TIDMHILS
RNS Number : 2676E
Hill & Smith Holdings PLC
10 March 2022
Hill & Smith Holdings PLC
PRELIMINARY RESULTS FOR THE YEARED 31 DECEMBER 2021
Hill & Smith Holdings PLC ("Hill & Smith" or "the
Group"), the international group creating sustainable
infrastructure and safe transport through innovation, announces its
preliminary results for the year ended 31 December 2021.
Financial results
Change
---------------------------------
Organic Constant
Currency
31 December 31 December Reported (OCC)**
2021 2020 % %
-------------------------- ------------ ------------ -------------- -----------------
Revenue GBP705.0m GBP660.5m +7 +10%
Underlying (*) :
Operating profit GBP86.0m GBP69.9m +23 +29%
Operating margin 12.2% 10.6% +160bps +190bps
Profit before taxation GBP79.9m GBP62.6m +28
Earnings per share 77.9p 63.2p +23
Reported:
Operating profit GBP57.0m GBP42.8m +33
Operating margin 8.1% 6.5% +160bps
Profit before taxation GBP50.9m GBP35.5m +43
Basic earnings per share 43.0p 30.2p +42
Dividend per share 31.0p 26.7p +16
Net Debt GBP144.7m GBP146.2m
-------------------------- ------------ ------------ -------------- -----------------
Key points:
-- Record constant currency revenue and underlying operating profit:
o Strong recovery in all divisions with margin improvement and
trading significantly ahead of COVID-impacted 2020
o Performance ahead of 2019 levels: organic constant currency
growth +4% revenue and +3% underlying operating profit
o Successful management of supply chain headwinds and input cost
inflation
-- ESG strategy developed with seven priority areas and
commitment to Scope 1 and 2 carbon net zero by 2040
-- Progress made on improving the quality of the portfolio, in line with refreshed strategy
-- Group remains highly cash generative, with a strong balance
sheet to support future organic and inorganic growth
opportunities
-- Medium term outlook remains positive; expect to make good
progress in 2022 despite ongoing industry-wide supply chain and
inflationary challenges
-- FY21 dividend 31.0p, an increase of 16%
Paul Simmons, Chief Executive, said:
"In my first full year as CEO I am pleased with the financial
and strategic progress we have made. We set out an ambitious agenda
a year ago and our people and businesses have responded positively
to this, for which I would like to thank them. 2021 was not without
its challenges, particularly supply chain and inflationary
pressures. The Group navigated these well which is testament to the
resilience of our autonomous operating model. Creating sustainable
infrastructure and safe transport is core to our purpose and over
the course of the year, we have developed an ESG strategy, setting
out our path to carbon net zero by 2040.
"In 2022 we expect to make good progress despite the ongoing
headwinds and geopolitical uncertainties. In the longer term I am
excited about what the future holds given our exposure to the
positive macro trends of sustainable infrastructure and safe
transport."
For further information, please contact:
Hill & Smith Holdings PLC
Paul Simmons, Group Chief Executive Tel: +44 (0)121 704
Hannah Nichols, Group Chief Financial 7430
Officer
MHP Communications
Andrew Jaques / Rachel Farrington Tel: +44 (0)20 3128
/ Catherine Chapman 8613
* All underlying measures exclude certain non-underlying items,
which are as detailed in note 4 to the Financial Statements and
described in the Financial Review. References to an underlying
profit measure throughout this announcement are made on this basis.
Non-underlying items are presented separately in the Consolidated
Income Statement where, in the Directors' judgement, the quantum,
nature or volatility of such items gives further information to
obtain a proper understanding of the underlying performance of the
business . Underlying measures are deemed alternative performance
measures ("APMs") under the European Securities and Markets
Authority guidelines and a reconciliation to the closest IFRS
equivalent measure is detailed in note 3 to the Financial
Statements. They are presented on a consistent basis over time to
assist in comparison of performance.
** Where we make reference to organic constant currency
movements, these exclude the impact of currency translation effects
and acquisitions, disposals and closures of subsidiary businesses.
In respect of acquisitions, the amounts referred to represent the
amounts for the period in the current year that the business was
not held in the prior year. In respect of disposals and closures of
subsidiary businesses, the amounts referred to represent the
amounts for the period in the prior year that the business was not
held in the current year. Constant currency amounts are prepared
using exchange rates which prevailed in the current year.
Notes to Editors
Hill & Smith Holdings PLC 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 focussed operating businesses based in the UK, USA,
France, Sweden, India and Australia. It has a head office in the UK
and it is quoted on the London Stock Exchange (LSE: HILS.L).
The Group's operating businesses are organised into three
divisions:
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.
Utilities: supplying engineered steel and composite solutions
with low embodied energy for a wide range of infrastructure markets
including energy generation and distribution, marine, rail and
housing. The division also supplies engineered pipe supports for
the water, power and liquid natural gas markets and seismic
protection solutions.
Galvanizing Services: dramatically increasing the sustainability
and maintenance free life of steel products including structural
steel work, lighting, bridges, agricultural and other products for
the industrial and infrastructure markets.
Chief Executive's Review
Review of 2021
2021 saw the Group deliver record constant currency revenue and
underlying operating profit despite the industry-wide headwinds
that we faced. Our strong performance is, once again, due to a
combination of the talent and motivation of our global team, our
choice of long-term favourable markets and our agile autonomous
operating model. I would like to thank our employees and business
partners for their excellent contribution.
We have seen a good recovery in trading in 2021, with all three
divisions delivering strong revenue and profit growth compared to
2020 which was more severely impacted by COVID-related disruption.
I am also pleased to report that the Group delivered 4% revenue and
3% profit growth on an organic constant currency basis compared to
2019, our previous record year, highlighting the resilience and
continued progress of our business.
The trading highlight was in our Utilities division, which saw
strong profit growth and margin progression despite a robust
comparator, supported by high levels of demand for US engineered
composite solutions and good progress in our engineered supports
(formerly "pipe supports") and UK utility businesses. Our
Galvanizing division continued to deliver superior operating profit
margins at 20%, an improvement on the prior year, despite a less
favourable country mix, driven by a strong recovery in the UK and
France and solid performance in the US. The Roads & Security
division also delivered a robust performance with margin
improvement reflecting portfolio management actions and an
encouraging, albeit partial, recovery in demand in our security
sub-division.
During the year, our operating companies took swift and
appropriate action to manage supply chain headwinds. Actions taken
included implementing price increases to offset significant input
cost inflation, securing supply of raw materials and ensuring the
continuity of operations against a backdrop of labour shortages in
certain businesses. As we enter 2022, we believe we are well
positioned to continue to manage these headwinds. The Group remains
highly cash generative and maintains a strong balance sheet,
positioning us well for the future as we focus on developing and
funding both organic and inorganic growth opportunities.
Alongside the strong financial performance, we have made good
progress on the key elements of our strategy particularly around
talent and organisational development, portfolio management and
ESG.
In January 2021 we established our Executive Board and
introduced the Group President role, enabling us to scale the Group
without compromising our decentralised model, providing mentorship
for our operating company leaders and increased oversight. The
Group Presidents are responsible for growing their portfolio of
operating companies both organically, in partnership with the
operating company Managing Directors, and inorganically, in
partnership with our Corporate Development team. In 2022 we have
further strengthened our Group President team and expect to add a
US-based M&A Corporate Development executive. Our intent is to
maintain a small, but effective, central function supporting the
operating companies, bringing high quality businesses into the
Group via acquisition and ensuring good governance.
Our autonomous model places a disproportionate premium on talent
with over 99% of our people employed by our operating companies and
therefore close to our customers. During the year, we recruited a
Chief People Officer to help us further develop our current
employees and attract additional highly talented people into the
Group. We also added a US-based Group Head of Health & Safety
role and in the first quarter of 2022 we appointed a Head of
Sustainability to help us deliver our ESG commitments, building on
the work of the ESG steering group.
We have rebuilt our M&A pipeline consistent with our
purpose, and against a more demanding set of financial criteria;
the ability of acquired businesses to deliver long-term organic
profit growth with strong gross margins is key. We also reviewed
our current portfolio against those same criteria which highlighted
the need for targeted disposals. Our intent is to continually
improve the quality of our portfolio. A second element of our
M&A approach involves systematically reviewing new to Hill
& Smith niche markets to identify those aligned with our chosen
market drivers and specific M&A criteria. For niche markets
that meet our criteria we initiate searches for potential
acquisition targets.
In line with our refreshed strategy, we have taken actions to
enhance the quality of the portfolio. In March we were delighted to
acquire solar energy experts, Prolectric Services Ltd
("Prolectric"). Prolectric has already made a positive contribution
to the Group and we continue to see excellent long term growth
prospects for the business. During 2021, we also disposed of our
loss-making security access cover business, and we closed our
small, loss-making UK variable message sign business. Following a
strategic review of our Swedish road business in the second half of
the year, we are currently in advanced negotiations to dispose of
its rental division and are assessing the options for the remaining
parts of the business.
Innovation has an increasingly important role to play in the
Group's longer term organic profit growth ambitions. Higher value,
more innovative products drive higher gross margins, which in turn
allow sensible reinvestment by our operating companies. To teach
and share best practice we successfully ran our first innovation
workshop in October 2021, with a second operating company cohort
planned for early 2022.
To support the delivery of long-term organic growth, we changed
the operating company Managing Directors' annual bonus scheme to
reward organic profit growth and introduced a new LTIP scheme which
replaces a previous ESOS scheme and enables them to share in the
Group's long-term success.
Our ESG strategy and commitments
The growth of our business is naturally aligned to ESG: our
products and services make infrastructure more sustainable and
increase transport safety. In last year's annual report, I flagged
that we would be developing an environmental, social and governance
(ESG) strategy in 2021. With this in mind, we established an ESG
steering group to work with our operating companies to create
common sense, actionable plans with measurable targets. The ESG
team includes myself, our Chief Financial Officer, our Company
Secretary and our Chief People Officer, alongside a number of Group
employees who are passionate about our ESG focus areas. I am
pleased with the progress that the team has made, however I
recognise that we have more to do to improve our sustainability
performance and related disclosures, and we are committed to making
further progress in 2022 and beyond.
We have taken a materiality-based approach to ESG, using
interviews with 38 of our key stakeholders, alongside the relevant
SASB materiality maps, to identify our seven priority areas. For
each of the priorities we have developed a clear action plan and
key metrics against which we can be held accountable.
1. Greenhouse gas emissions and energy efficiency
Greenhouse gases are a major contributor to global warming, with
CO(2) emissions being the most significant for our Group. In
recognition of the Group's commitment to CO(2) reduction, earlier
this year we signed up to the Science Based Targets initiative
(SBTi) to limit global warming to 1.5 degrees Celsius.
We have developed a carbon reduction plan which includes clear
steps that we will take in the coming years to achieve net zero
Scope 1 and 2 CO(2) emissions. These steps include conversion of
natural gas burners used in galvanizing to an alternative
technology and transition away from the use of diesel vehicles.
Alongside this, we have developed a detailed costed plan which
includes an assessment of the incremental capital, energy, carbon
taxes and other operating costs which will support decarbonisation.
