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International provider of sustainable
infrastructure products and services
Hill & Smith PLC
Annual Report for the year ended 31 December 2023
INTRODUCING OUR 2023 ANNUAL REPORT
WHO WE ARE
Hill & Smith creates sustainable infrastructure and safe
transport through innovation.
The Group employs c. 4,400 people worldwide with the majority
employed by its autonomous, agile, customer focused operating
companies based in the UK, USA, India and Australia.
WHAT’S IN THIS REPORT
OUR
STRATEGY
Read more on
pages 14 to 15
OUR
BUSINESS MODEL
Read more on
pages 16 to 17
OUR ENGAGEMENT
WITH STAKEHOLDERS
Read more on
pages 32 to 35
OUR SUSTAINABLE
APPROACH
Read more on
pages 36 to 55
OUR FINANCIAL
STATEMENTS
Read more on
pages 118 to 198
CONTENTS
STRATEGIC REPORT
Our Investment Proposition
Group Highlights
Our Group at a Glance
Executive Chair’s Letter
Our Products
Our Strategy
Our Business Model
Measuring our Performance
Operational and Financial Review
Stakeholder Engagement
Our approach to Sustainability
Risk Management
Group Principal Risks
Non-financial Information Statement
GOVERNANCE
Board of Directors
Governance at a Glance
Introduction to Governance
Governance Report
Nomination Committee Report
Audit Committee Report
Remuneration Committee Report
Directors’ Report
Statement of Directors’ Responsibilities
FINANCIALS
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
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
01
02
04
06
09
14
16
20
22
32
36
56
60
66
68
70
72
74
84
86
94
113
117
118
126
128
129
130
131
187
188
189
198
199
200
201
203
204
Stock Code HILS
OUR INVESTMENT PROPOSITION
DELIVERING LONG TERM STAKEHOLDER VALUE
Structural growth underpinned by the
need for infrastructure investment in our
core markets
Market leader, with strong track record, in
attractive niches with high barriers to entry
Sustainability at the core of our
business model
Entrepreneurial culture supported by an
autonomous operating model
High, and improving, returns profile
Read more on pages 16 to 17
Read more on pages 22 to 31
Read more on pages 36 to 55
Read more on pages 14 to 17
Read more on pages 22 to 31
Strong balance sheet, supported by excellent
cash generation, enabling the Group to take
advantage of significant organic and inorganic
opportunities
Read more on pages 29 to 31
01
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 GROUP HIGHLIGHTS
Continuing operations
Revenue
% change OCC
Underlying operating profit
£829.8m
(2022: £732.1m)
+13%
+5%
£122.5m
% change OCC
+12%
% change at constant currency
(2022: £97.1m)
% change at constant currency
+14%
+26%
+26%
Underlying operating margin
Underlying profit before tax
14.8%
(2022: 13.3%)
+150bps
£111.9m
(2022: £87.9m)
+27%
Underlying earnings per share
Dividend per share
105.4p
(2022: 85.4p)
+23%
HIGHLIGHTS
43p
(2022: 35p)
+23%
Record trading performance
Positive momentum on M&A
– Revenue up 14% and underlying operating profit
– £48m spent on growth and margin accretive
up 26% on a constant currency basis
acquisitions in 2023
– Underlying operating margin increased by 150bps
to 14.8%, reflecting volume growth and improved
portfolio mix
– All recent acquisitions are trading in line or ahead
of expectations
– Further £11.6m across two acquisitions, 2024
– Strong momentum across US businesses,
year to date
with standout performance in composites and
electrical utility business
– Strong M&A pipeline
– US representing 76% of 2023 underlying
operating profit
– Resilient performance in our UK businesses given
market conditions
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.
02
Stock Code HILS
Revenue
£829.8m
(2022: £732.1m)
+13%
Reported operating profit
£103.8m
(2022: £78.5m)
+32%
Reported operating margin
Reported profit before tax
£93.2m
(2022: £69.3m)
+34%
12.5%
(2022: 10.7%)
+180bps
Basic earnings per share
86.0p
(2022: 66.7p)
+29%
Strong cash generation and enhanced ROIC
– Cash conversion 115% (2022: 51%)
– ROIC 22.0% (2022: 19.2%)
– Covenant leverage at 0.4 times, providing
significant capacity for investment in organic and
inorganic growth
Final dividend proposed of 28.0p, making a total
dividend of 43.0p, up 23%
Well-positioned in infrastructure markets with
attractive structural growth drivers. Expect to make
further progress in 2024 and beyond
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.
03
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OUR GROUP AT A GLANCE
OUR PURPOSE
Creating sustainable infrastructure and safe transport through innovation.
OUR CORE BUSINESS UNITS
ENGINEERED SOLUTIONS
Supplying engineered composite and steel solutions 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.
Read more on page 25
GALVANIZING SERVICES
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.
Read more on page 26
ROADS & SECURITY
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.
Read more on pages 27 to 28
04
Stock Code HILS GROUP OVERVIEW
By geography
3%
41%
REVENUE
£829.8m
56%
4%
20%
UNDERLYING
OPERATING
PROFIT
£122.5m
76%
US
UK
Rest of World
By division
24%
32%
37%
REVENUE
£829.8m
44%
10%
UNDERLYING
OPERATING
PROFIT
£122.5m
53%
Engineered Solutions
Galvanizing Services
Roads & Security
Read more on pages 22 to 31
05
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 EXECUTIVE CHAIR’S LETTER
DEAR STAKEHOLDER
2023 has seen Hill & Smith deliver a record set of results. This is
testament to the effectiveness of our autonomous operating model,
the quality of the leadership within our operating companies, and
the skill and dedication of our employees, many of whom I have had
the opportunity to meet with over the last 12 months.
Performance Highlights
On a continuing operations basis the
Group had revenue of £829.8m (2022:
£732.1m) and underlying operating profit
of £122.5m (2022: £97.1m), representing
a revenue and underlying operating profit
growth of 13% and 26% respectively.
Underlying operating margins improved
from 13.3% to 14.8%.
These results reflect the strong demand
for our products and services, particularly
in our Engineered Solutions division, where
we saw an excellent performance in our
US composite and utility businesses. We
also saw further positive growth in our
Galvanizing Services division, despite
a more challenging market in the UK.
Our Roads & Security division posted a
disappointing headline performance. This
reflects a strong performance in our recently
acquired off-grid solar business, National
Signal, and in our core UK roads businesses,
offset by certain non-recurring costs, most
notably in our US roads business and in our
loss making car park solutions business,
which we exited during the year.
During 2023 we completed four
acquisitions, investing in aggregate
£48.4m. Within US composites we
acquired Enduro Composites, a Texas
based manufacturer of highly engineered
composite products, and United
Fiberglass, an Ohio based designer,
manufacturer and supplier of composite
pipe, conduit and drainage systems.
Both businesses have been integrated
into the Creative Composites Group. We
also acquired Korns Galvanizing, which is
now part of our US Galvanizing business.
Enduro and Korns have contributed 10
months’ trading to this year’s results, and
both are ahead of our original investment
case. United Fiberglass was acquired in
November 2023 and starts 2024 with a
strong order book. We also acquired the
equipment, inventory, customer lists, order
book and intellectual property of Conn-Fab
Sales, a small bolt-on to our US seismic
protection solutions business.
Cash generation was strong across
the Group at 115% (2022: 51%). As at
31 December 2023 total net debt was
2023 has seen
Hill & Smith deliver
a record set of
results. This is
testament to the
effectiveness of
our autonomous
operating model.”
Alan Giddins
Executive Chair
06
Stock Code HILS is executing on its strategy. Our
engagement levels remain close to the
benchmark for other industrial companies
but did decrease slightly at a Group
level, with cost-of-living pressures in the
UK being specifically highlighted. The
importance of providing employees with
regular recognition was also noted and
is something that we will be focused on
in 2024. Each business has been asked
to prepare a clear action plan in order
to address specific issues raised within
the engagement survey and these plans
are being cascaded throughout each
operating company. Progress in delivery
against these plans will be reviewed by
the Board on a regular basis.
Last year we introduced a Charitable
Donation Matching Programme. The
programme matches charitable funds
raised by our employees on an application
basis and was available to employees
in all our operating companies. During
the year we have matched donations
benefiting causes such as the Disaster
Committee, Alzheimer’s Society and the
Downs Syndrome Association of Tulsa.
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 83.
To reflect my role as an executive within
the business the Board agreed to put in
place certain additional governance steps
within our processes, in addition to which
Tony Quinlan took over from me as Chair
of the Nomination Committee. These
changes have worked well, and I would
like to thank all of my Board colleagues
for their considerable support over the
last 12 months.
Health & Safety
The Board and senior leadership within
the Group are focused on ensuring that
being a Hill & Smith employee means that
everyone has the right to expect to be
safe at work. While we have continued to
make progress in lowering our lost time
incident rate (‘LTIR’), we still have work to
do in this area.
During the year we made the decision to
restructure the management of health
and safety, moving away from having a
Group Head of Health & Safety to having
two geographic heads, covering the
UK (including India and Australia) and
the US, with these individuals reporting
directly into our Group Presidents. This
07
Welding bay at Lionweld Kennedy, UK
£108.4m (2022: £119.7m), leaving
financing headroom of £247.2m on the
Group’s borrowing facilities. Return on
capital employed during the year was
22.0% (2022: 19.2%).
Board
Following the departure of Paul Simmons
in July 2022 the Board ran an extensive
CEO search process. While we met a
number of interesting candidates, we
did not feel that we had met the right
candidate to lead Hill & Smith. As a result,
in May 2023, the Board asked me to
continue in my role of Executive Chair.
In December we announced the
appointment of Carol Chesney as a non-
executive director. Carol brings extensive
PLC board experience through her time
as an executive at Halma and as a non-
executive at Renishaw. Carol will take over
from Mark Reckitt as Audit Committee
Chair when Mark stands down from the
Board at the Annual General Meeting,
having completed eight years as a Board
member. I would like to thank Mark for
the considerable time he has committed
to Hill & Smith, and in particular, for the
support, help and constructive challenge
he has given me as Chair over the last
four years. Mark is a very accomplished
non-executive director, and has been a
significant contributor in helping evolve
the Hill & Smith model during his time on
the Board.
In January 2024 we announced the
appointment of Hooman Caman Javvi
as Chief Operating Officer and Board
Member. Hooman joined Hill & Smith in
March 2022 as Group President, having
previously held senior management
positions at ABB and Hitachi Energy.
Having worked closely with Hooman
over the last 18 months I am very excited
about the impact he will be able to have in
this new role.
Employees
The Group employs c. 4,400 people
around the world. How we look after and
help develop our employees is critical
to the long-term success of the Group.
During the year I attended employee
forums in both the UK and US, as well
as two apprentice forums in the UK.
This confirmed to me the considerable
potential that sits within our organisation,
as well as giving me the opportunity to
receive feedback on where we can as a
Group do better in helping support and
develop our workforce. The success and
growth in the number of apprentices in
our UK businesses is something which is
a huge credit to the organisation.
In September, we conducted our annual
worldwide employee engagement survey.
This is a critical feedback mechanism,
enabling the Board and the executive
team to understand how our employees
are feeling, their views on the way the
business is run and how the business
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 structure allows for greater agility
in responding to incidents and in
providing localised and targeted
support to our operating companies.
Strategy
Hill & Smith has a very clear strategy,
which was re-confirmed by the
Board in June. Our focus is on
investing our capital into our highest
growth markets and behind our
best businesses and management
teams. We then use selective M&A to
give us access into new customers,
technologies and markets. Delivery
of this strategy is dependent on
excellence in execution and strong
financial and risk management
at both a Group and operating
company level.
In order to help stakeholders assess
our performance, in March 2023 we
set out an updated set of medium-
term financial targets. These are built
around consistent organic growth,
clearly targeted M&A, operating
margin expansion and strong cash
conversion and return on invested
capital (‘ROIC’).
M&A
Our focus is on identifying high
quality businesses that complement
our strategy and operate in
industries where we have existing
knowledge. When I was appointed
Executive Chair in 2022, I set out to
re-invigorate our M&A pipeline and
processes, and I am pleased that
we have been able to maintain our
momentum over the last 12 months.
Indeed, we enter 2024 with a strong
pipeline of potential targets, an
excellent central M&A team based in
both the UK and US, and significant
financial headroom to fund
acquisitions from our balance sheet.
Since the year end we have
completed two further acquisitions:
Capital Steel, a US supplier of
structural steel products and
services, principally into the
electricity transmission and
distribution market, and FM
Stainless, a manufacturer of
stainless steel pipe supports and
fasteners, serving the water and
wastewater industry.
Sustainability
Our Sustainability objectives
are of critical importance to our
ambition to deliver sustainable,
profitable growth. We have a Group
Sustainability Committee, on which
both Hannah Nichols and I sit, and
which reports to the Board on a
six-monthly basis. During the year
we have made significant progress
in a number of areas, including
having our Science Based Targets
initiative (‘SBTi’) targets submitted
and approved. Within our operating
companies we have excellent
examples of where we have been
able to reduce greenhouse gas
emissions both through changing
our processes, as well as through
investment in renewable electricity
and the transition away from diesel.
You can read more about our work
on sustainability during the year on
pages 36 to 55.
Dividend and Annual General
Meeting
The Board recognises that dividends
play an important role for investors,
both current and potential. I am
pleased therefore, to confirm
the Board has proposed a final
dividend of 28p (2022: 22p) which, if
approved, would result in a full year
dividend of 43p (2022: 35p), 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 23 May
2024 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
2024 is the 200th anniversary of Hill
& Smith. From modest beginnings
as a partnership between Edward
Hill and his brother-in-law, Henry
Smith, the business has evolved and
grown to become an international
group serving a range of attractive
infrastructure end markets. There
is much to be proud of within our
history.
Looking forward I feel very confident
about the Group’s ability to deliver
strong medium and long term growth
and value for our shareholders,
while providing excellent career
opportunities for our employees.
Our entrepreneurial culture, proven
business model, strong leadership
team and attractive end markets are
a very powerful combination.
Alan Giddins
Executive Chair
11 March 2024
“ Looking forward I feel very confident about the Group’s
ability to deliver strong medium and long term growth
and value for our shareholders.”
08
OUR PRODUCTS
WATERWAYS AND
DOCKLANDS
Pier protection
Fiber Reinforced Polymer (‛FRP’) large
diameter pilings and wale beams are
the ideal solution for pier protection
systems designed to withstand high
energy impacts from marine traffic
RURAL
Flood doors
Specialist composite flood
doors that significantly
reduce the volumes of
water entering a property
in the event of a flood
Piers & walkways
Dockside camels
FRP composite material does
not leach, flake or rot into water
systems and can replace wood in
marine applications
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
Maritime guide walls
FRP flexible fender system that
bends under vessel contact but
then recovers without breaking
Flood defences
FRP flood protection. Movable
dams that can be raised and
lowered during changing
water levels
ENERGY ZONE
Wetlands boardwalks
Composite planks for
lightweight environmentally
friendly walkway solutions
Agriculture
Galvanized farm buildings
and equipment
S
M
ART WORKZONE
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
Green bridges
BEBO Arch System is a standardised
patented precast concrete arch system
for the design and construction of grass
covered bridges, tunnels, culverts and other
underground structures
Trail bridges
Lightweight, strong, portable
and long lasting FRP bridges
for parks and trails
09
Hill & Smith PLC | Annual Report and Accounts 2023
Stock Code HILS
Roads & Security
Engineered Solutions
Galvanizing Services
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
Roadside barrier
Metal roadside
crash protection
Crash cushions
The Smart Cushion®
and Smart Pod crash
attenuators, with
remote monitoring, are
a revolutionary, speed-
dependent products
that varies, stopping
resistance during
an impact
ENERGY ZONE
S
M
ART WORKZONE
Bridge parapets
Bridge-side crash
protection
Bridges
pedestrian cycleway
underpass
Galvanized road bridges
Pedestrian cycleway,
underpass or culvert
Corrugated structure
designed for a range
of applications
Road message
boards
Integrated Traffic
Solutions enhance
transportation and
improve safety and
mobility in and around
work zones. Includes
internet connectivity
with motor vehicles
Trailer bodies
Galvanized metal
chassis
Work zone solar
powered lighting
Sustainable solar powered
lighting backed up by
innovative technology and
industry-leading remote
monitoring and control
Construction
Galvanized
structural steel
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
Hill & Smith PLC | Annual Report and Accounts 2023
10
TOWN AND CITY
Solar panels
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
Retaining Wall
Versatile solutions
for retaining wall
construction
MASS temporary
security fencing
Highly visible
temporary safety
solution protecting
sites, workforces and
pedestrians
S
M
ART WORKZONE
Composite
railcar chassis
FRP lightweight highly
energy efficient floor
panels and door
jambs for refrigerated
freight cars
Electrical
transmission poles
Steel transmission
poles and composite
poles that do not
biodegrade
Semi Conductor Plant
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 data centre
protection
Street signs
Street sign materials
Ballast Retention Systems
Designed to reduce levels of
maintenance on ballast shoulders
10
11
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
ENERGY ZONE
S
M
ART WORKZONE
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
Hotels (A/C)
Modular cooling tower
design delivering low
lifecycle costs, durability
and sustainability
Apartments
(Fire doors)
Fully tested,
accredited apartment
entrance doors for
use in internal and
external applications
Solar powered street lights
Solar lighting for streets, car
parks and footpaths offering
powerful and reliable year-
round lighting without noise or
emissions
Apartments
(Balconies)
Structural shapes
for both residential
and commercial
applications,
with minimum
maintenance
requirements
Hospital (A/C)
Seismic and anti-
vibration cooling
towers for critical
rooftop applications,
that bridge the
gap between
sustainability and
energy efficiency
Pedestrian
safety
bollards
Impact
tested
security
bollards
providing
pedestrian
protection
Street lights
Manufacture and
distribution of steel
and aluminium lighting
columns
Sculptures
Galvanized steel
works of art for
private and public
display
Masonry supports
and wind posts
Providing steel
support systems
for buildings
Parking and
security gates
Manufacturers of
parking control
equipment
Electric charging
points
Charge points
incorporated into our
street lighting columns
P
E
D
E
S
T
RIAN PROTECT I O N Z O
E
N
Composite pedestrian
walkways
Low maintenance lightweight
FRP recreational and public
access elevated boardwalks
and sidewalks
Hostile Vehicle Mitigation
Hostile Vehicle Mitigation
solutions ranging from small
single gate installations to
large state events requiring
a full secure island site
11
12
CREATIVE COMPOSITE GROUP’S
WATERFRONT PRODUCT RANGE –
AN ECOLOGICAL SOLUTION
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
A
S
E
S
T
U
D
Y
New Jersey’s fishery and aquaculture (primarily hard clam and oyster
production) industry contributes more than $1 billion annually to the state’s
economy. The state has restricted the use of chemical treated wood in
designated shellfish habitat areas due to environmental concerns. Legislation
also now requires that all new or replacement structures in these areas must be
built with non-polluting material.
Creative Composites Group’s (‘CCG’) Fiber Reinforced Polymer (‘FRP’)
StormStrong® pipe and sheet pilings product range offers an ideal solution
for waterfront applications. FRP is an ecologically-sound material and has
been adopted as environmentally safe by the New Jersey Department of
Environmental Protection and other states along the East Coast.
CCG’s piling product range offers a high strength, light weight, corrosion
resistant alternative and is available in a wide range of thicknesses and
diameters. The design flexibility and optimal energy absorption allow the
products to be engineered for use in pier fender systems, ship berthing and
mooring applications and guide and slip walls. FRP piles are easy to transport
and can be integrated into existing construction with minimal replacement
costs. A compelling solution to a customer problem, playing an important role in
protecting sensitive marine ecosystems.
13
Hill & Smith PLC | Annual Report and Accounts 2023
Stock Code HILS
14
Where?
NICHE MARKETS
• High barriers to entry
• Moderate competition
• Higher growth and margins
Increasing population
MACRO DRIVERS
•
• Urbanisation
• Climate change
•
Increasing health and safety
standards
MARKET DRIVERS
• Ageing infrastructure
•
Industrial onshoring
• Sustainable materials
OUR STRATEGY
Why?
Creating
sustainable
infrastructure
and safe
transport through
innovation
14
Stock Code HILS What?
Superior
long-term
stakeholder
value
How?
ORGANIC GROWTH
• Autonomous operating model
• Agility and proximity to market
• Premium on talent
•
Innovation
M&A ENHANCES GROWTH
• Enabling access to new customers,
markets and technologies
• Focus on quality and organic growth
• Disciplined evaluation and integration
SUSTAINABILITY
• Protecting the world
• Saving and enhancing lives
• Sustainable governance
FINANCIAL MODEL
• Strong profit growth and cash
generation
• Reinvesting capital to accelerate
organic growth and M&A
• Sustainable, progressive dividend
• Maintaining conservative leverage
15
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OUR BUSINESS MODEL
WE ARE GUIDED BY OUR PURPOSE:
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WHERE WE OPERATE
Fast growing niches
We focus on fast growing niches that have high barriers to entry
and deliver high margins. We prefer applications that are of critical
importance to our customers and where our offering is a small part
of a larger ecosystem. We are market leaders in the niches in which
we operate and do not typically compete against larger commoditised
players. Our decentralised operating model allows us to focus on
these smaller opportunities.
Increasing population
As populations grow, the need for safe, sustainable infrastructure
increases to ensure congestion does not erode economic productivity,
quality of life or increase pollution.
Urbanisation
The population of people living in towns and cities is increasing,
which creates the risk of insufficient infrastructure, and increased
pollution due to industrial activities. Investment in infrastructure will
be needed to address these concerns.
Climate change
The urgent requirement to limit global warming is driving a transition
to clean energy sources and increasing demand for sustainable
infrastructure. The increased frequency of extreme weather events is
also creating a need for more resilient infrastructure.
Increasing health and safety standards
The impacts of more demanding health and safety 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.
Ageing infrastructure
The requirement to upgrade ageing infrastructure to increase
resilience and cope with future demands is driving significant multi-
year government and private investment in the geographies in which
we operate.
Industrial onshoring
Recent years have seen a return to onshoring to improve supply chain
control, avoid rising foreign production costs and help domestic
economies grow. We see this as a key growth driver for our US
businesses.
Sustainable materials
The drive towards sustainability impacts the choice of material for
infrastructure applications, placing a premium on materials that are
long lasting, minimise environmental impacts and are suitable for the
circular economy.
16
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Stock Code HILS
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CREATING SUSTAINABLE INFRASTRUCTURE AND
SAFE TRANSPORT THROUGH INNOVATION
HOW WE OPERATE
THE VALUE WE CREATE
Our autonomous operating model
We operate a decentralised autonomous business model, which
encourages an entrepreneurial culture and highly accountable
local management teams. This approach fosters agility and
customer intimacy, ensuring 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.
Our small head office team helps set the ambition for each
operating company, so that our businesses deliver on their full
potential, and ensures that we have the right KPIs and controls in
place across the Group.
Talented people
Our autonomous model attracts talented people who want to
make a difference. We run Group-wide talent and development
programmes to nurture and support our high potential talent.
Innovation
Innovation is instrumental to supporting our long term organic
growth targets and we are committed to developing products that
meet evolving customer and market needs. In the short term we
continue to build the capability to accelerate our rate of innovation
through skills development and Group-wide workshops.
Disciplined M&A
Acquisitions form a key part of our growth strategy, enabling
the Group to expand into new customers and markets and into
new technologies. We focus on high quality businesses with
attractive organic growth potential. All potential acquisitions are
tightly evaluated to ensure they fit with our strategic and financial
criteria. Once acquired, we implement a rigorous and detailed
integration plan.
Sustainability
Sustainability is fundamental to how we operate and underpins
our growth strategy. Our products and services help infrastructure
become more sustainable, with the environment and our
customers benefiting through the value that our diverse offerings
provide. We have identified seven sustainability priorities for the
Group across three themes: protecting the world, saving and
enhancing lives, and sustainable governance. For further details
please refer to our Sustainability report on pages 36 to 55.
Strong cash generation and reinvestment in growth
Our financial model is based on driving profit growth and strong
cash generation. This allows us to reinvest capital to accelerate
organic growth, to make high quality acquisitions and to deliver
a sustainable, progressive dividend policy while maintaining
conservative balance sheet leverage.
shareholders
Delivering superior shareholder value
105.4p + 23%
Underlying Earnings per share
43p + 23%
Dividend
Communities
We are committed to ensuring
that we provide stable, inclusive
employment for all members of the
local community
c. 4,400
Employees across 61 sites
environment
We are committed to reducing our
greenhouse gas emissions and have
signed up to the Science Based
Targets initiative (SBTi)
4,175
No of tonnes of CO2e reduced*
* vs base year, scope 1 and 2
See note on page 38 for additional
information
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Hill & Smith PLC | Annual Report and Accounts 2023
17
OUR STRATEGY IN ACTION
US INFRASTRUCTURE – A LONG TERM
STRUCTURAL GROWTH DRIVER
Hill & Smith is exceptionally well placed to benefit from long term, multi year industrial expansion in
the US. Key expansion activities include:
Onshoring – resulting in significant demand for construction of industrial plants for semiconductor
manufacture, battery production, LNG and other industrial applications.
Technology change – driving significant multi year growth in data centre construction and electric
vehicle assembly.
Government investment – providing long term funding to upgrade and expand US infrastructure.
The Infrastructure Investment and Jobs Act (‘IIJA’) authorises $1.2 trillion of infrastructure spending
with $550 billion of new federal spending to be allocated to infrastructure projects (FY21-27). With
many IIJA projects being required to pass design and planning phases prior to construction on site,
we are expecting to see an increasing number of IIJA related project opportunities as we move into
2024 and beyond.
Supporting the onshoring trend, the CHIPS Act provides $52.7 billion for American semiconductor
research, development, manufacturing, and workforce development, of which $39 billion is for
manufacturing incentives.
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US INFRASTRUCTURE GROWTH –
IIJA FUNDING STARTING TO FLOW
Our US Galvanizing business has started to see the benefit of IIJA projects, particularly in
the bridge and highway sectors. An example of a current project is the North Portal Bridge
Replacement in Secaucus, New Jersey. The bridge is an important element of the broader Gateway
Program that will eventually double rail capacity between Newark and New York. The outdated
existing bridge will be replaced with a modern, high level structure with a span of nearly 2.5 miles.
The project is being funded by a Capital Investment Grants Program.
Our Lebanon plant will be galvanizing over 3,450 tonnes for the project including H-pile beams
for the bridge foundation and structural steel cross frames, diaphragm components and splice
plates. Upon completion of the galvanizing, the steel will be used to build both approach
sections of the bridge.
Our US Galvanizing business will continue to see more bridge related IIJA projects become
a reality in 2024 as purchase orders have already been received for a large number of short
span and long span bridges across ten states. Other notable infrastructure projects such
as JFK Airport Expansion, Boston Logan Airport Improvements, Gold Star Memorial Bridge
Rehabilitation, Hunt Point Terminal Intermodal, and the Hudson Tunnel Project will continue to
increase galvanizing market demand in the region of our plant locations.
18
Stock Code HILS
US INFRASTRUCTURE GROWTH –
ELECTRIC VEHICLE MANUFACTURE
AND ASSEMBLY
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The Group is well positioned to benefit from increasing investment in infrastructure to support
the growth in new technologies including electric vehicle (‘EV’) manufacture and assembly.
An example of this is the Ford Blue Oval project, the construction of a revolutionary EV
manufacturing and assembly facility in Kentucky that is reported to be the biggest EV factory
under one roof in the western hemisphere.
The Paterson Group (‘TPG’), one of the operating companies within our Engineered Solutions
division has had an important role to play in the project. First it provided specialised
engineering analysis to determine the stress and loads required to hang and support hundreds
of miles of elevated piping that carry a range of liquids and gasses throughout the complex.
It then manufactured and supplied a range of engineered hanger support products for the
project, with over 10,000 components provided in total, far exceeding any other order by size in
the company’s history.
To meet Ford’s demanding build schedule, the TPG operations team developed a new production
strategy to manufacture the high quantity of components while maintaining production
quality. This was supported by investment in advanced fabrication technology that included a
Peddinghaus Plate Processor, a Yaskawa Robotic Welder nicknamed “Rosie” after the famous
WW II female welder, and a CNC plate roller. The team at our Waggaman plant built custom
fixtures specifically for the customer, facilitated by the new equipment. These highly automated,
state of the art work stations increased TPG’s productivity significantly over traditional methods
and enabled the team to deliver on time with flawless product and improved operator safety.
19
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
MEASURING OUR PERFORMANCE
ORGANIC REVENUE GROWTH
UNDERLYING OPERATING PROFIT MARGIN
Link to strategy
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.
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
KPI definition
Percentage change in annual revenue excluding the effects of
acquisitions, disposals and currency translation
Underlying operating profit as a percentage of revenue.
Performance
‘23
‘22
5.3%
14.4%
Performance
‘23
‘22
14.8%
13.3%
Comment
Comment
Organic revenue growth of 5.3% was in line with the Group’s target
of 5%-7% annual growth and reflected an exceptional performance in
our Engineered Solutions division, supported by a robust outturn in
Galvanizing Services.
The underlying operating margin improved by 150 basis points to
14.8% in 2023, reflecting the benefits of volume growth and improved
portfolio mix. The Engineered Solutions division was the key driver,
with margin improving to 17.5% (2022: 12.1%).
UNDERLYING CASH CONVERSION
RETURN ON INVESTED CAPITAL (‘ROIC’)
Link to strategy
Link to strategy
Our ability to fund growth investments, both organic and inorganic,
and progressive returns to shareholders is dependent on us operating
a cash-generative model.
We have a disciplined M&A strategy that targets businesses with
strong growth and return metrics, alongside a capital investment
programme centred on our higher growth, higher return end markets.
KPI definition
KPI definition
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.
Underlying operating profit divided by average invested capital. Invested
capital is defined as the sum of intangible assets, property, plant and
equipment, right-of-use assets, assets and liabilities held for sale,
inventories, trade and other receivables, and trade and other payables.
Performance
‘23
‘22
115%
51%
Performance
‘23
‘22
22.0%
19.2%
Comment
Comment
Underlying cash conversion for the year was very strong at 115%,
reflecting a tight focus on working capital efficiency and a relaxation
of the inflationary environment experienced in 2022. We expect the
Group to continue to deliver strong cash conversion in 2024, in line
with our target of exceeding 80% conversion.
Group ROIC improved significantly to 22.0% (2022: 19.2%), ahead of
the Group’s target of 18%. The improvement reflects a combination
of the strong trading performance and our disciplined approach to
capital allocation.
20
Stock Code HILS LEVERAGE
GREENHOUSE
GAS EMISSIONS
Link to strategy
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.
Cost reductions and greater efficiency, improve not only our operating
margins but also the sustainability of our operations.
KPI definition
KPI definition
The ratio of net debt to EBITDA, as defined in the covenant
requirements of the Group’s borrowing facility agreements.
CO2e emissions, year on year, from scope 1 and scope 2 on a market-
based usage basis.
Performance
‘23
‘22
0.4x
0.7x
Intensity ratio calculated as tonnes of CO2e per £000s of Revenue.
Performance
tCO2e
Intensity ratio
‘23
‘22
46,664 tonnes
‘23
42,018 tonnes
‘22
0.06
0.07
Comment
Comment
The Group was highly cash generative in 2023 and despite investing
£48m in acquisitions, leverage fell marginally to 0.4x, providing
significant firepower to invest in organic and inorganic growth
opportunities. The Group targets a leverage range of between 1.0 and
2.0 times Net Debt/EBITDA.
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. In December
2023, our scope 1, 2 and 3 targets were validated by the SBTi.
See notes to the table on page 38 for more details.
HEALTH AND SAFETY
EMPLOYEE ENGAGEMENT
Link to strategy
Link to strategy
The health & safety performance of each subsidiary is key to our
management of the Group as a responsible employer and to our
reputation in the markets in which we operate.
We need a highly engaged and talented workforce working within our
operating companies to deliver our purpose and growth ambitions.
KPI definition
KPI definition
Lost time incident rate (No. of incidents divided by hours worked x
100,000).
The percentage of our worldwide workforce who feel positively
engaged with our Group, as determined by independent employee
engagement surveys.
Performance
‘23
‘22
0.4
1.1
Performance
‘23
‘22
56%
61%
Comment
Comment
The Executive Board has maintained significant focus on Health &
Safety in 2023. Any operating company that suffers a lost time incident
is required to report the root cause analysis and corrective actions to
the Executive Board and the learnings are shared with all the operating
companies. During 2023 we appointed new Heads of Health & Safety
in both the US and UK (including Rest of World) to further drive our
improvement plans.
The results of the 2023 Employee Engagement scores were
disappointing, and whilst in line with the industrial benchmark of the
companies in which we operate, were not at a level we aspire to. We
will be focusing our operating companies on their action plans to
improve engagement throughout 2024.
21
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OPERATIONAL AND FINANCIAL REVIEW
Alan Giddins
Executive Chair
Hannah Nichols
Group Chief Financial Officer
2023 Review
We are pleased to report that the Group
delivered another record performance
in 2023. This impressive achievement
reflects strong momentum in our US
businesses, which are focused on
structurally growing infrastructure
markets, and a resilient performance
in our UK businesses, underpinned by
the leading positions they hold in their
respective niche markets. The results
are also testament to the talent and
commitment of our local teams and the
effectiveness of our agile, decentralised
operating model.
Revenue increased by 14% and underlying
operating profit increased by 26% on a
constant currency basis. Group underlying
operating margin increased by 150bps
to 14.8%, reflecting the benefits of
volume growth and evolving portfolio
mix. 2023 also benefited from the strong
performance of our recent acquisitions,
contributing c.£74m of revenue and
c.£13m of underlying operating profit in
the year, at a margin above the Group
average.
The Engineered Solutions division
delivered an excellent performance with
all businesses trading well. In particular,
the US composite business saw high
demand for its range of composite
solutions and our business supplying
structural steel products into the US
electrical transmission and distribution
market also performed strongly.
In Galvanizing Services, our US business
delivered record revenue and operating
profit, underpinned by strong volume
growth across a range of infrastructure
end markets. As expected, our UK
business experienced more challenging
end markets, with lower volumes and
operating profit compared to 2022, which
was a strong comparator period.
While Roads & Security benefited from
buoyant demand at National Signal, our US
off-grid solar lighting solutions business,
and a robust performance in our core UK
roads businesses, underlying operating
profit and margin declined compared to
2022. This reflects the impact of one-off
operational costs taken in our US Roads
business, as previously guided, together
with non-recurring charges relating to
certain UK businesses, including our loss
making car park solutions business, which
we exited at the end of 2023.
The Group continues to be highly cash
generative, with cash conversion in the
year of 115%. Year end net debt was 0.4
times EBITDA on a covenant basis. The
strong balance sheet and consistent
cash generation provides the Group
with the opportunity to continue to
invest in organic and inorganic growth
opportunities.
Strategic update
Progress against our financial framework
In March 2023, we set out a recalibrated
medium term financial framework with
annual performance targets:
•
•
•
•
•
•
organic revenue growth: 5% -7%
total revenue growth including
acquisitions: 10%+
underlying operating profit margin (by
end 2024): 15%
return on invested capital: 18%+
underlying cash conversion: 80%+
covenant leverage: 1 to 2 times
In 2023, the Group delivered significant
progress against all elements of this
framework with strong revenue growth,
operating margin expansion and high
levels of cash conversion.
Portfolio Management
Growth through value enhancing
acquisitions is a key element of the
Group’s strategy. We have made good
progress in delivering on our M&A strategy
and in building a strong pipeline of future
opportunities.
In 2023, we invested c. £48m in three
principal acquisitions, together with
making a small bolt on acquisition to our
US seismic protection solution business.
22
Stock Code HILS Two of these acquisitions accelerate
our strategy in the exciting and fast
growing US composites market. In
February 2023, we acquired Enduro
Composites, a designer and manufacturer
of engineered composite solutions based
in Houston, Texas for £28.7m. Trading
since acquisition has been ahead of
expectations. In November 2023, we
acquired United Fiberglass, a specialist
in composite pipe, conduit, and bridge
drain infrastructure systems located
in Springfield, Ohio, for £11.8m. The
business has started 2024 with a record
order book. Both acquisitions expand
our existing customer base and product
range, while also providing additional
manufacturing capability and purchasing
synergies.
In March 2023, we acquired Korns
Galvanizing based in Johnstown,
Pennsylvania for £9.4m, strengthening
our US galvanizing market presence.
The business has traded ahead of
expectations following a well managed
integration process and we are starting
to see the benefits of both cross-selling
to our existing customers and purchasing
synergies.
Our M&A momentum continues into
2024 and we have made two highly
complementary acquisitions in the year
to date. In January 2024, we acquired
Capital Steel Service for £5.0m. Located
in Trenton, New Jersey, the business
supplies structural steel products and
services into the high growth electrical
transmission and distribution market
and will be integrated into our existing
electricity substation business. In March
2024, we acquired FM Stainless, based in
Ellijay, Georgia, for £6.6m. The business
manufactures stainless steel pipe
supports and fasteners, serving a range
of growth end markets including water
and wastewater treatment and is highly
complementary to our existing engineered
supports business.
The Board takes a disciplined approach
to portfolio management with targeted
divestments. In April 2023, we completed
the disposal of the final part of our loss
making Swedish roads business, and in
October 2023 we divested the trade and
certain assets of Berry Systems, a small,
loss making car park solutions business.
Both disposals will have a positive impact
on our Roads & Security margins in 2024.
Sustainability
The growth of our business is naturally
aligned to our sustainability agenda: our
products and services make infrastructure
more sustainable and increase transport
safety.
Our Group sustainability strategy
encompasses seven priority areas
including our commitment to reduce
greenhouse gas (‘GHG’) emissions. Our
full scope 3 greenhouse gas emissions
have now been successfully baselined
and received limited assurance validation
in June 2023. This enabled us to submit
near and long term targets to the SBTi in
July 2023 and we are pleased to report
that these were approved in December
2023, with an overarching target to reach
net-zero GHG emissions across the
value chain by 2050. This sits alongside
our commitment to reach net-zero for
our scope 1 and 2 emissions by 2040.
Our Head of Sustainability continues to
work with our local teams to drive local
energy saving initiatives and explore
decarbonisation technology options to
underpin our GHG reduction plan.
We also continue to make progress
across our other sustainability priority
areas. In health & safety our focus has
been on accident prevention, and we
have enhanced the Group health and
safety organisational structure to bring
regional support to our core geographies.
While there is more work to do, these
efforts have resulted in a 61% reduction
in the Lost Time Incident Rate to 0.43
(2022:1.11).
Talent development and engagement are
critical to the success of our autonomous
operating model and are key focus
areas for our sustainability strategy.
Within this, senior level succession has
been a particular focus, including the
development of high potential individuals
within our operating companies, and
manager and supervisor training and
development.
As an organisation we aim 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. Our most recent employee
survey highlighted that we have made
positive progress with diversity and
inclusion. We have also made significant
progress with our apprenticeship
programme in the UK, and now have 60
apprentices, a 9% increase compared
to 2022.
Board updates
In May 2023, Alan Giddins formally
assumed the role of Executive Chair for
an expected period of 12 to 18 months. In
January 2024, the Group announced the
appointment of Hooman Caman Javvi, as
Chief Operating Officer, reporting to Alan
Giddins. In this role Hooman has taken
on a wider responsibility for the Group’s
operations, talent development and
medium-term strategy.
Annette Kelleher stepped down from the
Board as a Non-executive Director in May
2023 after a tenure of nine years, and we
thank her for her significant contribution
during this time. In January 2024, we were
delighted to appoint Carol Chesney as
a Non-executive Director. Carol will take
over from Mark Reckitt as Chair of the
Audit Committee following the AGM in
May 2024.
Results from continuing
operations
The Group has delivered a very strong set
of results for 2023. Revenue was £829.8m
(2022: £732.1m), an increase of 13% on
a reported basis. OCC revenue growth
was 5%. Constant currency revenue
growth was 14%, reflecting a strong
trading performance in National Signal
and Enduro, our two larger recent US
acquisitions. Underlying operating profit
was £122.5m (2022: £97.1m), an increase
of 26% on a reported basis. OCC operating
profit growth was 12% and constant
currency growth was 26%. Operating
margins improved to 14.8% (2022:
13.3%). Underlying profit before taxation
was £111.9m (2022: £87.9m). Reported
operating profit was £103.8m (2022:
£78.5m) and reported profit before tax
was £93.2m (2022: £69.3m). Underlying
earnings per share increased to 105.4p
(2022: 85.4p) and reported earnings per
share was 86.0p (2022: 66.7p).
