Final Results

RNS Number : 3815Z

Hill & Smith Hldgs PLC

15 March 2012

 



Hill & Smith Holdings PLC

PRELIMINARY AUDITED RESULTS

FOR THE YEAR ENDED 31 DECEMBER 2011

Hill & Smith Holdings PLC, the international group with leading positions in the manufacture and supply of infrastructure products and galvanizing services to global markets, announces its preliminary audited results for the year ended 31 December 2011.

Financial results

	2011	2010	% change
Revenue	£406.2m	£374.2m	+8.6
Underlying* operating profit	£41.5m	£45.9m	-9.6
Underlying* profit before tax	£37.4m	£42.2m	-11.4
Underlying* earnings per share	34.5p	39.0p	-11.5
Basic earnings per share	20.9p	32.0p	-34.7
Full year dividend	13.2p	12.7p	+3.9
Net debt	£103.8m	£70.6m

* All underlying profit measures exclude certain non-operational items, which are defined in note 1, "Basis of preparation", to the attached Financial Statements.  References to an underlying profit measure throughout this preliminary results announcement are made on this basis. 

Key points:

·      Group now focused on international markets for infrastructure products and on providing galvanizing services in the UK, France and USA.

·      Robust performance in 2011 in difficult market conditions - in line with expectations:

-      H1 2011 affected by the lower UK stimulus spend, compared to that seen in H1 2010;

-      Stronger trading in H2 2011, particularly from international utilities businesses;

-      Good performances from French and US galvanizing operations which offset the weaker UK volumes. 

·    Over 65% of 2011 underlying operating profit generated from our international operations.

·    Underlying operating margin at 10.2% (2010: 12.3%), which reflects the change in the Infrastructure products mix and more normalised margins in Galvanizing Services. 

·    US-based Paterson Group and Swedish-based ATA, successfully integrated and delivering intended strategic benefits.

·    Benefits coming through from increased cross-group collaboration, as our international scale grows.

·    Final dividend increased by 4.0% to 7.8p per share (2010: 7.5p per share) giving a total dividend for the year of 13.2p per share (2010: 12.7p per share).

·    Stronger momentum in H2 2011 has continued into the early part of 2012, with a healthy order backlog in the utilities sector and overall galvanizing volumes ahead of expectations.

Derek Muir, Chief Executive, said:

"Our businesses produced a robust performance in the second half of 2011, with a particularly strong performance from our international utilities operations. 

"The benefits of our increasingly international profile and our now limited exposure to UK government spend, show through clearly in our recent and current performance.  We are targeting 75% of profits to come from overseas operations by the end of 2013. 

"Encouragingly, the momentum of the stronger trading seen in the second half of 2011 has continued in the first two months of 2012.  Order backlog in the utilities sector remains healthy and galvanizing volumes overall are ahead of our expectations.  The UK managed motorway programme is progressing according to plan and should provide a good base for 2013. 

"Whilst we anticipate the first half of 2012 being stronger than the same period in 2011, the full year's results will depend upon the current momentum continuing in the second half of 2012 in what remains uncertain economic times. 

"We are confident that the acquisitions completed in 2011, coupled with our growing international scale and the strength of our market positions will provide excellent opportunities to continue delivery of attractive growth and value in the medium to longer term."

For further information, please contact:

Hill & Smith Holdings PLC	Tel:  [phone]
Derek Muir, Group Chief Executive
Mark Pegler, Group Finance Director
MHP Communications	Tel:  [phone]
John Olsen / Barnaby Fry / Vicky Watkins

Notes to Editors

Hill & Smith Holdings PLC is an international group with leading positions in the design, manufacture and supply of infrastructure products and galvanizing services to global markets.  It serves its customers from facilities principally in the UK, France, USA, Thailand, Sweden and China.

The Group's operations are organised into two main business segments:

Infrastructure ProductsFor the core markets of road and utilities, supplying products and services such as permanent and temporary road safety barriers, street lighting columns, bridge parapets, gantries, temporary car parks, "GRP" railway platforms, variable road messaging solutions, traffic data collection systems, plastic drainage pipes, pipe supports for the power and liquid natural gas markets, energy grid components, industrial flooring, handrails, access covers and security fencing.

Galvanizing Services which provides zinc and other coatings for a wide range of products including fencing, lighting columns, structural steel work, bridges, agricultural and other products for the infrastructure and construction markets.

Headquartered in the UK and quoted on the London Stock Exchange (LSE: HILS.L), Hill & Smith Holdings PLC employs some 3,500 staff across 50 sites, principally in 6 countries.

Chairman's Statement

Introduction

Our businesses supply infrastructure products and galvanizing services across a growing number of international markets.  Using our culture of entrepreneurial management, we focus on securing strong positions in carefully selected niche markets.  Our strategy, of pursuing both acquisitive and organic growth and of reshaping the Group through the divestment of non-core low return businesses, is targeted at increasing earnings, dividend and shareholder value.  This strategic focus has continued in 2011 with key acquisitions, expansion into new markets, the exit from our remaining Building and Construction Products business, and the benefits coming through from increased collaboration across the Group as our international scale grows.

Performance highlights

Having demonstrated resilience in 2010, the Group's increasingly international businesses have produced a robust performance in 2011 in a difficult trading environment. 

Below are the highlights of the Group's performance in 2011. 

	2011		2010
Revenue £m		406.2	374.2
Underlying profit before tax £m		37.4	42.2
Underlying earnings per share pence		34.5	39.0
Dividend per share pence		13.2	12.7
Net debt £m		103.8	70.6

Dividends

In view of the robust performance of the business, in what continued to be difficult trading conditions, the Board is recommending a final dividend of 7.8p per share (2010: 7.5p per share) making a total dividend for the year of 13.2p per share (2010: 12.7p per share) an increase of 3.9%. 

Our performance enables us to maintain a progressive dividend policy which has increased our dividend payments by an average of 10.3% in each of the last five years.  Underlying dividend cover is a healthy 2.6 times (2010: 3.1 times).  This increased dividend for 2011 reflects our objective of delivering attractive returns to shareholders.

People

Our innovative and entrepreneurial culture has enabled us to successfully address the competitive challenges we continue to face and I would like to thank all our employees for their support and efforts during the year.

Governance

The Board is accountable to all the Company's stakeholders for the standards of governance which are maintained across the Group's wide range of international businesses.  The Board has consistently demonstrated its commitment to high standards of governance and no major changes to our approach are expected as a result of the new UK Corporate Governance Code.  During the year the Company has appointed a Group Risk & Compliance Counsel, structured a new compliance programme and undertaken a review of its internal audit and risk management processes.  A number of initiatives will be implemented during 2012 as the Board seeks to drive continuous improvement in governance matters; for example, the Board is adopting the annual re-election of all Directors with effect from this year's Annual General Meeting ("AGM").

Following the publication of the consultation document, "Gender Diversity on Boards", we are reviewing our position, in conjunction with our ongoing review of Board composition and an independent review of the Group's diversity policy.  We will report on our progress as appropriate.

David Grove

It is appropriate for me to note the sad premature death of David Grove in November last year.  As a former Chief Executive, and latterly Chairman of the Company, David was an inspirational leader of the expansion of the Group and his passion and enthusiasm for the Company will be sadly missed.

Outlook

The Group is now focussed on continuing the development of its international representation for the roads and utilities infrastructure markets and on providing high quality galvanizing services in the USA, France and the UK.  As evidence of our successful international development, we anticipate that 75% of our profits will be derived from our overseas operations by the end of 2013; this would compare to 2.0% in 2006.  Furthermore, UK Government spend now represents just 14% of Group revenue and continues to reduce as a proportion of our overall business. 