I am delighted that the outcome of this process has provided the
Group with the confidence to commit to achieving a carbon net zero
target by 2040. Our current expectations are that the financial
impact of achieving this will not have a material effect on the
growth prospects for the Group, with modest levels of incremental
capex required to achieve it. During 2022, we will continue to
develop the plan, including starting an assessment of our supply
chain Scope 3 emissions which will enable us to determine our SBTi
targets by August 2023.
2. Sustainable products
In line with our purpose, we are our committed to ensuring that
our products and services support a sustainable future. At the end
of 2020, we reset our portfolio management criteria to ensure that
all decision making is guided by our purpose of creating
sustainable infrastructure and safe transport through
innovation.
In addition, during 2021, we have worked alongside
representatives from our operating companies and a third-party
expert to complete an assessment of three of our key products and
services, to measure their sustainability and value to society. In
2022 we will validate our use of the model before rolling the
methodology out to a broader range of our products. We will then be
able to develop an improvement plan and introduce key metrics.
3. Health and safety
The health, safety and wellbeing of our employees continues to
be a key focus across all operating companies. Health and safety is
a key agenda item for the Executive Board, which I chair, and our
recently appointed Chief People Officer is accountable for
Group-wide health and safety improvement. In addition, we have
recruited a Group Head of Health and Safety, who has set a clear
strategy to support our operating companies with practical advice,
training and increasing awareness.
We have set short and medium-term targets to improve health and
safety across our organisation, using Lost Time Injury Rate (LTIR)
as the key indicator to track and monitor our progress. By 2025 we
are targeting to reduce our LTIR to 0.75, with a further reduction
to 0.25 by 2030.
4. Talent development and engagement
Talented people are fundamental to the success of our autonomous
operating model. We need a highly engaged and capable workforce
within our operating companies, and this can only be achieved by
attracting, developing, supporting, and retaining the right
people.
We are using employee engagement scores to measure our progress
in this area. I am pleased that the result of our recent survey
showed that employee engagement has improved to 55% compared to 48%
in 2019, however there is more work to do. Going forward, we will
be measuring employee engagement annually, with a target to improve
to 66% engagement by 2025 and to 75% by 2030.
5. Diversity and inclusion
As an organisation we want to employ the best people for the job
and help them thrive. We know that we can only do this by
considering talented people from the whole community. Our Chief
People Officer is working with our local HR communities to develop
a series of initiatives to further foster diversity and inclusion
across the Group.
To support this ambition, we have set Group targets for both
gender and ethnic diversity at a PLC Board, Executive Board and
Senior Leader level. In 2022, we expect further progress to be made
at the Executive and Senior Leader level.
6. Climate risks
During the year, we have made good progress in assessing the
financial risks and opportunities to our business due to climate
change. As a result, we are pleased to include in our Annual Report
our first report in response to the Task Force on Climate-related
Financial Disclosures (TCFD). The assessment suggests that, while
physical climate change presents a relatively low risk to our
future business operations, it may present opportunities for the
Group. Given our focus on sustainable infrastructure, some of our
operating companies already provide products and solutions to
address extreme weather conditions, and we see this as an
opportunity for future growth.
7. Ethical conduct
As a Group we are committed to conducting our business
activities responsibly and ethically, and in accordance with local
laws and regulations. We support this commitment by providing
training and educational programmes for employees, together with a
Group Code of Business Conduct which underpins all our
activities.
Further details of our new sustainability plan, targets and TCFD
disclosures can be found in our Annual Report.
Board Updates
In the period, we announced the appointment of Leigh-Ann Russell
as a Non-executive Director, who joined the Board on 1 April 2021.
In January 2022, we were also pleased to announce the appointment
of Farrokh Batliwala as a US based Non-executive Director, with
effect from 1 April 2022. Both appointments reflect the Group's
careful succession planning to recruit Non-executive Directors with
the necessary skills, experience and diversity to support the
Group's higher quality growth agenda.
2021 Headline Results
Change %
-------------------
2021 2020 Reported OCC
--------------------- ---------- ---------- --------- --------
Revenue GBP705.0m GBP660.5m +7 +10
--------------------- ---------- ---------- --------- --------
Underlying(1) :
Operating profit GBP86.0m GBP69.9m +23 +29
Operating margin 12.2% 10.6% +160bps +190bps
Profit before tax GBP79.9m GBP62.6m +28
Earnings per share 77.9p 63.2p +23
--------------------- ---------- ---------- --------- --------
Reported:
Operating profit GBP57.0m GBP42.8m +33
Operating margin 8.1% 6.5% +160bps
Profit before tax GBP50.9m GBP35.5m +43
Basic earnings per
share 43.0p 30.2p +42
--------------------- ---------- ---------- --------- --------
(1) Underlying measures are set out in note 3 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 4 to the Financial Statements .
The Group has seen a strong trading performance compared to 2020
which was impacted by COVID-related business closures and reduced
levels of demand from the middle of March. Revenue for the period
was GBP705.0m (2020: GBP660.5m), an increase of 7% on a reported
basis. Organic constant currency revenue growth was 10%. Underlying
operating profit was GBP86.0m (2020: GBP69.9m) and underlying
operating margin recovered strongly to 12.2% compared to 10.6% in
2020. Underlying profit before taxation was GBP79.9m (2020:
GBP62.6m). Reported operating profit was GBP57.0m (2020: GBP42.8m)
and reported profit before tax was GBP50.9m (2020: GBP35.5m).
Underlying earnings per share increased to 77.9p (2020: 63.2p).
The diluted underlying earnings per share was 77.1p (2020: 62.9p).
Reported earnings per share was 43.0p (2020: 30.2p). The weighted
average number of shares in issue was 79.6m (2020: 79.5m) with the
diluted number of shares at 80.6m (2020: 79.9m) adjusted for the
outstanding number of dilutive share options.
The principal reconciling items between underlying and reported
operating profit are non-cash charges including the impairment of
goodwill and intangibles relating to our security businesses of
GBP16.0m and the amortisation of acquisition intangibles of
GBP6.1m, together with costs associated with the closure of the UK
variable message signs business of GBP4.5m. Note 4 of the Financial
Statements provides further details on the Group's non-underlying
items.
Dividend
Based on the strong trading performance and cash generation
during the year, the Board is recommending a final dividend of
19.0p per share, making a total dividend for the year of 31.0p per
share (2020: 26.7p). Looking forward, we aim to provide sustainable
and progressive dividend growth, targeting a dividend cover of
around 2.5 times underlying earnings. The final dividend, if
approved, will be paid on 8 July 2022 to shareholders on the
register on 6 June 2022.
Outlook
We expect to make good progress in 2022, despite the ongoing
supply chain and inflationary headwinds which we continue to
actively manage. At this stage the consequences for the global
economy of the tragic events in Ukraine are uncertain. While the
Group has no operations in this part of the world and no direct and
negligible indirect exposure to customers and suppliers in the
region, we are carefully monitoring the situation.
In the medium to longer term, the positive outlook is supported
by strong market growth drivers for both sustainable infrastructure
and safe transport. In the US, all our businesses are well placed
to benefit from the increased spend approved under the
Infrastructure Investment and Jobs Act. In the UK, the Government
remains committed to the increased levels of funding for Road
Investment Strategy 2 and we expect this to support medium-term
growth.
Paul Simmons
Group Chief Executive
Operating Review
Galvanizing Services
GBPm +/- OCC
% %
-------------- ---- ----
2021 2020
---------------------- ------ ------ ---- ----
Revenue 198.3 185.9 +7 +11
---------------------- ------ ------ ---- ----
Underlying operating
profit (1) 39.5 35.8 +10 +18
---------------------- ------ ------ ---- ----
Underlying operating
margin % (1) 19.9% 19.3%
---------------------- ------ ------
Reported operating
profit 36.4 17.1
---------------------- ------ ------
(1) Underlying measures are set out in note 3 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 4 to the Financial Statements .
The Galvanizing Services division offers hot-dip galvanizing and
powder coating services with multi-plant facilities in the USA,
France and the UK. Hot-dip galvanizing is a proven steel corrosion
protection solution which significantly extends the service life of
steel structures and products. The division benefits from a wide
sectoral spread of customers who operate in resilient end markets
including road infrastructure, commercial construction,
transportation, agriculture, and energy transmission and
distribution.
The division delivered a good performance, particularly in the
first half, with a strong recovery in demand compared to H1 2020,
which was impacted by COVID-related disruption in the UK and the
complete closure of our French operations for six weeks from the
end of March 2020. Demand returned to more normalised levels in the
second half of the year, despite the US still facing challenges
around customer project delays and labour shortages. As a result,
revenue increased by 11% on an organic constant currency basis to
GBP198.3m, with volumes 3% higher than 2020. Underlying operating
profit increased significantly to GBP39.5m (2020: GBP35.8m),
representing 18% organic constant currency growth compared to 2020.
The division continued to deliver superior margins, with underlying
operating margin increasing to 19.9% (2020: 19.3%).
UK
The business experienced a strong recovery in demand,
particularly in the first half of 2021, due to the release of
security, construction and housing projects which had previously
been deferred. UK galvanizing delivered 17% organic constant
currency revenue growth and record operating profits in the year.
This reflects our strategy of focusing on higher margin, lower
volume business and pricing actions taken to address input cost
inflation. The outlook for 2022 remains positive, despite
inflationary and labour related headwinds, with robust demand for
galvanizing services to support sustainable infrastructure.
USA
Predominantly located in the north east of the country, the US
galvanizing business delivered a solid performance with 3% organic
constant currency revenue growth and maintained strong margins,
reflecting the benefits of pricing actions, product mix and good
demand for value added coating services. During the year the
business experienced lower production volumes than 2020 due to
customer project delays related to component shortages and elevated
steel costs. In addition, labour shortages also limited production
capacity in some plants. The outlook for 2022 is encouraging, with
labour availability improving and increased customer project
activity.
In the medium to longer term, the outlook is positive, with
investment levels expected to grow ahead of GDP in a range of US
galvanizing end markets, supported by the Infrastructure Investment
and Jobs Act. The Group continues to seek both organic and
inorganic growth opportunities in the attractive US market.
France
French galvanizing services delivered a strong performance in
2021, particularly in the first half, supported by buoyant levels
of customer demand compared to 2020, which was impacted by
COVID-related closures in the first half. As a result, revenue was
15% ahead of last year on an organic constant currency basis. The
outlook for 2022 is encouraging, with the team working hard to
manage energy cost inflation.
Utilities
GBPm
-------------- ---- ----
2021 2020 +/- OCC
% %
---------------------- ------ ------ ---- ----
Revenue 223.7 211.2 +6 +12
---------------------- ------ ------ ---- ----
Underlying operating
profit (1) 26.8 20.9 +28 +38
---------------------- ------ ------ ---- ----
Underlying operating
margin % (1) 12.0% 9.9%
---------------------- ------ ------
Reported operating
profit 26.3 20.1
---------------------- ------ ------
(1) Underlying measures are set out in note 3 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 4 to the Financial Statements.
