Final Results

RNS Number : 4635R

Hill & Smith Hldgs PLC

09 March 2016

 

Hill & Smith Holdings PLC

AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

Record results

Positive 2016 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 2015.

Financial results

			Change
	31 December 2015	31 December  2014	Reported %	Constant currency %
Revenue	£467.5m	£454.7m	+3	+3
Underlying*:
Operating profit	£56.0m	£49.2m	+14	+12
Operating margin	12.0%	10.8%	+120bps	+100bps
Profit before taxation	£53.0m	£46.0m	+15	+13
Earnings per share	51.7p	45.0p	+15	+13
Statutory:
Profit before taxation	£33.2m	£36.9m	-10
Basic earnings per share	30.9p	35.1p	-12
Dividend per share	20.7p	18.0p	+15
Net Debt	£91.5m	£96.0m

*All underlying profit and EPS measures exclude certain non-trading items, which are as defined in note 3. References to an underlying profit measure throughout this announcement are made on this basis and, in the opinion of the Directors, aid the understanding of the underlying business performance.

Key points:

·      Record revenue and underlying earnings performance

·      Improved returns across all divisions driven by strong end markets and active portfolio management:

-     Underlying operating margin 12.0%, up 120bps on prior year

-     Return on invested capital increased to 18% (2014: 16%)

·      Underlying profit before taxation up 15% to £53.0m:

-     Roads continued to benefit from the UK Road Investment Strategy. Smart Motorway programmes now underway following a short delay

-     Utilities saw good organic growth in the UK and US

-     Galvanizing enjoyed a strong UK and US performance, more than offsetting continued weakness in France

·      Four acquisitions completed during the year to extend and complement the product offer

·      Another strong cash generation performance with net debt at £91.5m (2014: £96.0m), despite £16.6m of acquisitions expenditure

·      Proposed final dividend of 13.6p giving a full year dividend of 20.7p, up 15% and the thirteenth successive year of increases

·      Process to restructure non-US Pipe Supports operations announced today

Derek Muir, Chief Executive, said:

"2015 has been another excellent year of progress for Hill & Smith and, despite uncertain economic conditions, we delivered profit growth ahead of our earlier expectations.

"Our strategy of international diversity and the strength of our businesses within their respective markets continues to underpin our performance. Our USA and UK operations - which combined represent more than 90% of our underlying operating profit - grew strongly on the back of increasing infrastructure investment.

"Overall, although some markets remain challenging, 2016 is again expected to be a year of good progress."

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/Ollie Hoare

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, composite "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 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 4,000 staff across 52 sites, principally in 8 countries.

Chairman's Statement

Overview

I am delighted to report a successive year of record performance by the Group in 2015. In an increasingly uncertain macro-economic environment, our focused strategy of developing businesses in international markets and with market leading positions has delivered good organic revenue and profit growth and improved returns on the capital entrusted to us.

In 2015, our reported revenues increased by 3% to £467.5m (2014: £454.7m), also by 3% at constant currency. Underlying operating profit increased by 14% to £56.0m (2014: £49.2m), or 12% at constant currency. Improvements in operating margins across all our divisions contributed to the strong performance.

Continuation of our strategy of active portfolio management resulted in us completing four acquisitions during 2015 for an aggregate cash consideration of £16.6m (with a further £0.5m deferred):

·      In April, we acquired Novia Associates, Inc. ('Novia'), a vibration and seismic control manufacturer in New Hampshire, USA. Novia will extend the product offering of our US pipe supports business.

·      In November, we acquired the trade and certain assets of Tegrel Limited ('Tegrel'). Tegrel designs, manufactures and supplies a range of aluminium enclosures used predominantly in the UK highway and rail markets. Tegrel has long been a supplier to the Group's Variable Message Sign ('VMS') business and has been integrated into the existing VMS operation.

·      In November, we acquired Premier Galvanizing Limited ('Premier'), a privately owned galvanizer with two plants located in Hull and Corby, UK. The acquisition will afford Premier the opportunity to enhance its service offering to galvanize longer structural steel products.

·      In December, we acquired Bowater Doors Limited ('Bowater'). Bowater produces composite doors for the UK new build and replacement door market and has subsequently been merged into our Birtley building products business in Newcastle.

Post the year end, in January 2016 we acquired the trade and assets of E.T. Techtonics, Inc. ('ETT'), a leader in the design and construction of composite bridges. ETT will trade as a division of our US composites business, Creative Pultrusions.

We welcome the employees of the acquired companies to the Group and are excited about the opportunities the expanded businesses can deliver.

In furtherance of our strategic objectives, today we have announced the proposed restructuring of our non-US pipe supports operations. Regrettably, market forces are such that we no longer see the business being able to meet the Group's financial return metrics over a reasonable time horizon. Therefore, we have announced the plan to engage in a consultation process regarding the closure of, and our exit from, our manufacturing sites in the UK and Thailand and also our sales office in China. To the extent possible, work will be transferred to our Indian manufacturing facility, which will become our centre of excellence for the manufacture of pipe support products. It is expected that we will seek a buyer for the Indian business once the restructuring is completed.

Performance highlights

The Board is pleased with the Company's financial performance for 2015, the highlights of which are shown below:

			Change %
	2015	2014	Reported	Constant currency
Revenue	£467.5m	£454.7m	+ 3	+ 3
Underlying(1):
Operating profit	£56.0m	£49.2m	+ 14	+ 12
Profit before tax	£53.0m	£46.0m	+ 15	+ 13
Earnings per share	51.7p	45.0p	+ 15	+13

⁽¹⁾ Underlying profit and EPS measures exclude certain non-trading items, which are as defined in note 1 and detailed in note 3 to the Financial Statements.

Dividends

In view of the strong performance the Board is recommending a final dividend of 13.6p per share (2014: 11.6p per share) making a total dividend for the year of 20.7p per share (2014: 18.0p per share), an increase of 15% on the prior year. Underlying dividend cover remains a healthy 2.5 times (2014: 2.5 times).

We continue to perform at a level that enables us to maintain a progressive dividend policy which has resulted in thirteen years of uninterrupted dividend growth. The final dividend, if approved, will be paid on 1 July 2016 to those shareholders on the register at the close of business on 27 May 2016.

Governance and the Board

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 set out explanations of our business model, strategy, viability statement, 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.

It is the responsibility of every Board to ensure that there is an appropriate succession planning process in place across the business, including the Board of Directors. During the year, both the Board and the Nomination Committee reviewed their plans for succession planning. Clive Snowdon, currently Senior Independent Director and Chair of the Remuneration Committee, joined the Board in May 2007 and has provided invaluable counsel in the transformation of the Group during his tenure. Clive will retire at the 2016 AGM in May and a search is underway for his replacement. Clive leaves us with our thanks and best wishes for the future.

AGM

We will hold our AGM on 17 May 2016 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.

People

Good results can only be delivered through the efforts and dedication of a loyal and strong workforce. On behalf of the Board, I would like to thank our employees for their continued hard work and for rising to the challenges and opportunities they meet.

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 over 80% of revenue and 90% of underlying operating profit from its UK and US operations, the Group principally operates in niche infrastructure markets where the overall outlook remains positive.