Encouragingly, the momentum of the stronger trading seen in the second half of 2011 has continued in the first two months of 2012.  Order backlog in the utilities sector remains healthy with a number of contract wins in pipe supports, the UK water industry AMP5 projects and our USA composites businesses.  Our galvanizing volumes have also been ahead of our expectations for the early part of 2012.

The UK managed motorway programme is progressing according to plan with early signs of projects, announced in the November Spending Review, proceeding to the design stage, which will provide a good base for 2013.  We do however expect a period of reduced activity, either side of the Olympics this Summer, when there will be a moratorium on roadworks in the south of the UK.

Whilst it is anticipated that the first half of 2012 will be stronger than the same period in 2011, the full year's results will depend upon this momentum continuing in the second half of 2012 in what remains uncertain economic times. 

We are confident that the acquisitions completed in 2011, coupled with our growing international scale and the strength of our market positions will provide excellent opportunities to continue delivery of attractive growth and value in the medium to longer term.

Shareholder communication

We hold our AGM on 16 May 2012 and it is an excellent opportunity for shareholders to meet the Board and certain senior executives of the Company.  If you are able to attend my colleagues and I will be delighted to see you.

Bill Whiteley

Chairman

15 March 2012

Business Review

2011 Overview

Our overall performance for 2011 was in line with the outlook statement given at the time of our Interim Results in August 2011 and reiterated in our November Interim Management Statement.

The year-on-year comparison in the first half was affected by the reduced contribution from the UK Government stimulus spend on roads from which we benefitted in the first half of 2010.  The second half however, saw more robust trading especially from our overseas operations and the increasing number of our businesses that now supply products to the utilities markets.

The international diversity and strength of our businesses within their respective markets, particularly in the USA, continued to underpin our performance.  The Group's overseas operations now account for over 65% of total underlying operating profits.

Revenue for the year increased by 8.6% to £406.2m (2010: £374.2m).  Adjusting for the net £22.7m of revenue arising from acquisitions and disposals, revenue increased by £10.6m to £383.5m (2.8% higher than 2010).  Underlying operating margin reduced to 10.2% from 12.3% reflecting a change in product mix in Infrastructure Products and a return to more normalised margin levels in Galvanizing Services. The change in product mix, more normal margins in galvanizing and the lower UK Government spend resulted in underlying operating profit falling to £41.5m (2010: £45.9m).  Acquisitions accounted for £1.4m of underlying operating profit.  Underlying profit before taxation was lower at £37.4m (2010: £42.2m).

Group strategy

Our strategic objective remains to deliver growth in earnings, dividend and shareholder value by developing and expanding our core businesses through a clear focus on:

-    organic growth

-    geographical expansion

-    selective acquisitions

-    innovation of new products, and

-    operational excellence within the business units. 

During 2011 we completed a number of initiatives under these key strategic drivers:

Organic growth

We continue to invest for growth.  During the year a small capital investment in the pipe supports operation based in Thailand, for the manufacture of boiler hanger rods, enabled us to win a £6m contract with Mitsubishi Heavy Industries/Larson & Toubro, for power plants in India.  We will be investing further in equipment for our new facility in India to develop our product and customer offering.

A new sales office has been opened in Eastern Europe to develop sales in the growing market for solar farms.  Opportunities in the Indian and Middle Eastern markets are being explored, as well as in the UK.

Geographical expansion

For Roads, our strategy is to leverage our development of road restraint systems products for the European and American standard in other countries with strong infrastructure plans and/or a high regard for health and safety.  In May 2011 we made the strategic purchase of ATA Bygg-och Markprodukter AB ("ATA") in Sweden.  ATA have the route to market for a number of our road products in Scandinavia and have already gained success introducing permanent and temporary road restraint systems.  We are looking to continue to develop our overseas network representing our Roads product range in India, Singapore and Australia.

Within our Utilities business, the acquisition of The Paterson Group in March 2011 - covered in more detail below - moved us closer to the creation of a global pipe supports business.  In addition, our new factory in India will be used to manufacture pipe supports, Brifen wire rope and solar frame products.

Selective acquisitions

Our strategy for growth in our Utilities business focuses on the power markets of emerging economies in the short to medium term, and on the power infrastructure replacement markets in developed countries across Europe and the USA in the medium to long term.  To enable us to achieve this we made the strategic acquisition of The Paterson Group in March 2011.  The acquisition not only provides the Group access to the North American markets but, more importantly, provides us with significant experience in the nuclear pipe supports market and has ASME nuclear certification through the Bergen Power pipes supports business.  Bergen has supplied nuclear pipe supports to 49 of the 104 nuclear plants in the USA over the past 50 years.  Although this acquisition has been affected by the industry's immediate response to the Fukushima Daiichi nuclear power plant incident in the early part of 2011, we remain confident of the growth prospects in the medium term with the increasing demand for power throughout the world.  To meet that demand, we now have a global manufacturing platform for our pipe supports business which serves the petrochemical, liquefied natural gas and power generation industries.

Innovation

The Group's businesses are led by experienced and entrepreneurial management teams who have extensive knowledge of our chosen markets.  Their entrepreneurial focus and enthusiasm has been, and will continue to be, an important element of our strategy as it drives the individual businesses to innovate and respond quickly to opportunities they identify and to the needs of our customers.  Product development and identification of new markets are key to the growth of the Group in the medium to longer term.

In 2011, for example, we developed a solar panel mounting system, which incorporates innovative designs that we originally developed to optimise the installation time for crash barriers. 

In France we completed our investment in two new powder-coating paint facilities at two of the existing plants, allowing France Galva SA to offer galvanizing and secondary coating to our customers.

Operational excellence

We continue to invest in our people and our production plants to ensure that we achieve operational excellence.  The Group's capital investment programme covers all of our businesses and promotes automation and cost effective competitive manufacturing.  In December 2011 we commissioned the construction of a new galvanizing facility in the USA, replacing our original plant in Columbus, Ohio, with the potential for a 40% increase in capacity.  This will be the fifth plant constructed by the Group to our bespoke design, the benefits from which will be seen from 2013.

Operational review

Following the disposal of Ash & Lacy Building Systems Limited, the last remaining business in the Building and Construction Products division, the Group is now wholly focussed on two core, higher added value divisions: Infrastructure Products and Galvanizing Services.  Both divisions have a significant established international presence and strong positions in their markets which have attractive long term growth dynamics.

Infrastructure Products

The division is focused on supplying engineered products to the roads and utilities markets in geographies where there is the prospect of sustained long term investment in infrastructure.  In 2011 the division accounted for 68.0% (2010: 63.3%) of the Group's revenue and 48.0% (2010: 46.2%) of the Group's underlying operating profit.

Revenues increased by 16.5% to £276.1m (2010: £237.0m).  Margins declined by 170 basis points to 7.2% (2010: 8.9%) due primarily to a change in the mix of products.  Underlying operating profit was similar at £19.9m (2010: £21.2m).  Acquisitions contributed an additional £32.9m of revenue and £1.4m of operating profit.

Roads

As anticipated, the comprehensive UK Government spending review of November 2010 has reduced the spend on roads and delayed the UK's managed motorway programme, resulting in reduced revenue and profitability for our UK roads businesses in 2011.  This is in stark contrast to the benefit from the Highways Agency stimulus spend that we experienced in the first half of 2010.  During the last quarter of 2011 however, we saw the start of the first of three Managed Motorway Schemes in the UK, for which we will be supplying our temporary vehicle restraint system, Varioguard, and demand for this product in the first quarter of 2012 has been strong.  There was also more positive news in the Government's 2011 Autumn Statement when a number of road projects, previously cancelled, were reinstated, providing an encouraging outlook for 2013 and beyond in the UK. 

