Final Results

RNS Number : 9603G

Hill & Smith Hldgs PLC

10 March 2015

 



Hill & Smith Holdings PLC

                                                             AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014               

Record results; Positive 2015 outlook in major end markets

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 audited results for the year ended 31 December 2014.

Financial results

			Change
	31 December 2014	31 December  2013	Reported %	Constant currency %
Revenue	£454.7m	£444.5m	+ 2	+ 5
Underlying*:
Operating profit	£49.2m	£44.5m	+ 11	+ 15
Operating margin	10.8%	10.0%	+ 80bps
Profit before taxation	£46.0m	£41.2m	+ 12	+ 16
Earnings per share	45.0p	40.4p	+ 11	+ 16
Statutory:
Profit before taxation	£36.9m	£30.6m	+ 21
Basic earnings per share	35.1p	29.6p	+ 19
Dividend per share	18.0p	16.0p	+ 13
Net Debt	£96.0m	£87.2m

*All underlying profit measures exclude certain non-operational items, which are as defined in note 3 to the financial statements. References to an underlying profit measure throughout this announcement are made on this basis.

Key points:

·    Record revenue and earnings performance

·    Revenue increased 5% organically; by 2% on a reported basis after £13.3m adverse currency translation

·    Stronger end markets and active portfolio management driving improved returns

−    Underlying operating margin 10.8%, up 80bps on prior year

−    ROIC increased to 16% (2013: 15%)

·    The UK Road Investment Strategy (RIS)^† provides significant mid-term funding; in sweet spot of Group's product offering

·    Capital investment at 2.4 x depreciation, to capitalise on specific growth opportunities in UK roads and US galvanizing

·    Net debt reduced to 1.5 x EBITDA; key financing facility extended to 2019 on more favourable terms

·     Proposed final dividend of 11.6p, up 16% giving full year dividend of 18.0p

Derek Muir, Chief Executive, said:

"2014 has been another good year for the Group resulting in record revenue generation and profitability.

Trading conditions in many of our end markets continued to improve throughout the second half which, together with the implementation of strategic initiatives to increase returns, delivered strong year on year profit growth.

Overall, although some markets remain challenging, 2015 is again expected to be a year of good growth."

^†Details can be found at www.gov.uk/government/collections/road-investment-strategy

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/Andrew Leach

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, Norway, India and Australia.

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

Infrastructure Products - Utilities, supplying products and services such as pipe supports for the power and liquid natural gas markets, energy grid components, "GRP" railway platforms and flood prevention barriers, plastic drainage pipes, industrial flooring, handrails, access covers and security fencing.

Infrastructure Products - Roads, supplying products and services such as permanent and temporary road safety barriers, street lighting columns, bridge parapets, gantries, temporary car parks, variable road messaging solutions and traffic data collection systems.

Galvanizing Serviceswhich 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 3,800 staff across 54 sites, principally in 8 countries.

Chairman's Statement

Overview

I am pleased to report a record performance for the Group in 2014. The international diversity and strength of our businesses within their respective markets, together with strategic and operational actions taken in the year, have led to good organic revenue and profit growth and improved returns. Against a backdrop of difficult European market conditions and headwinds created by adverse movements in exchange rates, the business has delivered an outstanding result.

In 2014 our reported revenues increased by 2% to £454.7m (2013: £444.5m) or by 5% at constant currency. Underlying operating profit increased to £49.2m (2013: £44.5m), an improvement of 11% or 15% at constant currency. All our divisions have contributed to the increase in profits, which is testament to the strong positions that we hold in the markets in which we operate.

During 2014 we made capital investments at double the normal rate to take advantage of the growing markets both in the USA and the UK, where a total of 85% of our profits are now generated. These investments, which will drive future organic growth, include:

-     completion of the new V&S Galvanizing plant in Memphis, Tennessee, USA, strategically located on a major intersection leading to the south and north-east to provide galvanizing services to the steel fabricators in the Memphis area; and

-     manufacture of an additional 95km of temporary road safety barriers to fulfil anticipated demand following the planned significant increase in investment in the UK road network over the next five years.

As part of our strategy of active portfolio management the following actions were taken during the year:

-     In July we acquired Variable Message Signs Limited to complement and strengthen our product and service offering to the UK Highways Agency. The acquired business will be integrated with our existing message sign business, Techspan, to create the UK market leader in this sector. Consolidation of our leading UK market positions remains a core feature of our acquisition strategy.

-     In August we disposed of our interests in the non-core operations of Bromford Iron & Steel and JA Envirotanks, both of which were unable to deliver the returns that we target from our businesses, and in December we announced the closure of our UK galvanizing plant in Hereford. Our strategy is to hold strong positions in our chosen markets and we will dispose of, or restructure, underperforming businesses where necessary.

Earlier in the year we successfully completed an 'amend and extend' debt refinancing, extending our key debt financing facility through to 2019 on more favourable terms. The facility affords us significant headroom to continue to pursue our strategic growth objectives.

Performance highlights

The Board is pleased with the Company's financial performance for 2014, the highlights of which are shown below:

			Change %
	2014	2013	Reported	Constant currency
Revenue	£454.7m	£444.5m	+ 2	+ 5
Underlying:
Operating profit	£49.2m	£44.5m	+ 11	+ 15
Profit before tax	£46.0m	£41.2m	+ 12	+16
Earnings per share	45.0p	40.4p	+ 11	+16

Dividends

In view of the strong performance the Board is recommending a final dividend of 11.6p per share (2013: 10.0p per share) making a total dividend for the year of 18.0p per share (2013: 16.0p per share) an increase of 12.5%.

We continue to perform at a level that enables us to maintain a progressive dividend policy and which has resulted in twelve years of uninterrupted dividend growth. Underlying dividend cover remains a healthy 2.5 times (2013: 2.5 times). The final dividend, if approved, will be paid on 3 July 2015 to those shareholders on the register at the close of business on 29 May 2015.

The Board

During 2014 the Board reviewed its succession plans and its composition. In December I was delighted to welcome Annette Kelleher to the Board as a Non-executive Director. Annette is the Group Human Resources Director for Johnson Matthey PLC and a member of its group management committee. Her depth of experience will give us a fresh perspective as we develop our presence in the global infrastructure and galvanizing markets.

After ten successful years with the Group, John Humphreys decided to retire from his position as Group Company Secretary on 31 December 2014. John had dedicated himself to the service of the Group and I would like to take this opportunity to thank him for his steadfast and longstanding commitment. His ability to provide well-considered counsel to both the main Board and subsidiary Directors has been invaluable. John has been succeeded by Alex Henderson, formerly Company Secretary at Halfords Group plc.

Governance

Honest, open and accountable management of our businesses is key to the effective governance of the Group, which underpins our strategy and the sustainability of our performance.

In this year's Annual Report we have set out explanations of our business model, strategy, risk management and activities of the Board and its Committees. We also discuss within our Corporate Responsibility report how our businesses are encouraged to contribute within the communities in which they operate.

We trust that you will find this information helpful in understanding how we can, and do, achieve increased value for our shareholders. 

AGM

We will hold our AGM on 14 May 2015 and it is an excellent opportunity for shareholders to meet the Board and certain senior executives of the Group. If you are able to attend my colleagues and I will be delighted to see you.

Outlook

The Group benefits from the industrial and geographical spread of its markets and businesses, which not only provide a resilient base, but also opportunities for growth. Generating three quarters of revenue and 85% of underlying operating profit from its UK and US operations, the Group principally operates in industrial markets where the overall economic outlook remains favourable.

Notwithstanding severe weather conditions experienced in north east USA early in 2015, galvanizing volumes are expected to benefit from both the strong US economy and commencement of production at our new plant in Memphis, which we opened at the end of 2014. Together with the UK galvanizing operations, the US and UK are expected to more than offset any potential weakness from our French operations, where economic conditions remain challenging.

With the exception of a weaker Pipe Supports order book, activity levels in the Utilities division remain healthy and, in our UK and US niche market sectors, the outlook is positive. The immediate outlook for Pipe Supports remains difficult, with the lower demand levels currently being experienced, partly as a result of lower oil prices, exacerbated by the recent poor US weather conditions. The longer term market dynamics in the pipe supports arena remain positive.