Our Utilities division provides steel and composite solutions
with low embodied energy for a wide range of infrastructure markets
including energy generation and distribution, marine, rail and
housing. The division also supplies engineered supports for the
water, power and liquid natural gas markets and seismic protection
solutions for commercial construction.
The division delivered an impressive performance in 2021, with
12% revenue growth and 38% profit growth on an organic constant
currency basis against robust 2020 comparators. Reported operating
profit was GBP26.3m (2020: GBP20.1m). The strong performance was
underpinned by a record performance in the US composite business
and a good recovery in UK utilities and engineered supports, which
were disrupted by COVID last year. We are pleased with the
continued progress made on margins across the Utilities portfolio,
with underlying operating margin increasing to 12.0% (2020:
9.9%).
US
Revenue was 6% ahead of a strong 2020 comparator on an organic
constant currency basis. The composite business delivered a record
performance, with high demand for engineered composite solutions
including fire resistant utility poles for use in wildfire areas,
waterfront protection and mass transit infrastructure. During the
year, the electricity distribution substation business faced
challenges due to rising steel prices and customers delaying
non-essential projects, however demand is starting to recover as
steel prices stabilise. Prospects for future growth in the US
remain encouraging, supported by market demand for innovative
solutions to protect against extreme weather and investment to
upgrade ageing electricity infrastructure.
UK
Our UK businesses experienced a strong recovery, with 20%
revenue growth compared to a COVID-impacted 2020. The building
products business, supplying steel lintels, builders' metal work
and composite residential doors, benefitted from buoyant market
demand during the year. The industrial flooring business delivered
a good recovery, with a particular focus on data and distribution
centre markets. Both businesses successfully managed the impact of
high steel input costs with improved margins in the year and enter
2022 with a positive outlook.
Engineered Supports
Engineered Supports delivered a healthy recovery in 2021, with
revenue 10% ahead of 2020 on an organic constant currency basis.
The US business delivered a good performance, supported by a strong
rebound in the commercial construction market. The expansion of our
seismic protection device manufacturing capability completed in the
second half and the prospects for future growth are encouraging.
Our engineered pipe support business in India delivered a solid
performance, with continued demand for products and engineering
services to support key liquified natural gas developments across
the globe.
Roads & Security
GBPm
-------------- ==== ====
+/- OCC
2021 2020 % %
---------------------- ------ ------ ==== ====
Revenue 283.0 263.4 +7 +8
---------------------- ------ ------ ==== ====
Underlying operating
profit (1) 19.7 13.2 +49 +43
---------------------- ------ ------ ==== ====
Underlying operating
margin % (1) 7.0% 5.0%
---------------------- ------ ------
Reported operating
(loss)/profit (5.7) 5.6
---------------------- ------ ------
(1) Underlying measures are set out in note 3 to the Financial
Statements and exclude certain non-underlying items, which are
detailed in note 4 to the Financial Statements.
The Roads & Security division supplies products and services
to support the delivery of safe road and highway infrastructure
alongside a range of security products to protect people, buildings
and infrastructure from attack.
The trading performance was ahead of last year with 8% organic
constant currency revenue growth and underlying operating profit
increasing to GBP19.7m (2020: GBP13.2m), a 43% increase on an
organic constant currency basis. Underlying operating margins
improved to 7.0% (2020: 5.0%). The performance reflects a solid
recovery in the UK and good levels of demand in the US. In the
second half, we started to see a recovery in our UK security
businesses as COVID-related restrictions on public gatherings
eased, which contributed to the improved H2 2021 margin of 7.4%.
The reported loss of GBP5.7m included a goodwill and intangible
asset impairment charge of GBP16.0m in respect of our UK security
businesses, GBP4.5m of closure costs relating to the variable
message sign business and a GBP0.4m loss on the disposal of the
security access cover business. Further details are set out in note
4 to the Financial Statements.
UK Roads
Revenue was 8% ahead of 2020 on an organic constant currency
basis. During the year, we provided a range of certified products
and services to support the upgrade of the strategic road network
under Road Investment Strategy 2 (RIS2) including rental of
temporary safety barrier, permanent safety barriers, bridge
parapets and road safe support structures. In addition, the
division benefitted from buoyant levels of demand from local
authorities for products to enhance non-strategic and local road
networks.
Investment in the roll-out of smart motorways represents
GBP4.5bn of the overall RIS2 committed spend of GBP27.4bn from 2020
to 2025. During the year our UK business was awarded primary
provider status for the provision of temporary barrier within the
Smart Motorway Alliance (SMA) and the first RIS2 smart motorway
scheme commenced in June 2021. In January 2022, the UK Government
issued its response to the Transport Committee review on the
roll-out and safety of smart motorways, which set out
recommendations including pausing the roll-out of further all lane
running schemes until sufficient safety data is available (expected
end of 2024) and the retrofit of additional emergency refuge areas
(ERAs). While we await further scheme details, the recommendations
are broadly in line with our expectations, with 2022 demand for the
rental fleet to be driven by the retrofit of ERAs, central
reservation upgrade schemes, including smart motorways, and
upgrades to the wider strategic network.
During the year we took steps to enhance the quality of the UK
Roads portfolio. In March 2021 we acquired Prolectric, a UK market
leader in off-grid solar energy solutions, for a net cash
consideration of GBP11.8m. Prolectric made a positive contribution
to the Group in 2021 and we are excited by the prospects for future
growth. As previously announced, in March 2021 we made the decision
to close our small, loss-making variable message sign business.
US Roads
US Roads delivered 6% revenue growth on an organic constant
currency basis, supported by strong demand for roadside safety
products including tested Zoneguard temporary safety barrier and
SmartCushion crash attenuators.
During the year, margins were impacted by the steep increase in
steel raw materials and freight costs, however we expect margin
improvement in 2022 as the impact of pricing actions takes full
effect and an increased focus on rental and higher margin roadside
safety products comes through.
In recent years we have seen a growing demand for our tested
roadside safety products, with the introduction of new safety
standards and increased levels of state and federal investment to
upgrade US road infrastructure. During the year we expanded our
geographical footprint in support of our growth strategy, with the
creation of a new manufacturing and distribution facility in
Garland, Texas. In addition, in the second half of the year we
invested GBP12.2m in the expansion of our temporary barrier fleet ,
including GBP4.3m of assets in the course of construction relating
to further planned fleet expansion in 2022.
In November 2021, we were encouraged by the approval of the
Infrastructure Investment and Jobs Act, which includes a five-year
reauthorisation of the US federal highway programme and investment
of c.$348 billion in highway and bridge improvements through to
2026.
Other International Roads
Despite the efforts of the strengthened local team, the Swedish
business continued to underperform in 2021 due to challenging
market conditions. As a result, we undertook a further review of
the business in the second half of 2021 and took the decision to
dispose of its rental division, which we expect to complete in the
first half of 2022. We continue to assess the options for the
remaining parts of the business.
In contrast, the lighting column business in France delivered a
robust performance, underpinned by a solid order book, and our
Australian road business benefitted from the development of the
traffic safety equipment rental business.
Security
Our Security businesses are based in the UK and provide a range
of perimeter security solutions including hostile vehicle
mitigation ('HVM') to both UK and international markets. 2021
revenue was 26% ahead of a COVID-impacted 2020 on an organic
constant currency basis. During the year, demand for perimeter
security solutions in data centres remained strong and, as COVID
restrictions eased, we saw some recovery in the key markets for HVM
solutions including crowded place protection, stadiums, airports
and shopping centres. In addition, demand for UK security barrier
rental returned in the second half with the resumption of
high-profile events including the COP26 Summit in Glasgow. As a
result, second half margins continued to show improvement and full
year underlying operating profits and margins were ahead of
2020.
In June 2021, we sold Technocover, our loss-making security
access cover business, for a consideration of GBP2.2m. The loss
recognised on disposal was GBP0.4m. In addition, given the
challenging market outlook, the Group reassessed the value of
acquisition goodwill and intangibles relating to both ATG Access
and Parking Facilities, and concluded that a total impairment
charge of GBP16.0m was required across the two businesses. Further
details are set out in note 4 to the Financial Statements.
Financial review
Capital allocation priorities and ROIC
The Group follows a disciplined approach to capital allocation.
Firstly, we look to allocate capital to support organic growth,
with the focus on higher return niches and growth markets. We
require our operating companies to maintain an appropriate level of
working capital that is reflective of growth rates in their
respective businesses. In addition, we invest in capital projects,
innovation and talent to support future organic growth, with around
GBP24.8m of FY2021 capex allocated to growth investments.
Secondly, we seek to allocate capital to make high quality
acquisitions, with a focus on clear alignment with our purpose,
higher gross margins and long term growth potential. We are
following a structured approach to acquisitions based on a clear
set of financial criteria and we expect acquisitions to achieve
returns above our Group WACC within a three-year timeframe. This
disciplined approach has resulted in the creation of a higher
quality pipeline of opportunities during the year.
We also aim to provide sustainable and progressive dividend
growth, with a target dividend cover of 2.5 times underlying
earnings. We understand the importance of providing consistent and
growing returns to our shareholders as part of our overall capital
allocation framework, and the Group's strong levels of cash
generation allow us to invest in organic and inorganic growth while
paying a dividend.
We use return on invested capital (ROIC) to measure our overall
capital efficiency, with a target of achieving returns in excess of
17%, comfortably above the Group's cost of capital, through the
cycle. The Group's ROIC in 2021 was close to our target at 16.8%
(2020: 12.6%), the improvement reflecting the recovery in trading,
our disciplined approach to capital investment, and the steps we
are taking to improve the overall quality of the portfolio.
Cash generation and financing
The Group continued to be highly cash generative, with cash
generated by operations of GBP103.1m (2020: GBP118.3m). This
included a working capital outflow in the period of GBP6.8m,
reflecting the increased trading activity in the year. The Group
continues to focus on maximising working capital efficiency, with
debtor days at 31 December 2021 at 55 days (31 December 2020: 54
days).
Capital expenditure in the year was GBP35.9m (2020: GBP20.4m),
as expected, representing a multiple of depreciation and
amortisation (excluding amortisation from acquisition intangibles
and right of use asset depreciation) of 1.6 times (2020: 0.9 times)
as detailed in note 3 to the Financial Statements. During the year,
we allocated capital to support future growth opportunities, with
GBP12.2m spend on the expansion of our US temporary barrier fleet,
including GBP4.3m of assets in the course of construction relating
to 2022 fleet expansion. In addition, we spent GBP2.8m on the
expansion of our manufacturing and distribution facilities across
our US operating companies and a further GBP3.6m on the expansion
of our off grid solar lighting and power rental fleet in the UK.
The Group invested GBP1.2m on capitalised development spend during
the year, and while we expect this to increase in 2022, we are
still in the early stages of our innovation initiative.
Net financing costs for the period were GBP6.1m (2020: GBP7.3m).
The cash element of financing costs was lower than the prior year
at GBP5.1m (2020: GBP6.2m), reflecting lower levels of average net
debt during the period due to the strong cash generation. The net
cost of pension fund financing under IAS 19 was GBP0.2m (2020:
GBP0.3m) and the amortisation of costs relating to refinancing
activities was GBP0.8m (2020: GBP0.8m).