The principal reconciling items between
underlying and reported operating
profit are non-cash charges including
the amortisation of acquisition related
intangibles of £8.4m and losses on
disposal of non-core operations of
£4.2m. Note 4 of the financial statements
provides further details on the Group’s
non-underlying items.
Dividend
Given the strong trading performance and
confidence in the Group’s prospects, the
Board is recommending a final dividend of
28.0p per share, making a total dividend
for the year of 43.0p per share (2022:
35.0p). The final dividend, if approved, will
be paid on 5 July 2024 to shareholders on
the register on 31 May 2024.
Outlook
The Group is well-positioned in
infrastructure markets with attractive
medium and long term growth drivers and
is weighted towards faster growing US
end markets, which accounted for 76%
of Group underlying operating profit in
2023. These factors, alongside the strong
trading performance, the quality of our
M&A pipeline and the benefits of our agile
operating model, provide the Board with
confidence that the Group will continue to
make good progress in 2024, including a
recovery in Roads & Security, and with a
modest second half weighting, in line with
historic trends.
.
23
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OPERATIONAL AND FINANCIAL REVIEW continued
Tesla Substation, Texas
24
Stock Code HILS OPERATIONAL REVIEW
ENGINEERED SOLUTIONS
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Statutory operating profit
£m
2023
367.0
64.4
17.5%
59.7
2022
289.9
35.0
12.1%
34.1
Reported
%
+27
+84
Constant
currency
%
+27
+84
OCC
%
+15
+69
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.
Our Engineered Solutions division provides
steel and composite solutions for a wide
range of infrastructure markets including
energy generation and distribution, marine,
rail and housing. The division also supplies
engineered supports for the water, power
and liquid natural gas markets, and seismic
protection solutions for commercial
construction.
The division delivered an impressive
performance in 2023, with 27% revenue
and 84% underlying operating profit growth
on a constant currency basis. This reflects
buoyant demand seen across our higher
margin US businesses, with our composites
and electrical transmission and distribution
businesses delivering particularly strong
growth. Underlying operating margins
increased significantly to 17.5% (2022:
12.1%), due to the improved portfolio mix and
volume growth.
US
The US businesses delivered 20% OCC
revenue growth and record underlying
operating profit.
Our composites group achieved another
record trading year supported by continued
growth in demand for its range of engineered
composite solutions including utility poles,
waterfront protection, cooling towers and
mass transit infrastructure. The business
delivered enhanced operating margins in
2023 due to excellent commercial execution,
operational gearing and a favourable
product mix.
The outlook for our US composites group
is very positive with our focus end markets
expected to benefit from unprecedented
levels of government investment, ongoing
power grid modernisation and onshoring. The
business is also seeing increasing adoption
of innovative composite solutions, supported
by legacy material availability, lower
lifecycle cost and improved sustainability
considerations.
During the year, we made two acquisitions
in composites in the US, strengthening our
presence in this attractive niche market.
In February 2023 we acquired Enduro
Composites for £28.7m. Located in
Houston, Texas, Enduro is a designer and
manufacturer of engineered composite
solutions and has traded ahead of
expectations since acquisition. During
2023 we invested in expanding Enduro’s
capacity to support future growth in demand.
In November 2023 we acquired United
Fiberglass, located in Springfield, Ohio, for
a consideration of £11.8m. The business
focuses on composite pipe, conduit, and
bridge drain infrastructure systems and
enters 2024 with a record order book. Both
businesses are being integrated into our
existing US composite group.
Our business supplying structural steel
components into the electricity substation
market achieved record revenue and
operating profit in 2023. The business enters
2024 with a strong order book supported by
high project demand to expand and upgrade
ageing power infrastructure. Given the
attractive market demand, we are making
strategic capital investments to increase our
existing capacity, and in January 2024 the
business also acquired Capital Steel Service
for a headline consideration of £5.0m.
Based in Trenton, New Jersey, the company
supplies structural steel products and
services into the electrical transmission and
distribution market across the US East Coast.
The acquisition will expand our geographical
customer base, generate significant cross
selling opportunities and provide additional
manufacturing capability.
Our two US engineered supports businesses
also delivered record results underpinned
by a number of large infrastructure build
projects for electric vehicle, semiconductor
and battery plants, wastewater treatment,
power generation and a buoyant HVAC
market. Both businesses enter 2024 with
record order books. In December 2023
we acquired the business and selected
assets of Conn-Fab Sales, Inc. for an initial
consideration of £0.3m which expands our
market reach and strengthens our position
in the buoyant roof curb market. In March
2024 we acquired FM Stainless for an
initial consideration of £6.6m. The business
is highly complementary to our existing
engineered supports business and will
expand our geographical customer base and
manufacturing capacity.
The growth prospects for all our US
Engineered Solutions businesses continue
to be very encouraging. We expect market
demand to be supported by investment
to modernise the ageing electric grid
and solutions to protect against extreme
weather. The outlook is further supported
by multi-year planned government spending
on infrastructure via the Infrastructure
Investment and Jobs Act (‘IIJA’) and the
CHIPS Act, and private investment from US
manufacturers and producers to onshore
vital components.
UK and India
Our UK businesses delivered a resilient
performance with revenue 6% lower and
underlying operating profit at a similar level
to 2022. The building products business
experienced lower volumes, reflecting a
slowdown in UK residential new build and
repair, maintenance and improvement
sectors, however this was offset by higher
selling prices which, together with a focus
on cost management, resulted in operating
profit ahead of prior year. The outlook for
2024 is likely to remain challenging and the
business is focused on gaining market share
and further operational efficiencies The
industrial flooring business delivered a robust
performance, with buoyant project pipeline
demand from data centre, battery plant and
oil & gas markets.
Our engineered supports business in India
delivered a record result, underpinned by
strong international LNG project demand
and we have invested modestly in capacity
expansion to support the growth strategy.
The business enters 2024 with a strong
order book and good medium term growth
prospects.
25
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OPERATIONAL AND FINANCIAL REVIEW continued
Galvanized spiral staircase, V & S Galvanizing, US
GALVANIZING SERVICES
£m
Continuing Operations (2)
2023
2022
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Statutory operating profit
196.7
45.7
23.2%
43.8
180.7
44.0
24.3%
42.7
Reported
%
+9
+4
Constant
currency
%
+9
+4
OCC
%
+5
-
1 Underlying measures are set out in note 3 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 was reported as a discontinued operation in the prior year.
The Galvanizing Services division offers hot-
dip galvanizing and powder coating services
with multi-plant facilities in the US 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 a range of end markets including road and
bridge and other infrastructure, construction,
and transportation.
The division delivered a robust performance
in 2023, with 9% revenue and 4% underlying
operating profit growth on a constant
currency basis. The division continues to
deliver superior margins with underlying
operating margin at 23.2%, reflecting the
value-add service provided to customers.
The results are attributable to strong volume
growth in the US, offset by a volume decline in
the more challenging UK market.
US
With plants strategically located in the
northeast and midwest of the country, the
US galvanizing business delivered a good
performance, with 9% OCC revenue growth
and record underlying operating profit against
a strong 2022 comparator. The growth is
attributable to an 8% organic increase in
production volumes with focused pricing
action taken to offset higher labour and raw
material costs. As a result, the business
continued to deliver superior operating
margins, with customers valuing the excellent
service levels provided by our local teams.
In support of our US galvanizing growth
strategy, we acquired Korns Galvanizing in
March 2023 for a headline consideration of
£9.4m. Located in Johnstown, Pennsylvania,
Korns specialises in spin galvanizing and
expands our production capacity in the key
northeastern market, broadening the range
of galvanizing services we can offer to our
existing customer base. Korns is now fully
integrated into our existing business and
trading since acquisition has been ahead of
expectations.
In the medium to longer term, the outlook
for US galvanizing is positive. The business
is well placed to benefit from high levels
of industrial expansion activity in the
US supported by the IIJA, investment in
technology and a more general move to
the onshoring of certain activities. We have
started to see some IIJA related projects
and expect to see incremental demand from
bridge and highway and renewable energy
projects in 2024.
UK
In UK galvanizing, revenue was broadly flat
on an organic basis, with a 15% decline in
production volumes offset by pricing actions
taken to cover higher energy and labour
costs. The volume decline reflects an overall
downturn in the UK galvanizing market and
the impact of certain key customers delaying
projects, with volumes stabilising in the
second half of the year. As a result, underlying
operating profit and underlying operating
margin were lower than last year’s record
performance. Widnes Galvanising, acquired
in September 2022, has been successfully
integrated and delivered results ahead of
expectations in 2023.
Our market leading UK galvanizing business
benefits from serving a diversified customer
base. While we expect end markets to
continue to be challenging in 2024, the
business is focusing on building volume
in niche growth sectors such as cable
management which, coupled with an
expected improved demand from certain
key accounts, is anticipated to support a
resilient trading performance. We have
also taken proactive steps to strengthen
the senior management team to deliver our
expectations for the business.
26
Stock Code HILS Zoneguard on M42, UK
ROADS & SECURITY
Continuing Operations (2)
Revenue
Underlying operating profit (1)
Underlying operating margin % (1)
Statutory operating profit
£m
2023
2022
266.1
12.4
4.7%
0.3
261.5
18.1
6.9%
1.7
Reported
%
+2
-31
Constant
currency
%
+2
-31
OCC
%
-5
-71
1 Underlying measures are set out in note 3 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 was reported as a discontinued operation in the prior year.
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 includes two
businesses which are market leaders in
the provision of off-grid solar lighting and
power solutions.
The division delivered a disappointing
performance with 2% revenue growth and
a 31% underlying operating profit decline
on a constant currency basis. The results
reflect strong trading in National Signal,
our US off-grid solar lighting business,
and resilient trading in our core UK roads
businesses, however this was offset by
certain non-recurring charges in the UK
and one-off operational improvement
costs in our US roads business. As a
result, underlying operating margin was
4.7% and we expect gradual improvement
in 2024.
UK
Revenue was 3% lower and underlying
operating profit was significantly lower
than 2022 on an organic basis. Our
barrier rental business delivered good
profit growth, with an increased level of
average fleet utilisation and a focus on
cost control. Our wider UK roads portfolio
experienced challenges, with inflationary
and budgetary pressures across
central government and local authority
customers. While end markets continue to
be challenging, with a possible slow down
of project activity in anticipation of the
Road Investment Strategy 3 period (2025-
2030), our expectation is that the core
UK roads business will deliver a resilient
performance in 2024.
Our UK off-grid solar business experienced
a slowdown in construction end markets
during the year and is turning its focus to
the more resilient facilities management
sector. At the end of the year the business
identified an issue with the historical
installation of certain products and is
taking appropriate remedial action. While
some of these installations occurred prior
to our acquisition of the business, we have
absorbed the rectification costs into the
Group’s underlying results.
During the year we also took action to
improve the quality of our UK roads
portfolio and divested the trade and
certain assets of Berry Systems, a small,
loss making car park solutions business.
An underlying charge has been taken in
relation to future losses expected on a
small number of legacy contracts where
we retain economic liability.
27
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OPERATIONAL AND FINANCIAL REVIEW continued
US
Our US Roads portfolio comprises two
businesses: National Signal, our off-grid
solar lighting solutions business acquired
in October 2022, and our roadside safety
products business.
Trading in National Signal was very strong,
particularly in the first three quarters
of 2023, supported by a high order
backlog and buoyant demand from rental
companies. While we have seen a slight
softening in demand coming into the first
half of 2024, the medium term outlook
for the business remains very positive,
underpinned by a drive toward sustainable
solutions and an expected boom in large
scale infrastructure projects. The business
is expecting to move into a larger leased
facility during H1 2024, in line with its
medium term growth strategy.
Revenue in the road traffic safety
product business was lower than
2022 and underlying operating profit
was significantly impacted by one-off
operational improvement costs, mainly
associated with re-engineering the
trailer product line. The business is
implementing a comprehensive business
improvement plan and we expect the
business to make progress in 2024. The
medium term outlook for the business
remains positive, with demand supported
by the introduction of new safety
standards and increased levels of state
and federal investment to upgrade US
road infrastructure.
Other International Roads
In April 2023 we completed the disposal
of the final part of our loss making
Swedish roads business. Our Australian
roads business performed in line with
expectations.
UK Security
Our UK security businesses provide a
range of perimeter security solutions
including hostile vehicle mitigation to
both UK and international markets.
Revenue declined by 6% and underlying
operating profit was also below last year.
This reflects lower levels of utilisation in
our UK security barrier rental business
compared to a record 2022 and continuing
challenges in our perimeter access
security business. In the second half of
the year, we were pleased to renew the
contract for the UK security barrier with
the UK Government. The outlook for our
security portfolio remains mixed, however
we expect that our quality product offering
and a focus on more resilient end markets
such as data centres will support further
progress.
Hostile Vehicle Mitigation bollards. Anne Frank Museum, Amsterdam. ATG Access, UK
28
Stock Code HILS Operating cash flow before movement
in working capital was £151.4m (2022:
£129.8m). The working capital inflow
in the year was £22.8m (2022: £42.6m
outflow), the inflow attributable to a
tight focus on working capital efficiency
and the benefits of lower raw material
costs. Working capital as a percentage of
annualised sales was 15.9%. Debtor days
were in line with expectations at 58 days
(2022: 60 days).
Capital expenditure of £31.8m (2022:
£31.5m) represents a multiple of
depreciation and amortisation of 1.5 times
(2022: 1.5 times). Growth investments in
the year included £4m to support capacity
expansion in our US composite business
and £1.5m on an automated kettle line for
the recently acquired Korns Galvanizing in
the US.
Net financing costs for the year were
£10.6m (2022: £9.2m). The net cost
of pension fund financing under IAS
19 was £0.3m (2022: £0.1m), and
the amortisation of costs relating to
refinancing activities was £0.6m (2022:
£2.4m).
The Group generated £104.8m of free
cash flow in the year (2022: £30.4m),
providing funds to support our acquisition
strategy and dividend policy.
Net debt and financing
Net debt at the end of the year
amounted to £108.4m (31 December
2022: £119.7m). Outflows in the year
included £28.0m for the 2022 interim
and final dividends and £50.7m on 2023
acquisitions (including £2.3m of acquired
lease liabilities). Net debt at the year end
includes lease liabilities under IFRS 16 of
£43.7m (2022: £39.3m).
The Group’s principal financing facilities
comprise a £250m revolving credit facility,
which expires in November 2027 following
the one year extension agreed during
the year, and $70m senior unsecured
notes with maturities in June 2026
and June 2029, together with a further
£6.6m of on-demand local overdraft
arrangements. Throughout the year the
Group has operated well within these
facilities and at 31 December 2023,
the Group had £247.2m of headroom
(£240.6m committed, £6.6m on demand).
Approximately 55% of the Group’s drawn
debt at 31 December 2023 is subject to
fixed interest rates, providing a hedge
against recent market movements.
FINANCIAL REVIEW
Capital allocation
The Group follows a disciplined approach
to capital allocation. As a priority, we
allocate capital to support organic growth,
with a focus on higher return, structurally
growing infrastructure 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 £15m of 2023 capex
allocated to growth investments.
Secondly, we allocate capital to make
high quality acquisitions, with a focus on
businesses which have a clear alignment
with our purpose and have good long-term
growth potential. We follow a structured
approach to acquisitions based on a
clear set of financial criteria and expect
acquisitions to achieve returns above our
Group cost of capital 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
2023 we invested £48.4m across four
acquisitions. 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 in 2023
increased to 22.0% (2022: 19.2%), the
improvement reflecting the strong trading
and our disciplined approach to capital
allocation which more than offset the
impact of acquisitions in the year.
Cash generation
The Group was highly cash generative in
2023 with underlying cash conversion of
115%. We expect the Group to continue
to deliver strong cash conversion in
2024, in line with our financial framework
and consistent with historical levels.
The calculation of our underlying cash
conversion ratio can be found in note 3 to
the financial statements.
The Group
generated
£104.8m of free
cash flow in
the year (2022:
£30.4m), providing
funds to support
our acquisition
strategy and
dividend policy.”
Hannah Nichols
Chief Financial Officer
29
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OPERATIONAL AND FINANCIAL REVIEW continued
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 2023
was 0.4 times (31 December 2022: 0.7
times) and interest cover was 17.3 times
(31 December 2022: 21.6 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.
Tax
The underlying effective tax rate for
the period for continuing operations
was 24.6% (2022: 22.4%), the increase
reflecting the rise in the UK rate to 25%
from April 2023 and the increasing
proportion of profits generated in our US
operations. The reported tax charge for
the year was £24.4m (2022: £16.0m) and
includes a £3.2m credit (2022: £3.7m)
in respect of non-underlying items,
principally relating to the amortisation of
acquisition intangibles. Cash tax paid in
the period was £31.7m (2022: £15.5m),
the increase reflecting higher profitability,
the phasing of payments in the US, and
our decision to carry forward taxable UK
losses to be used in future periods.
Exchange rates
The Group is exposed to movements
in exchange rates when translating the
results of its overseas operations into
Sterling. Retranslating 2022 revenue
and underlying operating profit from
continuing operations using average
exchange rates for 2023 would have
reduced revenue by £1.1m with no impact
on underlying operating profit. A one
cent movement in the average US Dollar
rate currently results in an adjustment
of approximately £4.0m to the Group’s
annual revenues and £1.0m 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 £18.7m (2022:
£18.6m). The items were mainly non-cash
related and included the following:
• Amortisation of acquired intangible
assets of £8.4m
•
•
Loss on disposal of businesses of
£4.2m relating to the disposals of
the Swedish roads and UK car park
solutions operations
Expenses related to acquisitions and
disposals of £5.3m, including £1.8m
accrued deferred consideration
relating to the National Signal
acquisition
• Net business restructuring costs of
£0.2m relating to actions taken in
prior years
The non-cash element of these charges
was £12.5m. Further details are set out in
note 5 of the Financial Statements.
30
Stock Code HILS 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
Executive Chair
Hannah Nichols
Group Chief Financial Officer
11 March 2024
Pensions
The Group operates defined benefit
pension plans in the UK and the USA.
The IAS 19 deficit of these plans at 31
December 2023 was £4.1m, a reduction of
£3.1m from 31 December 2022 (£7.2m).
The deficit of the UK scheme the largest
employee benefit obligation in the Group,
was lower than the prior year end at £3.4m
(31 December 2022: £6.5m) due to the
Group’s deficit recovery payments.
The Group continues to be actively
engaged in dialogue with the UK scheme’s
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 2025.
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 2025,
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 2024, 31
December 2024 and 30 June 2025.
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 2025.
The Directors do not consider the resulting
31
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 STAKEHOLDER ENGAGEMENT
OUR SEVEN KEY STAKEHOLDER GROUPS
employees
portfolio companies
OUR PEOPLE
OUR COMPANIES
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.
What matters
– Brand
– Safe working
environment
– Remuneration
– Sustainability
– Wellbeing
– Job security
– Career development
Our decentralised autonomous model places our
operating 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 targets and the success of our Group
strategy.
What matters
– Operational and
– Talent and development
financial performance
– A strong health & safety
– Cash allocation
culture
– Product Innovation
What we did in 2023
What we did in 2023
• Carried out our fourth all-employee engagement
survey, which included a Safety Culture survey to
gain more feedback on this topic
• Developed the workforce forums to maintain
dialogue between executive directors and operating
company employees
•
Established a steering group to identify short and
long term objectives for a Global Women’s Network
• Restructured the management of health and safety,
moving away from having a Group Health & Safety
head to having two geographic heads, covering
UK (including India and Australia) and the US, with
these individuals reporting directly into our Group
Presidents
• The Group’s record results are testament to the
benefits of our autonomous operating model.
Performance is continually monitored by the Board
and underperformance is addressed in a timely and
appropriate basis
•
Invested £15m in capital projects to support growth
• We acquired two US-based composites businesses,
Enduro and United Fiberglass. Both manufacture
products and innovative solutions that deliver long
term value for challenging applications in building
construction, cable management, infrastructure, and
process operations
• We acquired a US-based galvanizing business, Korns
Galvanizing, in Johnstown PA
• Continued our innovation workshops
32
Stock Code HILS Customers
suppliers
OUR CUSTOMERS
OUR SUPPLIERS
Our operating companies work closely with their
customers to understand their needs and provide
innovative solutions. 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.
We actively engage with our suppliers, working closely to
ensure that they provide the right quality of raw materials
and services to support our commitment to quality
products and to maintaining fair cashflow requirements.
What matters
– Quality products
delivered on time
and to the correct
specification
– Product innovation
– Sustainability
– A strong health & safety
culture
– Being treated with
respect
– Working as a
partnership
What matters
– Mutual beneficial
arrangements
– Fair financial terms
– Long-term relationships
– Quality
– Sustainability
What we did in 2023
What we did in 2023
• Continued to invest in product development
• Continued to focus our Sustainability efforts on
minimising the greenhouse gas emissions from the
energy we and our supply chain use
• Acquired businesses central to our purpose of
providing sustainable infrastructure products and
services
• Operating companies regularly met with existing and
potential suppliers to discuss continuity and quality
of supply
• Group payment terms improved to 50 days (2022:61)
33
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 STAKEHOLDER ENGAGEMENT continued
Communities
shareholders
LOCAL COMMUNITIES
INVESTORS
Subsidiaries engage with their local communities on a
business-by-business basis supporting local charities as
well as engaging with local authorities when seeking to
develop their businesses.
Our Executive Chair & 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.
What matters
What matters
– Environmental issues
– Health & Safety
– Solid dividend
– Operational efficiency
– Employment
What we did in 2023
•
Supported our operating companies to develop local
Sustainability initiatives
• Developed our charity matching programme,
supported by Group
•
•
Encouraged our operating companies to engage with
their local communities, supporting local charities on
a business-by-business basis
Engaged with an agricultural project set up to
support children with special needs
performance and
long-term share price
growth; and long-
term sustainable
profit growth
– Sustainability
– Robust corporate
governance and
business ethics
What we did in 2023
• Maintained our focus on sustainability
• Maintained a CDP B score
• The Executive Chair and CFO met regularly with
investors and analysts
•
•
Introduced investors to the market dynamics and
products of our composites business
Increased our full year dividend by 23%
34
Stock Code HILS environment
THE ENVIRONMENT
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.
What matters
– Sustainable products
– Biodiversity
– Greenhouse gas
– Environmentally friendly
emissions
solutions
What we did in 2023
•
•
•
Established our 2022 baseline scope 3 greenhouse
gas emissions across all relevant categories
Submitted our science-based targets for approval by
SBTi. Approval granted in December 2023
Introduced BRE LINA, giving operating companies
the opportunity to obtain Environmental Product
Declarations (‘EPD’) for their products
• Developed local Carbon Reduction Plans for all
operating companies, identifying site specific
opportunities to reduce emissions
•
•
Established an annual Sustainability Week across
the Group, encouraging all sites to get involved with
awareness-raising events and activities
Established a cross-industry scope 3 Support Group
to support others going through their scope 3
emissions reporting and reduction journey
Galvanized giraffes, V&S Galvanizing, US
35
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 OUR APPROACH TO SUSTAINABILITY
2023 has been an exciting year in Hill & Smith’s sustainability
journey. We baselined our full scope 3 greenhouse gas emissions
during 2022 and this data was verified by Bureau Veritas in June
2023, with limited assurance validation provided under the ISAE
3000 standard.
Having applied to be a signatory of the
Science Based Targets initiative (‘SBTi’)
‘Business Ambition to 1.5°C’ in August
2021, we submitted our proposed near
and long-term targets to the SBTi in
July 2023 for approval. We are pleased
to report that these were approved in
December.
Our plans to reduce our scope 1 and 2
emissions to net-zero by 2040 are on track
as demonstrated by our costed plan on
page 40.
Our risk rating scores have improved
over the last two years, with our CDP
assessment score improving from a ‘D’ in
2021 to a ‘B’ in 2023.
As sustainability reporting and disclosure
requirements are increasing, we intend to
conduct another materiality assessment
in 2024 to ensure that our priority areas
are still aligned with these developments
and will incorporate any new topics, such
as biodiversity, into our 2024 reporting.
2023 has been
an exciting year
in Hill & Smith’s
sustainability
journey.”
Lucinda
Farrington-Parker
Group Head Of
Sustainability
36
Stock Code HILS OUR APPROACH TO SUSTAINABILITY
Sustainability is a structural growth driver for our business - our products and services make infrastructure more sustainable and
increase transport safety.
We have identified seven key priorities for our sustainability plans, across three key focus areas:
PROTECTING
THE WORLD
SAVING AND
ENHANCING LIVES
SUSTAINABLE
GOVERNANCE
Priorities
Priorities
Priorities
• Greenhouse gas emissions
• Health and safety
• Climate risks and TCFD
and energy efficiency
•
Sustainable products
• Talent, development and
•
Ethical conduct
engagement
• Diversity and inclusion
Read more on pages 38 to 42
Read more on pages 43 to 47
Read more on pages 48 to 52
Our sustainability priorities were identified
following a comprehensive materiality
assessment carried out in 2021. We have
maintained the same priorities for 2022
and 2023, however we will continue to
review and adapt as our sustainability
strategy evolves, and plan to conduct
another materiality assessment in 2024.
Our Executive Chair, Alan Giddins, has
Board responsibility for sustainability and
is also a member of the Sustainability
Committee. The Sustainability Committee,
led by our Group Head of Sustainability,
Lucinda Farrington-Parker, works with our
operating companies to create actionable
plans with measurable near and medium-
term targets. We are delighted to report
that Lucinda was accepted as a Fellow
member of the Institute of Environmental
Management and Assessment (‘IEMA’)
in 2023, the highest level of professional
membership available in IEMA and
demonstrating significant professional
contribution, experience and expertise.
The Sustainability Committee also
includes the Group CFO, our Group
Presidents and a number of other
Group employees who are driving our
sustainability strategy forward. The
Committee reports to the Board on a
six-monthly basis, providing updates on
progress made against targets.
Composite bridge, designed and fabricated in fiber reinforced polymer, Creative Composites Group, US
37
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 PROTECTING THE WORLD
GREENHOUSE GAS EMISSIONS AND ENERGY EFFICIENCY
Alignment with UN SDGs
Why does it matter?
Overall Net-Zero Target
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?
Science Based Targets
Hill & Smith’s near-term, long-term and
overarching net-zero emission reduction
targets were approved by the SBTi in
December 2023, using a financial year
running from 1 January to 31 December.
Our approved science-based targets are
as follows:
Hill & Smith PLC commits to reach net-
zero greenhouse gas emissions across
the value chain by 2050.
Near-Term Targets
By 2032, Hill & Smith PLC commits to
reduce absolute scope 1 and 2 greenhouse
gas emissions by 55% from a 2020 base
year. Hill & Smith PLC also commits to
reduce scope 3 greenhouse gas emissions
by 60% per GBP value added by 2032 from
a 2022 base year.
Long-Term Targets
Hill & Smith PLC commits to reduce
absolute scope 1 and 2 greenhouse gas
emissions by 90% by 2040 from a 2020
base year and maintain 90% absolute
reduction through 2050 from 2040.
Hill & Smith PLC also commits to reduce
scope 3 greenhouse gas emissions by
97% per GBP value added by 2050 from a
2022 base year.
For scope 1 and 2, a market-based
and absolute contraction approach
was chosen. For scope 3, an economic
intensity approach was selected due
to the changing nature of our portfolio
through organic developments and value
enhancing acquisitions.
In addition to our approved science-based
targets, we also have an internal target
to achieve net-zero for scope 1 and 2 by
2040 and we are measuring our near-
term progress through reduction in our
carbon intensity ratio (defined as tCO2e
per £million revenue). We are pleased to
report that we have seen an improvement
in our carbon intensity ratio in 2023 with
details set out below.
Target
2023 Actual
2022 Actual
2025 Target
2030 Target
Intensity Ratio (market-based)
(tCO2e per £000’s revenue)
0.06
0.07
0.08
0.06
Note: In accordance with our Greenhouse gas emissions Recalculation Policy (available at https://hsgroup.com/who-we-are/governance/our-policies/) and the GHG Protocol, our
2020-2022 scope 1, 2 and 3 data has been revised to remove the emissions relating to any operating companies that have been divested and to include estimates for the emissions
from companies that we have acquired during those years. This may result in stated emissions for previous years differing from those reported previously, but allows a meaningful
comparison of current emissions with base year and historic year emissions.
Roof top solar panels, BPSI, India
38
Stock Code HILS Progress against science-based targets
Our progress against our science-based targets is set out below. Excluding acquisitions our scope 1 and 2 emissions for 2023 have
remained at similar levels to 2022 and the intensity ratio, which includes acquisitions made in the year, has reduced. For further
information on how we plan to achieve our targets, see our costed plan on page on 40. 100% of our scope 1, 2 and 3 emissions are
included in our science-based targets.
Reporting item
Scope 1 (tCO2e)
Scope 2 (market-based) (tCO2e)
Total scope 1+2 (market-based) (tCO2e)
Base year
value (2020)
2023 %
change
(from 2020)
37,931
12,908
50,839
-3%
-23%
-8%
2022
33,276
8,742
42,018
2023
36,664
10,000
46,664
Reporting item
Scope 3, category 1: Purchased goods & services (tCO2e)
Scope 3, category 2: Capital goods (tCO2e)
Scope 3, category 3: Fuel- and energy-related activities (tCO2e)
Scope 3, category 4: Upstream transportation (tCO2e)
Scope 3, category 5: Waste (tCO2e)
Scope 3, category 6: Business travel (tCO2e)
Scope 3, category 7: Employee commuting (tCO2e)
Scope 3, category 9: Downstream transportation (tCO2e)
Scope 3, category 10: Processing of sold products (tCO2e)
Scope 3, category 11: Use of sold products (tCO2e)
Scope 3, category 12: End-of-life treatment (tCO2e)
Scope 3, category 13: Downstream leased assets (tCO2e)
Total scope 3 (all categories) (tCO2e)
Overall scope 3 emissions intensity (tCO2e/£ value added)
Base year
value (2022)
2023
310,617
614,224
5,746
8,617
28,869
2,184
2,253
4,245
7,235
10,932
446,837
2,736
461
12,320
7,881
36,615
3,320
2,252
4,541
7,087
13,528
560,063
2,516
163
830,732
1,264,512
5,490
10,947
2023 %
change
(from 2022)
-49%
-53%
+9%
-21%
-34%
0%
-7%
+2%
-19%
-20%
+9%
+183%
-34%
-50%
Note: 2023 data includes partial year data for Korns Galvanizing and Enduro Composites, which were acquired during 2023 and so are not yet included in previous years’ recalculated figures.
Scope 3 categories 8 (upstream leased assets), 14 (franchises) and 15 (investments) have been assessed and deemed not to be relevant to the Group’s activities.
In accordance with our Greenhouse Gas Emissions Recalculation Policy (available at https://hsgroup.com/who-we-are/governance/our-policies/) and the GHG Protocol, our 2020-
2022 scope 1, 2 and 3 data has been revised to remove the emissions relating to any operating companies that have been divested and to include estimates for the emissions
from companies that we have acquired during those years. This may result in stated emissions for previous years differing from those reported previously, but allows a meaningful
comparison of current emissions with base year and historic year emissions. All re-stated emissions for historic years are available in our Basis of Reporting document on our website.
The DEFRA spend-based emission factors were updated between the 2022 baseline and the 2023 calculations, resulting in several significantly lower emission factors being applied
to 2023 inputs.
Base year recalculation
policy and threshold
We have recalculated and restated our
base year and historic year emissions
across all scopes to reflect the effects
of acquisitions and divestments. Details
of these changes can be found in our
‘Basis of Reporting 2023’ document. Our
Greenhouse Gas Emissions Recalculation
Policy defines a significant change as
a cumulative change of 5% or larger in
our total base year emissions. We have
assessed the implications of these
restatements on our science-based
targets and have not identified a need
to update the targets. Refer to the
Governance section of the Group website
for further information.
Actions towards meeting
greenhouse gas emission
reduction targets
A range of emissions reduction and
energy efficiency initiatives have been
undertaken by our operating companies
during 2023, including the continued
installation of solar panels, purchase
of more energy efficient welding sets,
installation of energy monitoring
systems to track individual equipment
consumption, and switching forklift trucks
to electric. Two of our UK sites have
now made the switch to Hydrotreated
Vegetable Oil (‘HVO’) in place of diesel and
more are investigating this opportunity.
Consumption of natural gas for use
in heating in the galvanizing process
contributes 88% 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 emissions
reduction plan. In 2023, we continued to
implement energy efficiency measures in
both our UK and US galvanizing operations
including heat recovery systems, kettle
covers and variable frequency drives,
39
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
PROTECTING THE WORLD continued
which will contribute to our emissions
reduction plan. We also continued to
investigate the viability of hydrogen
as an alternative fuel, maintaining our
involvement in the Cadent and National
Gas Transmission Hydrogen Valley project.
97% of our UK electricity requirements
were sourced through renewable energy
certificates in 2023 and we are currently
working with our US businesses on plans to
move towards renewable electricity supply
within the next two years (where available).
Work has also started on identifying
opportunities to influence our scope
3 emissions, including contacting
suppliers to obtain more product-specific
information (such as recycled content
and production methods for steel), using
weight-based rather than spend-based
data and emission factors to improve data
quality, and investigating opportunities for
lower embodied carbon concrete.
Costed plan
Net-zero scope 1 and 2 emissions by 2040
i
)
s
0
0
0
(
s
n
o
s
s
m
e
e
2
O
C
t
i
Scope 1 natural gas
Scope 1 other
Scope 2
60
50
40
30
20
10
0
2020 Base
2023
2025
2030
2035
2040
Zero
2020-2025
2026-2030
2031-2035
2036-2040
Implementation of
galvanizing energy efficiency
measures
Trial alternative galvanizing
burner technologies
Replace forklift fuel
with renewables
UK to renewable electricity
US start to move to
renewable electricity
Ongoing galvanizing energy
efficiency measures
Galvanizing plants to
alternative burner technology
Galvanizing plants to
alternative burner technology
Remaining forklift fuel
replaced with renewables
US and RoW moved to
renewable electricity
Remaining galvanizing
plants to alternative burner
technology
Replace diesel in commercial
vehicles with renewables
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 of this
has provided us with the confidence to
continue our commitment to achieving our
internal net-zero target for scope 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. The planned investment is
outlined above in our costed plan.
Verification and assurance of
greenhouse gas emissions
We engaged Bureau Veritas to conduct
a verification review of our corporate
greenhouse gas emissions inventory for
the period 1 January to 31 December
2023. The review was performed to a
limited level of assurance in accordance
with the requirements of the International
Standard on Assurance Engagements
(‘ISAE’) 3000.
The remit of the review included scope
1, scope 2, and scope 3 categories
1 (purchased goods and services),
2 (capital goods), 3 (fuel and energy
related activities), 4 (upstream
transportation), 5 (waste generated
in operations), 6 (business travel), 7
(employee commuting), 9 (downstream
transportation), 10 (processing of sold
products), 11 (use of sold products),
12 (end-of-life treatment) and 13
(downstream leased assets).
Bureau Veritas has found no evidence that
the above reported data is not materially
correct, with a limited level of assurance.
The results of the assessment can be
found on our website, www.hsgroup.com.
Further information on our annual
greenhouse gas inventory, scope 1, 2
and 3 reporting methodologies and data
sources, exclusions, assumptions and
estimations, plus the historic emission
recalculations carried out this year, is
available in our ‘Basis of Reporting 2023’
document, which can be found on our
website, www.hsgroup.com.
40
Stock Code HILS
What will we achieve?
In 2024 we will focus on further developing
local emissions reduction plans for each of
our operating companies, to include scope 1,
2 and 3. We will look to partner with external
organisations where appropriate to assist
with feasibility studies and the installation of
energy efficiency technology appropriate to
each site.
We intend to further develop these plans
into a high level Climate Transition Plan
for the Group in line with the Transition
Plan Taskforce Disclosure Framework
published in 2023.
How will we measure progress?
We have invested in a sustainability
software solution to record our
greenhouse gas emissions. This provides
greater visibility of our emissions and
allows us to measure performance
against our targets at both a Group and
individual operating company level.
LIONWELD
KENNEDY
C
A
S
E
S
T
U
D
Y
Since 2020, Lionweld Kennedy has seen a significant year-on-year reduction in its scope 1 and 2
greenhouse gas emissions. Initiatives that the company has undertaken include:
•
•
•
•
•
Signing up to a 100% renewable electricity tariff (backed by Renewable Guarantee of Origin
(‘REGO’) certificates)
Transition of the entire fleet of forklift trucks from diesel to electric
Transition from diesel to sustainably-sourced HVO fuel to heat the factory
Implementation of a remote energy monitoring system to allow energy consumption to be
reviewed at a more granular, equipment-specific level
Installation of solar panels onto the factory roof
In addition, the business has been
looking at the sustainability and
embodied carbon of its products.
Design changes to their Safegrid
steel flooring panels have resulted
in an estimated reduction of c. 185
tonnes of steel used in production,
with an associated 6% reduction
in electricity consumption.
Rationalisation of the product range
offered has also seen a c. 20%
reduction in electricity due to lower
processing requirements.
Lionweld Kennedy greenhouse gas emissions
)
e
2
O
C
t
(
s
n
o
s
s
m
E
i
i
800
700
600
500
400
300
200
100
0
2020
2021
2022
2023
scope 1
scope 2
41
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
PROTECTING THE WORLD continued
SUSTAINABLE PRODUCTS
Alignment with UN SDGs
Why does it matter?
Delivering solutions that improve the
sustainability of our customers’ operations
is central to our company purpose and
strategy. We believe that our products
and services can play an important role in
addressing the challenges associated with
increasing population and urbanisation,
climate change and decarbonisation.
What have we done?
In 2022, we assessed the value to society
of c. 55% of the Group’s products and
services by revenue, using a Six Capitals
framework and supported by a third party,
Route 2. This demonstrated a positive
impact on society from the products
assessed (c. £2 of value to society for
every £1 of revenue generated). In 2023,
we have considered other options and
frameworks to assess the sustainability of
our products and we are in the process of
determining suitable metrics to use going
forward.
During 2023, a number of our operating
companies started to undertake Life
Cycle Assessments (‘LCA’) for individual
products, with several of these being
verified by a third party and published
as Environmental Product Declarations
(‘EPD’). We expect this to be an increasing
focus area for our customers going
forward.
Waste management and water
consumption
Waste generation varies significantly
between operating companies. Some
produce very little waste; some generate
high proportions of recyclable waste
streams (such as steel). The galvanizing
sites generate the most significant
quantities of hazardous waste streams
such as waste acid and degreaser.
Water use by our operating companies
is typically for offices (toilets, hand
washing and cleaning) and for process
activities (such as pre-treatment tanks
in our galvanizing facilities). We monitor
the consumption of water across the
Group and encourage sites to reduce
consumption where possible.
We have also worked to improve the
accuracy of our waste and water reporting
over the past two years, with its inclusion
in our online software solution for
greenhouse gas emissions reporting.
In 2023, for the first time, we undertook
internal audits across the Group to assess
the accuracy of data reporting, including
waste and water. As a result, some of the
waste figures for 2022 were amended and
have increased compared to previously
reported figures.
Our water consumption and waste data
for the past five years is set out below:
Measure
Water consumption (m3)
Water intensity (m3 / £000 revenue)
Waste generated (tonnes)*
– Hazardous
– Non-hazardous
Waste intensity (tonnes / £000 revenue)
Waste recycled (%)
2023
92,963
0.11
27,154
9,792
17,362
0.033
82
2022
2021
84,667
104,795
0.12
25,899
9,471
16,428
0.035
78
0.17
17,355
n/a
n/a
0.028
79
2020
95,093
0.16
24,310
n/a
n/a
0.041
79
2019
91,152
0.15
27,192
n/a
n/a
0.044
83
* The split between hazardous and non-hazardous waste is not available prior to 2022. The 2022 waste tonnage differs to that reported previously due to improvements made to the
recording process.
What will we achieve?
We will continue to undertake LCAs on key
products, with the publication of EPDs as
they are verified.
