Revenue at these locations represents 94% of the total
revenue balance of £732.1m. These procedures were additionally performed at the
6 trading components at which we performed specified procedures, representing a
further 7% 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 13 specific scope locations.
For all trading components 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.
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 2022.
For all locations we performed analytical procedures to compare revenue recognised
with our expectations, management’s forecasts and, where possible, external
market data.
Management override
At all in scope components we obtained and reviewed break downs of all manual
journals and for all material revenue journals and a sample of non-material revenue
journals we agreed the journal entries to underlying documentation to verify the
appropriateness of the revenue being recognised.
We assessed for evidence of management bias by testing all material manual journals
either side of the year end and agreeing journal entries to appropriate supporting
evidence.
Revenue at these in scope components represents 94% 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.
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.
Our procedures performed did
not identify any unsupported
manual adjustments to
revenue or any unexplained
anomalies from our revenue
analytics.
121
Stock Code HILSFINANCIAL STATEMENTS Key observations
communicated to the
Audit Committee
Of the Group’s assets, the CGU
which remains most sensitive
to reasonably possible
changes in key assumptions is
Hill & Smith Inc. Management
describes these sensitivities
appropriately in the intangible
asset Note 13 in accordance
with the requirements
of IAS 36
INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF HILL & SMITH PLC
Risk
Our response to the risk
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, 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; and
analysed available information to identify any contrary evidence, including
consideration of competitor performance and views provided in analyst reports,
and specifically for Hill & Smith Inc., market studies.
Specifically for each CGU, we further focussed on:
•
•
•
For ATG Access, we understood and assessed the key trading assumptions;
For Parking Facilities, we challenged whether there were any indications of
impairment on the tangible fixed assets subsequent to the full impairment of
intangible assets; and
For Hill & Smith Inc. we benchmarked expectations around future growth rates
with externally produced market studies, and challenged if it was feasible for
these growth rates to be applied to the business.
• We further challenged the achievability of management’s planned turnaround
actions and considered the timing and feasibility of completing these.
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.
We challenged the completeness of range of scenarios considered in the sensitivity
analysis undertaken by management.
We assessed whether the disclosures in relation to the key assumptions around Hill
& Smith Inc were adequate given the sensitivity of the level of headroom to possible
changes in these key assumptions.
The audit procedures performed to address this risk have been performed by the
primary audit team.
Carrying value of goodwill in
relation to ATG Access (£4.7m,
2021: £4.7m), Parking Facilities
(£nil, 2021: £4.4m), and Hill &
Smith Inc. (£9.2m, 2021: £8.6m)
Subsequent to Covid-19 and a
substantial reduction in demand for
ATG Access’ security solutions there
was initial uncertainty in the ability
of the entity to recover resulting in
historic impairments. Management
have assessed no further impairment
is necessary in the current year.
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 in the current
year, management recorded a £4.4m
impairment of the goodwill related to
the Parking Facilities cash generating
unit (‛CGU’).
Hill & Smith Inc. manufactures and
sells a range of traffic management
solutions as well as the sale
and rental of crash prevention
products. The Hill & Smith Inc CGU
performance was not line with
management’s forecasts nor market
expectations during 2022. Actions
have been taken to improve future
trading performance but the impact
on short term cash flows means there
is reduced headroom and increased
sensitivity applicable to this 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 13)
disclose the sensitivity estimated by
the Group.
Whilst the audit effort in relation to
Hill & Smith Inc has increased year
on year, we consider the overall level
of audit risk associated to this key
audit matter is unchanged from the
prior year.
122
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 Key observations
communicated to the
Audit Committee
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
Risk of inappropriate
inventory valuation
(£113.8m, 2021: £108.1m)
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
Procedures to respond to this risk were performed by both the primary audit team and
component teams.
We performed the following audit procedures at 5 full, 8 specific scope, and 1
specified procedures component 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, 8
specific scope components where inventory was in scope.
We performed tests of detail for a sample of inventory items at all components 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 roll forward procedures to year end.
Of the components in scope for inventory, we were able to physically attend all counts.
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.
In the prior year, our auditor’s report included
a key audit matter in relation to the carrying
value of goodwill for the France Galva CGU.
In the current year, the France Galva division
was disposed of with no year-end balances
remaining related to goodwill or intangible
assets.
Given the current sensitivities surrounding
the headroom as disclosed in Note 13, this
year, more audit effort has been focussed
on the Hill & Smith Inc. CGU. Therefore, this
CGU has specifically been included in the key
audit matter relating to the carrying value of
goodwill and intangible assets where more
audit attention was focussed.
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 £4.1 million (2021: £3.7 million), which is
5% (2021: 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.
We determined materiality for the Parent
Company to be £4.9 million (2021: £4.9
million), which is 1.5% (2021: 1.5%) of equity.
We initially calculated materiality to be £3.8m
based on 5% of forecast adjusted operating
profit. The final results were higher than
management’s initial forecast. Therefore, we
reassessed final materiality to be £4.1m based
on 5% of actual adjusted operating profit.
Starting basis
Operating profit – £78.5m
Adjustments
Impairment – (£4.4m)
Materiality
Totals £82.9m adjusted operating profit (materiality basis)
Materiality of £4.1m (5% of materiality basis)
123
Stock Code HILSFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF HILL & SMITH PLC
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%
(2021: 75%) of our planning materiality,
namely £3.0m (2021: £2.8m). We have set
performance materiality at this percentage
due to our expectation of misstatements
being low.
Audit work at component locations for the
purpose of obtaining audit coverage over
significant financial statement accounts is
undertaken based on a percentage of total
performance materiality. The performance
materiality set for each component is
based on the relative scale and risk of the
component to the Group as a whole and
our assessment of the risk of misstatement
at that component. In the current year, the
range of performance materiality allocated
to components was £0.3m to £1.8m (2021:
£0.2m to £1.8m).
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 £0.2m (2021:
£0.19m), 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 115, other than the
financial statements and our auditor’s report
thereon. The directors are responsible for
the other information contained within the
annual report.
Our opinion on the financial statements does
not cover the other information and, except
to the extent otherwise explicitly stated in
this report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other
information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements
or our knowledge obtained in the course
of the audit or otherwise appears to be
materially misstated. If we identify such
material inconsistencies or apparent
material misstatements, we are required
to determine whether 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.
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
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 81;
• Directors’ explanation as to its
assessment of the company’s prospects,
the period this assessment covers and
why the period is appropriate set out on
page 82;
• 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 82;
• Directors’ statement on fair, balanced
and understandable set out on page 82;
• Board’s confirmation that it has carried
out a robust assessment of the emerging
and principal risks set out on page 81;
•
•
The section of the annual report that
describes the review of effectiveness of
risk management and internal control
systems set out on page 81; 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
116, 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
124
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 A further description of our responsibilities
for the audit of the financial statements
is located on the Financial Reporting
Council’s website at www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
Other matters we are
required to address
•
Following the recommendation from
the audit committee we were appointed
by the company on 19 October 2022 to
audit the financial statements for the
year ending 31 December 2022 and
subsequent financial periods.
The period of total uninterrupted
engagement including previous renewals and
reappointments is 3 years, covering the years
ending 31 December 2020 to
31 December 2022.
•
The audit opinion is consistent with the
additional report to the audit committee.
Use of our report
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required
to state to them in an auditor’s report and
for no other purpose. To the fullest extent
permitted by law, we do not accept or
assume responsibility to anyone other than
the company and the company’s members
as a body, for our audit work, for this report,
or for the opinions we have formed.
Helen McLeod-Jones
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
Birmingham
8 March 2023
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
also observed the oversight of those
charged with governance, the culture
of honest and ethical behaviour and
whether a strong emphasis is placed on
fraud prevention and deterrence, which
may reduce opportunities for fraud to
take place
• 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.
• 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.
audit of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable
assurance is a high level of assurance but is
not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect
a material misstatement when it exists.
Misstatements can arise from fraud or error
and are considered material if, individually
or in the aggregate, they could reasonably
be expected to influence the economic
decisions of users taken on the basis of
these financial statements.
Explanation as to what extent the audit
was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances
of non-compliance with laws and regulations.
We design procedures in line with our
responsibilities, outlined above, to detect
irregularities, including fraud. The risk of
not detecting a material misstatement
due to fraud is higher than the risk of not
detecting one resulting from error, as
fraud may involve deliberate concealment
by, for example, forgery or intentional
misrepresentations, or through collusion. The
extent to which our procedures are capable
of detecting irregularities, including fraud is
detailed below.
However, the primary responsibility for the
prevention and detection of fraud rests with
both those charged with governance of the
company and management.
• We obtained an understanding of
the legal and regulatory frameworks
that are applicable to the Group and
determined that the most significant
frameworks which are directly relevant
to specific assertions in the Financial
Statements are those that relate to
the reporting framework (UK adopted
international accounting standards,
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.
• We understood how Hill & Smith PLC
is complying with those frameworks
by making enquiries of management,
Internal Audit, those responsible for legal
and compliance procedures and the
125
Stock Code HILSFINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2022
Notes
Underlying
£m
2022
Non-
underlying*
£m
Total
£m
Underlying
£m
2021
Non-
underlying*
£m
Continuing Operations
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 from
continuing operations
Discontinued Operations
Profit from discontinued
operations
Profit for the year
attributable to the owners of
the parent
Basic earnings per share
Basic earnings per share –
continuing
Diluted earnings per share
Diluted earnings per share –
continuing
3
3, 4
7
7
9
10
11
11
11
11
Total
£m
625.2
(389.2)
236.0
(32.5)
(155.3)
0.7
48.9
0.6
(6.7)
42.8
(14.4)
732.1
(461.6)
270.5
(31.7)
(142.0)
0.3
97.1
0.5
(9.7)
87.9
(19.7)
–
–
–
–
(18.6)
–
(18.6)
–
–
(18.6)
3.7
732.1
(461.6)
270.5
(31.7)
(160.6)
0.3
78.5
0.5
(9.7)
69.3
(16.0)
625.2
(389.2)
236.0
(32.5)
(126.9)
0.7
77.3
0.6
(6.7)
71.2
(15.5)
–
–
–
–
(28.4)
–
(28.4)
–
–
(28.4)
1.1
68.2
(14.9)
53.3
55.7
(27.3)
28.4
5.2
(1.8)
3.4
6.4
(0.6)
5.8
73.4
(16.7)
56.7
71.0p
66.7p
70.4p
66.2p
62.1
(27.9)
34.2
43.0p
35.8p
42.5p
35.4p
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 137 and further details on non-underlying items are included in
note 5.
126
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2022
Profit for the year
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations
Exchange differences on foreign currency borrowings designated as net investment hedges
Items that will not be reclassified subsequently to profit or loss
Actuarial (loss)/gain on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive income for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
24
24
27
9
2022
£m
56.7
27.4
(4.8)
(2.8)
0.7
20.5
77.2
2021
£m
34.2
(2.3)
0.6
3.5
–
1.8
36.0
127
Stock Code HILSFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2022
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 8 March 2023 and signed on its behalf by:
A C Giddins
Director
H K Nichols
Director
Company Number: 671474
128
Notes
13
14
16
9
17
15
18
19
20
3
15
21
23
16
21
22
23
17
27
16
22
25
2022
£m
182.6
186.3
38.7
1.6
0.1
2021
£m
177.4
193.3
38.2
1.6
1.4
409.3
411.9
1.8
113.8
144.3
0.3
24.8
285.0
694.3
–
(120.8)
(8.6)
(3.7)
(8.7)
(0.3)
(142.1)
142.9
(0.2)
(2.7)
(11.6)
(7.2)
(30.6)
(104.9)
(157.2)
(299.3)
395.0
20.0
42.8
4.9
38.1
289.2
395.0
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
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2022
Notes
Share
capital
£m
19.9
Share
premium
£m
38.4
Other
reserves†
£m
Translation
reserve
£m
Retained
earnings
£m
4.9
17.2
240.1
At 1 January 2021
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
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 2022
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
20.0
2.5
40.9
–
–
–
–
–
–
–
–
20.0
–
–
–
–
–
–
–
1.9
42.8
12
25
9
25
12
25
9
25
Total
equity
£m
320.5
34.2
1.8
(21.2)
2.5
(1.5)
(0.3)
1.0
2.6
–
–
–
–
–
–
–
–
–
(1.7)
–
–
–
–
–
–
34.2
3.5
(21.2)
2.5
(1.5)
(0.3)
1.0
–
4.9
15.5
258.3
339.6
–
–
–
–
–
–
–
–
–
22.6
56.7
(2.1)
56.7
20.5
–
–
–
–
–
–
(24.7)
(24.7)
2.4
0.5
(0.9)
(1.0)
–
2.4
0.5
(0.9)
(1.0)
1.9
4.9
38.1
289.2
395.0
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2021: £0.2m) capital redemption reserve.
At 31 December 2021 a total of 111,084 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 £1.8m, was included within retained earnings at that
date. During 2022, 35,646 shares have been issued in settlement of awards to employees, leaving 75,438 shares held at 31 December 2022, at a
cost of £1.3m included within retained earnings.
129
Stock Code HILSFINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2022
Profit before tax from continuing operations
Profit before tax from discontinued operations
Add back net financing costs
Operating profit – Total Group
Adjusted for non-cash items:
Share-based payments
Loss on disposal of subsidiaries
Loss/(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
Impairment of non-current assets
Operating cash flow before movement in working capital
Increase in inventories
Increase in receivables
(Decrease)/increase in payables
Decrease in provisions and employee benefits
Net movement in working capital
Cash generated by operations
Purchase of assets for rental to customers
Income taxes paid
Interest paid
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
Acquisitions of subsidiaries
Disposals of subsidiaries
Net cash used in investing activities
Issue of new shares
Purchase of shares for employee benefit trust
Dividends paid
Costs associated with refinancing during the year
Repayment of lease liabilities
New loans and borrowings
Repayment of loans and borrowings
Net cash used in financing activities
Notes
10
7, 10
3, 4, 10
6, 25
5
8
8, 14
8, 13
8, 16
16
5
5, 8, 13
13
5
25
12
Net increase 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
20
130
2022
£m
2.0
1.4
0.3
19.1
8.3
8.8
–
–
6.4
(21.0)
(19.1)
(2.5)
(4.3)
0.5
0.4
(18.4)
(2.5)
(24.6)
58.6
1.9
(0.4)
(24.7)
(2.1)
(9.5)
160.8
(184.8)
£m
69.3
4.9
9.3
83.5
46.3
129.8
(46.9)
82.9
(10.6)
(15.5)
(6.4)
(0.8)
49.6
14.0
(58.8)
4.8
18.1
1.9
24.8
2021
£m
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)
£m
42.8
8.1
6.1
57.0
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
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Group Accounting Policies
Hill & Smith PLC (formerly “Hill & Smith Holdings PLC”) is a company incorporated in the UK. The consolidated financial statements of Hill &
Smith PLC and its subsidiaries (the “Group”) are presented for the year ended 31 December 2022.