The announcement by the UK government of its Road Investment Strategy in late 2014, sets out its largest ever investment plan in the UK strategic road network up to and including 2020/21. The Group's roads product portfolio is ideally placed to benefit from the investment plans and demand to date has been strong. Accordingly, we have confidence in the short and medium term growth prospects for our UK roads business.

Overall, although some markets remain challenging, 2015 is again expected to be a year of good growth. Beyond 2015, the prospects for our infrastructure and galvanizing businesses are encouraging and we are well positioned to continue to deliver sustainable growth and shareholder value.

Bill Whiteley
Chairman

10 March 2015

Business Model and Strategy

Business Model

To hold leading positions in the niche markets of infrastructure and galvanizing, diversified over different geographies, with a focus on service, margins and product development.

Strategic drivers

-     Organic revenue growth

-     Geographic diversification

-     Target returns and leverage

-     Active portfolio management

-     Entrepreneurial culture

Strategy in action 2014

-     Completion of £16m investment in an additional 95kms of temporary barrier, bringing our total road safety fleet to 265kms.

-     Completion of our £9.4m investment in a new V&S Galvanizing plant in Memphis, Tennessee, USA, with further expansion investment being reviewed in 2015.

-     Acquisition of Variable Message Signs Limited and planned integration with Techspan, to support the Highways Agency with its signage requirements.

-     Disposal of Bromford Iron & Steel Company Limited, JA Envirotanks and Staco Redman, all non-core operations.

-     Completion of the integration of Telford based Access Design business into Lionweld Kennedy, Middlesbrough.

-     Opportunities have been identified in the renewable energy sector for our Weholite large diameter pipes.

Strategy Implementation

Balanced profitable growth

Our strategy is to deliver sustainable profitable growth through the supply of Infrastructure Products and Galvanizing Services. Our objective is to achieve at least mid single-digit organic revenue growth which, combined with selective acquisitions, will deliver growth in earnings per share. A strong focus on cash generation supports this growth strategy and enables a progressive dividend policy.

In the Infrastructure Products division, our focus is on businesses which supply into the Utilities and Roads markets, both of which enjoy long term growth dynamics. Our businesses have niche positions, high margins and provide us with access to global markets.

For Utilities, our focus is on the power generation, oil and gas and water sectors, capitalising primarily on the growing demand for new power generation in emerging markets and the replacement of ageing infrastructure in developed economies.

For Roads, in the UK, demand for permanent and temporary barriers has been strong as the Highways Agency implements the UK Government sponsored Road Investment Strategy. In December 2014 the UK Government published its plan to invest £15.2bn in over 100 schemes across the road network between 2015 and 2021, upgrading the nation's road transport infrastructure - specifically, conversion of existing highways to the Smart Motorways scheme. Given the anticipated demand to fulfil the documented programme, we invested a total of £16m to increase our temporary barrier fleet by 95 kilometres, bringing our total temporary barrier fleet to circa 265 kilometres.

In the Galvanizing Services division, which serves external customers, as well as our own Infrastructure Products businesses, we are focused on our existing geographies of the UK, USA and France. Growth will be achieved through increasing our geographical footprint in the USA, and in November 2014 we opened our seventh US galvanizing plant in Memphis, Tennessee. We also believe that there are potential consolidation opportunities in the UK and France.

Geographic diversification

In 2013 operating profit from manufacturing plants located overseas reached 67%. This reduced in 2014 with 56% of operating profits coming from overseas, mainly as a result of improvements in UK profitability. Our overall geographic mix will be dictated by a focus on developing opportunities in our major developed markets, together with the performance of our businesses in emerging markets. 

Target returns and leverage

Operating margins are an integral measure of the Group's success and one which we will continue to drive for improvement through product mix and value-added customer-focused solutions, as well as high levels of operational efficiency.

Target operating margin for business units is 10%, although a lower margin profile may be acceptable if that business' return on capital employed ('ROCE') is above 20%. A period of grace will be granted to business units which can demonstrate a plan for margin improvement to the targeted level. We aim to create value by consistently exceeding this 20% benchmark for ROCE at a subsidiary level. At a Group level we monitor our performance using return on invested capital ('ROIC'). 

Our objective is to operate with an efficient balance sheet by maintaining debt at between 1.5 and 2.0 times EBITDA, which in turn allows us to complement balanced organic growth with value enhancing acquisitions.

Active portfolio management

Our strategic objective is to develop more substantial businesses in each of our chosen sectors through both organic and acquisitive growth. Consequently, this leads us to continually examine the smaller and lower performing units within the portfolio, along with rationalisation of production facilities and business transfers. In 2014 we took the decision to dispose of Bromford Iron & Steel Company Limited, JA Envirotanks and Staco Redman and also to close our galvanizing plant in Hereford.

Our acquisition strategy is to buy businesses in markets we understand through our existing activities. The majority of targets are likely to be privately owned. We also look at acquiring distressed businesses in the UK which complement our existing operations and therefore enable us to consolidate our market position. This in turn allows us, in some instances, to develop our smaller business units into larger and more effective businesses within their markets. Overseas acquisitions must have a high quality management team in place and a proven earnings stream as it is more demanding to manage distressed businesses from a distance effectively.

In 2014, to further our strategy in the key area of road transport infrastructure, we acquired the trade and assets of Variable Message Signs Limited ('VMS') on 11 July 2014 for £0.3m. VMS, an established operator in this field, faced financial constraints due to the current hiatus in demand. The acquisition of VMS, and its subsequent integration with Techspan, will allow the Group to support the Highways Agency with its signage requirements in its roll-out of Smart Motorways over the next five to ten years.

We continue to actively manage our corporate portfolio through the acquisition of targets that match our strategic objectives and meet our targeted operating returns and through the disposal, or rationalisation, of operations that are either non-core to our market strategy, incapable of achieving our target returns, or insufficiently cash generative.

Entrepreneurial culture

We encourage an entrepreneurial culture in our businesses through a decentralised management structure. We provide our management teams the freedom to run and grow their own businesses supported by the resources available through being part of a larger group, whilst adhering to the levels of governance and controls appropriate for a quoted company. This culture ensures that decisions are made close to the market and that our businesses are agile and responsive to changes in their competitive environment and through the international spread of the Group, opportunities are identified and taken through Group collaboration.

Priorities in 2015

-     Selective acquisitions to consolidate our market position or increase our geographical representation.

-     Investing in increased capacity and product development to capture potential opportunities.

-     Continuation of the structural and operational improvements in both Infrastructure Products and Galvanizing Services.

Operational and Financial Review

2014 overview

2014 has been another good year for the Group resulting in record revenue generation and profitability. Following a good first half performance, trading conditions in many of our end markets continued to improve throughout the second half which, together with the implementation of strategic initiatives to increase returns, have delivered strong year on year profit growth. Infrastructure Products performed ahead of our expectations with both Roads and Utilities increasing year on year profitability. A strong performance from Galvanizing in the USA and UK more than offset any weakness in France.

The international diversity and strength of our businesses within their respective markets continues to underpin our performance. Our USA operations contributed 41% of the underlying operating profit, marginally below that in the prior year principally due to the improved performance of our UK operations as spend in the wider economy and within our niche sectors improved. The UK based businesses generated 44% of underlying operating profit compared to 33% in the prior year. Together these two geographic regions represent around 85% of our underlying operating profit. Both economies, and the markets in which we operate, have a strong outlook for 2015 and beyond.

Reported revenue for the year increased by 2% to £454.7m (2013: £444.5m). Adjusting for adverse currency impacts of £13.3m and net revenue of £2.7m from acquisitions and disposals, underlying revenue improved by £20.8m, an organic increase of 5%. Underlying operating margin improved by 80bps to 10.8% (2013: 10.0%). Underlying operating profit increased by 11% to £49.2m (2013: £44.5m) despite unfavourable exchange impacts of £1.7m, with acquisitions/disposals contributing £1.0m. The organic improvement in underlying operating profit was 13%. Underlying profit before taxation was 12% higher at £46.0m (2013: £41.2m).

