Preliminary Results

RNS Number : 2676E

Hill & Smith Holdings PLC

10 March 2022

 

Hill & Smith Holdings PLC

PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2021

Hill & Smith Holdings PLC ("Hill & Smith" or "the Group"), the international group creating sustainable infrastructure and safe transport through innovation, announces its preliminary results for the year ended 31 December 2021.

Financial results

			Change
	31 December 2021	31 December 2020	Reported %	Organic Constant Currency (OCC)** %
Revenue	£705.0m	£660.5m	+7	+10%
Underlying * :
Operating profit	£86.0m	£69.9m	+23	+29%
Operating margin	12.2%	10.6%	+160bps	+190bps
Profit before taxation	£79.9m	£62.6m	+28
Earnings per share	77.9p	63.2p	+23
Reported:
Operating profit	£57.0m	£42.8m	+33
Operating margin	8.1%	6.5%	+160bps
Profit before taxation	£50.9m	£35.5m	+43
Basic earnings per share	43.0p	30.2p	+42
Dividend per share	31.0p	26.7p	+16
Net Debt	£144.7m	£146.2m

Key points:

· Record constant currency revenue and underlying operating profit:

o  Strong recovery in all divisions with margin improvement and trading significantly ahead of COVID-impacted 2020

o  Performance ahead of 2019 levels: organic constant currency growth +4% revenue and +3% underlying operating profit

o  Successful management of supply chain headwinds and input cost inflation

· ESG strategy developed with seven priority areas and commitment to Scope 1 and 2 carbon net zero by 2040

· Progress made on improving the quality of the portfolio, in line with refreshed strategy

· Group remains highly cash generative, with a strong balance sheet to support future organic and inorganic growth opportunities

· Medium term outlook remains positive; expect to make good progress in 2022 despite ongoing industry-wide supply chain and inflationary challenges

· FY21 dividend 31.0p, an increase of 16%

Paul Simmons, Chief Executive, said:

"In my first full year as CEO I am pleased with the financial and strategic progress we have made.  We set out an ambitious agenda a year ago and our people and businesses have responded positively to this, for which I would like to thank them. 2021 was not without its challenges, particularly supply chain and inflationary pressures. The Group navigated these well which is testament to the resilience of our autonomous operating model. Creating sustainable infrastructure and safe transport is core to our purpose and over the course of the year, we have developed an ESG strategy, setting out our path to carbon net zero by 2040.

"In 2022 we expect to make good progress despite the ongoing headwinds and geopolitical uncertainties. In the longer term I am excited about what the future holds given our exposure to the positive macro trends of sustainable infrastructure and safe transport."

For further information, please contact:

Hill & Smith Holdings PLC
Paul Simmons, Group Chief Executive Hannah Nichols, Group Chief Financial Officer	Tel:  [phone]
MHP Communications
Andrew Jaques / Rachel Farrington / Catherine Chapman	Tel:  [phone]

* All underlying measures exclude certain non-underlying items, which are as detailed in note 4 to the Financial Statements and described in the Financial Review. References to an underlying profit measure throughout this announcement are made on this basis. Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a proper understanding of the underlying performance of the business . Underlying measures are deemed alternative performance measures ("APMs") under the European Securities and Markets Authority guidelines and a reconciliation to the closest IFRS equivalent measure is detailed in note 3 to the Financial Statements. They are presented on a consistent basis over time to assist in comparison of performance.

** Where we make reference to organic constant currency movements, these exclude the impact of currency translation effects and acquisitions, disposals and closures of subsidiary businesses.  In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year.  Constant currency amounts are prepared using exchange rates which prevailed in the current year.

Notes to Editors

Hill & Smith Holdings PLC creates sustainable infrastructure and safe transport through innovation. The Group employs c.4,400 people worldwide with the majority employed by its autonomous, agile, customer focussed operating businesses based in the UK, USA, France, Sweden, India and Australia. It has a head office in the UK and it is quoted on the London Stock Exchange (LSE: HILS.L).

The Group's operating businesses are organised into three divisions:

Roads & Security:  supplying products and services to support road and highway infrastructure including temporary and permanent road safety barriers, renewable energy lighting and power solutions, Intelligent Traffic Solutions, street lighting columns and bridge parapets. The security portfolio includes hostile vehicle mitigation solutions, high security fencing and automated gate solutions.

Utilities: supplying engineered steel and composite solutions with low embodied energy for a wide range of infrastructure markets including energy generation and distribution, marine, rail and housing. The division also supplies engineered pipe supports for the water, power and liquid natural gas markets and seismic protection solutions.

Galvanizing Services: dramatically increasing the sustainability and maintenance free life of steel products including structural steel work, lighting, bridges, agricultural and other products for the industrial and infrastructure markets.

Chief Executive's Review

Review of 2021

2021 saw the Group deliver record constant currency revenue and underlying operating profit despite the industry-wide headwinds that we faced. Our strong performance is, once again, due to a combination of the talent and motivation of our global team, our choice of long-term favourable markets and our agile autonomous operating model. I would like to thank our employees and business partners for their excellent contribution.

We have seen a good recovery in trading in 2021, with all three divisions delivering strong revenue and profit growth compared to 2020 which was more severely impacted by COVID-related disruption.  I am also pleased to report that the Group delivered 4% revenue and 3% profit growth on an organic constant currency basis compared to 2019, our previous record year, highlighting the resilience and continued progress of our business.  

The trading highlight was in our Utilities division, which saw strong profit growth and margin progression despite a robust comparator, supported by high levels of demand for US engineered composite solutions and good progress in our engineered supports (formerly "pipe supports") and UK utility businesses.  Our Galvanizing division continued to deliver superior operating profit margins at 20%, an improvement on the prior year, despite a less favourable country mix, driven by a strong recovery in the UK and France and solid performance in the US.  The Roads & Security division also delivered a robust performance with margin improvement reflecting portfolio management actions and an encouraging, albeit partial, recovery in demand in our security sub-division.

During the year, our operating companies took swift and appropriate action to manage supply chain headwinds.  Actions taken included implementing price increases to offset significant input cost inflation, securing supply of raw materials and ensuring the continuity of operations against a backdrop of labour shortages in certain businesses.  As we enter 2022, we believe we are well positioned to continue to manage these headwinds. The Group remains highly cash generative and maintains a strong balance sheet, positioning us well for the future as we focus on developing and funding both organic and inorganic growth opportunities.

