Interim Results
Hill & Smith Hldgs PLC
12 September 2006
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006
The Board of Hill & Smith Holdings PLC announces increased profits for the six
months ended 30 June 2006, reflecting a further significant improvement in the
Group's trading performance.
FINANCIAL HIGHLIGHTS:
• Profit before taxation £10.9m (2005: £8.5m)
+ 28.0 per cent
• Underlying profit before taxation* £9.9m (2005: £8.5m)
+ 16.5 per cent
• Underlying earnings per share* 11.32p (2005: 9.47p)
+ 19.5 per cent
• Dividend per share 3.00p (2005: 2.60p)
+ 15.4 per cent
• Dividend cover* 3.8 times (2005: 3.6
times)
* Based on profits before reorganisation and property items
Chairman David Winterbottom said: 'The Group's core Infrastructure Products
businesses performed ahead of expectations in the period, with operating profits
of £8.8m being achieved (2005: £6.3m), including an excellent contribution of
£1.4m from the Group's associated company Zinkinvent. The ongoing
infrastructure spending in the UK continues to provide opportunities to generate
additional revenue from our product portfolio, which is continually being
expanded by rolling out new products.'
Results include a first time contribution from Counters & Accessories Limited
acquired in February.
The Group has also announced today that it is raising £28.0m before expenses
by a Placing and Open Offer of new ordinary shares to provide further finance
for acquisitions and investment.
Mr Winterbottom added 'The Group is continuing to trade in line with our
expectations and, in the absence of unforeseen circumstances, we anticipate
being able to report another good performance for the year as a whole.'
Copies of the interim report and the prospectus in relation to the Placing and
Open Offer are being posted to shareholders today.
Further information:
Hill & Smith Holdings PLC
David Grove, Chief Executive
0121 704 7430 - 07973 325667
Freshwater UK
Edward Carter
0121 633 7775 - 07770 378097
Chairman's Statement
Six Months ended 30 June 2006
I am pleased to report a further improvement in the financial performance
of the Group during the six months to 30 June 2006.
Sales for the period were £147.4m, representing a 2.8% increase over the same
period in 2005 (£143.4m). Underlying operating profit improved by 13.9% to
£11.8m (2005: £10.4m) and underlying profit before taxation was 16.5% ahead at
£9.9m (2005: £8.5m). Basic earnings per share for the period increased by 23.2%
to 12.92p (2005: 10.49p) whilst underlying earnings per share grew by 19.5% to
11.32p (2005: 9.47p).
Operations
Infrastructure Products Group
The Infrastructure Products Group performed ahead of expectations in the period,
with operating profits of £8.8m being achieved (2005: £6.3m). The underlying
operating profit performance of £7.4m (2005: £6.2m) was enhanced with an
excellent contribution of £1.4m (2005: £0.1m) from our 33% investment in
Zinkinvent GmbH ('Zinkinvent'), which is accounted for as an associated company.
Our UK based businesses continued to improve margins and maximise, where
possible, opportunities arising from our capital expenditure programme. Further
investment was made in our temporary vehicle restraint system rental fleet and
we gained our largest ever contract on the major road widening scheme
on the M1. The new range of permanent crash barriers launched under the Flexbeam
brand has been well received in the market as another example of our ability to
provide innovative solutions to customer requirements.
The ongoing infrastructure spend in the UK continues to provide opportunities
to generate additional revenue from our product portfolio, which is continually
being expanded by rolling out new products.
During the period there were significant price increases in the raw materials
we purchase, particularly steel and zinc, together with substantial rises in
energy costs. By working with our supply chain partners and customers, we have
mitigated the impact of these increases on the Group's result.
Building and Construction Products
The Building and Construction Products division's profits were significantly
lower during the period at £2.1m compared to the previous year (2005: £3.1m).
This reduction in profits is wholly attributable to the performance of our
reinforcing bar business where margins were much reduced, principally because of
difficulties in passing on the escalating input costs to our customers. This
issue is being addressed through cost reduction and other management
initiatives.
Our building products and industrial flooring businesses again performed well
during the period and further improved their returns on capital.
Industrial Products
The Industrial Products division produced profits of £0.9m which
were marginally lower than the previous year (2005: £1.0m). The new production
facility for Pipe Supports in Thailand incurred some start up costs but is now
fully operational and has a substantially increased order book.