The Group generated GBP51.6m (2020: GBP82.5m) of free cash flow
in the year, providing us with funds to support our acquisition
strategy and dividend policy. Underlying cash conversion was 78%
(2020: 139%), reflecting the capital investment in growth
opportunities during the year. Excluding strategic investment in
rental fleet, the underlying cash conversion was 97%. The
calculation of our underlying cash conversation ratio is set out in
note 3 to the Financial Statements.
Net debt and facilities headroom
Net debt at the end of the year amounted to GBP144.7m (31
December 2020: GBP146.2m). Cash outflows during the year included
GBP21.2m for the 2020 interim and final dividends and GBP11.8m on
the Prolectric acquisition. Net debt at the year end includes lease
liabilities under IFRS 16 of GBP40.6m (2020: GBP32.4m), the
increase being primarily due to the expansion of our US roads
facility in Texas and the renewal of the lease on our UK temporary
barrier distribution centre.
The Group's principal financing facilities are a headline
GBP280m multi-currency revolving credit agreement, which expires in
December 2023, and $70m senior unsecured notes with maturities in
June 2026 and June 2029, together with a further GBP13.4m of
on-demand local overdraft arrangements. Throughout the year the
Group has operated well within these facilities and at 31 December
2021, the Group had GBP234.4m of headroom (GBP221.2m committed,
GBP13.2m on demand). In 2022 we will take steps to assess and
extend the maturity profile of the revolving credit element of the
Group's financing facilities.
The principal borrowing facilities are subject to covenants that
are measured biannually in June and December, being net debt to
EBITDA of a maximum of 3.0 times and interest cover of a minimum of
4.0 times. The ratio of covenant net debt to EBITDA at 31 December
2021 was 1.0 times (31 December 2020: 1.3 times) and interest cover
was 25.4 times (31 December 2020: 17.0 times).
The Board considers that the ratio of covenant net debt to
EBITDA is a key metric from a capital management perspective and
targets a ratio of 1.5 to 2.0 times. The Board would be prepared to
see leverage above the target range for short periods of time if
strategically appropriate.
Tax
The tax charge for the period was GBP16.7m (2020: GBP11.5m) and
included a GBP1.1m credit (2020: GBP0.9m) in respect of
non-underlying items, principally relating to the amortisation of
acquisition intangibles. Cash tax paid in the year was GBP15.2m
(2020: GBP16.5m). The Group remains committed to the timely and
correct payment of taxes to authorities in all jurisdictions in
which we operate .
The underlying effective tax rate for the Group was 22.3% (2020:
19.8%), which is lower than the weighted average mix of tax rates
in the jurisdictions in which the Group operates due to the
successful conclusion of tax uncertainties related to prior years.
Assuming no changes to headline corporate tax rates in the UK or
US, we expect the Group's underlying effective rate to be around
23% in 2022. The reported effective tax rate was 32.8% (2020:
32.4%).
The Group's net deferred tax liability is GBP11.4m (2020:
GBP7.6m), which includes GBP9.3m (2020: GBP8.4m) of liabilities in
respect of brand names, customer relationships and other
contractual arrangements arising on acquisitions. These liabilities
do not represent future cash tax payments and will unwind as the
brand names, customer relationships and contractual arrangements
are amortised.
Exchange rates
The Group is exposed to movements in exchange rates when
translating the results of its overseas operations into Sterling.
Retranslating 2020 revenue and underlying operating profit using
average exchange rates for 2021 would have reduced revenue by
GBP22.0m and underlying operating profit by GBP4.0m, mainly due to
Sterling's appreciation against the US Dollar. A one cent movement
in the average US Dollar rate currently results in an adjustment of
approximately GBP1.9m to the Group's annual revenues and GBP0.4m to
annual underlying operating profit, while the equivalent impacts
for a one cent movement in the Euro are GBP0.7m and GBP0.1m
respectively.
Non-underlying items
The total non-underlying items charged to operating profit in
the Consolidated Income Statement amounted to GBP29.0m (2020:
GBP27.1m) and comprised the following:
-- Impairment charges of GBP16.0m in respect of goodwill and intangibles relating to two of our security businesses,
ATG Access and Parking Facilities
-- Amortisation of acquired intangible assets of GBP6.1m
-- Costs associated with the closure of the UK variable message signs business of GBP4.5m
-- A loss on disposal of Technocover Ltd, our small UK security access cover business of GBP0.4m
-- Expenses related to acquisitions and disposals of GBP2.0m.
The non-cash element of these charges was GBP23.2m. Further
details are set out in note 4 to the Financial Statements.
Pensions
The Group operates defined benefit pension plans in the UK,
France and the USA. The IAS 19 deficit of these plans at 31
December 2021 was GBP12.3m, a reduction of GBP7.3m from 31 December
2020 (GBP19.6m). The deficit of the UK scheme, the largest employee
benefit obligation in the Group, was lower than the prior year end
at GBP7.7m (31 December 2020: GBP14.0m) due to the Group's deficit
recovery payments and an increase of 60 basis points in the
discount rate during the period, in line with increases in bond
yields, being partly offset by slightly lower asset returns. The
deficit of the French scheme was GBP4.1m (2020: GBP4.9m) and the US
scheme deficit was GBP0.5m (2020: GBP0.7m).
The Group continues to be actively engaged in dialogue with the
UK schemes' Trustees with regards to management, funding and
investment strategies. The next triennial valuation for the UK
scheme will be as at April 2022.
Going Concern
After making enquiries, the Directors have reasonable
expectations that the Company and its subsidiaries have adequate
resources to continue in operational existence for the foreseeable
future and for the period to 30 June 2023. Accordingly, they
continue to adopt the going concern principle.
When making this assessment, the Group considers whether it will
be able to maintain adequate liquidity headroom above the level of
its borrowing facilities and to operate within the financial
covenants on those facilities. The Group has carefully modelled its
cash flow outlook for the period to 30 June 2023, considering the
ongoing uncertainties in global economic conditions. In this "base
case" scenario, the forecasts indicate significant liquidity
headroom will be maintained above the Group's borrowing facilities
and financial covenants will be met throughout the period,
including the covenant tests at 30 June 2022, 31 December 2022 and
30 June 2023. The Group has also carried out "reverse stress tests"
to assess the performance levels at which either liquidity headroom
would fall below zero or covenants would be breached in the period
to 30 June 2023. The Directors do not consider the resulting
performance levels to be plausible given the Group's strong trading
performance in 2021 and the positive outlook across the
infrastructure markets in which it operates.
Paul Simmons Hannah Nichols
Group Chief Executive Group Chief Financial Officer
Consolidated Income Statement
2021 2020
======================== ======================================= ============================================
Underlying Non- underlying* Total Underlying Non- underlying* Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm
=============================== ============ ================ ======= ============ ===================== =======
Revenue 2 705.0 - 705.0 660.5 - 660.5
Cost of sales (442.7) - (442.7) (415.9) - (415.9)
======================== ===== ============ ================ ======= ============ ===================== =======
Gross profit 262.3 - 262.3 244.6 - 244.6
Distribution costs (36.5) - (36.5) (34.1) - (34.1)
Administrative expenses (140.5) (29.0) (169.5) (142.2) (27.1) (169.3)
Other operating income 0.7 - 0.7 1.6 - 1.6
Operating profit 2,3 86.0 (29.0) 57.0 69.9 (27.1) 42.8
Financial income 5 0.6 - 0.6 0.6 - 0.6
Financial expense 5 (6.7) - (6.7) (7.9) - (7.9)
======================== ===== ============ ================ ======= ============ ===================== =======
Profit before taxation 79.9 (29.0) 50.9 62.6 (27.1) 35.5
Taxation 6 (17.8) 1.1 (16.7) (12.4) 0.9 (11.5)
======================== ===== ============ ================ ======= ============ ===================== =======
Profit for the year
attributable
to owners of the parent 62.1 (27.9) 34.2 50.2 (26.2) 24.0
=============================== ============ ================ ======= ============ ===================== =======
Basic earnings per share 7
Diluted earnings per 43.0p 30.2p
share 7 42.5p 30.0p
======================== ===== ============ ================ ======= ============ ===================== =======
* The Group's definition of non-underlying items is included in
note 1 and further details on non-underlying items are included in
note 4.
Consolidated Statement of Comprehensive Income
2021 2020
Notes GBPm GBPm
====================================================== ===== =====
Profit for the year 34.2 24.0
====================================================== ===== =====
Items that may be reclassified subsequently to
profit or loss
Exchange differences on translation of overseas
operations (2.3) (2.5)
Exchange differences on foreign currency borrowings
designated as net investment hedges 0.6 -
Items that will not be reclassified subsequently
to profit or loss
Actuarial gain/(loss) on defined benefit pension
schemes 3.5 (2.3)
Taxation on items that will not be reclassified
to profit or loss 6 - 0.8
===================================================== ===== =====
Other comprehensive income/(expense) for the year 1.8 (4.0)
====================================================== ===== =====
Total comprehensive income for the year attributable
to owners of the parent 36.0 20.0
====================================================== ===== =====
Consolidated Statement of Financial Position
2021 2020
Notes GBPm GBPm
===================================== ======= =======
Non-current assets
Intangible assets 177.4 188.5
Property, plant and equipment 193.3 183.6
Right-of-use assets 38.2 30.9
Corporation tax receivable 1.6 -
Deferred tax assets 1.4 1.4
================================ === ======= =======
411.9 404.4
===================================== ======= =======
Current assets
Assets held for sale 3.6 -
Inventories 108.1 96.3
Trade and other receivables 130.2 122.7
Current tax assets 0.7 1.3
Cash and cash equivalents 10 18.8 22.0
================================ === ======= =======
261.4 242.3
===================================== ======= =======
Total assets 2 673.3 646.7
================================ === ======= =======
Current liabilities
Liabilities held for sale (1.9) -
Trade and other liabilities (132.7) (116.7)
Current tax liabilities (4.3) (5.5)
Provisions (4.0) (3.3)
Lease liabilities (8.8) (8.6)
Loans and borrowings 10 (1.9) (8.6)
================================ === ======= =======
(153.6) (142.7)
===================================== ======= =======
Net current assets 107.8 99.6
===================================== ======= =======
Non-current liabilities
Other liabilities (1.5) (1.4)
Provisions (2.4) (2.5)
Deferred tax liabilities (12.8) (9.0)
Retirement benefit obligations (12.3) (19.6)
Lease liabilities (30.1) (23.8)
Loans and borrowings 10 (121.0) (127.2)
================================ === ======= =======
(180.1) (183.5)
===================================== ======= =======
Total liabilities (333.7) (326.2)
===================================== ======= =======
Net assets 339.6 320.5
================================ === ======= =======
Equity
Share capital 20.0 19.9
Share premium 40.9 38.4
Other reserves 4.9 4.9
Translation reserve 15.5 17.2
Retained earnings 258.3 240.1
================================ === ======= =======
Total equity 339.6 320.5
===================================== ======= =======
Consolidated Statement of Changes in Equity
Share Share Other Translation Retained Total
capital premium reserves reserve earnings equity
Notes GBPm GBPm GBPm GBPm GBPm GBPm
======================================== ====== ======== ======== ========= =========== ========= =======
At 1 January 2020 19.9 37.4 4.9 19.7 225.1 307.0
Comprehensive income
Profit for the year - - - - 24.0 24.0
Other comprehensive expense for
the year - - - (2.5) (1.5) (4.0)
Transactions with owners recognised
directly in equity
Dividends 8 - - - - (8.4) (8.4)
Credit to equity of share-based
payments - - - - 0.8 0.8
Tax taken directly to the Consolidated
Statement of Changes in Equity 6 - - - - 0.1 0.1
Shares issued - 1.0 - - - 1.0
At 31 December 2020 19.9 38.4 4.9 17.2 240.1 320.5
Comprehensive income
Profit for the year - - - - 34.2 34.2
Other comprehensive income for the
year - - - (1.7) 3.5 1.8
Transactions with owners recognised
directly in equity
Dividends 8 - - - - (21.2) (21.2)
Credit to equity of share-based
payments - - - - 2.5 2.5
Own shares held by employee benefit
trust - - - - (1.5) (1.5)
Satisfaction of long term incentive
and deferred bonus awards - - - - (0.3) (0.3)
Tax taken directly to the Consolidated
Statement of Changes in Equity 6 - - - - 1.0 1.0
Shares issued 0.1 2.5 - - - 2.6
======================================== ====== ======== ======== ========= =========== ========= =========
At 31 December 2021 20.0 40.9 4.9 15.5 258.3 339.6
======================================== ====== ======== ======== ========= =========== ========= =========
Other reserves represent the premium on shares issued in
exchange for shares of subsidiaries acquired and GBP0.2m (2020:
GBP0.2m) capital redemption reserve.