Alongside the strong financial performance, we have made good progress on the key elements of our strategy particularly around talent and organisational development, portfolio management and ESG.

In January 2021 we established our Executive Board and introduced the Group President role, enabling us to scale the Group without compromising our decentralised model, providing mentorship for our operating company leaders and increased oversight. The Group Presidents are responsible for growing their portfolio of operating companies both organically, in partnership with the operating company Managing Directors, and inorganically, in partnership with our Corporate Development team. In 2022 we have further strengthened our Group President team and expect to add a US-based M&A Corporate Development executive. Our intent is to maintain a small, but effective, central function supporting the operating companies, bringing high quality businesses into the Group via acquisition and ensuring good governance.

Our autonomous model places a disproportionate premium on talent with over 99% of our people employed by our operating companies and therefore close to our customers. During the year, we recruited a Chief People Officer to help us further develop our current employees and attract additional highly talented people into the Group. We also added a US-based Group Head of Health & Safety role and in the first quarter of 2022 we appointed a Head of Sustainability to help us deliver our ESG commitments, building on the work of the ESG steering group.

We have rebuilt our M&A pipeline consistent with our purpose, and against a more demanding set of financial criteria; the ability of acquired businesses to deliver long-term organic profit growth with strong gross margins is key. We also reviewed our current portfolio against those same criteria which highlighted the need for targeted disposals. Our intent is to continually improve the quality of our portfolio. A second element of our M&A approach involves systematically reviewing new to Hill & Smith niche markets to identify those aligned with our chosen market drivers and specific M&A criteria. For niche markets that meet our criteria we initiate searches for potential acquisition targets.

In line with our refreshed strategy, we have taken actions to enhance the quality of the portfolio. In March we were delighted to acquire solar energy experts, Prolectric Services Ltd ("Prolectric"). Prolectric has already made a positive contribution to the Group  and we continue to see excellent long term growth prospects for the business. During 2021, we also disposed of our loss-making security access cover business, and we closed our small, loss-making UK variable message sign business. Following a strategic review of our Swedish road business in the second half of the year, we are currently in advanced negotiations to dispose of its rental division and are assessing the options for the remaining parts of the business.

Innovation has an increasingly important role to play in the Group's longer term organic profit growth ambitions. Higher value, more innovative products drive higher gross margins, which in turn allow sensible reinvestment by our operating companies. To teach and share best practice we successfully ran our first innovation workshop in October 2021, with a second operating company cohort planned for early 2022.

To support the delivery of long-term organic growth, we changed the operating company Managing Directors' annual bonus scheme to reward organic profit growth and introduced a new LTIP scheme which replaces a previous ESOS scheme and enables them to share in the Group's long-term success. 

Our ESG strategy and commitments

The growth of our business is naturally aligned to ESG: our products and services make infrastructure more sustainable and increase transport safety. In last year's annual report, I flagged that we would be developing an environmental, social and governance (ESG) strategy in 2021.  With this in mind, we established an ESG steering group to work with our operating companies to create common sense, actionable plans with measurable targets.  The ESG team includes myself, our Chief Financial Officer, our Company Secretary and our Chief People Officer, alongside a number of Group employees who are passionate about our ESG focus areas.  I am pleased with the progress that the team has made, however I recognise that we have more to do to improve our sustainability performance and related disclosures, and we are committed to making further progress in 2022 and beyond.

We have taken a materiality-based approach to ESG, using interviews with 38 of our key stakeholders, alongside the relevant SASB materiality maps, to identify our seven priority areas.  For each of the priorities we have developed a clear action plan and key metrics against which we can be held accountable.

1. Greenhouse gas emissions and energy efficiency

Greenhouse gases are a major contributor to global warming, with CO₂ emissions being the most significant for our Group.  In recognition of the Group's commitment to CO₂ reduction, earlier this year we signed up to the Science Based Targets initiative (SBTi) to limit global warming to 1.5 degrees Celsius.

We have developed a carbon reduction plan which includes clear steps that we will take in the coming years to achieve net zero Scope 1 and 2 CO₂ emissions.  These steps include conversion of natural gas burners used in galvanizing to an alternative technology and transition away from the use of diesel vehicles.  Alongside this, we have developed a detailed costed plan which includes an assessment of the incremental capital, energy, carbon taxes and other operating costs which will support decarbonisation. I am delighted that the outcome of this process has provided the Group with the confidence to commit to achieving a carbon net zero target by 2040. Our current expectations are that the financial impact of achieving this will not have a material effect on the growth prospects for the Group, with modest levels of incremental capex required to achieve it. During 2022, we will continue to develop the plan, including starting an assessment of our supply chain Scope 3 emissions which will enable us to determine our SBTi targets by August 2023.

2. Sustainable products

In line with our purpose, we are our committed to ensuring that our products and services support a sustainable future.  At the end of 2020, we reset our portfolio management criteria to ensure that all decision making is guided by our purpose of creating sustainable infrastructure and safe transport through innovation.

In addition, during 2021, we have worked alongside representatives from our operating companies and a third-party expert to complete an assessment of three of our key products and services, to measure their sustainability and value to society.  In 2022 we will validate our use of the model before rolling the methodology out to a broader range of our products. We will then be able to develop an improvement plan and introduce key metrics.

3. Health and safety

The health, safety and wellbeing of our employees continues to be a key focus across all operating companies. Health and safety is a key agenda item for the Executive Board, which I chair, and our recently appointed Chief People Officer is accountable for Group-wide health and safety improvement. In addition, we have recruited a Group Head of Health and Safety, who has set a clear strategy to support our operating companies with practical advice, training and increasing awareness.

We have set short and medium-term targets to improve health and safety across our organisation, using Lost Time Injury Rate (LTIR) as the key indicator to track and monitor our progress.  By 2025 we are targeting to reduce our LTIR to 0.75, with a further reduction to 0.25 by 2030.

4. Talent development and engagement

Talented people are fundamental to the success of our autonomous operating model.  We need a highly engaged and capable workforce within our operating companies, and this can only be achieved by attracting, developing, supporting, and retaining the right people.  

We are using employee engagement scores to measure our progress in this area.  I am pleased that the result of our recent survey showed that employee engagement has improved to 55% compared to 48% in 2019, however there is more work to do.  Going forward, we will be measuring employee engagement annually, with a target to improve to 66% engagement by 2025 and to 75% by 2030. 