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 181 to 191.
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 PLC, and its subsidiaries as at 31
December 2022. 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 Operational and Financial Review on page 23, 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.
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 2022, the Group had £309.0m of committed borrowing facilities, of which only £0.3m matures before June 2026 at the earliest,
and a further £11.5m of on-demand facilities. The Group refinanced its revolving credit facility in November 2022, entering into a new facility with
a value of £250m that is committed until November 2026, with an option to extend the maturity by a further year at the one-year anniversary.
The Group also holds $70m of Senior Unsecured Notes, and other local committed borrowing facilities of £0.6m. The amount drawn down under
these committed facilities at 31 December 2022 was £107.4m, which together with cash and cash equivalents of £24.8m gave total headroom
of £237.9m (£226.4m committed, £11.5m on demand). The Group has not made any changes to its principal borrowing facilities between 31
December 2022 and the date of approval of these financial statements. The only significant changes to liquidity headroom during that period
were the acquisitions of Enduro Composites, which the Group completed on 17 February 2023 for an initial consideration of £28.7m, and Korns
Galvanizing, which the Group acquired on 6 March 2023 for consideration of £9.4m. Substantial headroom against borrowing facilities remains in
place post these acquisitions.
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 2022 was 0.7 times and interest cover was 21.6 times. Note 24 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 2024, taking account of the current 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 2023, 31 December 2023 and 30 June 2024.
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 26% compared with current expectations throughout the period from May 2023 through June
2024. A reduction in headroom against borrowing facilities to nil would occur if the Group experienced a sustained revenue reduction of 88%
compared with current expectations between May 2023 and June 2024. The Directors do not consider any of these scenarios to be plausible
given the generally positive outlook across the infrastructure markets in which the Group operates. The Directors also noted the Group’s ability
to continue its operations throughout the COVID-19 pandemic, noting that revenues fell by only 22% in the second quarter of 2020, the worst-
affected period. Furthermore, the Group 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.
131
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
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 a period of at least 12 months following the approval of these financial
statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.
NEW IFRS STANDARDS AND INTERPRETATIONS ADOPTED DURING 2022
The following amendments and interpretations apply for the first time in 2022, and therefore were adopted by the Group:
• 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
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 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
There are currently no further standards and interpretations to be adopted for year-ending 31 December 2024.
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.
132
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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
up 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.
133
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
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 24(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.
134
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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)
2022
2021
Average
Closing
Average
Closing
1.17
1.24
12.47
97.01
1.78
1.13
1.20
12.49
99.41
1.77
1.16
1.38
11.80
101.71
1.83
1.19
1.35
12.21
100.21
1.86
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.
135
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
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.
Engineered Solutions (formerly known as ’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 Engineered Solutions 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.
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.
136
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 1. Group Accounting Policies continued
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 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.
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.
137
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
1. Group Accounting Policies continued
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 13)
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 13.
ACTUARIAL ASSUMPTIONS ON PENSION OBLIGATIONS (NOTE 27)
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 27.
TAXATION (NOTES 9 AND 17)
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 £4.6m (2021: £4.7m) 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 £5.7m (2021: £nil to £6.1m) and therefore it is possible that, if the
outcomes are different to those estimated by management, the difference may materially impact the income tax charge / (credit) in the year in
which the matter is concluded. Further information is set out in note 9 and note 17.
138
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 3. Segmental information
BUSINESS SEGMENT ANALYSIS
The Group has three reportable segments which are Roads & Security, Engineered Solutions 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 Engineered Solutions 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 and other infrastructure 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 – CONTINUING OPERATIONS
Roads & Security
Engineered Solutions
Galvanizing Services
Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
Revenue
£m
261.5
289.9
180.7
732.1
2022
Reported
operating
profit
£m
Underlying
operating
profit*
£m
1.7
34.1
42.7
78.5
(9.2)
69.3
(16.0)
53.3
18.1
35.0
44.0
97.1
(9.2)
87.9
(19.7)
68.2
Revenue
£m
259.7
223.7
141.8
625.2
2021
Reported
operating
profit
£m
Underlying
operating
profit*
£m
(7.5)
25.5
30.9
48.9
(6.1)
42.8
(14.4)
28.4
17.9
26.0
33.4
77.3
(6.1)
71.2
(15.5)
55.7
* Underlying operating profit is stated before non-underlying items as defined in the Group Accounting Policies on page137 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
£6.8m (2021: £6.5m) of products and services to Roads & Security and £2.0m (2021: £1.6m) of products and services to Engineered Solutions.
Engineered Solutions sold £1.9m (2021: £3.0m) of products and services to Roads & Security. These internal revenues, along with revenues
generated from within their own segments, have been eliminated on consolidation.
139
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
3. Segmental information continued
In the following tables, revenue from contracts with customers is disaggregated by primary geographical market, major product/service lines and
timing of revenue recognition. Revenue by primary geographical market is defined as the end location of the Group’s product or service. The table
also includes a reconciliation of the disaggregated revenue with the Group’s reportable segments.
Continuing operations
Roads & Security
Engineered Solutions
Galvanizing
Total
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
2022
£m
163.5
16.7
70.3
4.9
1.9
4.2
2021
£m
165.2
29.5
56.8
3.2
0.6
4.4
2022
£m
87.2
8.7
187.1
2.4
3.9
0.6
2021
£m
72.0
6.0
137.3
0.6
7.1
0.7
2022
£m
81.8
–
98.9
–
–
–
2021
£m
69.6
–
72.2
–
–
–
2022
£m
332.5
25.4
356.3
7.3
5.8
4.8
2021
£m
306.8
35.5
266.3
3.8
7.7
5.1
261.5
259.7
289.9
223.7
180.7
141.8
732.1
625.2
240.3
237.4
289.9
223.7
–
–
–
21.2
261.5
–
22.3
259.7
–
–
–
–
180.7
141.8
–
–
289.9
223.7
180.7
141.8
530.2
180.7
21.2
732.1
461.1
141.8
22.3
625.2
210.2
200.0
153.8
120.2
180.7
141.8
549.7
462.0
51.3
261.5
59.7
259.7
136.1
289.9
103.5
223.7
–
–
180.7
141.8
182.4
732.1
163.2
625.2
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 amortisation/depreciation
Roads & Security
Engineered Solutions
Galvanizing Services
Total Group
Property, plant and equipment (note 14)
Intangible assets (note 13)
Total Group
2022
2021
Impairment
losses,
amortisation
and
depreciation
£m
Capital
expenditure
£m
Impairment
losses,
amortisation
and
depreciation
£m
Capital
expenditure
£m
17.0
6.6
8.1
31.7
29.2
2.5
31.7
20.5
4.7
8.4
33.6
19.2
14.4
33.6
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
The 2022 amounts for impairment losses, amortisation and depreciation relating to the Roads & Security segment include intangible asset
impairment losses of £4.4m relating to Parking Facilities Limited. The comparative for 2021 included goodwill and intangible assets impairments
of £5.2m in respect of Parking Facilities and £10.8m in respect of ATG Access.
140
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
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
2022
£m
280.3
9.8
380.2
11.2
12.8
694.3
2022
£m
181.7
0.8
213.0
3.3
10.5
409.3
2022
£m
9.5
3.5
11.8
0.4
6.5
31.7
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
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 11.
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.
141
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4. Alternative Performance Measures continued
RECONCILIATION OF UNDERLYING TO REPORTED PROFIT BEFORE TAX FROM CONTINUING OPERATIONS
Underlying profit before tax from continuing operations
Non-underlying items included in operating profit (note 5)
Reported profit before tax from continuing operations
2022
£m
87.9
(18.6)
69.3
2021
£m
71.2
(28.4)
42.8
RECONCILIATION OF UNDERLYING TO REPORTED OPERATING PROFIT FROM CONTINUING OPERATIONS
BY SEGMENT
Underlying operating profit from
continuing operations
Non-underlying items:
Amortisation of acquisition
intangibles
Business reorganisation costs
Impairment of assets
Expenses related to
acquisitions and disposals
Loss on disposal of
subsidiaries
Reported operating profit from
continuing operations
Roads & Security
Engineered Solutions
Galvanizing
2022
£m
2021
£m
2022
£m
2021
£m
2022
£m
2021
£m
Total
2022
£m
2021
£m
18.1
17.9
35.0
26.0
44.0
33.4
97.1
77.3
(0.5)
(0.5)
(0.9)
(0.9)
(4.6)
(2.9)
(6.4)
(1.5)
(4.5)
(4.5)
(16.0)
–
–
–
(0.4)
(1.0)
(0.4)
–
–
–
–
–
(6.0)
(2.9)
(6.4)
(0.4)
(1.6)
(2.3)
–
–
(1.0)
(5.9)
(4.5)
(16.0)
(1.6)
(0.4)
–
–
–
–
1.7
(7.5)
34.1
25.5
42.7
30.9
78.5
48.9
CALCULATION OF UNDERLYING OPERATING PROFIT MARGIN FROM CONTINUING OPERATIONS
Continuing operations
Underlying operating profit
Revenue
Underlying operating profit
margin (%)
Roads & Security
Engineered Solutions
Galvanizing
Total
2022
£m
18.1
261.5
2021
£m
17.9
259.7
2022
£m
35.0
289.9
2021
£m
26.0
223.7
2022
£m
44.0
180.7
2021
£m
33.4
141.8
2022
£m
97.1
732.1
2021
£m
77.3
625.2
6.9%
6.9%
12.1%
11.6%
24.3%
23.6%
13.3%
12.4%
142
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 4. Alternative Performance Measures continued
MEASURES OF ORGANIC AND CONSTANT CURRENCY CHANGE IN REVENUE AND UNDERLYING OPERATING
PROFIT FROM CONTINUING OPERATIONS
Organic constant currency 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. Constant currency amounts are prepared using exchange rates which
prevailed in the current year.
Roads & Security
Engineered Solutions
Galvanizing
Total
Underlying
operating
profit
£m
Revenue
£m
Underlying
operating
profit
£m
Revenue
£m
Underlying
operating
profit
£m
Underlying
operating
profit
£m
Revenue
£m
Revenue
£m
Continuing operations
2021
259.7
17.9
223.7
26.0
141.8
33.4
625.2
77.3
Impact of exchange rate
movements from 2021 to 2022
2021 translated at 2022
exchange rates (A)
Acquisitions, disposals and
closures
Organic growth/(decline) (B)
2022 (C)
Organic growth %
(B divided by A)
Constant currency change %
((C-A) divided by A)
5.4
1.0
15.9
2.2
8.2
2.4
29.5
5.6
265.1
18.9
239.6
28.2
150.0
35.8
654.7
82.9
(17.6)
14.0
261.5
2.5
(3.3)
18.1
–
50.3
289.9
–
6.8
35.0
0.8
29.9
180.7
–
8.2
44.0
(16.8)
94.2
732.1
2.5
11.7
97.1
5.3%
(17.5%)
21.0%
24.1%
19.9%
22.9%
14.4%
14.1%
(1.4%)
(4.2%)
21.0%
24.1%
20.5%
22.9%
11.8%
17.1%
CALCULATION OF UNDERLYING CASH CONVERSION RATIO
Underlying operating profit:
Continuing operations
Discontinued operations
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 (%)
2022
£m
97.1
6.8
103.9
82.9
(10.6)
(18.4)
(2.5)
(9.5)
0.4
3.7
6.5
52.5
51%
2021
£m
77.3
8.7
86.0
103.1
(16.7)
(17.8)
(1.4)
(10.3)
3.7
3.7
2.7
67.0
78%
143
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
4. Alternative Performance Measures continued
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
CALCULATION OF COVENANT NET DEBT TO EBITDA RATIO
Reported net debt (note 20)
Lease liabilities (note 16)
Amounts related to refinancing under IFRS 9
Covenant net debt (A)
Underlying operating profit
Depreciation of owned assets (note 14)
Right-of-use asset depreciation (note 16)
Amortisation of development costs (note 13)
Amortisation of other intangible assets (note 13)
Underlying EBITDA
Adjusted for:
Lease payments (note 16)
Share-based payments expense (note 25)
Annualised EBITDA of subsidiaries acquired/disposed
Covenant EBITDA (B)
Covenant net debt to EBITDA (A divided by B)
2022
£m
10.6
18.4
2.5
31.5
19.1
1.1
1.0
21.2
1.5x
2022
£m
119.7
(39.3)
2.2
82.6
103.9
19.1
8.8
1.1
1.0
2021
£m
16.7
17.8
1.4
35.9
20.9
1.1
0.3
22.3
1.6x
2021
£m
144.7
(40.6)
2.5
106.6
86.0
20.9
10.3
1.1
0.3
133.9
118.6
(10.3)
2.0
(3.7)
121.9
0.7
(11.1)
2.8
0.4
110.7
1.0
144
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 5. Non-underlying items
INCLUDED IN OPERATING PROFIT
Loss on disposal of subsidiaries (a)
Business reorganisation costs (b)
Impairment of assets (c)
Amortisation of acquisition intangibles
Expenses related to acquisitions and disposals
Total non-underlying items
Total non-underlying items – continuing operations
Total non-underlying items – discontinued operations
Notes:
2022
£m
(1.4)
(2.9)
(6.4)
(6.2)
(3.5)
(20.4)
(18.6)
(1.8)
2021
£m
(0.4)
(4.5)
(16.0)
(6.1)
(2.0)
(29.0)
(28.4)
(0.6)
a)
In 2022, the Group completed the disposal of the majority of its Swedish roads business. In April we disposed of the rental division and in
November we sold the infrastructure contracts division, at a combined loss of £1.0m. Details are set out below:
Disposal of Swedish rental and infrastructure contracts divisions
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Current liabilities
Lease liabilities
Net assets disposed
Consideration received
Cumulative exchange differences
Loss on disposal
£m
2.0
2.1
1.1
0.2
(0.2)
(2.0)
3.2
2.5
(0.3)
1.0
The Group also incurred costs of disposal of £0.5m, which are included within ’expenses related to acquisitions and disposals’ in the table above.
Alongside the disposals, asset impairments of £0.2m and reorganisation costs of £0.3m were incurred in relation to the remaining business. The
total of non-underlying net charges relating to the Swedish business is therefore £2.0m.