Our US galvanizing plants have enjoyed a good start to the new year helped by favourable weather conditions and we anticipate another strong outcome. The performance of the US, together with the UK galvanizing business, is expected to more than offset any potential weakness from our French operations, where economic conditions remain difficult.

In Utilities, notwithstanding a slower start to the year, our UK and US activities are well placed to continue to benefit from the significant investment going into the ageing infrastructure of those countries. The proposed restructuring of our loss-making non-US Pipe Support operations will also improve Utilities profitability.

In the UK, the implementation of the Department of Transport's Road Investment Strategy is progressing well and is entering the second year of the initial five year plan, which provides certainty of funding through to 2020/21. We therefore have confidence that the Group's road product portfolio will continue to benefit from the increased investment in the UK road infrastructure.

Overall, although some markets remain challenging, 2016 is again expected to be a year of good progress.

Bill Whiteley

Chairman

9 March 2016

Operational and Financial Review

2015 overview

The Group delivered another strong performance in 2015 with record revenue generation and underlying profitability. Despite the uncertain economic conditions, trading in our key markets remained positive and we delivered strong year-on-year underlying profit growth ahead of our earlier expectations. Infrastructure Products performed well, with both Utilities and Roads increasing profitability. A strong performance from Galvanizing in the USA and UK more than offset continued weakness in France.

Our strategy of international diversity and the strength of our businesses within their respective markets continues to underpin our performance. Our USA and UK operations grew strongly on the back of increasing infrastructure investment in our chosen end markets. Our UK operations now generate 47% of Group underlying operating profit, while our USA based businesses now account for 45% of Group underlying operating profit compared to 41% in the prior year. Both economies and the markets in which we operate continue to have a positive outlook for 2016 and beyond.

Reported revenue for the year increased by 3% to £467.5m (2014: £454.7m). Adjusting for adverse currency impacts of £0.5m and a net decrease in revenue of £2.6m from acquisitions and disposals, revenue improved by £15.9m, an organic increase of 3%. Underlying operating margin improved by 120bps to 12.0% (2014: 10.8%). Underlying operating profit increased by 14% to £56.0m (2014: £49.2m) including favourable currency impacts of £0.9m, with acquisitions/disposals contributing £1.0m. The organic improvement in underlying operating profit was 10%. Underlying profit before taxation was 15% higher at £53.0m (2014: £46.0m).

Infrastructure Products

	£m			+/- %	Constant Currency %
	2015		2014
Revenue	325.5	322.9		+1	+1
Underlying operating profit	26.5	22.5		+18	+16
Underlying operating margin %	8.1	7.0

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 2015 the division accounted for 70% (2014: 71%) of the Group's revenue and 47% (2014: 46%) of the Group's underlying operating profit.

Overall revenues increased marginally to £325.5m (2014: £322.9m) including a £0.8m positive impact from exchange rate movements. Organic revenue growth was £5.1m, or 2% at constant currency. Underlying operating profit was £26.5m (2014: £22.5m), an increase of £4.0m, with a positive currency translation impact of £0.3m. Underlying operating margin improved to 8.1% (2014: 7.0%).

Roads

	£m		+/- %	Constant Currency %
	2015	2014
Revenue	131.6	127.7	+3	+7
Underlying operating profit	16.0	13.3	+20	+21
Underlying operating margin %	12.2	10.4

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 29% (2014: 27%) of the Group's underlying operating profit, and 28% (2014: 28%) of revenues in 2015.

Revenues increased by 3% to £131.6m (2014: £127.7m). Underlying operating profit of £16.0m was £2.7m higher than the prior year (2014: £13.3m). There were no material net effects from acquisitions and currency movements.

UK

In December 2014, the UK Government published its Road Investment Strategy ('RIS') setting out investment plans in the UK road network through to 2020/21. Subsequently, in April 2015, Highways England was formed (previously the Highways Agency) as a Government owned company with the objective of delivering the transformational investment plan in the nation's strategic road network. The RIS aims to provide certainty of road investment funding over the period 2015/16 to 2020/21, improve the 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 are at the core of the Group's product offering in the UK. Overall, the implementation of the RIS progressed as planned in the first half of the year but slowed in the second half, as three Smart Motorway and other programmes were delayed into 2016. Pleasingly, the Smart Motorway programmes are now underway and we have commenced supply of our temporary safety barrier.

Demand for permanent and temporary safety barriers was very strong in the first half of the year. However, as expected, the utilisation of the temporary safety barrier rental fleet was lower in the second half as Smart Motorway projects were delayed. Utilisation rates are expected to increase throughout 2016 as further Smart Motorway programmes commence. Good performances were achieved from our BEBO concrete structures and our UK bridge parapet products. Both business units entered 2016 with a strong backlog and we expect further improvement during the year. Our Brifen wire rope safety fence system had a strong second half shipping a large 180km project to the Middle East. At the end of 2015 we secured an additional order of 200km to supply the second phase of the project, which will be shipped in the first quarter of 2016. As part of our continuing investment in product testing, we successfully tested a high containment anti-terrorist perimeter fence to achieve minimal penetration. The product was launched in the second half and early signs are encouraging, with two projects protecting power stations completed, also in the Middle East.

The integration of Variable Message Signs ('VMS'), acquired in July 2014, was successfully completed and the combined organisation is able to provide a wider and more competitive product offering to support Highways England in its roll out of the Smart Motorway programme. Product development initiatives have added to our offering and include remote control roadworks taper signs. The business delivered an excellent performance in 2015 and entered 2016 with a strong backlog. In November, we purchased for minimal consideration the trade and assets of one of VMS's major suppliers, Tegrel, which manufactures the aluminium enclosures for the variable message signs. This business has been integrated into VMS, vertically integrating our supply chain and increasing our capacity to satisfy the growing demand from Highways England and Transport Scotland.

Despite the completion of a number of our PFI projects, our lighting column business delivered an exceptional result with profitability ahead of 2014. The strategy of diversifying both products and markets continues to deliver significant benefits. We will however see completion of the remaining PFIs in 2016 and therefore expect volumes to reduce.

Non-UK

Our Scandinavian business enjoyed a good year with profitability ahead of 2014 despite adverse currency movements impacting on the competitiveness of safety barrier products imported from the UK. The outlook for the Scandinavian market remains favourable and during the year we expanded our temporary safety barrier rental fleet to further enhance the product offering. We continue to look at opportunities to strengthen the range of products.

In France our lighting column business performed well and despite the competitive marketplace and subdued demand, we were able to increase our market share. Investment in automation has enabled us to reduce operational costs and we are on target to become the lowest cost, fully integrated producer of lighting columns in France.

In our other international businesses we are working hard to introduce our tried and tested products into new markets by promoting their benefits through lower cost and efficient installation. These products, including Brifen wire rope safety fence and Zoneguard, our temporary safety barrier, are taking longer to gain penetration than we initially envisaged. With further approvals gained in the USA market and an expanded, more focused sales organisation, we expect Zoneguard to return a stronger performance in 2016. In India, after a difficult period pre and post national elections, project funding now appears to be forthcoming in the roads market and we anticipate an increase in momentum in the market for wire rope during the coming year. Pleasing progress has been made in Australia where, despite the weakness of the Australian Dollar hindering competitiveness, we have captured a number of orders including a supply contract for 19km of our Zoneguard temporary safety barrier to a major project in Sydney. We expect an improved performance from our international roads businesses in 2016.