5. Diversity and inclusion

As an organisation we want to employ the best people for the job and help them thrive. We know that we can only do this by considering talented people from the whole community. Our Chief People Officer is working with our local HR communities to develop a series of initiatives to further foster diversity and inclusion across the Group.

To support this ambition, we have set Group targets for both gender and ethnic diversity at a PLC Board, Executive Board and Senior Leader level.  In 2022, we expect further progress to be made at the Executive and Senior Leader level.

6. Climate risks

During the year, we have made good progress in assessing the financial risks and opportunities to our business due to climate change.  As a result, we are pleased to include in our Annual Report our first report in response to the Task Force on Climate-related Financial Disclosures (TCFD). The assessment suggests that, while physical climate change presents a relatively low risk to our future business operations, it may present opportunities for the Group.  Given our focus on sustainable infrastructure, some of our operating companies already provide products and solutions to address extreme weather conditions, and we see this as an opportunity for future growth.

7. Ethical conduct

As a Group we are committed to conducting our business activities responsibly and ethically, and in accordance with local laws and regulations.  We support this commitment by providing training and educational programmes for employees, together with a Group Code of Business Conduct which underpins all our activities.

Further details of our new sustainability plan, targets and TCFD disclosures can be found in our Annual Report.

Board Updates

In the period, we announced the appointment of Leigh-Ann Russell as a Non-executive Director, who joined the Board on 1 April 2021. In January 2022, we were also pleased to announce the appointment of Farrokh Batliwala as a US based Non-executive Director, with effect from 1 April 2022. Both appointments reflect the Group's careful succession planning to recruit Non-executive Directors with the necessary skills, experience and diversity to support the Group's higher quality growth agenda.

2021 Headline Results

			Change %
	2021	2020	Reported	OCC
Revenue	£705.0m	£660.5m	+7	+10
Underlying(1):
Operating profit	£86.0m	£69.9m	+23	+29
Operating margin	12.2%	10.6%	+160bps	+190bps
Profit before tax	£79.9m	£62.6m	+28
Earnings per share	77.9p	63.2p	+23
Reported:
Operating profit	£57.0m	£42.8m	+33
Operating margin	8.1%	6.5%	+160bps
Profit before tax	£50.9m	£35.5m	+43
Basic earnings per share	43.0p	30.2p	+42

⁽¹⁾ Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements .

The Group has seen a strong trading performance compared to 2020 which was impacted by COVID-related business closures and reduced levels of demand from the middle of March. Revenue for the period was £705.0m (2020: £660.5m), an increase of 7% on a reported basis. Organic constant currency revenue growth was 10%. Underlying operating profit was £86.0m (2020: £69.9m) and underlying operating margin recovered strongly to 12.2% compared to 10.6% in 2020. Underlying profit before taxation was £79.9m (2020: £62.6m). Reported operating profit was £57.0m (2020: £42.8m) and reported profit before tax was £50.9m (2020: £35.5m).

Underlying earnings per share increased to 77.9p (2020: 63.2p).  The diluted underlying earnings per share was 77.1p (2020: 62.9p). Reported earnings per share was 43.0p (2020: 30.2p). The weighted average number of shares in issue was 79.6m (2020: 79.5m) with the diluted number of shares at 80.6m (2020: 79.9m) adjusted for the outstanding number of dilutive share options.

The principal reconciling items between underlying and reported operating profit are non-cash charges including the impairment of goodwill and intangibles relating to our security businesses of £16.0m and the amortisation of acquisition intangibles of £6.1m, together with costs associated with the closure of the UK variable message signs business of £4.5m.  Note 4 of the Financial Statements provides further details on the Group's non-underlying items.

Dividend

Based on the strong trading performance and cash generation during the year, the Board is recommending a final dividend of 19.0p per share, making a total dividend for the year of 31.0p per share (2020: 26.7p). Looking forward, we aim to provide sustainable and progressive dividend growth, targeting a dividend cover of around 2.5 times underlying earnings. The final dividend, if approved, will be paid on 8 July 2022 to shareholders on the register on 6 June 2022.

Outlook

We expect to make good progress in 2022, despite the ongoing supply chain and inflationary headwinds which we continue to actively manage. At this stage the consequences for the global economy of the tragic events in Ukraine are uncertain. While the Group has no operations in this part of the world and no direct and negligible indirect exposure to customers and suppliers in the region, we are carefully monitoring the situation.

In the medium to longer term, the positive outlook is supported by strong market growth drivers for both sustainable infrastructure and safe transport.  In the US, all our businesses are well placed to benefit from the increased spend approved under the Infrastructure Investment and Jobs Act. In the UK, the Government remains committed to the increased levels of funding for Road Investment Strategy 2 and we expect this to support medium-term growth.

Paul Simmons 

Group Chief Executive

Operating Review

Galvanizing Services

	£m		+/- %	OCC %
	2021	2020
Revenue	198.3	185.9	+7	+11
Underlying operating profit (1)	39.5	35.8	+10	+18
Underlying operating margin % (1)	19.9%	19.3%
Reported operating profit	36.4	17.1

⁽¹⁾   Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements .

The Galvanizing Services division offers hot-dip galvanizing and powder coating services with multi-plant facilities in the USA, France and the UK. Hot-dip galvanizing is a proven steel corrosion protection solution which significantly extends the service life of steel structures and products.  The division benefits from a wide sectoral spread of customers who operate in resilient end markets including road infrastructure, commercial construction, transportation, agriculture, and energy transmission and distribution.

The division delivered a good performance, particularly in the first half, with a strong recovery in demand compared to H1 2020, which was impacted by COVID-related disruption in the UK and the complete closure of our French operations for six weeks from the end of March 2020.  Demand returned to more normalised levels in the second half of the year, despite the US still facing challenges around customer project delays and labour shortages. As a result, revenue increased by 11% on an organic constant currency basis to £198.3m, with volumes 3% higher than 2020.  Underlying operating profit increased significantly to £39.5m (2020: £35.8m), representing 18% organic constant currency growth compared to 2020.  The division continued to deliver superior margins, with underlying operating margin increasing to 19.9% (2020: 19.3%).

UK

The business experienced a strong recovery in demand, particularly in the first half of 2021, due to the release of security, construction and housing projects which had previously been deferred.  UK galvanizing delivered 17% organic constant currency revenue growth and record operating profits in the year. This reflects our strategy of focusing on higher margin, lower volume business and pricing actions taken to address input cost inflation. The outlook for 2022 remains positive, despite inflationary and labour related headwinds, with robust demand for galvanizing services to support sustainable infrastructure.