Innovation is key to developing our
products so that we continue to address
our customers’ needs and provide them
with sustainable solutions. In 2024, our
Group Head of Sustainability will join our
Innovation Forum, helping to strengthen
the links between research & development
(‘R&D’) and sustainability.
During 2024 we will work to develop
a framework for the classification of
our products and R&D activities as
‘sustainable’, to enable us to report on
the proportions of our revenue and R&D
spend related to products that have an
environmental, economic or social benefit.
How will we measure progress?
From 2024, we will report on the total
number of products that have a verified
EPD and aim to increase this number
on an annual basis. We will continue
to disclose work done to assess the
sustainability of our products and the
development of a framework to enable us
to do so in line with published standards
and guidance.
42
Stock Code HILS SAVING AND ENHANCING LIVES
HEALTH AND SAFETY
Alignment with UN SDGs
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?
In an effort to continuously improve our
proactive approach to safety, we have
changed the Group health and safety
organisational structure to bring regional
support to our core geographies. This
new structure allows the Group health and
safety resources to be closer to individual
operating companies within their region
and to better support the Managing
Directors and the wider health and safety
community.
In addition, our health and safety
processes, such as risk identification, risk
assessment and incident investigations
have been enhanced with an emphasis
on root cause findings and the hierarchy
of controls to focus on prevention rather
than reaction to accidents. An improved
incident notification process has also
been launched so that any events are
promptly reported to line managers to
ensure appropriate and timely actions
are taken.
We have empowered all colleagues to
report hazardous environments and near
misses, as well as instilling a stop work
authority to prevent unsafe conditions.
We have sought feedback on operational
and facility improvements through
our employee forums which allow our
employees to focus on health and safety
as a key discussion topic. To complement
this and obtain a comprehensive view
from all employees, we conducted a
Group-wide employee safety culture
survey in September 2023. This indicated
there is a high level of understanding of
internal health and safety expectations
and employee responsibilities. The next
evolution will be an elevated focus on
employee behaviours and accountability.
Whilst we still have work to do in the area,
these efforts have led to a reduction in
our Lost Time Incident Rate (‘LTIR’). In
2023 it fell by 61% to 0.43 (2022: 1.1). All
lost time incidents were investigated by
health and safety managers alongside
members of the local operational teams.
Managing Directors were requested to
present the investigation findings to the
Executive Board to demonstrate elevated
involvement in the process. Learnings
from all incidents are shared with the
wider organisation, reinforcing the
importance of keeping our people safe
and communicating corrective actions
from incidents.
What will we achieve?
Our aim is to significantly reduce the
number of health and safety incidents
throughout our organisation along with
minimising the severity of lost time
incidents.
To support this objective, we will:
•
Increase our focus on leading
indicators, such as near miss
reporting and safety observations,
rather than lagging indicators.
• Continually improve the identification
of key risk areas across our business
as well as our culture and approach
to health and safety in our operating
companies.
•
•
Increase safety awareness and
accountability for our employees
across all businesses.
Enhance the delivery of safety training
for our people.
• Continue to drive campaigns focusing
on those areas that represent major
risks for the Group’s operating
companies.
How will we measure progress?
We use LTIR as the key indicator to track
and monitor our progress in health and
safety.
Our LTIR for 2023 was 0.43, well ahead
of our 2025 target and a testimony to the
work put into improving health and safety
across our operating companies.
Targets & Actuals
Lost Time Incident Rate
2023 Actual
2022 Actual
2025 Target
2030 Target
0.43
1.1
0.75
0.25
Warning sign, Mallatite, UK
43
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 SAVING AND ENHANCING LIVES continued
TALENT, DEVELOPMENT AND ENGAGEMENT
Alignment with UN SDGs
Why does it matter?
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. Positive
employee engagement and offering
great careers for people increase our
productivity, enhance our reputation, and
deliver our growth plans.
What have we done?
We ran our annual employee engagement
survey in September 2023, with a high
participation rate of 80%. Employee
engagement levels decreased to 56% in
2023 (2022: 61%) with a large reduction
seen for our youngest employees. The
feedback indicated that recognition
remains a universal priority alongside
talent attraction and retention, and
these are both areas that our operating
companies will focus on in the year ahead.
In 2023 we have focused on senior level
succession, the development of high
potential individuals within our operating
companies, and manager and supervisor
training and development.
In the UK our apprenticeship programme
has continued to be a successful way of
developing our people. 21 employees have
completed their apprenticeship in 2023,
with 60 active apprenticeships in place as
at 31 December 2023. In recognition of
the cost of living challenges we launched
a UK employee discount platform which
provides employees with opportunities to
save money on everyday items or larger
one-off purchases.
In the US, most of our companies utilise
internships as a way of attracting early
careers talent. This can provide a good
pipeline of candidates who then return as
permanent employees.
What will we achieve?
Understanding the importance of highly
engaged people, our Managing Directors
are focused on developing local action
plans to address the areas identified for
improvement in the recent engagement
survey. 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. To assist with
lifting engagement levels at an overall
level, our HR teams will share good
practice so that other companies can
implement these wherever possible.
We will continue to develop our
supervisors and managers, with
development programmes planned
for 2024. We will implement our new
approach for managing senior successors
and will focus on identifying longer
term internal successors and delivering
development activities that support their
continued growth.
How will we measure progress?
We will continue to measure progress
through our engagement survey against
our targets. We will continue to listen and
act on feedback that we receive from our
employees during the year.
Measure
Engagement Score
Movement in pts
2023 Actual
2022 Actual
2025 Target
2030 Target
56%
-5pts
61%
+6pts
66%
75%
Welding apprentices, Birtley Group, UK
44
Stock Code HILS SHANE FELIX, UTILITY PRODUCTS ENGINEER
AT CREATIVE COMPOSITES GROUP
C
A
S
E
S
T
U
D
Y
Shane started his career by completing a Summer Internship at CCG after his freshman year of
college in 2020, where he was undertaking a degree in Civil Engineering. He grew up in Alum
Bank, PA, the same town as Creative Pultrusion’s facility, where he enjoyed his experience so
much that he returned for further internships in the summer of 2021 and 2022.
He started working full time in May 2023 as a Utility Products Engineer. He has been able to
put his studies to practical use, working alongside the sales team to design Fiber-Reinforced
Polymer utility products that provide our customers with poles and crossarms to strengthen
the electrical grid. He is continuing to build his experience, and next year will be moving into
a Technical Sales role. This is a natural progression of his existing role but will allow him to
communicate directly with customers and attend trade shows. Shane values being able to use
his engineering knowledge in product development, and he values communicating with people.
His role allows him to problem solve better by understanding customer needs and finding
solutions.
Shane describes the best thing about his role as, “the community environment. Everyone is
friendly and easy to work with. It has made me want to stay here. Management works with us
and I have learned so much from them. It’s been an important part of my growth”.
45
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
SAVING AND ENHANCING LIVES continued
DIVERSITY AND INCLUSION
Alignment with UN SDGs
Why does it matter?
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.
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?
The recent employee survey highlighted
that we have made positive progress with
diversity and inclusion. 73% of employees
agreed that Hill & Smith values diversity
(2022: 69%).
We established a steering group in 2023
for a Hill & Smith Women’s Network. The
group was selected to provide a broad
spectrum of employees in various levels
and types of role. They have initially
identified three focus areas relating to
How will we measure progress?
both attracting and retaining women. The
group will expand in 2024 and we will
be publicising how our people can get
actively involved.
We have continued to focus on attracting
more females into our business, and our
progress is reflected in the improvement
in our 2023 Gender Pay Gap.
Our apprenticeship scheme is another
method of attracting more diversity into
our business. In 2023, our gender splits
for new hire apprentices were 16% female,
84% male. This includes recruiting females
as welding apprentices, traditionally a role
that has attracted more males.
In response to the UK Corporate
Governance Code requirement to have a
workforce engagement mechanism, we
continued with our Employee Forums in
2023, holding one face-to-face session in
the UK in May and one in the US in June.
We then ran virtual sessions in December.
Topics included health and safety,
sustainability, innovation, and business
updates on performance. We gained
valuable feedback and insights from the
process. Examples of specific actions
that we took from the meeting include the
completion of a cooling vest trial in the US
and design of onboarding materials that
the operating companies can use for new
starters to cover helpful information about
the Group.
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 provide tools, resources, and
information in support of our Women’s
Network. We will encourage employees
to take part in the network, as we start to
build momentum with the areas of focus
for 2024.
We will arrange further Employee Forums,
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.
We want to build on the success of our
apprenticeship programme, 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 continue to
employ interns within our US businesses.
We will continue to measure gender and ethnic diversity at a senior level and review the engagement survey scores for diversity and
inclusion to track progress.
Gender Diversity
2023 Actual
2022 Actual
Target: 2025
Target: 2030
PLC Board
Executive Board
Senior Leaders
Ethnic Diversity
PLC Board
Executive Board
Senior Leaders
29%1
40%
19%
38%
33%
20%
40%-60%
40%-60%
20%-30%
40%-60%
40%-60%
40%-60%
2023 Actual
2022 Actual
Target: 2025
Target: 2030
14%
20%
10%
13%
17%
16%
10%-15%
10%-15%
10%-15%
10%-15%
20%-25%
10%-15%
1
In January 2024 the Group appointed two new directors to the Board: Carol Chesney, Non-executive Director, and Hooman Caman Javvi, Chief Operating Officer. Mark Reckitt,
Non-executive Director, will be retiring from the Board at the conclusion of the AGM in May 2024. Following these changes, the composition of the Board will be 62% male and
38% female.
46
Stock Code HILS
FRANKIE MILES AND CHLOE JOHNSON,
APPRENTICESHIP WELDERS
AT BARKERS ENGINEERING
C
A
S
E
S
T
U
D
Y
Frankie and Chloe were both aged 16 when they were taken on as apprentices at Barkers
Engineering, our UK security fencing business, in September 2022, straight from school.
Frankie had been a pupil at the JCB Academy where she had developed her passion for
engineering, and in particular, welding.
Chloe had originally joined Barkers as a stop gap while she waited for her medical assessment
for the Navy, which is a path she is no longer pursuing due to the experience and opportunities
that she has received in her current role.
Before they started, Barkers welding division was entirely male, and the company did not have
the right changing and other facilities in place for female employees.
Barkers quickly turned this around and made sure that all the necessary steps were taken to
ensure Frankie and Chloe’s first experience of the world of work was as smooth as possible
and the two young women are excelling.
Both agreed that by setting an example, they hope to inspire and encourage more females into
this industry.
Simon Watts, Operations Director at Barkers, said: “Frankie and Chloe are great additions to the
team. During the interview process they both stood out straight away as the best people for
the job. The experience has also positively changed attitudes within our team.”
47
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
SUSTAINABLE GOVERNANCE
CLIMATE RISKS AND TCFD
Alignment with UN SDGs
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 require
companies to disclose information on
their financial and physical risks and
opportunities due to climate change, and
how they are being managed. During 2023
we continued to develop our approach to
assessing the impact of climate change
on our business operations, strategy, and
financial planning. We are fully compliant
with the recommended disclosures, apart
from partial compliance with Metrics and
Targets. See page 51 for further details.
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 six-monthly updates
on progress around sustainability focus
areas including climate related risks and
opportunities. In addition, the annual
budget process includes consideration
of operating company level carbon
reduction plans, and during 2023 similar
focus was introduced into the strategic
planning process which covers a five-year
timeframe. The evaluation of potential
acquisitions also includes an assessment
of the impact on our greenhouse gas
emissions 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 with an established
approach to support this assessment.
PLC Board
Sustainability Committee
Risk Committee
• Responsible for approving
and overseeing the Group’s
sustainability targets
• Receives six-monthly updates
on sustainability progress
from the Sustainability
Committee
• Has oversight of TCFD
reporting and disclosures
(through the Audit Committee
and Risk Committee)
• Responsible for defining
• Responsible for the
and delivering the Group’s
sustainability approach and
long-term goals
•
Formed in 2021, meeting
every two months to review
and oversee progress against
sustainability targets
• Use of third party specialists
to provide additional insight
and training (including climate
change issues)
• Members include; Executive
Chair, Group CFO, Group
Presidents, Group Head of
Sustainability and other senior
management
methodology to identify and
assess climate related risks
and opportunities
• Agrees TCFD metrics and
targets with Sustainability
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 57
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 (resulting in a 4˚C
temperature increase) 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
Overview
“Global Net-Zero by 2050”
Announced pledges
Higher warming
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
~1.5˚C
~2˚C
Timeframes
2030 & 2040
~4˚C
2040
48
Stock Code HILS 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 and 2023, we completed physical
climate vulnerability analysis for new sites
acquired since the original 2021 analysis.
The 2021 climate vulnerability analysis
remains valid given there has been no
change in the underlying climate analysis
tool data since then. The assessment
of transitional risk considered emerging
regulatory requirements, such as carbon
pricing.
The output of this assessment has
enabled us to identify the material impacts
on our business arising from each of these
selected scenarios. The impacts were
assessed without considering any actions
that we might take to mitigate or adapt to
these future climate change scenarios.
The main impacts of the scenarios being:
Transition Risk (TCFD, 2017)
Transitioning to a lower-carbon
economy may entail extensive
policy, legal, technology, and market
changes to address mitigation and
adaptation requirements related
to climate change. Depending on
the nature, speed, and focus of
these changes, transition risks may
pose varying levels of financial and
reputational risk to organisations.
Physical Risk (TCFD, 2017)
Physical risks resulting from climate
change can be event driven (acute)
or longer-term shifts (chronic) in
climate patterns. Physical risks
may have financial implications for
organisations, such as direct damage
to assets and indirect impacts from
supply chain disruption.
Global warming scenario: 1.5°C and 2°C
As the global economy transitions to a low
carbon state, we have identified several
potential short to medium-term risks and
opportunities for the Group:
• The availability of greener technology
to adapt to lower emissions
•
Increased demand for renewable
energy leads to reduced supply or an
increase in the cost of purchasing
renewable energy
• The introduction of carbon pricing
across our key geographies increases
both our manufacturing costs and the
costs of raw materials
climate inaction or negative climate
impact from production / supply chain.
• 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 51
Other risks identified, but not considered
material at this stage, include reputational
damage to the Group’s brand due to
The EU Carbon Border Adjustment
Mechanism (CBAM) has not impacted
the Group. The proposed UK CBAM
would place a carbon price on emissions
intensive industrial goods imported to
the UK (such as steel and aluminium)
by the Group. At this stage UK CBAM
carbon prices have not been included
in our costed plan, although it has been
assumed that the associated increase
in the cost of raw materials could be
absorbed in sales price increases.
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. The
Group is committed to reducing greenhouse gas emissions as demonstrated by our 2040 net-zero ambition, see our costed plan on
page 40, 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.
Carbon Pricing* Gross Risk Impact (scope 1 and 2)
Annual Impact by 2030
Average annual operating cost increase assuming no proactive carbon
reduction plans are undertaken based on 2023 exit run rate emissions.
Figures as at end of 2022 in brackets
Annual Impact by 2040
Average annual operating cost increase assuming no proactive carbon
reduction plans are undertaken based on 2023 exit run rate emissions.
Figures as at end of 2022 in brackets
1.5°C
£4.9m
(£4.4m)
2°C
£4.5m
(£4.1m)
Based on $130 per tonne*
Based on $120 per tonne*
1.5˚C
£7.7m
(£6.9m)
2˚C
£6.4m
(£5.8m)
Based on $205 per tonne*
Based on $170 per tonne*
* Carbon pricing assumptions based on PwC estimates for advanced economies in 1.5˚C and 2˚C scenarios.
49
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 SUSTAINABLE GOVERNANCE continued
Global Warming Scenario – 4˚C
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 reduced
working hours or 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 51.
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 the Group’s 55
operational sites (2022: 53 sites). A
summary of the results is as follows:
Hazard
Flood
Wind
Precipitation
Heat
Hail/Thunderstorms
Drought
Wildfire
Total unique sites with one or more high
risk hazards
Managing Director, Jeetinder Chopra presents an
award to Nagaraju Murugaiah, BPSI, India
Based on the below analysis, at the end
of 2023, the Group had 14 sites at higher
risk of one or more climate hazards with
heat being the most significant threat (8
sites, 15%). The total number of higher
risk sites have increased compared to
2022 (12 sites) due to acquisitions during
2023. In 2040 heat is predicted to remain
the most significant threat to the Group
(10 sites, 18%). Overall, 35% of sites have
been identified to be at higher risk from
one or more climate hazards by 2040,
which represents c. 25% of 2023 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 have mitigations in place as well
as the necessary insurance cover.
During 2023 business continuity plans
were updated and enhanced across all our
operational sites. In 2024 we will begin to
assess and test business continuity plans
at our sites most exposed to climate-
related physical hazards. 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 risks to our
future business operations are relatively
low, 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.
Sites at higher risk*
2023
No of sites**
2023 %
Total sites
2040
No of sites
2040 %
Total sites
3 (1)
3 (3)
7 (5)
8 (6)
5 (4)
2 (2)
4 (4)
14 (12)
5%
5%
13%
15%
9%
4%
7%
25%
5
4
8
10
5
3
4
19
9%
7%
15%
18%
9%
5%
7%
35%
* 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 high risk.
** 2022 figures in brackets
50
Stock Code HILS 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. The
impact assessment has 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
Framework (refer to page 51) for further
details). Based on the scenario analysis
and impact assessment outlined above,
the Board deems climate change to be a
Principal Risk to the Group (see pages 60
to 65).
How will we measure progress?
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 2 greenhouse gas 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 41 for
further details of progress to date
• Having established our baseline scope
3 greenhouse gas emissions, we
submitted our proposed near and long-
term targets to SBTi in July 2023 and
these were approved in December 2023
• While we have metrics for climate
related risks, during 2024 we will
continue to develop cross-sector metrics
for climate related opportunities, capital
deployment, internal carbon pricing, and
remuneration
•
In addition, we currently measure
water usage and waste production and
continue to look at ways to minimise our
environmental impact
TCFD Elements
TCFD Recommended Disclosures
Compliant
Governance
a. Board oversight
b. Management’s role
Strategy
c. Climate related risks and opportunities
d. Impact of climate related risks and opportunities
e. Resilience of the organisation’s strategy in climate scenarios
Risk Management
f. Risk identification and assessment
g. Managing climate related risks
h. Integration into overall risk management process
Metrics and Targets
i. Metrics for climate related risks and opportunities
j. Scope 1, 2 and 3 greenhouse gas emission metrics
k. Climate related targets - scope 1, 2 and 3
√
√
√
√
√
√
√
√
X
√
√
C
A
S
E
S
T
U
D
Y
’StormStrong’ Products
– Creative Composites Group, US
Rail Track Flood Resilience –
Asset International Structures, UK
HVAC vibration isolation
systems – Novia, US
StormStrong products include utility
poles, utility crossarms, lighting
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.
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.
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.
51
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
SUSTAINABLE GOVERNANCE continued
ETHICAL CONDUCT
Alignment with UN SDGs
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
• 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
respects 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 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
have a zero tolerance approach to the
fundamental violation of an individuals’
basic human rights that slavery and
human trafficking represents. 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.
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. The
CoBC presides over areas such as health
and safety, ethical business practice,
gifts and entertainment, conducting
international business, protection of
individuals, resources and assets and
outlines 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 whistleblowing 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 2023, 10 such issues were reported
and investigated (2022: 12).
Specific policies have been developed and
the following are available on the Group
website www.hsgroup.com:
•
Supply Chain
• Code of Business Conduct
• Anti-Bribery & Corruption
• Modern Slavery
• Whistleblowing
What will we achieve?
We will regularly review operating
companies’ standard terms and conditions
of purchase, and standard long-term supply
agreements across the Group. The terms
and agreements must include 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
conduct annual audits to ensure that we
fulfil our obligations under the UK Modern
Slavery Act.
We will act in accordance with our CoBC,
upholding a zero-tolerance approach to
bribery and corruption. There were no
incidents of bribery and corruption reported
in 2023 (2022: nil).
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
• Maintain 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
52
Stock Code HILS C
A
S
E
S
T
U
D
Y
The US
investment in
strengthening
the resilience
of the
electrical grid
is backed by
bipartisan
infrastructure
bills, and
V&S Utilities
is very well
positioned
to serve
this market
sector.”
V&S UTILITIES GROUP -
ORGANIC AND INORGANIC INVESTMENT
SUPPORTING GROWTH
V&S Utilities provides fabricated steel and other products and services to the electrical
transmission and distribution market, which is steadily growing as the US invests in upgrading
aging electricity infrastructure. The US investment in strengthening the resilience and reliability
of the electrical grid is backed by bipartisan infrastructure bills, and V&S Utilities is very well
positioned to serve this market sector. Hill & Smith has made significant investments to
increase the footprint, capacity and capabilities of V&S Utilities, acquiring an Ohio fabrication
company in 2018 and most recently through the acquisition of Capital Steel Service in New
Jersey in January 2024.
With the acquisition of Capital Steel Service, V&S Utilities now consists of four locations
that produce structural and tapered tubular steel products as well as packaging services for
electrical components. The new business is highly complementary to our existing activities
and will further accelerate our strategy in this high-growth market. The acquisition will expand
our geographical customer base, generate material cross-selling opportunities and provide
additional manufacturing capacity and capability.
In addition, we are also investing in our V&S Utilities plant in Burton, Ohio, with construction
of an extensive addition to the facility underway to further increase capacity and serve the
electrical utility customers in the northeastern US market.
As our geographic footprint in the US expands, our focus on safety, customer support and
quality will remain our top priority.
53
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
SUSTAINABLE GOVERNANCE continued
Sustainability Data
Product Research & Development
Spend on R&D
Percentage of revenue
Environmental
Environmental penalties
Carbon Disclosure Project (‘CDP’) Rating
Group water usage (m3)
Solid waste to landfill (tonnes)
Recycled waste (tonnes)
Percentage of recycled waste
Greenhouse gas emissions
Emissions (tCO2e) - Scope 1: UK (1)
Emissions (tCO2e) - Scope 1:
Rest of World (1)
Location-based emissions (tCO2e) - Scope 2: UK (1)
Location-based emissions (tCO2e) - Scope 2:
Rest of World (1)
Market-based emissions (tCO2e) - Scope 2: UK (1)
Market-based emissions (tCO2e) - Scope 2:
Rest of World (1)
Intensity Ratio
Scope 3 (tCO2e) – Group(1)
Other Greenhouse gas emissions – CH4 (tCO2e)
Other Greenhouse gas emissions – N2O (tCO2e)
Energy Consumption
2023
2022
2021
2020
2019
£3.3m
0.4%
£nil
B
92,963
4,769
22,385
82%
16,074
20,591
3,165
10,074
164
9,837
£2.8m
0.4%
£nil
B
84,667
5,138
18,870
78%
17,494
15,782
3,066
8,317
428
8,315
0.06
0.07
830,732
1,264,512
65
144
65
114
£1.9m
0.3%
£nil
D
104,795
3,600
13,755
79%
18,322
18,824
3,867
8,652
1,054
8,624
0.09
n/a
87
213
n/a
n/a
£2.0m
0.3%
£nil
C
95,093
5,165
19,145
83%
17,653
20,278
3,818
8,496
4,441
8,466
0.10
n/a
81
194
n/a
n/a
£1.4m
0.2%
£nil
D
91,152
4,678
22,514
85%
n/a
n/a
n/a
n/a
n/a
n/a
0.11
n/a
n/a
n/a
n/a
n/a
Energy Consumption UK (kWh)
93,797,826
105,589,838
Energy Consumption Rest of World (kWh)
147,333,308
118,499,128
Energy Consumption Total (kWh)
241,131,134
224,088,966
329,447,183
318,527,334
330,041,768
Health & Safety
No. of workplace fatalities
No. of lost time injuries
LTIR
No. of Near Miss Reports
Ethical conduct
Charitable donations
0
35
0.43
1,969
0
85
1.1
0
142
1.7
2,217
2,126
0
109
1.5
955
0
119
1.6
n/a
£98,985
£62,000
£39,000
£21,000
£39,000
Whistleblowing reports made by employees
Modern Slavery audits carried out
10
Yes
12
Yes
2
Yes
3
Yes
19
Yes
1
In accordance with our Greenhouse Gas Emissions Recalculation Policy (available at https://hsgroup.com/who-we-are/governance/our-policies/) and the GHG Protocol, our
2020-2022 scope 1, 2 and 3 data has been revised to remove the emissions relating to any operating companies that have been divested and to include estimates for the
emissions from companies that we have acquired during those years. This may result in stated emissions for previous years differing from those reported previously, but
allows a meaningful comparison of current emissions with base year and historic year emissions.
54
Stock Code HILS Talent & Employment Practices
No. of Group employees (as at 31 Dec)
Voluntary (regrettable) attrition rate
Percentage of employees with access to a
recognised Trade Union
UK Gender Pay (Median Pay Gap)
Training Spend
Total No. of days training
UK Apprenticeships
Percentage of UK sites utilising the
Apprenticeship Levy
Employees participating in training & development
Percentage of employees participating in training &
development that are female
Engagement
Engagement Survey participation
Engagement Score
Inclusion Engagement Score
Gender Diversity
PLC Directors (2)
Exec Board
No. of Subsidiary Directors
No. of Senior Leaders
Percentage of PLC Directors (2)
Percentage of Exec Board
Percentage of Subsidiary Directors
Percentage of Senior Leaders
Total percentage of Group employees
2023
2022
2021
2020
2019
4,336
9%
5%
-0.1%
£0.9m
5,799
60
83%
3,527
9%
80%
56%
73%
F
2
2
10
26
29%
40%
18%
19%
11%
M
5
3
46
109
71%
60%
82%
81%
89%
3,817
14%
11%
2.8%
£0.8m
5,626
55
89%
2,386
10%
80%
61%
69%
F
3
2
7
20
38%
33%
15%
20%
10%
M
5
4
39
78
62%
67%
85%
80%
90%
4,402
14%
18%
-4.5%
£0.6m
4,119
49
57%
156
17%
62%
55%
63%
F
3
2
3
38
38%
33%
6%
16%
10%
M
5
4
49
201
62%
67%
94%
84%
90%
4,398
6%
18%
0.1%
£0.4m
4,000
34
49%
111
10%
n/a
n/a
n/a
F
2
n/a
5
39
29%
n/a
7%
18%
10%
M
5
n/a
66
174
71%
n/a
93%
82%
90%
4,591
n/a
n/a
-3.2%
n/a
n/a
n/a
n/a
n/a
n/a
56%
48%
58%
F
2
n/a
3
40
29%
n/a
4%
15%
9%
M
5
n/a
79
221
71%
n/a
96%
85%
91%
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
2
In January 2024 the Group appointed two new directors to the Board: Carol Chesney, Non-executive Director, and Hooman Caman Javvi, Chief Operating Officer. Mark Reckitt,
Non-executive Director, will be retiring from the Board at the conclusion of the AGM in May 2024. Following these changes, the composition of the Board will be 62% male and
38% female.
55
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 RISK MANAGEMENT
The Group has an established Enterprise Risk Management Framework that identifies, evaluates,
manages, and monitors risk. Enhancements have been implemented during 2023 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 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.
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.
Figure 1 Risk Management Process
THE PLC BOARD
•
Sets strategy
• Determines overall risk appetite
•
Identifies and manages principal risks
AUDIT COMMITTEE
• Oversees the risk management process
• Reviews and challenges risk information and target positions
from operating companies
OPERATING COMPANIES
•
•
Identify, assess and manage operating company level risks
Set risk targets for identified risks
• Complete risk improvement actions
RISK COMMITTEE
•
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
56
Stock Code HILS 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 possible through Target Risk scoring
and the ability for the Board to challenge
operating companies on specific risk
targets.
Risk in 2023
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. Review and 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 PLC 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 geopolitical
environment, and IT Systems failure. The
remaining Principal Risks have remained
stable with a Principal Risk regarding
Climate Change added. For further details
see pages 60 to 65..
Within the Framework the following roles
and responsibilities exist:
The Executive Board
Supports the PLC Board by:
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.
The Audit Committee
Supports the PLC Board by:
• monitoring and directing the testing
of the Risk Management Framework,
appetite and associated internal
controls, including the influencing
factors of culture and reward;
•
•
ensuring there is a link between
the Group Principal Risks and the
Group’s internal and external audit
programmes;
reviewing internal and external
sources of assurance and information
to enable it to recommend to the PLC
Board where changes may be needed
to the Risk Management Framework
and/or Group Principal Risks; and
•
reviewing the detail of external
reporting.
The Risk Committee
Supports the Audit Committee by:
•
•
•
•
acting as a conduit between the
Group and our operating companies,
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 procedures, tools and
training;
proactively analysing and challenging
the assessment, management and
monitoring of operating company
risk registers and day-to-day risk
management; and
ensuring the Board and Audit
Committee are provided with
sufficient information to discharge
their responsibilities effectively.
•
•
•
ensuring operating companies are
effectively embedding the Group’s
Enterprise Risk Management
Framework and are maintaining
live risk registers that are actively
managed;
overseeing the completion of risk
reporting 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). 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 2023 of the Principal Risks
and Uncertainties that might threaten
the Group’s business model, future
performance, solvency and liquidity (see
pages 60 to 65 for the Group’s Principal
Risks and Uncertainties).
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 the due diligence
process;
not entering into contracts that place
an onerous contractual or reputational
burden on the Group;
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
57
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 RISK MANAGEMENT continued
Figure 2 Risk Management Framework
Governance
CULTURE AND
STRATEGY
Core risk management process
APPETITE
REPORTING AND
ASSURANCE
IDENTIFY
ACCESS AND
QUANTIFY
MANAGE
MONITOR
Infrastructure
TOOLS, SYSTEMS
AND DATA
POLICIES AND
PROCEDURES
ROLES AND
RESPONSIBILITIES
Risk activities
Activities undertaken to enhance the
Group’s approach to risk in 2023 included:
•
business continuity risk assessment
integrated into the ‘Risk Playbook’
to act as a guide for operating
companies;
•
guidance issued to operating
companies on producing business
continuity plans with a focus on sites
identified as being at higher risk from
physical climate hazards (as part of
TCFD assessments);
•
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.
58
Stock Code HILS Emerging Risks
Risk in 2024 and beyond
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 2023 the Risk
Committee identified, assessed and
monitored emerging risks. The results
from the emerging risks analysis were
presented at the March 2024 Audit
Committee and the prioritised emerging
risks will be monitored throughout 2024.
The key focus during 2024 will include:
•
•
development of an MS Excel based
risk register and reporting tool to
improve ease of use for operating
companies.
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.
•
•
re-run of TCFD Climate Modelling
and scenarios for physical impact
analysis.
continued evaluation and identification
of emerging risks that might disrupt
the business models and strategies of
our operating companies.
Emerging Risk
Rise of Artificial Intelligence – opportunity and threat
Timescale
Medium (3-5 yrs)
Escalation of geopolitical conflicts/tensions impact supply chain and/or customer demand
Short (0-2 yrs)
Critical infrastructure failure
Key material/natural resources scarcity
Declining interest in manual labour
Medium (3-5yrs)
Long (5yrs +)
Medium (3-5yrs)
59
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 GROUP PRINCIPAL RISKS 2023
Risk
Description and Potential Impact
Mitigation
Reduction in US
infrastructure
spending
Our growth is supported by multi-year planned government
spending to upgrade US infrastructure (e.g. IIJA and the
Chips Act), technology change and private investment
from US manufacturers and producers to onshore vital
components. Changes to these plans could have a
detrimental impact on Group revenues.
We remain confident that infrastructure investment will
continue to form part of national spending plans in the US
despite ongoing macro-economic uncertainty.
• Cross-party support for infrastructure
investment plans.
• Our portfolio covers diverse products,
markets and territories.
• Market and product development
initiatives.
•
Strategic planning process overseen by
the Exec and Board to anticipate and
mitigate potential downside risks.
Changes in global
economic outlook
and geopolitical
environment
Material adverse changes in the political and economic
environments in the end-user markets in which we operate,
have the potential to put at risk our ability to execute our
strategy.
2023 has seen escalating geopolitical tensions. While this
had limited impact on our supply chains and end markets,
we continue to monitor the risk.
During 2023 central banks in both the US and UK raised
interest rates in an attempt to control inflation. While this
is a concern for the cost of living, an increase in interest
rates has had a limited impact on the Group’s ability to
grow given our cash generative model. Alongside this
our businesses operate in resilient, less discretionary
infrastructure markets.
Increase in
competitive
pressure
Increased volatility, uncertainty and slowdown in our
markets could result in increased competition, leading
to a loss of customers and/or pricing pressure and
consequently a loss of sales and reduced profits.
• 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.
•
Strong balance sheet with low leverage
and mix of fixed and floating rate debt.
• 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 external
competitive landscape.
• The Group holds leading positions in
niche infrastructure markets 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 strive to provide
superior products and high service levels
to customers, while aiming to ensure
there is no dependency on any one
customer.
60
Stock Code HILS No change
Increase
Decrease
Risk
Description and Potential Impact
Mitigation
Product failure
Climate change
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.
Failure to adapt to and manage the threats and opportunities
from climate change could have significant reputational,
financial and operational impacts on the Group. Chronic
changes in climate and extreme weather events may disrupt
our operations.
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.
Transitioning to a low-carbon economy presents
technological challenges and the high energy demand of
some of our operations could incur carbon taxes.
Climate change does present opportunity for the Group
through our sustainable products and products to improve
infrastructure resilience to increasingly extreme weather
hazards.
Climate change has been added as a Principal Risk
for 2023.
• Products tested, approved and accredited
by regulatory bodies.
• Quality control protocols fully
implemented and continuously monitored.
• Contractual controls in place to minimise
economic impacts.
• Product liability insurance cover
maintained globally.
•
•
Litigation supported/managed by external
legal specialists.
Sustainability Committee to oversee and
govern our carbon reduction plans and
initiatives.
• TCFD analysis to understand our risks
and opportunities arising from climate
change.
• Climate scenario modelling to evaluate
the threat from climate hazards such
as extreme heat, flooding, and extreme
winds, both now and in 2040, for our
operational sites.
• Costed plan established to set out how
we will achieve net-zero (for scopes 1
and 2) by 2040, reducing our exposure to
transition risks.
•
Insurance cover, continuity planning and
extreme weather protocols in place to
mitigate our exposure from physical risks.
See Our Approach to Sustainability (including
our TCFD report) for further details, see
pages 36 to 55.
61
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 GROUP PRINCIPAL RISKS 2023 continued
Risk
Description and Potential Impact
Mitigation
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.
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 input cost inflation and securing supply of raw
materials.
• 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.
• Contingency plans in place throughout
the supply chain, such as purchasing
additional stock of key raw materials, and
securing additional supply chain capacity.
• Group wide thematic Internal Audit review
of Supply Chain completed during 2022
with recommendations implemented
during 2023.
IT systems failure
The Group relies on the information technology systems
used in the daily operations of its operating companies. A
failure of those systems or poor implementation of new
systems could have a significant operational impact on the
Group, impacting customer service, revenue and margins.
• The Board maintains a watching brief
on IT and cyber risk, and has overseen
significant investment across the Group
to enhance IT security controls.
• Wholesale network security improvements
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.
•
completed during 2023.
IT controls manual mandating a robust set
of information security controls covering
basic cyber hygiene, system back-up
procedures and hardware / software
protection.
• Ongoing program of IT controls
compliance reviews completed by Internal
Audit.
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. The UK’s National Cyber Security
Centre (‛NCSC’) has warned of heightened cyber risk from
the rise of artificial intelligence and due to increasingly
strained geopolitical tensions.
While there has been a continued enhancement of the
Group’s IT security controls during 2023, the Board
considers the risk to be heightened due to the increasing
sophistication and frequency of cyber threats across
the world.
62
Stock Code HILS No change
Increase
Decrease
Risk
Description and Potential Impact
Mitigation
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.
Failure to take
advantage
of 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.
• 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.
• Contractual protections and assurances
sought from sellers to mitigate subsequent
identification of risks.
• Board approval required for Group
acquisitions, in line with its Schedule of
Matters Reserved.
• Post-acquisition integration plans
established for all acquisitions with regular
performance monitoring and reporting to
the Board.
•
Entrepreneurial culture and autonomous
structure to encourage innovation and enable
agile response to a changing competitive
landscape.
• Our acquisitions strategy brings innovative
products and technology to our portfolio.
• Board monitoring of emerging risks
alongside external specialist support, where
both the risks identified and the potential
opportunities arising are considered.
• Group wide Innovation Framework with
two workshops conducted during 2023
to encourage and stimulate increased
innovation.
• Active Intellectual Property management
within individual operating companies
overseen by Group.
63
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 GROUP PRINCIPAL RISKS 2023 continued
Risk
Description and Potential Impact
Mitigation
Failure to attract,
retain and develop
an appropriately
diverse, skilled
and experienced
workforce
Talented employees are fundamental to the success of
the Group. We aim to employ the best people for the job,
and we know we can only do this by considering talented
people from the whole community.
• Board level review of succession planning
for senior leaders.
• Training and development programme in
place for supervisors and line managers.
Failure to attract, develop and retain high-quality
individuals may impact our ability to deliver against our
strategic goals.
• New training and development
programme for high potential talent to be
launched in 2024.
During 2023 we experienced some easing in labour
market conditions, albeit certain skillsets, e.g. welders and
maintenance technicians remain challenging to recruit.
This is being partly addressed through apprenticeships.
• Bespoke coaching and mentoring for
identified MD successors to support
development.
• Continued use of internships and
apprenticeships and other vocational
courses for specialist and technical roles.
• Appropriate remuneration and benefits,
together with bonus opportunities and
incentive plans offered to employees
• Annual engagement survey results inform
local operating action plans to improve
engagement.
• Women’s network established in 2023,
to attract, retain, and develop female
employees.
64
Stock Code HILS No change
Increase
Decrease
Risk
Description and Potential Impact
Mitigation
Prevention of harm
or injury to people
The Group is committed to 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 and safety procedures
could lead to injury or to the death of employees or third
parties.
LTIR has reduced from 1.1 in 2022 to 0.43 in 2023. Further
improvement is required to reach the 2030 Health and
Safety target of 0.25 and health and safety remains a key
focus area for the Group. In our efforts to continuously
improve our proactive approach to health and safety,
we have changed the group structure from a global to a
regional one to allow the group health and safety resources
to be closer to individual operating companies within their
region.
Violation of
applicable laws and
regulations
The Group’s 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 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.
• Culture of zero tolerance in respect of
health and safety violations promoted by
the Board and disseminated throughout
Group businesses with clear targets and
improvement metrics.
• Appointment of UK and US Heads of
Health and Safety.
• Monthly Health and Safety reporting for all
operating companies facilitated via online
tools.
• Monitoring and review of LTI rates
with all LTI incidents investigated and
findings presented to the Executive
Board. Improvement recommendations
are implemented and shared across the
Group to minimise any reoccurrence.
•
Improvement made in our incident
investigation to enhance the focus on
root cause analysis to prevent further
incidents.
• Regular health and safety site audits.
• Health and safety forums to monitor
performance and share best practice.
•
External health and safety accreditations
and relationships maintained with
regulatory bodies.
• Health and 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.
•
•
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 2023.
• Toolkits issued to all UK operating
companies to aid compliance with GDPR.
65
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023 NON-FINANCIAL INFORMATION STATEMENT
We aim to comply with the Non-financial Reporting requirements contained in S414CA and S415CB of the Companies Act 2006 and the
table below, and the information it refers to, is intended to help readers understand our position on key non-financial matters.
Those policies marked with an asterisk can be found on the Company’s website hsgroup.com/who-we-are/governance/our-policies/
Reporting
requirement
Policies and standards which
govern our approach
Additional information
See
Page No.
