Preliminary Results
Hill & Smith Hldgs PLC
11 March 2008
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Hill & Smith Holdings PLC announces record revenue and profits for the year
ended 31 December 2007.
HIGHLIGHTS
• Record revenue and profits
• Underlying earnings per share increased by 34.3%
• Dividends up by 20% for the third consecutive year
• Acquisition of controlling interest in Zinkinvent GmbH
• Banking Facilities renewed through to 2012
• Continued strong market demand and organic growth
RESULTS
Year ended Year ended %
31 December 31 December Change
2007 2006
Revenue £402.1m £306.0m + 31.4
Underlying profit before taxation* £32.9m £18.5m + 77.8
Underlying earnings per share* 27.8p 20.7p + 34.3
Dividends per share 8.7p 7.2p + 20.8
* excludes the effect of business reorganisation costs, property items and
amortisation of acquisition intangibles
Commenting on the results David Grove, Chairman, said: 'We are now seeing the
benefits from the substantial investments made in capital projects and product
development in recent years. This is the third consecutive year we have
delivered an increase of 20% in our full year dividend. We shall continue to
make investments in our product development and, where appropriate, to grow
through selective acquisitions.'
'The current year has started well with strong demand from our core markets and
the benefits arising from our organic growth strategy. I look forward to being
able to report further progress in 2008.'
Further information:
Freshwater UK
Edward Carter/Anna McNeil
0121 633 7775
07770 378097
CHAIRMAN'S STATEMENT
Introduction
I congratulate the Hill & Smith team, which now spans three continents, on
delivering an excellent performance in 2007. Our core businesses achieved record
levels of profit from strong organic growth and improved profit margins. The
product development programme continues to drive growth and we enhanced our
potential for overseas earnings by increasing our shareholding in Zinkinvent
GmbH in July 2007 to 68.2% (previously 33.3%). From that date Zinkinvent GmbH
has been treated as a subsidiary and not as an associate, as was the case in the
first half of 2007.
Financial Overview
Revenue from continuing operations in the year to 31 December 2007 increased by
31.4% to £402.1m (2006: £306.0m). Profit before taxation in the period increased
by 87.3% to £32.4m (2006: £17.3m).
The Group regards its underlying results, which exclude business reorganisation
costs, property items and amortisation of acquisition intangibles, as a more
consistent and appropriate measure of its financial performance. Underlying
profit before taxation increased by 77.8% to £32.9m (2006: £18.5m). Basic
earnings per share increased by 49.0% to 29.5p (2006: 19.8p) whereas underlying
earnings per share were 34.3% ahead of last year at 27.8p (2006: 20.7p).
It is worth noting that the Group has increased its underlying earnings per
share by an average of 28% per annum compound over the last three years.
Dividends
The Directors are proposing a final dividend of 5.1p (2006: 4.2p) making a total
dividend for the year of 8.7p (2006: 7.2p). This continues our progressive
dividend policy under which the dividend has been increased by 20% in each of
the last three years. The dividend is covered 3.2 times by underlying earnings
per share.
Operations
Following the acquisition of the additional shareholding in Zinkinvent, the
Group is now organised into three divisions namely Infrastructure Products,
Galvanizing Services and Building and Construction. The Review of 2007 deals
with the details of individual business units. However, the following
significant events are worthy of mention.
The Infrastructure Products division powered ahead in the year benefitting from
our focused investment in previous years in capital projects and product
development. Also, our pipe supports company in Thailand successfully executed a
number of overseas contracts which were won as a result of our new low cost
factory supplying components for a number of large LNG (Liquid Natural Gas)
plants being built across the world.
Profits in our galvanizing division were also significantly ahead with a first
full year contribution from Metnor Galvanizing (acquired November 2006) . As
from July 2007, when we acquired a majority interest in Zinkinvent, there was a
further contribution from the galvanizing plants within this group. The volatile
zinc price during the year was well managed and we are already improving
efficiencies by benchmarking best practice between plants in the UK, mainland
Europe and the USA.
In the Building and Construction Products division there was a flat performance.
On the plus side it is pleasing to report that our reinforcing bar business
continued its improved performance and produced a satisfactory operating profit
during the year. On the minus side there were one-off losses at Ash & Lacy
Perforators which were a direct result of the rationalisation of our two
production facilities onto a single site. The benefits of a single site
operation will be evidenced in the future.
Finance
In June 2007 we successfully restructured our financing arrangements for a
further five years based on a new multicurrency facility, which together with
our other sources of finance, provides us with total funding facilities in
excess of £200m.
Acquisitions
The only significant acquisition during the year was of a further 34.9% of the
shares in Zinkinvent GmbH for €26m in July.
Disposals
During 2007 we continued to review our non-core businesses and Ash & Lacy
Pressings was sold in August. In February 2008 we also disposed of D&J Steels.
Both sales were concluded at a small discount to net asset value.
Board Changes
There have been a number of planned changes to the Board composition during the
year and our succession planning process has been well executed.
David Winterbottom retired as our Chairman in May 2007 after ten years' service
and it is sad to report that he unexpectedly passed away in November. His
valuable contribution to where the Group is today should not be underestimated.
In May 2007 Derek Muir was promoted to Group Chief Executive after twenty years'
service in many roles within the Group and I was appointed Chairman. Also in May
2007 I was pleased to welcome Clive Snowdon to the Board as a non-executive
director. He has already made a valuable contribution to the Group.
Chris Burr will be retiring from the Board today. Chris has been the Group
Finance Director since November 2000, and, including his role as Group Finance
Director of Ash & Lacy PLC, has been with the Group for 17 years. I would like
to personally thank Chris for the part he has played in the success of the Group
and for his unstinting support during my period as Chief Executive, and more
recently, as Chairman. Our best wishes go to Chris for a long and happy
retirement.
Mark Pegler is a very experienced finance director and I welcome him to the
Board as our new Group Finance Director.
We now have young but very experienced executive teams at both Group and
subsidiary levels. The future development of the Group on a global basis is in
good hands.
Employees
The Group has faced many challenges during the year and it is a credit to our
employees that these exceptional financial results have been achieved.
Outlook
The current year has started well with strong demand from our core markets and
the benefits arising from our organic growth strategy. Our product development
incubator is a vital part of the future growth of the Group together with some
targeted acquisitions which are always under evaluation. I look forward to
reporting another year of progress in 2008.