At 31 December 2020 a total of 19,928 shares were held in an
employee benefit trust for the purpose of settling awards granted
to employees under equity-settled share based payment plans. The
cost of these shares, amounting to GBP0.3m, was included within
retained earnings at that date. During 2021, 7,665 shares have been
issued in settlement of awards to employees and a further 98,821
shares have been purchased at a cost of GBP1.8m, leaving 111,084
shares held at 31 December 2021, at a cost of GBP1.8m included
within retained earnings .
Consolidated Statement of Cash Flows
2021 2020
======================================================== ========================== ===============
Notes GBPm GBPm GBPm GBPm
========================================================= ================== ====== ======= ======
Profit before tax 50.9 35.5
Add back net financing costs 6.1 7.3
======================================================== ========================== ===============
Operating profit 2 57.0 42.8
Adjusted for non-cash items:
Share-based payments 2.8 0.8
Loss on disposal of subsidiary 0.4 -
Gain on disposal of non-current assets (1.1) (1.9)
Depreciation of owned assets 20.9 21.9
Amortisation of intangible assets 7.5 7.5
Right-of-use asset depreciation 10.3 10.4
Gain on lease termination (0.1) (0.1)
Release of accrued contingent consideration (0.9) -
Impairment of non-current assets 16.0 19.5
======================================================== ================== =======
55.8 58.1
========================================================= ================== ====== ======= ======
112.8 100.9
Operating cash flow before movement
in working capital (13.6) 1.0
(Increase)/decrease in inventories (Increase)/decrease
in receivables (7.9) 21.6
Increase/(decrease) in payables 14.7 (4.4)
Decrease in provisions and employee
benefits (2.9) (0.8)
========================================================= ================== =======
Net movement in working capital (9.7) 17.4
========================================================= ================== ====== ======= ======
Cash generated by operations 103.1 118.3
Purchase of assets for rental to customers (16.7) (3.1)
Income taxes paid (15.2) (16.5)
Interest paid (4.7) (6.0)
Interest paid on lease liabilities (0.8) (0.8)
========================================================= ========================== ===============
Net cash from operating activities 65.7 91.9
Interest received 0.6 0.6
Proceeds on disposal of non-current
assets 3.7 6.5
Purchase of property, plant and equipment (17.8) (15.5)
Purchase of intangible assets (1.4) (1.8)
Acquisition of subsidiary 9 (11.8) (0.9)
Disposal of subsidiary 1.6 -
======================================================== ================== =======
Net cash used in investing activities (25.1) (11.1)
Issue of new shares 2.6 1.0
Purchase of shares for employee benefit
trust (1.8) -
Dividends paid 8 (21.2) (8.4)
Repayment of lease liabilities (10.3) (11.1)
New loans and borrowings 55.3 -
Repayment of loans and borrowings (61.0) (74.4)
======================================================== ================== =======
Net cash used in financing activities (36.4) (92.9)
========================================================= ================== ====== ======= ======
Net increase/(decrease) in cash and
cash equivalents net of bank overdraft 4.2 (12.1)
Cash and cash equivalents net of bank
overdraft at the beginning of the year 13.9 26.0
Effect of exchange rate fluctuations - -
========================================================= ========================== ===============
Cash and cash equivalents net of
bank overdraft at the end of the
year 18.1 13.9
======================================================== ========================== ===============
1. Group Accounting Policies
Hill & Smith Holdings PLC is a company incorporated in the
UK.
Basis of preparation
The consolidated financial statements comprise the financial
statements of the Company, Hill & Smith Holdings PLC, and its
subsidiaries as at 31 December 2021. Subsidiaries are entities
controlled by the Group. The Group controls an entity when it is
exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through
its power over the entity. The acquisition date is the date on
which control is transferred to the acquirer. The financial
statement of subsidiaries are included in the Group Financial
Statements from the date that control commences until the date that
control ceases.
In preparing the consolidated financial statements, management
has considered the impact of climate change, taking into account
the relevant disclosures in the Strategic Report, including those
made in accordance with the recommendations of the Taskforce on
Climate-related Financial Disclosures. This included an assessment
of assets with indefinite and long lives and how they could be
impacted by measures taken to address global warming. As outlined
in the Chief Executive's Review, physical climate change presents a
relatively low risk to the Group's future business operations. As
such, no issues were identified that would impact the carrying
values of such assets or have any other impact on the financial
statements.
Measurement convention
The Group Financial Statements are prepared on the historical
cost basis except where the measurement of balances at fair value
is required. The Group Financial Statements are presented in
Sterling and all values are stated in million (GBPm) rounded to one
decimal place, except where otherwise indicated.
Impact of COVID on the consolidated financial statements
As outlined in the Operating and Financial Review, the Group has
seen a strong recovery in 2021 across all operating divisions
compared with 2020, which was materially affected by temporary
business closures and reduced activity levels as a result of the
COVID pandemic. As such, whilst the impact of COVID on the
consolidated financial statements is significantly lower than in
prior year, the Group does not consider it possible to reliably
determine the level of any trading impact arising specifically from
COVID in 2021, as opposed to other market factors, and has
therefore not attempted to make any such disclosure in these
consolidated financial statements.
Going concern and liquidity risk
In determining the appropriate basis of preparation of its
financial statements, the Directors are required to assess whether
the Group can continue in operational existence for the foreseeable
future. When making this assessment, the Group considers whether it
will be able to maintain adequate liquidity headroom above the
level of its borrowing facilities and to operate within the
financial covenants on those facilities.
At 31 December 2021, the Group had GBP327.6m of committed
borrowing facilities, of which only GBP1.8m matures before December
2023 at the earliest, and a further GBP13.4m of on-demand
facilities. The amount drawn down under these facilities at 31
December 2021 was GBP125.4m, which together with cash and cash
equivalents GBP18.8m gave total headroom of GBP234.4m (GBP221.2m
committed, GBP13.2m on demand). The Group has not made any changes
to its principal borrowing facilities between 31 December 2021 and
the date of this announcement, and there have been no significant
changes to liquidity headroom during that period. The principal
borrowing facilities are subject to covenants that are measured
biannually in June and December, being net debt to EBITDA of a
maximum of 3.0x and interest cover of a minimum of 4.0x, based on
measures as defined in the facilities agreements which are adjusted
from the equivalent IFRS amounts as explained in note 3. The ratio
of net debt to EBITDA at 31 December 2021 was 1.0 times and
interest cover was 25.4 times.
The Group has carefully modelled its cash flow outlook for the
period to 30 June 2023, taking account of the current uncertainties
created by COVID and its impact on global economic conditions. In
this 'base case' scenario, the forecasts indicate significant
liquidity headroom will be maintained above the Group's borrowing
facilities and financial covenants will be met throughout the
period, including the covenant tests at 30 June 2022, 31 December
2022 and 30 June 2023.
The Group has carried out stress tests against the base case to
determine the performance levels that would result in a breach of
covenants or a reduction of headroom against its borrowing
facilities to nil. For a breach of covenants to occur during the
relevant period, the Group would need to experience a sustained
revenue reduction of 24% compared with current expectations
throughout the period from May 2022 through June 2023. A reduction
in headroom against borrowing facilities to nil would occur if the
Group experienced a sustained revenue reduction of 50% compared
with current expectations between May 2022 and June 2023. The
Directors do not consider either of these scenarios to be plausible
given the ability of the Group to continue its operations
throughout the COVID pandemic (noting that revenues fell by only
22% in the second quarter of 2020, the worst-affected period). The
Group also has several mitigating actions under its control
including minimising capital expenditure to critical requirements,
reducing levels of discretionary spend, rationalising its overhead
base and curtailing future dividend payments which, although not
forecast to be required, could be implemented in order to be able
to meet the covenant tests and to continue to operate within
borrowing facility limits.
After making these assessments, the Directors have reasonable
expectation that the Company and its subsidiaries have adequate
resources to continue in operational existence for the foreseeable
future and for the period to 30 June 2023. Accordingly, they
continue to adopt the going concern basis in preparing the Annual
Report and Financial Statements.
New IFRS standards and interpretations adopted during 2021
The following amendments and interpretations apply for the first
time in 2021, and therefore were adopted by the Group:
-- Covid-19-Related Rent Concessions beyond 30 June 2021 - Amendments to IFRS 16
-- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
-- Attributing Benefit to Periods of Service - IAS 19 Interpretation
The amendments noted above have not had a material impact on the
financial statements.
New IFRS standards and interpretations to be adopted in the
future
The following standards and interpretations, which are not yet
effective and have not been early adopted by the Group, will, where
relevant, be adopted in future accounting periods:
To be adopted for year-ending 31 December 2022:
-- Amendments to IFRS 3 - Reference to Conceptual Framework
-- Amendments to IAS 16 - Proceeds before intended use
-- Amendments to IAS 37 - Onerous contracts - costs of fulfilling a contract
To be adopted for year-ending 31 December 2023:
-- Amendments to IAS 1 - Classification of liabilities as current or non-current
-- Amendments to IAS 8 - Definition of Accounting Estimates
-- Amendments to IAS 1 - Disclosure of Accounting Policies
-- Amendments to IAS 12 - Deferred Tax related to Assets and
Liabilities arising from a Single Transaction
The above changes are not expected to have a material impact on
the Group.