145
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
5. Non-underlying items continued
In October 2022, the Group completed the disposal of France Galva, its French galvanizing and lighting column business, at a loss of £0.4m.
Details of the disposal are set out below:
Disposal of France Galva
Property, plant and equipment
Intangibles
Right-of-use assets
Inventories
Current assets
Cash and cash equivalents
Deferred tax
Lease liabilities
Current liabilities
Loans & borrowings
Provisions
Retirement benefit obligation
Net assets disposed
Consideration received
Cumulative exchange differences
Loss on disposal
£m
28.4
13.2
0.9
24.0
17.6
5.9
1.4
(0.8)
(20.2)
(0.3)
(0.9)
(4.6)
64.6
62.0
2.2
0.4
The Group also incurred costs of disposal of £1.2m, which are included within ’expenses related to acquisitions and disposals’ in the table above.
In 2021, the loss on disposal of £0.4m related to the sale of Technocover Limited, the Group’s small access covers business.
b)
In May 2022, the Group took the decision to exit the low-margin plastic products operations that formed part of our US roads business. Net
charges on closure totalled £2.9m, comprising business reorganisation costs of £1.1m and asset impairment charges of £1.8m.
In addition, following the closure of the Group’s variable message sign (VMS) business that was announced in March 2021, the Group has
incurred a further £1.5m of costs in 2022 in relation to the completion of legacy contracts. The business reorganisation costs of £4.5m in
2021 also related to the VMS closure.
c)
Impairment charges of £6.4m in 2022 comprise the portfolio management actions explained above (totalling £2.0m) and a charge of £4.4m
(2021: £5.2m) in respect of acquisition intangible assets relating to Parking Facilities, one of the Group’s UK security businesses. Parking
Facilities manufactures and sells a range of perimeter access security products, predominantly to specialist security installers in the UK.
The COVID pandemic resulted in a weak trading period in 2020 as several customer contracts were cancelled or postponed and whilst the
business saw a marginal improvement in revenue and profitability in 2021, ongoing constraints on customer budgets continued to weigh
on demand. In 2022, customer activity continued to be weak and supply chain challenges, input cost inflation and operational issues led to
a deterioration in margins. The Board’s reassessment of the future outlook for Parking Facilities, which also took into account the impact
on gross margins of developments in the competitive landscape, concluded that there was limited prospect of the business returning to
the levels of profitability previously anticipated and therefore that the expected future cash flows were not sufficient to support the carrying
value. The resulting impairment charge of £4.4m comprises £4.0m in respect of acquired customer lists and £0.4m in respect of acquired
brand names, meaning those assets have been fully impaired as at 31 December 2022. In 2021, impairment charges also included £10.8m in
respect of acquisition goodwill and intangible assets relating to ATG Access, another of the Group’s UK security businesses.
INCLUDED IN TAXATION
The tax effect of the above items is a credit to the income statement of £3.7m (2021: £1.1m).
146
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
6. Employees
The average number of people employed by the Group during the year
Roads & Security
Engineered Solutions
Galvanizing Services
Total Group
Total employee benefit expense for the year
Wages and salaries
Share-based payments (note 25)
Social security costs
Pension costs (note 27)
2022
No.
1,078
1,550
1,167
3,795
2022
£m
145.9
2.0
21.0
4.3
173.2
2021
No.
1,215
1,515
1,086
3,816
2021
£m
133.1
2.8
20.5
4.4
160.8
Both the average number of people employed by the Group and the total employee benefit expense in both years above have been presented for
continuing operations.
Remuneration of key management personnel
Remuneration in relation to short term benefits
Termination benefits
Share based payments
Company contributions to money purchase pension plans
2022
£m
2021
£m
3.8
0.6
0.7
0.1
5.2
3.0
–
1.0
0.2
4.2
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, the Group announced
a new senior management structure and the establishment of an Executive Board. The structure includes the Executive Directors, Group
Presidents and the Corporate Development Director, who all report into the Chief Executive. Since 1 January 2021, key management personnel
are considered to be the Board of Directors of Hill & Smith PLC and the members of the Executive Board who are not also Directors of the Group.
Further details of the Directors’ remuneration and share interests are given in the Directors’ Remuneration Report on pages 92 to 104.
7. Net financing costs – continuing operations
Interest on bank deposits
Financial income
Interest on loans and borrowings
Interest on lease liabilities (note 16)
Financial expenses related to refinancing activities
Interest cost on net pension scheme deficit (note 27)
Financial expense
Net financing costs
2022
£m
0.5
0.5
(6.4)
(0.8)
(2.4)
(0.1)
(9.7)
(9.2)
2021
£m
0.6
0.6
(4.9)
(0.8)
(0.8)
(0.2)
(6.7)
(6.1)
147
Stock Code HILSFINANCIAL STATEMENTS 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
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
Loss on disposal of non-current assets
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 16)
2022
£m
(19.1)
(8.8)
(0.7)
(0.1)
(0.3)
(0.3)
(6.2)
(1.1)
(1.0)
(6.1)
(0.1)
(0.2)
–
–
–
0.2
Amounts relating to discontinued operations included in the table above comprise depreciation of property, plant and equipment of £1.8m
(2021: £4.0m), right-of-use asset depreciation of £0.4m (2021: £0.7m), and amortisation of acquisition intangibles of £0.3m (2021: £0.4m).
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
£m
0.5
1.1
1.6
A description of the work of the Audit Committee is set out in the Audit Committee Report on pages 86 to 91 and includes an explanation of
how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditor. Audit-related assurance services
totalled £3,000 (2021: £4,000).
148
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 9. Taxation
Current tax
UK corporation tax
Overseas tax at prevailing local rates
Adjustments in respect of prior years
Deferred tax (note 17)
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 17)
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 17)
Relating to share-based payments
Tax taken directly to the Consolidated Statement of Changes in Equity
2022
£m
4.1
14.2
1.8
20.1
0.3
0.3
(3.2)
–
(2.6)
17.5
(0.7)
(0.7)
(0.2)
1.2
1.0
2021
£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)
The tax charge in the Consolidated Income Statement for the period is higher (2021: higher) than the standard rate of corporation tax in the UK.
The differences are explained below:
Profit before taxation from continuing operations
Profit before taxation from discontinued operations
Profit before taxation – total Group
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 19.0% (2021: 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
Tax charge attributable to continuing operations
Tax charge attributable to discontinued operations
2022
£m
69.3
4.9
74.2
14.1
1.2
–
(0.3)
(0.4)
3.6
–
0.7
–
(1.4)
17.5
16.0
1.5
17.5
2021
£m
42.8
8.1
50.9
9.7
0.9
2.4
(0.5)
(0.6)
3.3
(0.1)
0.5
2.3
(1.2)
16.7
14.4
2.3
16.7
149
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
9. Taxation continued
In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK Controlled Foreign
Company (‛CFC’) legislation, announcing in April 2019 that it believed in certain circumstances the CFC regime constituted State Aid. In 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, which was paid in full in February 2021.
Applications to annul the Commission’s decision had been made in prior years by the UK Government, the Group and other affected taxpayers.
The EU General Court delivered its decision on these applications in June 2022, finding in favour of the Commission. Many of those affected,
including the Group, have appealed this decision to the Court of Justice of the EU. Having taken expert advice, we have concluded that our appeal
is likely to be successful. As a result, we continue to recognise a tax receivable of £1.6m within non-current assets, reflecting the Group’s view
that the amount paid will ultimately be recovered.
10. Discontinued operations
On 25 July 2022 the Group announced the proposed disposal of France Galva SA (‛France Galva’), our French galvanizing and lighting column
operations, and on that date entered into a put option with the prospective purchasers. On 5 September 2022, the shareholders of the Group
approved the plan to sell. The sale of France Galva completed on 4 October 2022 for £62.0m, resulting in a loss on disposal of £0.4m (note 5).
France Galva has been classified as a disposal group as required by IFRS 5 Non-current assets held for sale and discontinued operations. As the
disposal resulted in the Group’s withdrawal from all operations in France and noting that the business accounted for approximately 10% of Group
revenues prior to disposal, France Galva’s results have been reported within discontinued operations in accordance with IFRS 5.
Revenue
Cost of Sales
Gross Profit
Distribution costs
Administrative expenses
Operating profit
Financing costs
Profit before taxation
Taxation
Profit from discontinued operations
2022**
Non-
underlying*
£m
Underlying
£m
68.7
(47.6)
21.1
(3.6)
(10.7)
6.8
(0.1)
6.7
(1.5)
5.2
–
–
–
–
(1.8)
(1.8)
–
(1.8)
–
(1.8)
2021
Non-
underlying*
£m
Underlying
£m
79.8
(53.5)
26.3
(4.0)
(13.6)
8.7
–
8.7
(2.3)
6.4
–
–
–
–
(0.6)
(0.6)
–
(0.6)
–
(0.6)
Total
£m
68.7
(47.6)
21.1
(3.6)
(12.5)
5.0
(0.1)
4.9
(1.5)
3.4
Total
£m
79.8
(53.5)
26.3
(4.0)
(14.2)
8.1
–
8.1
(2.3)
5.8
* The Group’s definition of non-underlying items is included in the Group Accounting Policies on page 137 and further details on non-underlying items are included in
note 5.
** Represents nine months of activity prior to the sale on 4 October 2022.
The net cash flows generated from the sale of France Galva are as follows:
Cash received from sale
Cash and cash equivalents disposed
Net cash inflow on disposal
The net cash flows generated/(incurred) by France Galva included in the consolidated cash flow statement are as follows:
Net cash flow from operating activities
Net cash flow from investing activities
Net cash flow from financing activities
150
2022
£m
62.0
(5.9)
56.1
2021
£m
8.9
(2.7)
(0.7)
5.5
2022
£m
3.4
(2.8)
(0.4)
0.2
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 11. Earnings per share
The weighted average number of ordinary shares in issue during the year was 79.9m (2021: 79.6m), diluted for the effects of the outstanding
dilutive share options 80.5m (2021: 80.6m). Diluted earnings per share takes account of the dilutive effect of all outstanding share options
disclosed in note 25, 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
– continuing
– discontinued
Total basic earnings
Non-underlying items*
– continuing
– discontinued
Total non-underlying items
Underlying earnings
– continuing
– discontinued
Total underlying earnings
Diluted earnings
– continuing
– discontinued
Total diluted earnings
Non-underlying items*
– continuing
– discontinued
Total non-underlying items
Underlying diluted earnings
– continuing
– discontinued
Total underlying diluted earnings
* Non-underlying items as detailed in note 5.
12. Dividends
DIVIDENDS PAID DURING THE YEAR
Interim dividend paid in relation to year ended 31 December 2020
Final dividend paid in relation to year ended 31 December 2020
Interim dividend paid in relation to year ended 31 December 2021
Final dividend paid in relation to year ended 31 December 2021
Total
2022
Pence
per share
66.7
4.3
71.0
18.7
2.2
20.9
85.4
6.5
91.9
66.2
4.2
70.4
18.5
2.2
20.7
84.7
6.4
91.1
2022
Pence
per share
–
–
12.0
19.0
31.0
2021
Pence
per share
35.8
7.2
43.0
34.2
0.7
34.9
70.0
7.9
77.9
35.4
7.1
42.5
33.9
0.7
34.6
69.3
7.8
77.1
2021
Pence
per share
9.2
17.5
–
–
26.7
£m
53.3
3.4
56.7
14.9
1.8
16.7
68.2
5.2
73.4
53.3
3.4
56.7
14.9
1.8
16.7
68.2
5.2
73.4
£m
–
–
9.6
15.1
24.7
£m
28.4
5.8
34.2
27.3
0.6
27.9
55.7
6.4
62.1
28.4
5.8
34.2
27.3
0.6
27.9
55.7
6.4
62.1
£m
7.3
13.9
–
–
21.2
151
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
12. Dividends continued
DIVIDENDS DECLARED IN RESPECT OF THE YEAR
Interim dividend declared in relation to year ended 31 December 2021
Final dividend declared in relation to year ended 31 December 2021
Interim dividend declared in relation to year ended 31 December 2022
Final dividend proposed in relation to year ended 31 December 2022
Total
2022
Pence
per share
–
–
13.0
22.0
35.0
2021
Pence
per share
12.0
19.0
–
–
31.0
£m
–
–
10.4
17.6
28.0
£m
9.6
15.1
–
–
24.7
The final dividend for 2022 was proposed after the year end date and was not recognised as a liability at 31 December 2022, in accordance with
IAS 10.
13. Intangible assets
Cost
At 1 January 2021
Exchange adjustments
Acquisition of subsidiary
Additions
Disposal of subsidiary
At 31 December 2021
Exchange adjustments
Acquisitions of subsidiaries
Additions
Disposals of subsidiaries
At 31 December 2022
Amortisation and impairment losses
At 1 January 2021
Exchange adjustments
Disposal of subsidiary
Amortisation charge for the year
Impairment losses
At 31 December 2021
Exchange adjustments
Disposals of subsidiaries
Amortisation charge for the year
Impairment losses
At 31 December 2022
Carrying values
At 1 January 2021
At 31 December 2021
At 31 December 2022
152
Goodwill
£m
Brands
£m
Customer
Lists
£m
Capitalised
Development
Costs
£m
Contracts,
licences and
other assets
£m
169.1
(1.7)
5.5
–
(1.9)
171.0
9.0
9.3
–
(28.9)
160.4
35.3
(1.7)
(1.9)
–
12.4
44.1
1.3
(16.9)
–
0.5
29.0
133.8
126.9
131.4
30.0
(0.2)
0.7
–
(0.3)
30.2
2.1
1.2
–
(4.9)
28.6
14.2
(0.2)
(0.3)
1.0
0.3
15.0
1.1
(3.8)
1.0
0.4
13.7
15.8
15.2
14.9
56.4
(0.2)
3.0
–
(3.9)
55.3
2.2
9.8
–
(0.5)
66.8
30.3
(0.3)
(3.9)
3.4
3.3
32.8
1.3
(0.5)
3.3
5.2
42.1
26.1
22.5
24.7
17.7
–
–
1.2
–
18.9
0.2
–
2.3
–
21.4
13.4
(0.1)
–
1.1
–
14.4
0.1
–
1.1
–
15.6
4.3
4.5
5.8
17.5
–
1.6
0.2
(1.8)
17.5
0.8
–
0.2
(0.6)
17.9
9.0
–
(1.8)
2.0
–
9.2
0.5
(0.5)
2.9
–
12.1
8.5
8.3
5.8
Total
£m
290.7
(2.1)
10.8
1.4
(7.9)
292.9
14.3
20.3
2.5
(34.9)
295.1
102.2
(2.3)
(7.9)
7.5
16.0
115.5
4.3
(21.7)
8.3
6.1
112.5
188.5
177.4
182.6
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 13. Intangible assets continued
2022
NATIONAL SIGNAL INC
On 4 October 2022 the Group acquired the business and assets of National Signal Inc (“National Signal”) from its shareholders for an initial
cash consideration of £21.5m, plus a further £2.7m relating to post completion working capital adjustments payable early in 2023. Further cash
consideration of up to £3.3m is payable, conditional on National Signal’s achievement of financial performance targets in the three years post-
acquisition. National Signal, located in Fullerton, California, is a designer, manufacturer and supplier of off-grid solar lighting solutions in the USA,
and is therefore highly complementary to the Group’s 2021 acquisition of Prolectric Services, discussed in detail below, and will further accelerate
the Group’s strategy in this fast-growing market.