Working Capital and Financing
The Group has consistently held a very tight rein on working capital and this
continues to be the case. However, the escalation in the raw material cost of
steel and zinc inevitably resulted in the Group having to invest in higher
levels of working capital. Approximately half of the £11.9m increase will remain
as long as input prices stay at their present level. The remainder of the
increase in the period is due to seasonal variations and should reduce in the
second half.
Net debt increased to £61.2m (December 2005: £47.3m) after funding additional
working capital, capital expenditure of £8.2m and the acquisition of
Counters & Accessories Limited for £5.3m.
Dividend
An interim dividend of 3.00p (2005: 2.60p) has been declared by the Board, which
represents a 15.4% increase on the previous year. This level of dividend is
covered 3.8 times (2005: 3.6 times) based on underlying earnings per share. This
continues the progressive dividend policy we have maintained in previous years.
Acquisitions
In February 2006 we acquired Counters & Accessories Limited which designs and
manufactures road traffic data recording equipment and electronic signs. As we
anticipated, the company made an excellent first time contribution to the
Group's results, working in co-operation with the Techspan Systems business
which was acquired in 2005.
Placing and Open Offer
The Company has today announced that it is proposing to raise approximately
£28.0m (£26.8m net of expenses) by means of a Placing and Open Offer of
12,280,702 New Ordinary Shares at 228 pence per share. Full details are set
out in the Prospectus which is being sent to shareholders today.
The strengthened capital base of the Company, together with the committed
borrowing facilities which are already available to it, will enable the Group
to take advantage of suitable acquisition opportunities and will also provide
funding for the organic expansion of the Group's existing businesses.
Over the past three and a half years, the Group has invested some £67m in
capital expenditure, product development and the acquisition of other
businesses. This has been funded by internally generated resources and bank
borrowings. The Company has identified a number of potential new investment
opportunities to provide further sales and profit growth over the medium term.
These include new product development and other organic expansion projects,
particularly within its core Infrastructure Products division, as well as
corporate acquisitions. The Company's plan is to broaden both its product
offering and its geographical focus.
Zinkinvent GmbH
Since the initial investment last year the Company has carried out extensive due
diligence which has identified specific issues which have been, and are
continuing to be, the subject of protracted discussions with the vendors.
Although no firm conclusion has been reached, the Directors are exploring with
the vendors the possibility of the Company acquiring part of the Vista group
(Zinkinvent's principal subsidiary) whilst retaining its 33% holding in
Zinkinvent.
The Directors are continuing to pursue a resolution which is in the best
interests of the Group and are confident that although this has taken longer to
achieve than originally anticipated, they will find satisfactory solutions to
the outstanding issues.
Metnor Galvanizing
The Company announced in February 2006 that it had signed non-binding Heads of
Agreement with Metnor Group PLC for the acquisition, for £10.0 m, of Metnor
Galvanizing. The Heads of Agreement are subject to a number of conditions,
including prior regulatory approval, which, as announced in May 2006, has been
given by the Office of Fair Trading. Due Diligence on Metnor Galvanizing is now
progressing and the Company is currently in the process of evaluating the
findings.
Management
I announced at the Company's recent Annual General Meeting that it is my
intention to retire from the Board at the next AGM in May 2007. I also announced
that following my retirement David Grove, the current Group Chief Executive,
will become Executive Chairman of the Company.
We have recently announced the appointment of Derek Muir to the Board as an
executive director. Derek is the managing director of the Group's core
Infrastructure Products Group, which has been a key driver of our profit growth
in recent years. The Board is also looking to appoint a new non-executive
director in the coming months.
Outlook
Since the period end, the Group has continued to trade in line with the Board's
expectations and, in the absence of unforeseen circumstances, the Board
anticipates being able to report another good performance when it announces
results for the year as a whole.
On this basis the Board currently expects that it will be recommending a final
dividend of 3.9 pence per share which, together with the interim dividend of 3.0
pence per share announced today, amounts to a total dividend of 6.9 pence per
share for the full year. This represents a 15.0% increase on the total dividend
of 6.0 pence per share paid in the previous year.