To offset any downturn in the UK we increased our concentration on international markets, such as Eastern Europe and particularly Scandinavia, where road building programmes remain strong. 

During the year we took direct control of previously licensed territory for Brifen wire rope safety fence in Australia and Sweden, the latter market now being served with a suite of both permanent and temporary vehicle restraint systems though our acquisition of ATA.  The acquisition has integrated well into the Group and their team now have a good understanding of the Hill & Smith product range.

Unrest in the Middle East led to a delay in shipment of large export orders for our bridge parapet systems, but we expect these shipments to start in the second half of 2012.

Further capital investment in our lighting column operation in France allowed us to bring all secondary coating in-house.  With over 65% of columns now galvanized and powder coated, this investment has enabled us to build a plant to fully service the market demand for coating of lighting columns, including secondary coating for our galvanizing customers.

Our businesses in the UK and France continue to benefit from the strength of our market position and the attrition of major competitors in those countries.  During 2011 we secured three new lighting column PFI's for Coventry, Croydon and Lewisham, and Cambridge.

Techspan, our electronic signage business, won an order for £4m in 2011 from the Scottish office for road signage on the approaches to the Forth Bridge Crossing.  We have also supplied traffic data collection equipment, temporary and permanent barrier, gantries and bridge structures for this project.  The strength of our product range has not only assisted us in maximising the opportunities on this project but will also offer us similar opportunities as the Managed Motorway Schemes progress in England.

We made more limited progress in the USA with Zoneguard, our temporary steel vehicle restraint system, which offers an alternative to the traditional established concrete wall system. This was due to the lack of a US highways bill and the reduced number of State contract lettings, compared to 2010, together with a reluctance from general contractors to rent rather than buy products.  Other manufacturers have recently introduced a steel product to the market, as an alternative to concrete barrier, and we anticipate a stronger acceptance of Zoneguard as the market recognises the proven cost saving benefits of steel over concrete.

In the final quarter we commenced construction of a 356 space TopDeck car park in Bradford for the headquarters of Morrisons supermarkets.

Utilities

The requirement for new power generation in emerging economies, and the replacement of ageing infrastructure in developed countries, provides an excellent opportunity for the Group's utilities businesses.

The Bergen Pipe Supports Group now makes up 17% of the Infrastructure Products division's revenue.  Bergen designs and manufactures large industrial pipe supports for gas, coal and nuclear power plants around the world.  We also design and manufacture pipe supports for liquefied natural gas ("LNG"), petrochemical and water treatment plants, together with a range of industrial hangers for public and commercial buildings.

Whilst there is a hiatus in the building programme of nuclear power plants, the overall demand for power generation over the medium to long term has not changed.

During 2011 we delivered orders worth £6.4m for pipe supports used at power plants in India.  Other significant orders were secured for LNG terminals in Singapore, Australia and Papua New Guinea, and for a new nuclear reprocessing plant in the USA.  Revenues were weighted towards the second half, which were boosted by the performance of our pipe supports manufacturing operation in Thailand. This performance was achieved in spite of the flooding problems in Bangkok and, whilst our facilities were not directly affected, a number of our key suppliers were and it is to the credit of our local management that these difficulties were overcome.

The integration and re-organisation of The Paterson Group has now been substantially completed.  Opportunities for the new enlarged group are beginning to be realised together with the ability for them to procure products from our low cost manufacturing operations in China and Thailand.

We ended 2011 with a healthy order book in our pipe supports business, which has continued to grow in the first two months of 2012. This is supported by an increased level of enquiries for major power projects, especially in India, which is encouraging for 2012 and beyond.

Our USA based utilities fabrication business had a strong second half compared to 2010, as the market for sub-station and transmission structures improved.  This was in line with the programme to increase the capacity of the North American electrical grid, which also includes renewable energy developments in wind and solar farms in Central America.  The previously announced rationalisation programme has successfully reduced our operational cost base and increased profitability.  This business has continued to trade strongly in the early part of 2012. 

Creative Pultrusions, our USA based composites company, has performed well delivering a number of large projects for the security, rail and gas exploration markets.  The investment in development, testing and tooling for new products is creating a strong platform for Creative Pultrusions to exploit the growth in the composites markets.  Examples of this innovation are the fender piles installed in San Francisco harbour for the America's Cup competition and 25 metre long piles supplied for bridge abuttment protection in the New Jersey area.

The UK water industry Asset Management Programme (AMP5), now in its second year, gained momentum in 2011.  Orders for the supply of interconnecting pipework, storm water attenuation tanks and related access systems resulted in a strong second half performance and a record order book entering 2012.  Major projects currently in production are for Beckton Sewage Treatment Plant in London and retention tanks in Meadowhead, Scotland. 

The improving housing market saw increased demand for our storm water retention tanks and also favourably impacted our steel lintel and residential door business, producing a record performance. 

Access Design, which supplies industrial flooring to infrastructure projects, benefitted from a lower operational cost base following the site rationalisation at the end of 2010.  We saw a return of the larger project work in 2011 and the order book now stands at a record level for 2012.  This division has also supplied and installed products containing composite materials manufactured by the Group's Creative Pultrusions operation in the USA.  Such products include blast screens to protect substations and rail platforms as part of the rail platform extension programme in the South East of England.  A further order for 85 platform extensions has recently been secured for supply throughout 2012.

During the second half of 2011 we introduced our newly developed solar panel mounting systems with early success in Eastern Europe, which has provided greater confidence to expand our sales operations in this and other regions with a commitment to renewable energy.

Galvanizing Services

Offering corrosion protection services to the steel fabrication industry with multi-plant facilities in the UK, France and the USA, Galvanizing Services now accounts for 29.2% (2010: 30.8%) of the Group's revenue and more significantly 52.0% (2010: 54.5%) of the Group's underlying operating profit.

At constant currency, revenues increased 2.9% to £118.5m (2010: £115.4m) whilst underlying operating profit was lower at £21.6m (2010: £25.0m).  As expected, in the challenging economic environment, overall margins returned to a more normal level of 18.2% (2010: 21.7%).  Margins in France and the USA remained resilient as higher volumes improved utilisation and offset any increased operating costs.

Overall galvanizing volumes were broadly in line with 2010 with strong performances in France and the USA offsetting weaker volumes in the UK.

USA

Located in the North East of the country, we are the market leader with six plants offering local services and extensive support to fabricators and product manufacturers involved in highways, construction, utilities and transportation.

Volumes increased 9.0% year on year due to improved order intake from the utilities, solar and structural steel work sectors.  Zinc prices throughout the year were relatively stable following increases in 2010.  The largest improvements in volumes were in the Ohio and Michigan plants and as a result of this we have commissioned a larger, more efficient plant to replace our oldest facility in Columbus, Ohio.  The new plant will be operational in early 2013 and will provide 40% additional capacity at this site.  The market in the USA continues to provide opportunities for growth as we convert the finish for infrastructure products from painted to the longer lasting more cost effective solution of galvanizing.

France

The business has ten strategically located galvanizing plants serving each local market.  We act as a key part of the manufacturing supply chain in those markets, and have delivered high levels of service and quality to maintain our position as market leaders.

Volumes in 2011 improved by 5.0%, primarily in the first half, due to stronger utilities and structured steel markets.  Activities improved markedly in the Northern region, where a number of new customers were attracted to the exceptional quality and service offered by France Galva.

UK

Our UK galvanizing business is located on nine sites, four of which are strategically adjacent to our Infrastructure Products manufacturing facilities.