Overall, the demand for our products, both in the UK and overseas, remains encouraging and 2016 is expected to be a year of further progress in our respective markets.

Utilities

	£m		+/- %	Constant Currency %
	2015	2014
Revenue	193.9	195.2	-1	-3
Underlying operating profit	10.5	9.2	+14	+9
Underlying operating margin %	5.4	4.7

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% (2014: 19%) of the Group's underlying operating profit and 41% (2014: 43%) of revenues.

Revenues fell to £193.9m (2014: £195.2m), but after adjusting for disposals in the prior year and currency impacts, reflected an organic improvement of £1.8m or 1% primarily due to a stronger performance from our UK utilities businesses. Underlying operating profit increased by £1.3m to £10.5m (2014: £9.2m), a constant currency growth of 9%. Underlying margins improved 70bps to 5.4% (2014: 4.7%).

Creative Pultrusions, our composites company in the USA, delivered a robust performance by increasing sales of its waterfront protection products and its own electrical distribution products of GRP Poles and Crossarms. OEM customer volumes were lower year on year however profitability remained at prior year levels on a higher margin product mix. Development of new products continues to be the focus and in January 2016 we completed the acquisition of the trade and assets of E.T. Techtonics, Inc. ('ETT'), a leading designer of composite bridges for pedestrian, equestrian and light vehicle applications. The company has a patented design and has engineered and installed over 700 walkway systems using their PRESTEK^® system. Cash consideration of $1.8m was paid at acquisition with a further $0.2m due in 2016. ETT will be integrated into the Creative Pultrusions business and furthers our strategy of enhancing our product offering to end users within infrastructure markets.

Our USA based transmission structures and substation utility business entered 2015 with an improved backlog for larger substation structures. Stronger revenues were experienced throughout the year, notably from our customers within framework agreements, which now account for 50% of our revenue. Increased penetration in our packaging work, supplying both structural galvanized steel structures together with the required electrical components, also improved profitability. The order backlog remains healthy, although revenues are expected to be marginally lower than 2015 as lower material prices work their way through the pricing structure in framework agreements.

Our pipe supports business in the USA experienced disruption in the first quarter due to poor weather conditions in the north east. During the year the market improved for engineered products and we signed a Master Product Agreement with Bechtel Power for the supply of engineered pipe supports for their combined cycle gas plants. Three projects are currently under construction and we enter 2016 with a strengthened backlog. The industrial pipe hanger business remains very competitive with lower margins experienced across our network of branches. Construction activity in the major cities is encouraging, which should result in increased demand in 2016 for our products. On 30 April 2015 the Group completed the acquisition of Novia Associates, Inc. ('Novia'), a vibration and seismic control manufacturer located in New Hampshire, USA for a net consideration of £1.8m. Novia will extend the product offering of our US pipe supports business and, having been successfully integrated, has performed well in the period since acquisition.

Outside the US, our Indian business gained traction with new leadership and we supplied engineered pipe supports and hanger rods for Larsen & Toubro and Doosan on multi-boiler coal-fired power stations, resulting in a successful year. During the year we won further work for our Thailand plant from India for the supply of cryogenic pipe supports for large LNG terminals in Dahej and Mundra in the Gujarat province. The outlook in India remains strong with a large programme to build both coal and gas fired power plants together with LNG receiving terminals. Our pipe supports businesses in Thailand and the UK entered the year with a lower order backlog than we would usually expect, due to our Japanese EPC framework customers completing power projects for which we had already supplied pipe supports in the previous year. After a disappointing first half performance, we entered the second half with an improved order book and expectations of a significant improvement in profitability. However, with the fall in oil and gas pricing, the wider power and energy market continued to be challenging and order intake has been weaker than expected, both in terms of volume and pricing. Consequently, the UK and Thailand based businesses performed below our expectations in the second half of the year incurring further losses. The outlook for our markets outside India is expected to remain challenging over a reasonable time horizon. Following a strategic review of the business we have announced our plan to engage in a consultation process regarding the closure of, and our exit from, our manufacturing sites in the UK and Thailand and also our sales office in China. To the extent possible, work will be transferred to our Indian manufacturing facility, which will become the centre of excellence for the manufacture of pipe support products. Following completion of the restructuring, it is expected that the Group will seek a buyer for the Indian business. A non-underlying restructuring charge of approximately £10m will be reported in the 2016 results of which cash costs (after realisation of property and working capital) are expected to be in the region of £4m.

In the UK our utilities businesses have performed strongly year on year due to increased infrastructure spending. The industrial flooring operation successfully completed a number of projects for new train maintenance depots and this work is set to continue into 2016 helping to offset the lower activity from oil and gas projects in the North Sea. Demand for our products in new Energy from Waste and Biomass plants increased in the period and the demand for these plants is increasing. AMP6 had a slow first year despite increased bidding activity, however it is expected that the second year of the five year programme, which starts in April 2016, will see the award and supply of a number of projects for galvanized steel handrails, flooring and walkway bridges. 

Our plastic pipe business benefitted throughout the year from strong demand in the UK housing sector for storm attenuation tanks for the flood alleviation market. Enquiry levels for AMP6 were at record levels, however few orders were placed in the first year of the plan. Recent record levels of rainfall and increased flooding should result in this market gaining momentum over the next year or so. Efficiency gains within the business and capital expenditure on automated fabrication equipment allowed us to increase productivity and improve returns. The business is well placed for future growth.

The Birtley and Expamet range of building products continued to perform ahead of our expectations with increased penetration of both brands to independent builders and national merchants. Focus to improve efficiencies within the composite residential door business increased our throughput by over 50%, which satisfied the increased demand from the major housebuilders. As part of our strategy to supply composite doors to the retail and social housing sectors, in December we acquired the Bowater Doors business from the VEKA Group for a cash consideration of £0.3m. The Bowater brand is synonymous with the national direct-to-consumer sector and manufacturing has been transferred to the Birtley door factory in the north east. This acquisition is part of the vision to become a major supplier of residential doors across all sectors of the industry.

Our solar frame business had another successful year despite the abandonment of the UK Renewable Obligation scheme for projects over 5MW at the end of March 2015. Given the phase out of the tax incentives, we do not anticipate much activity after the end of March 2016.

Ongoing investment in the UK rail network and the protection of critical infrastructure sites has provided higher volumes for our security fencing operation. The innovative product development of high security fencing over the past few years is now leading to our systems being specified by a number of utilities, who are reviewing their perimeter security in light of the increased terrorist threats both in the UK and overseas. During the year we completed a large contract to supply 6km of fencing to increase border security in Calais, France.

Galvanizing Services

	£m		+/- %	Constant Currency %
	2015	2014
Revenue	142.0	131.8	+8	+9
Underlying operating profit	29.5	26.7	+10	+8
Underlying operating margin %	20.8	20.3

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 30% (2014: 29%) of the Group's revenue and 53% (2014: 54%) of the Group's underlying operating profit.