D S Winterbottom
Chairman
CONSOLIDATED INCOME STATEMENT
Six months ended 30 June 2006
6 months ended 6 months ended Year ended
30 June 2006 30 June 2005 31 December 2005
Reorganisation
and
Underlying property Underlying Underlying
results items Total results Total results Total
Notes £000 £000 £000 £000 £000 £000 £000
------------------------------------------------------------------------------------------------------------------------
Sales 1 147,449 - 147,449 143,374 143,374 277,296 277,296
------------------------------------------------------------------------------------------------------------------------
Trading profit 10,458 - 10,458 10,249 10,249 18,893 18,893
Income from associated company 1,361 - 1,361 132 132 677 677
Business reorganisation costs - - - - (2,397) - (4,260)
Profit on sale of properties - 1,015 1,015 - 2,424 - 4,389
------------------------------------------------------------------------------------------------------------------------
Operating profit 1 11,819 1,015 12,834 10,381 10,408 19,570 19,699
Financial income 2 2,032 - 2,032 1,833 1,833 4,294 4,294
Financial expense 2 (3,968) - (3,968) (3,730) (3,730) (8,166) (8,166)
------------------------------------------------------------------------------------------------------------------------
Profit before taxation 9,883 1,015 10,898 8,484 8,511 15,698 15,827
Taxation 3 (2,727) - (2,727) (2,545) (1,931) (4,397) (1,631)
------------------------------------------------------------------------------------------------------------------------
Profit for the peiord 7,156 1,015 8,171 5,939 6,580 11,301 14,196
========================================================================================================================
Attributable to:
Equity holders of the parent - - 8,169 - 6,580 - 14,176
Minority interest - - 2 - - - 20
------------------------------------------------------------------------------------------------------------------------
Profit for the period - - 8,171 - 6,580 - 14,196
========================================================================================================================
Basis earnings per share 4 - - 12.92p - 10.49p - 22.52p
Diluted earnings per share 4 - - 12.54p - 10.17p - 21.82p
Dividend per share - Interim - - 3.00p - 2.60p - -
CONSOLIDATED BALANCE SHEET
As at 30 June 2006
30 June 30 June 31 December
2006 2005 2005
Notes £000 £000 £000
--------------------------------------------------------------------------------
Non-current assets
Intangible assets 34,276 28,657 29,727
Property, plant and equipment 45,792 44,022 40,972
Investment in associated company 26,488 23,566 24,832
Deferred tax asset 2,411 - 2,407
--------------------------------------------------------------------------------
108,967 96,245 97,938
================================================================================
Current assets
Assets held for sale - freehold land - 630 631
Inventories 31,793 26,418 24,804
Trade and other receivables 74,003 62,189 61,057
Cash and cash equivalents 5 15,317 12,154 16,313
--------------------------------------------------------------------------------
121,113 101,391 102,805
--------------------------------------------------------------------------------
Total assets 1 230,080 197,636 200,743
================================================================================
Current liabilities
Trade and other liabilities (87,476) (75,792) (79,528)
Current tax liabilities (4,539) (3,872) (2,088)
Interest bearing borrowings 5 (22,002) (11,261) (8,162)
--------------------------------------------------------------------------------
(114,017) (90,925) (89,778)
--------------------------------------------------------------------------------
Net current assets 7,096 10,466 13,027
================================================================================
Non-current liabilities
Trade and other liabilities (409) - (427)
Provisions for liabilities and charges (1,221) (3,237) (833)
Retirement benefit obligation (13,451) (6,222) (13,885)
Interest bearing borrowings 5 (54,511) (57,566) (55,408)
--------------------------------------------------------------------------------
(69,592) (67,025) (70,553)
--------------------------------------------------------------------------------
Total liabilities 1 (183,609) (157,950) (160,331)
================================================================================
Net assets 46,471 39,686 40,412
================================================================================
Equity
Share capital 15,814 15,776 15,799
Share premium 4,060 4,024 4,036
Capital redemption reserve 238 238 238
Revaluation reserve - 425 -
Other reserves 4,313 4,313 4,313
Translation reserve (30) - (38)
Equity reserves 22,066 14,860 15,994
--------------------------------------------------------------------------------
Equity attributable to equity holders
of the parent 46,461 39,636 40,342
Minority interests 10 50 70
--------------------------------------------------------------------------------
Total equity 46,471 39,686 40,412
================================================================================
Consolidated Statement of Cash Flows