Infrastructure Products

	£m		+/- %	Constant Currency %
	2014	2013
Revenue	322.9	316.9	+2	+5
Underlying operating profit	22.5	19.1	+18	+21
Underlying operating margin %	7.0	6.0

The division is focused on supplying engineered products to the Roads and Utilities markets in geographies where there is a prospect of sustained long term investment in infrastructure. In 2014 the division accounted for 71% (2013: 71%) of the Group's revenue and 46% (2013: 43%) of the Group's underlying operating profit.

Overall revenues increased marginally to £322.9m (2013: £316.9m) despite an £8.5m negative impact from exchange rate movements. Organic revenue growth was £15.0m, or 5% at constant currency. Underlying operating profit was £22.5m (2013: £19.1m), an increase of £3.4m, with an adverse currency translation impact of £0.5m. Underlying operating margin improved to 7.0% (2013: 6.0%).

Roads

	£m		+/- %	Constant Currency %
	2014	2013
Revenue	127.7	114.0	+12	+15
Underlying operating profit	13.3	11.7	+14	+16
Underlying operating margin %	10.4	10.3

Our Roads division designs, manufactures and installs temporary and permanent safety products for the roads market together with intelligent transport systems (ITS) which collect data and provide information to road users. We principally serve the UK market, with an international presence in selected geographies with a growing demand for tested safety products. Roads represents 27% of the Group's underlying operating profit, and 28% of revenues in 2014.

Revenues increased by 12% to £127.7m (2013: £114.0m). Underlying operating profit of £13.3m was £1.6m higher than the prior year (2013: £11.7m) due to the investment in, and higher utilisation of, our temporary safety barrier fleet in the UK. There were no material net effects from acquisitions and currency movements.

UK

In December 2014, the Department for Transport published their long awaited Road Investment Strategy ('RIS'). Recognising that the UK has suffered from insufficient and inconsistent investment, the transformational investment plan sets out the short and longer term vision for the UK strategic road network. The RIS aims to provide certainty of road investment funding over the period 2015/16 to 2020/21, improve connectivity and condition of the existing network and, importantly, increase capacity, with projects that will deliver 1,300 additional lane miles. The focus of the drive to add capacity will be additional 'Smart', or managed motorways, which is at the core of the Group's product offering in the UK. Significant additional funding is forecast to deliver on the strategy with a total of £15.2bn of spend for the five year period 2015/16 to 2020/2021. The December announcement contained significant additional expenditure over and above that previously announced. Legislation to create the Strategic Highways Company (previously the Highways Agency) to oversee and deliver the RIS will be put to the UK parliament in April 2015.

Demand for permanent and temporary safety barriers in the year was strong as the Highways Agency commenced implementation of the RIS. Conversations with the Highways Agency over the past eighteen months, together with our market leading position and pre commitments now contained in the RIS, gave us the confidence to invest a total of £16m in additional rental fleet of Zoneguard, our temporary steel safety barrier, increasing the size of our fleet by 95km to 265km. Utilisation of the additional barrier was in line with our expectations.

During the year there was increased demand for our traditional permanent safety barrier and our bridge parapet product, as a number of new projects started construction. We enter 2015 with strong order backlogs and a good pipeline of enquiries.

In our Technology business, we won a framework agreement with Transport Scotland to supply between £5m and £10m of variable message signs over the next four years. The lower demand levels experienced in the first half of the year improved as we progressed through the second half although contracts were smaller in size than in the prior year. Profitability improved in the second half such that overall performance was modestly below prior year. To further our strategy in this key area we acquired the trade and assets of Variable Message Signs Limited ('VMS') on 11 July 2014 for £0.3m. An established operator in this field, VMS had faced financial constraints due to the current hiatus in demand. The acquisition of VMS, and its subsequent integration with Techspan, will allow the Group to support the Highways Agency with its signage requirements in its roll-out of Smart Motorways as set out in the RIS. The combined businesses, now called Variable Message Signs, have supplied a significant number of the signs currently on the UK roads network. The combination of the businesses plus improving enquiry levels will result in a stronger performance in 2015.

In December we shipped 280 units, the largest single order, of our BlackCat traffic monitoring equipment for a project in Lithuania to enable the classification of traffic flows. This order demonstrates the high quality of our equipment, which has been designed for worldwide application. During the year we launched EvoX, our new three-lane automatic number plate recognition (ANPR) camera, designed for the high end tolling and security markets.

Our lighting column business in the UK achieved record profitability for the second year running, however two of the five PFI projects were completed at the end of 2014 and therefore we expect a reduction in volumes in 2015. The general lighting market is showing signs of recovery, especially in the housing market, and the increased spend on highways over the next five years will help to offset the completion of the PFI projects.

Non-UK

In France, the local mayoral elections predictably resulted in lower spend from local councils. Since the elections we have seen an improvement in the volumes, however the marketplace remains very competitive due to over capacity and subdued demand.

Our Scandinavian business enjoyed another successful year despite adverse movements in exchange rates impacting local trading margins on products purchased from the UK. Despite the adverse exchange rate, products imported from the UK increased by 230% to £3.4m, predominantly our permanent steel safety barrier.

Sales of Zoneguard to local distributors in the USA demonstrated increased levels of acceptance of our product in key states and produced a solid result. Focus is now on generating more sales leads in new states to grow the business.

Our fledgling businesses in India and Australia provide an outlet for our tested suite of products, principally Brifen wire rope and Zoneguard. Australia started to gain some traction with a key customer and improved its profitability year on year. In India, the market remains uncertain following national elections in the first half and performance was below the exceptional first full year of operation in 2013.

Utilities

	£m		+/- %	Constant Currency %
	2014	2013
Revenue	195.2	202.9	-4	-1
Underlying operating profit	9.2	7.4	+24	+30
Underlying operating margin %	4.7	3.6

Our Utilities division provides industrial flooring, plastic drainage pipes, security fencing and steel products for energy creation markets across the Globe. The requirements for new power generation in emerging economies and replacement of ageing infrastructure in developed countries provide excellent opportunities for the Group's utilities businesses. Utilities represents 19% of the Group's underlying operating profit, and 43% of revenues.

Revenues fell to £195.2m (2013: £202.9m), but after adjusting for disposals and currency impacts, reflected an organic improvement of £2.4m primarily due to a stronger performance from our UK utilities businesses. Underlying operating profit increased by £1.8m to £9.2m (2013: £7.4m), constant currency growth of 30%. Underlying margins improved 110bps to 4.7% (2013: 3.6%).

Creative Pultrusions, our composites company in the USA, entered 2014 with a strong backlog in orders across all product sectors including OEM customers. During 2014 we saw growing acceptance of our waterfront sheet piling and fender pile products, used in coastal and pier protection in waterways projects around the New York area, where a number of new bridges are being constructed. Strong organic revenue growth resulted in profits well ahead of 2013.

This improved profitability was offset by a lower contribution from our USA based transmission structures and substation business. A late start to the construction season, following poor weather conditions in the first quarter, led to delayed shipments in the first half of 2014. The second half returned to more normal levels and we start 2015 with an encouraging order backlog. The investment in the USA power grid is set to continue throughout the decade as renewables and gas fired power stations are connected to the grid. During 2014 we secured three framework agreements from US utility companies with their requirements being called off on a regular basis. These types of agreement now represent a healthy 40% of our total revenue.

Our pipe supports business in the USA also experienced a slow start to 2014 following the poor weather conditions. Order backlog picked up in the second and third quarters where we supplied pipe supports to new ethylene, fertilizer and a number of gas fired combined cycle power plants. The industrial pipe hanger business had a stronger second half and is benefiting from bridge building projects where pipework is suspended under the bridge structure. The bridge replacement programme benefits our composites, galvanizing and pipe supports businesses and sustains our core strategy of supplying products and services to infrastructure projects.