Volumes were down 12.3% year on year, mainly in the first half, due to the reduction of production intake from our own infrastructure businesses and the continued reduction in large construction projects.  This reduced production volume had a significant impact on the overall performance of galvanizing in the UK.  More encouragingly however, in the final quarter of 2011 volumes improved by 2.7% year on year and have continued to rise year on year into 2012.

Building and Construction Products

The division comprised solely the business of Ash & Lacy Building Systems, which was sold on 22 July 2011 for a cash consideration of £5.1m.  Revenues for the period prior to disposal were £11.6m (2010: £21.8m).  Following this strategic disposal, the Building and Construction Products division effectively ceased to exist.

Financial Review

Income statement phasing

	First half	Second half	Full year
2011
Revenue (£m)	195.1	211.1	406.2
Underlying operating profit (£m)	18.2	23.3	41.5
Margin %	9.3	11.0	10.2
2010
Revenue (£m)	193.5	180.7	374.2
Underlying operating profit (£m)	23.5	22.4	45.9
Margin %	12.1	12.4	12.3

Revenue of £406.2m was £32.0m or 8.6% ahead of the prior year with acquisitions/disposals completed during 2011 contributing a net £22.7m additional revenue.  Organic revenue growth amounted to £10.9m.  Underlying operating profit of £41.5m benefitted by £1.7m from acquisitions/disposals which helped to offset an organic decline of £5.9m.  Further details of the organic performance of the business are provided earlier in this Business Review.  The translation impact arising from changes in exchange rates, principally the US Dollar and Euro, was immaterial, reducing revenue and underlying profit by £1.6m and £0.2m respectively.

As anticipated at the start of 2011, the phasing of revenue and underlying operating profit was second half biased, as opposed to the circa 50:50 split in 2010.  The second half of 2011 represented a strong performance for the Group with improved volumes and profitability from the Utilities businesses in particular helping drive an 11% operating margin.  The performance in 2012 is expected to return to a more even distribution between the first and second half.

Cash generation and financing

Operating cash flow of £35.3m (2010: £51.7m) included a working capital outflow of £16.1m (2010: £1.3m), principally reflecting the improved volumes experienced within our Utilities businesses in the final quarter of the year and those expected in the first quarter of 2012 compared to a relatively subdued end to 2010.  The impact on working capital of zinc and steel commodity prices year on year was not material.  Working capital as a percentage of annualised sales was 15.5%, marginally higher than the 14.2% at December 2010 but improved from 16.3% at the June half year.  Debtor days improved to 60 days from 63 days at December 2010 and 61 days at June half year.

Capital expenditure at £12.6m (2010: £15.2m) represents a multiple of depreciation and amortisation of 0.9 times (2010: 1.1 times).  Following the sanction of capital for a new $10m galvanizing plant in Columbus, Ohio, capital expenditure in 2012 is expected to be significantly ahead of depreciation and amortisation at some £20m.  The Group continues to invest in organic growth opportunities where returns exceed internal benchmarks.

Group net debt at 31 December 2011 was £103.8m, an increase of £33.2m against 31 December 2010 (£70.6m) principally driven by £36.2m (net of cash acquired of £2.8m) spend on acquisitions during the first half of the year. The Group's net debt remains principally denominated in US Dollars and Euros which act as a hedge against the net asset investments in overseas businesses. Net debt increased year on year by £0.3m due to exchange rate movements.

Change in net debt

	2011 £m	2010 £m
Operating Profit	32.9	39.6
Depreciation and amortisation*	16.8	15.0
Working capital movement	(16.1)	(1.3)
Pensions and provisions	(4.3)	(2.3)
Other items	6.0	0.7
Operating cash flow	35.3	51.7
Tax paid	(7.5)	(9.4)
Interest paid (net)	(7.7)	(3.4)
Capital expenditure	(12.6)	(15.2)
Sale of fixed assets	0.1	0.9
Free cash flow	7.6	24.6
Dividends	(9.8)	(8.8)
Acquisitions	(36.2)	0.2
Disposals	6.2	0.3
Net issue of shares	(0.7)	0.4
Change in net debt	(32.9)	16.3
Opening net debt	(70.6)	(87.6)
Exchange	(0.3)	0.7
Closing net debt	(103.8)	(70.6)

* Includes £2.2m (2010: £0.9m) in respect of acquisition intangibles.

In May 2011 the Group announced the refinancing of its principal debt facility by entering into a new £210m five year multicurrency revolving credit agreement.  The facility, provided on competitive terms, is funded by a syndicate of five leading banks which include existing and new banking relationships.  The new facility matures in April 2016, which affords the Group significant certainty in terms of its funding requirements for the foreseeable future.  At the year end the Group had committed debt facilities available of £222.5m and a further £12.8m in overdrafts and other on demand facilities.

Maturity profile of debt facilities

	2011 £m			2010 £m
On demand	12.8		On demand	26.6
2012 - 2015	7.1		2011	25.7
2016	215.4		2012	123.7
			2013+	5.8

The principal debt facility is subject to covenants which are tested semi-annually on 30 June and 31 December. The covenants require the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation as defined in the facility agreement) to net interest costs must exceed four times and require the ratio of net debt to EBITDA to be no more than three times.

The results of the covenant calculations at 31 December 2011 were:

                                    Actual               Covenant

Interest Cover                13.9 times         4.0 times

Net debt to EBITDA        1.8 times          3.0 times

Appropriate monitoring procedures are in place to ensure continuing compliance with banking covenants and, based on our current estimates, we expect to comply with the covenants in the foreseeable future. The facilities available to the Group provide significant headroom against its expected funding requirements.

Finance costs

		2011 £m		2010 £m
Underlying net cash interest
-  Bank loans/overdrafts	3.7		3.2
-  Finance leases/other	0.4	4.1	0.5	3.7
One off financial expenses relating to refinancing
-  Bank and legal fees	2.9		-
-  Termination of interest rate swaps	0.4	3.3	-	-
Non cash
-  Change in fair value of financial instruments	(0.1)		-
-  Net pension interest	0.2	0.1	0.6	0.6
		7.5		4.3

Net financing costs increased by £3.2m to £7.5m, including £3.3m of one-off costs associated with refinancing the Group's principal debt facility. The net cost from pension fund financing under IAS19 was £0.2m (2010: £0.6m) and given its non cash nature continues to be treated as 'Non-Underlying' in the consolidated income statement. The underlying cash element of net financing costs increased by £0.4m to £4.1m (2010: £3.7m) directly as a result of higher margins on the new facility and higher levels of net debt generated by the acquisitions completed in the first half of the year. Underlying operating profit covered net cash interest 10.1 times (2010: 12.4 times).

The Group has approximately 30% (2010: 59%) of its gross debt of £116.5m at fixed interest rates, either through interest rate swaps or finance leases.  As part of the Group's refinancing, certain of the existing interest rate swaps held with banks no longer in the syndicate were terminated at a cash cost of £0.4m.  The remaining swaps expire in the first half of 2012 and as a result the Group took the opportunity in November 2011 to acquire a new portfolio of interest rate swaps which commence from July 2012 and expire with the facility in April 2016.  These new swaps are predominantly denominated in US Dollars, more closely reflecting the Group's debt profile following its acquisition of The Paterson Group, Inc. in March 2011. 

Exchange rates

Given the increasingly diverse nature of its geographical footprint the Group is exposed to movements in exchange rates when translating the results of international operations into Sterling. However, during 2011 the translational benefit of the appreciation of the Euro was broadly offset by the depreciation of the US Dollar against Sterling resulting in a minimal impact year on year. Retranslating 2010 revenue and underlying operating profit using 2011 average exchange rates would have reduced the prior year results by £1.6m and £0.2m respectively.