Reported revenue increased by 8% to £142.0m (2014: £131.8m), with growth at constant currency at 9%. Underlying operating profit improved to £29.5m (2013: £26.7m), a constant currency growth of 8%. Underlying operating margins remained strong and improved by 50bps to 20.8% (2014: 20.3%) despite the adverse zinc pricing impact in Sterling and Euro of a stronger US Dollar. Overall galvanizing volumes were 3% ahead of 2014 principally as a result of a strong performance in the USA.

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.

Volumes for the year were 29% higher year on year. Adjusting for the new plant in Memphis, underlying volumes from the existing plants were up 15%. Bridge and highway products are a key volume underpin and therefore it was pleasing to see in December 2015 a new $305bn five-year highway bill approved. The first long term surface transportation bill funded for longer than two years in as many decades will provide funding for the repair of the ageing infrastructure in the USA. The alternative energy market remains strong, notably solar products. It was anticipated that 2016 would be the final year of substantial investment in the industry, however a five-year extension to the tax credit regime should see investment remain at 2016 levels through to 2021.

Our new plant in Memphis, Tennessee had its first full year of trading and experienced a steady increase in production volumes throughout the year resulting in a profitable second half. We now have an established and growing customer base and we look forward to further developing the business this year.

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 business continues to perform well in a difficult economic climate. Volumes fell 9% year on year but due to action in flexing the cost base taken early by the highly experienced team, we were able to minimise the effect on profitability. The large structural steel galvanizing plants in the north of the country experienced a significant downturn in volumes whilst the smaller, jobbing galvanizing plants in the south continued to perform well in the environment. We plan to reorganise one of our structural plants to become a jobbing plant early in the new year to improve the efficiency of this plant and our structural steel bath located nearby.

UK

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

Overall volumes were down 6% year on year with the principal driver being our decision to close our Hereford plant, the smaller of our two structural steel galvanizing plants. The closure was completed to plan and, encouragingly, we retained a higher proportion of the existing customer base than expected. Structural steel customers are now serviced from our Chesterfield plant where we have invested significantly to expand and upgrade our facilities. Excluding the impact of the Hereford plant closure, volumes were similar to the prior year. The lower cost base more than offset the reduced volumes resulting in profitability ahead of last year. Further investment is underway at our Medway and Walsall plants in order to create additional capacity and improve operational efficiency.

On 25 November, we acquired Premier Galvanizing Limited ('Premier') for a net cash consideration of £15.0m. Purchased from private shareholders, Premier has two plants located in Hull and Corby, areas not covered by our existing plant network. With a reputation for quality and service in its local areas Premier will now be able to add structural steel galvanizing to its service offering. Trading since acquisition has been in line with our expectations.

Financial review

Income statement phasing

	First half	Second half	Full year
2015
Revenue £m	233.0	234.5	467.5
Underlying operating profit £m	26.3	29.7	56.0
Margin %	11.3	12.7	12.0
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

The phasing of revenue and to a greater extent underlying operating profit was again second half weighted in 2015, principally reflecting the continuing broad improvement in economic conditions in the US, together with a normal degree of seasonality across the Group's portfolio of businesses.

Reported revenue of £467.5m was £12.8m or 3% ahead of the prior year, with acquisitions and disposals completed during both 2014 and 2015 resulting in a net revenue reduction of £2.6m but a £1.0m benefit to underlying operating profit. The translation impact arising from changes in exchange rates, principally the US Dollar and Euro, reduced total revenue by £0.5m, but increased underlying operating profit by £0.9m. At constant exchange rates, organic revenue growth was £15.9m and underlying operating profit growth was £4.9m, or 3% and 10% respectively.

£m	Revenue	Underlying operating profit
2014	454.7	49.2
Acquisitions/disposals	(2.6)	1.0
Currency	(0.5)	0.9
Organic growth	15.9	4.9
2015	467.5	56.0

Cash generation and financing

The Group again demonstrated its cash generating abilities with strong operating cash flow of £66.1m (2014: £53.7m), despite a marginal increase in working capital of £2.5m (2014: £5.1m). The overall impact on working capital of zinc and steel commodity prices year-on-year was not material, in part due to the impact of a strengthening US Dollar on Dollar denominated zinc prices. Working capital as a percentage of annualised sales increased marginally to 14.3% at 31 December 2015 (2014: 13.9%). Debtor days were 62 days (2014: 61 days).

Capital expenditure at £16.0m (2014: £35.9m) represents a multiple of depreciation and amortisation of 1.0 times (2014: 2.4 times), a more normal level of spend following the significant investments in the prior year on our UK temporary road safety barrier fleet and the construction of our new galvanizing facility in Memphis, USA. Significant items of expenditure in the current year included £1.6m on the upgrade and expansion of our UK Galvanizing site at Chesterfield and £1.4m on completion of the Memphis plant. The Group 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 2015 the Group achieved an underlying cash conversion rate of 100% (2014: 51%, or 95% excluding major capital projects). Over the past seven years the Group has achieved an average rate of over 90%.

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, while a sound balance sheet provides a platform to take advantage of future growth opportunities.

Group net debt at 31 December 2015 was £91.5m, representing a year on year reduction of £4.9m before adverse exchange rate movements of £0.4m. The Group's net debt includes 19% denominated in US Dollars and 11% denominated in Euros which act as a hedge against the net asset investments in overseas businesses.

Change in net debt

	2015 £m	2014 £m
Operating profit	37.3	41.1
Depreciation and amortisation*	18.0	17.2
Working capital movement	(2.5)	(5.1)
Pensions and provisions	(3.3)	(5.5)
Other items	16.6	6.0
Operating cash flow	66.1	53.7
Tax paid	(12.6)	(9.3)
Interest paid (net)	(3.0)	(3.2)
Capital expenditure	(16.0)	(35.9)
Sale of fixed assets	1.2	0.7
Free cash flow	35.7	6.0
Dividends	(14.1)	(12.4)
Acquisitions	(16.6)	(0.2)
Disposals	-	0.5
Amortisation of refinancing costs	(0.4)	(0.3)
Net issue of shares	0.3	(2.1)
Change in net debt	4.9	(8.5)
Opening net debt	(96.0)	(87.2)
Exchange	(0.4)	(0.3)
Closing net debt	(91.5)	(96.0)

* includes £1.6m (2014: £2.1m) in respect of acquisition intangibles.

The Group's principal debt facility consists of a headline £210m multicurrency revolving credit agreement maturing in April 2019, providing the Group with significant headroom against its expected future funding requirements.

Maturity profile of debt facilities

	2015			2014
On demand	£10.2m		On demand	£9.3m
2016-2017	£0.6m		2015-2016	£1.3m
2018-2019	£214.8m		2017-2019	£212.9m

At the year end the Group had committed debt facilities available of £215.4m and a further £10.2m in overdrafts and other on-demand facilities.

The principal debt facility is subject to covenants which are tested biannually 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 2015 were:

	Actual	Covenant
Interest Cover	25.0 times	> 4.0 times
Net debt to EBITDA	1.2 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

		2015 £m		2014 £m
Underlying net cash interest:
Bank loans / overdrafts	3.0		3.1
Finance leases / other	-	3.0	0.1	3.2
Non cash:
Net pension interest	0.7		0.7
Costs of refinancing	0.4	1.1	0.3	1.0
		4.1		4.2

Net financing costs were marginally lower than prior year at £4.1m (2014: £4.2m). The net cost from pension fund financing under IAS19 was £0.7m (2014: £0.7m) which, given its non-cash nature, continues to be treated as 'non-underlying' in the Consolidated Income Statement. Non-underlying financing costs also include £0.4m relating to the Group's amendment of the terms of its principal banking facilities in 2014, reflecting the amortisation of the costs capitalised against the loans in accordance with IAS39. The underlying cash element of net financing costs decreased by £0.2m to £3.0m (2014: £3.2m), as a result of lower levels of average net debt during the year. Underlying operating profit covered net cash interest 18.7 times (2014: 15.4 times).