Outside of the US, Pipe Supports saw an improvement in profitability on the previous year with a strengthening of our operational management teams in both the UK and Thailand. The power generation market in India gained traction in the second half of 2014 and we are currently working on large projects for multi-boiler units for Larsen & Toubro and Doosan, and with one of our Japanese customers for the supply of cryogenic pipe supports for a large LNG terminal in Dahej, Gujarat. The order backlog gives good coverage for the first half of 2015 for our Indian facility. Our other Japanese EPC framework customers are currently completing power projects in Taiwan/Japan, for which we supplied pipe supports last year, and therefore it is likely to be later in 2015 before we commence production of the next tranche of projects. This has resulted in us entering 2015 with a lower order backlog in Thailand and the UK than we would usually expect. We are also conscious of the impact falling oil prices may have on future demand for new projects in the Middle East, along with capex budgets across the wider oil and gas sector.

As part of our strategy to rationalise the number of operating sites in the UK, we relocated and successfully integrated our Telford based Access Design business to the Lionweld Kennedy site in Middlesbrough. Benefits of a single site operation were realised with a strong improvement in the profitability of the Industrial Flooring group. During the year we were successful in supplying handrail and flooring products to new Crossrail train depots, offshore wind platforms and to our largest contract for the supply and installation of staircases and landing platforms for the main shaft in the Lee Valley Outfall project in London. As part of our capital investment programme, a new high speed automated forged welding machine was installed to produce industrial grating meeting European Standards and to increase our capacity and product range. We enter 2015 with a good order book including a large contract for the supply of flooring to a second platform for AMEC-Tekfen-Azfen in the Shah Deniz field in Azerbaijan.

The supply of our plastic pipe products to AMP5 was completed in the early part of 2014 and although enquiries for storm attenuation tanks for the flood alleviation market were at record levels, only a small number turned into orders. In contrast, housing market enquiries were strong and orders improved in the second half of the year. One notable change in the housing attenuation tank market is the size of tanks, which have increased by around 50% in volume to compensate for higher rainfall and an increased risk of flooding. We start 2015 with a good order backlog and enquiry levels well ahead of 2014.

Birtley and Expamet continue to perform ahead of expectations with the synergies of offering both brands to the local independent builders' merchants, as well as to national merchants, proving very successful. The business has benefitted from the increased demand for new build homes which is set to continue in 2015.

As part of our continuous product application development programme, we have been seeking out new markets for the use of our Weholite large diameter plastic pipe. In the renewable energy sector anaerobic digestion, for the food and agricultural markets, was identified as a suitable opportunity. In the final quarter of the year we secured a large order of £0.4m for the supply of sixteen storage tanks with a further two projects of a similar size being secured for the first half of 2015. This again demonstrates the entrepreneurial strength within the Group.

Our solar frame business had its most successful year as the demand for large scale UK solar frames increased in the south of England. We had expected volumes to reduce at the end of March 2015 as the Renewables Obligation scheme was to be scrapped for projects over 5MW, however the grace period for installation of these larger schemes has now been extended for a further year to March 2016, which should result in similar volumes for 2015. 

Our security fencing business experienced improved market conditions as demand for our Stronguard product increased to protect power stations, railways and sites of critical infrastructure. Additional demand from the solar farm market also contributed to year on year growth. During the year we acquired plant, equipment and inventory from the receiver of one of the largest manufacturers of palisade fencing who had entered administration. The assets were absorbed into our own facility which resulted in improved efficiency and profitability on the higher volumes. These proactive measures further endorse our strategy of consolidating the local market to improve returns on sales and invested capital.

Galvanizing Services

	£m		+/- %	Constant Currency %
	2014	2013
Revenue	131.8	127.6	+3	+7
Underlying operating profit	26.7	25.4	+5	+10
Underlying operating margin %	20.3	19.8

The Galvanizing Services division offers corrosion protection services to the steel fabrication industry with multi-plant facilities in the UK, France and USA. The division accounts for 29% (2013: 29%) of the Group's revenue and 54% (2013: 57%) of the Group's underlying operating profit.

Reported revenue increased by 3% to £131.8m (2013: £127.6m), although growth at constant currency was 7%. Underlying operating profit improved to £26.7m (2013: £25.4m), constant currency growth of 10%. Underlying operating margins remained strong and improved to 20.3% (2013: 19.8%) despite a rising zinc commodity price and the adverse zinc pricing impact in Sterling and Euro of a stronger US$.

Overall galvanizing volumes were 7% ahead of 2013 principally as a result of improved economic conditions in the USA and UK.

USA

Located in the north east of the country, Voigt & Schweitzer are the market leader with seven plants offering local services and extensive support to fabricators and product manufacturers involved in highways, construction, utilities and transportation.

Overall volumes for the year were 14% higher with second half production particularly strong at 25% year on year growth, significantly ahead of the first half which returned growth of 3%. Weather patterns were a significant contributor to the phasing, with the poor weather in the north east in the early part of the year being compensated for by favourable conditions toward the year end. Key markets including bridge & highway, alternative energy and OEM equipment all performed ahead of expectations which, together with our focus on productivity and business improvement initiatives, returned a record result for the operation.

The construction of our seventh plant, strategically located in Memphis, Tennessee was completed on schedule at a cost of £9.4m and the plant commenced production at the end of November. Built to our own proven design, production has started satisfactorily and we are building our reputation and customer base in this regionalised market. Early performance has been in line with expectations and we remain excited about the longer term opportunities this investment will afford.

France

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

The macro-economic environment in France remains challenging and thus the business performed very credibly in reporting volumes in line with the prior year. The first half of the year was buoyed by completion of the Bordeaux Stadium project ahead of the 2016 European Football Championship and overall volumes were 3% ahead of the prior year. An absence of large projects in the second half of the year resulted in volumes 4% below prior year. Increased competition from non-domestic galvanizers resulted in lower overall market pricing and although we did not lose market share our profitability was marginally lower year on year.

The business, a market leader run by a highly experienced team, continues to perform well in a difficult market with a focus on price and cost management pending an improvement in the French and wider European economies.

UK

Our galvanizing businesses are located on eight sites, four of which are strategically adjacent to our Infrastructure Products manufacturing facilities.

Overall, volumes improved by 9% year on year with the strong 17% growth experienced in the first half reducing to 1% in the second half of the year as the business faced much tougher comparatives given the improving economy. Growth in the first half of the year was supported by the inclusion of Medway volumes in the period January to April given the acquisition in the prior year on 30 April. The additional four months of trading contributed 6% of the 17% first half reported growth. Our own internally generated volumes from the Roads and Utilities businesses were strong throughout the year. Our focus on targeting higher margins resulted in a significant increase in profitability. Contributions from the Arkinstall transaction (December 2013), the full year impact of the Medway acquisition and a strategy of winning and servicing smaller customers outside of our normal geographic areas all assisted in increasing margins.

In furtherance of our strategy of active portfolio management, on 1 December we announced the closure of our galvanizing site in Hereford. In need of substantial capital expenditure to upgrade the facility, market volumes and the financial returns available could not justify the investment. The cost of closure, amounting to £2.9m, has been included in non-underlying items. Production ceased on 6 February 2015. A reasonable proportion of the volume will be absorbed into our other structural steel galvanizing facility in Chesterfield. 

Financial Review

Income statement phasing

	First half	Second half	Full Year
2014
Revenue £m	223.8	230.9	454.7
Underlying operating profit £m	22.5	26.7	49.2
Margin %	10.1	11.6	10.8
2013
Revenue £m	221.6	222.9	444.5
Underlying operating profit £m	20.2	24.3	44.5
Margin %	9.1	10.9	10.0

Reported revenue of £454.7m was £10.2m or 2% ahead of the prior year, with acquisitions and disposals completed during both 2013 and 2014 contributing a net £2.7m additional revenue and £1.0m underlying operating profit. The translation impact arising from changes in exchange rates, principally the US Dollar and Euro, reduced total revenue by £13.3m and underlying operating profit by £1.7m. At constant exchange rates, organic revenue growth was £20.8m and underlying operating profit growth was £5.4m, or 5% and 13% respectively. Further details of the performance of the Group are provided in the Operational Review.

The phasing of revenue and to a greater extent underlying operating profit was again second half biased in 2014, principally reflecting the growing levels of demand in the UK Roads market and the generally improving economic conditions in the US, together with a normal degree of seasonality.