USA

Predominantly located in the north east of the country, the US galvanizing business delivered a solid performance with 3% organic constant currency revenue growth and maintained strong margins, reflecting the benefits of pricing actions, product mix and good demand for value added coating services.  During the year the business experienced lower production volumes than 2020 due to customer project delays related to component shortages and elevated steel costs.  In addition, labour shortages also limited production capacity in some plants.  The outlook for 2022 is encouraging, with labour availability improving and increased customer project activity. 

In the medium to longer term, the outlook is positive, with investment levels expected to grow ahead of GDP in a range of US galvanizing end markets, supported by the Infrastructure Investment and Jobs Act.   The Group continues to seek both organic and inorganic growth opportunities in the attractive US market.

France

French galvanizing services delivered a strong performance in 2021, particularly in the first half, supported by buoyant levels of customer demand compared to 2020, which was impacted by COVID-related closures in the first half.  As a result, revenue was 15% ahead of last year on an organic constant currency basis.  The outlook for 2022 is encouraging, with the team working hard to manage energy cost inflation.

Utilities

	£m		+/- %	OCC %
	2021	2020
Revenue	223.7	211.2	+6	+12
Underlying operating profit (1)	26.8	20.9	+28	+38
Underlying operating margin % (1)	12.0%	9.9%
Reported operating profit	26.3	20.1

 ⁽¹⁾ Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.

Our Utilities division provides steel and composite solutions with low embodied energy for a wide range of infrastructure markets including energy generation and distribution, marine, rail and housing. The division also supplies engineered supports for the water, power and liquid natural gas markets and seismic protection solutions for commercial construction.

The division delivered an impressive performance in 2021, with 12% revenue growth and 38% profit growth on an organic constant currency basis against robust 2020 comparators. Reported operating profit was £26.3m (2020: £20.1m). The strong performance was underpinned by a record performance in the US composite business and a good recovery in UK utilities and engineered supports, which were disrupted by COVID last year.  We are pleased with the continued progress made on margins across the Utilities portfolio, with underlying operating margin increasing to 12.0% (2020: 9.9%). 

US

Revenue was 6% ahead of a strong 2020 comparator on an organic constant currency basis.  The composite business delivered a record performance, with high demand for engineered composite solutions including fire resistant utility poles for use in wildfire areas, waterfront protection and mass transit infrastructure. During the year, the electricity distribution substation business faced challenges due to rising steel prices and customers delaying non-essential projects, however demand is starting to recover as steel prices stabilise. Prospects for future growth in the US remain encouraging, supported by market demand for innovative solutions to protect against extreme weather and investment to upgrade ageing electricity infrastructure.

UK

Our UK businesses experienced a strong recovery, with 20% revenue growth compared to a COVID-impacted 2020.  The building products business, supplying steel lintels, builders' metal work and composite residential doors, benefitted from buoyant market demand during the year.  The industrial flooring business delivered a good recovery, with a particular focus on data and distribution centre markets.  Both businesses successfully managed the impact of high steel input costs with improved margins in the year and enter 2022 with a positive outlook.

Engineered Supports

Engineered Supports delivered a healthy recovery in 2021, with revenue 10% ahead of 2020 on an organic constant currency basis.  The US business delivered a good performance, supported by a strong rebound in the commercial construction market.  The expansion of our seismic protection device manufacturing capability completed in the second half and the prospects for future growth are encouraging.  Our engineered pipe support business in India delivered a solid performance, with continued demand for products and engineering services to support key liquified natural gas developments across the globe.

Roads & Security

	£m		+/- %	OCC %
	2021	2020
Revenue	283.0	263.4	+7	+8
Underlying operating profit (1)	19.7	13.2	+49	+43
Underlying operating margin % (1)	7.0%	5.0%
Reported operating (loss)/profit	(5.7)	5.6

⁽¹⁾ Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.

The Roads & Security division supplies products and services to support the delivery of safe road and highway infrastructure alongside a range of security products to protect people, buildings and infrastructure from attack. 

The trading performance was ahead of last year with 8% organic constant currency revenue growth and underlying operating profit increasing to £19.7m (2020: £13.2m), a 43% increase on an organic constant currency basis. Underlying operating margins improved to 7.0% (2020: 5.0%).  The performance reflects a solid recovery in the UK and good levels of demand in the US.  In the second half, we started to see a recovery in our UK security businesses as COVID-related restrictions on public gatherings eased, which contributed to the improved H2 2021 margin of 7.4%.  The reported loss of £5.7m included a goodwill and intangible asset impairment charge of £16.0m in respect of our UK security businesses, £4.5m of closure costs relating to the variable message sign business and a £0.4m loss on the disposal of the security access cover business.  Further details are set out in note 4 to the Financial Statements.

UK Roads

Revenue was 8% ahead of 2020 on an organic constant currency basis.  During the year, we provided a range of certified products and services to support the upgrade of the strategic road network under Road Investment Strategy 2 (RIS2) including rental of temporary safety barrier, permanent safety barriers, bridge parapets and road safe support structures.  In addition, the division benefitted from buoyant levels of demand from local authorities for products to enhance non-strategic and local road networks.

Investment in the roll-out of smart motorways represents £4.5bn of the overall RIS2 committed spend of £27.4bn from 2020 to 2025.  During the year our UK business was awarded primary provider status for the provision of temporary barrier within the Smart Motorway Alliance (SMA) and the first RIS2 smart motorway scheme commenced in June 2021.  In January 2022, the UK Government issued its response to the Transport Committee review on the roll-out and safety of smart motorways, which set out recommendations including pausing the roll-out of further all lane running schemes until sufficient safety data is available (expected end of 2024) and the retrofit of additional emergency refuge areas (ERAs).  While we await further scheme details, the recommendations are broadly in line with our expectations, with 2022 demand for the rental fleet to be driven by the retrofit of ERAs, central reservation upgrade schemes, including smart motorways, and upgrades to the wider strategic network.

During the year we took steps to enhance the quality of the UK Roads portfolio. In March 2021 we acquired Prolectric, a UK market leader in off-grid solar energy solutions, for a net cash consideration of £11.8m.  Prolectric made a positive contribution to the Group in 2021 and we are excited by the prospects for future growth.  As previously announced, in March 2021 we made the decision to close our small, loss-making variable message sign business.