D L Grove
Chairman
11th March 2008
REVIEW OF 2007
Operational Performance
2007 was another successful year for the Group during which we were able to
deliver our strategy of growth. Expanding our overseas operations and commitment
has enabled us to develop as an international Group.
Following the acquisition of Zinkinvent in July, and the consequent increased
activity in galvanizing, the Group was reorganised into three business segments;
Infrastructure Products, Galvanizing Services and Building and Construction
Products. Annualised Group revenue is made up approximately as follows: 35%
infrastructure products 28% galvanizing services and 37% building and
construction.
Infrastructure Products Group (IPG)
Revenue increased by 41.9% to £145.2m in 2007 (2006: £102.3m) and underlying
operating profit, which excludes business reorganisation costs, property items
and amortisation of acquisition intangibles, improved by 56.3% to £18.6m (2006:
£11.9m).
Hill & Smith Ltd delivered an excellent performance with its strong position in
the highway maintenance and road widening sectors into which it supplied the new
range of 'Flexbeam' vehicle restraint systems. During the year we continued to
increase our Varioguard rental fleet and demand remains strong for 2008.
The integrated approach of Varley & Gulliver, providing a fully tested parapet
and crash-barrier system, enhanced our market leadership and we were able to
maximise our cross-selling opportunities. The steel and aluminium parapet
divisions had a successful year and a number of large contracts were won in
2007, including the parapets on the palm island in Dubai. We enter the current
year in good shape.
Berry Systems continued to develop innovative solutions for its off-highway
customers with the launch of our rental fleet of 'TopDeck', a temporary modular
parking solution to cope with congestion at airports, railway stations,
hospitals and retail developments. Interest in this product has been very
encouraging and early success in 2008 has confirmed this will be a growth market
for the future. We anticipate 'TopDeck' will have a similar business model to
Varioguard with a combination of sales and rentals.
In the year we completed a number of rail tunnel structures in corrugated steel
and won our first project with the concrete Bebo Arch System, emphasising our
success in providing solutions in a variety of materials.
The IPG technology division continued to concentrate on developing prototypes
for the large Highways Agency Variable Message Signage contract won during the
year. Initial orders under this contract have now been received and this will
significantly improve the performance of the Techspan operation in 2008.
CA Traffic (Counters & Accessories) commenced development of an Automatic Number
Plate Recognition System to target the Department of Transport requirement for
information on journey times. We are positioning our products in this division
in line with the Highways Agency's strategy of, 'getting the best from the
network' and 'informing drivers '.
Barkers Engineering again performed strongly in its traditional fencing markets
and also made significant progress in developing its products for the growing
homeland security market.
Mallatite's relocation was completed in March and the benefits of improved and
more efficient production facilities were reflected in the performance in the
second half of the year. During the year we won the Derby PFI contract for the
supply of lighting columns for the next five years.
Conimast International joined IPG as part of the Zinkinvent acquisition. It is
the second largest manufacturer in France of tapered decorative lighting columns
for the French market and fits our production strategy of having galvanizing and
manufacturing on one site. Its performance in 2007 was above our expectations.
Asset International was awarded its largest ever contract for the supply of
feeder pipes to the Glendoe Hydro Electric Scheme in Scotland. This, together
with the legislative requirement for additional storage within drainage systems
to prevent flooding, proved an excellent market for our storm water attenuation
tanks.
Envirotanks successfully completed a number of large contracts including an
order for 32 vertical tanks for a company relocating off the site to accommodate
the 2012 Olympics.
Pipe Supports' profit achievement was one of the highlights of 2007. Its success
in supplying pipe supports for the growing number of Liquid Natural Gas (LNG)
plants around the world was a major contributor to an outstanding performance.
This market will be strong for the foreseeable future as the requirement for the
supply of gas increases in the developing countries of India and China. We are
also looking to expand our presence in the USA in 2008.
V&S Utilities, part of the Zinkinvent acquisition, has three businesses in the
US energy market, supplying transmission poles, substation structures and
components. There is currently a significant replacement programme for the
ageing energy infrastructure in the US leaving us in a position to extract
enhanced profitability from the combined benefits these three businesses
provide.
Galvanizing Services
Revenue increased by 173.5% to £84.8m in 2007 (2006: £31.0m) and underlying
operating profit improved by 126.5% to £15.4m (2006: £6.8m).
Tonnages in all the three divisions increased year on year: UK by 26.8%; France
by 3.1%; USA by 14.0%. The UK plants performed well with the full benefits of
the Metnor Galvanzing acquisition being realised. We secured a number of large
contracts for structural steel for LNG plants where the long bath facility at
Metnor was an influential factor. France Galva had an excellent performance
with record profits.
The V&S Inc. operation located in the Mid West and East Coast of the USA
produced an outstanding result. In 2008 we will be building a new plant that
will further increase our available capacity. The V&S management team are
working well with the IPG in developing manufacturing opportunities for our
range of highway safety products for the US market.
Building and Construction
Revenue fell by 0.3% to £172.1m in 2007 (2006: £172.7m) and underlying operating
profit improved by 17.5% to £4.7m (2006: £4.0m).
The industrial flooring division of Redman Fisher, Lionweld Kennedy and Access
Engineering continued to trade well, producing another record performance. The
new composite product range made an increased profit contribution and shows
great potential for growth. Other growth markets in 2007 were in the AMP4 water
treatment, power, rail and LNG sectors.
Express, our concrete reinforcing and mesh business, achieved an impressive
profit turnaround despite lower volumes. We enter 2008 with a good order book
and with measures in place to manage any volatility in the steel prices.
Profitability improved in the steel lintel and residential doors division of
Birtley Building Products, which services the UK housing market. The bolt-on
acquisition of HM Doors will further strengthen the competitive position of this
division.
Ash & Lacy Building Systems increased turnover and profitability particularly
for the Ashtech range of rainscreen cladding products. National coverage was
increased with the expansion of its depot network.
The Ash & Lacy Perforators operation at Hayle, Cornwall, was closed during the
year and production transferred to the Smethwick site. This relocation hampered
the overall performance in the year, but will provide a solid base to improve
the profits in 2008 as a result of the reduced overhead.