Details of the acquisition are set out below:
Intangible Assets
Brands
Customer lists
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Total assets
Lease liabilities
Current liabilities
Provisions
Total liabilities
Net assets
Consideration
Total consideration
Goodwill
Cash flow effect
Consideration in the year
Cash acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre-
acquisition
carrying
amount
£m
Provisional
policy
alignment
and fair value
adjustments
£m
–
–
1.5
–
3.7
5.8
11.0
–
(2.0)
–
(2.0)
9.0
1.2
8.9
(0.2)
1.0
(0.4)
(0.3)
10.2
(1.0)
(0.5)
(0.7)
(2.2)
8.0
Total
£m
1.2
8.9
1.3
1.0
3.3
5.5
21.2
(1.0)
(2.5)
(0.7)
(4.2)
17.0
24.2
7.2
21.5
–
21.5
Brands and customer lists 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 £5.5m of trade receivables, which have a gross value of £5.7m.
As part of the acquisition agreement, additional consideration has been agreed. The amount of additional consideration is dependent on National
Signal’s gross profit for the three years to 31 December 2025. Below the ’triggers’ (as defined in the Asset Purchase Agreement), no additional
consideration is due. If the ’triggers’ are achieved, additional consideration of £3.3m becomes payable.
Post-acquisition the acquired business has contributed £8.3m 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 2022, the Group’s results for the year from continuing operations
would have shown revenue of £754.6m, underlying operating profit of £102.0m and reported operating profit of £83.4m.
153
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
13. Intangible assets continued
WIDNES GALVANISING LIMITED
On 30 September 2022 the Group acquired 100% of the share capital of Widnes Galvanising Limited (“Widnes”) for an initial cash consideration
of £3.5m, plus £0.2m relating to post completion working capital adjustments and a further £0.2m deferred until 2024. The acquisition of Widnes
further expands the geographic footprint of the Group’s UK galvanizing business into the north west of the UK and is aligned to the Group’s
growth strategy.
Details of the acquisition are set out below:
Intangible Assets
Customer lists
Property, plant and equipment
Inventories
Current assets
Cash
Total assets
Current liabilities
Deferred tax
Provisions
Total liabilities
Net assets
Consideration
Total consideration
Goodwill
Cash flow effect
Consideration in the year
Cash acquired with the business
Net cash consideration shown in the Consolidated Statement of Cash Flows
Pre-
acquisition
carrying
amount
£m
Provisional
policy
alignment
and fair value
adjustments
£m
–
0.5
0.3
0.9
0.4
2.1
(0.4)
–
–
(0.4)
1.7
0.9
–
–
–
–
0.9
–
(0.1)
(0.7)
(0.8)
0.1
Total
£m
0.9
0.5
0.3
0.9
0.4
3.0
(0.4)
(0.1)
(0.7)
(1.2)
1.8
3.9
2.1
3.5
(0.4)
3.1
Customer lists have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which has been
allocated to the Galvanizing 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. The fair value of the
current assets acquired includes £0.8m of trade receivables, which have a gross value of £0.8m.
Post-acquisition the acquired business has contributed £0.8m revenue and £nil operating profit, which are included in the Group’s Consolidated
Income Statement. If the acquisition had been made on 1 January 2022, the Group’s results for the year from continuing operations would have
shown revenue of £734.6m, underlying operating profit of £97.6m and reported operating profit of £79.0m.
154
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 13. 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 was payable depending on Prolectric’s achievement of financial
performance targets in the 12-month period to 31 March 2022, which ultimately were not achieved. 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 (initial assessment)
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 were recognised as specific intangible assets as a result of the acquisition.
The residual goodwill arising, which was 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 were
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 included £1.3m of trade receivables, which had a gross
value of £1.3m.
155
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
13. Intangible assets continued
CASH GENERATING UNITS WITH SIGNIFICANT AMOUNTS OF GOODWILL
Engineered Solutions
US Composites
V&S Utilities
Others <£5m individually
Roads & Security
National Signal
ATG Access
H&S Inc.
VRS Solutions Group
Mallatite
Prolectric
Others <£5m individually
Galvanizing Services
France Galva SA
USA
UK
Others <£5m individually
2022
£m
2021
£m
17.7
6.0
5.4
7.4
4.7
9.2
10.4
9.6
5.5
0.2
–
28.4
24.8
2.1
15.7
5.3
5.0
–
4.7
8.6
10.4
9.6
5.5
0.3
11.8
25.2
24.8
–
131.4
126.9
Goodwill impairment reviews have been carried out on all CGUs to which goodwill is allocated.
METHODOLOGY AND ASSUMPTIONS
Impairment tests on the carrying values of goodwill and certain brand names of £8.5m (2021: £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 2024 through 2026, 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-19. The long term growth rates are 2.0% in the UK and 2.5% in the USA.
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.
2022
Headroom/
(impairment)
£m
Goodwill
£m
Discount
rate
Goodwill
£m
2021
Headroom/
(impairment)
£m
17.7
6.0
10.4
4.7
9.6
5.5
–
9.2
28.4
24.8
66.7
52.8
63.2
1.4
30.1
16.3
(4.4)
9.6
204.3
59.2
15.7%
15.6%
15.5%
15.6%
15.5%
15.4%
15.8%
15.0%
15.5%
15.6%
15.7
5.3
10.4
15.5
5.7
–
1.6
8.6
25.2
24.8
106.7
70.1
104.4
(10.8)
27.1
–
(5.2)
21.3
207.6
84.3
Discount
rate
13.1%
14.0%
13.0%
13.0%
13.0%
–
13.0%
14.1%
14.0%
13.0%
US Composites
V&S Utilities
VRS Solutions Group
ATG Access
Mallatite
Prolectric
Parking Facilities
Hill & Smith Inc.
Galvanizing Services – USA
Galvanizing Services – UK
156
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 13. Intangible assets continued
Based on the methodology set out above and as explained in note 5, the impairment review for Parking Facilities concluded that while the
associated goodwill of £1.6m had been fully impaired in 2021, the remaining carrying value of the business at 31 December 2022 exceeded its
recoverable amount and accordingly an impairment charge of £4.4m in respect of the remaining acquisition intangibles has been recognised.
Parking Facilities manufactures and sells a range of perimeter access security products, predominantly to specialist security installers in the
UK. The COVID pandemic resulted in a weak trading period in 2020 as several customer contracts were cancelled or postponed and while
the business saw a marginal improvement in revenue and profitability in 2021, ongoing constraints on customer budgets continued to weigh
on demand. In 2022, customer activity continued to be weak and supply chain challenges, input cost inflation and operational issues led to
a deterioration in margins. The Board’s reassessment of the future outlook for Parking Facilities, which also took into account the impact on
gross margins of developments in the competitive landscape, concluded that there was limited prospect of the business returning to the levels
of profitability previously anticipated and therefore that the expected future cash flows were not sufficient to support the carrying value. The
resulting impairment charge of £4.4m comprises £4.0m in respect of acquired customer lists and £0.4m in respect of acquired brand names.
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 ATG Access and Hill & Smith Inc.
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 both public/customer behaviour and broader economic conditions. 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 2022-2027
Gross margin % 2023-27 **
Annual cash flow growth 2027 onwards
Pre-tax discount rate
Scenario
Base case
H&S sensitivity 1*
H&S sensitivity 2*
Base case
H&S sensitised
Base case
H&S sensitised
Base case
H&S sensitised
Sensitivity
applied
%
Headroom/
(impairment)
£m
5.9%
2.0%
0.0%
25.8%
24.0%
2.0%
0.0%
15.6%
18.6%
1.4
(5.8)
(8.9)
1.4
(2.6)
1.4
(0.3)
1.4
(1.2)
* 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 2022).
** The base case assumes that gross profit margins across the period 2023-27 are slightly below the 27% achieved in 2022. The H&S sensitised case assumes a
gross profit margin 2023-27 of 24%, in line with the average gross margin across 2021-22.
Hill & Smith Inc. (‛H&S Inc.’)
H&S Inc. manufactures, sells and rents a range of work zone protection products including crash attenuators, trailer-mounted message boards,
and temporary road safety barriers, to construction contractors and traffic specialists across the US roads market. While underlying market
conditions remain healthy, the business’ performance in 2022 was impacted by operational and cost input challenges. The carrying value of the
H&S Inc. CGU also increased by c. £7.0m during the year as we invested in rental barrier assets and inventories in anticipation of future demand,
driven by projected investment in US road infrastructure, supported by increased spend from the IIJA. Consequently, calculated impairment
headroom fell to £9.6m (2021: £21.3m), noting that pre-tax discount rates also increased by 90 basis points to 15.0%. The Group’s projections
for H&S Inc. assume that actions taken to address the operational issues will be successful, and that short to medium term revenue growth
will be above long term averages due to the anticipated increase in federal and state highway spend from the IIJA over the next five years. The
main drivers of that revenue growth are expected to be temporary road safety barrier rentals, supported by the business’ investment in building
its rental barrier fleet over the past two years, and crash attenuator sales, where the business has developed a complementary offering to its
existing market-leading product that will begin to be marketed in 2023. We recognise, however, that there could be variations in the pace of
improvement and growth and therefore we have modelled a range of scenarios for the outlook. Revenue growth, gross margins, long term
cash flow growth and the discount rate are the key assumptions on which the impairment calculations are most sensitive. The following table
provides information on the impact on calculated headroom of three possible scenarios for each of those key assumptions (independently in
each case), the first showing the Board approved projection, the second the assumptions that result in zero headroom and the third a severe but
plausible downside scenario:
157
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
13. Intangible assets continued
Input
Compound annual revenue growth 2023-2027
Scenario
Base case
Zero headroom
H&S sensitivity
Compound annual gross profit margin growth 2023-27 *
Base case
Annual cash flow growth 2027 onwards
Pre-tax discount rate
Zero headroom
H&S sensitivity
Base case
Zero headroom
H&S sensitivity
Base case
Zero headroom
H&S sensitivity
Sensitivity
applied
%
Headroom/
(impairment)
£m
9.9%
8.6%
7.5%
3.6%
1.1%
0.0%
2.5%
0.2%
0.0%
15.0%
16.6%
18.0%
9.6
–
(5.9)
9.6
–
(13.3)
9.6
–
(0.5)
9.6
–
(7.5)
* The base case assumes a gross profit margin of 30.3% in 2023, rising to 34.9% in 2027 at a compound annual growth rate of 3.6%. The sensitivity scenario shows
the potential impairment if the gross margin of 30.3% remains constant throughout the period 2023-27.
158
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 14. Property, plant and equipment
Cost
At 1 January 2021
Exchange adjustments
Acquisition of subsidiary (note 13)
Additions
Disposal of subsidiary (note 5)
Transfers from inventories
Disposals
Transfers to assets held for sale (note 15)
At 31 December 2021
Exchange adjustments
Acquisitions of subsidiaries (note 13)
Additions
Disposals of subsidiaries (note 5)
Transfers from inventories
Disposals
Transfers to assets held for sale (note 15)
At 31 December 2022
Depreciation and impairment losses
At 1 January 2021
Exchange adjustments
Disposal of subsidiary (note 5)
Disposals
Charge for the year
Transfers to assets held for sale (note 15)
At 31 December 2021
Exchange adjustments
Disposals of subsidiaries (note 5)
Disposals
Transfers to assets held for sale (note 15)
Charge for the year
Impairment
At 31 December 2022
Carrying values
At 1 January 2021
At 31 December 2021
At 31 December 2022
Land and
buildings
£m
Plant,
machinery
and vehicles
£m
Total
£m
127.5
(1.6)
–
6.6
(1.7)
–
(1.2)
–
129.6
8.8
0.3
3.5
(31.6)
–
(0.6)
(2.9)
229.7
357.2
(2.7)
1.1
29.1
(1.1)
1.6
(13.3)
(6.6)
237.8
9.3
1.5
25.7
(38.4)
0.3
(6.9)
–
(4.3)
1.1
35.7
(2.8)
1.6
(14.5)
(6.6)
367.4
18.1
1.8
29.2
(70.0)
0.3
(7.5)
(2.9)
107.1
229.3
336.4
43.7
(1.1)
(0.3)
(1.0)
4.9
–
46.2
2.6
(19.8)
(0.6)
(1.1)
4.0
–
31.3
83.8
83.4
75.8
129.9
(1.7)
(0.8)
(10.9)
16.0
(4.6)
127.9
3.8
(21.8)
(6.3)
–
15.1
0.1
173.6
(2.8)
(1.1)
(11.9)
20.9
(4.6)
174.1
6.4
(41.6)
(6.9)
(1.1)
19.1
0.1
118.8
150.1
99.8
109.9
110.5
183.6
193.3
186.3
The gross book value of land and buildings includes freehold land of £17.5m (2021: £17.0m). Included within plant, machinery and vehicles are
assets held for rental with a cost of £98.6m (2021: £98.9m) and accumulated depreciation of £47.6m (2021: £46.7m).
The gross book value of plant, machinery and vehicles includes assets under construction of £20.6m (2021: £15.3m).
159
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
15. Assets and liabilities held for sale
Land and buildings
Plant, machinery and vehicles
Right-of-use assets
Total Assets held for sale
Lease liabilities
Other liabilities
Total Net Assets held for sale
2022
£m
1.8
–
–
1.8
–
–
1.8
2021
£m
–
2.0
1.6
3.6
(1.7)
(0.2)
1.7
Assets held for sale at 31 December 2022 represent the property that was vacated following the Group’s exit from its low margin US traffic
control products business, further details of which are set out in note 5. The property is expected to be sold in March 2023.