US Roads

US Roads delivered 6% revenue growth on an organic constant currency basis, supported by strong demand for roadside safety products including tested Zoneguard temporary safety barrier and SmartCushion crash attenuators.  

During the year, margins were impacted by the steep increase in steel raw materials and freight costs, however we expect margin improvement in 2022 as the impact of pricing actions takes full effect and an increased focus on rental and higher margin roadside safety products comes through.  

In recent years we have seen a growing demand for our tested roadside safety products, with the introduction of new safety standards and increased levels of state and federal investment to upgrade US road infrastructure.  During the year we expanded our geographical footprint in support of our growth strategy, with the creation of a new manufacturing and distribution facility in Garland, Texas.  In addition, in the second half of the year we invested £12.2m in the expansion of our temporary barrier fleet , including £4.3m of assets in the course of construction relating to further planned fleet expansion in 2022.

In November 2021, we were encouraged by the approval of the Infrastructure Investment and Jobs Act, which includes a five-year reauthorisation of the US federal highway programme and investment of c.$348 billion in highway and bridge improvements through to 2026.

Other International Roads

Despite the efforts of the strengthened local team, the Swedish business continued to underperform in 2021 due to challenging market conditions.  As a result, we undertook a further review of the business in the second half of 2021 and took the decision to dispose of its rental division, which we expect to complete in the first half of 2022.  We continue to assess the options for the remaining parts of the business.

In contrast, the lighting column business in France delivered a robust performance, underpinned by a solid order book, and our Australian road business benefitted from the development of the traffic safety equipment rental business.

Security

Our Security businesses are based in the UK and provide a range of perimeter security solutions including hostile vehicle mitigation ('HVM') to both UK and international markets.  2021 revenue was 26% ahead of a COVID-impacted 2020 on an organic constant currency basis.  During the year, demand for perimeter security solutions in data centres remained strong and, as COVID restrictions eased, we saw some recovery in the key markets for HVM solutions including crowded place protection, stadiums, airports and shopping centres.  In addition, demand for UK security barrier rental returned in the second half with the resumption of high-profile events including the COP26 Summit in Glasgow.  As a result, second half margins continued to show improvement and full year underlying operating profits and margins were ahead of 2020.

In June 2021, we sold Technocover, our loss-making security access cover business, for a consideration of £2.2m.  The loss recognised on disposal was £0.4m.  In addition, given the challenging market outlook, the Group reassessed the value of acquisition goodwill and intangibles relating to both ATG Access and Parking Facilities, and concluded that a total impairment charge of £16.0m was required across the two businesses.  Further details are set out in note 4 to the Financial Statements.

Financial review

Capital allocation priorities and ROIC

The Group follows a disciplined approach to capital allocation.  Firstly, we look to allocate capital to support organic growth, with the focus on higher return niches and growth markets.  We require our operating companies to maintain an appropriate level of working capital that is reflective of growth rates in their respective businesses.  In addition, we invest in capital projects, innovation and talent to support future organic growth, with around £24.8m of FY2021 capex allocated to growth investments.

Secondly, we seek to allocate capital to make high quality acquisitions, with a focus on clear alignment with our purpose, higher gross margins and long term growth potential.  We are following a structured approach to acquisitions based on a clear set of financial criteria and we expect acquisitions to achieve returns above our Group WACC within a three-year timeframe.  This disciplined approach has resulted in the creation of a higher quality pipeline of opportunities during the year.

We also aim to provide sustainable and progressive dividend growth, with a target dividend cover of 2.5 times underlying earnings. We understand the importance of providing consistent and growing returns to our shareholders as part of our overall capital allocation framework, and the Group's strong levels of cash generation allow us to invest in organic and inorganic growth while paying a dividend.

We use return on invested capital (ROIC) to measure our overall capital efficiency, with a target of achieving returns in excess of 17%, comfortably above the Group's cost of capital, through the cycle.  The Group's ROIC in 2021 was close to our target at 16.8% (2020: 12.6%), the improvement reflecting the recovery in trading, our disciplined approach to capital investment, and the steps we are taking to improve the overall quality of the portfolio.

Cash generation and financing

The Group continued to be highly cash generative, with cash generated by operations of £103.1m (2020: £118.3m).  This included a working capital outflow in the period of £6.8m, reflecting the increased trading activity in the year.  The Group continues to focus on maximising working capital efficiency, with debtor days at 31 December 2021 at 55 days (31 December 2020: 54 days). 

Capital expenditure in the year was £35.9m (2020: £20.4m), as expected, representing a multiple of depreciation and amortisation (excluding amortisation from acquisition intangibles and right of use asset depreciation) of 1.6 times (2020: 0.9 times) as detailed in note 3 to the Financial Statements.  During the year, we allocated capital to support future growth opportunities, with £12.2m spend on the expansion of our US temporary barrier fleet, including £4.3m of assets in the course of construction relating to 2022 fleet expansion.  In addition, we spent £2.8m on the expansion of our manufacturing and distribution facilities across our US operating companies and a further £3.6m on the expansion of our off grid solar lighting and power rental fleet in the UK.  The Group invested £1.2m on capitalised development spend during the year, and while we expect this to increase in 2022, we are still in the early stages of our innovation initiative.

Net financing costs for the period were £6.1m (2020: £7.3m).  The cash element of financing costs was lower than the prior year at £5.1m (2020: £6.2m), reflecting lower levels of average net debt during the period due to the strong cash generation.  The net cost of pension fund financing under IAS 19 was £0.2m (2020: £0.3m) and the amortisation of costs relating to refinancing activities was £0.8m (2020: £0.8m).

The Group generated £51.6m (2020: £82.5m) of free cash flow in the year, providing us with funds to support our acquisition strategy and dividend policy.  Underlying cash conversion was 78% (2020: 139%), reflecting the capital investment in growth opportunities during the year.  Excluding strategic investment in rental fleet, the underlying cash conversion was 97%.  The calculation of our underlying cash conversation ratio is set out in note 3 to the Financial Statements.

Net debt and facilities headroom

Net debt at the end of the year amounted to £144.7m (31 December 2020: £146.2m).  Cash outflows during the year included £21.2m for the 2020 interim and final dividends and £11.8m on the Prolectric acquisition.  Net debt at the year end includes lease liabilities under IFRS 16 of £40.6m (2020: £32.4m), the increase being primarily due to the expansion of our US roads facility in Texas and the renewal of the lease on our UK temporary barrier distribution centre.