Bromford Iron & Steel, our specialist steel rolling mill, had a steady
performance in 2007. It now exports over 25% of its products around the world.
FINANCIAL PERFORMANCE
Overview
2007 was another successful year for the Group in which we again achieved, from
our continuing operations, record levels of revenue and profitability. Revenue
increased by 31.4% to £402.1m (2006: £306.0m), underlying profit before taxation
grew by 77.8% to £32.9m (2006: £18.5m) and underlying earnings per share were
34.3% higher at 27.8p (2006: 20.7p).
Finance costs
Net financing costs increased by £1.6m, reflecting the additional borrowings
taken on in connection with the Zinkinvent acquisition. Net interest cover based
upon underlying profits increased to 6.6 times (2006: 5.4 times).
Tax
The effective tax rate on both underlying and total profit was higher than the
standard UK rate of 30% reflecting the higher rates applicable to our new
overseas operations. Full details are set out in note 5.
Cash generation and financing
The large increase in retained profits enabled net assets to grow during the
year by £21.0m to £98.0m (2006: £77.0m). Year end net borrowings increased to
£117.8m (2006: £46.1m). £71.0m of this increase was due to acquisitions during
the year. Operating cash flow increased to £29.8m despite an increase in working
capital during the year of £12.6m which was necessary to support the higher
costs of raw materials and the growth in revenue. We again continued our
programme of capital expenditure and product development, investing a total of
£19.9m, £10.1m in excess of the depreciation and amortisation charge. We also
generated £10.4m from the sale of properties, mostly towards the end of the
year.
During the year we successfully reorganised our debt financing arrangements by
entering into a new five year £150m Term and Revolving Credit Facility with a
group of six leading banks. The fact that the refinancing was for the first time
on an unsecured basis, on better terms than previously and oversubscribed by
tendering banks, illustrates the excellent financial position and credit rating
of the company. Despite the current uncertainties in financial markets, our
syndicate banks continue to express their confidence in us and our plans for the
future. Along with our other sources of finance, this new facility provides us
with total facilities in excess of £200m.
Pensions
Our year end retirement obligation reduced by £0.8m, despite the inclusion for
the first time of obligations relating to Zinkinvent. The deficit on the UK
pension schemes reduced by £1.9m as lower than expected net investment returns
were more than offset by higher long term bond rates and £0.7m of additional
deficit contributions.
Acquisitions and disposals
Zinkinvent GmbH was the major acquisition of the year. In July we increased our
shareholding to 68.2%, having previously held 33.3%. We subsequently took the
opportunity to acquire minority shareholdings of certain Zinkinvent subsidiary
operations, namely; the 10% shareholding in Voigt & Schweitzer Inc for $5m and
after the year end holdings in V&S Schuler Engineering Inc, V&S Clark
Substations LLC and V&S Schuler Tubular LLC all for a total consideration of
$4m.
We continued our programme of divestment of non-core businesses with the sale of
Ash & Lacy Pressings Ltd in August 2007 and in February 2008 we sold D&J Steels
Ltd, both at a small discount to their net asset value.
Market Outlook
Government commitment to maintain and improve an ageing infrastructure,
increasing legislation, health and safety and regulatory requirements, along
with the effects of climate change, combine to offer us exciting opportunities
within global infrastructure markets. We will continue to develop our market
presence and products to benefit from such opportunities.
Our diverse range of galvanizing operations, comprising 35 plants across four
countries and two continents, enables us to service all sectors and spread the
risk of any peaks and troughs of demand within any particular area of the
market.
Our building and construction companies operate in specialist sectors often
working closely with designers to provide unique cost saving solutions. Many of
our products are also supplied into the building infrastructure market; these
include safety products, water treatment schemes, and railway platforms,
generally areas of essential spend.
With supportive shareholders and a committed and creative workforce, we are well
positioned to take advantage of opportunities that will improve the performance
of the Group.
Derek Muir
Chief Executive
11th March 2008
Consolidated Income Statement
Year ended 31 December 2007
Year ended 31 December 2007 Year ended 31 December 2006
Non- Non-
Underlying Underlying* Total Underlying Underlying* Total
Notes £000 £000 £000 £000 £000 £000
________________________________________________________________________________________________________________________
Revenue 1 402,050 - 402,050 306,042 - 306,042
========================================================================================================================
________________________________________________________________________________________________________________________
Trading profit 35,644 - 35,644 19,470 - 19,470
Share of profits from associate 9 3,105 - 3,105 3,191 - 3,191
Amortisation of acquisition intangibles - (360) (360) - (6) (6)
Business reorganisation costs 3 - (3,204) (3,204) - (2,175) (2,175)
Profit on sale of properties 3 - 3,124 3,124 - 1,025 1,025
________________________________________________________________________________________________________________________
Operating profit 1 38,749 (440) 38,309 22,661 (1,156) 21,505
Financial income 4 6,077 - 6,077 4,413 - 4,413
Financial expense 4 (11,951) - (11,951) (8,602) - (8,602)
________________________________________________________________________________________________________________________
Profit before taxation 32,875 (440) 32,435 18,472 (1,156) 17,316
Taxation 5 (11,569) 1,095 (10,474) (4,861) 605 (4,256)
________________________________________________________________________________________________________________________
Profit for the year from continuing
operations 21,306 655 21,961 13,611 (551) 13,060
===================================================================== =====================
Discontinued operations 2 634 -
________________________________________________________________________________________________________________________
Profit for the year 22,595 13,060
========================================================================================================================
Attributable to:
Equity holders of the parent 22,301 13,056
Minority interest 294 4
________________________________________________________________________________________________________________________
Profit for the year 22,595 13,060
========================================================================================================================
Continuing basic earnings per share 6 28.7p 19.8p
Basic earnings per share 6 29.5p 19.8p
Continuing diluted earnings per share 6 28.3p 19.3p
Diluted earnings per share 6 29.1p 19.3p
Dividend per share - Interim 7 3.6p 3.0p
Dividend per share - Final proposed 7 5.1p 4.2p
________________________________________________________________________________________________________________________
Total 7 8.7p 7.2p
========================================================================================================================
* Represents business reorganisation, property items and amortisation of acquisition intangibles.