The principal exchange rates used were as follows:
2021 2020
=============================== ==================== ====================
Average Closing Average Closing
=============================== ========= ========= ========= =========
Sterling to Euro (GBP1 = EUR) 1.16 1.19 1.13 1.11
Sterling to US Dollar (GBP1
= USD) 1.38 1.35 1.28 1.36
Sterling to Swedish Krona
(GBP1 = SEK) 11.80 12.21 11.80 11.15
Sterling to Indian Rupee (GBP1
= INR) 101.71 100.21 95.10 99.73
Sterling to Australian Dollar
(GBP1 = AUD) 1.83 1.86 1.86 1.76
=============================== ========= ========= ========= =========
Non-underlying items
The Group's accounting policy for non- underlying items is as
follows:
Non-underlying items are presented separately in the
Consolidated Income Statement where, in the Directors' judgement,
the quantum, nature or volatility of such items gives further
information to obtain a fuller understanding of the underlying
performance of the business. The following are included by the
Group in its assessment of non-underlying items:
-- Gains or losses arising on disposal, closure, restructuring
or reorganisation of businesses that do not meet the definition of
discontinued operations.
-- Amortisation of intangible fixed assets arising on
acquisitions, which can vary depending on the nature, size and
frequency of acquisitions in each financial period.
-- Expenses associated with acquisitions and disposals,
comprising professional fees incurred, any consideration which,
under IFRS 3 (Revised) is required to be treated as a
post-acquisition employment expense, and changes in contingent
consideration payable on acquisitions.
-- Impairment charges in respect of tangible or intangible fixed
assets, or right-of-use assets.
-- Changes in the fair value of derivative financial instruments.
-- Significant past service items or curtailments and
settlements relating to defined benefit pension obligations
resulting from material changes in the terms of the schemes.
The non-underlying tax charge or credit comprises the tax effect
of the above non-underlying items.
Details in respect of the non-underlying items recognised in the
current and prior year are set out in note 4.
2. Segmental information
Business segment analysis
The Group has three reportable segments which are Roads &
Security, Utilities and Galvanizing Services. The Group's internal
management structure and financial reporting systems differentiate
between these segments, and, in reporting, management have taken
the view that they comprise a reporting segment on the basis of the
following economic characteristics:
-- The Roads & Security segment contains a group of
businesses supplying products designed to ensure the safety and
security of roads and other national infrastructure, many of which
have been developed to address national and international safety
standards, to customers involved in the construction of that
infrastructure;
-- The Utilities segment contains a group of businesses
supplying products characterised by a degree of engineering
expertise, to public and private customers involved in the
construction of facilities serving the utilities markets; and
-- The Galvanizing Services segment contains a group of
companies supplying galvanizing and related materials coating
services to companies in a wide range of markets including
construction, agriculture and infrastructure.
Corporate costs are allocated to reportable segments in
proportion to the revenue of each of those segments.
Segmental Income Statement
2021 2020
======================= ================================= =================================
Reported Underlying Reported Underlying
operating operating operating operating
Revenue profit profit* Revenue profit profit*
GBPm GBPm GBPm GBPm GBPm GBPm
======================= ========= ========== ========== ========= ========== ==========
Roads & Security 283.0 (5.7) 19.7 263.4 5.6 13.2
Utilities 223.7 26.3 26.8 211.2 20.1 20.9
Galvanizing Services 198.3 36.4 39.5 185.9 17.1 35.8
======================= ========= ========== ========== ========= ========== ==========
Total Group 705.0 57.0 86.0 660.5 42.8 69.9
======================= ========= =========
Net financing costs (6.1) (6.1) (7.3) (7.3)
======================= ========= ========== ========== ========= ========== ==========
Profit before taxation 50.9 79.9 35.5 62.6
Taxation (16.7) (17.8) (11.5) (12.4)
======================= ========= ========== ========== ========= ========== ==========
Profit after taxation 34.2 62.1 24.0 50.2
======================= ========= ========== ========== ========= ========== ==========
* Underlying operating profit is stated before non-underlying
items as defined in note 1 and is the measure of segment profit
used by the Chief Operating Decision Maker, who is the Chief
Executive. The reported operating profit columns are included as
additional information.
Transactions between operating segments are on an arm's length
basis similar to transactions with third parties. Galvanizing
Services sold GBP6.5m (2020: GBP5.2m) of products and services to
Roads & Security and GBP1.6m (2020: GBP1.7m) of products and
services to Utilities. Utilities sold GBP3.0m (2020: GBP2.2m) of
products and services to Roads & Security. Roads & Security
sold GBPnil (2020: GBP0.2m) of products and services to Utilities.
These internal revenues, along with revenues generated from within
their own segments, have been eliminated on consolidation.
In the following tables, revenue from contracts with customers
is disaggregated by primary geographical market, major
product/service lines and timing of revenue recognition. Revenue by
primary geographical market is defined as the end location of the
Group's product or service. The table also includes a
reconciliation of the disaggregated revenue with the Group's
reportable segments.
Roads & Security Utilities Galvanizing Total
================================== ================== ============ ============= ============
2021 2020 2021 2020 2021 2020 2021 2020
Primary geographical markets GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
================================== ======== ======== ===== ===== ====== ===== ===== =====
UK 165.2 140.7 72.0 59.6 69.6 59.2 306.8 259.5
Rest of Europe 52.8 53.9 6.0 6.0 56.5 50.9 115.3 110.8
North America 56.8 58.0 137.3 138.2 72.2 75.8 266.3 272.0
The Middle East 3.2 5.2 0.6 1.4 - - 3.8 6.6
Rest of Asia 0.6 0.8 7.1 5.4 - - 7.7 6.2
Rest of the world 4.4 4.8 0.7 0.6 - - 5.1 5.4
================================== ======== ======== ===== ===== ====== ===== ===== =====
283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
================================== ======== ======== ===== ===== ====== ===== ===== =====
Major product/service lines
Manufacture, supply and
installation of products 260.7 240.4 223.7 211.2 - - 484.4 451.6
Galvanizing services - - - - 198.3 185.9 198.3 185.9
Rental income 22.3 23.0 - - - - 22.3 23.0
================================== ======== ======== ===== ===== ====== ===== ===== =====
283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
================================== ======== ======== ===== ===== ====== ===== ===== =====
Timing of revenue recognition
Products and services transferred
at a point in time 223.2 201.6 120.2 107.9 198.3 185.9 541.7 495.4
Products and services transferred
over time 59.8 61.8 103.5 103.3 - - 163.3 165.1
================================== ======== ======== ===== ===== ====== ===== ===== =====
283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
================================== ======== ======== ===== ===== ====== ===== ===== =====
Total assets by geography
2021 2020
GBPm GBPm
=================== ===== =====
UK 290.8 288.2
Rest of Europe 90.7 96.0
North America 273.2 245.7
Asia 13.6 12.7
Rest of the world 5.0 4.1
=================== ===== =====
Total Group 673.3 646.7
=================== ===== =====
3. Alternative Performance Measures
The Group presents Alternative Performance Measures ("APMs") in
addition to its statutory results. These are presented in
accordance with the Guidelines on APMs issued by the European
Securities and Markets Authority. The principal APMs are:
-- Underlying profit before taxation;
-- Underlying operating profit;
-- Underlying operating profit margin;
-- Organic measure of change in revenue and underlying operating profit;
-- Underlying cash conversion ratio;
-- Capital expenditure to depreciation and amortisation ratio;
-- Covenant net debt to EBITDA ratio; and
-- Underlying earnings per share. A reconciliation of statutory
earnings per share to underlying earnings per share is provided in
note 7.
All underlying measures exclude certain non-underlying items,
which are detailed in note 4. References to an underlying profit
measure are made on this basis and, in the opinion of the
Directors, aid the understanding of the underlying business
performance as they exclude items whose quantum, nature or
volatility gives further information to obtain a fuller
understanding of the underlying performance of the business. APMs
are presented on a consistent basis over time to assist in
comparison of performance.
Reconciliation of underlying to reported profit before tax
2021 2020
GBPm GBPm
------------------------------------------- ------ ------
Underlying profit before tax 79.9 62.6
Non-underlying items included in operating
profit (note 4) (29.0) (27.1)
Reported profit before tax 50.9 35.5
============================================ ====== ======
Reconciliation of underlying to reported operating profit
Roads & Security Utilities Galvanizing Total
================== ============ ============= ==============
2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
=================================== ========= ======= ===== ===== ===== ====== ====== ======
Underlying operating
profit 19.7 13.2 26.8 20.9 39.5 35.8 86.0 69.9
=================================== ========= ======= ===== ===== ===== ====== ====== ======
Non-underlying items:
Amortisation of acquisition
intangibles (4.5) (4.3) (0.5) (0.7) (1.1) (1.1) (6.1) (6.1)
Business reorganisation
costs (4.5) - - - - - (4.5) -
Impairment of assets (16.0) (2.8) - - - (17.5) (16.0) (20.3)
Expenses related to acquisitions
and disposals - (0.3) - - (2.0) - (2.0) (0.3)
Pension past service
expense - (0.2) - (0.1) - (0.1) - (0.4)
Loss on disposal of Technocover (0.4) - - - - - (0.4) -
Reported operating profit (5.7) 5.6 26.3 20.1 36.4 17.1 57.0 42.8
=================================== ========= ======= ===== ===== ===== ====== ====== ======
Calculation of underlying operating profit margin
Roads & Security Utilities Galvanizing Total
================== ============ ============= ============
2021 2020 2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
====================== ======== ======== ===== ===== ====== ===== ===== =====
Underlying operating
profit 19.7 13.2 26.8 20.9 39.5 35.8 86.0 69.9
Revenue 283.0 263.4 223.7 211.2 198.3 185.9 705.0 660.5
====================== ======== ======== ===== ===== ====== ===== ===== =====
Underlying operating
profit margin (%) 7.0% 5.0% 12.0% 9.9% 19.9% 19.3% 12.2% 10.6%
====================== ======== ======== ===== ===== ====== ===== ===== =====
Organic measure of change in revenue and underlying operating
profit
Organic measures exclude the impact of currency translation
movements, acquisitions, disposals and closures of subsidiary
businesses. In respect of acquisitions, the amounts referred to
represent the amounts for the period in the current year that the
business was not held in the prior year. In respect of disposals
and closures of subsidiary businesses, the amounts referred to
represent the amounts for the period in the prior year that the
business was not held in the current year.