The Group has approximately 26% (2014: 26%) of its gross debt of £104.4m 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.

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 2015, ROIC increased to 18% (2014: 16%) largely as a result of improvements in underlying operating margins, tight control over working capital and capital investment outflows, and the full-year impact of the disposal and restructuring of underperforming businesses in 2014. 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 2014 revenue and underlying operating profit using 2015 average exchange rates would have reduced the prior year revenue by £0.5m but increased underlying operating profit by £0.9m, the movements reflecting the net impact of Sterling's appreciation against the Euro and depreciation against the US Dollar. Exchange rates continue to move in line with worldwide events and currency flows and hence are inherently difficult to predict, but will continue to have an impact on the translation of overseas earnings in 2016. Retranslating 2015 revenue and underlying operating profit using exchange rates at 3 March 2016 (inter alia £1 = $1.39 and £1 = €1.27) would increase the revenue and underlying operating profit by £18.2m (4%) and £3.2m (6%) respectively. For US Dollar, a 1 cent movement results in a £900,000 and £180,000 adjustment to revenue and underlying operating profit respectively. For the Euro, a 1 cent movement results in a £400,000 and £35,000 adjustment to revenue and underlying operating profit respectively.

 

Non-underlying items

The total non-underlying items charged to operating profit in the Consolidated Income Statement amounted to £18.7m (2014: £8.1m) and were made up of the following:

	Income statement charge £m	Cash in the year £m	Future cash £m	Non-cash £m
Impairment of acquisition intangibles	(15.7)	-	-	(15.7)
Amortisation of acquisition intangibles	(1.6)	-	-	(1.6)
Acquisition expenses	(1.0)	(1.0)	-	-
Business reorganisation costs	(0.3)	(0.5)	-	0.2
Losses on sale of properties	(0.1)	0.4	-	(0.5)
	(18.7)	(1.1)	-	(17.6)

-     The impairment charge of £15.7m (2014: £nil) represents a full impairment of the goodwill and acquired intangible assets relating to the Group's acquisition of The Paterson Group in March 2011. Despite an improvement in performance in 2015, results remain below expectations and, overall, the business continues to generate levels of profitability that are significantly below those anticipated at acquisition, largely driven by changes in the US power generation market, including the hiatus in nuclear spend, and the ongoing impact of low oil prices. As a result, an impairment review was performed during the year resulting in a full impairment of the goodwill and remaining book value of acquired intangible assets;

-     Non-cash amortisation of acquired intangible fixed assets was £1.6m (2014: £2.1m);

-     Acquisition related expenses of £1.0m (2014: £0.1m) reflect costs associated with acquisitions expensed to the Consolidated Income Statement in accordance with IFRS3 (Revised);

-     Business reorganisation costs of £0.3m (2014: £2.6m) principally relate to redundancies and other costs associated with site restructuring. The charge includes a net release of £0.2m of provisions relating to prior year site closures following the favourable settlement of previously estimated exposures; and

-     Losses on sale of properties during the year were £0.1m (2014: profit of £0.4m).

The net cash impact of the above items was an outflow of £1.1m (2014: inflow of £0.2m) with the non-cash element therefore amounting to £17.6m. 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 £9.1m (2014: £9.6m). The underlying effective tax rate for the Group was 23.8% (2014: 24.0%), 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 was £12.6m (2014: £9.3m), with the lower spend in the prior year benefitting from advanced capital allowances in connection with the Group's investment in the new Memphis galvanizing plant in the USA.

The Group's net deferred tax liability is £7.9m (2014: £7.6m). A £7.0m (2014: £8.5m) deferred tax liability is provided in respect of brand names and customer relationships acquired, the reduction in the year largely reflecting the impairment charges made in respect of The Paterson Group. A further £1.2m (2014: £1.5m) 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 15% to 51.7p (2014: 45.0p), driven by organic revenue growth in the Group's core markets and continuing improvements in underlying operating profit margins. The diluted UEPS was 51.3p (2014: 44.4p). Basic earnings per share was 30.9p (2014: 35.1p). The weighted average number of shares in issue was 78.1m (2014: 77.8m) with the diluted number of shares at 78.8m (2014: 78.8m) 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 2015 was £14.6m, significantly lower than the £21.1m reported at 31 December 2014. The impact of an increase in the discount rate, in line with improving bond yields towards the end of the year, was only partly offset by marginal increases in inflation assumptions. 

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 2015 was £11.1m (2014: £17.7m). The Group is actively engaged in dialogue with the Schemes' Trustees in regard to management, funding and investment strategy, and has recently completed negotiations with the Trustees regarding the triennial valuation dated 5 April 2015, agreeing deficit recovery plans that require cash contributions amounting to £2.3m for a further five years to 5 April 2020. The date of the next triennial review is 5 April 2018.

Acquisitions

The Group completed the acquisition of Premier Galvanizing Limited on 25 November 2015 for a net cash consideration of £15.0m. Intangible assets arising on the acquisition comprise goodwill of £7.1m, the brand name of £0.9m and customer relationships of £7.0m. The acquired business, based in Corby and Hull, will broaden the Group's geographical representation in the UK galvanizing market.

The Group also completed three smaller acquisitions during the year:

-     In April 2015 we acquired Novia Associates, Inc., a US-based business operating in a similar market to our US pipe supports operations, for a net consideration of £1.8m including £0.2m deferred until 2016.

-     In November 2015 we acquired the trade and certain net assets of Tegrel Limited, a supplier to our existing variable message signs business. Consideration for this acquisition was minimal given Tegrel's distressed financial situation.

-     In December 2015 we acquired Bowater Doors Limited, a UK-based business that will complement our existing building products business in Newcastle, for a consideration of £0.3m.

The integration of the acquisitions into the Group has proceeded to plan and trading has been in line with expectations.

The level of headroom that the Group maintains in its principal banking facilities enables us to continue to seek opportunities for acquisitive growth where potential returns exceed the Group's benchmark performance targets.