Consolidated Statement of Recognised Income and Expense
Year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
Notes £000 £000
_______________________________________________________________________________________________________________________
Exchange differences on translation of foreign operations 2,371 110
Share of exchange differences on translation of foreign operations
in associate (102) (275)
Actuarial gain on defined benefit pension schemes 492 1,522
Taxation on items taken directly to equity 5 (58) (318)
________________________________________________________________________________________________________________________
Net income recognised directly in equity 2,703 1,039
Profit for the year 22,595 13,060
________________________________________________________________________________________________________________________
Total recognised income and expense for the year 25,298 14,099
========================================================================================================================
Attributable to:
Equity holders of the parent 25,004 14,095
Minority interest 294 4
________________________________________________________________________________________________________________________
Total recognised income and expense for the year 25,298 14,099
========================================================================================================================
Consolidated Balance Sheet
As at 31 December 2007
31 December 2007 31 December 2006
Notes £000 £000
________________________________________________________________________________________________________________________
Non-current assets
Intangible assets 8 92,651 39,845
Property, plant and equipment 92,553 51,007
Investment in associate 9 - 27,163
Available for sale financial assets 10 5,712 -
Deferred tax asset - 572
________________________________________________________________________________________________________________________
190,916 118,587
________________________________________________________________________________________________________________________
Current Assets
Assets held for sale 2 51,820 -
Inventories 55,679 33,248
Trade and other receivables 102,171 72,935
Cash and cash equivalents 11 41,328 14,176
________________________________________________________________________________________________________________________
250,998 120,359
________________________________________________________________________________________________________________________
Total assets 1 441,914 238,946
========================================================================================================================
Current liabilities
Liabilities held for sale 2 (32,076) -
Trade and other liabilities (104,162) (87,142)
Current tax liabilities (8,114) (2,798)
Interest bearing borrowings 11 (38,510) (7,893)
________________________________________________________________________________________________________________________
(182,862) (97,833)
________________________________________________________________________________________________________________________
Net current assets 68,136 22,526
========================================================================================================================
Non-current liabilities
Other liabilities 12 (15,168) (420)
Provisions for liabilities and charges (4,794) (810)
Deferred tax liability (10,744) -
Retirement benefit obligation (9,718) (10,503)
Interest bearing borrowings 11 (120,651) (52,341)
________________________________________________________________________________________________________________________
(161,075) (64,074)
________________________________________________________________________________________________________________________
Total liabilities 1 (343,937) (161,907)
========================================================================================================================
Net assets 1 97,977 77,039
========================================================================================================================
Equity
Share capital 18,895 18,887
Share premium 27,843 27,803
Capital redemption reserve 238 238
Other reserves 4,313 4,313
Translation reserve 2,066 (203)
Retained earnings 43,119 25,989
________________________________________________________________________________________________________________________
Equity attributable to equity holders of the parent 96,474 77,027
Minority interest 1,503 12
________________________________________________________________________________________________________________________
Total equity 97,977 77,039
========================================================================================================================
Consolidated Statement of Cash Flows
Year ended 31 December 2007
Year ended Year ended
31 December 2007 31 December 2006
Notes £000 £000 £000 £000
________________________________________________________________________________________________________________________
Profit before tax 32,435 17,316
Add back net financing costs 4 5,874 4,189
__________ __________
Operating profit 1 38,309 21,505
Adjusted for non-cash items
Income from associated company 9 (3,105) (3,191)
Share-based payment 290 152
Fair value of forward contracts (142) 145
Loss on disposal of subsidiaries 3 75 144
Loss on remeasurement as held for sale 2 316 -
Gain on disposal of property, plant and equipment (3,154) (1,137)
Depreciation 8,809 6,404
Amortisation of intangible assets 1,013 395
========== ==========
4,102 2,912
___________ __________
Operating cash flow before movement in working capital 42,411 24,417
Increase in inventories (844) (8,406)
Decrease/(Increase) in receivables 1,190 (11,351)
(Decrease)/Increase in payables (11,727) 7,783
Decrease in provisions and employee benefits (1,197) (1,549)
========== ==========
Net movement in working capital (12,578) (13,523)
___________ __________
Cash generated by operations 29,833 10,894
Income taxes paid (8,233) (2,720)
Interest paid (7,473) (3,848)
________________________________________________________________________________________________________________________
Net cash from operating activities 14,127 4,326
Interest received 1,554 684
Proceeds on disposal of property, plant and equipment 10,408 3,129
Purchase of property, plant and equipment (14,491) (17,456)
Purchase of intangible assets (1,260) (1,559)
Disposal of subsidiaries 3 375 359
Deferred consideration received in respect of disposals 200 -
Deferred consideration paid in respect of acquisitions (683) -
Acquisitions of minority interests (2,612) (59)
Acquisitions of subsidiaries and associates 8 (9,440) (10,452)
========== ==========
Net cash used in investing activities (15,949) (25,354)
Issue of new shares 48 26,855
Dividends paid 7 (5,441) (3,793)
New loans raised 147,264 4,812
Repayments of loans (112,986) (7,250)
Repayment of loan notes (54) (40)
Repayment of obligations under finance leases (2,454) (1,693)
========== ==========
Net cash from financing activities 26,377 18,891
________________________________________________________________________________________________________________________
Net increase/(decrease) in cash from continuing operations 24,555 (2,137)
Cashflow from discontinued operations 1,201 -
________________________________________________________________________________________________________________________
Net increase/(decrease) in cash 25,756 (2,137)
Cash at the beginning of the year 14,176 16,313
Effect of exchange rate fluctuations 1,396 -
________________________________________________________________________________________________________________________
Cash at the end of the year 11 41,328 14,176
========================================================================================================================
Notes to the Consolidated Financial Statements
1. Segmental information
Business segment analysis
During the year the Group acquired a controlling stake in Zinkinvent GmbH. This acquisition has resulted in a
fundamental change in the focus and scope of the Group's operations. The basis of the Group's segmental information
has been revised to reflect this change and to provide the most relevant analysis of the Group's operational
performance. The main segmental changes are the introduction of a new Galvanizing Services segment (previously
included within Infrastructure Products) and the inclusion of the former Industrial Products segment into the
Building and Construction Products segment. In addition, the Pipe Supports division has been transferred to the
Infrastructure Products segment. Comparatives have been restated accordingly.