Environmental matters
•
Environment policy*
•
Sustainability Plan including:
36 to 55
– 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:
43 to 47
• 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
•
Equal opportunities & diversity policy*
•
Sustainability Plan including:
43 to 47
• Board diversity statement*
• Data protection policy*
• Modern slavery policy*
– Diversity & Inclusion
– Gender Pay
– Human rights
Community
Anti-bribery and
corruption
•
Individual subsidiary approach
• Anti-bribery & corruption policy*
•
International competition law policy
• Gifts & Entertainment policy
• Whistleblowing policy*
•
•
Stakeholder engagement
34
Sustainability Plan including:
52 to 55
–
Sustainable Governance
• Risk: Violation of applicable
laws and regulations
Description of the
business model
Description of the
principal risk and
uncertainties and
impact of business
activities
Non-financial key
performance indicators
• Our Strategy
• Our Business model
• Our Business Model
• Risk Framework
• Principal Risks and Uncertainties
•
Employee Engagement
• Diversity
•
Lost time injury rate
• Greenhouse gas emissions
• Water and waste
–
–
–
14 to 17
15 to 17 and
56 to 65
20 to 21
66
Stock Code HILS US COMPOSITES – DRIVING GROWTH
THROUGH TAILORED ACQUISITION
INTEGRATION
C
A
S
E
S
T
U
D
Y
Hill & Smith’s journey in composites started in 2008 with the acquisition of Creative
Pultrusions, a single location business based in Pennsylvania. Through a combination of
organic growth and six acquisitions, the Creative Composites Group (‘CCG’) now operates
from five locations and delivers annual revenue of more than $200m with operating margins
well above the Group average.
Central to the growth story has been our acquisition strategy and the tailored integration of
each business. While the first acquisition comprised a new product line which was absorbed
into existing operations, subsequent acquisitions have required more complex integration
strategies to unlock the value for the combined group with a focus on highly engineered
systems and solutions.
Acquiring Tower Tech in 2017 necessitated a relocation of manufacturing operations to deliver
improvements in quality and production methodology while leveraging existing skills. Other
key acquisitions were Kenway Composites in 2017 and Composite Advantage in 2018. Both
businesses have received capital investment to support growth and were principally integrated
from a market perspective, aligning sales teams and marketing strategies to provide the best
solutions for our customers.
With the acquisitions of Enduro Composites and United Fiberglass in 2023, it has been
necessary to evolve the management structure of CCG. The expanded size of CCG, combined
with the broad range of exciting organic and acquisition growth opportunities, has led to
the establishment of additional leadership roles and the promotion of talent from within the
group. From an organic perspective, the increased management capacity will drive growth
through enhanced customer relationships, evolve technologies and support a continued
focus on health and safety practices. The new management structure will also enable key
individuals to focus on acquisition integration, synergy realisation and sharing best practice.
We are therefore better placed than ever to welcome new businesses into CCG and take full
advantage of the growth opportunities in the exciting US composite market.
67
STRATEGIC REPORTHill & Smith PLC | Annual Report and Accounts 2023
BOARD OF DIRECTORS
Appointed to the Board: 3 October 2017
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.
Alan is also 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 Interim
Executive Chair. In May 2023, this role was confirmed as Executive Chair.
Appointed to the Board: 16 September 2019
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.
In January 2024, Hannah was appointed a Non-executive Director of Oxford
Instruments plc.
Alan Giddins
Executive Chair
Hannah Nichols
Group Chief
Financial Officer
Appointed to the Board: 30 January 2024
Hooman joined the Group in March 2022 as Group President. Prior to
joining, Hooman spent 11 years with ABB and Hitachi Energy, most recently
as Senior Vice President for the Transformer Insulation & Components
business in Europe and Managing Director for Pucaro. Hooman has also held
several senior management positions at ABB in Sweden and Germany. In
January 2024, he was appointed as Group Chief Operating Officer and joined
the board.
Hooman
Caman Javvi
Chief Operating
Officer
Tony Quinlan
Senior
Independent
Non-executive
A
N
R
Mark Reckitt
Independent
Non-executive
A
N
R
Appointed to the Board: 2 December 2019
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.
Appointed to the Board: 1 June 2016
Mark is a Chartered Accountant and was Group Strategy Director of Smiths
Group plc from February 2011 to April 2014, and Divisional President of Smiths
Interconnect from October 2012 to April 2014. Prior to joining Smiths, Mark was
interim Managing Director of Green & Black’s Chocolate and before that he held
a number of finance and strategy roles at Cadbury plc before being appointed its
Chief Strategy Officer from 2004 to 2010.
Mark was a Non-executive Director of JD Wetherspoon plc from May
2012 to May 2016, Mitie Group PLC from July 2015 to July 2018 and he
recently retired as a Non-executive Director and Audit Committee Chair of
Cranswick plc.
A Audit Committee N Nomination Committee R Remuneration Committee
Chair
68
Stock Code HILS Pete Raby
Independent
Non-executive
A
N
R
Leigh-Ann
Russell
Independent
Non-executive
A
N
R
Farrokh Batliwala
Independent
Non-executive
A
N
R
Carol Chesney
Independent
Non-executive
A
N
R
Appointed to the Board: 2 December 2019
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. In his nine-year career with Cobham,
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.
Appointed to the Board: 1 April 2021
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.
Leigh-Ann 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.
Appointed to the Board: 1 April 2022
Farrokh was formerly President of the Connect and Control Technologies
division of ITT Inc, 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.
Appointed to the Board: 1 January 2024
Since April 2018, Carol has served as a Non-Executive Director and Chair of the Audit
Committee of Hunting plc. In addition, she is a Non-executive Director and Chair of
the Audit Committees of IQE plc, Imagination Technologies Group Limited and PTL
UK Topco Limited (trading as CRC Evans).
Past Non-Executive roles include Renishaw plc and Biffa plc, for which she also
served as Audit Committee Chair. Until 2018, Carol served as the Company Secretary
of Halma plc, a FTSE 100 health, safety and environmental technology group, where
her role included corporate governance, legal compliance, M&A, equity incentives,
pensions, internal audit management, taxation, property, health and safety
compliance, environmental reporting and anti-bribery and corruption compliance.
69
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT GOVERNANCE AT A GLANCE
HIGHLIGHTS
MAJOR BOARD DECISIONS
• Delivered record revenues and profits.
• Approved the Group’s Preliminary and Interim
• Refocused Health & Safety initiatives on a country-
by-country basis, with Heads of Health & Safety
appointed in the UK (including the rest of the
world) & US.
• Continued improvement in Health & Safety lost time
incidents from 1.1 to 0.4.
•
Successful integration of recent acquisitions.
Statements.
• Approved the Group’s 2024 Budget.
• Approved the acquisitions of Enduro Composites,
Korns Galvanizing and United Fiberglass of America.
• Approved an updated Group Strategy.
Board diversity (as at 31 December 2023)
The Board is committed to ensuring diversity of thought and to support the Group’s future performance.
2
1
BOARD
GENDER(1)
(AS AT 31 DECEMBER 2023)
BOARD
ETHNICITY
(AS AT 31 DECEMBER 2023)
5
6
Female
Male
Ethnic group
White
Meeting Attendance
During 2023, the Board meet on 10 occasions, the Audit Committee on five occasions, the Nomination Committee on three occasions
and the Remuneration Committee on six occasions.
Board Audit Committee Nominations Committee Remuneration Committee
Alan Giddins
Hannah Nichols
Tony Quinlan
Annette Kelleher*
Mark Reckitt
Pete Raby
Leigh-Ann Russell
Farrokh Batliwala
10/10
10/10
10/10
4/5
10/10
10/10
10/10
10/10
5/5
5/5
5/5
2/2
5/5
5/5
5/5
5/5
3/3
3/3
3/3
–
3/3
3/3
3/3
3/3
6/6
6/6
6/6
3/3
6/6
6/6
6/6
6/6
* Annette Kelleher stood down from the Board on 25 May 2023.
1
In January 2024 the Group appointed two new directors to the Board: Carol Chesney, Non-executive Director, and Hooman Caman Javvi, Chief Operating Officer.
Mark Reckitt, Non-executive Director, will be retiring from the Board at the conclusion of the AGM in May 2024. Following these changes, the composition of the
Board will be 62% male and 38% female.
70
Stock Code HILS Board skills matrix (as at 31 December 2023)
The Directors bring a broad range of experience and skills to support the Group’s growth strategy.
7
Y
G
E
T
A
R
T
S
6
H
U
C
U
L
T
E
U
T
R
H
I
E
C
&
S
6
R
E
S
HIP
S
R
E
D
A
E
L
7
O
E
E
P
P
6
6
Numbers represent
Board members with
appropriate experience
O
M
U
R
C
A
N
E
S
HEALTH &
SAFETY
D I G I T A L
T
C
E
K
N
N
A
R IS
M
E
R
U
E
S
G
S
A
A
N
D A
M
A
N
7
G
TIN
E
K
R
A
M
3
SKILLS AND
BUSINESS
EXPERIENCE
OF THE BOARD
B
I
N
U
T
S
I
E
N
G
E
R
S
A
S
T
I
O
N
7
S
U
P
P
L
Y
C
H
A
N
I
4
A
R
F
R
& D
7
E
C
Y
N
R
G
T I N
A
M
R
O
E LI V
E
M E R G E R S &
A C Q U I S I T I O N S
FINANCIAL
PLANNING
I
N
M
T
E
R
A
R
K
N
A
E
T
T
I
O
S
N
A
L
7
6
7
Our Governance framework
This consists of our Board and its Committees, supplemented with additional
managerial layers through which we interact with our operating company boards.
HILL & SMITH PLC BOARD
NOMINATION
COMMITTEE
AUDIT
COMMITTEE
REMUNERATION
COMMITTEE
EXECUTIVE
BOARD
RISK
COMMITTEE
SUSTAINABILITY
COMMITTEE
GROUP
PRESIDENTS
OPERATING COMPANY
BOARDS
71
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT
INTRODUCTION TO GOVERNANCE
DEAR STAKEHOLDER
On behalf of the Board, I am pleased to present Hill & Smith PLC’s
Governance Report for the year ended 31 December 2023. The
Board is responsible for the effective leadership of the Group and
for promoting its long-term sustainable success, generating value
for shareholders, whilst recognising the importance and value to its
other stakeholders.
The Board provides leadership by setting the company’s purpose, strategy and values,
overseeing the execution of the strategy by management and monitoring the alignment
of the company’s purpose and values with our day-to-day activities. The Board ensures
there are appropriate frameworks in place to manage risk, and monitors the Company’s
financial and operational performance against its objectives.
The Board has a leadership role in ensuring that the highest standards of governance
are applied in our businesses and this report explains how the Board has discharged
its responsibilities during 2023 and set out its compliance with the UK Corporate
Governance Code 2018.
Basis of Report
We have used the UK Corporate
Governance Code 2018 (the ‘Code’) to
assess our governance arrangements
during 2023. Hill & Smith is a premium
listed issuer on the London Stock
Exchange and has assessed its
application of the Code under the
headings of:
• Board leadership and company
purpose;
• Division of responsibilities;
• Composition, succession & evaluation;
• Audit, risk & internal control; and
• Remuneration.
The full Governance Report can be found
on pages 74 to 83.
Compliance with the UK
Corporate Governance Code
The Board confirms that Hill & Smith
PLC complied with the requirements
of the Code throughout 2023, 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 the departure of Paul
Simmons. In May 2023, the Board asked
me to stay on in this role for another
The Board
provides
leadership by
setting the
company’s
purpose, strategy
and values,
overseeing the
execution of
the strategy by
management.”
Alan Giddins
Executive Chair
72
Stock Code HILS Sustainability continues to be of
significant importance to our stakeholders
and I have been pleased with the progress
we have made. The Board received a
number of sustainability updates from
our Group Head of Sustainability during
the year and you can read more about our
sustainability progress on pages 36 to 55.
Looking ahead
Good governance is not optional and is
an essential component of an effective
Board. Health & Safety will remain a
priority for the Board and we will continue
to challenge management to ensure we
have a safe working environment for all
our employees. During 2024 the Board
will also be focussed on succession
planning, people development and
training.
Alan Giddins
Executive Chair
11 March 2024
I will be encouraging my Board colleagues
to continue to take the opportunity to
arrange further informal visits to our
operations wherever possible. As a Board,
we will also be visiting all of our key US
businesses as part of our 2024 strategy
review.
We have made good progress with M&A
during 2023, including the acquisitions of
Enduro Composites, Korns Galvanizing
and United Fiberglass. Our 100-day
integration plan ensures that our newly
acquired businesses have a consistent
on-boarding experience into the Group
and that our governance is also applied
in a consistent way. Since the year end,
we have also completed the acquisitions
of Capital Steel and FM Stainless, both in
the US.
In terms of active portfolio management,
we completed the disposal of the final
part of our loss-making Swedish roads
business and undertook a selective
disposal of the trade and assets of
Berry Systems, which was a loss making
business operating in the car parking
solutions market.
Health and safety continues to be a
priority focus for the Board with a formal
Health & Safety update provided at each
Board meeting. During 2023 we appointed
a Head of Health & Safety in the US and
in the UK (including the rest of the world)
and have agreed a clear road map of
actions for 2024.
12 to 18 months while the search for a
permanent CEO continues, which has been
widened to consider internal candidates.
Board dynamics
Successful companies have high-
performing Boards, and Board dynamics
play a central role in setting an appropriate
culture and tone. Key to this is an open
and constructive relationship with the
executive team.
The Board understands that shareholders
expect the Board to keep under close
review the long-term direction and strategy
of the Company; setting the values and
standards within the business; reviewing
subsidiary company management
performance; resources; health and safety;
risk management; and internal controls.
As part of this process, each year the
Board undertakes a detailed review of the
Group’s medium and longer term strategy.
At 31 December 2023, the Board
comprised five Non-executive Directors,
myself as Executive Chair, and one
Executive Director. More information on
the Board’s effectiveness can be found in
the Governance Report on page 80.
In December, we also announced the
appointment of Carol Chesney as
Non-executive Director, effective 1
January 2024. Carol is a member of the
Nomination, Audit and Remuneration
Committees of the Board and will Chair
the Audit Committee from the 2024 AGM,
when Mark Reckitt will step down from the
Board after eight years of service.
In January 2024, we announced the
appointment of Hooman Caman Javvi
as Chief Operating Officer and Board
Member.
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, a Sustainability
Committee, Risk Committee and Executive
Board all provided input into the Board
decision-making framework.
Board activities
Due to our devolved structure, the Board
places great value on ensuring that it
keeps its knowledge of our activities and
end markets relevant. During 2023, our
Non-executive Directors visited a number
of our sites outside of formal Board
meetings to meet with local management
teams, which included site tours and
speaking to our employees.
Zoneguard loaded for delivery, Hill & Smith Infrastructure, UK
73
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT GOVERNANCE REPORT
Hill & Smith PLC is a company with a premium listing on the London Stock Exchange. During 2023,
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. Alan Giddins was appointed Executive Chair in July 2022 while a search for a permanent
Chief Executive was undertaken, and this arrangement is expected to continue until not later than
December 2024. More detail on this arrangement is provided below.
ABOUT THE BOARD
AND COMPANY
The Board sets the culture and values
within which our businesses operate
and is collectively responsible for the
long-term success of the Company. Hill
& Smith PLC (the ‘Group’) comprises
the holding company and its principal
operating companies, listed on pages
201 to 202. 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 the Chief Financial
Officer, the Group Corporate Development
Director, Group Company Secretary and
the Executive Chair.
Details of the Group’s business model can
be found on pages 16 to 17.
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 and
Group policies and practices.
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
Harrisburg Airport transportation facility, V&S Galvanizing, US
74
Stock Code HILS
Board framework
Feedback and dialogue
The Board operates within a framework
of Board meetings, discussions and site
visits. The Board is directly supported
by three committees: Audit; Nomination;
and Remuneration. Membership of these
committees is set out on pages 88, 84
and 96.
The scope of Board decisions
The Board manages the Group with
reference to a formal schedule of matters
reserved for the Board, which is applied
across three key pillars: Strategy, Internal
Control, and Sustainability.
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 2023 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 in
the UK, Europe 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.
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.
Hill & Smith PLC Annual General
Meeting (‘AGM’)
The Hill & Smith PLC 2024 AGM will be
held at Cranmore Park Conference, Event
& Exhibition Centre, Cranmore Avenue,
Shirley, West Midlands, B90 4LF at 11am
on Thursday 23 May 2024.
2024 is the bicentennial year of Hill
& Smith and we would welcome the
attendance of shareholders at the
meeting, where you will be able to speak
to the Directors and find out more about
the Company’s performance in the first
part of 2024. The details of the 2024
AGM can be found on page 116 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 LEADERSHIP
AND COMPANY PURPOSE
Summary
The Company has a clear purpose,
which is embedded in the Board’s
thinking. We are a leading provider
of sustainable infrastructure
products and services, and
this purpose informs our M&A,
Sustainability and health and
safety activities.
2023 Key Points
• Our Company purpose
evolved in 2023 to reflect our
commitment and approach
to being a leading provider
of sustainable infrastructure
products and services.
• Board members continued to
meet with our local operating
companies on site visits to
enhance their understanding
of local company cultures.
• Our operating company
Managing Directors and other
senior executives regularly
present at Board meetings
One of the Board’s principal roles is to
provide strategic leadership to the Group.
Our company purpose is to be a “leading
provider of sustainable infrastructure
products and services” and this is
woven into the Board’s thinking, when
assessing the execution of strategy by
management, through consideration of
possible acquisitions, our approach to
sustainability, or through our review of
capital allocation.
75
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT GOVERNANCE REPORT continued
Composite bridge in Alberta, a remote area of Canada, Creative Composites Group, US
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. Measures that
were implemented following the
appointment of Alan Giddins as
Executive Chair have continued.
2023 Key Points
• Reviewed the Terms of
Reference for our Committees,
and the Matters Reserved for
the Board.
• Our delegation of authority
matrix has been reviewed
and improved for clarity and
consistency.
• Governance safeguards
introduced in 2022 following
Alan Giddins being appointed
Executive Chair, have continued.
Role of Executive Chair
Alan Giddins was appointed Interim
Executive Chair in July 2022 while a
search for a permanent Chief Executive
was undertaken. In May 2023, the Board
asked Alan to continue in this role for
12 to 18 months while a further search
was undertaken, which was widened
to include both internal and external
candidates.
The Board implemented a number of
governance safeguards arising from
this dual role, including a formal session
at the end of every Board meeting for
Non-executive Directors to speak without
the Executive Chair present; the Senior
Independent Director reviewing all M&A
papers independently before submission
to the Board, and a review of the Chair’s
role, by the Senior Independent Director.
Role of Non-executive Directors
The Non-executive Directors have no
managerial responsibility within the
Group, are ineligible for any share-based
remuneration and are independent of the
Company. The Non-executive Directors
provide challenge, strategic guidance
and specialist support to the Executive
Directors.
All Non-executive Directors were
considered to have sufficient time to meet
their board responsibilities. There are clear
divisions of responsibilities between the
leadership of the Board and the executive
leadership of the Company’s business, and
these have been approved by the Board.
Executive Board
The Executive Board takes its 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.
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 and
safety, internal audit, compliance, legal,
investor relations and corporate affairs.
76
Stock Code HILS BOARD COMMITTEES
PLC BOARD
Nomination Committee
Audit Committee
Remuneration Committee
At 31 December, comprised the Senior
Independent Director (who chairs the
Committee) and the remaining Non-executive
Directors. While the Executive Chair is invited to
attend meetings, that individual is not a formal
member of the Committee.
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 on pages 84 to 85.
At 31 December, comprised the Chair of the
Committee and four Non-executive Directors.
While the Executive Chair is invited to attend
meetings, that individual is not a formal
member of the Audit Committee.
At 31 December, comprised the Chair of the
Committee and four Non-executive Directors.
While the Executive Chair is invited to attend
meetings, that individual is not a formal
member of the Remuneration Committee.
Has responsibility for planning and reviewing
the Company’s audit processes, interim and
full year results, internal controls and risk
management systems. (See pages 56 to 58
for more information.)
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 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 USA.
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 94 to 106.
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 on
pages 86 to 93.
In January 2024, Hooman Caman Javvi was appointed as Chief Operating Officer and Executive Director and Carol Chesney was
appointed to the Board and all three committees.
77
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT GOVERNANCE REPORT continued
Frequency of meetings
During 2023, the Board met on 10 occasions, the Audit Committee on five occasions, the Nomination Committee met three times and
the Remuneration Committee met on six occasions.
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 our businesses.
Board decision making (S.172)
The Board’s interaction with key stakeholders is set out on pages 32 to 35. The principal decisions taken by the Board during the year,
along with how the Directors considered stakeholder interests when discharging their duties under section 172 of the Companies Act, is
set out below.
Principal decision and
stakeholders considered
Board’s decision
making process
Longer term
considerations
Dividend
Shareholders, potential investors and lenders
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, 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 and 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
Shareholders, potential investors, lenders,
operating companies, customers and
future employees.
Greenhouse Gas Emissions Targets
Shareholders, lenders, employees,
operating companies, customers,
suppliers, governments, society.
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 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 focused on
areas where the Group could make the most
impact and the Group Head of Sustainability
has focused on developing approved science-
based targets and developing local emissions
reduction plans for all businesses.
The Group’s portfolio management criteria
for both existing operating companies and
potential acquisition targets requires a
structured discipline. We consider targeted
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 profits sustainably for the benefit of all our
stakeholders.
The Board recognises the effect that climate
change is having on the natural and business
world and, in keeping with regulation,
committed to TCFD scenario analysis. This
analysis presents both risks and strategic
opportunities for the Group. The Board also
considered the value to society as a whole
of the Group’s operations and products,
recognising that it must act to minimise the
negative impact from its operations, to ensure
a sustainable future for all, whilst being mindful
of the effect on the Group’s cost base.
Board conflicts
The Board has agreed an approach and adopted guidelines for dealing with conflicts. The Board confirms that it was not aware of any
situations that conflicted with the interests of the Company, other than those that may arise from Directors’ other appointments, as
disclosed in their biographies on pages 68 to 69.
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.
78
Stock Code HILS Support available to the Board
The Board is supported by the Group
Company Secretary, who, under the
direction of the Chair, ensures that
communication and information flows
between Board members. The Group
Company Secretary is also responsible for
assisting the Chair in all matters relating
to corporate governance, including the
Board evaluation process.
At the invitation of the Board, other
members of the management team
attend Board meetings to present
annual budgets, updates and proposals
relating to their areas of responsibility
and reporting on regulatory compliance,
risk management and internal controls.
The Directors and management of the
Group businesses are also supported
by the central function, which includes
compliance, risk management, internal
audit, treasury, taxation, acquisitions and
corporate development.
All Directors have access to the advice and
services of the 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 2023.
Summary
We placed significant emphasis
on ensuring that our Board and
management teams are focused on
the appointment and retention of
high-calibre individuals from diverse
backgrounds.
2023 Key Points
• We reviewed our governance
framework, including our
delegation of authority, committee
terms of reference and matters
reserved for the Board
• We undertook an external Board
effectiveness evaluation
• We continued to review our
succession planning activities,
including the search for a new
Chief Executive
Gender Identity (As at 31 December 2023)
COMPOSITION, SUCCESSION AND EVALUATION
At 31 December 2023, the Board comprised
the Executive Chair, the Chief Financial
Officer and five Non-Executive Directors. The
individual biographies of the Board members
can be found on pages 68 to 69. At 31
December 2023, 71% of the Board comprised
independent Non-executive Directors.
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 71), are
key elements to the effective functioning
of the Board and its Committees, ensuring
matters are fully and effectively debated
and challenged and no individual or group
dominates the Board’s decision-making
processes.
Taking into account the provisions of the
Code, the Board has determined that, during
the year under review, none of the Non-
executive Directors had any relationship
or circumstance which would affect their
performance and the Board considers
all of the Non-executive Directors to be
independent in character and judgement.
Conflicts of interest are dealt with by the
Board as they arise.
In compliance with the Code and the
Company’s Articles of Association,
Directors retire at every AGM and, if deemed
appropriate by the Board, Directors are
proposed for re-appointment by shareholders
at the forthcoming AGM. Following an
externally facilitated evaluation of the
performance of the Board, see page 80 for
more details, and on the recommendation
of the Nomination Committee, the Board is
proposing that all Directors on the Board on
31 December 2023 should stand for election/
re-election at the Group’s forthcoming Annual
General Meeting (‘AGM’), with the exception
of Mark Reckitt, who will be stepping down
from the Board at the meeting.
Number of
Board Members
Percentage
of the
Board(1)
Number of Senior Positions
on the Board (Executive
Chair, CFO and SID)
Number in
Executive
Management
Percentage
of Executive
Management
Men
Women
Not Specified
5
2
–
71%
29%
–
Ethnic Identity (As at 31 December 2023)
2
1
–
3
2
–
60%
40%
–
Number of
Board Members
6
Percentage
of the Board
86%
Number of Senior
Positions on the
Board (Executive
Chair, CFO and SID)
3
Number in
Executive
Management
4
Percentage
of Executive
Management
80%
–
1
–
–
–
–
14%
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
20%
–
White British or
other White
Mixed/Multiple
Ethnic Group
Asian / Asian British
Black/ African/
Caribbean/Black British
Other Ethnic Group
Not Specified
1
In January 2024 the Group appointed two new directors to the Board: Carol Chesney, Non-executive Director, and Hooman Caman Javvi, Chief Operating Officer. Mark Reckitt,
Non-executive Director, will be retiring from the Board at the conclusion of the AGM in May 2024. Following these changes, the composition of the Board will be 62% male and
38% female.
79
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT GOVERNANCE REPORT continued
Succession planning
Board diversity
The Nomination Committee has
responsibility for evaluating medium and
long term Board and Executive Committee
succession planning, and for making
recommendations to the Board.
A formal appraisal process is undertaken
for all operating company Managing
Directors, and the results are 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 decision 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 leaders’ (i.e. those employees
with authority and responsibility for
planning, directing and controlling the
activities of the central function or the
operating companies); and the number of
men and women across the organisation
as a whole. See page 55 for more details.
On 31 December 2023, the Board
membership comprised 29% female and
71% male, and was 14% ethnically diverse.
With the appointments of Carol Chesney
and Hooman Caman Javvi in January
2024, the Board at the date of this report
comprised 33% female and 67% male.
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.
The Board has met the FRC targets of
having a senior position on its board of
directors being held by a woman, and at
least one individual is from a minority
ethnic background. For more details see
the table on page 79. Following the AGM,
and Mark Reckitt’s retirement from the
Board, women will represent 38% of the
Group’s Board which the Directors believe
is in line with the FRC’s stipulation of 40%
representation.
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
external evaluation in compliance with
the UK Corporate Governance Code.
The evaluation was conducted by Gould
Consulting, who are independent from
the Company. The evaluation included a
review of Board and Committee papers,
attendance at Board and Committee
meetings as well as interviewing all Board
members and key senior management
independently. The results of the
evaluation were positive and included the
following recommendations:
• Recognition of the importance of
carefully managing the induction and
onboarding of a new Chief Executive
• Confirmation that Board members
were satisfied that the role of the
Executive Chair worked well and that
appropriate governance safeguards
were in place and working
• The need to ensure increased focus
on talent and development, as well
as succession planning across the
operating companies which was
formally reviewed by the Board each
quarter
• Re-evaluation of commercial and
operational risk metrics
Eamonn and Sue, V&S Owego plant, V&S Galvanizing, US
80
Stock Code HILS AUDIT, RISK AND INTERNAL CONTROL
Summary
We have a strong framework of
internal controls and the work of our
audit team gives confidence to the
Board that Hill & Smith PLC is a well-
run company.
2023 Key Points
• Rolled out a standardised
Business Continuity Planning
process to our operating
companies
•
Evaluated our risk management
tools and framework, to ensure we
are getting the most value from
our reporting
• Continued our strengthening of
our cyber resilience
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 2024,
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. The review of
the effectiveness of risk management
and internal control is covered through
Internal Audit’s quarterly reports to the Audit
Committee (covering controls compliance,
the status of audit action remediation and
audits completed in the period) and a six
monthly report on operating company risk
management and the status of the Group
wide Principal Risks. 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
2023, 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;
the roll-out of Business Continuity
Planning across our operating
companies to ensure their preparedness
against unexpected events;
regular meetings to identify and discuss
key risks and mitigations with a broad
sample of the senior management team
and the Executive Board members;
a 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 key
risks and uncertainties is shown on pages
60 to 65.
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 2023, 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
The Board has considered the Group’s
status as a going concern and the
Directors have assessed the future
funding requirements of the Group and the
Company and compared them to the level
of committed available borrowing facilities.
The assessment included a review of both
divisional and Group financial forecasts,
financial instruments and hedging
arrangements, for the 18 months from the
balance sheet date. Major assumptions
have been compared to external reference
points, such as infrastructure spend
forecasts across our chosen market
sectors, government spending plans on
road and other infrastructure, zinc and steel
prices, and economic growth forecasts.
This assessment showed that the Group will
have sufficient headroom in the foreseeable
future and the likelihood of breaching
borrowing covenants in this period is
considered to be remote. Having undertaken
this work, the Directors are of the opinion
that the Group has adequate committed
resources to fund its operations for the
foreseeable future and so determine that it
is appropriate for the Financial Statements
to be prepared on a going concern basis.
81
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT GOVERNANCE REPORT continued
Longer term outlook
The Directors have considered the
prospects of the Group over the four-year
period immediately following the
2023 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 the assessment of
the Group’s key performance indicators,
see pages 20 to 21, and in addition 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 60 to 65). This
robust assessment considered the impact
of the principal risks on the business
model and on future performance, liquidity
and solvency. Stress tests were applied
to the Group’s four-year plan, whereby
factors associated with the economic
risks faced by the Group were applied
to the plan in a number of diverging
scenarios. The developed scenarios were
designed to be plausible, yet severe:
•
•
•
a decrease in the UK Government’s
Road infrastructure spend
a fall in galvanizing volumes across all
geographies
a material reduction in revenues in the
Group’s US composites and utilities
businesses
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 2023 with a borrowing facility
headroom of £247.2m and a history
of strong cash generation, with cash
conversion averaging in excess of 80%
over the last ten years. The Directors
noted that following the one-year
extension agreed with lenders during
the year, the Company’s core revolving
credit facility matures in November 2027,
shortly before the end of the four-year
assessment period. However, based
on past experience and normal market
practice, the Directors have a reasonable
expectation that this facility will be
renewed or renegotiated before that date.
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 2027.
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 2023 and did not
mislead the reader by excluding bad
news, that the disclosures of the
Group’s business segments and key
messages are consistently delivered
throughout the document, KPIs are
clear and appropriate and linked
to both the Group’s strategy and
remuneration incentives;
that it was a suitable document to
inform both existing and prospective
shareholders about the financial and
non-financial performance of the
business, with the messages delivered
in the Directors’ Report, including
the Operating and Financial Review
and the Financial Statements being
balanced and consistent and that
the report set out a detailed and fair
representation of the Group’s activities
and performance and that certain
matters have been identified and
discussed between management, the
Audit Committee and EY in order to
correctly disclose the performance,
controls and prospects of the
Group; and
that the document allowed
shareholders to follow the whole
story of the Group’s financial
and non-financial performance
in 2023, 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 117
and the Independent Auditor’s Report on
pages 118 to 125.
82
Stock Code HILS REMUNERATION
Summary
A remuneration structure that
is designed to attract and retain
talent, to motivate our leaders and
reward their success.
2023 Key Points
•
Implemented Restricted Stock
Units to a wider population
than previous share-based
awards, used as a tool to
motivate and retain key
employees.
• Approved changes to
management bonus metrics,
in to order better align with
the Group’s key performance
metrics.
About our Remuneration Policy
The current Director’s Remuneration Policy
was last approved by shareholders at the
2023 AGM and will be next presented
to shareholders for approval in 2026.
The purpose of this policy is to be able
to recruit and retain Executive Directors
of sufficient calibre to develop and
deliver our business strategy and create
shareholder value; to ensure remuneration
arrangements are in the best interests
of the Group, in line with the wider
workforce and do not pay more than is
appropriate; and does not reward failure.
More information on the Group’s current
Remuneration Policy is available in the
Policy Table on pages 107 to 111 of the
Group’s Remuneration Report.
The Group’s Remuneration Report on
pages 96 to 106 sets out the remuneration
of the Executive Directors for 2023.
Our Executive Director
salary package
Our Executive Director pay arrangements
are made up of three fundamental
elements as set out in the graphic below
comprising salary, a short-term cash
bonus, and a longer three year incentive
arrangement. This balance ensures the
package adequately reflects the need
for long term decisions benefiting the
business and provides a level of short
term remuneration to retain high calibre
individuals within the business.
Pay increases
The Remuneration Committee is acutely
aware of the pressures facing many
employees. While each operating
company sets their own pay policy, the
Committee continues to be impressed
with the thought and care our businesses
have taken in supporting our employees.
More information is available on page 103
of the Group’s Remuneration Report.
EXECUTIVE PAY
SALARY
SHORT-TERM ANNUAL
BONUS, INCLUDING A 50%
DEFERRED BONUS
THREE-YEAR
LONG-TERM INCENTIVE
ARRANGEMENT
G
O
V
E
R
N
A
N
C
E
R
E
P
O
R
T
83
Hill & Smith PLC | Annual Report and Accounts 2023
NOMINATION COMMITTEE REPORT
DEAR STAKEHOLDER
It is my pleasure to make my report as Chair of the Nomination
Committee. This report is intended to give an account of the
Committee and its activity. The core responsibilities of the
Committee are succession planning and appointments at Board
level, oversight of appointments and succession planning to the
Executive Board, and making recommendations to the Board
on the composition of the Board’s committees. The full terms
of reference of the Committee can be found on the Company’s
website www.hsgroup.com.
Committee membership
Non-executive Directors
On 25 May 2023, Alan Giddins stepped
down as Chair of the Nomination
Committee, whilst he fulfils the role of
Executive Chair for the Company and I
took over the Chair of this Committee.
This both strengthened the independence
of this area of Board governance whilst
giving Alan more time to focus on running
the business. In addition, Annette Kelleher
stood down, in May 2023, after almost
nine years on the Board of Hill & Smith
PLC. With these changes, at the year end,
the Committee comprised myself, as the
Committee’s Chair, and the Non-executive
Directors Leigh-Ann Russell, Farrokh
Batliwala, Pete Raby and Mark Reckitt. The
Committee met three times in the financial
period under review with all eligible
members of the Committee being present
on each occasion.
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.
Chief Executive appointment
The Committee continues to seek a new
CEO and has met and assessed many
candidates, initially supported by Spencer
Stuart and more recently Heidrick &
Struggles. However, the autonomous
business model that is central to how the
Group operates requires specific skillsets
and leadership qualities, a combination
The Committee
is committed to
ensuring that the
Board, Executive
Board and senior
management
team have a
diverse mix of
skills, experience,
knowledge and
background.”
Tony Quinlan
Committee Chair
84
Stock Code HILS Installing temporary concrete barrier, Hill & Smith Infrastructure, UK
Date of appointment
Length of service Expected end date
Diversity and inclusion
Alan Giddins
3 October 2017
6 years 3 months
30 September 2026
Farrokh Batliwala
1 April 2022
1 year 9 months
31 March 2031
Leigh-Ann Russell
1 April 2021
2 years 9 months
31 March 2030
Mark Reckitt
Pete Raby
Tony Quinlan
1 June 2016
7 years 7 months
23 May 2024
2 December 2019
4 years 1 month
30 November 2028
2 December 2019
4 years 1 month
30 November 2028
which the Committee has not yet fully
identified in potential candidates. Alan
Giddins was appointed Interim Executive
Chair in July 2022 and in May 2023, the
Group announced that he had extended
his tenure for an additional period of 12 to
18 months. This provides the Group with
both continuity and stability, as it executes
on its strategy at pace. I would like to
thank Alan, on behalf on the Board, for the
excellent work he has done in leading the
business as Executive Chair. His level of
professionalism, commitment and delivery
has been exemplary. The search for a
permanent CEO continues and has been
widened to consider internal candidates.
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 component
of this is to maintain our focus on our
gender diversity within the Board. To this
end, on 1 January 2024, Carol Chesney
was appointed to the Board. Carol is an
experienced PLC Non-executive Director
and Audit Committee Chair and has a very
strong background in the international
engineering sector, with more recent
exposure to the high technology, energy
and infrastructure sectors. She will take
over the Audit Committee Chair, on Mark
Reckitt’s retirement after the Company’s
AGM in May 2024.
On 30 January 2024, we also appointed
Hooman Caman Javvi to the Board as
an Executive Director, as Chief Operating
Officer. Prior to joining Hill & Smith in
March 2022, he spent 11 years in senior
management roles at ABB and Hitachi
Energy. He brings with him strong
operational and strategic management
expertise, and this will enable him to make
a significant impact as he takes on a wider
responsibility for the Group’s operations,
talent development and medium term
strategy.
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 of these roles, the review
highlighted the importance of ensuring
there was sufficient bandwidth to deliver
the Group’s strategic plan and of developing
the next generation of senior leaders within
the business. This will continue to be a key
focus for the Committee during 2024.
The Committee is committed to ensuring
that the Board, Executive Board and
senior management team have a 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, alongside other cognitive and
personal strengths. New appointments are
made on merit and take into account what
is required from a diversity and inclusion
perspective, to ensure a balanced Board
composition and considering the diverse
perspective each candidate can bring.
At the date of this report, following the two
appointments made in January 2024, the
Board will comprise three female directors
(33%) and six male directors (67%), with
two Board directors from an ethnic minority
background (22%). Post the AGM, the
gender diversity mix is expected to be 38%
female, 62% male.
Plans for the year ahead
The Committee’s focus in 2024 will be to
conclude the search for a Group CEO 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.
Tony Quinlan
Chair
11 March 2024
85
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT AUDIT COMMITTEE REPORT
DEAR STAKEHOLDER
It is my pleasure to make my report as Chair of the Audit
Committee. This report is intended to give an account of the
Committee and its activity. 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
its Managing Director and Finance Director. The Group Financial
Controls Manual provides detailed guidance on the nature and
frequency of the internal controls required at each operating
company. This is supplemented by 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.
Each operating
company is
responsible
for ensuring
that it has an
effective set of
internal controls
and control
environment,
which places
responsibility
on its Managing
Director and
Finance Director.”
Mark Reckitt
Committee Chair
86
Stock Code HILS G
O
V
E
R
N
A
N
C
E
R
E
P
O
R
T
87
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 23
May 2024.
Mark Reckitt
Chair
11 March 2024
The Ogdensburg-Prescott bridge rehabilitation, V&S Galvanizing, US
In December 2023, the Audit Committee
approved an internal audit plan for 2024,
which included an Inventory Management
groupwide thematic review and work to
define the Group’s material operational,
reporting and compliance controls ahead
of the anticipated Corporate Governance
changes, 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,
to build a clear picture of the risks being
considered by the operating companies,
the actions to mitigate these risks and
to facilitate discussions on risk appetite.
More information on the risk management
process adopted by the Group can be
found on pages 56 to 59.
Following Ernst & Young LLP’s (‘EY’) audit
of the Group’s financial statements in
relation to the year ended 31 December
2022, the Committee met EY’s lead
partner to assess improvements that
should be implemented for this year’s
audit. In August 2023, we discussed and
agreed the plan for their year end audit
procedures and agreed the fee in October
2023. The audit of our 2023 financial
statements is the fourth audit that EY have
conducted, and the Committee remains
satisfied with their levels of independence,
objectivity and professional judgement
and the oversight they give to our financial
statements.
This Audit Committee Report explains
how the Committee has discharged
its responsibilities during 2023, and
considers the specific topics of:
•
•
•
•
primary areas of judgement
considered by the Committee
in relation to the 2023 financial
statements;
internal controls;
risk assessment, management, and
mitigation; and
assessment of effectiveness of
external audit.
Hill & Smith PLC | Annual Report and Accounts 2023
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 (left 25 May 2023)
Pete Raby;
Tony Quinlan;
Leigh-Ann Russell;
Farrokh Batliwala; and
Carol Chesney (appointed 1 January 2024)
Attendees at each of the meetings
included, by invitation, the Executive
Chair; 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:
•
•
•
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
•
reporting to the PLC Board on how it
has discharged its responsibilities
Governance
Mark Reckitt, Committee Chair, is
specifically identified as the Committee
member having recent and relevant
financial experience, thereby complying
with provision 23 of the UK Corporate
Governance Code 2018 (‘the Code’).
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 was Audit Committee
Chairman and Senior Independent Director
at Cranswick plc until retiring in July 2023.
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.