Assets and liabilities held for sale at 31 December 2021 related to the Group’s Swedish rental operations, which were disposed of in April 2022 as
explained in note 5.
16. 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 2021 and 31 December 2022
were as follows:
Land and
buildings
£m
Plant and
equipment
£m
19.5
0.6
12.7
–
(0.3)
(5.2)
0.9
–
(0.2)
28.0
1.0
5.1
(1.3)
–
(4.1)
0.1
(0.2)
0.9
29.5
11.4
1.8
4.1
(0.1)
(0.2)
(5.1)
–
(1.6)
(0.1)
10.2
–
4.0
(0.1)
(0.3)
(4.7)
–
–
0.1
9.2
Total
£m
30.9
2.4
16.8
(0.1)
(0.5)
(10.3)
0.9
(1.6)
(0.3)
38.2
1.0
9.1
(1.4)
(0.3)
(8.8)
0.1
(0.2)
1.0
38.7
Right-of-use assets
At 1 January 2021
Acquisition of subsidiary
Additions
Disposal of subsidiary
Terminations
Charge for the year
Re-measurement
Transfers to assets held for sale (note 15)
Effect of movements in foreign exchange
At 31 December 2021
Acquisitions of subsidiaries
Additions
Disposals of subsidiaries
Terminations
Charge for the year
Re-measurement
Impairment
Effect of movements in foreign exchange
At 31 December 2022
160
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 16. Leases continued
Lease liabilities
At 1 January
Additions
Terminations
Interest expense
Disposals of subsidiaries
Acquisitions of subsidiaries
Lease payments
Re-measurement
Transfers to liabilities held for sale (note 15)
Effect of movements in foreign exchange
At 31 December
2022
£m
38.9
9.1
(0.2)
0.8
(1.1)
1.0
(10.3)
0.1
–
1.0
39.3
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
2022
£m
8.8
0.7
0.1
(0.2)
9.4
0.8
10.2
2022
£m
8.7
6.6
5.2
4.1
3.0
11.7
39.3
2021
£m
32.4
16.7
(0.6)
0.8
(0.1)
1.8
(11.1)
0.9
(1.7)
(0.2)
38.9
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
161
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
16. 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
0.2
1.9
2022
More than
five years
£m
10.1
3.3
Total
£m
10.3
5.2
Within five
years
£m
0.1
3.0
2021
More than
five years
£m
6.5
4.3
Total
£m
6.6
7.3
The Group has lease contracts that have not yet commenced as at 31 December 2022. The total future lease payments for these non-cancellable
lease contracts are £3.6m (2021: £2.6m).
17. Deferred taxation
Intangible
assets
£m
Property,
plant and
equipment
£m
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
At 1 January 2021
Exchange adjustments
Acquisition of subsidiary (note 13)
Credited/(charged) for the year in the
Consolidated Income Statement (note 9)
Credited for the year in the Consolidated
Statement of Changes in Equity (note 9)
At 31 December 2021
Exchange adjustments
Acquisitions of subsidiaries (note 13)
Disposals of subsidiaries (note 5)
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)
Charged for the year in the Consolidated
Statement of Changes in Equity (note 9)
(9.5)
–
(1.0)
(0.5)
–
(11.0)
(0.4)
(0.2)
0.3
2.6
–
–
(7.9)
–
(0.3)
(1.8)
–
(10.0)
(0.6)
(0.1)
0.3
(2.4)
–
–
0.6
–
–
(0.6)
–
–
–
–
(0.3)
0.2
–
–
At 31 December 2022
(8.7)
(12.8)
(0.1)
4.1
(0.1)
–
(0.9)
–
3.1
–
–
(1.2)
(0.8)
0.7
–
1.8
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
162
5.1
(0.1)
0.2
0.5
0.8
6.5
0.3
0.2
(0.5)
3.0
–
(1.2)
8.3
2022
£m
0.1
(11.6)
(11.5)
Total
£m
(7.6)
(0.2)
(1.1)
(3.3)
0.8
(11.4)
(0.7)
(0.1)
(1.4)
2.6
0.7
(1.2)
(11.5)
2021
£m
1.4
(12.8)
(11.4)
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 17. Deferred taxation continued
The deferred tax asset of £8.3m (2021: £6.5m) in respect of other timing differences includes £4.0m (2021: £0.9m) in relation to tax losses
and £0.8m (2021: £2.4m) in relation to share based payments. The deferred tax asset has been recognised in full as there are expected to be
sufficient taxable profits in the foreseeable future against which the deferred tax assets can be utilised.
No deferred tax asset has been recognised in respect of other tax losses of £17.6m net (2021: £16.9m net). The losses are predominantly capital
losses. The deferred tax asset has not been recognised as no capital gains are expected to be generated in the foreseeable future and there are
no deferred tax liabilities on capital gains against which the deferred tax asset could be offset. There is no time limit on the carrying forward of
the losses.
No deferred tax liability is recognised on temporary differences of £0.4m (2021: £1.2m) 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% (2021: 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 rate change was substantively enacted on 24 May 2021. UK
deferred tax assets and liabilities have therefore been calculated at a rate of 25% (2021: 25%).
18. Inventories
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2022
£m
62.1
8.8
42.9
113.8
2021
£m
64.3
10.7
33.1
108.1
The amount of inventories expensed to the Consolidated Income Statement in the year was £443.7m (2021: £388.8m). The value of inventories
written down and expensed in the Consolidated Income Statement during the year amounted to £0.3m (2021: £0.4m). The amount of inventories
held at fair value less cost to sell included in the above was £nil (2021: £nil).
19. Trade and other receivables
Trade and other current receivables
Trade receivables
Prepayments
Other receivables
Fair value derivatives
Contract assets
2022
£m
2021
£m
126.1
112.3
5.8
0.7
0.3
11.4
144.3
7.3
1.2
0.2
9.2
130.2
The movements in contract assets, and deferred income (note 21), during the year correspond to the completion of performance obligations
partially satisfied as at 31 December 2021 offset by contracts that are in progress at 31 December 2022.
163
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
20. Cash and borrowings
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and cash equivalents
Bank overdraft (note 21)
Cash and cash equivalents net of bank overdraft
Interest bearing loans and other borrowings
Amounts due within one year (note 21)
Amounts due after more than one year (note 22)
Lease liabilities classified as liabilities held for sale (note 15)
Lease liabilities due within one year (note 16)
Lease liabilities due after more than one year (note 16)
Net debt
Change in net debt
Operating profit:
– from continuing operations
– from discontinued operations
Total Group 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 12)
Acquisitions of subsidiaries (note 13)
Disposals of subsidiaries (note 5)
Amortisation of costs associated with refinancing activities (note 7)
Purchase of shares for employee benefit trust
Issue of new shares (note 25)
Lease additions, terminations and remeasurements (note 16)
Leases disposed of (note 5)
Loans and borrowings disposed of (note 5)
Interest on lease liabilities (note 16)
Net debt decrease
Effect of exchange rate fluctuations
Net debt at the beginning of the year
Net debt at the end of the year
164
2022
£m
24.8
–
24.8
(0.3)
(104.9)
–
(8.7)
(30.6)
(119.7)
78.5
5.0
83.5
46.3
129.8
(42.6)
(4.3)
82.9
(15.5)
(5.9)
(31.5)
0.4
30.4
(24.7)
(25.6)
58.6
(2.4)
(0.4)
1.9
(9.0)
2.8
0.3
(0.8)
31.1
(6.1)
2021
£m
18.8
(0.7)
18.1
(1.2)
(121.0)
(1.7)
(8.8)
(30.1)
(144.7)
48.9
8.1
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
(144.7)
(119.7)
(146.2)
(144.7)
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 20. 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
Costs of refinancing during the year
Cash flows used in financing activities
Other changes
Effect of exchange rate fluctuations
Amortisation of costs associated with refinancing activities (note 7)
Loans and borrowings disposed of (note 5)
Lease changes:
Effect of exchange rate fluctuations
New leases
Terminations
Re-measurement
Acquisitions of subsidiaries
Disposals of subsidiaries
Interest expense
Interest paid
At 31 December
21. 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
Other payables
2022
£m
162.6
160.8
(184.8)
(9.5)
(2.1)
(35.6)
6.9
2.4
(0.3)
1.0
9.1
(0.2)
0.1
1.0
(2.8)
0.8
(0.8)
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)
144.2
162.6
2022
£m
0.3
–
0.3
67.8
4.4
41.2
4.8
2.6
2021
£m
1.2
0.7
1.9
79.3
9.5
35.5
4.7
3.7
120.8
132.7
The amount of contract liabilities included in deferred income as at 31 December 2022 was £2.1m (2021: £4.7m). During the year, £4.3m (2021:
£6.1m) of revenue was recognised in respect of contract liabilities present as at 1 January 2022.
165
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
22. Non-current liabilities
Interest bearing loans and borrowings
Loans and borrowings
Other non-current liabilities
Deferred consideration on acquisitions
Deferred government grants
Accrued expenses
23. Provisions
At 1 January 2021
Exchange adjustments
Charged during the year
Utilised during the year
Released during the year
At 31 December 2021
Exchange adjustments
Acquisitions of subsidiaries
Disposals of subsidiaries
Charged during the year
Utilised during the year
At 31 December 2022
Amounts due within one year
Amounts due after more than one year and less than five years
2022
£m
104.9
104.9
0.2
–
–
0.2
2021
£m
121.0
121.0
0.2
1.0
0.3
1.5
Environmental
£m
Restructuring
£m
Other
£m
Total
£m
2.1
(0.1)
–
–
–
2.0
0.1
–
(0.9)
–
–
1.2
0.7
–
4.5
(1.5)
(0.1)
3.6
–
–
–
1.6
(1.8)
3.4
3.0
–
0.4
(2.6)
–
0.8
–
1.4
–
–
(0.4)
1.8
2022
£m
3.7
2.7
6.4
5.8
(0.1)
4.9
(4.1)
(0.1)
6.4
0.1
1.4
(0.9)
1.6
(2.2)
6.4
2021
£m
4.0
2.4
6.4
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 provision of £3.6m at 31 December 2021 included £3.2m
relating to the closure of the Group’s variable message sign business that was announced in March 2021. £1.8m of this provision has been
utilised during 2022 and a further £1.5m charged, as explained in note 5.
OTHER PROVISIONS
Other provisions relate to various obligations including obligations in respect of onerous leases, property dilapidations and claims or disputes.
166
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 24. 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.
The Group has a policy of insuring a substantial majority of receivables in its UK businesses, which account for 43% (2021: 49%) of the Group’s
trade receivables. Any residual uninsured risk is spread across a significant number of customers. In our US businesses, which account for
48% (2021: 30%) of the Group’s trade receivables, our operating companies have a policy of taking out trade references before granting credit
limits and selectively insuring against credit risk where it is deemed appropriate by management. 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 other overseas businesses operate on a similar basis to the US. As a result of these policies, impairment losses
are not significant.
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 2022 all such debt was covered by cash and cash equivalents netting to £24.5m positive current liquidity (2021: £16.9m).
The Group’s principal UK revolving credit facility was refinanced in November 2022. The new facility is unsecured, has a value of £250m and an
initial maturity in November 2026, with an option to extend this maturity by one year at the first anniversary. Along with various other secured and
on demand lines of credit, including bank overdrafts, the Group has access to bank borrowing facilities of £262.2m at 31 December 2022 (2021:
£287.3m).
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 2022, the Group’s total committed borrowing facilities were £309.0m (2021: £327.6m) and the amount undrawn at this date was
£201.6m (2021: £202.4m).
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 24(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 may be 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 2022 credit exposure including cash deposited did not exceed £6.8m with any single
institution (2021: £6.2m).
Currency risk
The Group publishes its Consolidated Financial Statements in Sterling, but conducts business in several foreign currencies, including significant
operations based in the US. This results in foreign currency exchange risk due to exchange rate movements, which will affect the Group’s
transaction costs and, more significantly, the translation of the results and net assets of its foreign operations. The Group’s translation reserve
includes a gain of £27.4m (2021: loss of £2.3m), principally as a result of Sterling’s depreciation against the US Dollar in 2022, representing this
translation effect on overseas earnings and net assets.
167
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
24. Financial instruments continued
The trading currency of each operation is predominantly in the same denomination. However, the Group uses forward exchange contracts to
minimise currency risk where appropriate. The Group does not apply hedge accounting to these derivative financial instruments.
The Group has hedged its investment in its US operations by way of financing the acquisitions through like denominations of its bank borrowings
and the Senior Unsecured Notes. The Group’s investments in other subsidiaries are not hedged because fluctuations on translation of their
assets into Sterling are not significant to the Group.
Interest rate risk
The Senior Unsecured Notes account for 55% (2021: 42%) of the Group’s outstanding gross borrowings at 31 December 2022 and attract a fixed
rate of interest averaging 3.92% (2021: 3.92%) per annum. All other borrowings bear interest at floating rates. At the current time the Group feels
that this ratio of fixed to floating borrowings is appropriate but continues to monitor it in the context of economic indicators and wider market
conditions. The Group believes that using fixed interest rate for short term day-to-day trading is not appropriate.