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

9 March 2016

Consolidated Income Statement

Year ended 31 December 2015

			2015			2014
	Notes	Underlying  £m	Non- underlying* £m	Total £m	Underlying  £m	Non- underlying* £m	Total £m
Revenue	2	467.5	-	467.5	454.7	-	454.7
Trading profit		56.0	-	56.0	49.2	-	49.2
Amortisation of acquisition intangibles	3	-	(1.6)	(1.6)	-	(2.1)	(2.1)
Business reorganisation costs	3	-	(0.3)	(0.3)	-	(2.6)	(2.6)
Loss on disposal of subsidiaries	3	-	-	-	-	(3.7)	(3.7)
Impairment of intangible assets	3	-	(15.7)	(15.7)	-	-	-
Acquisition costs	3	-	(1.0)	(1.0)	-	(0.1)	(0.1)
(Loss)/profit on sale of properties	3	-	(0.1)	(0.1)	-	0.4	0.4
Operating profit	2	56.0	(18.7)	37.3	49.2	(8.1)	41.1
Financial income	4	0.5	-	0.5	0.5	-	0.5
Financial expense	4	(3.5)	(1.1)	(4.6)	(3.7)	(1.0)	(4.7)
Profit before taxation		53.0	(19.8)	33.2	46.0	(9.1)	36.9
Taxation	5	(12.6)	3.5	(9.1)	(11.1)	1.5	(9.6)
Profit for the year attributable to owners of the parent		40.4	(16.3)	24.1	34.9	(7.6)	27.3
Basic earnings per share	6	51.7p		30.9p	45.0p		35.1p
Diluted earnings per share	6	51.3p		30.6p	44.4p		34.7p
Dividend per share - Interim	7			7.1p			6.4p
Dividend per share - Final proposed	7			13.6p			11.6p
Total	7			20.7p			18.0p

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

Consolidated Statement of Comprehensive Income

Year ended 31 December 2015

		2015 £m	2014 £m
Profit for the year		24.1	27.3
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		1.8	1.2
Exchange differences on foreign currency borrowings denominated as net investment hedges		(0.4)	(0.1)
Effective portion of changes in fair value of cash flow hedges		(0.1)	(0.1)
Transfers to the income statement on cash flow hedges		0.4	0.3
Taxation on items that may be reclassified to profit or loss		(0.1)	-
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit pension schemes		5.0	(3.6)
Taxation on items that will not be reclassified to profit or loss		(1.2)	0.8
Other comprehensive income for the year		5.4	(1.5)
Total comprehensive income for the year attributable to owners of the parent		29.5	25.8

Consolidated Statement of Financial Position

Year ended 31 December 2015

	Notes	2015 £m	2014 £m
Non-current assets
Intangible assets		126.4	126.1
Property, plant and equipment		129.2	128.7
Other receivables		-	0.3
		255.6	255.1
Current assets
Assets held for sale		-	1.5
Inventories		57.7	57.9
Trade and other receivables		98.8	92.7
Cash and cash equivalents	9	12.9	6.7
		169.4	158.8
Total assets		425.0	413.9
Current liabilities
Trade and other liabilities		(87.8)	(87.7)
Current tax liabilities		(8.7)	(8.9)
Provisions for liabilities and charges		(0.2)	(1.4)
Interest bearing borrowings	9	(0.3)	(1.1)
		(97.0)	(99.1)
Net current assets		72.4	59.7
Non-current liabilities
Other liabilities		(0.2)	(0.2)
Provisions for liabilities and charges		(2.7)	(2.8)
Deferred tax liability		(7.9)	(7.6)
Retirement benefit obligation		(14.6)	(21.1)
Interest bearing borrowings	9	(104.1)	(101.6)
		(129.5)	(133.3)
Total liabilities		(226.5)	(232.4)
Net assets		198.5	181.5
Equity
Share capital		19.6	19.5
Share premium		32.8	31.7
Other reserves		4.6	4.5
Translation reserve		2.3	0.9
Hedge reserve		(0.2)	(0.4)
Retained earnings		139.4	125.3
Total equity		198.5	181.5

Approved by the Board of Directors on 9 March 2016 and signed on its behalf by:

D W Muir
Director

M Pegler

Director                                                                

Consolidated Statement of Changes in Equity

Year ended 31 December 2015

	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 2014			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
Comprehensive income
Profit for the year			-	-	-	-	-	24.1	24.1
Other comprehensive income for the year			-	-	-	1.4	0.2	3.8	5.4
Transactions with owners recognised directly in equity
Dividends	7		-	-	-	-	-	(14.1)	(14.1)
Credit to equity of share-based payments			-	-	-	-	-	0.9	0.9
Satisfaction of long term incentive payments			-	-	-	-	-	(1.8)	(1.8)
Own shares held by employee benefit trust			-	-	-	-	-	0.9	0.9
Transfers between reserves			-	-	0.1	-	-	(0.1)	-
Tax taken directly to the Consolidated Statement of Changes in Equity	5		-	-	-	-	-	0.4	0.4
Shares issued			0.1	1.1	-	-	-	-	1.2
At 31 December 2015			19.6	32.8	4.6	2.3	(0.2)	139.4	198.5

† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2014: £0.2m) capital redemption reserve.

In 2014 the Group purchased 230,000 of its own shares, which were 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, was included within retained earnings at 31 December 2014. In March 2015, 143,268 of these shares were issued in settlement of awards to employees at a cost of £0.9m. There are 86,732 shares remaining at 31 December 2015 with a cost of £0.5m.

Consolidated Statement of Cash Flows

Year ended 31 December 2015

		2015		2014
		£m	£m	£m	£m
Profit before tax			33.2		36.9
Add back net financing costs			4.1		4.2
Operating profit			37.3		41.1
Adjusted for non-cash items:
Share-based payments		0.9		1.2
Loss on disposal of subsidiaries		-		3.7
Gain on disposal of non-current assets		-		(0.3)
Depreciation		15.5		14.2
Amortisation of intangible assets		2.5		3.0
Impairment of non-current assets		15.7		1.4
			34.6		23.2
Operating cash flow before movement in working capital			71.9		64.3
Decrease/(increase) in inventories		1.1		(4.3)
Increase in receivables		(3.0)		(2.7)
(Decrease)/increase in payables		(0.6)		1.9
Decrease in provisions and employee benefits		(3.3)		(5.5)
Net movement in working capital			(5.8)		(10.6)
Cash generated by operations			66.1		53.7
Income taxes paid			(12.6)		(9.3)
Interest paid			(3.5)		(3.7)
Net cash from operating activities			50.0		40.7
Interest received		0.5		0.5
Proceeds on disposal of non-current assets		1.2		0.7
Purchase of property, plant and equipment		(14.8)		(34.6)
Purchase of intangible assets		(1.2)		(1.3)
Acquisitions of subsidiaries		(16.6)		-
Disposals of subsidiaries		-		0.5
Net cash used in investing activities			(30.9)		(34.2)
Issue of new shares		1.2		0.3
Purchase of shares for employee benefit trust		(0.9)		(2.4)
Dividends paid		(14.1)		(12.4)
Costs associated with refinancing of revolving credit facility		-		(1.5)
New loans and borrowings		46.0		39.2
Repayment of loans and borrowings		(45.0)		(32.7)
Repayment of obligations under finance leases		(0.1)		(0.3)
Net cash used in financing activities			(12.9)		(9.8)
Net increase/(decrease) in cash			6.2		(3.3)
Cash at the beginning of the year			6.7		10.0
Effect of exchange rate fluctuations			-		-
Cash at the end of the year			12.9		6.7

Notes to the Consolidated Financial Statements

1.   Basis of preparation

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

New IFRS standards and interpretations adopted during 2015

In 2015 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:

-     Amendments to IAS 19 Defined Benefit Plans: Employee Contributions.

-     Annual Improvements to IFRSs - 2010-2012 Cycle.