January 2023
• Goodwill and intangible asset impairment review
• monitoring the integrity of the
March 2023
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 annual 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,
• Key risks and judgements relating to the 2022 Financial Statements
• Report from External Auditors on the Financial Statements for the year ended 31
December 2022
•
Financial Statements and Annual Report for year ended 31 December 2022,
including the statements on Going Concern, Viability, and Fair, Balanced and
Understandable
•
Internal Audit update
• Group Risk and Principal Risks review
• Review of the 2022 TCFD disclosure
August 2023
• Key Issues and Judgements relating to the Interim Results
•
•
•
•
External Audit planning report
External Auditor quality and independence assessment
Interim Results for the six months ended 30 June 2023
Internal Audit update
October 2023
•
•
External Auditor update and confirmation of 2023 fee
Internal Audit update
• Group Risk and Principal Risks review
December 2023
•
•
•
•
Internal Audit update, including Purchase Contracts thematic review
2024 Internal Audit Plan
2024 Internal Audit Charter
External Auditor update on audit progress
88
Stock Code HILS During the year, the Committee met on five
occasions according to the requirements
of the Company’s financial calendar,
covering the following agenda items.
Primary areas of judgement
considered by the Committee in
relation to the 2023 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 186. 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 £151.6m at 31
December 2023. 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. The economic
conditions experienced in the UK and
the US are reflected in the assessment
of the future performance of businesses
across Hill & Smith. The Committee
reviews and challenges the half-yearly and
annual impairment testing carried out on
the carrying value of goodwill and other
intangible assets across the relevant cash
generating units. Business plans, which are
signed off by the PLC Board, are reviewed
and challenged as part of the audit by the
external auditor, EY, which then reports
to the Committee on this work. As part
of this review, the Committee considered
the assessments made in respect of ATG
Access Ltd and Hill & Smith Inc.
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 2023 saw ATG
continue that momentum with their
outturn for the year being ahead of
previous expectations, with good order
intake rates and a solid order backlog.
Taking this performance into account,
management’s impairment assessment
in 2023 concluded that there had been no
significant downturn in the market outlook
since the prior year and therefore, that
no impairment was recommended in the
year to 31 December 2023. Management
acknowledged, however, that the cash
flow projections remained sensitive
to the assumed rates of revenue and
profit growth post-2023 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
and 2023, was impacted by operational
challenges, and resultant restructuring
costs. Management’s projections assume
that ongoing actions being 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 four to five years. The resulting
impairment calculations indicated
headroom of £15.9m (2022: £9.6m). The
Committee challenged management
on the basis for their projections and
received details of the actions that
the business was taking to improve
performance, including in relation to the
local management team. In conclusion,
and noting the increased headroom
compared to the prior year, the Committee
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.
Prolectric - Following a strong
performance in our UK off-grid solar
energy business in 2022, Prolectric’s
results in 2023 were impacted by
a downturn in the UK construction
market leading to lower revenues and
profitability. Management’s projections
assume that medium-term revenue
growth will be above long-term averages
due to a combination of a recovery in
UK construction, a shift in Prolectric’s
focus towards the more resilient facilities
management sector, and tailwinds
from corporate sustainability initiatives.
The resulting impairment calculations
indicated headroom of £15.6m (2022:
£16.3m). The Committee challenged
management on the basis for their
projections and received a presentation
Galvanized pole cross section, V&S Galvanizing, US
89
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT AUDIT COMMITTEE REPORT continued
from Prolectric’s management setting out
the details of the actions that the business
was taking to improve performance. In
conclusion, and noting that headroom
remained similar to the prior year, the
Committee concurred with management’s
view that no impairment was required.
The Committee agreed with management,
however, that it was plausible that
projected revenue growth rates may not
be achieved and therefore studied the
sensitivities to the revenue forecasts that
management had prepared, together with
the disclosure 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 153
to 161.
Defined benefit pension scheme valuation
Net defined benefit pension obligations
under IAS19 amounted to £4.1m at 31
December 2023. 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 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. In 2023, 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
90
facilities in the next 18 months, following
the balance sheet date. Following a
robust assessment of the forecasts, the
Committee concluded that adoption of the
going concern principle was appropriate
for both the interim and full year results.
The Committee also reviewed and
approved the going concern disclosures
that are included in the financial
statements.
•
•
Whilst not considered to be primary
areas of judgement, the Committee’s
discussions in relation to the 2023
accounts also included the following:
• Given the relatively significant value
of non-underlying items in 2023, the
Committee challenged management
on the presentation of those items.
The discussion focused largely
on losses incurred on disposal of
businesses during the year and on
the cost of business reorganisation
actions. The Committee concurred
with management’s view, noting that
the work of the external auditor in this
area also supported that view.
•
•
Following the identification of an
historical product installation issue in
our UK off-grid solar business towards
the end of the year, the Committee
received details from management
of the basis of the resulting provision
and a presentation from the local
management team responsible
for resolution setting out their
proposed actions. Having challenged
management on their judgements in
respect of the extent of the issue and
the basis of the costs included in the
provision calculation, the Committee
were satisfied with the provision
recognised in the period.
Following the acquisitions of Enduro
Composites, Korns Galvanizing ,
Conn-Fab and United Fiberglass
during the year, the Committee
challenged management on the
acquisition accounting, focusing
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; and
how the function will discharge its
responsibility, primarily by preparing
and executing a risk-based audit plan,
identifying opportunities to improve
internal control, risk management
and governance processes, and by
verifying that improvements agreed
with management are implemented
within a reasonable timeframe.
In accordance with the Internal Audit
Charter, the Audit Committee and
executive management ensure that
the internal audit function has free
and unrestricted access to the Group’s
records, physical properties, and
personnel pertinent to 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 21 internal audit reports and
associated 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 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 2023 Internal Audit Plan balanced the
focus of the function between Group-wide
Principal Risks and operating company-
level risks. It included a Group-wide
Stock Code HILS Temporary concrete barrier, Hill & Smith Infrastructure, UK
thematic review of purchase contracts.
The review concluded that, while the
Group approval requirements for material
purchase commitments were generally
well adhered to by operating companies,
actions to streamline and reinforce
the Group approval requirements were
recommended.
Operating company-level reviews, focusing
on baseline internal controls, were
conducted during the year (18 in relation
to financial controls and two 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 seeks 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.
During the year, the Audit Committee
challenged management in particular
to ensure the implementation of more
effective controls around management of
inventory in two of the smaller business
units and also that sufficient resource
and focus was being devoted to the
implementation of improved ERP systems
in those businesses.
The decentralised business model of Hill &
Smith means that 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 department 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 provides 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 and Uncertainties are
correctly identified by virtue of a top-
down/bottom-up approach using the
experiences of the Audit Committee and
the Group’s operating companies. In
this, the Audit Committee is supported
by the Group’s Risk Committee, whose
membership can be found on page 57.
The Risk Committee oversees the
risk management process, which is
one of continual improvement. The
risk management and reporting tool
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 Risks. The Audit Committee
has monitored the resultant key risks on
91
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT AUDIT COMMITTEE REPORT continued
the corporate risk register and, during
the year received reports and minutes
from the Risk Committee, detailing the
Group-wide risk assessment process, 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 2023, the Committee directed that
particular attention be paid to the Principal
Risks around Health and Safety and IT
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.
During the year, the Committee received
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 56 to 65.
TCFD
The TCFD (Taskforce for 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 both 2022 and 2023,
PwC were further engaged to perform
assessments of the physical risks for
operational sites acquired in those years.
The results from PwC’s ongoing work
were reviewed at the March 2024 Audit
Committee, following which the Committee
approved the 2023 disclosures relating to
TCFD, which can be found in the Group’s
Sustainability Report on pages 36 to 55.
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 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 2023 audit during the Committee
meeting in August 2023. This highlighted
the proposed approach and scope of
the audit and identified the key issues
in detail, being the valuation of goodwill
in relation to ATG Access and Hill &
Smith Inc; the risk of fraud in revenue
92
Stock Code HILSHEADER 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 Audit Committee. A report
is 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 2023, there were fees of £13,000
(2022: £3,000) paid to the auditor for
non-audit services relating to other
assurance services. In 2023, non-audit
fees represented 0.8% of audit fees of
£1.6m (2022: 0.2%). Further details of
these amounts are included in note 8 of
the Financial Statements on page 148.
Mark Reckitt
Chair
11 March 2024
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 revisited by EY.
The external auditor prepared a detailed
report of its findings in respect of the
2023 audit. The Committee discussed the
issues raised in the report, particularly in
relation to the areas highlighted, at their
meeting in March 2024. The Committee
questioned and challenged the work
undertaken, the findings and the key
assumptions made, with particular
attention to the areas of audit risk
identified.
Auditor independence and rotation
The external auditor confirmed its policies
on ensuring auditor independence
and provided the Committee with a
report on their own audit and quality
procedures. This report was considered
during the period under review and the
Committee were satisfied of the auditor’s
independence. To help maintain auditor
independence, the Group has a policy,
whereby, before any former employee of
the external auditor may be employed by
the Group, careful consideration is given to
whether the independence of the auditor
will be adversely affected, and approval
of the Audit Committee is required. There
were no such instances during the year.
EY were appointed as the Group’s auditors
in June 2020, and they have confirmed
to us that, as the partner in charge, Helen
McLeod-Jones, subject to unforeseen
changes, will be the lead partner up to and
including, the audit for 2024 before being
compelled to rotate off the audit to ensure
continued independence.
Audit and non-audit fees
At the October 2023 meeting, the
Committee discussed and approved
the proposed audit fee for 2023. The
Committee noted that the c.1.8% increase
in the fee reflected the inflationary
cost increases observed across the
professional services industry in the past
12 months offset by efficiencies and
changes in the Group’s portfolio.
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 restricts the use of the
external auditor for activities, including
compiling accounting records, certain
aspects of Internal Audit, IT consultancy,
tax services except in exceptional
circumstances, and advice to the
Remuneration Committee.
Hill & Smith PLC | Annual Report and Accounts 2023
93
GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT
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 2023. The Annual
Report on Remuneration (pages 94 to 106) describes how the
Remuneration Policy (the ‘Policy’) has been applied during the year
and how we intend to implement our Policy for 2024.
I would like to thank those shareholders
who provided feedback on remuneration
matters ahead of our 2023 AGM. I was
pleased that our Directors’ Remuneration
Policy and Remuneration Report received
98.5% and 98.8% shareholder support
respectively, reflecting the ongoing
support from shareholders of our
approach to remuneration.
As this is my first report as Chair of the
Committee, following my appointment
on 25 May 2023, I would like to thank my
predecessor, Annette Kelleher, for her
leadership of the Committee and support
during my transition to Chair.
Business context
The Group has delivered record revenue
and profits in 2023, again demonstrating
the business’ resilience to the challenging
headwinds of supply, inflation and a post-
COVID marketplace. The Group is reporting,
from continuing operations, revenue of
£829.8m and underlying operating profit of
£122.5m. In addition to delivering robust
financial performance, 2023 has continued
the progress of improving the quality of our
portfolio of businesses. We successfully
exited the remainder of our Swedish
business and disposed of our small UK
car park solutions business. We also
completed four exciting acquisitions, three
in our high growth, high margin Engineered
Solutions division and a galvanizing plant
that adds spin galvanizing to the Group’s
Galvanizing Services portfolio.
During 2023, Alan Giddins continued to
serve as Executive Chair. Further details
regarding the ongoing search to appoint
a permanent CEO can be found in the
Nomination Committee report. In January
2024 we appointed Hooman Caman
Javvi to the position of Chief Operating
Officer, in this new role he has enhanced
responsibilities encompassing the Group’s
operations, talent development and
medium-term strategy.
2023 Remuneration Outcomes
Workforce remuneration
The Committee remains cognisant of the
ongoing scrutiny in relation to executive
remuneration and the need to ensure that
remuneration outcomes are appropriate
within the context of the wider stakeholder
experience.
In 2023, the Company set salary
increase budgets at between 5% and
10%, depending on country and local
circumstances, to support employees
through the cost-of-living crisis. We
Our Directors’
Remuneration
Policy and
Remuneration
Report received
98.5% and 98.8%
shareholder
support
respectively,
reflecting the
ongoing support
from shareholders
of our approach to
remuneration.”
Tony Quinlan
Committee Chair
94
Stock Code HILS continued to focus on measures within
our operating companies that enable a
good standard of living, targeted salary
adjustments, financial education, and
voucher programmes.
As set out in the 2022 Remuneration
Report, our Executive Chair Alan Giddins
has not participated in any variable
remuneration arrangements since
his appointment. The Remuneration
Committee, taking external legal and
governance advice and in consultation
with Alan, felt this best preserved the
independence of the position, allowing a
reversion to a non-Executive Chair role in
due course. This is a significantly lower
total remuneration level when compared
to an equivalent executive package,
particularly considering the performance
of the business under his Executive Chair
tenure. The sections below detailing
incentive payouts for performance periods
ending 31 December 2023, therefore relate
to the CFO only.
Annual bonus outcomes
The 2023 annual bonus for the CFO
was based on financial measures (80%
weighting) and personal objectives
(20% weighting). Aligned to the strong
performance delivered during 2023, the
formulaic outcome was 95.5% of maximum.
The Committee determined that this
formulaic outcome represents a fair
reflection of the financial and strategic
performance of the business during
the year, and as such, agreed that no
discretion should be applied to adjust it.
Details of the outturns against the
individual financial performance measures
and personal objectives are set out on
pages 96 and 99.
Half of the bonus earned by the CFO will
be deferred into shares for two years,
to ensure long-term alignment with the
interests of shareholders.
Considering the financial performance of
the Company and taking into account the
disposals and acquisitions made in the
three-year performance period and the
progress against non-financial metrics
achieved during the performance period, the
Committee is comfortable that the formulaic
outturn of the 2021 long-term incentive is
appropriate. As such the Committee agreed
that no discretion should be applied to adjust
the formulaic outcome.
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.
Employee and shareholder engagement
Our Board members visited a number
of our operating companies during the
year and solicited feedback from them
on a broad range of topics that included
remuneration, operational performance
and structure, 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. Our
engagement levels remain close to the
benchmark for other Industrial companies
but did decrease slightly at a Group
level, with cost-of-living pressures in the
UK being specifically highlighted. The
importance of providing employees with
regular recognition was also noted and is
something that we are focused on in 2024.
Each business has been asked to prepare
a clear action plan in order to address
specific issues raised and these plans are
being cascaded throughout each operating
company. Progress in delivery against
these plans will be reviewed by the Board
Looking forward to 2024
Long-term incentive outcomes
Base salary
With regard to our long-term performance,
our 2021 long-term incentive award is
eligible to vest based on performance from
1 January 2021 to 31 December 2023.
The portion of this award vesting was
determined based on performance against
Underlying Earnings Per Share (‘UEPS’) and
Relative Total Shareholder Return (‘TSR’)
targets.
In relation to TSR performance the
Company was measured against the
FTSE 250, excluding financial services
companies and investment trusts and
ranked 15 out of 126 companies. The
UEPS, as disclosed on page 100, at 31
December 2023 was 105.4p, comfortably
ahead of the maximum target of 102.0p.
Our usual practice is to review Executive
Directors’ salaries on an annual basis. In
December, the Committee considered their
annual salary increases and determined
that increases of 5% and 8% of salary
should be applied to the Executive Chair
and CFO, respectively, effective 1 January
2024. Salary increases across our operating
companies were within a range of 1.8% to
7.3%. In setting the rate of increases for the
Executive Directors, the Committee noted
that the Executive Chair does not participate
in any variable remuneration schemes
and confirmed its intent, as referenced
in last year’s Directors’ Remuneration
Report, to move Hannah Nichols’, the CFO,
remuneration to the market rate for an
experienced and high performing FTSE
250 company. Hannah was appointed, in
September 2019, on a below market base
salary that reflected that this was her first
PLC Executive Director position.
With regard to the appointment of
Hooman Caman Javvi to the position of
Chief Operating Officer and Executive
Director, he was appointed to the role on
a salary of £380,000. The salary reflects
the Committee’s view of the size of the
role and the calibre and experience of the
individual.
Variable remuneration
Aligned to 2023, the Executive Chair
will not participate in any variable
remuneration arrangements.
The annual bonus and long-term incentive
arrangements for 2024 will remain broadly
unchanged for the CFO, both in terms
of opportunity level (125% and 150% of
salary respectively), and performance
measures. The annual bonus will remain
subject to challenging profit (60%), cash
conversion (20%) and non-financial (20%)
targets. The only change that is being
made to the annual bonus is to include
within the non-financial targets, personal
objectives that include a dedicated health
and safety target. This change is being
made to better align the bonus with the
focus that health and safety has within
the Company. The long-term incentive will
continue to operate with challenging UEPS
(50%) and relative TSR (50%) targets.
Hooman Caman Javvi will be eligible
to participate in the annual bonus and
long-term incentive plan with maximum
opportunities set at 100% of salary
and 125% of salary respectively. His
participation in the annual bonus will be
pro-rata for his period as an Executive
Director and the incentive opportunities
have been set with reference to the size
and expected impact of the role.
Non-executive Director fees
The Non-executive Director fees, including
additional fees, have been increased by
4.6% with effect from January 2024. See
page 106 for more details.
Conclusion
The Committee recognises the excellent
performance that has been delivered
during 2023 and believes that remuneration
outcomes fairly reflect this performance.
We hope that having read this report you
will vote in support of the resolution for
the Annual Report on Remuneration at our
2024 AGM.
Tony Quinlan
Chair
11 March 2024
95
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
DIRECTORS’ ANNUAL REMUNERATION REPORT
Area of focus in 2023
During the year to 31 December 2023, the Remuneration Committee consisted of Annette
Kelleher, Mark Reckitt, Pete Raby, Tony Quinlan, Leigh-Ann Russell, and Farrokh Batliwala.
Annette chaired the Committee until 25 May 2023, when she stepped down from the Board
following the AGM. Tony Quinlan became Chair of the Committee on that date. Carol
Chesney joined the Committee on 1 January 2024.
During the year, the Committee considered the following:
January and March
• Determination of variable pay outturns for the 2022 bonus and 2020 LTIP as reported
in last year’s Directors’ Remuneration Report
Reward linked to performance
Underlying Operating Profit
(at budgeted FX rates) –
outcome against target
£120.6m
Actual
£104.0m
Target
• Confirmation of the Executive Directors’ annual bonus targets and objectives for 2023
Underlying Cash Conversion
• Approval of LTIP 2023 award
• Review of the Group’s share option rules, ahead of presenting them to
shareholders at the Company’s AGM
• Consideration of the Group’s Gender Pay statement
May and August
• Review of operating company bonus schemes
• Approval of SAYE 2023 award
• Review of 2023 AGM voting results and shareholder feedback
November and December
•
•
2024 salary review for Executive Directors and members of the Group’s Executive
Board, having considered the range of increases applied to the wider workforce
Executive Directors’ bonus plan for 2024
• Consideration of market update as provided by the Committee’s adviser
• Consideration of metrics to be used in Executive Directors’ short and long-term
incentive plans
115.2%
Actual
81.7%
Target
Total annual bonus plan – Outcome,
including achievement of personal
objectives, see pages 98 and 99 of:
Hannah Nichols
95.5%
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 96 to 104)
Element
Purpose/structure
Operation for 2024
Base salary
and benefits
Enables the Company to recruit and retain
Executive Directors
Pension
To provide post-retirement benefits for
Executive Directors
CFO - £405,000 (8% increase)
COO - £380,000 (n/a)
Executive Chair – £615,000 (5% increase)
CFO – 6.5% of salary
COO – 6.5% of salary
Executive Chair – n/a
Annual bonus
Performance measures and targets are reviewed
and set annually by the Remuneration Committee.
At least 50% of bonus will be based on financial
measures
50% of any bonus is deferred into shares for
two years
LTIP
Three-year performance period, with a further
two-year holding period
2024 performance measures: Budgeted underlying operating
profit (60%), budgeted underlying cash conversion (20%), and
individual personal objectives, including health and safety (20%)
Maximum opportunity:
CFO 125% of salary
COO 100% of salary
Executive Chair – n/a
2024 performance measures: Relative TSR (50%) and growth
in UEPS (50%)
Grant size:
CFO – 150% of salary
COO – 125% 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
96
Stock Code HILS The following chart shows Hill & Smith’s Total Shareholder Return during 2023
Total Shareholder Return
)
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
180
160
140
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
5%
Organic revenue
growth
50%
Proportion of annual
bonus received in shares
CFO: 8%
Executive Chair: 5%
Salary increase for
Executive Directors
See page 105 for more details
14.8%
Underlying operating
profit margin
200%
Shareholding guidelines
(% of salary)
1.8% – 7.3%
Salary increase budgets
for the wider workforce
115%
Underlying cash conversion
100%
6.5%
LTIP awards subject to a
mandatory two-year holding period
Pension contributions for
Executive Directors
£34.5m
Dividends paid to
shareholders
124
6.5%
Senior Executives with an interest
in long-term share awards
Maximum contribution
available for UK employees
97
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT continued
Implementation of the Remuneration Policy during 2023
Single remuneration figure
Base
Salary
/ fees (1)
Year
Taxable
Benefits (2) Pension (3)
Total
Fixed
Pay
Annual
Bonus (4)
LTIP (5)
Total
Variable
Pay
Total
‘single
figure’
Alan Giddins
2023
584,554(6)
Hannah Nichols
Paul Simmons
Totals
2022
257,241(6)
2023
2022
2023
2022
2023
2022
374,523
356,689
–
304,005
959,077
917,935
1 The amount of base salary received in the year.
–
–
12,822
12,639
–
15,639
12,822
28,278
–
–
584,554
257,241
–
–
–
–
–
–
584,554
257,241
24,344
411,689
447,086
548,474
995,560
1,407,249
23,185
392,513
345,213
213,002
558,215
950,728
–
–
–
–
–
–
36,535
356,179
330,758
110,991
441,749
797,928
24,344
996,243
447,086
548,474
995,560
1,991,803
59,720
1,005,933
675,971
323,993
999,964
2,005,897
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.
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 pages 98 to 99.
5 Represents the value of shares vested under the rules of the Hill & Smith LTIP, in respect of the performance period ended 31 December 2023. A description of the basis on which
awards vested and the value can be found on page 100.
6 These amounts relate to the period which Alan Giddins served as Executive Chair.
2023 annual bonus
Hannah Nichols was eligible to earn a bonus for 2023 of up to 125% of salary. 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.
The extent to which Hannah’s bonus was earned is summarised below:
Measure
Weighting
Underlying Operating Profit (1)
Underlying Cash Conversion
Personal objectives
60%
20%
20%
Target
– 50% of
maximum
Maximum
– 100% of
maximum
Actual
performance
£104.0m
£110.0m
£120.6m
81.7%
86.7%
115.2%
Actual bonus
earned
(% of
maximum)
60%
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 For the purposes of calculating the annual bonus the Underlying Operating Profit is calculated at budgeted rates of exchange, excluding acquisitions made in the year.
98
Stock Code HILS The personal objectives set for each Executive Director are summarised below, along with the key achievements.
Executive Director
Objectives
Key achievements
Hannah Nichols
Continue to drive the Sustainability agenda across the following:
– Reduction in LTIR rate across the Group
Reduction in LTIR to 0.43
–
Information for science-based targets collated for scope 1, 2 and
3 and submitted, approved and published within eight weeks of
approval
– Reduction in scope 1 and 2 greenhouse gas emissions for
existing businesses, when compared to 2022 reported levels,
consistent with our net zero by 2040 trajectory
Continue to drive further improvements in the accuracy of Group
level financial forecasts, thereby providing the Board with a high level
of confidence in the information used for decision making
Provide clear leadership in the delivery of the Group’s information
security and ERP strategies
Drive further working capital efficiency across the Group through
working with both operating company MDs and FDs
SBTi targets submitted and
approved
Reduction in scope 1 and 2
greenhouse gas emissions
vs the base year
Continued progress
achieved in further
improving the quality and
accuracy of the Group’s
financial forecasts
Significant steps taken
across information security.
Progress made in the
implementation of the
Group’s ERP strategy
Excellent cash conversion at
115%, materially up on the
prior year. Strong alignment
achieved across the Group
Achievement
77.5%
In assessing the key achievements set out above in relation to personal objectives, the Committee determined that Hannah Nichols
should receive 77.5% of this part of the bonus, being 15.5% of her maximum opportunity.
The Committee considered the formulaic outturn of the annual bonus for 2023 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 2023 are as follows.
Executive Director
Total bonus earned
Bonus paid in cash (£)
Bonus paid as an award of
deferred shares (£)
Hannah Nichols
£447,086
£223,543
£223,543
99
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
LTIP awards vesting in respect of 2023
Hannah Nichols was made an LTIP award in 2021 of 31,075 shares. These vested subject to the achievement of performance conditions
based on absolute UEPS growth over the three-year performance period ended 31 December 2023 (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).
On 8 March 2024, 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
Actual
performance
Actual Vesting
Shares
subject to
the Award
Vesting
shares
Vested
value (1)
UEPS
Threshold 82p
20%
UEPS of 105.4.p
UEPS: 100% of
TSR
Maximum 102p
Median
Maximum
100%
20%
100%
maximum
TSR Ranked
TSR: 100% of
15 out of 126
maximum
31,075
31,075
548,474
1 The value of shares is calculated by reference to the average share price for the three months to 31 December 2023, being £17.65. In accordance with the rules of the LTIP, Hannah
is entitled to a further benefit by reference to the dividends paid over the period from grant to vesting, amounting to £31,417, and delivered as 1,778 shares.
Considering the financial performance of the Company and taking into account the disposals and acquisitions made in the three-year
performance period, the Committee is comfortable that the targets were no more or less challenging than when they were originally set.
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.
Alan Giddins
Hannah Nichols
Shareholding requirement
Current shareholding on 31 December 2023
Deferred shares on 31 December 2023
(amounts net of tax and social security)
Total shares
Share value based on share price on
31 December 2023
Current % of salary (based on salary on
31 December 2023)
n/a
89,225
–
89,225
£1,702,413
n/a
200%
3,106
24,913
28,019
£534,603
143%
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 2023 and 11 March 2024.
100
Stock Code HILS Share awards granted during the year
During the year to 31 December 2023, 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 (2)
Hannah Nichols
16 March 2023
Nil cost option
36,067
£468,150
20% 31 December 2025
1 Calculated by reference to a share price of £12.98 being the Mid-Market Quote from the day immediately preceding the date of grant.
2 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*
UEPS compound annual growth rate
over three years (50% of the award)
TSR (50% of the award) **
Less than 4%
4%
12%
Below median
Median
Upper quartile
* Straight line vesting will apply between these two points.
** Relative to the FTSE 250 (excluding investment trusts and financial services companies).
SAYE
The interests of Executive Directors who served in 2023 in options for ordinary shares in the Company, granted under the Company’s
SAYE schemes, are included in the following table:
Period that option is
exercisable
Grant
Price
Year
Awards
held at 31
December
2022
Granted
during
the year
Exercised
during
the year
Lapsed
during the
year
Awards
held at 31
December
2023
From
To
Hannah Nichols
2022
£7.94
3,778
–
–
–
3,778 1 Jan 2026 1 July 2026
Alan Giddins does not participate in the SAYE.
Statement of Executive Directors’ shareholding and interest in shares
Unvested
Type
Shares
Market value
options (1)
SAYE Options (2)
Owned
Outright
Vested but
not exercised
Subject to
performance
conditions
Not subject to
performance
conditions
3,106
47,006
98,629
–
–
–
–
2,497
–
–
–
3,778
Total at 31
December
2023
148,741
2,497
3,778
Hannah Nichols
1 The Market Value options were granted under the tax-advantaged part of the ESOS as part of the LTIP award granted in 2020 to Hannah Nichols and are subject to the same
performance conditions as that LTIP award.
2 A breakdown of SAYE awards is shown above.
101
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT continued
Loss of office payments and payments to former Directors
There were no loss of office payments made to past Directors during the year ended 31 December 2023.
As disclosed in the 2022 Directors’ Remuneration Report, Paul Simmons continued to receive his basic salary from 1 January 2023 to
17 July 2023. This amounted to £304,815.
Non-executive Directors
Non-executive Director single figure comparison
Director
Alan Giddins
Annette
Kelleher(2)
Farrokh
Batliwala(3)
Leigh-Ann
Russell
Mark Reckitt
Pete Raby
Tony Quinlan(4)
Total
Board
Fees
n/a
26,969
55,823
55,455
Role
Chair
Chair,
Remuneration
Committee
Non-executive
Director
Non-executive
Director
Chair, Audit
Committee
64,725
Non-executive
Director
55,455
70,133
Senior
Independent
Director
328,560
Other
Fees
Taxable
Benefits
Annual
Bonus
LTIP Pension
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total ‘Single
Figure’
2023(1)
Total ‘Single
Figure’
2022(1)
–
26,969
98,695
62,840
55,823
40,238
55,455
53,840
64,725
62,840
55,455
53,840
70,133
62,840
328,560
435,133
1 As the Non-executive Directors do not participate in any variable arrangements, separate sections for fixed and variable pay are not included.
2 Annette Kelleher retired from the Board on 25 May 2023.
3 Farrokh Batliwala is paid partly in GBP and partly in USD. The total disclosed reflects the actual payments translated into GBP at an average exchange rate of $1.24.
4 Tony Quinlan became Chair of the Remuneration and Nomination Committees on 25 May 2023.
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.
Non-executive Director shareholding
Annette Kelleher*
Farrokh Batliwala
Leigh-Ann Russell
Mark Reckitt
Pete Raby
Tony Quinlan
2023
–
2,000
2,000
4,000
5,020
3,111
2022
3,948
2,000
2,000
4,000
3,100
1,200
* Annette Kelleher retired from the Board on 25 May 2023.
There was no change in these beneficial interests between 31 December 2023 and 11 March 2024. 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.
102
Stock Code HILS The following parts of the Remuneration Report are not subject to audit
Annual percentage change in the 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 2022 and the year ended 31 December 2023, 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.
Average
employee
Wider
workforce
Hannah
Nichols
Alan
Giddins
5.4% 1.3% - 10.0%
4.1%
2.0% - 9.0%
2022 - 2023
2021 - 2022
2020 - 2021
2019 - 2020
2022 - 2023
2021 - 2022
2020 - 2021
2019 - 2020
2022 - 2023
2021 - 2022
2020 - 2021
2019 - 2020
Salary /
fees
Taxable
benefits
Annual
bonus
5.0%
3.0%
2.0%
2.9%
1.4%
0.3%
5.0%
n/a
30%
-8%
2.9%
2.9%
n/a
n/a
n/a
n/a
20.3%*
44.5%*
340.3%*
454.4%
112.0%*
n/a
2.9%
2.9%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Leigh
Ann
Russell
3.0%
3.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Mark
Reckitt
Pete
Raby
Tony
Quinlan
Farrokh
Batliwala
3.0%
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.0%
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.0%
3.0%
2.0%
2.5%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
3.0%
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
4.0%
3.0%
2.0%
2.5%
n/a
n/a
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 CFO and capable of influencing the Groups’ performance.
Single figure of the Chief Executive compared to the wider workforce
This is our fifth year of reporting the CEO pay ratio and the table below sets out our CEO pay ratio figures in respect of 2019, 2020, 2021,
2022 and 2023.
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 2022/23, 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.
Year
2023
2022
2021
2020
2019
Method
Option B
Option B
Option B
Option B
Option B
25th percentile
pay ratio
Median pay Ratio
75th percentile
pay ratio
17:1
39:1
68:1
26:1
43:1
18.1
37:1
63:1
44:1
39:1
15.1
32:1
41:1
33:1
38:1
Pay details for the individuals are set out below.
2023
Salary
Total remuneration
CEO/Executive Chair
25th percentile
Median
75th percentile
£584,554
£584,554
£30,402
£34,384
£32,204
£32,204
£35,350
£38,111
The ratio has reduced materially for 2023 on account of the Executive Chair not receiving any form of variable remuneration. It should be
noted that, on appointment of a permanent CEO, remuneration will revert to the inclusion of performance-based pay.
In this context, the Committee considers that the median ratio for 2023 is consistent with the pay, reward and progression policies for
employees as a whole.
103
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT continued
Pay for performance
The graph below shows the Company’s TSR performance over the 10 years to 31 December 2023 as compared to the FTSE 250.
The table below details the CEO/Executive Chair’s single figure remuneration and actual variable pay outcomes over the same period.
Total Shareholder Return
The following chart shows Hill & Smith’s Total Shareholder Return over the 10 years to 2023.
500
)
£
(
e
u
a
V
l
450
400
350
300
250
200
150
100
50
0
31 Dec 13
31 Dec 14
31 Dec 15
31 Dec 16
31 Dec 17
31 Dec 18
31 Dec 19
31 Dec 20
31 Dec 21
31 Dec 22
31 Dec 23
Hill & Smith
FTSE 250
2014 2015 2016 2017 2018 2019
2020
2021
2022
Derek
Muir
Paul
Simmons
Paul
Simmons
Alan
Giddins
CEO/Executive
Chair single
figure (£000)
Annual bonus
(% of max.)
LTIP Vesting
(% of max)
1,835 1,894 2,134 2,085 1,506 1,187
980
318 1,781
798
100
100
100
94
19
43
93
98
100
100
100
31
19
36
19
88
n/a
100
72
Nil
257
n/a
n/a
2023
Alan
Giddins
585
n/a
n/a
Relative importance of spend on pay
Dividends paid in respect of the financial year
Overall spend on pay (1)
2023
£34.5m
£203.2m
2022
£28.0m
£173.2m
% Change
23%
17%
1 This includes a 14% change in the number of people employed by the Group. See note 6 to the accounts on page 147.
104
Stock Code HILS
Statement of shareholder voting
The following table shows the results of the vote on the Annual Remuneration Report at the 2023 AGM and the binding vote on the
current Remuneration Policy at the 2023 AGM.
Remuneration Policy (2023)
% of votes cast
Remuneration Report (2023)
% of votes cast
Advisors
For
Against
Withheld
98.46%
61,858,119
98.82%
62,085,022
1.54%
967,984
1.18%
740,007
6,275 votes were withheld
in relation to this resolution
(<0.01%)
7,349 votes were withheld
in relation to this resolution
(<0.01%)
Korn Ferry were appointed as external advisor to the Remuneration Committee during 2022 following a competitive tender process.
Korn Ferry did not provide any services other than in relation to advising the Remuneration Committee during the year and the
Committee is satisfied that no conflict of interest can arise as a result of these services. Korn Ferry has voluntarily signed up to the
Remuneration Consultants Group Code of Conduct. In view of these factors, the Committee is satisfied that the advice it receives from
Korn Ferry is objective and independent. For the year under review, Korn Ferry received fees of £71,908 in connection with its work for
the Committee, which were charged on a time cost basis.
The Group Executive Chair and Chief Financial Officer attend Remuneration Committee meetings by invitation 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 2024
Executive Directors
Salary
Base salaries were reviewed on 19 December 2023 and as from 1 January 2024 are:
Alan Giddins
Hannah Nichols
£615,000
£405,000
As detailed in the Chair’s Introductory Letter on pages 94 to 95, the salary increases awarded to the Executive Chair and CFO were 5%
and 8% of salary, respectively. This represents an average of 6% increase for the Executive Directors and sits within the range of salary
increases provided to the wider workforce within our operating companies, which range from 1.8% to 7.3% for 2024.
In considering the remuneration of Alan Giddins as Executive Chair, the Committee were mindful that this was an interim position and
the intention would be to revert this to Non-Executive Chair, when a permanent CEO was in place. To that end a fixed fee, based on
the previous CEO’s base salary, was agreed to reflect the additional time and responsibilities of this interim Executive Chair role, but
following external professional advice regarding good corporate governance, there are no additional incentive based payments. The
Committee also felt that the company should not fund any normal benefits, such as a pension allowance, which would usually be paid to
an executive in undertaking their role.
With regard to the CFO, the Committee’s intention, as referenced in last year’s Directors’ Remuneration Report, is to move her
remuneration to the market rate for an experienced and high performing FTSE 250 CFO. By way of background, Hannah was appointed
in September 2019, on a below market base salary that reflected this was her first PLC Executive Director position. As part of the
work undertaken in connection with the renewal of our Directors’ Remuneration Policy last year, the Committee made an adjustment
to her long-term incentive award opportunity to better reflect the size and complexity of her role and increased her salary by 5% which
was at the lower end of the typical rate of increase awarded across the Company for 2023 (5% to 10%). For 2024, the 8% increase
is considered appropriate given that it will achieve the Committee’s stated objective of aligning her remuneration with that of an
experienced high performing FTSE 250 CFO and the rate of increase is aligned with the higher end of the typical range of increases
across our operating companies (where the range is 1.8% to 7.3%), but well within the range of individual increases awarded for high
performers and employees subject to market related adjustments.
In relation to Hooman Caman Javvi’s appointment as Chief Operating Officer and as an Executive Director, his salary for 2024 will be
£380,000, which the Committee set to reflect the size of the role and the calibre and experience of the individual.
Pension and benefits
Alan Giddins is not eligible to receive a pension. The pension contribution for Hannah Nichols and Hooman Caman Javvi is
6.5% of base salary.
105
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT REMUNERATION COMMITTEE REPORT continued
Annual bonus
Alan Giddins will not be eligible to receive an annual bonus during 2024.
The maximum opportunity for Hannah Nichols will remain at 125% of salary and has been set at 100% of salary for Hooman Caman
Javvi. The bonus opportunities reflect the Committee’s view of relative size of the roles. The bonus is structured so that 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 2024 financial year, the Committee has considered the inclusion of specific non-financial annual bonus metrics and as such, the
bonus metrics and weightings for 2024 will be:
• Budgeted underlying operating profit (60%)
• Budgeted cash conversion (20%)
•
Individual personal objectives, including a health and safety target (20%)
The Committee does not consider it appropriate to prospectively disclose the targets under the annual bonus plan due to issues of
commercial sensitivity. However, detailed retrospective disclosure of the financial targets and the sustainability and individual strategic
objectives, and performance against them, will be included in next year’s Directors’ Remuneration Report. As was the case in 2023,
the range of financial targets approved for 2024 have been set in the context of current business planning and the current economic
outlook. Overall, the targets are considered similarly challenging to those set in prior years in the current market context.
LTIP
Alan Giddins will not be eligible to receive a grant under the LTIP during 2024.
The LTIP award for 2024 for Hannah Nichols, CFO, will be 150% of salary, and for Hooman Caman Javvi, Chief Operating Officer, 125%
of salary. The LTIP awards reflect the Committee’s view of relative size of the roles. These awards 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 5%
5%
14%
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).
The range of UEPS targets was set having had regard to current business planning, driven by a combination of organic and inorganic
growth; the current economic outlook and market expectations for the future performance of the business. Overall, the targets are
considered similarly challenging to those set in prior years in the current market context.
The Committee will undertake a final review of the targets and broader terms of the awards prior to grant.
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.
In December 2023, the Board approved a 4.6% increase to the fees for the Non-executive Directors for 2024 as follows:
Chair
Non-executive Director
Senior Independent Director
Audit Committee Chair
Nomination Committee Chair
Remuneration Committee Chair
2024
n/a
£58,000
£10,000
£10,000
£10,000
£10,000
2023
£187,450
£55,455
£9,270
£9,270
£9,270
£9,270
Upon appointment of a permanent CEO, the Executive Chair will revert to being the Non-Executive Chair, with fees appropriate to this role.
Tony Quinlan
Chair
11 March 2024
106
Stock Code HILS ANNUAL REMUNERATION POLICY REPORT
The Company’s Directors’ Remuneration Policy (the ‘Policy’) was approved at the 2023 AGM and took effect from the close of that
meeting. The below provides a summary of the Policy, with the full policy as approved by shareholders being included in the Company’s
2022 Annual Report and Accounts, which is available at https://hsgroup.com/investors/reports-and-presentations/
Policy table for Directors’ base salary
Purpose and link to
strategy
Operation
To recruit and retain Executive Directors. Provides fixed remuneration for the Executive Directors, which
reflects the individual’s experience and the size and scope of the Executive’s responsibilities.
Normally reviewed annually and fixed for 12 months. Salaries are determined by the Remuneration
Committee taking into account a range of factors, which may include, but are not limited to:
•
•
•
•
•
the size and scope of the role;
individual and Group performance;
the range of salary increases (in percentage terms) applied to the wider workforce;
total organisational salary budgets; and
pay levels for comparable roles in companies of a similar size and complexity.
Any salary increases may be implemented over such time as the Remuneration Committee deems
appropriate.
Maximum opportunity
Ordinarily salary increases will not exceed the range of salary increases awarded to other employees in
the Group (in percentage of salary terms). However, salary increases may be above this level in certain
circumstances as required, for example to reflect:
•
•
•
increase in scope or responsibility;
performance in role; or
an Executive Director being moved to market positioning over time.