All the information given below is based on continuing operations. The discontinued operations are subsidiaries held
exclusively with a view to resale and only relates to the current year (note 2). Were these continuing operations
they would have been included in the Galvanizing Services and the Rest of Europe.
Income Statement Year ended 31 December 2007 Year ended 31 December 2006
Underlying Underlying
Segment Segment segment Segment Segment segment
revenue result result* revenue result result*
£000 £000 £000 £000 £000 £000
_____________________________________________________________________________________________________________________
Infrastructure Products 145,210 18,459 18,628 102,255 10,087 11,846
Galvanizing Services+ 84,724 15,550 15,448 31,036 7,149 6,807
Building and Construction Products^ 172,116 4,300 4,673 172,751 4,269 4,008
_____________________________________________________________________________________________________________________
Total Group 402,050 38,309 38,749 306,042 21,505 22,661
================================================================ =========
Net financing costs (5,874) (5,874) (4,189) (4,189)
___________________ ____________________
Continuing operations profit before taxation 32,435 32,875 17,316 18,472
Taxation (10,474) (11,569) (4,256) (4,861)
_____________________________________________________________________________________________________________________
Continuing operations profit after taxation 21,961 21,306 13,060 13,611
=====================================================================================================================
* Underlying segment result is stated before business reorganisation, property items and amortisation of acquisition
intangibles
+ Includes £3.1m (2006: £3.2m) share of profits from associate (net of tax).
^ Includes loss on remeasurement as held for sale £0.3m (2006: £nil).
Galvanzing Services provided £6.4m revenues to Infrastructure Products (2006: £5.3m) and £1.3m (2006: £1.1m) revenues
to Building and Construction Products. Building and Construction Products provided £1.3m (2006: £1.1m) revenues to
Infrastructure Products. These internal revenues, along with revenues generated from within their own segments, have
been eliminated on consolidation.
Balance Sheet 31 December 2007 31 December 2006
Total Total Total Total
assets liabilities assets liabilities
£000 £000 £000 £000
_____________________________________________________________________________________________________________________
Infrastructure Products 95,330 (14,862) 65,147 (16,648)
Galvanizing Services+ 187,579 (78,518) 75,149 (11,351)
Building and Construction Products 65,857 (23,229) 83,902 (57,296)
_____________________________________________________________________________________________________________________
Total segment assets/(liabilities) 348,766 (116,609) 224,198 (85,295)
Tax and dividends - (21,579) 572 (5,065)
Provisions and retirement benefits - (14,512) - (11,313)
Net debt 41,328 (159,161) 14,176 (60,234)
_____________________________________________________________________________________________________________________
390,094 (311,861) 238,946 (161,907)
Assets and liabilities held for sale (note 2) 51,820 (32,076) - -
_____________________________________________________________________________________________________________________
Total Group 441,914 (343,937) 238,946 (161,907)
=====================================================================================================================
Net assets 97,977 77,039
=====================================================================================================================
+ 2006 includes £27.2m investment in associate.
Geographical segment analysis
Detailed below is the analysis of continuing operations revenue by geographical market, irrespective of origin.
Revenues Year ended Year ended
31 December 2007 31 December 2006
£000 £000
_____________________________________________________________________________________________________________________
UK 302,818 276,606
Rest of Europe 55,421 17,538
USA 24,681 814
Asia 15,409 8,351
Rest of World 3,721 2,733
_____________________________________________________________________________________________________________________
Total 402,050 306,042
=====================================================================================================================
2. Discontinued operations and assets held for sale
Discontinued operations
Following the acquisition on 2 July 2007 of Zinkinvent GmbH the Group decided that it did not wish to retain the
Benelux and German trading operations of that company. Since that time the Group has been actively seeking a
purchaser of these businesses and discussions with a potential purchaser are continuing. It is anticipated that the
sale will be completed in the near future. Accordingly, these businesses have been accounted for as a discontinued
operation from the date of acquisition. Their assets and liabilities have been separately included in the Balance
Sheet as held exclusively with a view to resale.
The results of the discontinued operations are as follows:
Income Statement Period ended
31 December 2007
£000
_____________________________________________________________________________________________________________________
Operating profit 1,741
Net financing charges (note 4) (243)
_____________________________________________________________________________________________________________________
Profit before taxation 1,498
Taxation (note 5) (864)
_____________________________________________________________________________________________________________________
Discontinued operations profit for the year 634
=====================================================================================================================
Assets held for sale
Subsequent to the year end, the Group sold one of its non-core activities, D & J Steels Limited. This business does
not meet the criteria of a discontinued operation and its results are included in continuing operations. In the
Balance Sheet the assets and liabilities have been reclassified into assets held for sale at the lower of their
carrying amount and their estimated fair value. This has resulted in a loss on remeasurement as held for sale which
is included in non-underlying items (note 3), as follows:
Assets and liabilities reclassified as held for sale Year ended
31 December 2007
£000
_____________________________________________________________________________________________________________________
Property, plant and equipment 453
Inventories 503
Current assets 819
Current liabilities (771)
_____________________________________________________________________________________________________________________
Net assets 1,004
Fair value less cost to sell (688)
=====================================================================================================================
Loss on remeasurement as held for sale 316
=====================================================================================================================
The fair value of the assets and liabilities of these disposal groups are shown below:
31 December 2007
£000
_____________________________________________________________________________________________________________________
Operations held exclusively with a view to resale 50,045
D & J Steels held for sale 1,775
_____________________________________________________________________________________________________________________
Total assets 51,820
=====================================================================================================================
Operations held exclusively with a view to resale (30,989)
D & J Steels held for sale (1,087)
_____________________________________________________________________________________________________________________
Total liabilities (32,076)
=====================================================================================================================
At acquisition on 2 July 2007, the Directors estimated the fair value of the operations of Zinkinvent GmbH acquired
exclusively with a view to resale to be £16.9m (see note 8). The profit for the period of these discontinued
operations of £0.6m and the favourable translation difference arising on the assets of £1.6m have been added to
assets and liabilities held for sale, resulting in a net year-end carrying value of £19.1m. In accordance with the
Group's accounting policy for such assets and liabilities, the Directors compared this carrying value to the fair
value of these net assets as at 31 December 2007 to assess whether any impairment was required, which concluded no
such impairment was necessary.