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:

-     Amendments to IFRS 11 - Accounting for Acquisitions of Interests in Joint Operations (effective 1 January 2016).

-     Amendments to IAS 16 and IAS 38 - Clarification of Acceptable Methods of Depreciation and Amortisation (effective 1 January 2016).

-     Amendments to IAS 27 - Equity Method in Separate Financial Statements (effective 1 January 2016).

-     Annual Improvements to IFRSs - 2012-2014 Cycle (effective 1 January 2016).

-     Disclosure Initiative - Amendments to IAS 1 (effective 1 January 2016).

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

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

-     IFRS 16 'Leases' (effective 1 January 2019).

The impact of IFRS 16, which was issued in January 2016, is currently being assessed. None of the other standards or amendments above are expected to have a material impact on the Group.

The principal exchange rates used were as follows:

	2015		2014
	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.38	1.36	1.24	1.28
Sterling to US Dollar (£1 = USD)	1.53	1.48	1.65	1.56
Sterling to Thai Bhat (£1 = THB)	52.49	53.50	53.50	51.32
Sterling to Swedish Krona (£1 = SEK)	12.90	12.50	11.30	12.07

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

	2015			2014
	Revenue £m	Result £m	Underlying result* £m	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	193.9	(7.1)	10.5	195.2	5.4	9.2
Infrastructure Products - Roads	131.6	15.6	16.0	127.7	12.5	13.3
Infrastructure Products - Total	325.5	8.5	26.5	322.9	17.9	22.5
Galvanizing Services	142.0	28.8	29.5	131.8	23.2	26.7
Total Group	467.5	37.3	56.0	454.7	41.1	49.2
Net financing costs		(4.1)	(3.0)		(4.2)	(3.2)
Profit before taxation		33.2	53.0		36.9	46.0
Taxation		(9.1)	(12.6)		(9.6)	(11.1)
Profit after taxation		24.1	40.4		27.3	34.9

* 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.

Galvanizing Services provided £5.2m (2014: £5.9m) revenues to Infrastructure Products - Roads and £1.6m (2014: £1.8m) revenues to Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £3.0m (2014: £3.6m) 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)

	2015 £m	2014 £m
UK	235.8	220.4
Rest of Europe	73.4	95.1
North America	135.0	113.7
The Middle East	7.2	6.4
Asia	13.3	14.7
Rest of World	2.8	4.4
Total Group	467.5	454.7

Total assets

	2015 £m	2014 £m
UK	175.5	154.3
Rest of Europe	88.3	95.9
North America	144.3	147.2
Asia	15.5	14.4
Rest of World	1.4	2.1
Total Group	425.0	413.9

3. Non-underlying items

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

-     Amortisation of acquired intangible fixed assets of £1.6m (2014: £2.1m).

-     Acquisition expenses of £1.0m (2014: £0.1m) principally relating to acquisitions made by the Group during the year.

-     Losses on disposal of properties of £0.1m (2014: profit of £0.4m).

-     Net costs in respect of business reorganisations of £0.3m (2014: £2.6m), reflecting costs associated with restructuring of certain of the Group's subsidiaries together with the net release of provisions made in previous years in respect of site closures following a favourable settlement during the year of the exposures identified. 

-     An impairment charge of £15.7m in respect of goodwill and acquired intangible assets. As set out in the Operational and Financial Review, the current and forecast financial performance of The Paterson Group (part of the Infrastructure Products - Utilities segment) is below that assumed in the impairment review performed at 31 December 2014 and, overall, the business continues to generate levels of profitability that are significantly below those anticipated at acquisition. As a result, an impairment review was performed during the year based on the Board's revised expectation of future profitability and cash generation. The impairment review concluded that the carrying values of the assets of the business were less than their recoverable amount (determined by reference to the Value in Use) by £15.7m, allocated to the goodwill (£8.2m) and the remaining book value of acquired intangible fixed assets (£7.5m) arising on acquisition. The basis for determining the Value in Use, including the discount rate (13.1% on a pre-tax basis) and rate of future growth, was consistent with that used in the annual impairment review performed as at 31 December 2014.

Non-underlying items in 2014 also included a net loss on disposal of subsidiaries of £3.7m, as 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 expense represent the net financing cost on pension obligations of £0.7m (2014: £0.7m) and a £0.4m (2014: £0.3m) charge in respect of amortisation of costs associated with refinancing.

4. Net financing costs

	Underlying £m	Non- underlying £m	2015 £m	Underlying £m	Non- underlying £m	2014 £m
Interest on bank deposits	0.5	-	0.5	0.5	-	0.5
Financial income	0.5	-	0.5	0.5	-	0.5
Interest on bank loans and overdrafts	3.5	-	3.5	3.7	-	3.7
Interest on finance leases and hire purchase contracts	-	-	-	-	-	-
Total interest expense	3.5	-	3.5	3.7	-	3.7
Financial expenses related to refinancing	-	0.4	0.4	-	0.3	0.3
Interest cost on net pension scheme deficit	-	0.7	0.7	-	0.7	0.7
Financial expense	3.5	1.1	4.6	3.7	1.0	4.7
Net financing costs	3.0	1.1	4.1	3.2	1.0	4.2

5. Taxation

	2015 £m	2014 £m
Current tax
UK corporation tax	4.0	3.6
Overseas tax at prevailing local rates	10.1	8.7
Adjustments in respect of prior periods	(2.4)	(1.8)
	11.7	10.5
Deferred tax
UK deferred tax	0.3	0.1
Overseas tax at prevailing local rates	(3.7)	(0.1)
Adjustments in respect of prior periods	0.1	(0.9)
Effect of change in tax rate	0.7	-
Tax on profit in the Consolidated Income Statement	9.1	9.6
Deferred tax
Relating to defined benefit pension schemes	1.2	(0.8)
Relating to financial instruments	0.1	-
Tax on items taken directly to Other Comprehensive Income	1.3	(0.8)
Current tax
Relating to share-based payments	(0.3)	-
Deferred tax
Relating to share-based payments	(0.1)	(0.2)
Tax taken directly to the Consolidated Statement of Changes in Equity	(0.4)	(0.2)

The tax charge in the Consolidated Income Statement for the period is higher (2014: higher) than the standard rate of corporation tax in the UK. The differences are explained below:

	2015 £m	2014 £m
Profit before taxation	33.2	36.9
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 20.25% (2014: 21.5%)	6.7	7.9
Expenses not deductible/income not chargeable for tax purposes	(0.5)	0.2
Non-deductible goodwill impairment	1.6	-
Local tax incentives	(0.9)	(0.7)
Utilisation of brought forward tax losses not recognised	(0.4)	(0.1)
Overseas profits taxed at higher/(lower) rates	3.7	4.3
Overseas losses not relieved	0.4	0.4
Withholding taxes	0.1	0.3
Impact of rate changes	0.7	-
Adjustments in respect of prior periods	(2.3)	(2.7)
Tax charge	9.1	9.6

The Group carries tax provisions in relation to uncertain tax positions arising from the possible outcome of negotiations with and enquiries from the UK and other overseas tax authorities. Such provisions are a reflection of the geographical spread of the Group's operations and the variety of jurisdictions in which it carries out its activities.