Six months ended 30 June 2006
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
Notes £000 £000 £000
--------------------------------------------------------------------------------
Operating activities
Operating profit 12,834 10,408 19,699
Adjustments for non-cash items:
Income from associated company (1,361) (132) (677)
Share based payments 57 186 100
Gain on disposal of property, plant
and equipment (1,026) (2,279) (4,396)
Depreciation 3,154 3,049 6,012
Amortisation of intangible assets 151 71 183
--------------------------------------------------------------------------------
Operating cash flows before movements
in working capital 13,809 11,303 20,921
Net movement in working capital:
(Increase)/decrease in inventories (6,562) 586 2,616
(Increase) in receivables (12,994) (4,212) (2,195)
Increase in payables 7,633 233 2,591
----------------------------------
(11,923) (3,393) 3,012
--------------------------------------------------------------------------------
Cash generated by operations 1,886 7,910 23,933
Income taxes paid (800) (324) (2,727)
Interest paid (2,269) (2,127) (4,676)
--------------------------------------------------------------------------------
Net cash (used in)/from operating
activities (1,183) 5,459 16,530
--------------------------------------------------------------------------------
Investing activities
Interest received 212 230 455
Proceeds on disposal of property,
plant and equipment 2,166 4,555 13,788
Purchase of property, plant and
equipment (8,199) (3,638) (10,776)
Purchase of intangible assets (366) (946) (1,506)
Acquisitions of subsidiaries and
associates 6 (5,278) (23,401) (25,219)
--------------------------------------------------------------------------------
Net cash used in investing activities (11,465) (23,200) (23,258)
--------------------------------------------------------------------------------
Financing activities
Issue of new shares 39 762 797
Dividends paid (1,643) (1,405) (3,134)
New loans raised 16,612 24,666 25,516
Repayments of loans (2,500) (3,250) (7,750)
Repayment of loan notes (40) (158) (1,030)
Repayment of obligations under finance
leases (816) (621) (1,259)
--------------------------------------------------------------------------------
Net cash from financing activities 11,652 19,994 13,140
--------------------------------------------------------------------------------
Net (decrease)/increase in cash (996) 2,253 6,412
Cash at the beginning of the period 16,313 9,901 9,901
--------------------------------------------------------------------------------
Cash at the end of the period 5 15,317 12,154 16,313
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
Six months ended 30 June 2006
6 months 6 months Year
ended ended ended
30 June 30 June 31 December
2006 2005 2005
£000 £000 £000
--------------------------------------------------------------------------------
Exchange differences on translation
of foreign operations 8 - 18
Actuarial loss on defined pension schemes - - (8,094)
Deferred tax on items taken directly to equity - - 2,173
Current tax on items taken directly to equity - - 255
--------------------------------------------------------------------------------
Net income/(expense) recognised directly in
equity 8 - (5,648)
Profit for the period 8,171 6,580 14,196
--------------------------------------------------------------------------------
Total recognised income and expense for
the period 8,179 6,580 8,548
================================================================================
Attributable to:
Equity holders of the parent 8,177 6,580 8,528
Minority interest 2 - 20
--------------------------------------------------------------------------------
Total recognised income and expense for the
period 8,179 6,580 8,548
================================================================================
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. Segmental information
6 months ended 6 months ended 12 months ended
Income Statement 30 June 2006 30 June 2005 31 December 2005
Underlying Underlying Underlying
operating operating operating
Sales Profit Sales Profit* Sales Profit*
£000 £000 £000 £000 £000 £000
------------------------------------------------------------------------------------------------------------------
Infrastructure Products + 58,503 8,816 52,638 6,340 107,414 13,003
Building and Construction Products 70,503 2,114 71,270 3,087 131,797 4,816
Industrial Products 18,762 889 19,466 954 38,085 1,751
------------------------------------------------------------------------------------------------------------------
Total Group 147,449 11,819 143,374 10,381 277,296 19,570
============================================ ======= =======
Net financing costs (1,936) (1,897) (3,972)
------------------------------------------------------------------------------------------------------------------
Underlying profit before taxation 9,883 8,484 15,698
==================================================================================================================
*Underlying operating profit is stated before reorganisation and property items.
+Includes income from associated company.