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 2022 and 2021, 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
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 2022
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
168
–
–
–
–
–
–
0.3
–
–
0.3
–
–
–
–
–
–
0.2
–
–
0.2
Fair value
£m
24.8
(0.3)
24.8
(0.3)
24.8
(0.3)
(104.9)
(104.9)
(104.9)
–
(8.7)
(30.6)
–
127.4
(111.6)
(103.9)
18.1
(1.2)
–
(8.7)
(30.6)
0.3
127.4
(111.6)
(103.6)
18.1
(1.2)
–
(8.7)
(30.6)
0.3
127.4
(111.6)
(103.6)
18.1
(1.2)
(121.0)
(121.0)
(121.0)
(1.7)
(8.8)
(30.1)
–
113.5
(118.6)
(149.8)
(1.7)
(8.8)
(30.1)
0.2
113.5
(118.6)
(149.6)
(1.7)
(8.8)
(30.1)
0.2
113.5
(118.6)
(149.6)
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 24. 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 2022
Derivative financial assets
Total at 31 December 2021
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
0.3
0.3
0.2
0.2
–
–
–
–
Total
£m
0.3
0.3
0.2
0.2
At 31 December 2022 the Group did not have any assets or liabilities classified at Level 1 or Level 3 in the fair value hierarchy (2021: 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 £nil (2021: £9.7m) and US Dollar £66.7m (2021: £51.9m) denominated interest bearing loans, which are
predominantly used to fund the Group’s European and United States operations and include £66.7m (2021: £61.6m) designated as a hedge of
the net investment in a foreign operation. The foreign currency loss of £4.8m (2021: gain of £0.6m) 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 2022
US Dollar at 31 December 2021
Weighted
average
period for
which rate is
fixed
Years
5.0
6.0
Weighted
average
interest rate
%
3.9
3.9
169
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
24. 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 2022
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
Floating
Floating
3.9%
Floating
Floating
n/a
Floating
Floating
3.9%
Floating
Floating
n/a
0.4
46.7
58.1
39.3
–
116.5
261.0
1.8
69.5
51.6
38.9
1.7
123.7
287.2
(0.4)
(57.8)
(69.8)
(39.3)
–
(116.5)
(283.8)
(1.8)
(73.6)
(64.0)
(38.9)
(1.7)
(125.0)
(305.0)
(0.3)
(2.4)
(2.3)
(8.7)
–
(116.3)
(130.0)
(1.1)
(1.7)
(2.0)
(8.8)
(0.6)
(124.5)
(138.7)
–
(0.1)
–
(2.4)
(2.3)
(6.6)
–
(0.2)
(11.5)
(53.0)
(34.3)
(12.3)
(30.9)
(11.7)
–
–
(99.7)
(42.6)
(0.5)
(0.2)
(71.9)
(2.0)
(7.2)
(0.6)
(0.5)
(82.7)
–
(31.5)
(11.8)
(0.5)
–
(44.0)
–
–
(28.5)
(11.1)
–
–
(39.6)
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
2022
£m
201.6
2021
£m
202.4
(D) FAIR VALUES
The fair value of forward currency exchange contracts realised in the Consolidated Income Statement as part of fair value derivatives amounted
to £nil (2021: £nil). The fair values of the Group’s other financial instruments at 31 December 2022 and 2021 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 £6.4m (2021: £16.0m) were recognised in respect of the carrying values of non-current assets as detailed in notes 13, 14
and 16.
(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
170
2022
£m
138.2
24.8
163.0
2021
£m
122.7
18.8
141.5
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 24. 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
Engineered Solutions
Galvanizing Services
Total
2022
£m
53.3
5.6
61.4
5.8
126.1
2022
£m
50.7
47.3
28.1
126.1
2021
£m
54.7
19.8
34.1
3.7
112.3
2021
£m
47.6
32.6
32.1
112.3
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 global economies have continued their post-pandemic recovery in 2022, supply chain and
inflationary challenges are present and there remains uncertainty around conditions in the short to medium term, particularly in the UK. 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 £0.4m (2021: £0.7m). The Group does not require collateral in respect of trade and other receivables. The
Group does not have trade receivables or contract assets for which no loss allowance is recognised because of collateral.
The ageing of trade receivables at the reporting date was:
Net
£m
87.3
26.9
7.9
4.0
2021
Gross
£m
Provisions
£m
74.9
25.6
9.9
6.1
(0.2)
(0.1)
(0.3)
(3.6)
(4.2)
126.1
116.5
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
2022
Gross
£m
Provisions
£m
87.3
27.0
8.2
7.0
129.5
–
(0.1)
(0.3)
(3.0)
(3.4)
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2021
Disposal of subsidiary
Charged in the year
Utilised during the year
At 31 December 2021
Exchange adjustments
Acquisitions of subsidiaries
Disposals of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2022
Net
£m
74.7
25.5
9.6
2.5
112.3
£m
6.3
(0.1)
0.1
(2.1)
4.2
0.1
0.2
(0.8)
0.4
(0.7)
3.4
171
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
24. 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 £1.5m, 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 total group underlying operating profit in
the Consolidated Income Statement would have been a gain of £6.8m and the impact on equity would have been an increase of £29.0m.
• Based on a 10% strengthening in Sterling against all currencies throughout the year, the impact on the total group underlying operating profit
in the Consolidated Income Statement would have been a loss of £5.6m and the impact on equity would have been a decrease of £23.7m.
25. Called up share capital
Allotted, called up and fully paid
80.0m ordinary shares of 25p each (2021: 79.8m)
2022
£m
2021
£m
20.0
20.0
In 2022 the Company issued 0.2m shares under its various share option schemes (2021: 0.3m), realising £1.9m (2021: £2.6m).
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, certain senior managers forfeited long term incentive awards at their previous employer. The
Company compensated them for these awards by granting awards over Hill & Smith shares. The awards are at nil cost.
The number of options outstanding by scheme is 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
2022
2021
Number
of shares
Option
price range (p)
Number
of shares
Option
price range (p)
920,387
794p to 1,485p
714,243
891p to 1,485p
513,203
–
499,741
–
345,768
316p to 1,113p
389,489
316p to 1,113p
23,704
1,803,062
387,237
1,415,825
1,803,062
–
45,955
1,649,428
451,715
1,197,713
1,649,428
–
† 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 11 months (2021: 3 years 0 months).
172
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 25. 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)
2022
696
513
(674)
(513)
655
Millions of
options
2022
1.7
0.9
(0.3)
(0.5)
1.8
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
The weighted average share price on the dates of exercise of share options during the year was 1,550p (2021: 1,597p), and the weighted average
fair value of options and awards granted in the year was 560p (2021: 1,167p). The weighted average exercise price of outstanding options
exercisable at the year end was 1,103p (2021: 1,052p). The prior year weighted average exercise price of outstanding options exercisable at
the year end, has been restated to 1,052p from 566p, as a result of a clerical error. This restatement does not impact the prior year share based
payment charge disclosed.
Share-based payments – options
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 pages 92 to 104, 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:
2022
2021
Expected share price volatility (%)
Dividend yield (%)
Option life (years)
Risk free interest rate (%)
SAYE
24%/15%
3.19%
3/5
4.1%
LTIP
32%
0.0%
3
1.45%
Buy-out
awards
0%
0.0%
0.8
0%
SAYE
26%/16%
1.55%
3/5
0.5%/0.1%
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
32%
0.0%
3
0.2%
2022
£m
2.4
(0.4)
2.0
Buy-out
awards
0%
0.0%
0.8
0%
2021
£m
2.5
0.3
2.8
The carrying amount of the liability in relation to cash-settled share based payments at the end of the year was £0.3m (2021: £0.7m).
173
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
26. Guarantees and other financial commitments
(A) GUARANTEES
Subsidiary audit exemptions
Hill & Smith PLC has issued guarantees over the liabilities of the following predominantly non-trading UK subsidiaries as at 31 December 2022
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
Bergen Pipe Supports Group Limited
Hill & Smith (International) Limited
Hill & Smith (Americas) Limited
Hill & Smith (Americas) 2 Limited
Hill & Smith (Americas) 3 Limited
Hill & Smith (France) Limited
Hill & Smith Overseas Limited
Hill & Smith (Treasury) Limited
Hill & Smith (USA) Limited
Hardstaff Barriers Limited
Cobaco Holdings Limited
Signpost Solutions Limited
Mallatite Minor Structures & Products Ltd
Bowater Doors Limited
Expamet Limited
VMS Newco Limited
Varley & Gulliver Limited
Ash & Lacy Limited
Ash & Lacy Manufacturing Limited
Ash & Lacy Services Limited
Hawkshead Properties Limited
Redman Fisher Engineering Limited
Hill & Smith (Australia) Limited
Widnes Galvanising Limited
The Group had no financial guarantee contracts outstanding as at 31 December 2022.
(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:
Company Number
00926644
01013871
11331411
07269581
10783462
12060645
06768033
06614400
06814150
06876775
02791285
08317210
01084535
13717429
13738120
13748629
12968560
00330433
00047169
03008964
02798286
00562451
00169316
14411306
02206443
2022
£m
3.8
2021
£m
3.0
Group
Within one year
Between one and five years
After five years
174
2022
2021
Land and
Buildings
£m
0.1
–
–
0.1
Other
£m
4.8
1.4
–
6.2
Land and
Buildings
£m
0.1
–
–
0.1
Other
£m
4.6
1.1
–
5.7
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 27. 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
44.9
(51.4)
–
(6.5)
Overseas
£m
2.7
(3.4)
–
(0.7)
2022
£m
47.6
(54.8)
–
(7.2)
UK
£m
61.8
(69.5)
–
(7.7)
Overseas
£m
3.4
(7.8)
(0.2)
(4.6)
2021
£m
65.2
(77.3)
(0.2)
(12.3)
UNITED KINGDOM
The Group operates one main pension scheme in the UK, the Hill & Smith 2016 Pension Scheme (‛the Scheme’), providing benefits on a
defined benefit and defined contribution basis. The Scheme is closed to future accrual and is subject to the statutory scheme specific funding
requirements outlined in UK legislation. The weighted average maturity (the ’duration’) of the defined benefit plan obligations at the end of the
reporting period is approximately 11 years (2021: 14 years).
The assets of the Scheme are administered by Trustees and are kept entirely separate from those of the Group. The Trustees undertake a full
funding valuation of the Scheme every three years, which is used to determine the rates at which the Group contributes to the Scheme, with the
objective of providing the funds required to meet pension obligations as they fall due.
The Group remains actively engaged in dialogue with the Scheme’s Trustees with regard to management, funding and investment strategy.
The previous triennial funding 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 most recent of these triennial valuations is in progress, having an effective date of 5 April 2022. The preliminary results of this valuation have
been incorporated in the updated IAS 19 position at 31 December 2022 by an independent qualified actuary.
The Consolidated Income Statement for the year includes a pension charge within operating profit of £3.0m (2021: £3.1m), which includes the
costs of the defined contribution and the defined benefit sections of the Scheme. All actuarial gains and losses are recognised immediately in the
Consolidated Statement of Comprehensive Income.
The Scheme exposes the Group to a number of risks, the most significant being:
Risk
Description
Volatile asset
returns
Changes in
bond yields
Inflation risk
The defined benefit obligation is calculated using a discount rate set with reference to high quality corporate bond yields. If
assets underperform against this discount rate, this will create a plan deficit. The Scheme holds a proportion of its assets
in 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 deficit 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.
A decrease in corporate bond yields will increase the funding and accounting liabilities, although this will be partially offset by
an increase in the value of the Scheme’s investments in Liability Driven Investment and bond funds.
A significant proportion of the defined benefit obligation is indexed in line with price inflation, with higher inflation leading to
higher liabilities. This risk will be partially offset by the Scheme’s Liability Driven Investments, which will increase in value in
line with market inflation expectations.
Life expectancy
The majority of the Scheme’s obligations are to provide a pension for the life of each of the members, so increases in life
expectancy will result in an increase in the liabilities.
175
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
27. Pensions continued
The principal assumptions used to value the Scheme’s liabilities at 31 December
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
2022
n/a
3.2%
4.9%
3.3%
2.4%
2021
n/a
3.3%
1.8%
3.5%
2.7%
114%117%
114%117%
CMI 2021
CMI 2020
1.25%
1.25%
2022
2021
22.1 years
22.4 years
24.6 years
24.8 years
20.9 years
21.1 years
23.2 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.
During the latter part of 2021 and throughout 2022, short-term inflation in the UK has been significantly higher than we have seen in recent
years. The Group has made an allowance for this high inflation experience within the liabilities of the Scheme. Over the duration of the Scheme’s
liabilities, market expectations of inflation (which have been used to derive the inflation assumptions above) are significantly lower than this
recent experience.
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 11 years (the weighted average term maturity of the Scheme’s liabilities) 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
2022
£m
Market value
2021
£m
–
14.8
0.9
12.4
5.5
11.3
44.9
(51.4)
(6.5)
7.3
25.8
0.9
16.6
5.2
6.0
61.8
(69.5)
(7.7)
* 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 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. The 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. The April 2022 triennial valuation exercise is substantially complete and there has
been no further change to the previously agreed strategy.
176
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 27. Pensions continued
Assets in the bonds and equities categories, which account for approximately 33% (2021: 54%) of total Scheme assets, have quoted market
prices in active markets. Excluding cash, the balance of £24.6m represents the Scheme’s investment in LDI funds and Secure Income Asset
Funds. The LDI funds are invested in inflation linked bonds issued by the UK Government as well as fixed rate bonds. Secure Income Assets
Funds (Alternatives) are invested in a diversified portfolio of infrastructure debts, private corporate debts and real estate debts. The sensitivity of
these funds to changes in interest rates are measured using hedging multiples. Where asset prices are not directly derivable, an accurate price is
determined from a subset of observable market data.
Total expense recognised in the Consolidated Income Statement
Defined
contribution
schemes
£m
2022
Defined
benefit
schemes
£m
2.2
0.5
2.7
–
2.7
–
0.3
0.3
0.1
0.4
Total
£m
2.2
0.8
3.0
0.1
3.1
Current service costs
Expenses
Charge to operating profit
Interest on net Scheme deficit
Total charged to profit before tax
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Past service cost
Interest cost
Actuarial (gain)/loss arising from:
Financial assumptions
Demographic assumptions
Experience adjustment
Benefits paid
Closing defined benefit obligations
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
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
2022
£m
69.5
–
1.2
(18.0)
(0.5)
2.6
(3.4)
51.4
2022
£m
61.8
1.1
(18.4)
3.8
(3.4)
44.9
(17.3)
4.1
1.8
Total
£m
2.1
1.0
3.1
0.2
3.3
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
177
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
27. Pensions continued
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
(41)
36
(5)
% of Scheme
assets/
liabilities
(1)
5
4
2022
£m
(18.4)
15.9
(2.5)
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:
Balance
at 31
December
2022
Increase in
pensions
payment
(+0.1% p.a.)
£m
Decrease in
pensions
payment
(-0.1% p.a.)
£m
Discount
rate
(+0.1% p.a.)
£m
Discount
rate
(-0.1% p.a.)
£m
Inflation
rate
(+0.1% p.a.)
£m
Inflation
rate
(-0.1% p.a.)
£m
Life
expectancy
(+1 year)
£m
Life
expectancy
(-1 year)
£m
Value of funded
obligations
Fair value of
plan assets
Deficit
(51.4)
(51.7)
(51.1)
(50.9)
(51.9)
(51.7)
(51.1)
(53.5)
(49.3)
44.9
(6.5)
44.9
(6.8)
44.9
(6.2)
44.9
(6.0)
44.9
(7.0)
44.9
(6.8)
44.9
(6.2)
44.9
(8.6)
44.9
(4.4)
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit obligation
as a result of 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 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 operated two overseas pension schemes in France and the USA during the year. As a result of the sale of France Galva (see note 5),
as at 31 December 2022 the Group now operates just one overseas pension scheme in the USA.