No maximum salary opportunity has been set out in this policy report to avoid setting expectations for
Executive Directors.
Performance metrics
Not applicable.
Benefits
Purpose and link to
strategy
Operation
To recruit and retain Executive Directors. Ensures the overall package is competitive. Participation in the
SAYE promotes staff alignment with the Group and a sense of ownership.
Executive Directors are entitled to various benefits including but not limited to, membership of the
Group’s healthcare scheme, personal accident insurance, ill health, life assurance and car (or equivalent
cash allowance).
Other benefits may be provided based on individual circumstances. Such benefits may include, but are
not limited to expatriate, housing, relocation allowances or overseas tax support.
The SAYE is a tax qualifying monthly savings scheme facilitating the purchase of shares at a discount as
permitted by the applicable legislation (currently up to a maximum discount of 20%). SAYE options may
be exercised in the event of a change of control to the extent permitted by the rules of the scheme.
Executive Directors may also participate in any other all-employee share plan adopted by the Company,
on the same basis as other qualifying employees.
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 is
permitted in accordance with the relevant tax legislation. The maximum level of participation in any other
all-employee share plan will be determined in accordance with the rules of that plan and will be the same
for Executive Directors as for other qualifying employees.
Performance metrics
Not applicable.
107
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT ANNUAL REMUNERATION POLICY REPORT continued
Pension
Purpose and link to
strategy
Operation
Maximum
opportunity
To recruit and retain Executive Directors and to provide post-retirement benefits.
The Group may make a payment either into a defined contribution plan or as a separate cash allowance.
Group contributions or cash allowances are determined as a percentage of base salary.
An amount as a percentage of base salary not exceeding the 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 metrics
Not applicable.
Annual bonus
Purpose and link to
strategy
Operation
Rewards the achievement of annual financial targets and/or the delivery of strategic/individual
objectives.
Performance measures and targets are reviewed and set annually by the Remuneration Committee.
Bonus pay out is determined by the Remuneration Committee after the year end, based on audited
performance, where appropriate, against those targets.
The Remuneration Committee has the discretion to amend the bonus pay out should any formulaic
output not produce an appropriate result for either the Executive Directors or the Company, taking
account of overall performance, or because the formulaic output is inappropriate in the context of
circumstances that were unexpected or unforeseen at the start of the performance period.
Where an annual bonus is earned, 50% of the amount earned will be delivered in the form of shares in
the Company, deferred for a period of two years. Deferral of any bonus is subject to a de minimis limit of
£5,000.
At its discretion, the Remuneration Committee may award dividend equivalents to reflect dividends that
would have been paid over the deferral period on shares subject to deferred bonuses. These dividend
equivalents will ordinarily be paid in shares and may assume the reinvestment of dividends.
Deferred bonus awards will vest in the event of a change of control.
Malus and clawback provisions apply to the annual bonus as described below this table.
Maximum opportunity
The maximum bonus opportunity is up to 150% of base salary for the CEO and up to 125% of base salary
for any other Executive Director.
Performance metrics
The bonus will be based on the achievement of targets related to key business objectives, with the
performance measures and respective weightings each year dependent on the Group’s strategic
priorities. Financial performance measures may include, for example:
• measures based on earnings per share;
•
•
•
•
budgeted profit;
operating margins;
cash conversion; 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.
108
Stock Code HILS Long Term Incentive Plan (‘LTIP’)
Purpose and link to
strategy
Incentivises Executive Directors to achieve higher returns for shareholders over a longer timeframe. A
clawback applies to unvested awards enabling the Company to mitigate risk. The post-vesting holding
period aligns the interests of Executive Directors with those of the shareholders over a further period.
Operation
The Remuneration Committee may grant awards as conditional share awards, nil cost share options or
forfeitable shares or such other form as has the same economic effect.
Awards are typically granted annually and vesting is subject to achievement of performance measures,
normally assessed over at least three years. The Remuneration Committee has the discretion to adjust
the vesting outcome should any formulaic output not reflect overall performance, or because the
formulaic output is inappropriate in the context of circumstances that were unexpected or unforeseen at
the grant date, or if there exists any other reason why an adjustment is appropriate.
Vested shares are subject to an additional two-year holding period before they are released to
the Executive Directors (so that they can exercise the award and acquire them). Alternatively, the
Remuneration Committee may grant an award on the basis that the Executive Director can acquire
shares following vesting, but that, other than as regards sales of shares to cover tax liabilities, the
Executive Director is not permitted to dispose of shares until the end of the two-year holding period.
Unvested LTIP awards will vest and be released early on a change of control (or other relevant events),
taking into account the extent to which the performance conditions have been satisfied and pro-rating to
reflect the proportion of the performance period that has elapsed, although the Remuneration Committee
has discretion not to apply time pro-rating. Vested LTIP awards which are subject to a holding period are
released, to the extent vested, in the event of a change of control.
At its discretion, the Remuneration Committee may award dividend equivalents to reflect dividends that
would have been paid over the vesting period and holding period on shares that vest. These dividend
equivalents will ordinarily be paid in shares and may assume the reinvestment of dividends.
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 below.
Maximum opportunity
The annual LTIP maximum in respect of any financial year is:
• CEO: 175% of base salary; and
•
any other Executive Director: 150% of base salary.
Shares subject to a tax qualifying option granted as part of an approved LTIP award are not taken into
account for the purposes of this limit, because, as referred to in the box under the heading ‘Operation’,
the unapproved LTIP option is scaled back to reflect the gain made on the exercise of the tax qualifying
ESOS option.
Performance metrics
Awards vest subject to the achievement of performance measures assessed over the performance
period (normally three financial years). The performance measures are reviewed annually to ensure they
remain relevant and aligned to the Group’s strategy.
Performance measures will be based on financial metrics, and/or share price growth related metrics,
and/or strategic metrics.
Subject to the Remuneration Committee’s discretion to amend formulaic outputs, for achievement of the
threshold level of performance (the minimum level of performance for vesting to occur) up to 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 threshold and maximum performance.
Where an option under the ESOS is granted as part of an Approved LTIP award, the same performance
condition applies to the ESOS option as applies to the LTIP award, save as required by the applicable tax
legislation.
109
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT ANNUAL REMUNERATION POLICY REPORT continued
Shareholding guidelines
Purpose and link to
strategy
Operation
To encourage strong shareholder alignment both during, and after, employment with the Company.
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.
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).
Maximum opportunity
Not applicable.
Performance metrics
Not applicable.
110
Stock Code HILS Chair and Non-executive fees
Purpose and link to
strategy
Fees are set at a level that reflects market conditions and is sufficient to attract individuals with
appropriate knowledge and experience.
Operation
Fees are reviewed periodically and are determined by the Board. The fee structure is as follows:
•
•
•
•
•
the Chair is paid a single consolidated fee
the Non-executive Directors are paid a basic fee plus additional fees for Chairmanship of a
Committee
the Senior Independent Director also receives an additional fee in respect of this role
fees may be paid wholly or partly in shares
additional fees may be paid for taking on additional roles or for additional time commitments.
The Non-executive Directors do not participate in any of the Group’s share incentive plans, nor do they
receive any pension contributions. Non-executive Directors may be eligible to benefits such as the use
of secretarial support, travel costs or other benefits that may be appropriate. These benefits may include
the reimbursement of any tax liability if they are reimbursed for expenses incurred in the performance of
their duties and those expenses are considered taxable benefits.
Maximum opportunity
Fees are subject to an overall cap as set out in the Company’s Articles of Association from time to time.
Fees are based on the time commitment and responsibilities of the role.
Fees are appropriately positioned against comparable roles in companies of a similar size and
complexity in the relevant market.
Performance metrics
Not applicable.
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.
111
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT Staff at Enduro Composites, Creative Composites Group, US
112
Stock Code HILS DIRECTORS’ REPORT
(OTHER STATUTORY INFORMATION)
Principal activities and Strategic Report
The Company acts as a holding company to all the Group’s subsidiaries.
During 2023, the principal activities of the Group comprised the manufacture and supply of:
– Engineered Solutions
– Galvanizing Services
– Roads & Security products and services
Pages 1 to 67 contain further details of these areas of the business and the principal subsidiaries operating within them are set out on
pages 201 to 202.
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 67.
Statement on corporate governance
The Directors’ Report for the year ended 31 December 2023 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 £93.2m (2022: £69.3m). Group revenue at £829.8m, 13% up on 2022
(£732.1m). Operating profit at £103.8m, up 32% on 2022 (£78.5m).
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
2023
80,017,583
Total new ordinary shares
issued during the year
Issued share capital 31
December 2023
Rights and obligations
177,986
80,195,569
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 176 to 177 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 140 to 142.
Dividends
The Directors recommend the payment of a final dividend of 28.0p per ordinary share (2022: 22.0p) which, together with the interim
dividend of 15.0p per ordinary share (2022:13.0p per ordinary share) paid on 5 January 2024, makes a total distribution for the year of
43.0p per ordinary share (2022: 35.0p per ordinary share). Subject to shareholders approving this recommendation at the AGM, the final
dividend will be paid on 5 July 2024 to shareholders on the register at the close of business on 31 May 2024. The latest date for receipt
of Dividend Re-investment Plan elections is 14 June 2024.
113
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT DIRECTORS’ REPORT
(OTHER STATUTORY INFORMATION) continued
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 2023 AGM and will be limited by the resolution to be put to the 2024 AGM. The prices to be paid for such purchases
must be a minimum price of 25 pence per ordinary share (the nominal value) and a maximum price of 5% above the average of the
middle market quotations for ordinary shares derived from the London Stock Exchange Daily Official List for the five business days
immediately preceding the day on which any such purchase takes place.
– The Companies (Shareholders’ Rights) Regulations 2009 provide that a company can reduce the notice period for calling meetings
to the shorter period of 14 clear days on two conditions: firstly that the company offers a facility for shareholders to vote by
electronic means and secondly that there is an annual resolution of shareholders approving such reduction in the required minimum
notice period. Approval to the calling of general meetings other than AGMs on 14 clear days’ notice was approved at the AGM on
24 May 2023 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 2024.
Substantial shareholdings
As at 31 January 2024, the Company had been notified in accordance with Rule 5 of the Disclosure and Transparency Rules of the
Financial Conduct Authority of the following voting rights of the Company:
Shareholder
Number of ordinary shares
% of issued share capital
abrdn
BlackRock
JPMorgan Asset Management
Vanguard Group
Invesco
AXA Framlington Investment Managers
7,792,399
6,999,927
3,984,362
3,778,735
3,384,836
3,144,476
9.71
8.72
4.96
4.71
4.22
3.92
114
Stock Code HILS Directors
The names of the Directors of the Company who served throughout the year and who were appointed in January 2024, including brief
biographies, are set out on pages 68 to 69.
Directors’ interests
The interests of the Directors in the share capital of Hill & Smith PLC, as at 31 December 2023, are set out on pages 100 and 102.
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 170 to 175.
Research and development
During the year, the Group spent a total of £3.3m (2022: £2.8m) on research and development.
Political and charitable donations
Charitable donations amounting to £98,985 (2022: £62,000) were made in the year, principally to local charities serving the communities
in which the Group operates. There were no political contributions.
Employment policies
Details of the Group’s employment policies are available on the Company’s website.
Change of control/significant agreements
There are no agreements between the Group and its Directors or employees providing for compensation for loss of office or
employment that occurs because of a change of control, other than revised notice periods and termination payments for Hannah
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 the 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.
115
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE REPORT DIRECTORS’ REPORT
(OTHER STATUTORY INFORMATION) continued
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 have established that the Company’s auditor is
aware of that information.
Events since 31 December 2023
On 5 January 2024, the Group acquired Capital Steel Service for cash consideration of £5.0m. Located in Trenton, New Jersey, Capital
Steel supplies structural steel products and services into the electrical transmission and distribution market across the US East Coast.
On 7 March 2024, the Group acquired FM Stainless for cash consideration of £6.6m. Located in Ellijay, Georgia, FM Stainless,
manufactures stainless steel pipe supports and fasteners, serving a range of growth end markets including water and wastewater
treatment.
Annual General Meeting
The Annual General Meeting of the Company will be held at 11.00 a.m. on Thursday 23 May 2024 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 199.
By order of the Board
Alex Henderson
Company Secretary
11 March 2024
116
Stock Code HILS STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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.
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
11 March 2024
117
Hill & Smith PLC | Annual Report and Accounts 2023GOVERNANCE 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 2023 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 2023 which comprise:
Group
Parent Company
Consolidated Income Statement
Company Balance Sheet
Consolidated Statement of
Comprehensive Income
Company Statement of Changes in Equity
Consolidated Statement of Financial Position Related notes 1 to 16 to the financial
statements including a summary of
significant accounting policies
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
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;
• We obtained management’s going
concern assessment, including the
cash flow forecasts and covenant
calculations for the going concern
period to 30 June 2025. 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 extension to
the 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;
• 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.
118
Stock Code HILS 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;
• 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 sensitised management’s
assessment with the impact of
climate change based on their latest
costed plan; 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 2025.
In relation to the Group and Parent
Company’s reporting on how they have
OVERVIEW OF OUR AUDIT APPROACH
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 four trading components and one
non-trading component and audit procedures on specific balances for a further 14 components.
• The components where we performed full or specific audit procedures accounted for 99% of
operating profit, 95% of Revenue and 74% of Total assets.
Key audit matters
• Revenue recognition – the risk of management override through inappropriate manual journals to
revenue or inappropriate revenue cut-off
• Carrying value of goodwill in relation to ATG Access, Prolectric and Hill & Smith Inc.
• Risk of inappropriate inventory valuation
Materiality
• Overall Group materiality of £5.2m which represents 5% of 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 46 components
covering entities within the UK, US,
and India which represent the principal
business units within the Group.
Of the 46 components selected, we
performed an audit of the complete
financial information of five components
(“full scope components”) which were
selected based on their size or risk
characteristics. For the remaining
14 components (“specific scope
components”), we performed audit
procedures on specific accounts within
that component that we considered had
the potential for the greatest impact on
the significant accounts in the financial
statements either because of the size of
these accounts or their risk profile.
The reporting components where we
performed audit procedures accounted for
99% (2022: 98%) of the Group’s operating
profit 97% (2022: 99%) of the Group’s
revenue and 96% (2022: 99%) of the
Group’s total assets.
For the current year, the five full scope
components contributed 57% (2022: 57%)
of the Group’s operating profit 47% (2022:
48%) of the Group’s Revenue and 40%
(2022: 42%) of the Group’s total assets.
The 14 specific scope components
contributed 42% (2022: 31%) of the
Group’s operating profit 48% (2022: 46%)
of the Group’s revenue and 34% (2022:
29%) 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 four trading components, we
performed specified procedures which
as a minimum, included procedures over
revenue and cash at all four components
Of the remaining three trading
components that together represent 1%
of the Group’s operating profit none are
individually greater than 1% of the Group’s
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
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL 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
2023
2022
Full scope
Specific scope
Specified procedures over trading
components
Specified procedures over
non-trading components and
consolidation adjustments
Overall coverage
5
14
4
23
6
13
6
23
Adjusted
operating profit
Revenue
Total assets
2023
57%
42%
2022
57%
31%
2023
47%
48%
2022
48%
46%
2023
40%
34%
2022
42%
29%
7%
5%
5%
8%
6%
12%
(7%)
99%
5%
98%
(3%)
97%
(3%)
99%
15%
96%
16%
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.
and were 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 five full scope components, audit
procedures were performed on two of
these directly by the primary audit team.
Of the 14 specific scope components,
audit procedures were performed on 11 of
these directly by the primary audit team.
For the remaining three full scope and
three 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 overseas full
scope component locations on a rotational
basis. During the current year’s audit cycle,
visits were undertaken by the primary audit
team to the component teams in the US.
These visits involved discussing the audit
approach with the component team and
any issues arising from their work, meeting
with local management, visiting subsidiary
operational sites, attending closing meetings
and reviewing key audit working papers.
The primary team interacted regularly
with the component teams where
appropriate during various stages of the
audit, reviewed relevant working papers
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 48 to 51 in the
required Task Force for Climate related
Financial Disclosures and on page 61 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 determined to have
a limited impact on the current year
financial statements.
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 page 61
and whether these have been appropriately
reflected in judgements and estimates
following the requirements of UK adopted
international accounting standards. This
included challenging Management’s
assessment that the most relevant impact
of climate risks related to assets with
indefinite and long lives and whether the
carrying value of these assets could be
impacted by measures taken to address
global warming. 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, whilst we have not
identified the impact of climate change
on the financial statements to be a
standalone key audit matter, we have
considered the impact on the following
key audit matter: Carrying value of
goodwill in relation to ATG Access,
120
Stock Code HILS Prolectric and Hill & Smith Inc. Details of the impact, our procedures and findings are included in our explanation of key audit matters
below.
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.
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.
Risk
Our response to the risk
Revenue recognition – the risk
of management override through
inappropriate manual journals to
revenue or inappropriate revenue cut-off
(£829.8m, 2022: £732.1m)
Procedures to respond to this risk were performed by both the primary audit
team and component teams.
Cut-off
Cut-off
There is a risk of inappropriate revenue
recognition if deliveries or revenue from
the provision of services are recorded
in the wrong period. This includes any
estimation of revenue recorded over
time and completion of projects.
We performed the following audit procedures at four full and 14 specific scope
locations where revenue is in scope. Revenue at these locations represents 95%
of the total revenue balance of £829.8m. These procedures were additionally
performed at the three trading components at which we performed specified
procedures, representing a further 5% of the total revenue balance before intra-
group eliminations.
We performed walkthroughs of the process by which revenue is recognised and
recorded at the four full and 14 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 Engineered Solutions revenue earned on provision of installation services,
for a sample of items we obtained evidence from the customer to confirm the
stage of completion of the installation at the year-end to corroborate revenue
was recognised in the correct period and reflective 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 operational 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 2023.
For all locations we performed analytical procedures to compare revenue
recognised with our expectations, management’s forecasts and, where possible,
external market data.
121
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS Key observations
communicated to the
Audit Committee
Our procedures performed
did not identify any
unsupported manual
adjustments to revenue or
any unexplained anomalies
from our revenue analytics.
Our year end audit
procedures did not identify
evidence of material
misstatement regarding the
carrying value of goodwill in
the Group.
All three CGUs are
sensitive to reasonably
possible changes in key
assumptions. 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
Management override
Management override
As revenue is a key performance
indicator for external communication
and a key input into management’s
earnings based 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.
Carrying value of goodwill in relation
to ATG Access (£4.7m, 2022: £4.7m),
Prolectric (£5.5m, 2022: £5.5m), and
Hill & Smith Inc. (£8.7m, 2022: £9.2m)
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.
Prolectric, originally acquired in 2021,
has had a track record of growth until
the current year. A combination of a slow
down in their industry, and operational
challenges has reduced headroom and
increased sensitivity applicable to this
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
were taken to improve future trading
performance which have been slow to
realise in the current year. 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.
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.
We examined management’s methodology and the model used for assessing the
valuation of the ATG Access, Prolectric and Hill & Smith Inc CGUs to understand the
composition of future cash flow forecasts and the process undertaken to prepare them.
We checked the underlying cash flows were consistent with the Board approved
budgets.
We also re-performed the calculations in the model to test the mathematical
integrity.
We performed detailed testing with support from our valuation specialists to
critically assess and corroborate the key inputs of the forecast cash flows
including:
•
independently constructing our own expectation of the discount rates for a
market participant from first principles using input from our internal specialist
valuations team;
• analysing the historical accuracy of budgets versus actual results to
determine the reliability of cash flow forecasting based on past experience;
• assessing the achievability of the budget and strategic plan results by
considering factors including historic results, 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 views
provided in analyst reports, and specifically for Hill & Smith Inc., market studies.
• assessing the impact of climate change on future forecasts, and how
it has been included in each assessment. This included challenging the
completeness of Management’s climate change “costed plan” which
considers the financial impact of their climate related commitments.
Specifically for each CGU, we further focused on:
• For ATG Access, we understood and assessed the key trading assumptions;
• For Prolectric, we discussed with our internal specialists if there were any
contra indicators to the level of growth forecast by management in their
forecasts;
• 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 a 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.
122
Stock Code HILS 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
(£106.1m, 2022: £113.8m)
Procedures to respond to this risk were performed by both the primary audit
team and component teams.
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.
We performed the following audit procedures at four full, 12 specific scope, and
one 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 four
full, and 12 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
Parking Facilities CGU. This is not included
in the current year key audit matter, as
there is no Goodwill remaining.
Given the current sensitivities surrounding
the headroom of the Prolectric CGU, as
disclosed in Note 13, this year, more
audit effort has been focused on the
impairment assessment related to this
CGU. Therefore, this CGU has specifically
been included in the key audit matter
relating to the carrying value of goodwill
and intangible assets.
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
Performance 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 £5.2 million (2022: £4.1 million),
which is 5% (2022: 5%) of operating profit.
We believe that 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 initially calculated materiality for
the Group to be £5.3m based on 5% of
forecast operating profit. The final results
were lower than management’s initial
forecast. Therefore, we reassessed final
materiality to be £5.2m based on 5%
of actual reported operating profit. We
completed our audit procedures using this
lower level of final materiality.
We determined materiality for the Parent
Company to be £5.3m (2022: £4.9m),
which is 1.5% (2022: 1.5%) of equity.
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% (2022: 75%) of
our planning materiality, namely £3.9m
(2022: £3.0m). 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
£0.4m to £2.5m (2022: £0.3m to £1.8m).
123
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT continued
TO THE MEMBERS OF HILL & SMITH PLC
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 £0.3m (2022:
£0.2m), 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 116, 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
117, 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.
124
Stock Code HILS AUDITOR’S
RESPONSIBILITIES FOR
THE AUDIT OF THE
FINANCIAL STATEMENTS
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from
material misstatement, whether due to
fraud or error, and to issue an auditor’s
report that includes our opinion.
Reasonable assurance is a high level of
assurance but is not a guarantee that
an audit conducted in accordance with
ISAs (UK) will always detect a material
misstatement when it exists.
Misstatements can arise from fraud
or error and are considered material if,
individually or in the aggregate, they could
reasonably be expected to influence the
economic decisions of users taken on the
basis of these financial statements.
Explanation as to what extent the
audit was considered capable of
detecting irregularities, including
fraud
Irregularities, including fraud, are
instances of non-compliance with laws
and regulations. We design procedures
in line with our responsibilities, outlined
above, to detect irregularities, including
fraud. The risk of not detecting a material
misstatement due to fraud is higher than
the risk of not detecting one resulting
from error, as fraud may involve deliberate
concealment by, for example, forgery
or intentional misrepresentations,
or through collusion. The extent to
which our procedures are capable of
detecting irregularities, including fraud is
detailed below.
However, the primary responsibility for the
prevention and detection of fraud rests
with both those charged with governance
of the Company and management.
• We obtained an understanding of
the legal and regulatory frameworks
that are applicable to the Group and
determined that the most significant
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 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; scrutiny of management
specialist reports; 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 instances
of non-compliance with laws and
regulations which were concluded to
be not more than inconsequential.
A further description of our responsibilities
for the audit of the financial statements
is located on the Financial Reporting
Council’s website at https://www.frc.org.uk/
auditorsresponsibilities. This description
forms part of our auditor’s report.
OTHER MATTERS WE ARE
REQUIRED TO ADDRESS
Following the recommendation
•
from the audit committee we were
appointed by the Company on 17
October 2023 to audit the financial
statements for the year ending 31
December 2023 and subsequent
financial periods.
The period of total uninterrupted
engagement including previous
renewals and reappointments is 4
years, covering the years ending 31
December 2020 to 31 December 2023.
• 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
11 March 2024
125
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2023
Notes
Underlying
£m
2023
Non-
underlying*
£m
Total
£m
Underlying
£m
2022
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
732.1
(461.6)
270.5
(31.7)
829.8
(513.1)
316.7
(24.7)
(169.9)
0.4
122.5
0.5
(11.1)
111.9
(27.6)
–
–
–
–
829.8
(513.1)
316.7
(24.7)
732.1
(461.6)
270.5
(31.7)
–
–
–
–
(18.7)
(188.6)
(142.0)
(18.6)
(160.6)
–
(18.7)
–
–
(18.7)
3.2
0.4
103.8
0.5
(11.1)
93.2
(24.4)
0.3
97.1
0.5
(9.7)
87.9
(19.7)
–
(18.6)
–
–
(18.6)
3.7
0.3
78.5
0.5
(9.7)
69.3
(16.0)
84.3
(15.5)
68.8
68.2
(14.9)
53.3
–
–
–
5.2
(1.8)
3.4
84.3
(15.5)
68.8
86.0p
86.0p
85.0p
85.0p
73.4
(16.7)
56.7
71.0p
66.7p
70.4p
66.2p
* 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
Stock Code HILS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 31 December 2023
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 on defined benefit pension schemes
Taxation on items that will not be reclassified to profit or loss
Other comprehensive (loss)/income for the year
Total comprehensive income for the year attributable to owners of the parent
Notes
24
24
27
9
2023
£m
68.8
(19.4)
4.2
(0.4)
0.1
(15.5)
53.3
2022
£m
56.7
27.4
(4.8)
(2.8)
0.7
20.5
77.2
127
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF FINANCIAL POSITION
31 December 2023
Notes
13
14
16
9
17
3
15
18
19
20
3
21
23
16
21
22
23
17
27
16
22
25
2023
£m
205.7
184.4
41.8
1.6
0.4
2022
£m
182.6
186.3
38.7
1.6
0.1
433.9
409.3
2.5
106.1
137.3
0.8
34.4
281.1
715.0
1.8
113.8
144.3
0.3
24.8
285.0
694.3
(119.6)
(120.8)
(3.9)
(6.6)
(8.0)
(1.4)
(139.5)
141.6
(1.0)
(2.6)
(9.9)
(4.1)
(35.7)
(97.7)
(151.0)
(290.5)
424.5
20.0
44.6
4.9
22.9
332.1
424.5
(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
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
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 11 March 2024 and signed on its behalf by:
AC Giddins
Director
Company Number: 671474
HK Nichols
Director
128
Stock Code HILS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2023
Notes
Share
capital
£m
20.0
Share
premium
£m
Other
reserves†
£m
Translation
reserve
£m
Retained
earnings
£m
40.9
4.9
15.5
258.3
At 1 January 2022
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
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 2023
–
–
–
–
–
–
–
–
20.0
–
–
–
–
–
–
–
–
20.0
–
–
–
–
–
–
–
1.9
42.8
–
–
–
–
–
–
–
1.8
44.6
12
25
9
25
12
25
9
25
Total
equity
£m
339.6
56.7
20.5
–
56.7
22.6
(2.1)
–
–
–
–
–
–
(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
–
–
–
–
–
–
–
–
–
68.8
68.8
(15.2)
(0.3)
(15.5)
–
–
–
–
–
–
(28.0)
(28.0)
3.7
3.7
(1.6)
(1.6)
(1.0)
(1.0)
1.3
–
1.3
1.8
4.9
22.9
332.1
424.5
† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2022: £0.2m) capital redemption reserve.
At 31 December 2022 a total of 75,438 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 £1.3m, was included within
retained earnings at that date. During 2023, 40,275 shares have been issued in settlement of awards to employees and a further 121,321
shares purchased, leaving 156,484 shares held at 31 December 2023, at a cost of £2.9m included within retained earnings.
129
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2023
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 on disposal of non-current assets
Gain on disposal of assets held for sale
Depreciation of owned assets
Amortisation of intangible assets
Right-of-use asset depreciation
Gain on lease termination
Impairment of non-current assets
Operating cash flow before movement in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
Decrease in payables
Decrease in provisions and employee benefits
Net movement in working capital
Cash generated by operations
Purchase of assets for rental to customers
Income taxes paid
Interest paid
Interest paid on lease liabilities
Net cash from operating activities
Interest received
Proceeds on disposal of non-current assets
Proceeds on disposal of assets held for sale
Purchase of property, plant and equipment
Purchase of intangible assets
Acquisitions of subsidiaries
Deferred consideration in respect of prior year acquisition
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
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
15
8, 14
8, 13
8, 16
16
5, 8, 14, 16
13
5
25
20
12
20
20
20
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
2023
£m
4.1
4.2
0.2
(0.7)
19.7
9.6
9.3
(0.1)
1.3
15.0
8.0
(0.2)
(0.8)
0.5
0.8
2.5
(26.7)
(2.8)
(48.4)
(2.8)
(0.2)
1.8
(2.6)
(28.0)
(0.5)
(9.4)
73.9
(76.3)
£m
93.2
–
10.6
103.8
47.6
151.4
22.0
173.4
(2.3)
(31.7)
(8.9)
(1.3)
129.2
(77.1)
(41.1)
11.0
24.8
(1.4)
34.4
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
130
Stock Code HILS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. GROUP ACCOUNTING POLICIES
Hill & Smith 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 2023.
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 187 to 197.
The Accounting Policies set out below have, unless otherwise stated, been applied consistently in all periods presented in these Group
Financial Statements except that to better reflect operational activities, we have voluntarily changed the accounting policy for transportation
costs relating to temporary road barrier rental to include them in cost of sales rather than distribution costs. This change has been applied
prospectively from 1 January 2023, as the impact on the prior year comparatives of £5.5m was not considered sufficiently material to
require restatement. 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 2023. 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 and transition risks are also expected to have a relatively low impact
when considered together with the mitigating actions that the Group intends to take. 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 2023, the Group had £307.3m of committed borrowing facilities, of which only £2.1m matures before June 2026 at the
earliest, and a further £6.6m of on-demand facilities. During the year the Group extended the maturity of its core £250m revolving credit
facility by one year to November 2027. The Group also holds $70m of Senior Unsecured Notes, and other local committed borrowing
facilities of £2.1m. The amount drawn down under these committed facilities at 31 December 2023 was £101.1m, which together with cash
and cash equivalents of £34.4m gave total headroom of £247.2m (£240.6m committed, £6.6m on demand). The Group has not made any
changes to its principal borrowing facilities between 31 December 2023 and the date of approval of these financial statements. The only
significant changes to liquidity headroom during that period were the acquisitions of Capital Steel, which the Group completed in January
2024 for an initial consideration of £5.0m, and FM Stainless, which the Group acquired in March 2024 for £6.6m. 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 2023 was 0.4 times and interest cover was 17.3 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 2025. The assessment included a review of both divisional
and Group financial forecasts, financial instruments and hedging arrangements for the 18 months from the balance sheet date. Major
assumptions have been compared to external reference points such as infrastructure spend forecasts across the Group’s chosen market
sectors, government spending plans on road and other infrastructure, zinc and steel prices, and economic growth forecasts. 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 2024, 31 December 2024 and 30 June 2025.
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 27% compared with current expectations throughout the 18 month period
ending 30 June 2025. A reduction in headroom against borrowing facilities to nil would occur if the Group experienced a sustained revenue
reduction of 31% compared with current expectations for the 18 month period ending 30 June 2025. 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.
131
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 1. GROUP ACCOUNTING POLICIES continued
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.
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 2023
The following amendments and interpretations apply for the first time in 2023, and therefore were adopted by the Group:
• 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
• Amendments to IAS 12 – International Tax Reform – Pillar Two Model Rules
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 2024:
• Amendments to IAS 1 – Classification of liabilities as current or non-current and non-current liabilities with covenants
• Amendments to IFRS 16 – Lease Liability in a Sale and Leaseback
There are currently no further standards and interpretations to be adopted for year-ending 31 December 2025.
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 are therefore 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 non-cloud based and 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. Where software is cloud-based (stored, managed and available through the cloud), the associated costs generally do
not meet the criteria for recognition of an intangible asset since cloud-based arrangements generally do not provide a resource that the
Group can control. Accordingly, such licenses are expensed to the Consolidated Income Statement.
132
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 1. GROUP ACCOUNTING POLICIES continued
The development and implementation of a cloud-based system could give rise to an intangible asset. Each cloud-based computing
arrangement is considered on a case-by-case basis. Where it is determined that a cloud computing arrangement does not include an
intangible asset, the implementation costs are expensed to the Consolidated Income Statement.
An internally generated intangible asset arising from the Group’s development of computer systems (including websites) is recognised
if, and only if, the costs are directly associated with the production of identifiable and unique software products, controlled by the
Group and it is probable that future economic benefits will flow to the Group. Amortisation is provided equally over the estimated useful
economic life of the assets concerned, currently up to seven years.
Trade licences are amortised over the specific term granted to each individual licence.
An intangible asset is derecognised upon disposal (i.e. at the date the recipient obtains control) or when no future economic benefits
are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the
net disposal proceeds and the carrying amount of the asset) is included in the 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.
133
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 1. GROUP ACCOUNTING POLICIES continued
The recoverable amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amount will be recovered principally
through sale rather than through continuing use. On initial classification as held for sale, non-current assets and disposal groups are
measured at the lower of the previous carrying amount and fair value less costs to sell with any adjustments taken to the 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.
134
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 1. GROUP ACCOUNTING POLICIES continued
Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange
rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are
retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.
The assets and liabilities of overseas subsidiary undertakings, including goodwill and fair value adjustments arising on acquisition, are
translated at the closing exchange rate. Income statements and cash flows of such undertakings are translated into Sterling at weighted
average rates of exchange, other than substantial transactions that are translated at the rate on the date of the transaction. The
adjustments to period end rates are taken to the cumulative translation reserve in equity and reported in the Consolidated Statement of
Comprehensive Income. When an overseas operation is disposed of, in part or in full, the relevant amount in the translation reserve is
transferred to profit or loss.
Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in a foreign
operation are recognised and reported in the Consolidated Statement of Comprehensive Income, to the extent that the hedge is
effective. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged part of a net
investment is disposed of, the associated cumulative amount in the translation reserve is transferred to profit or loss as an adjustment
to the profit or loss on disposal.
The principal exchange rates used were as follows:
Sterling to US Dollar (£1 = USD)
Sterling to Indian Rupee (£1 = INR)
Sterling to Australian Dollar (£1 = AUD)
Inventories
2023
2022
Average
Closing
Average
Closing
1.24
102.68
1.87
1.27
106.08
1.87
1.24
97.01
1.78
1.20
99.41
1.77
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
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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 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.
136
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 1. GROUP ACCOUNTING POLICIES continued
Retirement benefits
The Group operates pension schemes under which contributions by employees and by the sponsoring companies are held in trust funds
separated from the Group’s finances.
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the Consolidated Income
Statement as incurred.
The Group’s net obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating
the amount of future benefit that employees have earned in return for their service in the current and prior periods. This benefit is
discounted to determine its present value, and the fair value of any scheme assets is deducted. The discount rate is the yield at the
year end date on AA rated bonds that have maturity dates approximating to the terms of the Group’s obligations. The calculation is
performed by a qualified actuary using the projected unit method. Scheme assets are valued at bid price.
In the Consolidated Income Statement, current and past service costs are recognised in operating profit and the interest cost on the net
defined benefit obligations is included in financial expense.
All actuarial gains and losses in calculating the Group’s obligation in respect of defined benefit schemes are recognised annually 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
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.
137
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 1. GROUP ACCOUNTING POLICIES continued
Income tax
Income tax on the profit or loss for the year represents the sum of the tax currently payable and deferred tax. Income tax is recognised
in the Consolidated Income Statement except to the extent that it relates to items either recognised in other comprehensive income or
directly in equity.
Current tax is the expected tax payable on the taxable profit for the year. Taxable profit differs from net profit as reported in the
Consolidated Income Statement because it excludes items of income or expense that are not taxable or deductible. The Group’s liability
for current tax is calculated using tax rates enacted or substantively enacted at the year end date, and any adjustments to tax payable in
respect of previous years.
Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Group operates, with effect from 1
January 2024. An assessment of the potential exposure to Pillar Two income taxes has been performed, noting that the Group primarily
operates in the UK and US where Pillar Two effective tax rates are higher than 15%. Currently the only jurisdiction identified where the
transitional safe harbour relief may not be available is in respect of the Group’s small trading operation in Ireland, however the Group
does not expect a significant exposure to Pillar Two income taxes to result given the relatively low level of profitability in the Irish entity.
Deferred taxation
Deferred tax is provided in full using the Consolidated Statement of Financial Position liability method and represents the tax expected
to be payable or recoverable on the temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill
not deductible for tax purposes, the initial recognition of assets and liabilities not resulting from a business combination that affects
neither accounting or taxable profit, and differences relating to investments in subsidiaries to the extent that they will not reverse in the
foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or substantively enacted at the year end date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
asset can be utilised. The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group
intends to settle its current tax assets and liabilities on a net basis.
Ordinary dividends
Dividends are recognised as a liability in the period in which they are approved by the Company’s shareholders.
138
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 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)
In determining the valuation of the UK 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 tax 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
£4.5m (2022: £4.6m) for uncertain tax positions. In addition, £0.6m (2022: nil) of the deferred tax liability relates to uncertain tax
positions. Depending on the conclusions of any tax audits conducted by the tax authorities in the various jurisdictions in which the
Group operates, management estimate the range of possible outcomes to be between £nil and £6.1m (2022: £nil to £5.7m) and
therefore it is possible that, if the outcomes are different to those estimated by management, the difference may materially impact the
income tax charge / (credit) in the year in which the matter is concluded. Further information is set out in note 9 and note 17.
139
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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
Revenue
£m
266.1
367.0
196.7
829.8
2023
Reported
operating
profit
£m
Underlying
operating
profit*
£m
0.3
59.7
43.8
103.8
(10.6)
93.2
(24.4)
68.8
12.4
64.4
45.7
122.5
(10.6)
111.9
(27.6)
84.3
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
Roads & Security
Engineered Solutions
Galvanizing Services
Group
Net financing costs
Profit before taxation
Taxation
Profit after taxation
* Underlying operating profit is stated before non-underlying items as defined in the Group Accounting Policies on page 137 and is the measure of segment profit used by the Chief
Operating Decision Maker, who is currently the Executive Chair. The reported operating profit columns are included as additional information.
Transactions between operating segments are on an arm’s length basis similar to transactions with third parties. Galvanizing Services
sold £5.2m (2022: £6.8m) of products and services to Roads & Security and £2.5m (2022: £2.0m) of products and services to
Engineered Solutions. Engineered Solutions sold £0.6m (2022: £1.9m) of products and services to Roads & Security. These internal
revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.
140
Stock Code HILSNOTES 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
2023
£m
155.0
11.0
90.4
1.9
0.7
7.1
2022
£m
163.5
16.7
70.3
4.9
1.9
4.2
2023
£m
80.6
8.2
259.2
12.5
5.5
1.0
2022
£m
87.2
8.7
2023
£m
83.9
–
187.1
112.8
2.4
3.9
0.6
–
–
–
2022
£m
81.8
–
98.9
–
–
–
2023
£m
319.5
19.2
462.4
14.4
6.2
8.1
2022
£m
332.5
25.4
356.3
7.3
5.8
4.8
266.1
261.5
367.0
289.9
196.7
180.7
829.8
732.1
241.2
240.3
367.0
289.9
–
–
–
24.9
266.1
–
21.2
261.5
–
–
–
–
196.7
180.7
–
–
367.0
289.9
196.7
180.7
608.2
196.7
24.9
829.8
530.2
180.7
21.2
732.1
208.1
210.2
172.7
153.8
196.7
180.7
577.5
544.7
58.0
266.1
51.3
261.5
194.3
367.0
136.1
289.9
–
–
196.7
180.7
252.3
829.8
187.4
732.1
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
2023
2022
Impairment
losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
Impairment
losses,
amortisation and
depreciation
£m
Capital
expenditure
£m
8.2
11.7
11.0
30.9
28.1
2.8
30.9
14.9
7.4
7.7
30.0
20.4
9.6
30.0
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
The 2022 amounts for impairment losses, amortisation and depreciation relating to the Roads & Security segment included intangible
asset impairment losses of £4.4m relating to Parking Facilities Limited.
141
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
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
2023
£m
262.8
3.6
419.6
16.0
13.0
715.0
2023
£m
181.0
0.8
239.8
3.2
9.1
433.9
2023
£m
12.7
0.3
16.6
0.6
0.7
30.9
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
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 margin
• Organic and constant currency measures 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
• 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.