Roads & Security Utilities Galvanizing Total
=================== =================== =================== ===================
Underlying Underlying Underlying Underlying
operating operating operating operating
Revenue profit Revenue profit Revenue profit Revenue profit
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
============================= ======= ========== ======= ========== ======= ========== ======= ==========
2020 263.4 13.2 211.2 20.9 185.9 35.8 660.5 69.9
Impact of exchange rate
movements (4.6) (0.3) (10.6) (1.5) (6.8) (2.2) (22.0) (4.0)
============================= ======= ========== ======= ========== ======= ========== ======= ==========
2020 translated at 2021
exchange rates (A) 258.8 12.9 200.6 19.4 179.1 33.6 638.5 65.9
Acquisitions and disposals 2.7 1.2 - - - - 2.7 1.2
Organic growth (B) 21.5 5.6 23.1 7.4 19.2 5.9 63.8 18.9
============================= ======= ========== ======= ========== ======= ========== ======= ==========
2021 283.0 19.7 223.7 26.8 198.3 39.5 705.0 86.0
Organic growth % (B divided
by A) 8.3% 43.4% 11.5% 38.1% 10.7% 17.6% 10.0% 28.7%
============================= ======= ========== ======= ========== ======= ========== ======= ==========
Calculation of underlying cash conversion ratio
2021 2020
GBPm GBPm
================================================== ====== ======
Underlying operating profit 86.0 69.9
=================================================== ====== ======
Calculation of adjusted operating cash
flow:
Cash generated by operations 103.1 118.3
Less: Purchase of assets for rental to
customers (16.7) (3.1)
Less: Purchase of property, plant and
equipment (17.8) (15.5)
Less: Purchase of intangible assets (1.4) (1.8)
Less: Repayments of lease liabilities (10.3) (11.1)
Add: Proceeds on disposal of non-current
assets 3.7 6.5
Add back: Defined benefit pension scheme
deficit payments 3.7 3.6
Add back: Cash flows relating to non-underlying
items 2.7 0.6
=================================================== ====== ======
Adjusted operating cash flow 67.0 97.5
=================================================== ====== ======
Underlying cash conversion (%) 78% 139%
=================================================== ====== ======
Calculation of capital expenditure to depreciation and
amortisation ratio
2021 2020
GBPm GBPm
================================================ ===== =====
Calculation of capital expenditure:
Purchase of assets for rental to customers 16.7 3.1
Purchase of property, plant and equipment 17.8 15.5
Purchase of intangible assets 1.4 1.8
================================================= ===== =====
35.9 20.4
================================================ ===== =====
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment 20.9 21.9
Amortisation of development costs 1.1 1.2
Amortisation of other intangible assets 0.3 0.2
================================================= ===== =====
22.3 23.3
================================================ ===== =====
Capital expenditure to depreciation and
amortisation ratio 1.6x 0.9x
================================================= ===== =====
Calculation of covenant net debt to EBITDA ratio
2021 2020
GBPm GBPm
==================================================== ====== ======
Reported net debt (note 10) 144.7 146.2
Lease liabilities (40.6) (32.4)
Amounts related to refinancing under IFRS
9 2.5 3.4
===================================================== ====== ======
Covenant net debt (A) 106.6 117.2
===================================================== ====== ======
Underlying operating profit 86.0 69.9
Depreciation of owned assets 20.9 21.9
Right-of-use asset depreciation 10.3 10.4
Amortisation of development costs 1.1 1.2
Amortisation of other intangible assets 0.3 0.2
===================================================== ====== ======
Underlying EBITDA 118.6 103.6
Adjusted for:
Lease payments (11.1) (11.9)
Share-based payments expense 2.8 0.8
Annualised EBITDA of subsidiaries acquired/disposed 0.4 -
===================================================== ====== ======
Covenant EBITDA (B) 110.7 92.5
===================================================== ====== ======
Covenant net debt to EBITDA (A divided
by B) 1.0x 1.3x
===================================================== ====== ======
4. Non-underlying items
Included in operating profit
2021 2020
GBPm GBPm
=============================================== ====== ======
Amortisation of acquisition intangibles (6.1) (6.1)
Business reorganisation costs (a) (4.5) -
Impairment of assets (b) (16.0) (20.3)
Expenses related to acquisitions and disposals
(c) (2.0) (0.3)
Loss on disposal of the Group's access
cover business, Technocover Limited (d) (0.4) -
Pension past service expense (e) - (0.4)
(29.0) (27.1)
=============================================== ====== ======
Notes:
a) Business reorganisation costs of GBP4.5m represent the costs
of closing the UK variable message sign business, following the
strategic decision taken by the Group in March 2021. GBP1.3m of
this charge represents cash costs during the year, with a provision
of GBP3.2m for costs expected to be incurred in 2022, principally
in respect of remaining contractual and property-related
obligations. Non-cash impairment charges of GBP2.8m relating to the
assets of the business were recognised in 2020 and are included
within 'impairment of assets' in the table above.
b) In 2021, goodwill and intangible asset impairment charges of
GBP10.8m in respect of ATG Access Limited ('ATG') and GBP5.2m in
respect of Parking Facilities Limited ('Parking Facilities'), two
of the Group's UK Security businesses, have been recognised.
ATG operates in niche security markets, manufacturing and
distributing hostile vehicle mitigation and related products that
protect both public and private developments such as transport
hubs, commercial buildings and infrastructure sites from the threat
of attack. The COVID pandemic has had two significant impacts on
ATG's markets: firstly, the restrictions on public gatherings
across the world and secondly, a constraint on customer budgets
resulting in them de-prioritising significant security projects.
Following a challenging trading period in 2020, results in 2021
remained well below previous expectations leading the Board to
reassess the business's future prospects. This reassessment
concluded that the pace of ATG's recovery is likely to be slower
than had previously been anticipated, mainly due to an expectation
of prolonged inactivity in several of its key sectors and also
reflecting increased competition in the market. Consequently, the
impairment review concluded that ATG's expected future cash flows
were not sufficient to support its carrying value, resulting in an
impairment of the acquisition goodwill.
Parking Facilities manufactures and sells a range of perimeter
access security products, predominantly to specialist security
installers in the UK. Similar to ATG, the COVID pandemic resulted
in a weak trading period in 2020 as several customer contracts were
cancelled or postponed. Whilst the business saw a marginal
improvement in revenue and profitability in 2021, ongoing
constraints on customer budgets continue to weigh on demand. The
Board's reassessment of the future outlook for Parking Facilities,
which also took into account the impact on gross margins of recent
changes in the competitive landscape, concluded that there was a
limited prospect of the business returning to the levels of
profitability anticipated at the time of its acquisition and
therefore that the expected future cash flows were not sufficient
to support the carrying value. The resulting impairment charge of
GBP5.2m comprises GBP1.6m in respect of goodwill, GBP3.3m in
respect of acquired customer lists and GBP0.3m in respect of
acquired brand names.
In 2020, an impairment charge of GBP17.5m was made in respect of
goodwill relating to France Galva SA following a reassessment of
the outlook for the business. A further GBP2.8m impairment charge
was made in relation to the closure of the variable message signs
business as explained in a) above.
c) Expenses related to acquisitions and disposals of GBP2.0m
(2020: GBP0.3m) comprise professional fees and other similar costs
in respect of acquisitions and disposals that the Group either
concluded or considered during the year, including GBP0.4m relating
to the acquisition of Prolectric Services Limited ('Prolectric') in
March 2021 and GBP0.4m relating to the disposal of Technocover
Limited in June 2021. The net cost also includes a credit of
GBP0.9m in respect of contingent consideration relating to the
Prolectric acquisition. The agreement for the acquisition included
contingent consideration, dependent on Prolectric's adjusted
operating profit for the 12-month period to 31 March 2022. As at
the acquisition date, the fair value of the contingent
consideration was estimated to be GBP0.9m, calculated on a
probability-weighted basis. At 31 December 2021, despite a positive
contribution from Prolectric since acquisition the Group has
reassessed the fair value of the contingent consideration to be
GBPnil.
d) On 15 June 2021 the Group completed the disposal of
Technocover Limited, our small, loss-making security access covers
business, at a loss of GBP0.4m. Details of the disposal are set out
below.
Disposal of Technocover GBPm
================================================== =====
Property, plant and equipment 1.7
Right-of-use assets 0.1
Inventories 0.5
Trade debtors 1.9
Cash 0.6
Lease liabilities (0.1)
Trade creditors and accruals (2.1)
Net assets disposed 2.6
==================================================
Consideration
Consideration received 2.2
================================================== =====
Loss on disposal (0.4)
================================================== =====
Cash flow effect
Consideration received 2.2
Cash disposed of (0.6)
================================================== =======
Net cash consideration shown in the Consolidated
Statement of Cash Flows 1.6
================================================== =======
e) In October 2018, the High Court handed down a judgement
requiring businesses with defined benefit pension schemes to
equalise historical Guaranteed Minimum Pensions ('GMPs') between
male and female members. The Group's results in 2018 included a
non-underlying charge of GBP1.0m in respect of the likely cost to
be incurred in equalising GMPs arising in prior years. In 2020
there was a further hearing in relation to members who have
transferred out of schemes, which concluded that schemes do need to
revisit historical transfers for GMP equalisation. The Group took
professional advice as to the impact of this judgement and
recognised a further cost of GBP0.4m in 2020.
Included in taxation
The tax effect of the above items is a credit to the income
statement of GBP1.1m (2020: GBP0.9m).
5. Net financing costs
2021 2020
GBPm GBPm
============================================ ===== =====
Interest on bank deposits 0.6 0.6
============================================ ===== =====
Financial income 0.6 0.6
============================================ ===== =====
Interest on loans and borrowings (4.9) (6.0)
Interest on lease liabilities (0.8) (0.8)
Financial expenses related to refinancing (0.8) (0.8)
Interest cost on net pension scheme deficit (0.2) (0.3)
============================================ ===== =====
Financial expense (6.7) (7.9)
============================================ ===== =====
Net financing costs (6.1) (7.3)
============================================ ===== =====
6. Taxation
2021 2020
GBPm GBPm
=================================================== ===== =====
Current tax
UK corporation tax 4.1 2.0
Overseas tax at prevailing local rates 11.1 10.1
Adjustments in respect of prior years (1.8) (1.8)
=================================================== ===== =====
13.4 10.3
Deferred tax
UK deferred tax 0.1 (0.5)
Overseas tax at prevailing local rates 0.2 1.1
Adjustments in respect of prior years 0.6 (0.2)
Effects of changes in tax rates and laws 2.4 0.8
=================================================== ===== =====
3.3 1.2
=================================================== ===== =====
Tax on profit in the Consolidated Income Statement 16.7 11.5
=================================================== ===== =====
Deferred tax
Relating to defined benefit pension schemes - (0.8)
Tax on items taken directly to other comprehensive
income - (0.8)
=================================================== ===== =====
Current tax
Relating to share-based payments (0.2) (0.1)
Deferred tax
Relating to share-based payments (0.8) -
=================================================== ===== =====
Tax taken directly to the Consolidated Statement
of Changes in Equity (1.0) (0.1)
=================================================== ===== =====
The tax charge in the Consolidated Income Statement for the
period is higher (2020: higher) than the standard rate of
corporation tax in the UK. The differences are explained below:
2021 2020
GBPm GBPm
==================================================== ===== =====
Profit before taxation 50.9 35.5
==================================================== ===== =====
Profit before taxation multiplied by the effective
rate of corporation tax in the UK of 19.0% (2020:
19.0%) 9.7 6.7
Expenses not deductible/income not chargeable for
tax purposes 0.9 0.6
Non-deductible goodwill impairment 2.4 4.9
Benefits from international financing arrangements
- current and prior years (0.5) (1.2)
Local tax incentives (0.6) (0.1)
Overseas profits taxed at higher rates 3.3 1.8
Recognition of losses (0.1) (0.6)
Overseas losses not relieved 0.5 0.6
Impacts of rate and law changes 2.3 0.8
Adjustments in respect of prior years (1.2) (2.0)
==================================================== ===== =====
Tax charge 16.7 11.5
==================================================== ===== =====
In October 2017, the European Commission opened a state aid
investigation into the Group Financing Exemption in the UK
Controlled Foreign Company ('CFC') legislation. On 2 April 2019,
the Commission announced that it believed that in certain
circumstances the UK's CFC regime constituted state aid. In common
with other UK-based international companies, the Group may be
affected by the outcome of this case. In January 2021 the Group
received a charging notice from HMRC requiring it to pay GBP1.6m in
respect of state aid that HMRC considers had been unlawfully
received in previous years. The amount was paid in full in February
2021. Based on the current status of the case in both the UK and EU
jurisdictions, we have concluded that it is appropriate to
recognise this amount as a tax receivable at 31 December 2021.