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 8 years
(2021: 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 £1.1m (2021: £1.0m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.3m (2021: £1.2m), which includes the
costs of the defined contribution schemes and the defined benefit schemes. A further charge of £0.2m is included in the profit from discontinued
operations.
Actuarial valuations of the above schemes were carried out by independent actuaries as at 31 December 2022. 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
2022
2021
USA
0.00%
5.00%
0.00%
France*
2.50%
3.10%/3.10%
2.00%
USA
0.00%
2.75%
0.00%
France
2.50%
0.98%/0.5%
2.00%
2014 SOA
TH00–02, TF00–02
2014 SOA
TH00–02, TF00–02
* A valuation of the French scheme was undertaken immediately prior to the France Galva disposal on 4 October 2022
178
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 27. Pensions continued
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
2022
£m
Market
Value
2021
£m
2.7
2.7
(3.4)
–
(0.7)
3.4
3.4
(7.8)
(0.2)
(4.6)
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
2022
Defined
benefit
schemes
£m
1.1
1.1
–
1.1
0.4
0.4
0.1
0.5
Total
£m
1.5
1.5
0.1
1.6
Current service cost and expenses
Charge to operating profit
Interest on net pension scheme deficit
included within profit from discontinued
operations
Total charged to profit for the year
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
Disposal of subsidiary
Exchange adjustments
Closing defined benefit obligation
Defined
contribution
schemes
£m
2021
Defined
benefit
schemes
£m
1.0
1.0
–
1.0
0.2
0.2
–
0.2
2022
£m
8.0
0.3
0.2
(0.6)
(0.9)
1.2
(0.5)
(4.8)
0.5
3.4
Total
£m
1.2
1.2
–
1.2
2021
£m
8.8
0.2
0.1
(0.4)
(0.3)
0.1
(0.2)
–
(0.3)
8.0
179
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
continued
27. Pensions continued
Changes in fair values of scheme assets
Opening fair value of assets
Return on plan assets excluding interest income
Interest on plan assets
Admin expenses
Benefits paid
Disposal of subsidiary
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
Amounts recognised in the Consolidated Statement of Comprehensive Income
2022
£m
3.4
(0.6)
0.1
(0.1)
(0.2)
(0.2)
0.3
2.7
(0.5)
–
1.1
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
(35)
(22)
44
(29)
(15)
2022
£m
(1.2)
(0.6)
1.5
(0.2)
(0.5)
% of scheme
assets/
liabilities
(1)
–
9
9
13
2021
£m
3.2
–
0.1
(0.1)
–
–
0.2
3.4
0.1
–
1.0
2021
£m
(0.1)
–
0.6
0.5
1.0
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.
28. Related party transactions
As explained in note 6, the key management personnel are considered to be the Board of Directors of Hill & Smith PLC and the members of the
Executive Board who are not also Directors of Hill & Smith PLC. The Board of Directors’ remuneration can be seen in the Directors’ Remuneration
Report on pages 92 to 104. The combined remuneration of key management personnel can be seen in note 6 to the financial statements on
page 147.
29. Subsequent events
In February 2023, the Group acquired Enduro Composites, Inc. (‛Enduro’) for an initial cash consideration of £28.7m, on a debt and cash free
basis. Enduro, located in Houston, Texas, is a designer, manufacturer and supplier of engineered composite solutions focused on industrial and
infrastructure market segments. Its products can be used in a wide variety of applications in conditions that require high strength, light weight
and resistance to corrosion.
In March 2023, the Group acquired Korns Galvanizing Company Inc. (‛Korns’) for a cash consideration of £9.4m, on a debt and cash free basis.
Korns, located in Johnstown, Pennsylvania, has a single site specialising in spin galvanizing and has a customer base spread across a wide
range of infrastructure related end markets, including commercial construction, fire protection, oil & gas and utilities.
180
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 COMPANY BALANCE SHEET
31 December 2022
Non-current assets
Tangible assets
Right-of-use assets
Investments
Debtors due in more than one year
Current assets
Debtors
Cash and cash equivalents
Creditors: amounts falling due within one year
Bank loans and overdrafts
Lease liabilities
Other creditors
Net current liabilities
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, 10
5
9
10
12
13
2022
£m
0.1
0.3
290.1
290.5
95.7
386.2
14.1
0.1
14.2
(19.8)
(0.1)
(51.6)
(71.5)
(57.3)
328.9
(8.7)
(0.2)
320.0
20.0
42.8
0.2
257.0
320.0
Restated
2021
£m
0.1
0.4
329.8
330.3
94.2
424.5
12.8
0.1
12.9
(1.2)
(0.1)
(69.8)
(71.1)
(58.2)
366.3
(36.9)
(0.2)
329.2
20.0
40.9
0.2
268.1
329.2
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 £12.1m in the year (2021: £34.6m).
Approved by the Board of Directors on 8 March 2023 and signed on its behalf by:
A C Giddins
Director
H K Nichols
Director
Company Number: 671474
181
Stock Code HILSFINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2022
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
19.9
38.4
0.2
253.5
Total
equity
£m
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
Balance at 1 January 2021
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
Satisfaction of long term incentive and deferred bonus awards
Tax taken directly to the Statement of Changes in Equity
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Issue of shares
0.1
2.5
At 31 December 2021
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
Issue of shares
At 31 December 2022
20.0
40.9
0.2
268.1
329.2
–
–
–
–
–
–
–
20.0
–
–
–
–
–
–
1.9
42.8
–
–
–
–
–
–
–
12.1
(0.1)
12.1
(0.1)
(24.7)
(24.7)
2.4
(0.4)
(0.4)
–
2.4
(0.4)
(0.4)
1.9
0.2
257.0
320.0
Details of share options and related share-based payments are contained in note 25 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 £78.7m (2021: £88.1m), representing 2.8 times
(2021: 3.6 times) cover of the current year proposed dividend. When required the Company can receive dividends from its subsidiaries to further
increase its distributable reserves; the Company’s UK trading subsidiaries had reserves of approximately £49.8m available for distribution at
31 December 2022 (2021: £44.2m). Further reserves are available for distribution from trading subsidiaries located overseas, subject to local
regulations.
182
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 NOTES TO THE COMPANY FINANCIAL STATEMENTS
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 183 to 185 have, unless otherwise stated, been applied consistently to all periods presented in these
Financial Statements.
Following a review of the Company’s historic practice and future plans not to call on certain intercompany receivables in the short term, £87.2m
of balances that were reported as current intercompany receivables at 31 December 2021 have been reclassified to non-current in line with IAS
1. Notwithstanding this classification, these balances remain repayable on demand and, if required, can be called upon at the sole discretion of
the Company. This reclassification has no impact on net assets, result for the year or cash flows. The impact on the 31 December 2020 balance
sheet would be to reclassify £70.7m of current intercompany receivables to non-current intercompany receivables.
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.
183
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
1. Company Principal Accounting Policies continued
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses.
PROVISIONS
A provision is recognised in the Balance Sheet when the Company has a present legal or constructive obligation as a result of a past event,
that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of tangible fixed assets have different useful lives, they are accounted for as separate items of tangible fixed assets.
Depreciation is charged to the profit and loss account on a straight-line basis over the estimated useful lives of each part of an item of tangible
fixed assets. Land is not depreciated. The estimated useful lives are as follows:
Leasehold improvements
Plant, machinery and vehicles
life of the lease
up 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.
184
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 1. Company Principal Accounting Policies continued
SHARE-BASED PAYMENTS
Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are
accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the Company.
The grant date fair value of share-based payments awards granted to employees is recognised as an employee expense, with a corresponding
increase in equity, over the period in which the employees become unconditionally entitled to the awards. The fair value of the awards granted
is measured using an option valuation model, taking into account the terms and conditions upon which the awards were granted. The amount
recognised as an expense is adjusted to reflect the actual number of awards for which the related service and non-market vesting conditions
are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that do meet the related
service and non-market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the grant
date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for differences between expected and
actual outcomes.
Share-based payment transactions in which the Company receives goods or services by incurring a liability to transfer cash or other assets that
is based on the price of the Company’s equity instruments are accounted for as cash-settled share-based payments. The fair value of the amount
payable to employees is recognised as an expense, with a corresponding increase in liabilities, over the period in which the employees become
unconditionally entitled to payment. The liability is remeasured at each Balance Sheet date and at settlement date. Any changes in the fair value
of the liability are recognised as personnel expense in profit or loss.
TAXATION
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the profit and loss account except to the extent
that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised directly in equity or other
comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted
at the Balance Sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or
substantively enacted at the Balance Sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary
difference can be utilised.
ORDINARY DIVIDENDS
Dividends 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.
185
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
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 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 2020
Final dividend paid in relation to year ended 31 December 2020
Interim dividend paid in relation to year ended 31 December 2021
Final dividend paid in relation to year ended 31 December 2021
Total
DIVIDENDS DECLARED IN RESPECT OF THE YEAR
Interim dividend declared in relation to year ended 31 December 2021
Final dividend declared in relation to year ended 31 December 2021
Interim dividend declared in relation to year ended 31 December 2022
Final dividend proposed in relation to year ended 31 December 2022
Total
2022
Pence
per share
–
–
12.0
19.0
31.0
2022
Pence
per share
–
–
13.0
22.0
35.0
2021
Pence
per share
9.2
17.5
–
–
26.7
2021
Pence
per share
12.0
19.0
–
–
31.0
£m
–
–
9.6
15.1
24.7
£m
–
–
10.4
17.6
28.0
£m
7.3
13.9
–
–
21.2
£m
9.6
15.1
–
–
24.7
The final dividend for the year was proposed after the year end date and was not recognised as a liability at 31 December 2022, in accordance
with IAS 10.
4. Tangible fixed assets
Short
leasehold
properties
£m
Plant,
machinery
and vehicles
£m
0.1
–
0.1
0.1
–
0.1
–
–
0.5
0.1
0.6
0.4
0.1
0.5
0.1
0.1
Total
£m
0.6
0.1
0.7
0.5
0.1
0.6
0.1
0.1
Cost or valuation
At 1 January 2022
Additions
At 31 December 2022
Depreciation
At 1 January 2022
Charge for the year
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
186
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 5. Leases
The movements in the carrying value of the right-of-use assets and lease liabilities in the year ended 31 December 2022 is as follows:
Right-of-use assets
Balance at 1 January 2022
Charge for the year
At 31 December 2022
Lease liabilities
Balance at 1 January 2022
Lease payments in period
At 31 December 2022
Land and
buildings
£m
0.4
(0.1)
0.3
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
6. Fixed asset investments
Cost
At 1 January 2022
Additions
At 31 December 2022
Provisions
At 1 January 2022
Impairment
At 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
2022
£m
0.1
0.1
0.1
2022
£m
0.1
0.1
0.1
0.3
Shares in
subsidiary
undertakings
£m
379.6
6.7
386.3
49.8
46.4
96.2
290.1
329.8
Total
£m
0.4
(0.1)
0.3
Total
£m
0.4
(0.1)
0.3
2021
£m
0.1
0.1
0.1
2021
£m
0.1
0.1
0.2
0.4
Total
£m
379.6
6.7
386.3
49.8
46.4
96.2
290.1
329.8
A list of the businesses owned by the Company is given in note 16. All of the Company’s subsidiaries are wholly owned.
Following the Group’s disposal of France Galva on 4 October 2022, the Company received a dividend from Hill & Smith (France) Limited, France
Galva’s immediate parent company, amounting to £50.8m. Payment of the dividend reduced Hill & Smith (France) Limited’s net assets to £0.1m
and as a result, the Company has recognised an impairment charge of £46.4m in relation to its investment in Hill & Smith (France) Limited.
187
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
7. Debtors due in more than one year
Amounts owed by subsidiary undertakings due after more than one year
2022
£m
95.7
95.7
Restated
2021
£m
94.2
94.2
Refer to the basis of preparation note within the Company Principal Accounting Policies for further details on the prior year restatement.
8. Debtors
Amounts owed by subsidiary undertakings
Corporation tax
Deferred tax (note 11)
Other debtors
Prepayments and accrued income
2022
£m
6.0
3.5
2.9
0.4
1.3
Restated
2021
£m
5.7
4.7
1.3
0.3
0.8
14.1
12.8
Refer to the basis of preparation note within the Company Principal Accounting Policies for further details on the prior year restatement.
9. Creditors: amounts falling due within one year
Bank loans and overdrafts (note 10)
Bank overdrafts
Other creditors
Trade creditors
Other taxation and social security
Accruals
Other creditors
Amounts owed to subsidiary undertakings
2022
£m
19.8
19.8
1.6
0.3
4.9
1.1
43.7
51.6
2021
£m
1.2
1.2
1.4
0.2
5.1
0.9
62.2
69.8
188
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 10. 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 24 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 9)
Amounts due after more than one year:
Between one and two years
Between two and five years
11. Deferred tax
Deferred tax asset – At 1 January
Credit for the year in the profit and loss account
(Charge)/credit for the year directly in equity
Deferred tax asset – At 31 December
Other timing differences
2022
£m
8.5
0.2
8.7
2022
£m
19.8
–
8.5
8.5
28.3
2022
£m
1.3
2.0
(0.4)
2.9
2.9
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
12. Pension liabilities
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
27 to the Group Financial Statements. There are also separate personal pension plans.
The Company’s profit for the year includes a pension charge of £0.4m (2021: £0.3m), which includes the costs of the defined contribution
schemes and the defined benefit schemes.
13. Called up share capital
Allotted, called up and fully paid
80m Ordinary Shares of 25p each (2021: 79.8m)
2022
£m
2021
£m
20.0
20.0
In 2022 the Company issued 0.2m shares under its various share option schemes (2021: 0.3m), realising £1.9m (2021: £2.6m). Details of share
options and related share-based payments are contained in note 25 to the Group Financial Statements.
Each ordinary share carries equal voting rights and there are no restrictions on any share.