Non-Underlying items

The total non-underlying items charged to operating profit in the consolidated income statement amounted to £8.6m (2010: £6.3m) and were made up of the following:

·    Business reorganisation costs of £1.2m (2010: £4.4m) - principally relating to redundancies and other costs associated with site closures. The net costs for 2010 included an asset impairment charge of £0.4m and release of environmental provisions of £1.3m. Cash costs of £0.9m were incurred in respect of reorganisations in 2011 with a further £0.3m expected to be incurred in 2012. In total, some 177 people left the Group due to business reorganisation in 2011.

·    Amortisation of acquired intangible fixed assets of £2.2m (2010: £0.9m) - the charge relates to the non-cash amortisation of intangible assets arising from acquisitions and has increased in 2011 following the acquisitions of The Paterson Group, Inc. and ATA, made during the year.

·    Acquisition related expenses of £0.7m (2010: £1.0m) - costs associated with acquisitions expensed to the consolidated income statement following adoption of IFRS3 (Revised) during 2010.

·    A loss of £5.9m (2010: £nil) on the disposal of Ash & Lacy Building Systems Limited, a non-core business, on 22 July 2011, including £5.0m of capitalised goodwill. 

·    A gain of £1.6m (2010: £nil) in respect of the Group's UK defined benefit pension obligations following amendments to the inflation assumptions to reflect CPI rather than RPI (£1.1m) and a curtailment gain (£0.5m) on the cessation of future accrual in respect of the UK Executive Scheme.  In addition, a loss of £0.4m (2010: £nil) was recognised in respect of the Group's French defined benefit pension obligations following changes in local legislation to equalise benefits across various member categories.

·    Gains of £0.4m (2010: £nil) in respect of the fair value of forward foreign currency contracts.

·    Losses on sale of properties of £0.2m (2010: £nil).

The cash impact of the above items was an outflow of £1.6m (2010: £2.4m) with a further £0.3m expected to be spent in 2012.  The non-cash element therefore amounted to £6.7m, principally due to the goodwill expense of £5.0m on the disposal of Ash & Lacy Building Systems Limited and the amortisation of acquired intangibles of £2.2m noted above.

Tax

The Group's tax charge for the year was £9.3m (2010: £10.7m). The underlying effective tax rate for the Group was 29% (2010: 29%).  The international nature of our operations does mean that the mix of profits in a particular year can impact the effective rate of tax that we pay.  Tax paid of £7.5m (2010: £9.4m) was again lower than the income statement charge due to the benefit arising from the utilisation of first year capital allowances in the UK and USA, agreement of prior year issues and utilisation of tax losses.  From 2012, the cash tax payable is expected to become more in line with the income statement charge.

The Group's net deferred tax liability is £17.0m (2010: £15.9m).  A £10.5m (2010: £5.1m) deferred tax liability is provided in respect of brand names and customer relationships acquired, including  £6.0m in respect of acquisitions completed during the year.  A further £2.3m (2010: £2.6m) is provided on the fair value revaluation of French properties acquired as part of the Zinkinvent acquisition in 2007.  These liabilities do not represent a future cash tax payment and will unwind as the brand names, customer relationships and properties are amortised.

Earnings per share

The Board believes that underlying earnings per share (UEPS) gives the best reflection of performance in the year as it strips out the impact of non-underlying items, essentially one off non-trading items and intangible asset amortisation.  UEPS for the period under review decreased by 11.5% to 34.5p (2010: 39.0p).  The diluted UEPS was 34.2p (2010: 38.7p).  Basic earnings per share was 20.9p (2010: 32.0p).  The weighted average number of shares in issue was 76.9m (2010: 76.9m) with the diluted number of shares at 77.7m (2010: 77.6m) adjusted for the outstanding number of dilutive share options.

Pensions

The Group operates a number of defined contribution and defined benefit pension plans in the UK, the USA and France.  The IAS19 deficit of the defined benefit plans as at 31 December 2011 was £16.4m compared with £10.9m at 31 December 2010.  The additional IAS19 deficit of £5.9m resulted mainly from the acquisitions of The Paterson Group, Inc. (£0.4m) and lower discount rates used to value the underlying liabilities within the Schemes (£3.9m). 

The Hill & Smith Executive Pension Scheme and the Hill & Smith Pension Scheme (the 'Schemes') remain the largest employee benefit obligations within the Group. The IAS19 deficit of the Schemes as at 31 December 2011 is £14.3m (2010: £9.5m).  In common with many other UK companies, the Schemes are mature having significantly more pensioners and deferred pensioners than active participating members.  The Group has agreed deficit recovery plans in place that require cash contributions over and above the current service accrual amounting to £1.9m for the three years to April 2013, followed by payments of £2.3m for a further seven years. The date of the next triennial review is 5 April 2012.

The Schemes are closed to new members and in December 2011 the Hill & Smith Executive Pension Scheme closed to current members' future accrual, resulting in a curtailment gain of £0.5m.  Following a change in UK legislation, inflation assumptions used to determine the value of future pension payments were switched from RPI to CPI, producing a one off gain of £1.1m.  The combined gain of £1.6m was included in 'non underlying' income so as not to distort headline operating performance.

Acquisitions

On 16 March 2011, the Group acquired 100% of the issued share capital of The Paterson Group, Inc. and its related companies, operating in North America and a leading manufacturer and distributor of pipe supports and hangers to the power generation, commercial and industrial markets. The consideration was £29.1m in cash.

On 18 May 2011, the Group acquired 100% of the issued share capital of ATA Bygg-och Markprodukter AB ("ATA"), a Swedish distributor of road safety barriers and manufacturer and distributor of road signage to the infrastructure markets in Scandinavia.  The consideration was £9.9m in cash.

In addition, acquisition costs of £0.7m were incurred and expensed as 'non-underlying' in the income statement in accordance with IFRS3 (Revised).  Both The Paterson Group, Inc. and ATA are reported within the Infrastructure Products segment.

Disposals

On 22 July 2011, the Group disposed of one of its non-core businesses, Ash & Lacy Building Systems Limited ("ALBS") for a cash consideration of £5.1m.  The loss on disposal of £5.9m included the non-cash write off of £5.0m of goodwill carried since the acquisition of Ash & Lacy plc in November 2000.  ALBS was the remaining material business in the Group's Building and Construction Products segment and henceforth the Group will no longer retain this segment for reporting purposes.

On 4 August 2011 the Group received £1.1m of deferred consideration from the sale in 2008 of the Benelux and German operations of Zinkinvent GmbH.

Treasury management

All treasury activities are co-ordinated through a central treasury function, the purpose of which is to manage the financial risks of the Group and to secure short and long term funding at the minimum cost to the Group.  It operates within a framework of clearly defined Board-approved policies and procedures, including permissible funding and hedging instruments, exposure limits and a system of authorities for the approval and execution of transactions.  It operates on a cost centre basis and is not permitted to make use of financial instruments or other derivatives other than to hedge identified exposures of the Group.  Speculative use of such instruments or derivatives is not permitted.  Liquidity, interest rate, currency and other financial risk exposures are monitored weekly.  The overall indebtedness of the Group is reported on a daily basis to the Chief Executive and the Finance Director.  The Group treasury function is subject to an annual internal and external review of controls. 

Going concern

The Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of committed available borrowing facilities.  The assessment included a review of both divisional and Group financial forecasts, financial instruments and hedging arrangements for the 15 months from the balance sheet date.  Major assumptions have been compared to external reference points such as infrastructure spend forecasts across our chosen market sectors, Government spending plans on road infrastructure, zinc, steel price and economic growth forecasts.

The forecasts show that the Group will have sufficient headroom in the foreseeable future and the likelihood of breaching banking covenants in this period is considered to be remote.