7. Earnings per share
The weighted average number of ordinary shares in issue during
the year was 79.6m (2020: 79.5m), diluted for the effects of the
outstanding dilutive share options 80.6m (2020: 79.9m). Diluted
earnings per share takes account of the dilutive effect of all
outstanding share options, 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.
2021 2020
============================ ==================== ====================
Pence Pence
per share GBPm per share GBPm
============================ ============ ====== ============ ======
Basic earnings 43.0 34.2 30.2 24.0
Non-underlying items * 34.9 27.9 33.0 26.2
============================ ============ ====== ============ ======
Underlying earnings 77.9 62.1 63.2 50.2
============================ ============ ====== ============ ======
Diluted earnings 42.5 34.2 30.0 24.0
Non-underlying items * 34.6 27.9 32.9 26.2
============================ ============ ====== ============ ======
Underlying diluted earnings 77.1 62.1 62.9 50.2
============================ ============ ====== ============ ======
* Non-underlying items as detailed in note 4.
8. Dividends
Dividends paid during the year
2021 2020
============================================== ==================== ====================
Pence Pence
per share GBPm per share GBPm
============================================== ============ ====== ============ ======
Interim dividend paid in relation to
year-ended 31 December 2019* - - 10.6 8.4
Interim dividend paid in relation to
year-ended 31 December 2020 9.2 7.3 - -
Final dividend paid in relation to year-ended
31 December 2020 17.5 13.9 - -
Total 26.7 21.2 10.6 8.4
============================================== ============ ====== ============ ======
* A final dividend for 2019 of 23.0p per share was proposed but
was withdrawn and not paid.
Dividends declared in respect of the year
2021 2020
====================================== ==================== ====================
Pence Pence
per share GBPm per share GBPm
====================================== ============ ====== ============ ======
Interim dividend declared in relation
to year-ended 31 December 2020 - - 9.2 7.3
Final dividend declared in relation
to year-ended 31 December 2020 - - 17.5 13.9
Interim dividend declared in relation
to year-ended 31 December 2021 12.0 9.6 - -
Final dividend proposed in relation
to year-ended 31 December 2021 19.0 15.1 - -
Total 31.0 24.7 26.7 21.2
====================================== ============ ====== ============ ======
9. Acquisition of Prolectric Services Limited
On 1 March 2021 the Group acquired 100% of the share capital of
Prolectric Services Limited ("Prolectric") and its dormant
subsidiaries for an initial consideration of GBP12.0m. Further
consideration of up to GBP5.7m is payable depending on Prolectric's
achievement of financial performance targets in the 12-month period
to 31 March 2022. Prolectric, located in Clevedon, North Somerset,
is a UK market leader in off-grid solar energy solutions, aligning
closely with the Group's purpose of creating sustainable
infrastructure and providing new technology that the Group can
leverage in its existing markets. Details of the acquisition are
set out below:
Policy alignment
Pre-acquisition and fair
carrying value
amount adjustments Total
GBPm GBPm GBPm
================================================== =============== ================ =====
Intangible Assets
Brands - 0.7 0.7
Customer lists - 3.0 3.0
Contracts, licences and other assets 0.1 1.5 1.6
Property, plant and equipment 2.6 (1.5) 1.1
Right-of-use assets - 2.4 2.4
Inventories 0.4 - 0.4
Current assets 1.9 - 1.9
Cash 0.2 - 0.2
================================================== =============== ================ =====
Total assets 5.2 6.1 11.3
================================================== =============== ================ =====
Lease Liabilities - (1.8) (1.8)
Current liabilities (1.0) - (1.0)
Current interest bearing liabilities (1.2) 1.2 -
Deferred tax (0.1) (1.0) (1.1)
=====
Total liabilities (2.3) (1.6) (3.9)
================================================== =============== ================ =====
Net assets 2.9 4.5 7.4
================================================== =============== ================
Consideration
Consideration in the year 12.0
Fair value of contingent consideration due
within one year 0.9
Goodwill 5.5
================================================== =============== ================ =====
Cash flow effect
Consideration in the year 12.0
Cash acquired within the business (0.2)
================================================== =============== ================ =====
Net cash consideration shown in the Consolidated
Statement of Cash Flows 11.8
================================================== =============== ================ =====
Brands, customer lists, contracts, licences and other assets
have been recognised as specific intangible assets as a result of
the acquisition. The residual goodwill arising, which has been
allocated to the Roads & Security segment, primarily represents
the highly skilled workforce, future technological advantages and
potential for geographical expansion afforded to the Group. Policy
alignment and fair value adjustments have been made to align the
accounting policies of the acquired business with the Group's
accounting policies and to reflect the fair value of assets and
liabilities acquired. In respect of leases, the Group measured the
acquired lease liabilities using the present value of the remaining
lease payments at the date of acquisition. The right-of-use assets
were measured at an amount equal to the lease liabilities and
adjusted to reflect the terms of the leases relative to market
terms. The fair value of the current assets acquired includes
GBP1.3m of trade receivables, which have a gross value of
GBP1.3m.
As part of the acquisition agreement, contingent consideration
has been agreed. The amount of contingent consideration is
dependent on Prolectric's adjusted operating profit for the
12-month period to 31 March 2022. Below the 'trigger' (as defined
in the Share Purchase Agreement), no additional consideration is
due. If the 'trigger' is achieved, additional consideration of
GBP2.2m becomes payable. Above this level, there are several
targets between which the additional consideration increases
linearly. Should Prolectric achieve the 'cap' (as defined in the
Share Purchase Agreement), a maximum additional consideration of
GBP5.7m will become payable. As at the acquisition date, the fair
value of the contingent consideration was estimated to be GBP0.9m,
calculated on a probability-weighted basis. As explained in note 4,
despite a positive contribution from Prolectric since acquisition,
the Group has reassessed the fair value of the contingent
consideration at 31 December 2021 and determined it to be GBPnil,
resulting in a non-underlying credit to the Consolidated Income
Statement of GBP0.9m.
Post-acquisition the acquired business has contributed GBP7.0m
revenue and GBP1.4m operating profit, which are included in the
Group's Consolidated Income Statement. If the acquisition had been
made on 1 January 2021, the Group's results for the year would have
shown revenue of GBP706.2m, underlying operating profit of GBP86.3m
and reported operating profit of GBP57.3m.
10. Cash and borrowings
2021 2020
GBPm GBPm
========================================================= ======= =======
Cash and cash equivalents in the Consolidated Statement
of Financial Position
Cash and cash equivalents 18.8 22.0
Bank overdraft (0.7) (8.1)
========================================================= ======= =======
Cash and cash equivalents net of bank overdraft 18.1 13.9
Interest bearing loans and other borrowings
Amounts due within one year (1.2) (0.5)
Amounts due after more than one year (121.0) (127.2)
Lease liabilities classified as liabilities held
for sale (1.7) -
Lease liabilities due within one year (8.8) (8.6)
Lease liabilities due after more than one year (30.1) (23.8)
========================================================= ======= =======
Net debt (144.7) (146.2)
========================================================= ======= =======
Change in net debt
Operating profit 57.0 42.8
Non-cash items 55.8 58.1
========================================================= ======= =======
Operating cash flow before movement in working capital 112.8 100.9
Net movement in working capital (6.8) 18.2
Changes in provisions and employee benefits (2.9) (0.8)
========================================================= ======= =======
Operating cash flow 103.1 118.3
Tax paid (15.2) (16.5)
Net financing costs paid (4.1) (5.4)
Capital expenditure (35.9) (20.4)
Proceeds on disposal of non-current assets 3.7 6.5
========================================================= ======= =======
Free cash flow 51.6 82.5
Dividends paid (21.2) (8.4)
Acquisition of subsidiary (13.6) (0.9)
Disposal of subsidiary 1.6 -
Amortisation of costs associated with refinancing
activities (0.8) (0.8)
Purchase of shares for employee benefit trust (1.8) -
Issue of new shares 2.6 1.0
New leases and lease remeasurements (17.1) (3.2)
Interest on lease liabilities (0.8) (0.8)
========================================================= ======= =======
Net debt decrease 0.5 69.4
Effect of exchange rate fluctuations 1.0 (0.3)
========================================================= ======= =======
Net debt at the beginning of the year (146.2) (215.3)
========================================================= ======= =======
Net debt at the end of the year (144.7) (146.2)
========================================================= ======= =======
Notes
1. The financial information previously set out does not
constitute the Company's statutory accounts for the years ended 31
December 2021 or 2020 but is derived from those accounts. Statutory
accounts for 2020 have been delivered to the registrar of
companies, and those for 2021 will be delivered in due course. The
auditors have reported on those accounts; their report was:
i. unqualified;
ii. did not include references to any matters to which the
auditors drew attention by way of emphasis without qualifying their
report; and
iii. did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.
2. The Annual Report will be posted to shareholders on or around
19 April 2021 and will be displayed on the Company's website at
www.hsholdings.com . Copies of the Annual Report will also be
available from the registered office at Westhaven House, Arleston
Way, Solihull, B90 4LH.
3. Events Calendar:
i. The Annual General Meeting will be held at The Village Hotel,
The Green Business Park, Shirley, Solihull, B90 4GW at 11:00am on
Tuesday 24 May 2022.
ii. The proposed final dividend for 2021 will be paid on 8 July
2022 to shareholders on the register on 6 June 2022 (ex-dividend
date 1 June 2022).
iii. The last date for receipt of Dividend Reinvestment Plan elections is 17 June 2022.
iv. Interim results announcement for the period to 30 June 2022 due 3 August 2022.
v. Payment of the 2022 interim dividend due 6 January 2023.
4. This preliminary announcement of results for the year ended
31 December 2021 was approved by the Directors on 9 March 2022.
Cautionary Statement
This announcement contains forward looking statements which are
made in good faith based on the information available at the time
of its approval. It is believed that the expectations reflected in
these statements are reasonable but they may be affected by a
number of risks and uncertainties that are inherent in any forward
looking statement which could cause actual results to differ
materially from those currently anticipated. Nothing in this
document should be regarded as a profits forecast.
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END
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