189
Stock Code HILSFINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
14. Guarantees
SUBSIDIARY AUDIT EXEMPTIONS
Hill & Smith PLC has issued guarantees over the liabilities of the following predominantly non-trading UK subsidiaries as at 31 December 2022
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
Bergen Pipe Supports Group Limited
Hill & Smith (International) Limited
Hill & Smith (Americas) Limited
Hill & Smith (Americas) 2 Limited
Hill & Smith (Americas) 3 Limited
Hill & Smith (France) Limited
Hill & Smith Overseas Limited
Hill & Smith (Treasury) Limited
Hill & Smith (USA) Limited
Hill & Smith (Australia) Limited
Hardstaff Barriers Limited
Cobaco Holdings Limited
Signpost Solutions Limited
Mallatite Minor Structures & Products Limited
Bowater Doors Limited
Expamet Limited
VMS Newco Limited
Varley & Gulliver Limited
Ash & Lacy Limited
Ash & Lacy Manufacturing Limited
Ash & Lacy Services Limited
Hawkshead Properties Limited
Redman Fisher Engineering Limited
Widnes Galvanising Limited
Company Number
00926644
01013871
11331411
07269581
10783462
12060645
06768033
06614400
06814150
06876775
14411306
02791285
08317210
01084535
13717429
13738120
13748629
12968560
00330433
00047169
03008964
02798286
00562451
00169316
02206443
The Company guarantees the bank loans, overdrafts and other borrowings of certain subsidiary undertakings. The amount outstanding at
31 December 2022 was £98.8m (2021: £108.2m).
15. 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.
190
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 16. Subsidiaries
INCORPORATED IN THE UK
AAJG Holdings Limited (H)
Hill & Smith (International) Limited (H)
(E) Engineered Solutions
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)*
Berry Systems Limited (D)
Bipel Group plc (D)
Birtley Group Limited (E, G)
Bowater Doors Limited (E)
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)
Hill & Smith Infrastructure Products Group
Limited (D)
Hill & Smith Infrastructure Limited (R)*
Hill & Smith Overseas Limited (H)*
Hill & Smith Pension Trustees Limited (D)
(R) Roads & Security
(G) Galvanizing
(D) Dormant
(H) Holding Company
* Directly held by Hill & Smith PLC
J. & F. Pool Limited (D)
Jevons Tools Limited (D)
Joseph Ash Limited (G)
Lionweld Steel Limited (D)
Lionweld Kennedy Flooring Limited (E)*
Mallatite Limited (R)*
Mallatite Minor Structures & Products
Limited (R)
Medway Galvanising Company Limited (G)
Parking Facilities Limited (R)
Pipe Supports Overseas Limited (H)*
Post & Column Limited (D)
Premier Galvanizing Limited (G)
Prolectric Services Ltd (R)*
Redman Architectural Metalwork Limited (D)
Redman Fisher Engineering Limited (E)
Safety and Security Barrier Holdings
Limited (H)
Signature Limited (D)
Expamet Building Products Limited (D)
Signpost Solutions Limited (D)
Expamet Limited (E)
Forgen Renewables Limited (D)
H&S Expamet Limited (E)
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 (Australia) Limited (H)
Hill & Smith (France) Limited (H)*
Hill & Smith (Treasury) Limited (H)*
Hill & Smith (USA) Limited (H)
Hill & Smith (VSG) Limited (D)
Hill & Smith Galvanized Products Limited (H)
Hill & Smith Group Limited (D)
Hill & Smith PLC (H)
Tegrel Limited (D)
The Globe Tank and Foundry
(Wolverhampton) Limited (D)
Variable Message Signs Limited (D)
Varley & Gulliver Limited (D)
Vista Galvanizing (UK) Limited (D)
VMS Newco Limited (R)
Western Galvanizers Limited (D)
Wombwell Foundry Limited (D)
Widnes Galvanising Limited (G)
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.
191
Stock Code HILSFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Continued
16. Subsidiaries continued
INCORPORATED IN AUSTRALIA
Hill & Smith Pty Limited (R)
INCORPORATED IN JERSEY
Hill & Smith (Jersey) Limited (H)
Vista Limited (H)
INCORPORATED IN INDIA
Bergen Pipe Supports (India) Private
Limited (E)
Hill & Smith Infrastructure Products India
Private Limited (D)
INCORPORATED IN IRELAND
Redman Fisher Limited (E)
Hill & Smith (Ireland) Unlimited Company (D)
INCORPORATED IN NORWAY
ATA Hill & Smith AS (R)
INCORPORATED IN SWEDEN
ATA Hill & Smith AB (R)
FMK Trafikprodukter AB (D)
INCORPORATED IN SPAIN
Prolectric Solar Lighting SL (D)
INCORPORATED IN THE USA
Bergen Pipe Supports, Inc. (E)
Carpenter & Paterson, Inc. (E)
Creative Pultrusions, Inc. (E)
CPK Manufacturing LLC (E)
CPCA Manufacturing LLC (E)
Hill & Smith Group Holdings, Inc. (H)
Hill & Smith US Group Inc (H)
Hill & Smith, Inc. (R)
National Signal LLC (R)
Voigt & Schweitzer LLC (H)
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. (E)
V&S Schuler Tubular Products LLC (E)
V&S Taunton Galvanizing, LLC (G)
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.
(E) Engineered Solutions
(R) Roads & Security
(G) Galvanizing
(D) Dormant
(H) Holding Company
* Directly held by Hill & Smith PLC
192
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 FIVE YEAR SUMMARY
Revenue˄
Underlying operating profit˄
Underlying profit before taxation˄
Shareholders’ funds
Underlying earnings per share˄
Proposed dividends per share
2022
£m
732.1
97.1
87.9
395.0
Pence
85.4
35.0
2021
£m
625.2
77.3
71.1
339.6
Pence
70.0
31.0
2020
£m
588.4
64.7
57.3
320.5
Pence
57.9
26.7
2019
£m
617.2
80.3
73.4
307.0
Pence
74.6
10.6*
2018
£m
564.2
74.4
70.6
293.2
Pence
72.1
31.8
* The proposed final dividend for 2019 of 23.0p per share was withdrawn and not paid.
˄ Continuing operations.
193
Stock Code HILSFINANCIAL STATEMENTS FINANCIAL CALENDAR
Annual General Meeting
Trading Update
Thursday 25 May 2023
Thursday 25 May 2023
Ex-dividend date for 2022 final dividend
Thursday 1 June 2023
Record date 2022 final dividend
Friday 2 June 2023
Dividend Reinvestment Plan – last date for election
Friday 16 June 2023
Final 2022 ordinary dividend payable
Friday 7 July 2023
Announcement of 2023 interim results
Wednesday 9 August 2023
Trading Update
Wednesday 29 November 2023
Ex-dividend date for 2023 interim dividend
Thursday 30 November 2023
Record date 2023 interim dividend
Friday 1 December 2023
Dividend Reinvestment Plan – last date for election
Tuesday 12 December 2023
Payment of 2023 interim dividend
Friday 5 January 2024
194
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 SHAREHOLDER INFORMATION
Shareholder base
Holdings of shares at 28 February 2023
Range of shareholders
Number of holders
% Number of shares
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
Shareholder base
Individuals
Institutions
Other corporate
Dividend History – proposed dividend per share
2022
Interims
Final
13.0
22.0
35.0
595
269
507
306
58
80
19
19
32.11
14.51
27.36
16.51
3.13
4.32
1.03
1.03
1,853
100.00
113,100
208,225
1,201,722
4,599,599
4,190,229
19,092,627
12,794,887
37,882,854
80,083,243
Number of holders
% Number of shares
1,370
476
7
1,853
2021
12.0
19.0
31.0
73.93
25.69
0.38
100.00
2020
9.2
17.5
26.7
3,400,198
76,664,464
18,581
80,083,243
2019
10.6
–
10.6
%
0.14
0.26
1.50
5.75
5.23
23.84
15.98
47.30
100.00
%
4.25
95.73
0.02
100.00
2018
10.0
21.8
31.8
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.hsgroup.com and includes share price
information, investor relations information
and contact details.
Annual General Meeting
The AGM of the Company will be held
at 11.00 a.m. on Thursday 25 May 2023
at Cranmore Park Conference, Event &
Exhibition Centre, Cranmore Avenue, Shirley,
West Midlands, B90 4LF, United Kingdom.
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.
Dividend Reinvestment Plan ‘DRIP’
The Company offers shareholders the facility
to reinvest their cash dividends to buy more
shares in the Company.
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.computershare.com/
sharedealingcentre for internet share dealing
and for telephone dealing ring
0370 703 0084.
•
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.
195
Stock Code HILSSHAREHOLDER INFORMATION PRINCIPAL GROUP BUSINESSES
Roads & Security
UNITED KINGDOM
ATG Access Ltd*
Manufacture and installation of hostile
vehicle mitigation and perimeter security
solutions including bollards, road blockers,
barriers and gates
Cobaco House, North Florida Road Haydock
Industrial Estate, Haydock Merseyside,
WA11 9TP
Tel: +44 (0) 8456 757574
www.atgaccess.com
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 Infrastructure Limited
Highway and off-highway safety barriers,
permanent and temporary solutions for
vehicle restraints, and retained earth systems
for Highway & Rail construction sectors
Parking Facilities Ltd*
Design, manufacture and supply of parking
and access control products including
gates, barriers, bollards, rising kerbs and
speed ramps
Springvale Business and Industrial Park,
Bilston, Wolverhampton, WV14 0QL
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 Ltd*
UK’s leading expert on sustainable lighting,
power and security
35 Hither Green Industrial Estate,
Clevedon BS21 6XU
Tel: +44 (0)1275 400570
www.prolectric.co.uk
REST OF THE WORLD
ATA Hill & Smith AB*
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
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
2740 Airport Drive, Suite 310/320, Columbus,
Ohio, US
43219Tel: +1 (614) 340 6294
Fax: +1 (614) 340 6296
www.hillandsmith.com
National Signal LLC*
Manufacturer of portable solar light towers,
portable hybrid solar light towers and other
lighting tower solutions
2440 Artesta Are, Fullerton, California, US
Tel: +1 (888) 994 0300
www.nationalsignalinc.com
Hill & Smith Pty Ltd*
Wire rope and temporary safety barriers
Incorporated in Australia
PO Box 9406, Wynnum Plaza, Wynnum West,
Queensland, 4178, 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.
196
Hill & Smith PLC ⸳ Annual Report and Accounts 2022
Engineered Solutions
UNITED KINGDOM
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
www.birtleygroup.co.uk
Lionweld Kennedy Flooring Limited
Open steel flooring, handrailing and ancillary
products
Marsh Road, Middlesbrough, TS1 5JS
Tel: +44 (0) 1642 245151
Fax: +44 (0) 1642 224710
www.lk-uk.com
UNITED STATES OF
AMERICA
Creative Pultrusions, Inc.*
Manufacture of fibre reinforced polymer
(FRP) composite profiles
214 Industrial Lane, Alum Bank,
Pennsylvania, 15521, USA
Tel: +1 (814) 839 4186
Toll-free: # 888-CPI-PULL (274-7855)
Fax: +1 (814) 839 4276
www.creativecompositesgroup.com
E.T. Techtonics (D)
Design and construction of fiberglass
bridge and boardwalk systems
www.creativecompositesgroup.com
Kenway Composites (D)
Advanced custom composite
manufacturing and professional field
services for various industries
www.kenway.com
Tower Tech (D)
Manufacture of cooling tower products
that effectively bridge the gap between
sustainability and energy efficiency
www.towertechinc.com
Composite Advantage (D)
A leading manufacturer for Fibre Reinforced
Polymer composite bridge, waterfront and
rail infrastructure markets
www.creativecompositesgroup.com
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
www.vsschuler.com
Bergen Pipe Supports, Inc.*
Manufacture and supply of pipe supports
solutions, including constant and variable
effort supports
484 Galiffa Drive, Donora, Pennsylvania,
15033, USA
Tel: +1 (724) 379 5212
Fax: +1 (724) 379 9363
www.pipesupports.com
Carpenter & Paterson, Inc.*
Industrial pipe hangers, metal framing
channel and fasteners
225 Merrimac Street, Woburn,
Massachusetts, 01801, USA
Tel: +1 (781) 935 2950
www.pipehangers.com
Novia Corporation, Inc.*
Vibration and seismic control manufacturer
1 Northwestern Drive, Salem, NH 03079, USA
Tel: +1 (603) 898 8600
Fax: +1 (603) 898 2755
www.cp-novia.com
India
Bergen Pipe Supports (India)
Private Ltd*
Manufacture and supply of pipe supports
solutions, including cryogenic supports
Incorporated in India
Plot No.12, Ground Floor, ’RADHA’, Mangala
Nagar Main Road, Porur, Chennai, 600116
Tel: +91 8576 305 666
www.pipesupports.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.
197
Stock Code HILSSHAREHOLDER INFORMATION PRINCIPAL GROUP BUSINESSES continued
Galvanizing Services
UNITED KINGDOM
Joseph Ash Limited*
Galvanizing services
Barkers Engineering Limited*
Galvanizing and powder coating services
Alcora Building 2, Mucklow Hill Halesowen,
West Midlands, B62 8DG
Duke Street, Fenton, Stoke-on-Trent,
Staffordshire, ST4 3NS
Tel: +44 (0) 121 504 2560
Fax: +44 (0) 121 504 2599
www.josephash.co.uk
Tel: +44 (0) 1782 343811
Fax: +44 (0) 1782 344974
www.barkersgalvanizing.com
Medway Galvanising Company
Limited*
Galvanizing, shotblasting and powder
coating services
Birtley Group Limited
Galvanizing services
Mary Avenue, Birtley, County Durham,
DH3 1JF
Castle Road, Eurolink Industrial Centre,
Sittingbourne, Kent, ME10 3RN
Tel: +44 (0) 191 410 4421
Fax: +44 (0) 191 492 1817
www.birtleygalvanizing.co.uk
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
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
Widnes Galvanizing Limited*
Galvanizing services
Fairway Trading Park, Ditton Road, Widnes,
Cheshire, WA8 0NZ.
Tel: +44 (0) 151 495 1939
www.widnesgalvanising.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.
198
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 DIRECTORS, CONTACTS AND ADVISORS
DIRECTORS
CONTACTS
Alan Giddins
Executive Chair
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
Farrokh Batliwala
Non-executive
Hill & Smith 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.hsgroup.com
Company Secretary
Alex Henderson FCIS
Registrars
Computershare Investor Services PLC
PO Box 82
The Pavilions
Bridgwater Road
Bristol
BS99 6ZZ
PROFESSIONAL
ADVISORS
Auditor
Ernst & Young LLP
No.1 Colmore Square
Birmingham
B4 6HQ
Brokers and Financial Advisors
Numis Securities Limited
45 Gresham Street
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
MHP Communications
60 Great Portland Street
London
W1W 7RT
199
Stock Code HILSSHAREHOLDER INFORMATION SHAREHOLDER NOTES
200
Hill & Smith PLC ⸳ Annual Report and Accounts 2022 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.
SHAREHOLDER INFORMATION H
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Hill & Smith PLC
Westhaven House
Arleston Way
Shirley
Solihull
B90 4LH
+44 (0)121 704 7430