3. Non-underlying items
Business reorganisation costs
The 2007 costs include £1.0m relating to the relocation and factory closures of the production facilities of Ash &
Lacy Perforators Limited and the newly acquired H M Doors business. Also included is £0.4m in respect of losses
incurred on the disposal of Ash & Lacy Pressings Limited and loss on remeasurement as held for sale on D & J Steels
Limited (note 2), two non-core Group businesses. A further £0.7m relates to relocation costs of other Group
operations. There is also a charge of £1.1m relating to the changes in the contractual agreement of Directors.
Profit on sale of properties
The profit in 2007 relates to the sale of two properties located in Hayle and Levenshulme and the sale and
leasebacks of one operating property. In 2006 the profit relates to the sale of two vacant properties located in
Glasgow and Hartlepool and the sale and leasebacks of five operating properties. In both years no tax liability
arose on these sales due to the availability of indexation allowances and capital losses for offset.
4. Net financing costs
Year ended Year ended
31 December 2007 31 December 2006
Continuing Discontinued
£000 £000 £000 £000
_____________________________________________________________________________________________________________________
Financial income
Interest on bank deposits 709 52 761 681
Net change in fair value of financial assets and liabilities 10 - 10 -
Expected return on pension scheme assets 4,382 - 4,382 3,732
Interest on other loans 976 540 1,516 -
_____________________________________________________________________________________________________________________
6,077 592 6,669 4,413
=====================================================================================================================
Financial expense
Interest on bank loans and overdrafts 7,006 76 7,082 4,845
Interest on finance leases and hire purchase contracts 378 41 419 300
Net change in fair value of financial assets and liabilities 268 - 268 2
Put option discount unwind 376 - 376 -
Expected interest cost on pension scheme obligations 3,825 - 3,825 3,391
Interest on other loans 98 718 816 64
_____________________________________________________________________________________________________________________
11,951 835 12,786 8,602
=====================================================================================================================
Net financing costs 5,874 243 6,117 4,189
=====================================================================================================================
5. Taxation
Year ended Year ended
31 December 2007 31 December 2006
Continuing Discontinued
£000 £000 £000 £000
_____________________________________________________________________________________________________________________
Current tax
UK corporation tax at 30% 4,386 - 4,386 3,271
Adjustments in respect of prior periods (11) - (11) (174)
Foreign tax at prevailing local rates 4,988 768 5,756 156
_____________________________________________________________________________________________________________________
9,363 768 10,131 3,253
Deferred tax
Current year 573 - 573 971
Adjustments in respect of prior periods 118 - 118 32
Foreign tax at prevailing local rates 420 96 516 -
_____________________________________________________________________________________________________________________
Tax on profit in the Income Statement 10,474 864 11,338 4,256
=====================================================================================================================
Year ended Year ended
31 December 2007 31 December 2006
£000 £000
_____________________________________________________________________________________________________________________
Current tax
Relating to defined benefit pension schemes (362) (558)
Relating to share based payments (5) (2)
_____________________________________________________________________________________________________________________
(367) (560)
_____________________________________________________________________________________________________________________
Deferred tax
Relating to defined benefit pension schemes 679 1,015
Relating to share based payments (254) (137)
_____________________________________________________________________________________________________________________
425 878
_____________________________________________________________________________________________________________________
Tax on items taken directly to equity 58 318
=====================================================================================================================
The tax charge in the Income Statement for the period is higher (2006: lower) than the standard rate of corporation
tax in the UK. The differences are explained below:
Year ended Year ended
31 December 2007 31 December 2006
£000 £000
_____________________________________________________________________________________________________________________
Profit from continuing operations before tax 32,435 17,316
Profit from discontinued operations before tax 1,498 -
_____________________________________________________________________________________________________________________
Profit before taxation 33,933 17,316
=====================================================================================================================
Profit before taxation multiplied by the standard rate of
corporation tax in the UK of 30% 10,180 5,195
Expenses not deductible for tax purposes 830 233
Deductible employee share option gains not charged against profit (5) (31)
Share of profit from associate already taxed (506) (677)
Capital profits less losses and write downs not subject to tax (754) (264)
Deferred tax benefit arising from asset disposals (305) -
Overseas profits taxed at higher/(lower) rates 914 (58)
Overseas losses not relieved 1,026 -
Deferred tax benefit of future reductions in UK corporation tax rates (149) -
Adjustments in respect of previous periods 107 (142)
_____________________________________________________________________________________________________________________
Tax charge 11,338 4,256
=====================================================================================================================
Tax charge on continuing operations 10,474 4,256
Tax charge on discontinued operations 864 -
_____________________________________________________________________________________________________________________
Total tax charge 11,338 4,256
=====================================================================================================================
6. Earnings per share
The weighted average number of ordinary shares in issue during the year was 75,565,565 (2006: 65,834,026), diluted
for the effects of all the outstanding dilutive share options 76,550,467 (2006: 67,604,552). Underlying earnings per
share have been shown because the Directors consider that this provides valuable additional information about the
underlying performance of the Group.