Cash generation and financing

The Group again demonstrated its cash generating abilities with strong operating cash flow of £53.7m (2013: £54.2m), despite an increase in working capital of £5.1m (2013: £1.9m reduction). The overall impact on working capital of zinc and steel commodity prices year on year was not material. Working capital as a percentage of annualised sales held steady at 13.9% at 31 December 2014 (2013: 13.9%). Debtor days were unchanged from the prior year at 61 days.

Capital expenditure at £35.9m (2013: £22.1m) represents a multiple of depreciation and amortisation of 2.4 times (2013: 1.5 times). As previously reported, the Group has made a significant investment in its UK temporary road safety barrier fleet with a total cash spend of £14.3m during the year, and has completed the construction of its new galvanizing facility in Memphis, USA at a cost in the year of £7.4m. Other significant items of expenditure included £1.5m on further development and equipment for the Industrial Flooring manufacturing facility in Middlesbrough following the closure and relocation of the Telford operation in 2013, and £1.2m of development expenditure in relation to the Group's suite of products for the UK roads market. Whilst the Group expects capital investment to fall to more normalised levels in 2015, it continues to invest in organic growth opportunities where returns exceed internal benchmarks and its cost of capital.

The Group measures its operating cash flow performance based on its underlying cash conversion rate, defined as the ratio of underlying operating cash flow less capital expenditure to underlying operating profit. In 2014 the Group achieved an underlying cash conversion rate of 51% (2013: 93%). Excluding the strategic investments in UK temporary road safety barrier and the Memphis galvanizing plant during the year, underlying cash conversion was 95%. Over the past six years the Group has achieved an average rate of 90% despite a number of other major capital projects being undertaken during that time.

The Group's strong underlying operating cash flow provides the funds to invest in growth, both organic and acquisitive, to service debt, pension and tax obligations and to maintain a growing dividend stream, whilst a sound balance sheet provides a platform to take advantage of future growth opportunities.

Group net debt at 31 December 2014 was £96.0m, representing a year on year increase of £8.5m before adverse exchange rate movements of £0.3m. The Group's net debt includes 23% denominated in US Dollars and 13% denominated in Euros which act as a hedge against the net asset investments in overseas businesses.

Change in net debt

	2014 £m	2013 £m
Operating profit	41.1	34.5
Depreciation and amortisation*	17.2	16.9
Working capital movement	(5.1)	1.9
Pensions and provisions	(5.5)	0.4
Other items	6.0	0.5
Operating cash flow	53.7	54.2
Tax paid	(9.3)	(15.3)
Interest paid (net)	(3.2)	(3.4)
Capital expenditure	(35.9)	(22.1)
Sale of fixed assets	0.7	3.0
Free cash flow	6.0	16.4
Dividends	(12.4)	(11.6)
Acquisitions	(0.2)	(6.6)
Disposals	0.5	-
Amortisation of refinancing costs	(0.3)	-
Net issue of shares	(2.1)	2.0
Change in net debt	(8.5)	0.2
Opening net debt	(87.2)	(86.8)
Exchange	(0.3)	(0.6)
Closing net debt	(96.0)	(87.2)

* includes £2.1m (2013: £2.2m) in respect of acquisition intangibles.

The Group's principal debt facility consists of a headline £210m multicurrency revolving credit agreement. In May 2014 the Group extended the term of the then-existing facility from April 2016 to April 2019, providing the Group with significant headroom against its expected future funding requirements for an additional three years, whilst also taking advantage of favourable market conditions to reduce costs and amend key terms. Costs associated with the amendment of £1.5m were deducted from the carrying value of the loans and will be amortised over the life of the facility, as required by accounting standards.

Maturity profile of debt facilities

	2014			2013
On demand	£9.3m		On demand	£16.4m
2015-2016	£1.3m		2014-2015	£1.3m
2017-2019	£212.9m		2016	£210.9m

At the year end the Group had committed debt facilities available of £214.2m and a further £9.3m in overdrafts and other on-demand facilities.

The principal debt facility is subject to covenants which are tested semi-annually on 30 June and 31 December. The covenants require that the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation as defined in the facility agreement) to net interest costs exceeds 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 2014 were:

                                                Actual                    Covenant

Interest Cover                       20.6 times             > 4.0 times

Net debt to EBITDA              1.5 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 for the foreseeable future.

Net finance costs

		2014 £m		2013 £m
Underlying net cash interest:
Bank loans / overdrafts	3.1		3.2
Finance leases / other	0.1	3.2	0.1	3.3
Non cash:
Net pension interest	0.7		0.6
Costs of refinancing	0.3	1.0	-	0.6
		4.2		3.9

Net financing costs were marginally higher than prior year at £4.2m (2013: £3.9m). The net cost from pension fund financing under IAS19 was £0.7m (2013: £0.6m), the increase of £0.1m reflecting the higher net pension deficit at the end of 2013 compared with 2012. Given its non-cash nature the pension interest charge continues to be treated as 'non-underlying' in the Consolidated Income Statement. Non-underlying financing costs also include £0.3m relating to the Group's amendment of the terms of its principal banking facilities during the year, reflecting the amortisation of the costs capitalised against the loans in accordance with IAS39. The underlying cash element of net financing costs decreased by £0.1m to £3.2m (2013: £3.3m), as a result of marginal reductions in bank interest rates. Underlying operating profit covered net cash interest 15.4 times (2013: 13.5 times).

The Group has approximately 26% (2013: 38%) of its gross debt of £102.7m at fixed interest rates, either through interest rate swaps or finance leases. Interest rate swaps are predominantly denominated in US Dollars, with a smaller tranche of Euros. The Sterling swap held at 31 December 2013 was terminated in 2014 as part of the amendment to the principal debt facility.

Return on invested capital (ROIC)

The Group aims to maintain ROIC above its pre-tax weighted average cost of capital (currently c.11%), with a target return of 17.5%. In 2014, ROIC increased to 16% (2013: 15%) largely as a result of improvements in underlying operating margins and active portfolio management, including the disposal and restructuring of under-performing businesses. The Group measures ROIC as the ratio of underlying operating profit to average invested capital. Invested capital is defined as net assets excluding current and deferred tax, net debt, retirement benefit obligations and derivative financial instruments, and therefore includes goodwill and other acquired intangible assets.

Exchange rates

Given its international operations and markets, the Group is exposed to movements in exchange rates when translating the results of international operations into Sterling. Retranslating 2013 revenue and underlying operating profit using 2014 average exchange rates would have reduced the prior year revenue and underlying operating profit by £13.3m and £1.7m respectively. Exchange rates continue to move in line with worldwide events and currency flows and hence are inherently difficult to predict. Movements in exchange rates will continue to have an impact on the translation of overseas earnings in 2015. Retranslating 2014 revenue and underlying operating profit using exchange rates at 3 March 2015 (inter alia £1 = US$1.54 and £1 = €1.37) would increase the revenue and underlying operating profit by £2.1m and £0.8m respectively. For US Dollar, a 1 cent movement results in a £140,000 adjustment to underlying operating profit and for the Euro, a £60,000 adjustment.

Non-underlying items

The total non-underlying items charged to operating profit in the Consolidated Income Statement amounted to £8.1m (2013: £10.0m) and were made up of the following:

	Income
	statement		Cash in	Future
	charge		the year	cash	Non-cash
	£m		£m	£m	£m
Business reorganisation costs	(2.6)		(0.6)	(1.5)	(0.5)
Losses on sale of subsidiaries	(3.7)		0.5	0.5	(4.7)
Amortisation of acquisition intangibles	(2.1)		-	-	(2.1)
Acquisition expenses	(0.1)		(0.1)	-	-
Profit on sale of properties	0.4		0.4	-	-
	(8.1)		0.2	(1.0)	(7.3)

-     Business reorganisation costs of £2.6m (2013: £9.2m) principally relate to redundancies and other costs associated with site restructuring. The charge is net of a release of £0.9m of unutilised provisions relating to prior year site closures following the favourable settlement of previously estimated exposures. The charge also includes asset impairments of £1.4m;

-     Losses on disposal of subsidiaries of £3.7m (2013: £nil) represent the net losses arising from the disposal of the Group's interests in the non-core businesses of Staco Redman, Bromford Iron & Steel and JA Envirotanks during the year, further details of which are set out below;

-     Non-cash amortisation of acquired intangible fixed assets was £2.1m (2013: £2.2m);

-     Acquisition related expenses of £0.1m (2013: £0.4m) reflect costs associated with acquisitions expensed to the Consolidated Income Statement in accordance with IFRS3 (Revised); and

-     Profits on sale of properties during the year were £0.4m (2013: £1.8m).