Balance Sheet 30 June 2006 30 June 2005 31 December 2005
Total Total Total Total Total Total
assets liabilities assets liabilities assets liabilities
£000 £000 £000 £000 £000 £000
------------------------------------------------------------------------------------------------------------------
Infrastructure Products+ 115,781 (26,732) 89,642 (26,072) 94,993 (20,918)
Building and Construction Products 70,331 (46,449) 71,122 (34,989) 55,289 (33,973)
Industrial Products 26,240 (12,555) 24,718 (12,994) 31,741 (18,050)
------------------------------------------------------------------------------------------------------------------
Total operations 212,352 (85,736) 185,482 (74,055) 182,023 (72,941)
Tax and dividends 2,411 (6,688) - (6,612) 2,407 (9,102)
Non-current items - (14,672) - (8,456) - (14,718)
Net debt (note 5) 15,317 (76,513) 12,154 (68,827) 16,313 (63,570)
------------------------------------------------------------------------------------------------------------------
Total Group 230,080 (183,609) 197,636 (157,950) 200,743 (160,331)
------------------------------------------------------------------------------------------------------------------
Net assets 46,471 39,686 40,412
==================================================================================================================
+Includes investment in associated company
2. Net Financing Costs
6 months 6 months
ended ended
30 June 30 June
2006 2005
£000 £000
-----------------------------------------------------------------------------
Financial income
Interest on bank deposits 99 55
Gain on interest rate swap 68 -
Expected return on pension scheme assets 1,865 1,778
-----------------------------------------------------------------------------
2,032 1,833
=============================================================================
Financial expense
Interest on loans, overdrafts and hire purchase
contracts 2,086 1,989
Amortisation or arrangement fees 187 138
Expected interest cost on pension scheme obligations 1,695 1,603
-----------------------------------------------------------------------------
3,968 3,730
=============================================================================
Net financing costs 1,936 1,897
=============================================================================
3. Taxation
Tax has been provided on the profit before reorganisation and property items
at the estimated effective rate for the full year.
4. Earnings per share
The weighted average number of shares in issue during the period was
63,227,430, diluted for the effect of outstanding share options 65,118,450
(six months ended 30 June 2005: 62,736,490, and 64,695,734 diluted).
Earnings per share have been calculated on profits of £8,171,000 (six months
ended 30 June 2005: earnings of £6,580,000 and earnings per share before
reorganisation and property items on earnings of £7,156,000 (six months
ended 30 June 2005: earnings of £5,939,000). Earnings per share before
reorganisation and property items are as shown below. The Directors consider
that this measurement of earnings gives a more meaningful indication of the
underlying performance of the Group:
6 months 6 months
ended ended
30 June 30 June
2006 2005
£000 £000
-----------------------------------------------------------------------------
Underlying earnings per share 11.32p 9.47p
Underlying diluted earnings per share 10.99p 9.18p
=============================================================================
5. Analysis of net debt
30 June 30 June 31 December
2006 2005 2005
£000 £000 £000
-----------------------------------------------------------------------------
Cash and cash equivalents 15,317 12,154 16,313
Debt due within one year (22,002) (11,261) (8,162)
Debt due after one year (54,511) (57,566) (55,408)
-----------------------------------------------------------------------------
Net debt (61,196) (56,673) (47,257)
=============================================================================
6. Acquisition of subsidiaries and associates
In February 2006 the Group acquired Counters & Accessories Limited, a
manufacturer of electronic traffic counting and classifying equipment at a
total cash cost of £5.3m.
7. Financial information
The comparative figures for the financial year ended 31 December 2005 are
not the Company's statutory accounts for that financial year. Those accounts
have been reported on by the Company's auditors and delivered to the
registrar of companies. The report of the auditors was (i) unqualified,
(ii) did not include a reference 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 237(2) or (3) of the Companies Act
1985.
The accounting policies as described in the previous Annual Report have been
applied in the reuslts for the half year ended 30 June 2006.
DIRECTORS AND FINANCIAL CALENDAR
Directors
D. S. Winterbottom FCA, FCT (Chairman)
D. L. Grove BA, FCA (Deputy Chairman and Chief Executive)
C. J. Burr FCA (Finance Director)
D. W. Muir BSc, C.Eng, MICE (Executive)
H. C. Marshall Msc, BSc (Non-Executive)
R. E. Richardson FCMI (Non-Executive)
Secretary
J. C. Humphreys FCIS
Financial Calendar
Payment of interim dividend
(ex dividend date 13 December 2006) 12 January 2007
Preliminary announcement of results for the
year to 31 December 2006 March 2007
Annual General Meeting 2007 May 2007
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