Year ended Year ended
31 December 2007 31 December 2006
Pence per Pence per
share £000 share £000
_____________________________________________________________________________________________________________________
Basic earnings 29.5 22,301 19.8 13,056
Discontinued business (0.8) (634) 0.0 0
_____________________________________________________________________________________________________________________
Continuing basic earnings per share 28.7 21,667 19.8 13,056
Reorganisation, property items and amortisation of acquisition
intangibles (0.9) (655) 0.9 551
_____________________________________________________________________________________________________________________
Underlying earnings 27.8 21,012 20.7 13,607
=====================================================================================================================
Diluted earnings 29.1 22,301 19.3 13,056
Discontinued business (0.8) (634) 0.0 0
_____________________________________________________________________________________________________________________
Continuing diluted earnings per share 28.3 21,667 19.3 13,056
Reorganisation, property items and amortisation of acquisition
intangibles (0.9) (655) 0.8 551
_____________________________________________________________________________________________________________________
Underlying diluted earnings 27.4 21,012 20.1 13,607
=====================================================================================================================
7. Dividends
Dividends paid in the year were the prior year's interim dividend of £2.2m (2006: £1.6m) and the final dividend of
£3.2m (2006: £2.2m). Dividends declared after the balance sheet date are not recognised as a liability, in
accordance with IAS10. The Directors have proposed a final dividend for the current year, subject to shareholder
approval, as shown below:
Year ended Year ended
31 December 2007 31 December 2006
Pence per Pence per
share £000 share £000
_____________________________________________________________________________________________________________________
Equity shares
Interim 3.6 2,710 3.0 2,267
Final proposed 5.1 3,854 4.2 3,174
_____________________________________________________________________________________________________________________
Total 8.7 6,564 7.2 5,441
=====================================================================================================================
8. Intangible fixed assets
Capitalised
Customer development
Goodwill Brands lists costs Licences Total
£000 £000 £000 £000 £000 £000
_____________________________________________________________________________________________________________________
Cost
At 1 January 2006 27,833 - 122 1,919 38 29,912
Acquisitions 8,954 - - - - 8,954
Additions internal - - - 148 - 148
Additions external - - - 1,399 12 1,411
_____________________________________________________________________________________________________________________
At 31 December 2006 36,787 - 122 3,466 50 40,425
Acquisitions 37,533 8,958 1,652 - 306 48,449
Acquisition of minority interest 658 - - - - 658
Additions internal - - - 47 - 47
Additions external - - - 962 251 1,213
Disposals (52) - - (12) (4) (68)
Exchange gains/(losses) 2,562 789 142 - 27 3,520
_____________________________________________________________________________________________________________________
As at 31 December 2007 77,488 9,747 1,916 4,463 630 94,244
=====================================================================================================================
Amortisation and impairment losses
At 1 January 2006 - - 7 175 3 185
Amortisation charge for the year - - 6 378 11 395
_____________________________________________________________________________________________________________________
At 31 December 2006 - - 13 553 14 580
Amortisation charge for the year - 178 182 558 95 1,013
_____________________________________________________________________________________________________________________
At 31 December 2007 - 178 195 1,111 109 1,593
=====================================================================================================================
Carrying values
At 1 January 2006 27,833 - 115 1,744 35 29,727
_____________________________________________________________________________________________________________________
At 31 December 2006 36,787 - 109 2,913 36 39,845
=====================================================================================================================
At 31 December 2007 77,488 9,569 1,721 3,352 521 92,651
=====================================================================================================================
In July 2007 the Group invested a further €26.0m (£17.6m) to acquire an additional 34.9% in Zinkinvent GmbH. The
original investment representing 33.3% of the ordinary shares was made in May 2005 at a cost of €25.0m. At the same
time the Group advanced to Zinkinvent a €10.0m loan. Zinkinvent is a German holding company which owns 100% of
Vista NV, a Belgian company with galvanzing and lighting pole fabrication businesses in Benelux, France and the
United States of America. The acquisition will provide an important strategic and geographical extension of the
Group's galvanizing and fabrication activities and will enable it to improve its service to its customers. Various
specific intangible assets have been recognised as a result of the acquisition, notably brand names, trademarks and
customer relationships, as set out above. The remaining goodwill is mainly represented by the geographical
advantages afforded to the Group through this acquisition.
In December 2007 Birtley Building Products Limited acquired the assets and business of H M Doors Limited, a
manufacturer of doors for the UK housing market. The intangible assets arising have all been classed as Customer
Lists as the key factor influencing this acquisition was the customer base.
The acquisition of minority interest represents the goodwill arising on the purchase of the outstanding 10%
shareholding in V&S Inc., the USA holding company within the Zinkinvent group. The £0.7m goodwill represents the
excess of consideration over the carrying value of the minority interest held within reserves. The final 1.5%
minority interest in Pipe Supports Asia was also acquired during the year.
Details of both acquisitions are shown below:
Zinkinvent
pre Policy
acquisition alignment
carrying and fair value Zinkinvent
amount Adjustments Total HM Doors Total
Table of 2007 subsidiary acquisitions £000 £000 £000 £000 £000
_____________________________________________________________________________________________________________________
Intangible assets 306 10,574 10,880 36 10,916
Property, plant and equipment 29,674 7,528 37,202 66 37,268
Available for sale financial assets 5,250 - 5,250 - 5,250
Subsidiaries held exclusively with a view to resale 12,541 4,390 16,931 - 16,931
Inventories 21,441 (1,138) 20,303 219 20,522
Current assets 30,721 (425) 30,296 14 30,310
Cash and cash equivalents 8,985 - 8,985 - 8,985
Current interest bearing liabilities (35,653) 108 (35,545) - (35,545)
Current liabilities (24,302) (1,684) (25,986) - (25,986)
Deferred Tax (3,857) (5,576) (9,433) - (9,433)
Pension liability - (1,171) (1,171) - (1,171)
Non current interest bearing liabilities (29,581) 6,839 (22,742) - (22,742)
Non current liabilities (502) (16,777) (17,279) (100) (17,379)
_____________________________________________________________________________________________________________________
Net assets 15,023 2,668 17,691 235 17,926
Minority interest (3,039) - (3,039) - (3,039)
_____________________________________________________________________________________________________________________
Shareholder's equity 11,984 2,668 14,652 235 14,887
=====================================================================================================================
Consideration
Transfer from associate investment 29,167 - 29,167
Cash consideration in the year 17,635 235 17,870
Expenses 5,383 - 5,383
_____________________________________________________________________________________________________________________
Total cost 52,185 235 52,420
=====================================================================================================================
Goodwill 37,533 - 37,533
=====================================================================================================================
Cash flow effect
Cash consideration 17,635 235 17,870
Cash and cash equivalents received in the business (8,985) - (8,985)
Expenses incurred in the year 2,040 - 2,040
Gross return on investment (1,485) - (1,485)
_____________________________________________________________________________________________________________________
Net cash consideration shown in the Consolidated Statement
of Cash Flows 9,205 235 9,440
=====================================================================================================================
Post acquisition profit/(loss) for the year included in the
Group's Consolidated Income Statement 4,421 (35) 4,386
=====================================================================================================================
As a result of the Zinkinvent GmbH acquisition, a put option arising from the Articles of Zinkinvent GmbH was
recognised as a liability in the provisional fair values which replaces the remaining 31.8% minority interest in
Zinkinvent GmbH (note 12).