Having undertaken this work, the Directors are of the opinion that the Group has adequate committed resources to fund its operations for the foreseeable future and so determine that it is appropriate for the financial statements to be prepared on a going concern basis.

Derek Muir                               Mark Pegler

Group Chief Executive                Group Finance Director

15 March 2012

Consolidated Income Statement

Year ended 31 December 2011

		2011			2010
	Notes	Underlying  £m	Non- Underlying* £m	Total £m	Underlying   £m	Non- Underlying* £m	Total £m
Revenue	2	406.2	-	406.2	374.2	-	374.2
Trading profit		41.5	1.6	43.1	45.9	-	45.9
Amortisation of acquisition intangibles	3	-	(2.2)	(2.2)	-	(0.9)	(0.9)
Business reorganisation costs	3	-	(1.2)	(1.2)	-	(4.4)	(4.4)
Acquisition costs	3	-	(0.7)	(0.7)	-	(1.0)	(1.0)
Loss on disposal of subsidiary	3	-	(5.9)	(5.9)	-	-	-
Loss on sale of properties	3	-	(0.2)	(0.2)	-	-	-
Operating profit	2	41.5	(8.6)	32.9	45.9	(6.3)	39.6
Financial income	4	0.8	3.7	4.5	0.6	3.4	4.0
Financial expense	4	(4.9)	(7.1)	(12.0)	(4.3)	(4.0)	(8.3)
Profit before taxation		37.4	(12.0)	25.4	42.2	(6.9)	35.3
Taxation	5	(10.8)	1.5	(9.3)	(12.2)	1.5	(10.7)
Profit for the year attributable to owners of the parent		26.6	(10.5)	16.1	30.0	(5.4)	24.6
Basic earnings per share	6	34.5p		20.9p	39.0p		32.0p
Diluted earnings per share	6	34.2p		20.7p	38.7p		31.7p
Dividend per share - Interim	7			5.4p			5.2p
Dividend per share - Final proposed	7			7.8p			7.5p
Total	7			13.2p			12.7p

*    The Group's definition of Non-Underlying items is included in note 1 "Basis of preparation".

Consolidated Statement of Comprehensive Income

Year ended 31 December 2011

	Notes	2011 £m	2010 £m
Profit for the year		16.1	24.6
Exchange differences on translation of overseas operations		(0.5)	0.3
Exchange differences on foreign currency borrowings denominated as net investment hedges		(0.4)	1.1
Effective portion of changes in fair value of cash flow hedges		(0.2)	(1.5)
Transfers to the income statement on cash flow hedges		0.8	1.2
Actuarial (loss)/gain on defined benefit pension schemes		(8.4)	4.6
Taxation on items taken directly to other comprehensive income	5	1.6	(1.4)
Other comprehensive income for the year		(7.1)	4.3
Total comprehensive income for the year attributable to owners of the parent		9.0	28.9

Consolidated Balance Sheet

As at 31 December 2011

	Notes	2011 £m	2010 £m
Non-current assets
Intangible assets		130.9	109.7
Property, plant and equipment		104.9	102.9
		235.8	212.6
Current assets
Inventories		56.2	46.4
Trade and other receivables		90.8	74.9
Cash and cash equivalents	8	12.7	27.0
		159.7	148.3
Total assets	2	395.5	360.9
Current liabilities
Trade and other liabilities		(79.5)	(72.2)
Current tax liabilities		(11.3)	(7.6)
Provisions for liabilities and charges		(0.5)	(0.8)
Interest bearing borrowings	8	(4.1)	(27.0)
		(95.4)	(107.6)
Net current assets		64.3	40.7
Non-current liabilities
Other liabilities		(0.2)	(0.2)
Provisions for liabilities and charges		(3.5)	(3.6)
Deferred tax liability		(17.0)	(15.9)
Retirement benefit obligation		(16.4)	(10.9)
Interest bearing borrowings	8	(112.4)	(70.6)
		(149.5)	(101.2)
Total liabilities		(244.9)	(208.8)
Net assets		150.6	152.1
Equity
Share capital		19.2	19.2
Share premium		29.2	29.1
Other reserves		4.5	4.5
Translation reserve		5.7	6.6
Hedge reserve		(0.5)	(0.9)
Retained earnings		92.5	93.6
Total equity		150.6	152.1

Approved by the Board of Directors on 15 March 2012 and signed on its behalf by:

D W Muir

Director

M Pegler

Director

Consolidated Statement of Changes in Equity

Year ended 31 December 2011

	Notes	Share capital £m	Share premium £m	Other reserves† £m	Translation reserves £m	Hedge  reserve £m	Retained earnings £m	Total equity £m
At 1 January 2010		19.0	28.5	4.5	5.2	(0.6)	74.8	131.4
Profit for the year		-	-	-	-	-	24.6	24.6
Other comprehensive income
for the year		-	-	-	1.4	(0.3)	3.2	4.3
Dividends	7	-	-	-	-	-	(8.8)	(8.8)
Credit to equity of share-based
payments		-	-	-	-	-	0.2	0.2
Satisfaction of long term
incentive plan		-	-	-	-	-	(0.4)	(0.4)
Shares issued		0.2	0.6	-	-	-	-	0.8
At 31 December 2010		19.2	29.1	4.5	6.6	(0.9)	93.6	152.1
Profit for the year		-	-	-	-	-	16.1	16.1
Other comprehensive
income for the year		-	-	-	(0.9)	0.4	(6.6)	(7.1)
Dividends	7	-	-	-	-	-	(9.8)	(9.8)
Credit to equity of share-
based payments		-	-	-	-	-	0.2	0.2
Tax taken directly to the
consolidated statement of
changes in equity	5	-	-	-	-	-	(0.2)	(0.2)
Satisfaction of long term
incentive plan		-	-	-	-	-	(0.8)	(0.8)
Shares issued		-	0.1	-	-	-	-	0.1
At 31 December 2011		19.2	29.2	4.5	5.7	(0.5)	92.5	150.6

†   Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2010: £0.2m) capital redemption reserve.

Consolidated Statement of Cash Flows

Year ended 31 December 2011

`	Notes	2011		2010
		£m	£m	£m	£m
Profit before tax			25.4		35.3
Add back net financing costs	4		7.5		4.3
Operating profit	2		32.9		39.6
Adjusted for non-cash items:
Share-based payments		0.2		0.2
Loss on disposal of subsidiaries	3	5.9		-
Movement in fair value of forward currency contracts	3	(0.4)		-
Loss on disposal of non-current assets		0.3		0.1
Depreciation		13.3		12.9
Amortisation of intangible assets		3.5		2.1
Impairment of non-current assets		-		0.4
			22.8		15.7
Operating cash flow before movement in working capital			55.7		55.3
Increase in inventories		(7.0)		(3.2)
(Increase)/decrease in receivables		(15.0)		2.8
Increase/(decrease) in payables		5.9		(0.9)
Decrease in provisions and employee benefits		(4.3)		(2.3)
Net movement in working capital			(20.4)		(3.6)
Cash generated by operations			35.3		51.7
Income taxes paid			(7.5)		(9.4)
Interest paid			(5.2)		(4.1)
Net cash from operating activities			22.6		38.2
Interest received		0.8		0.7
Proceeds on disposal of non-current assets		0.1		0.9
Purchase of property, plant and equipment		(11.9)		(13.5)
Purchase of intangible assets		(0.7)		(1.3)
Disposal of subsidiaries	3	5.1		-
Deferred consideration received in respect of disposals		1.1		0.3
Acquisitions of subsidiaries		(36.2)		(0.2)
Net cash used in investing activities			(41.7)		(13.1)
Issue of new shares		0.1		0.8
Purchase of shares for the employee benefit trust		(0.8)		(0.4)
Dividends paid	7	(9.8)		(8.8)
New loans raised		156.7		14.0
Costs associated with refinancing revolving credit facility		(3.0)		-
Repayment of loans		(134.6)		(41.0)
Repayment of obligations under finance leases		(3.8)		(4.0)
Net cash used in financing activities			4.8		(39.4)
Net decrease in cash			(14.3)		(14.3)
Cash at the beginning of the year			27.0		41.1
Effect of exchange rate fluctuations			-		0.2
Cash at the end of the year	8		12.7		27.0

Notes to the Condensed Consolidated Annual Financial Statements

1.   Basis of preparation

Hill & Smith Holdings PLC is a company incorporated in the UK.