The net cash impact of the above items was an inflow of £0.2m (2013: outflow of £3.1m) with a further £1.0m net spend expected in 2015. The non-cash element therefore amounted to £7.3m. The Directors continue to believe that the classification of these items as 'non-underlying' aids the understanding of the underlying business performance.

Tax

The Group's tax charge for the year was £9.6m (2013: £7.6m). The underlying effective tax rate for the Group was 24% (2013: 24%), which is lower than the weighted average mix of tax rates in the jurisdictions in which the Group operates following the successful conclusion of tax uncertainties related to prior years and the resultant provision release. Cash tax paid of £9.3m (2013: £15.3m), although broadly in line with the income statement charge, benefitted from advanced capital allowances in connection with the Group's investment in the new Memphis galvanizing plant in the USA. Cash tax paid in the prior year included the cash settlement of certain one-off deferred tax liabilities in France.

The Group's net deferred tax liability is £7.6m (2013: £9.5m). An £8.5m (2013: £8.7m) deferred tax liability is provided in respect of brand names and customer relationships acquired. A further £1.5m (2013: £1.9m) is provided on the fair value revaluation of French properties acquired as part of the Zinkinvent acquisition in 2007. These liabilities do not represent future cash tax payments 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 acquisition intangible amortisation. UEPS for the period under review increased by 11% to 45.0p (2013: 40.4p), with organic growth in revenue and improvements in underlying operating profit margins more than compensating for the adverse movements in exchange rates. The diluted UEPS was 44.4p (2013: 39.8p). Basic earnings per share was 35.1p (2013: 29.6p). The weighted average number of shares in issue was 77.8m (2013: 77.6m) with the diluted number of shares at 78.8m (2013: 78.6m) 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 2014 was £21.1m, marginally higher than the £20.2m reported at 31 December 2013. The impact of a reduction in the discount rate, in line with falling bond yields in the latter part of the year, was largely offset by reductions in inflation assumptions and an improvement of £5.6m in underlying asset values.

The Hill & Smith Executive Pension Scheme and the Hill & Smith Pension Scheme (the 'Schemes') remain the largest employee benefit obligations within the Group. In common with many other UK companies, the Schemes are mature having significantly more pensioners and deferred pensioners than active participating members. The Schemes are closed to new members, with future accruals ceasing in the Executive Scheme in December 2011 and in the Main Scheme in November 2012. The IAS19 deficit of the Schemes as at 31 December 2014 was £17.7m (2013: £17.6m). The Group has agreed deficit recovery plans in place that require cash contributions over and above the current service accrual amounting to £2.5m for the three years to April 2016, followed by payments of £2.3m for a further seven years.

Deficit contributions of £3.6m in 2014 include an additional £1.1m crystallising on cessation of trade in businesses sold or closed. The date of the next triennial review is 5 April 2015. The Group is actively engaged in dialogue with the Trustees with respect to management, funding and investment strategy.

Acquisitions

On 11 July 2014 the Group acquired the trade and certain assets of Variable Message Signs Limited, a manufacturer and distributor of electronic variable message signs for the UK road and rail markets, for £0.3m including costs and the assumption of outstanding debt. The business will be merged with the Group's existing variable message sign business, Techspan Systems, to create the UK market leader in this sector. The combined business will be known as Variable Message Signs.

Disposals

On 18 August 2014 the Group disposed of its interests in the non-core businesses of Bromford Iron & Steel Company Limited, a producer of rolled steel, and JA Envirotanks, a small niche market supplier of storage tanks for industrial applications. Total consideration was £1.3m, of which £0.5m is deferred for a period of up to two years, resulting in a loss on disposal of £3.8m.

On 23 April 2014 the Group disposed of its interest in Staco Redman Limited, a small producer of steel floor grating, for a consideration of £0.3m resulting in a profit on disposal of £0.1m.

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 Finance Director.

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

10 March 2015

Year ended 31 December 2014

Consolidated Income Statement

			2014			2013
	Notes	Underlying  £m	Non- underlying* £m	Total £m	Underlying  £m	Non- underlying* £m	Total £m
Revenue	1, 2	454.7	-	454.7	444.5	-	444.5
Trading profit		49.2	-	49.2	44.5	-	44.5
Amortisation of acquisition intangibles	3	-	(2.1)	(2.1)	-	(2.2)	(2.2)
Business reorganisation costs	3	-	(2.6)	(2.6)	-	(9.2)	(9.2)
Loss on disposal of subsidiaries	3	-	(3.7)	(3.7)	-	-	-
Acquisition costs	3	-	(0.1)	(0.1)	-	(0.4)	(0.4)
Profit on sale of properties	3	-	0.4	0.4	-	1.8	1.8
Operating profit	1, 2	49.2	(8.1)	41.1	44.5	(10.0)	34.5
Financial income	4	0.5	-	0.5	0.7	-	0.7
Financial expense	4	(3.7)	(1.0)	(4.7)	(4.0)	(0.6)	(4.6)
Profit before taxation		46.0	(9.1)	36.9	41.2	(10.6)	30.6
Taxation	5	(11.1)	1.5	(9.6)	(9.9)	2.3	(7.6)
Profit for the year attributable to owners of the parent		34.9	(7.6)	27.3	31.3	(8.3)	23.0
Basic earnings per share	6	45.0p		35.1p	40.4p		29.6p
Diluted earnings per share	6	44.4p		34.7p	39.8p		29.2p
Dividend per share - Interim	7			6.4p			6.0p
Dividend per share - Final proposed	7			11.6p			10.0p
Total	7			18.0p			16.0p

* The Group's definition of non-underlying items is included in note 1 'Basis of Preparation'.

Year ended 31 December 2014

Consolidated Statement of Comprehensive Income

	Notes	2014 £m	2013 £m
Profit for the year		27.3	23.0
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		1.2	(1.6)
Exchange differences on foreign currency borrowings denominated as net investment hedges		(0.1)	(0.7)
Effective portion of changes in fair value of cash flow hedges		(0.1)	-
Transfers to the income statement on cash flow hedges		0.3	0.4
Taxation on items that may be reclassified to profit or loss	5	-	(0.1)
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on defined benefit pension schemes		(3.6)	(5.8)
Taxation on items that will not be reclassified to profit or loss	5	0.8	0.4
Other comprehensive income for the year		(1.5)	(7.4)
Total comprehensive income for the year attributable to owners of the parent		25.8	15.6

Year ended 31 December 2014

Consolidated Statement of Financial Position

	Notes	2014 £m	2013 £m
Non-current assets
Intangible assets		126.1	126.7
Property, plant and equipment		128.7	111.9
Other receivables		0.3	-
		255.1	238.6
Current assets
Assets held for sale		1.5	-
Inventories		57.9	55.1
Trade and other receivables		92.7	91.2
Cash and cash equivalents	8	6.7	10.0
		158.8	156.3
Total assets	2	413.9	394.9
Current liabilities
Trade and other liabilities		(87.7)	(85.0)
Current tax liabilities		(8.9)	(7.5)
Provisions for liabilities and charges		(1.4)	(3.5)
Interest bearing borrowings		(1.1)	(0.8)
		(99.1)	(96.8)
Net current assets		59.7	59.5
Non-current liabilities
Other liabilities		(0.2)	(0.1)
Provisions for liabilities and charges		(2.8)	(2.8)
Deferred tax liability		(7.6)	(9.5)
Retirement benefit obligation		(21.1)	(20.2)
Interest bearing borrowings		(101.6)	(96.4)
		(133.3)	(129.0)
Total liabilities		(232.4)	(225.8)
Net assets		181.5	169.1
Equity
Share capital		19.5	19.4
Share premium		31.7	31.5
Other reserves		4.5	4.5
Translation reserve		0.9	(0.2)
Hedge reserve		(0.4)	(0.6)
Retained earnings		125.3	114.5
Total equity		181.5	169.1