6. Earnings per share

The weighted average number of ordinary shares in issue during the year was 78.1m (2014: 77.8m), diluted for the effects of the outstanding dilutive share options 78.8m (2014: 78.8m). Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

	2015		2014
	Pence per share	£m	Pence per share	£m
Basic earnings	30.9	24.1	35.1	27.3
Non-underlying items*	20.8	16.3	9.9	7.6
Underlying earnings	51.7	40.4	45.0	34.9
Diluted earnings	30.6	24.1	34.7	27.3
Non-underlying items*	20.7	16.3	9.7	7.6
Underlying diluted earnings	51.3	40.4	44.4	34.9

* Non-underlying items as detailed in note 3.

7. Dividends

Dividends paid in the year were the prior year's interim dividend of £5.0m (2014: £4.6m) and the final dividend of £9.1m (2014: £7.8m). 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:

	2015		2014
	Pence per share	£m	Pence per share	£m
Equity shares
Interim	7.1	5.5	6.4	5.0
Final	13.6	10.6	11.6	9.0
Total	20.7	16.1	18.0	14.0

8. Acquisitions

On 25 November 2015 the Group acquired the share capital of Premier Galvanizing Limited. Details of this acquisition are as follows:

Premier Galvanizing Limited	Pre acquisition carrying amount £m	Policy alignment and fair value adjustments £m	Total £m
Intangible assets	-	7.9	7.9
Property, plant and equipment	1.2	-	1.2
Inventories	0.6	(0.2)	0.4
Current assets	2.2	-	2.2
Cash and cash equivalents	3.3	-	3.3
Total assets	7.3	7.7	15.0
Current liabilities	(2.2)	(0.2)	(2.4)
Deferred tax	(0.1)	(1.3)	(1.4)
Total liabilities	(2.3)	(1.5)	(3.8)
Net assets	5.0	6.2	11.2
Consideration
Consideration in the year			18.3
Goodwill			7.1
Cash flow effect
Consideration			18.3
Deferred consideration			(0.3)
Cash and cash equivalents received in the business			(3.3)
Net cash consideration shown in the Consolidated Statement of Cash Flows			14.7

Brands and customer relationships have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising primarily represents the assembled workforce, market share and geographical advantages afforded to the Group. Policy alignment and fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the provisional application of fair values on acquisition.

Post acquisition the acquired business has contributed £0.7m revenue and £0.2m underlying operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2015, the Group's results for the year would have shown revenue of £475.7m and underlying operating profit of £58.3m.

The Group has also made three other smaller acquisitions during the year:

-     The share capital of Novia Associates, Inc., acquired in April 2015;

-     The trade and certain assets of Tegrel Limited, acquired in November 2015; and

-     The share capital of Bowater Doors Limited, acquired in December 2015.

Details of these acquisitions are set out below:

	Novia Pre acquisition carrying amount £m	Tegrel Pre acquisition carrying amount £m	Bowater Pre acquisition carrying amount £m	Policy alignment and fair value adjustments £m	Total £m
Intangible assets	-	-	-	0.3	0.3
Property, plant and equipment	0.1	0.1	0.1	0.1	0.4
Inventories	0.1	0.2	0.5	(0.1)	0.7
Current assets	0.4	0.4	-	-	0.8
Cash and cash equivalents	0.1	-	-	-	0.1
Total assets	0.7	0.7	0.6	0.3	2.3
Current liabilities	(0.2)	(0.3)	(0.3)	(0.4)	(1.2)
Deferred tax	-	-	-	(0.1)	(0.1)
Total liabilities	(0.2)	(0.3)	(0.3)	(0.5)	(1.3)
Net assets	0.5	0.4	0.3	(0.2)	1.0
Consideration
Consideration in the year					2.2
Goodwill					1.2
Cash flow effect
Consideration					2.2
Deferred consideration					(0.2)
Cash and cash equivalents received in the business					(0.1)
Net cash consideration shown in the Consolidated Statement of Cash Flows					1.9

Customer lists have been recognised as a specific intangible asset as a result of the acquisition of Novia Associates.  Policy alignment and fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the provisional application of fair values on acquisition.

Post acquisition the acquired businesses have contributed £1.4m revenue and £0.2m underlying operating profit, which are included in the Group's Consolidated Income Statement. If the acquisitions had been made on 1 January 2015, the Group's results for the year would have shown revenue of £475.2m and underlying operating profit of £55.4m.

9. Cash and borrowings

	2015 £m	2014 £m
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and bank balances	12.9	6.7
Call deposits	-	-
Cash	12.9	6.7
Interest bearing loans and borrowings
Amounts due within one year	(0.3)	(1.1)
Amounts due after more than one year	(104.1)	(101.6)
Net debt	(91.5)	(96.0)
Change in net debt
Operating profit	37.3	41.1
Non-cash items	34.6	23.2
Operating cash flow before movement in working capital	71.9	64.3
Net movement in working capital	(2.5)	(5.1)
Changes in provisions and employee benefits	(3.3)	(5.5)
Operating cash flow	66.1	53.7
Tax paid	(12.6)	(9.3)
Net financing costs paid	(3.0)	(3.2)
Capital expenditure	(16.0)	(35.9)
Proceeds on disposal of non-current assets	1.2	0.7
Free cash flow	35.7	6.0
Dividends paid	(14.1)	(12.4)
Acquisitions	(16.6)	(0.2)
Disposals	-	0.5
Amortisation of costs associated with refinancing revolving credit facilities	(0.4)	(0.3)
Purchase of shares for employee benefit trust	(0.9)	(2.4)
Issue of new shares	1.2	0.3
Net debt decrease/(increase)	4.9	(8.5)
Effect of exchange rate fluctuations	(0.4)	(0.3)
Net debt at the beginning of the year	(96.0)	(87.2)
Net debt at the end of the year	(91.5)	(96.0)

10. Post balance sheet events

On 20 January 2016 the Group acquired E.T. Techtonics, Inc. ('ETT'), a US based designer of composite bridge products, for a consideration of £1.2m. ETT will be integrated into Creative Pultrusions, Inc. our existing US composite products business.

On 9 March 2016, following a strategic review of its non-US Pipe Supports business the Group announced its plan to engage in a consultation process regarding the closure of, and its exit from, its manufacturing sites in the UK and Thailand and also its sales office in China. To the extent possible, work will be transferred to the Group's Indian manufacturing facility, which will become the centre of excellence for the manufacture of pipe support products. Following completion of the restructuring, it is expected that the Group will seek a buyer for the Indian business. A non-underlying restructuring charge of approximately £10m will be reported in the 2016 results.

Notes:

1.     The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2015 or 2014 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the registrar of companies, and those for 2015 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 18 April 2016 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 Tuesday 17 May 2016 at 11.00 a.m. at The Village Hotel, The Green Business Park, Shirley, Solihull, B90 4GW.

ii.    The proposed final dividend for 2015 will be paid on 1 July 2016 to shareholders on the register on 27 May 2016 (ex-dividend date 26 May 2016).

iii.   The last date for receipt of Dividend Reinvestment Plan elections is 10 June 2015.

iv.    Interim results announcement for the period to 30 June 2016 due August 2016.

v.     Payment of the 2016 interim dividend due January 2017.

4.     This preliminary announcement of results for the year ended 31 December 2015 was approved by the Directors on 9 March 2016.

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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