The Group's principal financing facilities are a headline £280m multi-currency revolving credit agreement, which expires in December 2023, and $70m senior unsecured notes with maturities in June 2026 and June 2029, together with a further £13.4m of on-demand local overdraft arrangements.  Throughout the year the Group has operated well within these facilities and at 31 December 2021, the Group had £234.4m of headroom (£221.2m committed, £13.2m on demand).  In 2022 we will take steps to assess and extend the maturity profile of the revolving credit element of the Group's financing facilities.

The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt to EBITDA of a maximum of 3.0 times and interest cover of a minimum of 4.0 times.  The ratio of covenant net debt to EBITDA at 31 December 2021 was 1.0 times (31 December 2020: 1.3 times) and interest cover was 25.4 times (31 December 2020: 17.0 times).

The Board considers that the ratio of covenant net debt to EBITDA is a key metric from a capital management perspective and targets a ratio of 1.5 to 2.0 times.  The Board would be prepared to see leverage above the target range for short periods of time if strategically appropriate.

Tax

The tax charge for the period was £16.7m (2020: £11.5m) and included a £1.1m credit (2020: £0.9m) in respect of non-underlying items, principally relating to the amortisation of acquisition intangibles.  Cash tax paid in the year was £15.2m (2020: £16.5m).   The Group remains committed to the timely and correct payment of taxes to authorities in all jurisdictions in which we operate .

The underlying effective tax rate for the Group was 22.3% (2020: 19.8%), which is lower than the weighted average mix of tax rates in the jurisdictions in which the Group operates due to the successful conclusion of tax uncertainties related to prior years.  Assuming no changes to headline corporate tax rates in the UK or US, we expect the Group's underlying effective rate to be around 23% in 2022. The reported effective tax rate was 32.8% (2020: 32.4%).

The Group's net deferred tax liability is £11.4m (2020: £7.6m), which includes £9.3m (2020: £8.4m) of liabilities in respect of brand names, customer relationships and other contractual arrangements arising on acquisitions.  These liabilities do not represent future cash tax payments and will unwind as the brand names, customer relationships and contractual arrangements are amortised.

Exchange rates

The Group is exposed to movements in exchange rates when translating the results of its overseas operations into Sterling.   Retranslating 2020 revenue and underlying operating profit using average exchange rates for 2021 would have reduced revenue by £22.0m and underlying operating profit by £4.0m, mainly due to Sterling's appreciation against the US Dollar.  A one cent movement in the average US Dollar rate currently results in an adjustment of approximately £1.9m to the Group's annual revenues and £0.4m to annual underlying operating profit, while the equivalent impacts for a one cent movement in the Euro are £0.7m and £0.1m respectively.

Non-underlying items

The total non-underlying items charged to operating profit in the Consolidated Income Statement amounted to £29.0m (2020: £27.1m) and comprised the following:

• Impairment charges of £16.0m in respect of goodwill and intangibles relating to two of our security businesses, ATG Access and Parking Facilities
• Amortisation of acquired intangible assets of £6.1m
• Costs associated with the closure of the UK variable message signs business of £4.5m
• A loss on disposal of Technocover Ltd, our small UK security access cover business of £0.4m
• Expenses related to acquisitions and disposals of £2.0m.

The non-cash element of these charges was £23.2m.  Further details are set out in note 4 to the Financial Statements.

Pensions

The Group operates defined benefit pension plans in the UK, France and the USA. The IAS 19 deficit of these plans at 31 December 2021 was £12.3m, a reduction of £7.3m from 31 December 2020 (£19.6m).   The deficit of the UK scheme, the largest employee benefit obligation in the Group, was lower than the prior year end at £7.7m (31 December 2020: £14.0m) due to the Group's deficit recovery payments and an increase of 60 basis points in the discount rate during the period, in line with increases in bond yields, being partly offset by slightly lower asset returns.  The deficit of the French scheme was £4.1m (2020: £4.9m) and the US scheme deficit was £0.5m (2020: £0.7m).

The Group continues to be actively engaged in dialogue with the UK schemes' Trustees with regards to management, funding and investment strategies.  The next triennial valuation for the UK scheme will be as at April 2022.

Going Concern

After making enquiries, the Directors have reasonable expectations that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and for the period to 30 June 2023.  Accordingly, they continue to adopt the going concern principle.

When making this assessment, the Group considers whether it will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants on those facilities.  The Group has carefully modelled its cash flow outlook for the period to 30 June 2023, considering the ongoing uncertainties in global economic conditions.  In this "base case" scenario, the forecasts indicate significant liquidity headroom will be maintained above the Group's borrowing facilities and financial covenants will be met throughout the period, including the covenant tests at 30 June 2022, 31 December 2022 and 30 June 2023. The Group has also carried out "reverse stress tests" to assess the performance levels at which either liquidity headroom would fall below zero or covenants would be breached in the period to 30 June 2023.  The Directors do not consider the resulting performance levels to be plausible given the Group's strong trading performance in 2021 and the positive outlook across the infrastructure markets in which it operates.

Paul Simmons  Hannah Nichols

Group Chief Executive  Group Chief Financial Officer

Consolidated Income Statement

Notes		2021			2020
		Underlying £m	Non- underlying* £m	Total £m	Underlying £m	Non- underlying* £m	Total £m
Revenue	2	705.0	-	705.0	660.5	-	660.5
Cost of sales		(442.7)	-	(442.7)	(415.9)	-	(415.9)
Gross profit		262.3	-	262.3	244.6	-	244.6
Distribution costs		(36.5)	-	(36.5)	(34.1)	-	(34.1)
Administrative expenses		(140.5)	(29.0)	(169.5)	(142.2)	(27.1)	(169.3)
Other operating income		0.7	-	0.7	1.6	-	1.6
Operating profit	2,3	86.0	(29.0)	57.0	69.9	(27.1)	42.8
Financial income	5	0.6	-	0.6	0.6	-	0.6
Financial expense	5	(6.7)	-	(6.7)	(7.9)	-	(7.9)
Profit before taxation		79.9	(29.0)	50.9	62.6	(27.1)	35.5
Taxation	6	(17.8)	1.1	(16.7)	(12.4)	0.9	(11.5)
Profit for the year attributable to owners of the parent		62.1	(27.9)	34.2	50.2	(26.2)	24.0
Basic earnings per share Diluted earnings per share	7 7			43.0p 42.5p			30.2p 30.0p

* The Group's definition of non-underlying items is included in note 1 and further details on non-underlying items are included in note 4.