Approved by the Board of Directors on 10 March 2015 and signed on its behalf by:

D W Muir
Director

M Pegler
Director

Year ended 31 December 2014

Consolidated Statement of Changes in Equity

	Notes	Share capital £m	Share  premium £m	Other reserves† £m	Translation  reserves £m	Hedge reserves £m	Retained  earnings £m	Total equity £m
At 1 January 2013		19.3	29.6	4.5	2.1	(0.9)	107.8	162.4
Comprehensive income
Profit for the year		-	-	-	-	-	23.0	23.0
Other comprehensive income for the year		-	-	-	(2.3)	0.3	(5.4)	(7.4)
Transactions with owners recognised directly in equity
Dividends	7	-	-	-	-	-	(11.6)	(11.6)
Credit to equity of share-based payments		-	-	-	-	-	0.4	0.4
Tax taken directly to the Consolidated Statement of Changes in Equity	5	-	-	-	-	-	0.3	0.3
Shares issued		0.1	1.9	-	-	-	-	2.0
At 31 December 2013		19.4	31.5	4.5	(0.2)	(0.6)	114.5	169.1
Comprehensive income
Profit for the year		-	-	-	-	-	27.3	27.3
Other comprehensive income for the year		-	-	-	1.1	0.2	(2.8)	(1.5)
Transactions with owners recognised directly in equity
Dividends	7	-	-	-	-	-	(12.4)	(12.4)
Credit to equity of share-based payments		-	-	-	-	-	0.9	0.9
Satisfaction of long term incentive payments		-	-	-	-	-	(1.0)	(1.0)
Own shares acquired by employee benefit trust		-	-	-	-	-	(1.4)	(1.4)
Tax taken directly to the Consolidated Statement of Changes in Equity	5	-	-	-	-	-	0.2	0.2
Shares issued		0.1	0.2	-	-	-	-	0.3
At 31 December 2014		19.5	31.7	4.5	0.9	(0.4)	125.3	181.5

† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2013: £0.2m) capital redemption reserve.

During the year the Group purchased 230,000 of its own shares, which are held in an employee benefit trust for the purposes of settling awards granted to employees under equity-settled share based payment plans. The cost of these shares, amounting to £1.4m, is included within retained earnings at 31 December 2014.

Year ended 31 December 2014

Consolidated Statement of Cash Flows

		2014		2013
	Notes	£m	£m	£m	£m
Profit before tax			36.9		30.6
Add back net financing costs	4		4.2		3.9
Operating profit	2		41.1		34.5
Adjusted for non-cash items:
Share-based payments		1.2		0.5
Loss on disposal of subsidiaries		3.7		-
Gain on disposal of non-current assets		(0.3)		(1.8)
Depreciation		14.2		13.6
Amortisation of intangible assets		3.0		3.3
Impairment of non-current assets		1.4		1.8
			23.2		17.4
Operating cash flow before movement in working capital			64.3		51.9
(Increase)/decrease in inventories		(4.3)		2.7
Increase in receivables		(2.7)		(1.3)
Increase in payables		1.9		0.5
(Decrease)/increase in provisions and employee benefits		(5.5)		0.4
Net movement in working capital			(10.6)		2.3
Cash generated by operations			53.7		54.2
Income taxes paid			(9.3)		(15.3)
Interest paid			(3.7)		(4.1)
Net cash from operating activities			40.7		34.8
Interest received		0.5		0.7
Proceeds on disposal of non-current assets		0.7		3.0
Purchase of property, plant and equipment		(34.6)		(21.0)
Purchase of intangible assets		(1.3)		(1.1)
Acquisitions of subsidiaries		-		(6.6)
Disposals of subsidiaries		0.5		-
Net cash used in investing activities			(34.2)		(25.0)
Issue of new shares		0.3		2.0
Purchase of shares for employee benefit trust		(2.4)		-
Dividends paid	7	(12.4)		(11.6)
Costs associated with refinancing of revolving credit facility		(1.5)		-
New loans and borrowings		39.2		34.2
Repayment of loans and borrowings		(32.7)		(31.7)
Repayment of obligations under finance leases		(0.3)		(1.5)
Net cash used in financing activities			(9.8)		(8.6)
Net (decrease)/increase in cash			(3.3)		1.2
Cash at the beginning of the year			10.0		8.9
Effect of exchange rate fluctuations			-		(0.1)
Cash at the end of the year	8		6.7		10.0

Notes of 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 2014

In 2014 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:

-     IFRS 10 Consolidated Financial Statements

-     IFRS 11 Joint Arrangements

-     IFRS 12 Disclosure of Interests in Other Entities

-     IAS 27 (2011) Separate Financial Statements

-     IAS 28 (2011) Investments in Associates and Joint Ventures

The adoption of these standards and amendments has not had a material impact on the Group's Financial Statements.

The following standards and interpretations which are not yet effective and have not been early adopted by the Group will be adopted in future accounting periods:

-     IFRS 15 'Revenue from Contracts with Customers' (effective 1 January 2017).

-     IFRS 9 'Financial Instruments' (effective 1 January 2018).

New IFRS standards, amendments and interpretations not adopted

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

-     Amendments to IAS 19 Defined Benefit Plans: Employee Contributions (effective for annual periods beginning on or after 1 February 2015).

-     Annual Improvements to IFRSs - 2010-2012 Cycle (effective for annual periods beginning on or after 1 February 2015).

None of the standards or amendments above are expected to have a material impact on the Group.

The principal exchange rates used were as follows:

	2014		2013
	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.24	1.28	1.18	1.20
Sterling to US Dollar (£1 = USD)	1.65	1.56	1.56	1.65
Sterling to Thai Bhat (£1 = THB)	53.50	51.32	48.09	54.13
Sterling to Swedish Krona (£1 = SEK)	11.30	12.07	10.19	10.59

Non-underlying items

Non-underlying items are non-trading items 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.

Details in respect of the non-underlying items recognised in the current and prior year are set out in note 3.

2.     Segmental information

Business segment analysis

The Group has three reportable segments which are Infrastructure Products - Utilities, Infrastructure Products - Roads and Galvanizing Services. Several operating segments that have similar economic characteristics have been aggregated into these reporting segments. The Group's internal management structure and financial reporting systems differentiate between these segments on the basis of the following economic characteristics:

-     The Infrastructure Products - 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 or in the maintenance of such facilities;

-     The Infrastructure Products - Roads segment contains a group of companies supplying permanent and temporary safety products to customers involved in the construction or maintenance of national roads infrastructure; 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.

Income Statement

	2014			2013
	Revenue £m	Result £m	Underlying result* £m	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	195.2	5.4	9.2	202.9	(2.0)	7.4
Infrastructure Products - Roads	127.7	12.5	13.3	114.0	11.2	11.7
Infrastructure Products - Total	322.9	17.9	22.5	316.9	9.2	19.1
Galvanizing Services	131.8	23.2	26.7	127.6	25.3	25.4
Total Group	454.7	41.1	49.2	444.5	34.5	44.5
Net financing costs		(4.2)	(3.2)		(3.9)	(3.3)
Profit before taxation		36.9	46.0		30.6	41.2
Taxation		(9.6)	(11.1)		(7.6)	(9.9)
Profit after taxation		27.3	34.9		23.0	31.3

* Underlying result is stated before non-underlying items as defined in note 1 'Basis of Preparation' 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.

Galvanizing Services provided £5.9m (2013: £5.0m) revenues to Infrastructure Products - Roads and £1.8m (2013: £1.6m) revenues to Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £3.6m (2013: £2.2m) revenues to Infrastructure Products - Roads. These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.