142
Stock Code HILSNOTES 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
2023
£m
111.9
(18.7)
93.2
2022
£m
87.9
(18.6)
69.3
Reconciliation of underlying to reported operating profit from continuing operations by segment
Underlying operating profit from
continuing operations
Non-underlying items:
Amortisation of acquisition related
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
Total
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
2023
£m
2022
£m
12.4
18.1
64.4
35.0
45.7
44.0
122.5
97.1
(4.2)
(0.2)
(0.6)
(2.9)
(4.2)
(4.6)
(2.9)
(6.4)
(1.5)
(1.0)
(3.0)
(0.5)
(1.2)
(0.9)
–
–
(1.7)
–
–
–
(0.4)
–
–
–
(0.7)
–
–
–
(0.4)
–
(8.4)
(0.2)
(0.6)
(5.3)
(4.2)
(6.0)
(2.9)
(6.4)
(2.3)
(1.0)
0.3
1.7
59.7
34.1
43.8
42.7
103.8
78.5
Calculation of underlying operating margin from continuing operations
Continuing operations
Underlying operating profit
Revenue
Underlying operating margin (%)
Roads & Security
Engineered Solutions
Galvanizing
Total
2023
£m
12.4
266.1
4.7%
2022
£m
18.1
261.5
6.9%
2023
£m
64.4
367.0
17.5%
2022
£m
35.0
289.9
12.1%
2023
£m
45.7
196.7
23.2%
2022
£m
44.0
180.7
24.3%
2023
£m
122.5
829.8
14.8%
2022
£m
97.1
732.1
13.3%
143
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
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
Underlying
operating
profit
£m
Revenue
£m
Revenue
£m
Underlying
operating
profit
£m
Underlying
operating
profit
£m
Revenue
£m
Revenue
£m
Continuing operations
2022
261.5
18.1
289.9
35.0
180.7
44.0
732.1
97.1
Impact of exchange rate
movements from 2022 to 2023
2022 translated at 2023
exchange rates (A)
Acquisitions, disposals
and closures
Organic growth/(decline) (B)
2023 (C)
Organic growth %
(B divided by A)
Constant currency change %
((C-A) divided by A)
(0.7)
–
(0.4)
–
–
–
(1.1)
–
260.8
18.1
289.5
35.0
180.7
44.0
731.0
97.1
17.2
(11.9)
266.1
7.2
(12.9)
12.4
35.1
42.4
367.0
5.1
24.3
64.4
7.8
8.2
1.5
0.2
60.1
38.7
13.8
11.6
196.7
45.7
829.8
122.5
–4.6%
–71.3%
14.6%
69.4%
4.5%
0.5%
5.3%
11.9%
2.0%
–31.5%
26.8%
84.0%
8.9%
3.9%
13.5%
26.2%
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 and assets held for sale
Add back: Defined benefit pension scheme deficit payments
Add back: Cash flows relating to non-underlying items
Adjusted operating cash flow
Underlying cash conversion (%)
2023
£m
122.5
–
122.5
173.4
(2.3)
(26.7)
(2.8)
(9.4)
3.3
3.7
1.9
141.1
115%
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%
144
Stock Code HILSNOTES 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)
2023
£m
2.3
26.7
2.8
31.8
19.7
1.0
0.2
20.9
1.5x
2023
£m
108.4
(43.7)
2.0
66.7
122.5
19.7
9.3
1.0
0.2
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
152.7
133.9
(10.4)
4.1
3.5
149.9
0.4
(10.3)
2.0
(3.7)
121.9
0.7
145
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
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 related intangibles
Expenses related to acquisitions and disposals
Total non-underlying items
Total non-underlying items – continuing operations
Total non-underlying items – discontinued operations
Notes:
2023
£m
(4.2)
(0.2)
(0.6)
(8.4)
(5.3)
2022
£m
(1.4)
(2.9)
(6.4)
(6.2)
(3.5)
(18.7)
(20.4)
(18.7)
–
(18.6)
(1.8)
a)
In April 2023, the Group completed the disposal of the remaining part of its Swedish roads business, and in October 2023, we sold
the business and assets of Berry Systems, a small UK car park solutions operation. Aggregated details of these disposals are set
out below:
Disposal of Swedish roads and Berry Systems businesses
Property, plant and equipment
Intangible assets
Right-of-use assets
Inventories
Current assets
Current liabilities
Lease liabilities
Net assets disposed
Consideration received
Cumulative exchange differences
Loss on disposal
£m
0.1
0.7
0.3
1.9
2.9
(1.2)
(0.3)
4.4
0.5
(0.3)
4.2
The Group also incurred legal fees and other project completion costs relating to the disposals of £1.0m, which are included within
‘expenses related to acquisitions and disposals’ in the table above.
In 2022, the loss on disposal of £1.4m related to the sales of France Galva, the Group’s French galvanizing and lighting column
operation, and the first part of the Swedish roads business.
b)
In May 2022, the Group exited the low-margin plastic products operations that formed part of our US roads business, recognising
a charge of £2.9m in 2022 comprising business reorganisation costs of £1.1m and asset impairment charges of £1.8m. In March
2023 we sold the property that was vacated on closure, which was reported as an asset held for sale at 31 December 2022,
recognising a profit of £0.7m. In addition, following the closure of the Group’s variable message sign (VMS) business in 2021,
the Group has incurred a further £1.5m of costs in 2023 in relation to vacant leasehold properties and the completion of legacy
contracts, comprising restructuring costs of £0.9m and a right-of-use asset impairment of £0.6m.
Business restructuring costs of £2.9m in 2022 comprised £2.6m relating to the actions described above and a further £0.3m
relating to restructuring in the Swedish road business.
c) The impairment charge of £0.6m in 2023 relates to the VMS closure as explained above. Impairment charges of £6.4m in 2022
comprised a charge of £4.4m in respect of acquisition intangible assets relating to Parking Facilities, one of the Group’s UK security
businesses, and £2.0m relating to the portfolio management actions in our US and Swedish roads businesses.
Included in taxation
The tax effect of the above items is a credit to the income statement of £3.2m (2022: £3.7m).
146
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
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)
2023
No.
1,018
2,054
1,264
4,336
2023
£m
171.4
4.1
23.1
4.6
203.2
2022
No.
1,078
1,550
1,167
3,795
2022
£m
145.9
2.0
21.0
4.3
173.2
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
2023
£m
2022
£m
2.8
–
0.8
0.1
3.7
3.8
0.6
0.7
0.1
5.2
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. 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 94 to 106.
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
2023
£m
0.5
0.5
(8.9)
(1.3)
(0.6)
(0.3)
(11.1)
(10.6)
2022
£m
0.5
0.5
(6.4)
(0.8)
(2.4)
(0.1)
(9.7)
(9.2)
147
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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 related 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
Gain on disposal of assets held for sale (note 15)
Foreign exchange gain
Sublease income (note 16)
2023
£m
2022
£m
(19.7)
(19.1)
(9.3)
(1.0)
–
(0.2)
(1.0)
(8.4)
(1.0)
(0.2)
–
(0.7)
(0.6)
0.7
0.2
0.1
(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
nil (2022: £1.8m), right-of-use asset depreciation of nil (2022: £0.4m), and amortisation of acquisition related intangibles of nil (2022:
£0.3m).
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
£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 93 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 £13,000 (2022: £3,000).
148
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 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
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
2023
£m
4.1
20.7
1.3
26.1
1.1
(0.4)
(2.4)
(1.7)
24.4
(0.1)
(0.1)
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)
(1.3)
(1.3)
1.2
1.0
The tax charge in the Consolidated Income Statement for the period is higher (2022: 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 23.5% (2022: 19.0%)
Expenses not deductible/income not chargeable for tax purposes
Benefits from international financing arrangements – current and prior years
Local tax incentives
Overseas profits taxed at higher rates
Overseas losses not relieved
Adjustments in respect of prior years
Tax charge
Tax charge attributable to continuing operations
Tax charge attributable to discontinued operations
2023
£m
93.2
–
93.2
21.9
2.3
(0.1)
(0.1)
1.5
–
(1.1)
24.4
24.4
–
24.4
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
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. In
August 2022, the UK Government and several multinationals, including the Group, appealed against the General Court’s decision. The UK
/ taxpayer appeal was heard by the Court of Justice of the European Union (‘CJEU’) on 10 January 2024, and we are currently awaiting
the Advocate General’s non-binding opinion which should be received in April 2024, followed by the CJEU’s final decision later this year.
Having taken expert advice, we have concluded that there are strong grounds for appeal and 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.
149
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 10. DISCONTINUED OPERATIONS IN THE PRIOR YEAR
On 4 October 2022 the Group completed the disposal of France Galva SA, our French galvanizing and lighting column business, for
£62.0m. France Galva’s results were reporting within discontinued operations in the prior year, details of which are set out below.
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)
* 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 in the prior year were as follows:
Cash received from sale
Cash and cash equivalents disposed
Net cash inflow on disposal
Total
£m
68.7
(47.6)
21.1
(3.6)
(12.5)
5.0
(0.1)
4.9
(1.5)
3.4
2022
£m
62.0
(5.9)
56.1
The net cash flows generated/(incurred) by France Galva included in the prior year 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
2022
£m
3.4
(2.8)
(0.4)
0.2
150
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 11. EARNINGS PER SHARE
The weighted average number of ordinary shares in issue during the year was 80.0m (2022: 79.9m), diluted for the effects of
the outstanding dilutive share options 81.0m (2022: 80.5m). 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.
2023
Pence
per share
86.0
–
86.0
19.4
–
19.4
105.4
–
105.4
85.0
–
85.0
19.1
–
19.1
104.1
–
104.1
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
£m
68.8
–
68.8
15.5
–
15.5
84.3
–
84.3
68.8
–
68.8
15.5
–
15.5
84.3
–
84.3
£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
151
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 12. DIVIDENDS
Dividends paid during the year
Interim dividend paid in relation to year-ended 31 December 2021
Final dividend paid in relation to year-ended 31 December 2021
Interim dividend paid in relation to year-ended 31 December 2022
Final dividend paid in relation to year-ended 31 December 2022
Total
Dividends declared in respect of the year
Interim dividend declared in relation to year-ended 31 December 2022
Final dividend declared in relation to year-ended 31 December 2022
Interim dividend declared in relation to year-ended 31 December 2023
Final dividend proposed in relation to year-ended 31 December 2023
Total
2023
Pence
per share
–
–
13.0
22.0
35.0
2023
Pence
per share
–
–
15.0
28.0
43.0
2022
Pence
per share
12.0
19.0
–
–
31.0
2022
Pence
per share
13.0
22.0
–
–
35.0
£m
–
–
10.4
17.6
28.0
£m
–
–
12.0
22.5
34.5
£m
9.6
15.1
–
–
24.7
£m
10.4
17.6
–
–
28.0
The final dividend for 2023 was proposed after the year end date and was not recognised as a liability at 31 December 2023, in
accordance with IAS 10.
152
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
13. INTANGIBLE ASSETS
Cost
At 1 January 2022
Exchange adjustments
Acquisitions of subsidiaries
Additions
Disposals of subsidiaries
At 31 December 2022
Exchange adjustments
Acquisitions of subsidiaries
Reclassification from tangible fixed
assets (note 14)
Additions
Disposals of subsidiaries
At 31 December 2023
Amortisation and impairment losses
At 1 January 2022
Exchange adjustments
Disposals of subsidiaries
Amortisation charge for the year
Impairment losses
At 31 December 2022
Exchange adjustments
Reclassification from tangible fixed
assets (note 14)
Disposals of subsidiaries
Amortisation charge for the year
At 31 December 2023
Carrying values
At 1 January 2022
At 31 December 2022
At 31 December 2023
Goodwill
£m
Brands
£m
Customer
Lists
£m
Capitalised
Development
Costs
£m
Contracts,
licences and
other assets
£m
171.0
9.0
9.3
–
(28.9)
160.4
(5.3)
17.2
–
–
(8.6)
163.7
44.1
1.3
(16.9)
–
0.5
29.0
(0.9)
–
(8.0)
–
20.1
126.9
131.4
143.6
30.2
2.1
1.2
–
(4.9)
28.6
(1.2)
1.3
–
–
(0.2)
28.5
15.0
1.1
(3.8)
1.0
0.4
13.7
(0.5)
–
(0.2)
0.9
13.9
15.2
14.9
14.6
55.3
2.2
9.8
–
(0.5)
66.8
(2.2)
16.3
–
–
(3.9)
77.0
32.8
1.3
(0.5)
3.3
5.2
42.1
(1.1)
–
(3.9)
4.6
41.7
22.5
24.7
35.3
18.9
0.2
–
2.3
–
21.4
(0.1)
–
0.2
2.1
(0.9)
22.7
14.4
0.1
–
1.1
–
15.6
–
–
(0.7)
1.0
15.9
4.5
5.8
6.8
17.5
0.8
–
0.2
(0.6)
17.9
(0.4)
2.0
0.6
0.7
(0.4)
20.4
9.2
0.5
(0.5)
2.9
–
12.1
(0.2)
0.5
(0.5)
3.1
15.0
8.3
5.8
5.4
Total
£m
292.9
14.3
20.3
2.5
(34.9)
295.1
(9.2)
36.8
0.8
2.8
(14.0)
312.3
115.5
4.3
(21.7)
8.3
6.1
112.5
(2.7)
0.5
(13.3)
9.6
106.6
177.4
182.6
205.7
153
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 13. INTANGIBLE ASSETS continued
2023
Enduro Composites, Inc.
On 17 February 2023 the Group acquired 100% of the share capital of Enduro Composites, Inc. (“Enduro”) for a cash consideration after
working capital adjustments of £28.7m. Enduro, located in Houston, Texas, is a designer, manufacturer and supplier of engineered
composite solutions focused on industrial and infrastructure market segments. Enduro will become part of the Group’s Engineered
Solutions division, is highly complementary to our existing northeastern and midwestern US composite businesses and will further
accelerate our strategy in this exciting and growing market.
Details of the acquisition are set out below:
Intangible Assets
Brands
Customer lists
Order backlog
Property, plant and equipment
Right-of-use assets
Inventories
Current assets
Deferred tax asset
Cash and cash equivalents
Total assets
Lease Liabilities
Current liabilities
Corporation tax
Deferred tax liability
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
Policy
alignment
and fair value
adjustments
£m
–
–
–
2.7
–
4.5
6.5
1.4
1.8
16.9
–
(4.8)
–
–
(4.8)
12.1
1.0
9.9
1.6
(0.2)
2.3
(0.5)
(0.1)
–
–
14.0
(2.3)
(0.3)
(0.2)
(2.9)
(5.7)
8.3
Total
£m
1.0
9.9
1.6
2.5
2.3
4.0
6.4
1.4
1.8
30.9
(2.3)
(5.1)
(0.2)
(2.9)
(10.5)
20.4
28.7
8.3
28.7
(1.8)
26.9
Brands, customer lists and an order backlog have been recognised as specific intangible assets as a result of the acquisition. The
residual goodwill arising, which has been allocated to the Engineered Solutions 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 £5.8m of trade receivables, which have a gross value of £6.2m.
Post-acquisition the acquired business has contributed £34.4m revenue and £5.0m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisition had been made on 1 January 2023, the Group’s results for the period would
have shown revenue of £835.7m, underlying operating profit of £123.4m and reported operating profit of £104.7m. The Group incurred
expenses of £0.9m relating to the acquisition, which are included in non-underlying costs in the year (see note 5).
154
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 13. INTANGIBLE ASSETS continued
Korns Galvanizing Company Inc.
On 8 March 2023 the Group acquired the business and assets of Korns Galvanizing Company Inc. (“Korns”) for a cash consideration of
£9.4m. 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.
Details of the acquisition are set out below:
Intangible Assets
Customer lists
Property, plant and equipment
Inventories
Current assets
Total assets
Current liabilities
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
–
1.2
0.5
0.3
2.0
(0.2)
(0.2)
1.8
1.6
–
(0.1)
–
1.5
(0.1)
(0.1)
1.4
Total
£m
1.6
1.2
0.4
0.3
3.5
(0.3)
(0.3)
3.2
9.4
6.2
9.4
–
9.4
Customer lists have been recognised as a specific intangible asset as a result of the acquisition. The residual goodwill arising, which
has been allocated to the US Galvanizing CGU within the Galvanizing Services segment, primarily represents the highly skilled workforce
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 £0.3m of trade receivables, which have a gross value of £0.3m.
Post-acquisition the acquired business has contributed £4.8m revenue and £1.0m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisition had been made on 1 January 2023, the Group’s results for the period would
have shown revenue of £830.5m, underlying operating profit of £122.6m and reported operating profit of £103.9m. The Group incurred
expenses of £0.4m relating to the acquisition, which are included in non-underlying costs in the year (see note 5).
155
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 13. INTANGIBLE ASSETS continued
United Fiberglass of America Inc.
On 16 November 2023 the Group acquired the business and assets of United Fiberglass of America Inc. (“United Fiberglass”) for a cash
consideration of £11.8m, plus £0.6m relating to post completion working capital adjustments payable early in 2024. United Fiberglass,
located in Springfield, Ohio, is a designer, manufacturer and supplier of composite pipe, conduit and bridge drain infrastructure
systems. The business has become part of Creative Composites Group, within our Engineered Solutions division. The business is
highly complementary to our existing composite activities and will further accelerate our strategy in this exciting and growing market,
expanding our customer base and product range, while also providing additional manufacturing capability.
Details of the acquisition are set out below:
Intangible Assets
Brands
Customer lists
Order backlog
Property, plant and equipment
Inventories
Current assets
Total assets
Current liabilities
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
–
–
–
0.6
1.8
1.2
3.6
(0.7)
(0.7)
2.9
0.3
4.0
0.4
2.2
–
(0.1)
6.8
–
–
6.8
Total
£m
0.3
4.0
0.4
2.8
1.8
1.1
10.4
(0.7)
(0.7)
9.7
12.4
2.7
11.8
–
11.8
Brands, customer lists and an order backlog have been recognised as specific intangible assets as a result of the acquisition. The
residual goodwill arising, which has been allocated to the Engineered Solutions 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 £1.1m of trade receivables,
which have a gross value of £1.2m.
Post-acquisition the acquired business has contributed £0.7m revenue and £0.1m underlying operating profit, which are included in the
Group’s Consolidated Income Statement. If the acquisition had been made on 1 January 2023, the Group’s results for the period would
have shown revenue of £836.9m, underlying operating profit of £124.2m and reported operating profit of £105.5m. The Group incurred
expenses of £0.5m relating to the acquisition, which are included in non-underlying costs in the year (see note 5).
Conn-Fab Sales, Inc.
In December 2023, we acquired the equipment, inventory, customer lists, order book and intellectual property of Conn-Fab Sales,
Inc. (“Conn-Fab”), which specialises in adapter curbs, rails, and other customised rooftop seismic support solutions. The acquisition
supports the expansion of our existing product portfolio and geographical reach across the US and southern Canada. Consideration
in the year was £0.3m, with a further £0.5m being payable over the following 18 months once the qualifying accepted order value (as
agreed at acquisition date) has converted to sale. As the fair value of assets acquired was minimal, the total consideration of £0.8m has
been allocated to customer lists acquired.
Given the December acquisition, Conn-Fab’s contribution to revenue and underlying operating profit in the Group’s 2023 results is less
than £0.1m. If the acquisition had been made on 1 January 2023, the Group’s results for the period would have shown revenue of
£831.4m, underlying operating profit of £123.1m and reported operating profit of £104.4m.
156
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 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 which was paid 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,
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
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 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 £5.5m of trade
receivables, which had a gross value of £5.7m.
As part of the acquisition agreement, additional consideration was 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.
157
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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
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 were recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which was
allocated to the Galvanizing Services 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. The fair value of the current assets acquired included £0.8m of trade receivables, which had a gross value of £0.8m.
158
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 13. INTANGIBLE ASSETS continued
Cash generating units with significant amounts of goodwill
Engineered Solutions
Creative Composites Group
V&S Utilities
Enduro Composites
Others <£5m individually
Roads & Security
National Signal
ATG Access
H&S Inc.
Hill & Smith Infrastructure (formerly VRS Solutions Group)
Mallatite
Prolectric
Others <£5m individually
Galvanizing Services
USA
UK
Others <£5m individually*
2023
£m
2022
£m
19.3
17.7
5.7
8.3
5.2
7.0
4.7
8.7
9.8
9.6
5.5
0.2
32.7
26.9
–
143.6
6.0
–
5.4
7.4
4.7
9.2
10.4
9.6
5.5
0.2
28.4
24.8
2.1
131.4
* Amounts included in this category in the prior year related to Widnes Galvanising, acquired in 2022. The amount has been aggregated within the UK Galvanising CGU in the current
year for the purposes of impairment testing, being the first year that Widnes Galvanising has been tested for impairment.
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 £8.0m (2022: £8.5m), 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 2025 through 2027, 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.
159
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 13. INTANGIBLE ASSETS continued
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.
2023
Goodwill
£m
Headroom
£m
Discount
rate
Goodwill
£m
Creative Composites Group
19.3
185.6
V&S Utilities
Hill & Smith Infrastructure
ATG Access
Mallatite
Prolectric
Parking Facilities
Hill & Smith Inc.
National Signal
Galvanizing Services – USA
Galvanizing Services – UK
5.7
9.8
4.7
9.6
5.5
–
8.7
7.0
32.7
26.9
95.5
26.7
5.5
30.0
15.6
–
15.9
38.9
210.4
90.6
15.3%
15.2%
14.8%
14.6%
14.8%
14.4%
–
15.0%
15.1%
15.2%
14.6%
17.7
6.0
10.4
4.7
9.6
5.5
–
9.2
–
28.4
24.8
2022
Headroom/
(impairment)
£m
66.7
52.8
63.2
1.4
30.1
16.3
(4.4)
9.6
–
204.3
59.2
Discount
rate
15.7%
15.6%
15.5%
15.6%
15.5%
15.4%
15.8%
15.0%
–
15.5%
15.6%
Based on the methodology set out above, the goodwill impairment reviews did not identify any impairments.
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, Hill & Smith Inc. and Prolectric.
ATG Access
ATG Access operates in niche security markets, manufacturing and distributing hostile vehicle mitigation and related products. Its
future performance is largely dependent on the pace of recovery in its UK and global security products markets, which itself is inherently
dependent on both public/customer behaviour and broader economic conditions. Notwithstanding ATG’s improved performance in 2023
following a difficult period of trading post-pandemic, 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 and the discount rate are the key assumptions on which the goodwill impairment review is most sensitive. The following table
provides information on the impact on calculated headroom of various scenarios for each of those key assumptions (independently in
each case):
Input
Scenario
Compound annual revenue growth 2023-2028
Base case
Average gross margin % 2024-28 **
Base case
Zero headroom
H&S sensitivity *
Pre-tax discount rate
Zero headroom
H&S sensitivity **
Base case
Zero headroom
H&S sensitivity
Sensitivity
applied
%
Headroom/
(impairment)
£m
8.8%
5.9%
2.0%
28.2%
25.7%
24.0%
14.6%
20.1%
23.4%
5.5
–
(6.1)
5.5
–
(3.5)
5.5
–
(1.9)
* Illustrates the impacts of compound revenue growth at 2% (consistent with long-term UK growth rates).
** The base case assumes that average gross profit margins across the period 2024-28 are slightly below the 30% achieved across 2022/23. The H&S sensitivity assumes a gross
profit margin 2024-28 of 24%, in line with the average gross margin in 2020-21, the period most affected by the COVID pandemic.
160
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 13. INTANGIBLE ASSETS continued
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 and 2023 was impacted by operational challenges
and consequent improvement costs. 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 four to 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 few years,
and crash attenuator sales, where the business has developed a complementary offering to its existing market-leading product that will
begin to be sold in 2024. 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 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 possible scenarios for each of those key assumptions (independently in each case), the first showing the Board approved projections,
the second the assumptions that result in zero headroom, and the third a severe but plausible downside scenario:
Input
Scenario
Compound annual revenue growth 2023-2028
Base case
Average gross profit margin 2024-28 *
Base case
Zero headroom
H&S sensitivity
Pre-tax discount rate
Zero headroom
H&S sensitivity
Base case
Zero headroom
H&S sensitivity
Sensitivity
applied
%
Headroom/
(impairment)
£m
14.4%
13.3%
12.5%
33.9%
31.5%
30.9%
15.0%
17.7%
19.3%
15.9
–
(6.9)
15.9
–
(4.3)
15.9
–
(7.1)
* The base case assumes a gross profit margin averaging 33.9% across the period 2024-28, with minimal variation between years. The sensitivity scenario shows the potential
impairment if the gross margin of 30.9% achieved in 2023 remains constant throughout the period 2024-28.
Prolectric
Prolectric manufactures, sells and rents a range of off-grid solar energy products including temporary and permanent solar lighting,
lighting towers and hybrid power generators, to construction contractors, hire companies and private businesses across the UK
infrastructure markets. Following a strong performance in 2022, its results in 2023 were impacted by a downturn in the UK construction
market leading to lower revenues and profitability. The Group’s projections for Prolectric result in calculated headroom of £15.6m.
These projections assume a recovery in UK construction activity over the short to medium term, that the business’s recent refocus into
the more resilient facilities management sector will further support revenue growth, and that the niche solar lighting market in which
Prolectric operates will see strong medium term growth rates driven by corporate sustainability initiatives. Consequently, the projections
include compound annual revenue growth of 20.2% over the period 2023-28. We acknowledge, however, that there could be variations
in the pace of recovery in underlying UK construction activity and in growth across Prolectric’s other markets, and our sensitivity
calculations indicate that compound annual revenue growth of 16.7% (all other assumptions in the model unchanged) would result in
zero calculated headroom, while compound growth of 14.0% would lead to an impairment of £8.9m. The calculations are not particularly
sensitive to other assumptions such as gross margins, long term growth rates or the discount rate and we do not believe that there are
any reasonable possible changes in assumptions for these metrics that could lead to a material impairment.
161
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 14. PROPERTY, PLANT AND EQUIPMENT
Cost
At 1 January 2022
Exchange adjustments
Acquisitions of subsidiaries (note 13)
Additions
Disposals of subsidiaries
Transfers from inventories
Disposals
Transfers to assets held for sale (note 15)
At 31 December 2022
Exchange adjustments
Acquisitions of subsidiaries (note 13)
Additions
Disposals of subsidiaries (note 5)
Transfers from right-of-use lease asset (note 16)
Transfers to inventory
Transfers to assets held for sale (note 15)
Reclassification to intangible fixed assets (note 13)
Reclassification
Disposals
At 31 December 2023
Depreciation and impairment losses
At 1 January 2022
Exchange adjustments
Disposal of subsidiary
Disposals
Transfers to assets held for sale (note 15)
Charge for the year
Impairment
At 31 December 2022
Exchange adjustments
Disposals of subsidiaries (note 5)
Disposals
Transfers to assets held for sale (note 15)
Transfers from right-of-use lease asset (note 16)
Reclassification to intangible fixed assets (note 13)
Charge for the year
Impairment
At 31 December 2023
Carrying values
At 1 January 2022
At 31 December 2022
At 31 December 2023
Land and
buildings
£m
Plant,
machinery
and vehicles
£m
129.6
8.8
0.3
3.5
(31.6)
–
(0.6)
(2.9)
107.1
(4.4)
3.9
6.8
(0.4)
–
–
(3.4)
–
2.4
(1.6)
110.4
46.2
2.6
(19.8)
(0.6)
(1.1)
4.0
–
31.3
(1.5)
(0.4)
(1.9)
(0.9)
–
–
3.8
0.7
31.1
83.4
75.8
79.3
237.8
9.3
1.5
25.7
(38.4)
0.3
(6.9)
–
229.3
(5.4)
2.6
21.3
(0.8)
1.1
(6.9)
–
(0.8)
(2.4)
(12.9)
225.1
127.9
3.8
(21.8)
(6.3)
–
15.1
0.1
118.8
(2.1)
(0.7)
(11.6)
–
0.2
(0.5)
15.9
–
120.0
109.9
110.5
105.1
Total
£m
367.4
18.1
1.8
29.2
(70.0)
0.3
(7.5)
(2.9)
336.4
(9.8)
6.5
28.1
(1.2)
1.1
(6.9)
(3.4)
(0.8)
–
(14.5)
335.5
174.1
6.4
(41.6)
(6.9)
(1.1)
19.1
0.1
150.1
(3.6)
(1.1)
(13.5)
(0.9)
0.2
(0.5)
19.7
0.7
151.1
193.3
186.3
184.4
The gross book value of land and buildings includes freehold land of £17.8m (2022: £17.5m). Included within plant, machinery and
vehicles are assets held for rental with a cost of £103.9m (2022: £98.6m) and accumulated depreciation of £51.5m (2022: £47.6m).
The gross book value of plant, machinery and vehicles includes assets under construction of £18.0m (2022: £20.6m).
162
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 15. ASSETS HELD FOR SALE
Land and buildings
Total Assets held for sale
2023
£m
2.5
2.5
2022
£m
1.8
1.8
Assets held for sale at 31 December 2023 represent a property held by one of the Group’s UK roads businesses that is expected to
be sold in the first half of 2024, and whose carrying value has been reduced by £0.7m to reflect its fair value. Assets held for sale at
31 December 2022 represented the property that was vacated following the Group’s exit from its low margin US road traffic control
products business, which was sold in March 2023 at a profit of £0.7m.
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 2022 and
31 December 2023 were as follows:
Right-of-use assets
At 1 January 2022
Acquisitions of subsidiaries
Additions
Disposals of subsidiaries
Terminations
Depreciation charge for the year
Re-measurement
Impairment
Effect of movements in foreign exchange
At 31 December 2022
Acquisitions of subsidiaries
Additions
Disposals of subsidiaries
Terminations
Depreciation charge for the year
Transfers to property, plant and equipment (note 14)
Re-measurement
Impairment (note 5)
Effect of movements in foreign exchange
At 31 December 2023
Land and
buildings
£m
Plant and
equipment
£m
28.0
1.0
5.1
(1.3)
–
(4.1)
0.1
(0.2)
0.9
29.5
2.2
10.6
(0.1)
(2.2)
(5.6)
–
0.1
(0.6)
(0.7)
33.2
10.2
–
4.0
(0.1)
(0.3)
(4.7)
–
–
0.1
9.2
0.1
4.1
(0.2)
(0.1)
(3.7)
(0.9)
0.1
–
–
8.6
Total
£m
38.2
1.0
9.1
(1.4)
(0.3)
(8.8)
0.1
(0.2)
1.0
38.7
2.3
14.7
(0.3)
(2.3)
(9.3)
(0.9)
0.2
(0.6)
(0.7)
41.8
163
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 16. LEASES continued
Lease liabilities
At 1 January
Additions
Terminations
Interest expense
Disposals of subsidiaries
Acquisitions of subsidiaries
Lease payments
Re-measurement
Effect of movements in foreign exchange
At 31 December
2023
£m
39.3
14.6
(2.4)
1.3
(0.3)
2.3
(10.4)
–
(0.7)
43.7
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
2023
£m
9.3
1.0
–
(0.1)
10.2
1.3
11.5
2023
£m
8.0
6.7
5.5
4.1
3.0
16.4
43.7
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
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.
164
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
16. LEASES continued
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
2023
More than
five years
£m
0.3
1.3
9.4
5.3
2022
Within five
years
£m
More than five
years
£m
0.2
1.9
10.1
3.3
Total
£m
9.7
6.6
Total
£m
10.3
5.2
The Group has lease contracts that have not yet commenced as at 31 December 2023. The total future lease payments for these non-
cancellable lease contracts are £4.5m (2022: £3.6m).
17. DEFERRED TAXATION
At 1 January 2022
Exchange adjustments
Acquisition of subsidiary (note 13)
Disposals of subsidiaries
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)
At 31 December 2022
Exchange adjustments
Acquisitions of subsidiaries (note 13)
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)
Credited for the year in the Consolidated
Statement of Changes in Equity (note 9)
Intangible
assets
£m
Property,
plant and
equipment
£m
(11.0)
(10.0)
(0.4)
(0.2)
0.3
2.6
–
–
(8.7)
0.2
(2.8)
0.9
–
–
(0.6)
(0.1)
0.3
(2.4)
–
–
(12.8)
0.3
(0.3)
(4.4)
–
–
At 31 December 2023
(10.4)
(17.2)
Inventories
£m
Retirement
obligation
£m
Other timing
differences
£m
–
–
–
(0.3)
0.2
–
–
(0.1)
0.1
0.2
0.4
–
–
0.6
3.1
–
–
(1.2)
(0.8)
0.7
1.8
–
–
(0.9)
0.1
–
1.0
6.5
0.3
0.2
(0.5)
3.0
–
(1.2)
8.3
(0.2)
1.4
5.7
–
1.3
16.5
Total
£m
(11.4)
(0.7)
(0.1)
(1.4)
2.6
0.7
(1.2)
(11.5)
0.4
(1.5)
1.7
0.1
1.3
(9.5)
165
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 17. DEFERRED TAXATION continued
Deferred tax assets
Deferred tax liabilities
Deferred tax liability
2023
£m
0.4
(9.9)
(9.5)
2022
£m
0.1
(11.6)
(11.5)
The deferred tax asset of £16.5m (2022: £8.3m) in respect of other timing differences includes £10.3m (2022: £4.0m) in relation to tax
losses and £2.9m (2022: £0.8m) in relation to share based payments.
No deferred tax asset has been recognised in respect of other tax losses of £16.5m (2022: £17.6m) as their future use is uncertain.
There is no time limit on the carrying forward of the losses. The losses are predominantly capital losses.
No deferred tax liability is recognised on temporary differences of £0.7m (2022: £0.4m) 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 23.5% (2022: 19.0%). In the Spring Budget of 2021, the UK Government announced
that from 1 April 2023 the rate of UK corporation tax would 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% (2022: 25%).
18. INVENTORIES
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2023
£m
64.4
9.6
32.1
106.1
2022
£m
62.1
8.8
42.9
113.8
The amount of inventories expensed to the Consolidated Income Statement in the year was £442.6m (2022: £443.7m). The value of
inventories written down and expensed in the Consolidated Income Statement during the year amounted to £3.7m (2022: £0.3m). The
amount of inventories held at fair value less cost to sell included in the above was £nil (2022: £nil).
19. TRADE AND OTHER RECEIVABLES
Trade and other current receivables
Trade receivables
Prepayments
Other receivables
Fair value derivatives
Contract assets
2023
£m
2022
£m
118.4
126.1
6.2
0.9
–
11.8
137.3
5.8
0.7
0.3
11.4
144.3
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 2022 offset by contracts that are in progress at 31 December 2023.
166
Stock Code HILSNOTES 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 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 and assets held for sale
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
2023
£m
34.4
–
34.4
(1.4)
(97.7)
(8.0)
(35.7)
2022
£m
24.8
–
24.8
(0.3)
(104.9)
(8.7)
(30.6)
(108.4)
(119.7)
103.8
–
103.8
47.6
151.4
22.8
(0.8)
173.4
(31.7)
(8.4)
(31.8)
3.3
104.8
(28.0)
(53.5)
(0.2)
(0.6)
(2.6)
1.8
(12.6)
0.3
–
(1.3)
8.1
3.2
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)
(119.7)
(108.4)
(144.7)
(119.7)
167
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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 consideration on acquisitions
Deferred income
Fair value derivatives
Other payables
2023
£m
144.2
73.9
(76.3)
(9.4)
(0.5)
(12.3)
(3.2)
0.6
–
(0.7)
14.6
(2.4)
–
2.3
(0.3)
1.3
(1.3)
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)
142.8
144.2
2023
£m
1.4
–
1.4
53.4
4.1
47.0
2.2
9.3
0.3
3.3
2022
£m
0.3
–
0.3
67.8
4.4
41.2
–
4.8
–
2.6
119.6
120.8
The amount of contract liabilities included in deferred income as at 31 December 2023 was £1.6m (2022: £2.1m). During the year,
£2.0m (2022: £4.3m) of revenue was recognised in respect of contract liabilities present as at 1 January 2023.
168
Stock Code HILSNOTES 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
23. PROVISIONS
At 1 January 2022
Exchange adjustments
Acquisitions of subsidiaries
Disposals of subsidiaries
Charged during the year
Utilised during the year
At 31 December 2022
Exchange adjustments
Charged during the year
Utilised during the year
At 31 December 2023
2023
£m
97.7
97.7
1.0
1.0
2022
£m
104.9
104.9
0.2
0.2
Environmental
£m
Restructuring
£m
Product
rectification
£m
Other
£m
Total
£m
2.0
0.1
–
(0.9)
–
–
1.2
–
–
–
1.2
3.6
–
–
–
1.6
(1.8)
3.4
–
1.1
(1.2)
3.3
–
–
–
–
–
–
–
–
3.1
(0.1)
3.0
0.8
–
1.4
–
–
(0.4)
1.8
(0.1)
–
–
1.7
2023
£m
6.6
2.6
9.2
6.4
0.1
1.4
(0.9)
1.6
(2.2)
6.4
(0.1)
4.2
(1.3)
9.2
2022
£m
3.7
2.7
6.4
Amounts due within one year
Amounts due after more than one year and less than five years
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 £3.4m at 31 December
2022 included £2.9m relating to the closure of the Group’s variable message sign business that was announced in 2021. £1.1m of this
provision has been utilised during 2023 and a further £0.9m charged, as explained in note 5.
Product rectification
The charge for the year of £3.1m includes £2.8m in respect of an issue identified with the historical installation of certain products by
Prolectric Services Limited, our UK off-grid solar lighting business. This issue is expected to be remediated during 2024.
Other provisions
Other provisions relate to various matters including obligations in respect of onerous leases, property dilapidations and claims or
disputes.
169
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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 45% (2022: 43%) 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 46% (2022: 48%) 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 2023 all such debt was covered by cash and cash equivalents netting to £33.0m positive current liquidity
(2022: £24.5m).
The Group’s principal UK revolving credit facility is unsecured, has a value of £250m and now has a maturity in November 2027 following
the one-year extension agreed with lenders during the year. Along with various other secured and on demand lines of credit, including
bank overdrafts, the Group has access to bank borrowing facilities of £256.6m at 31 December 2023 (2022: £262.2m).
In addition, in 2019 the Group signed an agreement with an institutional investor for a private placement of $70m new senior unsecured
notes (“Senior Unsecured Notes”). The issue consisted of two equal tranches with maturities in June 2026 and June 2029 respectively.
At 31 December 2023, the Group’s total committed borrowing facilities were £307.3m (2022: £309.0m) and the amount undrawn at this
date was £206.2m (2022: £201.6m).
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.
170
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
24. FINANCIAL INSTRUMENTS continued
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 2023 credit exposure including cash deposited did not exceed
£6.8m with any single institution (2022: £6.8m).
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 loss of £19.4m (2022: gain of £27.4m), principally as a result of Sterling’s appreciation against the US
Dollar in 2023, representing this translation effect on overseas earnings and net assets.
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% (2022: 55%) of the Group’s outstanding gross borrowings at 31 December 2023 and
attract a fixed rate of interest averaging 3.92% (2022: 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.
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 2023 and 2022.
There were no significant changes in the Group’s approach to capital management during the year.
171
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 24. FINANCIAL INSTRUMENTS continued
(b) Total financial assets and liabilities
The table below sets out the Group’s accounting classification of its financial assets and liabilities and their fair values as at
31 December. The fair values of all financial assets and liabilities are not materially different to the carrying values.
Cash and cash equivalents net of bank overdraft
Loans and other borrowings due within one year
Loans and other borrowings due after more than one year
Lease liabilities due within one year
Lease liabilities due after more than one year
Derivative liabilities
Other assets
Other liabilities
Total at 31 December 2023
Cash and cash equivalents net of bank overdraft
Loans and other borrowings due within one year
Loans and other borrowings due after more than one year
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
Fair value hierarchy
–
–
–
–
–
(0.3)
–
–
(0.3)
–
–
–
–
–
0.3
–
–
0.3
Designated
at fair value
£m
Amortised
cost
£m
Total
carrying
value
£m
34.4
(1.4)
(97.7)
(8.0)
(35.7)
(0.3)
119.3
(106.9)
(96.3)
24.8
(0.3)
Fair value
£m
34.4
(1.4)
(97.7)
(8.0)
(35.7)
(0.3)
119.3
(106.9)
(96.3)
24.8
(0.3)
34.4
(1.4)
(97.7)
(8.0)
(35.7)
–
119.3
(106.9)
(96.0)
24.8
(0.3)
(104.9)
(104.9)
(104.9)
(8.7)
(30.6)
–
127.4
(111.6)
(103.9)
(8.7)
(30.6)
0.3
127.4
(111.6)
(103.6)
(8.7)
(30.6)
0.3
127.4
(111.6)
(103.6)
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as
follows:
•
•
•
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either as a direct price or
indirectly derived from prices.