Consolidated Statement of Comprehensive Income

Notes		2021 £m	2020 £m
Profit for the year		34.2	24.0
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		(2.3)	(2.5)
Exchange differences on foreign currency borrowings designated as net investment hedges		0.6	-
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit pension schemes		3.5	(2.3)
Taxation on items that will not be reclassified to profit or loss	6	-	0.8
Other comprehensive income/(expense) for the year		1.8	(4.0)
Total comprehensive income for the year attributable to owners of the parent		36.0	20.0

Consolidated Statement of Financial Position

Notes		2021 £m	2020 £m
Non-current assets
Intangible assets		177.4	188.5
Property, plant and equipment		193.3	183.6
Right-of-use assets		38.2	30.9
Corporation tax receivable		1.6	-
Deferred tax assets		1.4	1.4
		411.9	404.4
Current assets
Assets held for sale		3.6	-
Inventories		108.1	96.3
Trade and other receivables		130.2	122.7
Current tax assets		0.7	1.3
Cash and cash equivalents	10	18.8	22.0
		261.4	242.3
Total assets	2	673.3	646.7
Current liabilities
Liabilities held for sale		(1.9)	-
Trade and other liabilities		(132.7)	(116.7)
Current tax liabilities		(4.3)	(5.5)
Provisions		(4.0)	(3.3)
Lease liabilities		(8.8)	(8.6)
Loans and borrowings	10	(1.9)	(8.6)
		(153.6)	(142.7)
Net current assets		107.8	99.6
Non-current liabilities
Other liabilities		(1.5)	(1.4)
Provisions		(2.4)	(2.5)
Deferred tax liabilities		(12.8)	(9.0)
Retirement benefit obligations		(12.3)	(19.6)
Lease liabilities		(30.1)	(23.8)
Loans and borrowings	10	(121.0)	(127.2)
		(180.1)	(183.5)
Total liabilities		(333.7)	(326.2)
Net assets		339.6	320.5
Equity
Share capital		20.0	19.9
Share premium		40.9	38.4
Other reserves		4.9	4.9
Translation reserve		15.5	17.2
Retained earnings		258.3	240.1
Total equity		339.6	320.5

Consolidated Statement of Changes in Equity

	Notes	Share capital £m	Share premium £m		Other reserves † £m	Translation reserve £m	Retained earnings £m		Total equity £m
At 1 January 2020		19.9	37.4		4.9	19.7	225.1		307.0
Comprehensive income
Profit for the year		-	-		-	-	24.0		24.0
Other comprehensive expense for the year		-	-		-	(2.5)	(1.5)		(4.0)
Transactions with owners recognised directly in equity
Dividends	8	-	-		-	-	(8.4)		(8.4)
Credit to equity ofshare-basedpayments		-	-		-	-	0.8		0.8
Tax taken directly to the Consolidated Statement of ChangesinEquity	6	-	-		-	-	0.1		0.1
Sharesissued		-	1.0		-	-	-		1.0
At 31 December 2020		19.9		38.4	4.9	17.2	240.1	320.5
Comprehensive income
Profit for the year		-		-	-	-	34.2	34.2
Other comprehensive income for the year		-		-	-	(1.7)	3.5	1.8
Transactions with owners recognised directly in equity
Dividends	8	-		-	-	-	(21.2)	(21.2)
Credit to equity of share-based payments		-		-	-	-	2.5	2.5
Own shares held by employee benefit trust		-		-	-	-	(1.5)	(1.5)
Satisfaction of long term incentive and deferred bonus awards		-		-	-	-	(0.3)	(0.3)
Tax taken directly to the Consolidated Statement of Changes in Equity	6	-		-	-	-	1.0	1.0
Shares issued		0.1		2.5	-	-	-	2.6
At 31 December 2021		20.0		40.9	4.9	15.5	258.3	339.6

† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2020: £0.2m) capital redemption reserve.

At 31 December 2020 a total of 19,928 shares were held in an employee benefit trust for the purpose of settling awards granted to employees under equity-settled share based payment plans. The cost of these shares, amounting to £0.3m, was included within retained earnings at that date. During 2021, 7,665 shares have been issued in settlement of awards to employees and a further 98,821 shares have been purchased at a cost of £1.8m, leaving 111,084 shares held at 31 December 2021, at a cost of £1.8m included within retained earnings .

Consolidated Statement of Cash Flows

Notes		2021		2020
		£m	£m	£m	£m
Profit before tax		50.9		35.5
Add back net financing costs		6.1		7.3
Operating profit	2		57.0		42.8
Adjusted for non-cash items:
Share-based payments		2.8		0.8
Loss on disposal of subsidiary		0.4		-
Gain on disposal of non-current assets		(1.1)		(1.9)
Depreciation of owned assets		20.9		21.9
Amortisation of intangible assets		7.5		7.5
Right-of-use asset depreciation		10.3		10.4
Gain on lease termination		(0.1)		(0.1)
Release of accrued contingent consideration		(0.9)		-
Impairment of non-current assets		16.0		19.5
			55.8		58.1
Operating cash flow before movement in working capital (Increase)/decrease in inventories (Increase)/decrease in receivables Increase/(decrease) in payables Decrease in provisions and employee benefits		(13.6) (7.9) 14.7 (2.9)	112.8	1.0 21.6 (4.4) (0.8)	100.9
Net movement in working capital			(9.7)		17.4
Cash generated by operations		103.1		118.3
Purchase of assets for rental to customers		(16.7)		(3.1)
Income taxes paid		(15.2)		(16.5)
Interest paid		(4.7)		(6.0)
Interest paid on lease liabilities		(0.8)		(0.8)
Net cash from operating activities			65.7		91.9
Interest received		0.6		0.6
Proceeds on disposal of non-current assets		3.7		6.5
Purchase of property, plant and equipment		(17.8)		(15.5)
Purchase of intangible assets		(1.4)		(1.8)
Acquisition of subsidiary	9	(11.8)		(0.9)
Disposal of subsidiary		1.6		-
Net cash used in investing activities			(25.1)		(11.1)
Issue of new shares		2.6		1.0
Purchase of shares for employee benefit trust		(1.8)		-
Dividends paid	8	(21.2)		(8.4)
Repayment of lease liabilities		(10.3)		(11.1)
New loans and borrowings		55.3		-
Repayment of loans and borrowings		(61.0)		(74.4)
Net cash used in financing activities			(36.4)		(92.9)
Net increase/(decrease) in cash and cash equivalents net of bank overdraft		4.2		(12.1)
Cash and cash equivalents net of bank overdraft at the beginning of the year		13.9		26.0
Effect of exchange rate fluctuations		-		-
Cash and cash equivalents net of bank overdraft at the end of the year		18.1		13.9

1.  Group Accounting Policies

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

Basis of preparation

The consolidated financial statements comprise the financial statements of the Company, Hill & Smith Holdings PLC, and its subsidiaries as at 31 December 2021. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The acquisition date is the date on which control is transferred to the acquirer. The financial statement of subsidiaries are included in the Group Financial Statements from the date that control commences until the date that control ceases.