Geographical analysis

Revenue (irrespective of origin)

	2014 £m	2013 £m
UK	220.4	205.9
Rest of Europe	95.1	101.2
North America	113.7	113.2
The Middle East	6.4	8.2
Asia	14.7	12.7
Rest of World	4.4	3.3
Total	454.7	444.5

Total assets

	2014 £m	2013 £m
UK	154.3	146.1
Rest of Europe	95.9	102.5
North America	147.2	131.3
Asia	14.4	13.5
Rest of World	2.1	1.5
Total Group	413.9	394.9

3.     Non-underlying items

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

-     Business reorganisation costs of £2.6m (2013: £9.2m) - principally relating to redundancies and other net costs associated with site closures including the Joseph Ash Galvanizing plant at Hereford. The net costs include asset impairment charges of £1.4m (2013: £1.8m). 

-     Amortisation of acquired intangible fixed assets of £2.1m (2013: £2.2m).

-     Acquisition expenses of £0.1m (2013: £0.4m) relating to acquisitions made by the Group during the year.

-     Profits on disposal of properties of £0.4m (2013: £1.8m).

-     A net loss on disposal of subsidiaries of £3.7m. On 23 April 2014 the Group disposed of its 50% interest in the shares of Staco Redman Limited for a consideration of £0.3m, while on 18 August 2014 the Group disposed of its subsidiary Bromford Iron & Steel Company Limited and JA Envirotanks, a trading division of Joseph Ash Limited, for a combined consideration of £1.3m. The details of these disposals are set out below: 

	Staco Redman Ltd £m	Bromford Iron & Steel Co Ltd £m	JA Envirotanks £m	Total £m
Property, plant and equipment	-	1.8	0.1	1.9
Inventories	-	2.1	0.5	2.6
Current assets	0.1	1.3	0.9	2.3
Cash and cash equivalents	0.2	0.1	0.1	0.4
Current liabilities	(0.1)	(1.4)	(0.5)	(2.0)
Deferred tax	-	(0.1)	-	(0.1)
Net assets	0.2	3.8	1.1	5.1
Consideration:
Cash consideration	0.3	0.4	0.4	1.1
Deferred consideration	-	0.5	-	0.5
Less costs to sell	-	(0.1)	(0.1)	(0.2)
Profit/(loss) on disposal	0.1	(3.0)	(0.8)	(3.7)

Non-underlying items included in financial income and expense represent the net financing cost on pension obligations of £0.7m (2013: £0.6m) and financial expenses associated with refinancing of £0.3m (2013: £nil).

4.     Net financing costs

	Underlying £m	Non- underlying £m	2014 £m	Underlying £m	Non- underlying £m	2013 £m
Interest on bank deposits	0.5	-	0.5	0.7	-	0.7
Financial income	0.5	-	0.5	0.7	-	0.7
Interest on bank loans and overdrafts	3.7	-	3.7	3.9	-	3.9
Interest on finance leases and hire purchase contracts	-	-	-	0.1	-	0.1
Total interest expense	3.7	-	3.7	4.0	-	4.0
Financial expenses related to refinancing	-	0.3	0.3	-	-	-
Interest cost on net pension scheme deficit	-	0.7	0.7	-	0.6	0.6
Financial expense	3.7	1.0	4.7	4.0	0.6	4.6
Net financing costs	3.2	1.0	4.2	3.3	0.6	3.9

5.     Taxation

	2014 £m	2013 £m
Current tax
UK corporation tax	3.6	2.0
Adjustments in respect of prior periods	(1.8)	(2.7)
Overseas tax at prevailing local rates	8.7	9.8
	10.5	9.1
Deferred tax
Current year	0.1	0.1
Adjustments in respect of prior periods	(0.9)	-
Overseas tax at prevailing local rates	(0.1)	(1.0)
Effect of change in tax rate	-	(0.6)
Tax on profit in the Consolidated Income Statement	9.6	7.6
Deferred tax
Relating to defined benefit pension schemes	(0.8)	(0.4)
Relating to financial instruments	-	0.1
Tax on items taken directly to Other Comprehensive Income	(0.8)	(0.3)
Current tax
Relating to share-based payments	-	(0.2)
Deferred tax
Relating to share-based payments	(0.2)	(0.1)
Tax taken directly to the Consolidated Statement of Changes in Equity	(0.2)	(0.3)

The tax charge in the Consolidated Income Statement for the period is higher (2013: higher) than the standard rate of corporation tax in the UK. The differences are explained below:

	2014 £m	2013 £m
Profit before taxation	36.9	30.6
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 21.5% (2013: 23.25%)	7.9	7.1
Expenses not deductible for tax purposes	2.0	1.8
Capital profits less losses and write downs not subject to tax	(1.6)	(0.8)
Utilisation of brought forward tax losses not recognised	(0.1)	(0.7)
Overseas profits taxed at higher/(lower) rates	3.4	3.1
Overseas losses not relieved	0.4	0.2
Withholding taxes	0.3	0.2
Deferred tax benefit of future reductions in UK corporation tax rates	-	(0.6)
Adjustments in respect of prior periods	(2.7)	(2.7)
Tax charge	9.6	7.6

6.     Earnings per share

The weighted average number of ordinary shares in issue during the year was 77.8m (2013: 77.6m), diluted for the effects of the outstanding dilutive share options 78.8m (2013: 78.6m). Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

	2014		2013
	Pence per share	£m	Pence per share	£m
Basic earnings	35.1	27.3	29.6	23.0
Non-underlying items*	9.9	7.6	10.8	8.3
Underlying earnings	45.0	34.9	40.4	31.3
Diluted earnings	34.7	27.3	29.2	23.0
Non-underlying items*	9.7	7.6	10.6	8.3
Underlying diluted earnings	44.4	34.9	39.8	31.3

* Non-underlying items as detailed in note 3.

7.     Dividends

Dividends paid in the year were the prior year's interim dividend of £4.6m (2013: £4.5m) and the final dividend of £7.8m (2013: £7.1m). Dividends declared after the year end 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:

	2014		2013
	Pence per share	£m	Pence per share	£m
Equity shares
Interim	6.4	5.0	6.0	4.6
Final	11.6	9.0	10.0	7.8
Total	18.0	14.0	16.0	12.4

8.     Cash and borrowings

	2014 £m	2013 £m
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and bank balances	6.7	10.0
Call deposits	-	-
Cash	6.7	10.0
Interest bearing loans and borrowings
Amounts due within one year	(1.1)	(0.8)
Amounts due after more than one year	(101.6)	(96.4)
Net debt	(96.0)	(87.2)
Change in net debt
Operating profit	41.1	34.5
Non-cash items	23.2	17.4
Operating cash flow before movement in working capital	64.3	51.9
Net movement in working capital	(5.1)	1.9
Changes in provisions and employee benefits	(5.5)	0.4
Operating cash flow	53.7	54.2
Tax paid	(9.3)	(15.3)
Net financing costs paid	(3.2)	(3.4)
Capital expenditure	(35.9)	(22.1)
Proceeds on disposal of non-current assets	0.7	3.0
Free cash flow	6.0	16.4
Dividends paid	(12.4)	(11.6)
Acquisitions	(0.2)	(6.6)
Disposals	0.5	-
Costs associated with refinancing revolving credit facilities	(0.3)	-
Purchase of shares for employee benefit trust	(2.4)	-
Issue of new shares	0.3	2.0
Net debt (increase)/decrease	(8.5)	0.2
Effect of exchange rate fluctuations	(0.3)	(0.6)
Net debt at the beginning of the year	(87.2)	(86.8)
Net debt at the end of the year	(96.0)	(87.2)

Notes:

1.     The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2014 or 2013 but is derived from those accounts. Statutory accounts for 2013 have been delivered to the registrar of companies, and those for 2014 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 9 April 2014 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 Thursday 14 May 2015 at 11.00 a.m. at The Village Hotel, The Green Business Park, Shirley, Solihull, B90 4GW.

ii.      The proposed final dividend for 2014 will be paid on 3 July 2015 to shareholders on the register on 29 May 2015 (ex-dividend date 28 May 2015).

iii.     The last date for receipt of Dividend Reinvestment Plan elections is 12 June 2015.

iv.      Interim results announcement for the period to 30 June 2015 due August 2015.

v.       Payment of the 2015 interim dividend due January 2016.

4.     This preliminary announcement of results for the year ended 31 December 2014 was approved by the Directors on 10 March 2015.

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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