9. Investment in associate
Shares Loan Total
£000 £000 £000
_____________________________________________________________________________________________________________________
Carrying values
At 1 January 2006 17,931 6,901 24,832
Exchange adjustments (418) (167) (585)
Share of profit from associate 3,191 - 3,191
Share of exchange differences on translation of foreign operations from associate (275) - (275)
_____________________________________________________________________________________________________________________
At 31 December 2006 20,429 6,734 27,163
Exchange adjustments 67 22 89
Share of profit from associate 3,105 - 3,105
Share of exchange differences on translation of foreign operations from associate (102) - (102)
Net investment return (1,088) - (1,088)
Transfer to subsidiary investment (22,411) (6,756) (29,167)
_____________________________________________________________________________________________________________________
At 31 December 2007 - - -
=====================================================================================================================
An additional 34.9% of the share capital of Zinkinvent Gmbh was acquired during the year, giving a total shareholding
of 68.2%. The results of this company have been equity accounted into the results of the Group up to the date of
acquisition, from which date the Zinkinvent Group has been fully consolidated.
10.Available for sale financial assets
Total
£000
_____________________________________________________________________________________________________________________
Fair and carrying value
At 1 January 2006 -
_____________________________________________________________________________________________________________________
At 31 December 2006 -
Acquisitions 5,250
Exchange adjustments 462
_____________________________________________________________________________________________________________________
At 31 December 2007 5,712
=====================================================================================================================
This represents the 33.3% holding and an interest bearing loan of €1.0m held by a Group subsidiary in Neholl BV, a
Dutch holding company which owns 100% of Nedcoat BV, a Dutch company with galvanizing businesses in Holland and
Belgium. The Group has no representation on the Board of Neholl BV nor is it able to influence commercial or
dividend policy. For this reason the Board considers it does not exert significant influence over Neholl.
Accordingly, the results of this company are not being equity accounted into the results of the Group and it is
being held as an available for sale financial asset. The fair value of this financial asset has been derived by the
Directors from their judgement as to the future profitablity, cash flows and marketability of this minority
holding.
11.Cash and borrowings
31 December 2007 31 December 2006
£000 £000
_____________________________________________________________________________________________________________________
Cash and cash equivalents in the balance sheet
Cash and bank balances 35,727 6,706
Call deposits 5,601 7,470
_____________________________________________________________________________________________________________________
Cash 41,328 14,176
Interest bearing loans and borrowings
Amounts due within one year (38,510) (7,893)
Amounts due after more than one year (120,651) (52,341)
_____________________________________________________________________________________________________________________
Net debt (117,833) (46,058)
=====================================================================================================================
Change in Net Debt £000 £000
_____________________________________________________________________________________________________________________
Operating profit 38,309 21,505
Non-cash items 4,102 2,912
_____________________________________________________________________________________________________________________
Operating cash flow before movement in working capital 42,411 24,417
Net movement in working capital (12,578) (13,523)
_____________________________________________________________________________________________________________________
Operating cash flow 29,833 10,894
Tax paid (8,233) (2,720)
Net financing costs paid (5,919) (3,164)
Capital expenditure* (19,853) (19,015)
Sale of fixed assets 10,408 3,129
_____________________________________________________________________________________________________________________
6,236 (10,876)
Dividends paid (5,441) (3,793)
Disposals 575 359
Acquisitions (see below) (71,022) (10,511)
Issue of new shares 48 26,855
_____________________________________________________________________________________________________________________
Net debt (increase)/decrease from continuing operations (69,604) 2,034
Net cash inflow from discontinued operations 1,201 -
_____________________________________________________________________________________________________________________
Net debt (increase)/decrease (68,403) 2,034
Roll up of accrued interest - (1,420)
Effect of exchange rate fluctuations (3,372) 585
Net debt at the beginning of the year (46,058) (47,257)
_____________________________________________________________________________________________________________________
Net debt at the end of the year (117,833) (46,058
=====================================================================================================================
Acquisitions £000 £000
_____________________________________________________________________________________________________________________
Deferred consideration paid in respect of acquisitions (683) -
Acquisitions of minority interests (2,612) (59)
Acquisitions of subsidiaries and associates (9,440) (10,452)
Interest bearing liabilities assumed on acquisition of subsidiaries and
associates (note 8) (58,287) -
_____________________________________________________________________________________________________________________
Total (71,022) (10,511)
=====================================================================================================================
* Capital expenditure represents additions of property, plant and equipment and intangible fixed assets
12.Non-current liabilities
31 December 2007 31 December 2006
£000 £000
_____________________________________________________________________________________________________________________
Other liabilities
Deferred government grants 658 420
Put option 14,510 -
_____________________________________________________________________________________________________________________
15,168 420
=====================================================================================================================
The Articles of Association of Zinkinvent GmbH, in common with many German companies, provide all shareholders
the right to require Zinkinvent to buy back their shares. This constitutes a put option under IAS 32, which is
recognised as a liability in the Balance Sheet, without regard to the option actually being exercised. This
liability effectively replaces the 31.8% minority interest that exists in Zinkinvent GmbH. The value of this option
is calculated on the basis of the fair market value for the shares discounted back over the period over which the
option value is payable, using an appropriate discount rate based on forward EURIBOR rates of a term corresponding
to the payment period. The unwinding of the discount is recorded in financing costs (note 4). The liability is
considered to be non-current as there is no obligation to make a payment under the option within the next 12 months.
NOTES
1. The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2007 or 2006 but is
derived from those accounts. Statutory accounts for 2006 have been
delivered to the registrar of companies, and those for 2007 will be
delivered in due course. The auditors have reported on those accounts; their
reports were:
(i) unqualified;
(ii) did not include references to any matters to which the auditors drew
attention by way of emphasis without qualifying their reports, and
(iii) did not contain statements under section 237(2) or (3) of the
Companies Act 1985.
2. The proposed final dividend will be paid on 11 July 2008 to shareholders on
the register on 6 June 2008 (ex-dividend date 4 June 2008).
3. The Annual Report will be posted to shareholders on 7 April 2008, 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.
4. The Annual General Meeting will be held at The Balcony Suite, The National
Motorcycle Museum, Solihull at 11.00 a.m. on Friday 9 May 2008.
• Annual General Meeting 9 May 2008
• Payment of proposed final dividend 11 July 2008
• Interim results announcement for the period to 30 June 2008 August 2008
• Payment of interim dividend January 2009
5. This preliminary announcement of results for the year ended 31 December 2007
was approved by the Directors on 11 March 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
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