New IFRS standards and interpretations adopted during 2011

In 2011 the following standards had been endorsed by the EU, became effective and therefore were adopted by the Group:

·      IAS24 (Revised) - Related Party Transactions

·      Amendments to IFRIC14 - Prepayments of a minimum funding requirement

·      IFRIC19 - Extinguishing Financial Liabilities with Equity Insurers

·      Annual Improvement Projects to IFRS's

The Annual Improvement Project to IFRS's provides a vehicle for making non-urgent but necessary amendments to IFRS's. Amendments to a number of standards have been adopted.

The adoption of these standards, amendments and interpretations has not had a material impact on the Group's financial statements.

New IFRS standards and interpretations not adopted

The IASB and IFRIC have issued additional standards and interpretations which are effective for periods starting after the date of these financial statements. The following standards and interpretations have not yet been adopted by the Group:

·      Amendments to IFRS7 - Disclosures - Transfers of financial assets (effective for annual periods beginning on or after 1 July 2011)

The Group does not anticipate that the adoption of the above amendments will have a material effect on its financial statements on initial adoption.

The principal exchange rates used were as follows:

	2011		2010
	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.15	1.20	1.17	1.17
Sterling to US Dollar (£1 = USD)	1.60	1.55	1.54	1.57
Sterling to Thai Bhat (£1 = THB)	48.87	48.79	48.83	47.00
Sterling to Swedish Krona (£1 = SEK)	10.41	10.66	-	-

Non-Underlying items

Non-Underlying items are disclosed separately in the consolidated income statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group.  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

·      Expenses associated with acquisitions

·      Impairment charges in respect of tangible or intangible fixed 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

·      Net financing costs or returns on defined benefit pension obligations

·      Costs incurred as part of significant refinancing activities.

The tax effect of the above is also included.

2.   Segmental information

Business segment analysis

The Group has three reportable segments which are Infrastructure Products, Galvanizing Services and Building and Construction Products. Several operating segments which have similar economic characteristics have been aggregated into these reporting segments. A description of segment activities is included in the business review.

Following the restructuring of the industrial flooring businesses and the disposal of a non-core subsidiary during the year, the segmental analysis has been realigned to better reflect the core activities of the Group.  The Chief Operating Decision Maker believes that by rationalising the industrial flooring businesses, they now focus on infrastructure markets and, as such, have been represented within the Infrastructure Products segment.  Ash & Lacy Building Systems Limited, which was disposed of during the year (note 3) is the only business remaining in the Building and Construction Products segment.  The comparatives in this note have been restated accordingly.

The acquisitions detailed in note 9 both fall into the Infrastructure Products segment.

Income Statement

`	2011			2010 (restated)
	Revenue £m	Result £m	Underlying result* £m	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products	276.1	18.0	19.9	237.0	16.2	21.2
Galvanizing Services	118.5	21.0	21.6	115.4	23.7	25.0
Building and Construction Products	11.6	(6.1)	-	21.8	(0.3)	(0.3)
Total Group	406.2	32.9	41.5	374.2	39.6	45.9
Net financing costs		(7.5)	(4.1)		(4.3)	(3.7)
Profit before taxation		25.4	37.4		35.3	42.2
Taxation		(9.3)	(10.8)		(10.7)	(12.2)
Profit after taxation		16.1	26.6		24.6	30.0

*    Underlying result 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 Result columns are included as additional information.

Geographical analysis

Detailed below is the analysis of revenue by geographical market, irrespective of origin, and of total assets by major geographical location.

Revenues

	2011 £m	2010 £m
UK	184.9	207.9
Rest of Europe	102.3	85.9
USA	92.2	61.0
The Middle East	9.5	5.9
Asia	11.6	6.3
Rest of World	5.7	7.2
Total	406.2	374.2

Total assets

	2011 £m	2010 £m
UK	145.9	162.8
Rest of Europe	102.9	92.3
USA	136.9	96.4
Asia	9.6	9.4
Rest of World	0.2	-
Total Group	395.5	360.9

3.         Non-Underlying items

Non-underlying items included in operating profit comprise the following:

•   Business reorganisation costs of £1.2m (2010: £4.4m), principally relating to redundancies and other costs associated with site closures.  The net costs for 2010 included an asset impairment charge of £0.4m and releases of environmental provisions of £1.3m.

•   Amortisation of acquired intangible fixed assets of £2.2m (2010: £0.9m).

•   Acquisition related expenses of £0.7m (2010: £1.0m) in respect of the two acquisitions made by the Group during the year.

•   Losses on sale of properties of £0.2m (2010: £nil).

•   A gain of £1.6m (2010: £nil) in respect of the Group's UK defined benefit pension obligations following amendments to the inflation assumptions and changes in the terms of the UK Executive Scheme.  In addition, a loss of £0.4m (2010: £nil) was recognised in respect of the Group's French defined benefit pension obligations following changes in local legislation.

•   Gains of £0.4m (2010: £nil) in respect of the fair value of forward foreign currency contracts.

•   A loss of £5.9m (2010: £nil) on the disposal of Ash & Lacy Building Systems Limited, a non-core business, on 22 July 2011, the details of which are included in the following table:

	31 December 2011 £m
Intangible assets	5.1
Property, plant and equipment	1.0
Inventories	3.4
Current assets	6.0
Current liabilities	(5.2)
Deferred tax	0.1
Net assets	10.4
Consideration:
Consideration receivable	5.1
Less costs to sell and provisions for indemnities	(0.6)
Loss on disposal	5.9

Non-Underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.2m (2010: £0.6m), gains in the fair value of financial instruments of £0.1m (2010: £nil) and costs of £3.3m (2010: £nil) associated with the Group's refinancing of its revolving credit facility.

4. Net financing costs

	Underlying £m	Non- Underlying £m	2011 £m	Underlying £m	Non- Underlying £m	2010 £m
Interest on bank deposits	0.8	-	0.8	0.6	-	0.6
Change in fair value of financial assets and liabilities	-	0.1	0.1	-	-	-
Expected return on pension scheme assets	-	3.6	3.6	-	3.4	3.4
Total other income	-	3.7	3.7	-	3.4	3.4
Financial income	0.8	3.7	4.5	0.6	3.4	4.0
Interest on bank loans and overdrafts	4.5	-	4.5	3.8	-	3.8
Interest on finance leases and hire purchase contracts	0.4	-	0.4	0.4	-	0.4
Interest on other loans	-	-	-	0.1	-	0.1
Total interest expense	4.9	-	4.9	4.3	-	4.3
Financial expenses related to refinancing	-	3.3	3.3	-	-	-
Expected interest cost on pension scheme obligations	-	3.8	3.8	-	4.0	4.0
Financial expense	4.9	7.1	12.0	4.3	4.0	8.3
Net financing costs	4.1	3.4	7.5	3.7	0.6	4.3