Level 3: inputs for the asset or liability that are not based on observable market data.
Derivative financial liabilities
Total at 31 December 2023
Derivative financial assets
Total at 31 December 2022
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
(0.3)
(0.3)
0.3
0.3
–
–
–
–
Total
£m
(0.3)
(0.3)
0.3
0.3
At 31 December 2023 the Group did not have any assets or liabilities classified at Level 1 or Level 3 in the fair value hierarchy (2022: 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.
172
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
24. FINANCIAL INSTRUMENTS continued
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 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. 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 US Dollar £68.1m (2022: £66.7m) denominated interest bearing loans, which are predominantly used to
fund the Group’s US operations and are designated as a hedge of the net investment in those foreign operations. The foreign currency
gain of £4.2m (2022: loss of £4.8m) 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 2023
US Dollar at 31 December 2022
(c) Maturity profile
Weighted
average
period for
which rate is
fixed
Years
Weighted
average
interest rate
%
3.9
3.9
4.0
5.0
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
Unsecured loans and
borrowings
Senior Unsecured
Notes
Lease liabilities
Other liabilities
Derivative liabilities
Total at 31 December 2023
Secured loans and
borrowings
Unsecured loans and
borrowings
Senior Unsecured
Notes
Lease liabilities
Other liabilities
Total at 31 December 2022
Floating
44.1
(57.3)
3.9%
Floating
n/a
n/a
Floating
Floating
3.9%
Floating
n/a
55.0
43.7
114.6
0.3
257.7
0.4
46.7
58.1
39.3
116.5
261.0
(63.9)
(51.6)
(114.6)
(0.3)
(287.7)
(0.4)
(57.8)
(69.8)
(39.3)
(116.5)
(283.8)
(4.3)
(2.2)
(9.5)
(113.6)
(0.3)
(129.9)
(0.3)
(2.4)
(2.3)
(8.7)
(116.3)
(130.0)
(2.9)
(2.2)
(7.8)
(1.0)
–
(50.1)
(31.4)
(14.7)
–
–
–
(28.1)
(19.6)
–
–
(13.9)
(96.2)
(47.7)
–
(0.1)
(2.4)
(2.3)
(6.6)
(0.2)
(11.5)
(53.0)
(34.3)
(12.3)
–
(99.7)
–
–
(30.9)
(11.7)
–
(42.6)
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 in 2022 were held by subsidiaries
in the USA and bore interest at varying rates linked to underlying US bond markets.
173
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
24. FINANCIAL INSTRUMENTS continued
The Group had the following undrawn committed facilities at 31 December, in respect of which all conditions precedent had been met:
Undrawn committed borrowing facilities
(d) Fair values
2023
£m
206.2
2022
£m
201.6
The fair value of forward currency exchange contracts realised in the Consolidated Income Statement as part of fair value derivatives
amounted to £nil (2022: £nil). The fair values of the Group’s other financial instruments at 31 December 2023 and 2022 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 £1.3m (2022: £6.4m) 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
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
Impairment losses
2023
£m
131.1
34.4
165.5
2023
£m
53.3
3.2
54.6
7.3
118.4
2023
£m
37.0
51.6
29.8
118.4
2022
£m
138.2
24.8
163.0
2022
£m
53.3
5.6
61.4
5.8
126.1
2022
£m
50.7
47.3
28.1
126.1
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 where applicable, which is 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 £1.5m (2022: £0.4m). 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.
174
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
24. FINANCIAL INSTRUMENTS continued
The ageing of trade receivables at the reporting date was:
Not past due
Past due 1–30 days
Past due 31–120 days
Past due more than 120 days
Total
2023
Gross
£m
Provisions
£m
77.1
26.8
11.6
7.1
122.6
–
(0.1)
(0.2)
(3.9)
(4.2)
Net
£m
77.1
26.7
11.4
3.2
2022
Gross
£m
Provisions
£m
87.3
27.0
8.2
7.0
–
(0.1)
(0.3)
(3.0)
(3.4)
118.4
129.5
The movements in provisions for impairment of trade receivables are as follows:
At 1 January 2022
Exchange adjustments
Acquisitions of subsidiaries
Disposals of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2022
Exchange adjustments
Acquisitions of subsidiaries
Charged in the year
Utilised during the year
At 31 December 2023
Net
£m
87.3
26.9
7.9
4.0
126.1
£m
4.2
0.1
0.2
(0.8)
0.4
(0.7)
3.4
(0.1)
0.5
1.5
(1.1)
4.2
(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 £1.1m, 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 £8.6m and the impact on equity would have been an
increase of £32.4m.
• 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 £6.5m and the impact on equity would have been
a decrease of £26.5m.
175
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
25. CALLED UP SHARE CAPITAL
Allotted, called up and fully paid
80.2m ordinary shares of 25p each (2022: 80.0m)
2023
£m
2022
£m
20.0
20.0
In 2023 the Company issued 0.2m shares under its various share option schemes (2022: 0.2m), realising £1.8m (2022: £1.9m).
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”), Restricted Stock Units (“RSU”) 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 the ESOS, RSU and LTIP awards. LTIP and RSU awards are at nil cost and ESOS is a costed option
• Buy-out awards – On joining the Company, certain senior managers may forfeit long term incentive awards at their previous
employer. The Company may compensate 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 †^
RSU 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
2023
2022
Number
of shares
Option
price range
(p)
Number
of shares
Option
price range
(p)
823,938 794p to 1,485p
920,387 794p to 1,485p
567,808
–
513,203
–
265,233 316p to 1,113p
345,768 316p to 1,113p
44,400
21,187
1,722,566
288,173
1,434,393
1,722,566
–
–
–
23,704
1,803,062
387,237
1,415,825
1,803,062
–
–
† 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 5 years 0 months (2022: 3 years 11 months).
176
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 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)
2023
655
480
(810)
(583)
610
Millions of
options
2023
1.8
0.3
(0.2)
(0.2)
1.7
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
The weighted average share price on the dates of exercise of share options during the year was 1,483p (2022: 1,550p), and the
weighted average fair value of options and awards granted in the year was 1,214p (2022: 560p). The weighted average exercise price of
outstanding options exercisable at the year end was 1,102p (2022: 1,103p).
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, RSU 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 94 to 106, 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:
2023
2022
SAYE
LTIP/RSU
Expected share price volatility (%)
24%/15%
Dividend yield (%)
Option life (years)
2.07%
3/5
32%
0.0%
3
Risk free interest rate (%)
4.6%/4.5%
3.44%
Buy-out
awards
n/a
n/a
n/a
n/a
SAYE
24%/15%
3.19%
3/5
4.1%
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
1.45%
2023
£m
3.7
0.4
4.1
Buy-out
awards
0%
0.0%
0.8
0%
2022
£m
2.4
(0.4)
2.0
The carrying amount of the liability in relation to cash-settled share-based payments at the end of the year was £0.7m (2022: £0.3m).
177
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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
2023 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 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
Hill & Smith (Australia) Limited
Widnes Galvanising Limited
The Group had no financial guarantee contracts outstanding as at 31 December 2023.
(b) Capital commitments
Contracted for but not provided in the accounts
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
2023
£m
5.6
2022
£m
3.8
178
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 26. GUARANTEES AND OTHER FINANCIAL COMMITMENTS continued
(c) Operating lease receivables
The total future minimum commitments receivable under non-cancellable operating leases are analysed as follows:
Group
Within one year
Between one and five years
(d) Purchase commitments
2023
Land and
Buildings
£m
0.1
–
0.1
2022
Land and
Buildings
£m
0.1
–
0.1
Other
£m
6.4
0.7
7.1
Other
£m
4.8
1.4
6.2
Certain Group companies enter into purchase commitments which obligate the Group to buy specified amounts of raw materials from
sellers at a future point in time (usually within one year from the balance sheet date). These commitments are summarised as follows:
Contracted for but not provided in the accounts
27. PENSIONS
Total
The total Group retirement benefit assets and obligations are detailed below:
2023
£m
19.1
2022
£m
16.7
Total fair value of scheme assets
Present value of scheme funded obligations
Retirement benefit obligation
United Kingdom
UK
£m
48.5
(51.9)
(3.4)
US
£m
2.7
(3.4)
(0.7)
2023
£m
51.2
(55.3)
(4.1)
UK
£m
44.9
(51.4)
(6.5)
US
£m
2.7
(3.4)
(0.7)
2022
£m
47.6
(54.8)
(7.2)
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 10 years (2022: 11 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. Following the triennial funding valuation of the Scheme as at April 2022, which was finalised early in 2023, the Group continues
to have a deficit recovery plan with the Trustees that requires cash contributions of £3.7m per annum until September 2027. The results
of the triennial valuation have been incorporated in the IAS 19 position at 31 December 2023, updated by an independent qualified
actuary.
The Consolidated Income Statement for the year includes a pension charge within operating profit of £3.3m (2022: £3.0m), 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.
179
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
27. PENSIONS continued
The Scheme exposes the Group to a number of risks, the most significant being:
Risk
Description
Volatile asset returns
The defined benefit obligation is calculated using a discount rate set with reference to high quality corporate
bond yields. If assets underperform against this discount rate, this will create a plan deficit. The Scheme
holds a proportion of its assets in growth assets which are expected to outperform corporate bonds in the
long term. However, returns are likely to be volatile in the short term, potentially resulting in short term cash
requirements and an increase in the 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.
Changes in bond yields A decrease in corporate bond yields will increase the funding and accounting liabilities, although this will be
partially offset by an increase in the value of the Scheme’s investments in Liability Driven Investment and
bond funds.
Inflation risk
A significant proportion of the defined benefit obligation is indexed in line with price inflation, with higher
inflation leading to higher liabilities. This risk will be partially offset by the Scheme’s Liability Driven
Investments, which will increase in value in line with market inflation expectations.
Life expectancy
The majority of the Scheme’s obligations are to provide a pension for the life of each of the members, so
increases in life expectancy will result in an increase in the liabilities.
The principal assumptions used 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
2023
n/a
3.1%
4.5%
3.2%
2.3%
2022
n/a
3.2%
4.9%
3.3%
2.4%
114%/117%
114%/117%
CMI 2022
CMI 2021
1.25%
1.25%
2023
2022
21.6 years
22.1 years
24.1 years
24.6 years
20.4 years
20.9 years
22.7 years
23.2 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.
Over the last two years, short-term inflation in the UK has at times been significantly higher than we have seen in previous years. The
Group has made an allowance for this higher 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.
180
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued 27. PENSIONS continued
Assets and liabilities
The Scheme holds assets and liabilities in respect of defined contribution benefits which are equal in value and are excluded from the
following figures. The fair values of Scheme assets in respect of the defined benefit scheme, which are not intended to be realised in
the short term and may be subject to significant change before they are realised are detailed below. In addition, the value of the Scheme
liabilities, which is derived from cash flow projections over an average period of approximately 10 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
2023
£m
Market value
2022
£m
–
15.6
0.9
15.0
4.8
12.2
48.5
(51.9)
(3.4)
–
14.8
0.9
12.4
5.5
11.3
44.9
(51.4)
(6.5)
* 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. Following the April 2022
triennial valuation, there has been no further change to the previously agreed strategy.
Assets in the bonds and equities categories, which account for approximately 32% (2022: 33%) of total Scheme assets, have quoted
market prices in active markets. Excluding cash, the balance of £28.1m (2022: £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 is 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
2023
Defined
benefit
schemes
£m
2.3
0.5
2.8
–
2.8
–
0.5
0.5
0.2
0.7
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
2.3
1.0
3.3
0.2
3.5
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
181
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 27. PENSIONS continued
Change in the present value of the defined benefit obligations
Opening defined benefit obligations
Interest cost
Actuarial (gain)/loss arising from:
Financial assumptions
Demographic assumptions
Experience adjustment
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
2023
£m
51.4
2.4
1.6
(1.0)
1.4
(3.9)
51.9
2023
£m
44.9
2.2
1.6
3.7
(3.9)
48.5
3.8
4.0
2.0
Amounts recognised in the Consolidated Statement of Comprehensive Income
Return on plan assets excluding interest income
Changes in assumptions underlying the present
value of Scheme obligations
Amount recognised in the year
% of Scheme
assets/
liabilities %
3
(4)
(1)
% of Scheme
assets/
liabilities %
(41)
36
(5)
2023
£m
1.6
(2.0)
(0.4)
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
2022
£m
(18.4)
15.9
(2.5)
182
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
27. PENSIONS continued
The table below shows the sensitivity of the Consolidated Statement of Financial Position to certain changes in the significant pension
assumptions:
Increase
in
pensions
payment
(+0.1%
p.a.)
£m
Decrease
in
pensions
payment
(-0.1%
p.a.)
£m
Balance at
31 December
2023
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
(51.9)
(52.2)
(51.7)
(51.5)
(52.4)
(52.1)
(51.6)
Fair value of plan assets
Deficit
48.5
(3.4)
48.5
(3.7)
48.5
(3.2)
48.5
(3.0)
48.5
(3.9)
48.5
(3.6)
48.5
(3.1)
(54.4)
48.5
(5.9)
(49.4)
48.5
(0.9)
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.
The Group is aware of the High Court ruling on 16 June 2023, Virgin Media v NTL Pension Trustees II Limited (and others), which
confirmed the implications of not having a confirmation from the actuary in accordance with Section 37 of the Pensions Schemes Act
1993, when rule changes were made to pension schemes such as the Group’s UK Scheme, between 6 April 1997 and 6 April 2016. The
Board of Trustees of the Hill & Smith Pension Scheme, which is responsible for compliance with Section 37, is currently finalising an
exercise to confirm compliance in respect of rule changes that occurred in the relevant period. If following completion of that exercise,
the Board of Trustees identifies any omissions in compliance, there would be an assessment of the impact on the actuarial valuation
of the scheme. Based on the information currently available, the Group does not expect any material change to the pension accounting
reflected in these financial statements.
USA
In the US, 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 7
years (2022: 8 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 £1.2m (2022: £1.1m).
The Consolidated Income Statement for the year includes a pension charge within operating profit of £1.3m (2022: £1.3m), which
includes the costs of the defined contribution schemes and the defined benefit schemes. A further charge of £0.2m was included in the
profit from discontinued operations in 2022.
Actuarial valuations of the above schemes were carried out by independent actuaries as at 31 December 2023. 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
USA
n/a
5.00%
0.00%
2014 SOA
2023
USA
n/a
4.68%
0.00%
PRI–2012 Private
Retirement Plans;
Scale MP–2021
improvements
183
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS 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
Retirement benefit obligation
Market
Value
2023
£m
Market
Value
2022
£m
2.7
2.7
(3.4)
(0.7)
2.7
2.7
(3.4)
(0.7)
Cash and other insured fixed interest assets – where assets are held in cash or a policy with a fixed interest asset allocation, the
expected long term rate of return is taken to be the yields generally prevailing on such assets as at the year end date.
Total expense recognised in the Consolidated Income Statement
Defined
contribution
schemes
£m
1.2
1.2
–
1.2
2023
Defined
benefit
schemes
£m
0.1
0.1
0.1
0.2
Defined
contribution
schemes
£m
1.1
1.1
–
1.1
Total
£m
1.3
1.3
0.1
1.4
2022
Defined
benefit
schemes
£m
0.4
0.4
0.1
0.5
Current service cost and expenses
Charge to operating profit
Interest on net pension scheme deficit
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
184
2023
£m
3.4
–
0.2
0.1
(0.2)
0.3
(0.2)
–
(0.2)
3.4
Total
£m
1.5
1.5
0.1
1.6
2022
£m
8.0
0.3
0.2
(0.6)
(0.9)
1.2
(0.5)
(4.8)
0.5
3.4
Stock Code HILSNOTES 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
Employer contributions
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
2023
£m
2022
£m
2.7
0.2
0.1
0.1
(0.1)
(0.2)
–
(0.1)
2.7
0.3
–
1.2
3.4
(0.6)
0.1
–
(0.1)
(0.2)
(0.2)
0.3
2.7
(0.5)
–
1.1
2022
£m
(1.2)
(0.6)
1.5
(0.2)
(0.5)
Amounts recognised in the Consolidated Statement of Comprehensive Income
Experience loss on scheme obligations
Return on plan assets excluding interest income
Changes in assumptions underlying the present value of scheme
obligations
Exchange rate adjustment on assets and liabilities
Amount recognised in the year
% of scheme
assets/
liabilities
%
(9)
7
2
–
–
% of scheme
assets/
liabilities
%
(35)
(22)
44
(29)
(15)
2023
£m
(0.3)
0.2
0.1
–
–
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.
185
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL 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 94 to 106. The combined remuneration of key management personnel can be seen in note 6 to the
financial statements on page 147.
29. SUBSEQUENT EVENTS
In January 2024, the Group acquired the trade and assets of Capital Steel Service LLC for a headline cash consideration of £5.0m on a
debt and cash free basis. Based in Trenton, New Jersey, Capital Steel supplies structural steel products and services into the electrical
transmission and distribution market across the US East Coast. The acquisition will expand our geographical customer base, generate
significant cross selling opportunities, and provide additional manufacturing capability.
In March 2024, the Group acquired the trade and assets of FM Stainless LLC for an initial consideration of £6.6m, on a debt and cash
free basis. FM Stainless, located in Ellijay, Georgia, is a leading US manufacturer, fabricator and supplier of a variety of stainless steel
fasteners and hardware, and is highly complementary to our existing engineered supports business. The acquisition will expand our
geographical customer base and manufacturing capacity.
186
Stock Code HILSNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued COMPANY BALANCE SHEET
31 December 2023
Non-current assets
Tangible assets
Right-of-use assets
Deferred tax asset
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
11
6
7
8
9, 10
5
9
10
12
13
2023
£m
1.4
0.3
7.2
290.1
299.0
102.6
401.6
12.3
0.1
12.4
(15.8)
(0.1)
(53.3)
(69.2)
(56.8)
344.8
0.2
(0.1)
344.9
20.0
44.6
0.2
280.1
344.9
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
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 £49.5m in the year
(2022: £12.1m).
Approved by the Board of Directors on 11 March 2024 and signed on its behalf by:
A C Giddins
Director
Company Number: 671474
H K Nichols
Director
187
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2023
Called up
share capital
£m
Share
premium
account
£m
Capital
redemption
reserve
£m
Retained
earnings
£m
20.0
40.9
0.2
268.1
Balance at 1 January 2022
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
At 31 December 2022
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 2023
–
–
–
–
–
–
–
20.0
–
–
–
–
–
–
–
20.0
–
–
–
–
–
–
1.9
42.8
–
–
–
–
–
–
1.8
44.6
Total
equity
£m
329.2
12.1
(0.1)
(24.7)
2.4
(0.4)
(0.4)
1.9
–
–
–
–
–
–
–
12.1
(0.1)
(24.7)
2.4
(0.4)
(0.4)
–
0.2
257.0
320.0
–
–
–
–
–
–
–
49.5
0.1
49.5
0.1
(28.0)
3.7
(28.0)
3.7
(2.6)
(2.6)
0.4
–
0.4
1.8
0.2
280.1
344.9
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 £102.8m
(2022: £78.7m), representing 3.0 times (2022: 2.8 times) cover of the current year proposed dividend. When required the Company can
receive dividends from its subsidiaries to further increase its distributable reserves; the Company’s UK trading subsidiaries had reserves
of approximately £44.8m available for distribution at 31 December 2023 (2022: £49.8m). Further reserves are available for distribution
from trading subsidiaries located overseas, subject to local regulations.
188
Stock Code HILS 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 Financial
Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”) and in accordance with applicable accounting standards 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
• The effects of new but not yet effective IFRSs.
The Accounting Policies set out on pages 189 to 195 have, unless otherwise stated, been applied consistently to all periods presented in
these Financial Statements.
Measurement convention
The Financial Statements are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair
value: derivative financial instruments, financial instruments classified as fair value through profit or loss or as fair value through other
comprehensive income, and liabilities for cash-settled share-based payments. Non-current assets and disposal groups held for sale are
stated at the lower of previous carrying amount and fair value less costs to sell.
Accounting judgements, estimates and assumptions
The preparation of the Company’s Financial Statements requires management to make judgements, estimates and assumptions that
affect the application of accounting policies and reported amounts of income, expenses, assets and liabilities. Actual results may differ
from these estimates.
Significant estimates are required in determining whether impairment of the Company’s investments in subsidiaries 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.
189
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL 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.
Where computer software is non-cloud based and is an integral part of a related item of computer hardware, the software is treated as
a tangible asset. Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring into use the
specific software.
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.
190
Stock Code HILS 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
treats these as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under
the guarantee.
2. PROFIT BEFORE TAXATION
Fees paid to Ernst & Young LLP and its associates for audit and non-audit services to the Company itself are not disclosed in the
individual Financial Statements of Hill & Smith PLC because the Group Financial Statements are required to disclose such fees on a
consolidated basis.
191
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
3. DIVIDENDS
Dividends paid during the year
Interim dividend paid in relation to year-ended 31 December 2021
Final dividend paid in relation to year-ended 31 December 2021
Interim dividend paid in relation to year-ended 31 December 2022
Final dividend paid in relation to year-ended 31 December 2022
Total
Dividends declared in respect of the year
Interim dividend declared in relation to year-ended 31 December 2022
Final dividend declared in relation to year-ended 31 December 2022
Interim dividend declared in relation to year-ended 31 December 2023
Final dividend proposed in relation to year-ended 31 December 2023
Total
2023
Pence
per share
–
–
13.0
22.0
35.0
2023
Pence
per share
–
–
15.0
28.0
43.0
2022
Pence
per share
12.0
19.0
–
–
31.0
2022
Pence
per share
13.0
22.0
–
–
35.0
£m
–
–
10.4
17.6
28.0
£m
–
–
12.0
22.5
34.5
£m
9.6
15.1
–
–
24.7
£m
10.4
17.6
–
–
28.0
The final dividend for the year was proposed after the year end date and was not recognised as a liability at 31 December 2023, in
accordance with IAS 10.
4. TANGIBLE FIXED ASSETS
Short
leasehold
properties
£m
Plant,
machinery
and vehicles
£m
0.1
0.3
0.4
0.1
–
0.1
0.3
–
0.6
1.1
1.7
0.5
0.1
0.6
1.1
0.1
Total
£m
0.7
1.4
2.1
0.6
0.1
0.7
1.4
0.1
Cost or valuation
At 1 January 2023
Additions
At 31 December 2023
Depreciation
At 1 January 2023
Charge for the year
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
192
Stock Code HILS
5. LEASES
The movements in the carrying value of the right-of-use assets and lease liabilities in the year ended 31 December 2023 are as follows:
Right-of-use assets
Balance at 1 January 2023
Additions
Depreciation charge for the period
At 31 December 2023
Lease liabilities
Balance at 1 January 2023
Additions
Lease payments in period
Lease liability discount unwind
At 31 December 2023
Land and
buildings
£m
Plant,
machinery
and vehicles
£m
0.3
–
(0.1)
0.2
–
0.1
–
0.1
Total
£m
0.3
0.1
(0.1)
0.3
Total
£m
0.3
0.1
(0.1)
0.1
0.4
The following table shows the breakdown of the lease expense between amounts charged to operating profit and amounts charged to
finance costs:
Depreciation of right-of-use assets
Charged to operating profit
Charged to profit before taxation
The maturities of the lease liabilities at 31 December were as follows:
Due within one year
Due between one and two years
Due between two and three years
Due between three and five years
Total lease liabilities
2023
£m
0.1
0.1
0.1
2023
£m
0.1
0.1
0.1
0.1
0.4
2022
£m
0.1
0.1
0.1
2022
£m
0.1
0.1
0.1
–
0.3
193
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
continued
6. FIXED ASSET INVESTMENTS
Cost
At 1 January 2023
At 31 December 2023
Provisions
At 1 January 2023
At 31 December 2023
Net book value
At 31 December 2023
At 31 December 2022
Shares in
subsidiary
undertakings
£m
386.3
386.3
96.2
96.2
Total
£m
386.3
386.3
96.2
96.2
290.1
290.1
290.1
290.1
A list of the businesses owned by the Company is given in note 16. All of the Company’s subsidiaries are wholly owned.
7. DEBTORS DUE IN MORE THAN ONE YEAR
Amounts owed by subsidiary undertakings
8. DEBTORS
Amounts owed by subsidiary undertakings
Corporation tax
Deferred tax asset (note 11)
Other debtors
Prepayments and accrued income
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
194
2023
£m
102.6
102.6
2023
£m
5.9
4.2
–
0.5
1.7
2022
£m
95.7
95.7
2022
£m
6.0
3.5
2.9
0.4
1.3
12.3
14.1
2023
£m
15.8
15.8
1.5
0.2
5.6
1.5
44.5
53.3
2022
£m
19.8
19.8
1.6
0.3
4.9
1.1
43.7
51.6
Stock Code HILS 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
2023
£m
(0.5)
0.3
(0.2)
2023
£m
15.8
–
(0.5)
(0.5)
15.3
2022
£m
8.5
0.2
8.7
2022
£m
19.8
–
8.5
8.5
28.3
The Company had no bank loans falling due after more than one year at 31 December 2023. The £0.5m bank loan above represents
unamortised bank fees.
11. DEFERRED TAX
Deferred tax asset at 1 January
Credit for the year in the profit and loss account
Credit/(charge) for the year directly in equity
Deferred tax asset at 31 December
Other timing differences
2023
£m
2.9
3.9
0.4
7.2
7.2
2022
£m
1.3
2.0
(0.4)
2.9
2.9
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 (2022: £0.4m), 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
80.2m Ordinary Shares of 25p each (2022: 80.0m)
2023
£m
2022
£m
20.0
20.0
In 2023 the Company issued 0.2m shares under its various share option schemes (2022: 0.2m), realising £1.8m (2022: £1.9m). 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.
195
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL 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
2023 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 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
Hill & Smith (Australia) Limited
Widnes Galvanising Limited
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
The Company guarantees the bank loans, overdrafts and other borrowings of certain subsidiary undertakings. The amount outstanding
at 31 December 2023 was £100.2m (2022: £98.8m).
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.
196
Stock Code HILS Incorporated in the USA
ATG Access, Inc. (D)
Bergen Pipe Supports, Inc. (E)
Carpenter & Paterson, Inc. (E)
Creative Pultrusions, Inc. (E)
CPK Manufacturing LLC (E)
CPCA Manufacturing LLC (E)
Enduro Composites, Inc. (E)
Hill & Smith Group Holdings, Inc. (H)
Hill & Smith US Group Inc (H)
Hill & Smith, Inc. (R)
National Signal LLC (R)
Novia Corporation (E)
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 Korns Galvanizing (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 not
incorporated in the UK 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
16. SUBSIDIARIES
Incorporated in the UK
AAJG Holdings Limited (H)
Access Design & Engineering Limited (D)
Ash & Lacy Limited (H)*
Ash & Lacy Manufacturing Limited (H)
Ash & Lacy Services Limited (H)
Asset International Limited (D)
Asset International Structures Limited (R)
ATG Access Ltd (R)
A W Thorne Limited (D)*
Barkers Engineering Limited (R, G)
Bergen Pipe Supports Group Limited (H)*
Bergen Pipe Supports Limited (D)
Berry Safety Systems Limited (D)*
Black Oldco 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)
Expamet Building Products Limited (D)
Expamet Limited (E)
Forgen Renewables Limited (D)
Hawkshead Properties Limited (H)
Hardstaff Barriers Limited (D)
Hill & Smith (Americas) Limited (H)
Hill & Smith (Americas) 2 Limited (D)
Hill & Smith (Americas) 3 Limited (D)
Hill & Smith (Australia) Limited (H)
Hill & Smith (France) Limited (D)*
Hill & Smith (Treasury) Limited (D)*
Hill & Smith (USA) Limited (D)
Hill & Smith (VSG) Limited (D)
Hill & Smith Galvanized Products
Limited (D) *
Hill & Smith Group Limited (D)
Hill & Smith PLC (H)
Hill & Smith (International) 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) *
H&S Expamet Limited (D)
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 Ltd (R)
Pipe Supports Overseas Limited (H)*
Post & Column Limited (D)
Premier Galvanizing Limited (G)
Prolectric Services Limited (R)
Redman Architectural Metalwork
Limited (D)
Redman Fisher Engineering Limited (D)
Safety and Security Barrier Holdings
Limited (H)
Signature Limited (D)
Signpost Solutions Limited (D)
Tegrel Limited (D)*
Telford Galvanizers Limited (D)
The Global 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)
Widnes Galvanising Limited (G)
Wombwell Foundry Limited (D)
All of the above subsidiaries have a year
end date of 31 December and are included
in the consolidated results of the Group.
The Company holds 100% of the share
capital of all businesses, either directly or
indirectly, unless otherwise stated. All of
the above subsidiaries have a registered
office address at Westhaven House,
Arleston Way, Shirley, Solihull, B90 4LH,
England.
(E) Engineered Solutions
(R) Roads & Security
(G) Galvanizing
(D) Dormant
(H) Holding Company
* Directly held by Hill & Smith PLC
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 Spain
Prolectric Solar Lighting SL (D)
197
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS FIVE YEAR SUMMARY
Continuing operations
Revenue
Underlying operating profit
Underlying profit before taxation
Shareholders’ funds
Underlying earnings per share
Proposed dividends per share
2023
£m
829.8
122.5
111.9
424.5
Pence
105.4
43.0
2022
£m
732.1
97.1
87.9
395.0
2021
£m
625.2
77.3
71.1
339.6
2020
£m
588.4
64.7
57.3
320.5
Pence
Pence
Pence
85.4
35.0
70.0
31.0
57.9
26.7
2019
£m
617.2
80.3
73.4
307.0
Pence
74.6
10.6*
* The proposed final dividend for 2019 of 23.0p per share was withdrawn and not paid due to the COVID pandemic.
198
Stock Code HILS FINANCIAL CALENDAR
Annual General Meeting
Trading Update
Thursday 23 May 2024
Thursday 23 May 2024
Ex-dividend date for 2023 final dividend
Thursday 30 May 2024
Record date 2023 final dividend
Friday 31 May 2024
Dividend Reinvestment Plan – last date for election
Friday 14 June 2024
2023 final dividend payable
Friday 5 July 2024
Announcement of 2024 interim results
Thursday 8 August 2024
Trading Update
Tuesday 26 November 2024
Ex-dividend date for 2024 interim dividend
Thursday 28 November 2024
Record date 2024 interim dividend
Friday 29 November 2024
Dividend Reinvestment Plan – last date for election
Tuesday 10 December 2024
Payment of 2024 interim dividend
Friday 3 January 2025
199
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS SHAREHOLDER INFORMATION
Shareholder base
Holdings of shares at 9 February 2024
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 – dividend per share
565
249
482
304
60
84
21
17
1782
31.71
13.97
27.05
17.06
3.37
4.71
1.18
0.95
100.0
100,916
194,116
1,165,619
4,808,227
4,281,154
21,702,156
13,570,231
34,487,457
80,309,876
Number of holders
%
Number of shares
1265
512
5
1782
2023
15.0p
28.0p
43.0p
70.99
28.73
0.28
100.0
3,034,638
77,256,662
18,576
80,309,876
2022
13.0p
22.0p
35.0p
2021
12.0p
19.0p
31.0p
2020
9.2p
17.5p
26.7p
%
0.13
0.24
1.45
5.99
5.33
27.02
16.90
42.94
100.0
%
3.78
96.20
0.02
100.0
2019
10.6p
-
10.6
Interim
Final
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 will be held on Thursday 23
May 2024 at 11.00am at Cranmore
Park Conference and Exhibition Centre,
Cranmore Avenue, Shirley, Solihull, B90
4LF. 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,
200
Shareholder Reference number (‘SRN’) and
PIN number printed on your Form of Proxy
where you will find the full instructions.
Shareholding online
Computershare Investor Centre gives
access to view your holdings online.
To register click on Investor Centre on
the Computershare home page
www.computershare.com and follow the
instructions.
Dividend Reinvestment Plan ‘DRIP’
The Company offers shareholders the
facility to reinvest their cash dividends to
buy more shares in the Company.
• The service allows you to increase
your shareholding in an easy and
convenient way.
• Online application process enables
you to participate easily and securely:
www.investorcentre.co.uk.
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 call
0370 703 0084.
• 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.
• DRIP shares will be purchased as
soon as possible on or after the
dividend pay date.
Shareholder helpline number
There is a Computershare helpline for
shareholders who have enquiries about
their shareholdings. The dedicated
helpline number is 0370 707 1058.
Stock Code HILS GALVANIZING SERVICES
UNITED KINGDOM
Joseph Ash Limited(1)
Galvanizing services
Alcora Building 2, Mucklow Hill
Halesowen,
West Midlands,
B62 8DG
Tel: +44 (0) 121 504 2560
www.josephash.co.uk
UNITED STATES OF
AMERICA
Voigt & Schweitzer LLC(1)
Galvanizing services
987 Buckeye Park Road,
Columbus
Ohio 43207
USA
Tel: +1 (614) 449 8281
www.hotdipgalvanizing.com
Notes:
The above lists the Company’s Galvanizing subsidiary
undertakings, except for some intermediate holding
companies and certain other undertakings of minor
importance. Galvanizing services are also provided
by Widnes Galvanising Limited, Premier Galvanizing
Limited, Medway Galvanising Company Limited, Barkers
Engineering Limited and Birtley Group Limited. Except
where indicated, the undertakings are subsidiaries
incorporated in Great Britain and the share capital
consists of ordinary shares only.
(1) The Company’s effective interest is held indirectly for
these undertakings.
PRINCIPAL GROUP BUSINESSES
ENGINEERED SOLUTIONS
UNITED KINGDOM
Birtley Group Ltd
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 Ltd
Open steel flooring, handrailing and
ancillary products
Marsh Road
Middlesbrough
TS1 5JS
Tel: +44 (0) 1642 245151
www.lk-uk.com
UNITED STATES OF
AMERICA
Creative Composites Group(1)(2)
Fiber reinforced polymer (FRP) composite
solutions
214 Industrial Lane
Alum Bank
Pennsylvania 15521
USA
Tel: +1 (814) 839 4186
www.creativecompositesgroup.com
Enduro Composites Inc (1)
FRP composite solutions
16602 Central Green Blvd
Houston
Texas 77032
USA
Tel: +1 (713) 358 4000
www.endurocomposites.com
United Fiberglass of America (1)
Manufacturer of quality fiberglass pipe,
conduit, and bridge drain infrastructure
systems
2145 Airpark Drive
Springfield
OH 45502
USA
Tel: +1 (937) 325 7305
www.unitedfiberglass.com
V&S Utilities (1)(3)
Electrical transmission and distribution
substation structures
987 Buckeye Park Road
Columbus
Ohio 43207
USA
Tel: +1 (614) 449 8281
The Paterson Group (1) (4)
Engineered pipe support solutions and
ancillary products
434 Latigue Road
Waggaman,
LA 70094
USA
Tel: +1 (504) 431 7722
www.pipehangers.com
Novia Corporation Inc.(1)
Vibration and seismic control solutions
1 Northwestern Drive
Salem
New Hampshire 03079
USA
www.cp-novia.com
Tel: +1 (603) 898 8600
INDIA
Bergen Pipe Supports (India)
Private Ltd(1)
Engineered pipe support solutions
Incorporated in India
Plot No.12, Ground Floor
‘RADHA’
Mangala Nagar Main Road
Porur, Chennai
600116
India
Tel: +91 8576 305 666
www.pipesupports.com
Notes:
The above lists the Company’s Engineered Solutions
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.
(1) The Company’s effective interest is held indirectly for
these undertakings
(2) Trading name for Creative Pultrusions Inc, CPK
Manufacturing LLC and CPCA Manufacturing LLC, all of
which are indirectly held, wholly owned and incorporated
in the USA.
(3) 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.
(4) Trading name for Carpenter & Paterson Inc and
Bergen Pipe Supports Inc, both are indirectly held, wholly
owned and incorporated in the USA
201
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS PRINCIPAL GROUP BUSINESSES continued
ROADS & SECURITY
UNITED KINGDOM
Hill & Smith Infrastructure
Limited
Temporary and permanent road safety
barriers, vehicle restraint systems, security
solutions, bridge parapets and retained
earth systems
Springvale Business & Industrial Park
Bilston
Wolverhampton
WV14 0QL
Tel: +44 (0) 1902 499400
www.hill-smith.co.uk
Mallatite Limited
Lighting columns and traffic safety
solutions
Holmewood Industrial Estate
Hardwick View Road
Holmewood
Chesterfield
Derbyshire
S42 5SA
Tel: +44 (0) 1246 593280
www.mallatite.co.uk
Prolectric Services Limited(1)
Sustainable lighting, power and security
solutions
35 Hither Green Industrial Estate
Clevedon
BS21 6XU
Tel: +44 (0)1275400570
www.prolectric.co.uk
ATG Access LTD(1)
Hostile vehicle mitigation and perimeter
security solutions
Cobaco House
North Florida Road
Haydock Industrial Estate
Haydock
Merseyside
WA11 9TP
Tel: +44 (0) 8456 757574
www.atgaccess.com
Barkers Engineering Limited(1)
Perimeter security solutions
Duke Street
Fenton
Stoke-on-Trent
Staffordshire
ST4 3NS
Tel: +44 (0) 1782 319264
www.barkersengineering.com
Parking Facilities Ltd(1)
Parking and access control products
Unit One, Kingsbury Link
Trinity Road
Tamworth
Staffordshire
B78 2EX
Tel: +44 (0) 1827 870250
www.parkingfacilities.co.uk
UNITED STATES OF
AMERICA
National Signal LLC(1)
Solar light towers, message signs and
other construction equipment
2440 Artesia Avenue,
Fullerton
California CA 92833
USA.
www.nationalsignalinc.net
Tel: +1 714-441-7707
Hill & Smith Inc.(1)
Roadside and workzone safety products
and solutions
2740 Airport Drive
Suite 310/320
Columbus
Ohio 43219
USA
Tel: +1 (614) 340 6294
www.hillandsmith.com
AUSTRALIA
Hill & Smith Pty Ltd(1)
Wire rope and temporary safety barriers
Incorporated in Australia
Unit 1, 242 New Cleveland Road
Tingalpa
Queensland 4173
Australia
Tel: +61 (0) 7 3162 6078
www.hsroads.com.au
Notes:
The above lists the Company’s Roads & Security
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.
(1) The Company’s effective interest is held indirectly for
these undertakings.
202
Stock Code HILS DIRECTORS, CONTACTS AND ADVISORS
CONTACTS
Registered Office
Hill & Smith PLC
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 FCG
DIRECTORS
Alan Giddins
Executive Chair
Hannah Nichols
Chief Financial Officer
Hooman Caman Javvi
Chief Operating Officer
Tony Quinlan
Senior Independent Non-executive
Leigh-Ann Russell
Non-executive
Farrokh Batliwala
Non-executive
Mark Reckitt
Non-executive
Pete Raby
Non-executive
Carol Chesney
Non-executive
PROFESSIONAL ADVISERS
Auditor
Ernst & Young LLP
No. 1 Colmore Square
Birmingham
B4 6HQ
Brokers and Financial Advisors
Deutsche Numis
45 Gresham St
London
EC2V 7BF
Principal Bankers
Barclays Bank Plc
Midlands Corporate Banking Centre
PO Box 3333
1 Snowhill
Snow Hill Queensway Birmingham
B3 2WN
Lawyers
Gowling WLG
Two Snowhill
Birmingham
B4 6WR
Silks Solicitors
Barclays Bank Chambers
Birmingham Street
Oldbury
B69 4EZ
Financial Public Relations
MHP Group
60 Great Portland Street
London
W1W 7RT
203
Hill & Smith PLC | Annual Report and Accounts 2023FINANCIAL STATEMENTS SHAREHOLDER NOTES
204
Stock Code HILS The production of this report supports the work of the Woodland Trust, the
UK’s leading woodland conservation charity. Each tree planted will grow into a
vital carbon store, helping to reduce environmental impact as well as creating
natural havens for wildlife and people.
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Hill & Smith PLC
Westhaven House
Arleston Way
Shirley
Solihull
B90 4LH
+44 (0)121 704 7430