5. Taxation

	2011 £m	2010 £m
Current tax
UK corporation tax	2.3	3.5
Adjustments in respect of prior periods	0.3	(0.7)
Overseas tax at prevailing local rates	8.3	6.3
	10.9	9.1
Deferred tax
Current year	0.8	0.2
Adjustments in respect of prior periods	(1.4)	(0.6)
Overseas tax at prevailing local rates	(0.6)	2.2
Effect of change in tax rate	(0.4)	(0.2)
Tax on profit in the consolidated income statement	9.3	10.7
Deferred tax
Relating to defined benefit pension schemes	(1.8)	1.5
Relating to financial instruments	0.2	(0.1)
Tax on items taken directly to other comprehensive income	(1.6)	1.4
Current tax
Relating to share-based payments	-	(0.4)
Deferred tax
Relating to share-based payments	0.2	0.4
Tax taken directly to the consolidated statement of changes in equity	0.2	-

The tax charge in the consolidated income statement for the period is higher (2010: higher) than the standard rate of corporation tax in the UK. The differences are explained below:

	2011 £m	2010 £m
Profit before taxation	25.4	35.3
Profit before taxation multiplied by the standard rate of corporation tax in the UK of 26.5%	6.7	9.9
Expenses not deductible for tax purposes	0.3	0.7
Capital profits less losses and write downs not subject to tax	1.7	-
Overseas profits taxed at higher/(lower) rates	2.1	1.5
Withholding taxes	-	0.1
Deferred tax benefit of future reductions in UK corporation tax rates	(0.4)	(0.2)
Adjustments in respect of prior periods	(1.1)	(1.3)
Tax charge	9.3	10.7

6. Earnings per share

The weighted average number of ordinary shares in issue during the year was 76.9m (2010: 76.9m), diluted for the effects of the outstanding dilutive share options 77.7m (2010: 77.6m). Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

	2011		2010
	Pence per share	£m	Pence per share	£m
Basic earnings	20.9	16.1	32.0	24.6
Non-Underlying items*	13.6	10.5	7.0	5.4
Underlying earnings	34.5	26.6	39.0	30.0
Diluted earnings	20.7	16.1	31.7	24.6
Non-Underlying items*	13.5	10.5	7.0	5.4
Underlying diluted earnings	34.2	26.6	38.7	30.0

*    Non-Underlying items as detailed in note 3.

7. Dividends

Dividends paid in the year were the prior year's interim dividend of £4.0m (2010: £3.5m) and the final dividend of £5.8m (2010: £5.3m). Dividends declared after the balance sheet date are not recognised as a liability, in accordance with IAS10. The Directors have proposed the following interim dividend and final dividend for the current year, subject to shareholder approval:

	2011		2010
	Pence per share	£m	Pence per share	£m
Equity shares
Interim	5.4	4.2	5.2	4.0
Final	7.8	6.0	7.5	5.8
Total	13.2	10.2	12.7	9.8

8. Cash and borrowings

	2011 £m	2010 £m
Cash and cash equivalents in the balance sheet
Cash and bank balances	12.6	23.0
Call deposits	0.1	4.0
Cash	12.7	27.0
Interest bearing loans and borrowings
Amounts due within one year	(4.1)	(27.0)
Amounts due after more than one year	(112.4)	(70.6)
Net debt	(103.8)	(70.6)
Change in net debt
Operating profit	32.9	39.6
Non-cash items	22.8	15.7
Operating cash flow before movement in working capital	55.7	55.3
Net movement in working capital	(16.1)	(1.3)
Changes in provisions and employee benefits	(4.3)	(2.3)
Operating cash flow	35.3	51.7
Tax paid	(7.5)	(9.4)
Net financing costs paid	(7.7)	(3.4)
Capital expenditure	(12.6)	(15.2)
Proceeds on disposal of non-current assets	0.1	0.9
Free cash flow	7.6	24.6
Dividends paid (note 7)	(9.8)	(8.8)
Purchase of shares for the employee benefit trust	(0.8)	(0.4)
Disposals (see below)	6.2	0.3
Acquisitions	(36.2)	(0.2)
Issue of new shares	0.1	0.8
Net debt (increase)/decrease	(32.9)	16.3
Effect of exchange rate fluctuations	(0.3)	0.7
Net debt at the beginning of the year	(70.6)	(87.6)
Net debt at the end of the year	(103.8)	(70.6)
Disposals
Disposal of subsidiary (note 3)	5.1	-
Deferred consideration received in respect of disposals	1.1	0.3
Total	6.2	0.3

9. Acquisitions

On 16 March 2011 the Group acquired 100% of the issued share capital of The Paterson Group, Inc. and its related subsidiaries, a leading manufacturer of pipe supports and hangers for the power generation, commercial and industrial markets in North America.  Cash consideration for this acquisition was £29.1m, resulting in goodwill of £7.8m and intangible assets of £12.5m. 

On 18 May 2011, the Group acquired 100% of the issued share capital of ATA Bygg-och Markprodukter AB, a distributor of road safety barriers and manufacturer and distributor of road signage to the infrastructure markets in Sweden.  Cash consideration for this acquisition was £9.9m, resulting in goodwill of £3.8m and intangible assets of £4.7m.

Details of the acquisitions are included in the following tables.

The Paterson Group, Inc.	Pre acquisition carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets	-	12.5	12.5
Property, plant and equipment	3.2	0.5	3.7
Inventories	5.8	(1.0)	4.8
Current assets	5.5	(0.1)	5.4
Cash and cash equivalents	2.8	-	2.8
Total assets	17.3	11.9	29.2
Current liabilities	(2.8)	(1.1)	(3.9)
Non-current liabilities	0.1	(1.1)	(1.0)
Deferred tax	0.7	(3.7)	(3.0)
Total liabilities	(2.0)	(5.9)	(7.9)
Net assets	15.3	6.0	21.3
Consideration
Consideration in the year			29.1
Goodwill			7.8
Cash flow effect
Consideration			29.1
Deferred consideration			-
Cash and cash equivalents received in the business			(2.8)
Net cash consideration shown in the consolidated statement of cash flows			26.3

ATA Bygg-och Markprodukter AB	Pre acquisition carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets	-	4.7	4.7
Property, plant and equipment	0.6	0.3	0.9
Inventories	2.4	(0.9)	1.5
Current assets	2.5	(0.1)	2.4
Cash and cash equivalents	-	-	-
Total assets	5.5	4.0	9.5
Current liabilities	(2.3)	-	(2.3)
Deferred tax	-	(1.1)	(1.1)
Total liabilities	(2.3)	(1.1)	(3.4)
Net assets	3.2	2.9	6.1
Consideration
Consideration in the year			9.9
Goodwill			3.8
Cash flow effect
Consideration			9.9
Deferred consideration			-
Cash and cash equivalents received in the business			-
Net cash consideration shown in the consolidated statement of cash flows			9.9

Notes:

1.   The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2011 or 2010 but is derived from those accounts.  Statutory accounts for 2010 have been delivered to the registrar of companies, and those for 2011 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 before 1 April 2012 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, Shirley, Solihull, B90 4LH.

3.   Events Calendar:

i.    The Annual General Meeting will be held on Wednesday 16 May 2012 at 11.00 a.m. at The Village Hotel, The Green Business Park, Shirley, Solihull, B90 4GW.

ii.    The proposed final dividend for 2011 will be paid on 6 July 2012 to shareholders on the register on 1 June 2012 (ex-dividend date 30 May 2012).

ii.          The last date for receipt of Dividend Reinvestment Plan elections is 15 June 2012.

iv.   Interim results announcement for the period to 30 June 2012 due August 2012.

v.    Payment of the 2012 interim dividend due January 2013.

4.   This preliminary announcement of results for the year ended 31 December 2011 was approved by the Directors on 15 March 2012.

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 from those currently anticipated.

 

END

 

 

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