In preparing the consolidated financial statements, management has considered the impact of climate change, taking into account the relevant disclosures in the Strategic Report, including those made in accordance with the recommendations of the Taskforce on Climate-related Financial Disclosures. This included an assessment of assets with indefinite and long lives and how they could be impacted by measures taken to address global warming. As outlined in the Chief Executive's Review, physical climate change presents a relatively low risk to the Group's future business operations. As such, no issues were identified that would impact the carrying values of such assets or have any other impact on the financial statements.

Measurement convention

The Group Financial Statements are prepared on the historical cost basis except where the measurement of balances at fair value is required. The Group Financial Statements are presented in Sterling and all values are stated in million (£m) rounded to one decimal place, except where otherwise indicated.

Impact of COVID on the consolidated financial statements

As outlined in the Operating and Financial Review, the Group has seen a strong recovery in 2021 across all operating divisions compared with 2020, which was materially affected by temporary business closures and reduced activity levels as a result of the COVID pandemic. As such, whilst the impact of COVID on the consolidated financial statements is significantly lower than in prior year, the Group does not consider it possible to reliably determine the level of any trading impact arising specifically from COVID in 2021, as opposed to other market factors, and has therefore not attempted to make any such disclosure in these consolidated financial statements.

Going concern and liquidity risk

In determining the appropriate basis of preparation of its financial statements, the Directors are required to assess whether the Group can continue in operational existence for the foreseeable future. When making this assessment, the Group considers whether it will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants on those facilities.

At 31 December 2021, the Group had £327.6m of committed borrowing facilities, of which only £1.8m matures before December 2023 at the earliest, and a further £13.4m of on-demand facilities.  The amount drawn down under these facilities at 31 December 2021 was £125.4m, which together with cash and cash equivalents £18.8m gave total headroom of £234.4m (£221.2m committed, £13.2m on demand). The Group has not made any changes to its principal borrowing facilities between 31 December 2021 and the date of this announcement, and there have been no significant changes to liquidity headroom during that period.   The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt to EBITDA of a maximum of 3.0x and interest cover of a minimum of 4.0x, based on measures as defined in the facilities agreements which are adjusted from the equivalent IFRS amounts as explained in note 3. The ratio of net debt to EBITDA at 31 December 2021 was 1.0 times and interest cover was 25.4 times.

The Group has carefully modelled its cash flow outlook for the period to 30 June 2023, taking account of the current uncertainties created by COVID and its impact on global economic conditions. In this 'base case' scenario, the forecasts indicate significant liquidity headroom will be maintained above the Group's borrowing facilities and financial covenants will be met throughout the period, including the covenant tests at 30 June 2022, 31 December 2022 and 30 June 2023.

The Group has carried out stress tests against the base case to determine the performance levels that would result in a breach of covenants or a reduction of headroom against its borrowing facilities to nil. For a breach of covenants to occur during the relevant period, the Group would need to experience a sustained revenue reduction of 24% compared with current expectations throughout the period from May 2022 through June 2023. A reduction in headroom against borrowing facilities to nil would occur if the Group experienced a sustained revenue reduction of 50% compared with current expectations between May 2022 and June 2023. The Directors do not consider either of these scenarios to be plausible given the ability of the Group to continue its operations throughout the COVID pandemic (noting that revenues fell by only 22% in the second quarter of 2020, the worst-affected period). The Group also has several mitigating actions under its control including minimising capital expenditure to critical requirements, reducing levels of discretionary spend, rationalising its overhead base and curtailing future dividend payments which, although not forecast to be required, could be implemented in order to be able to meet the covenant tests and to continue to operate within borrowing facility limits.

After making these assessments, the Directors have reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and for the period to 30 June 2023. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

New IFRS standards and interpretations adopted during 2021

The following amendments and interpretations apply for the first time in 2021, and therefore were adopted by the Group:

• Covid-19-Related Rent Concessions beyond 30 June 2021 - Amendments to IFRS 16

• Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

• Attributing Benefit to Periods of Service - IAS 19 Interpretation

The amendments noted above have not had a material impact on the financial statements.

New IFRS standards and interpretations to be adopted in the future

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

To be adopted for year-ending 31 December 2022:

• Amendments to IFRS 3 - Reference to Conceptual Framework

• Amendments to IAS 16 - Proceeds before intended use

• Amendments to IAS 37 - Onerous contracts - costs of fulfilling a contract

To be adopted for year-ending 31 December 2023:

• Amendments to IAS 1 - Classification of liabilities as current or non-current

• Amendments to IAS 8 - Definition of Accounting Estimates

• Amendments to IAS 1 - Disclosure of Accounting Policies

• Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction

The above changes are not expected to have a material impact on the Group.

The principal exchange rates used were as follows:

	2021		2020
	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.16	1.19	1.13	1.11
Sterling to US Dollar (£1 = USD)	1.38	1.35	1.28	1.36
Sterling to Swedish Krona (£1 = SEK)	11.80	12.21	11.80	11.15
Sterling to Indian Rupee (£1 = INR)	101.71	100.21	95.10	99.73
Sterling to Australian Dollar (£1 = AUD)	1.83	1.86	1.86	1.76

Non-underlying items

The Group's accounting policy for non- underlying items is as follows:

Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a fuller understanding of the underlying performance of the business. The following are included by the Group in its assessment of non-underlying items:

• Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations.

• Amortisation of intangible fixed assets arising on acquisitions, which can vary depending on the nature, size and frequency of acquisitions in each financial period.

• Expenses associated with acquisitions and disposals, comprising professional fees incurred, any consideration which, under IFRS 3 (Revised) is required to be treated as a post-acquisition employment expense, and changes in contingent consideration payable on acquisitions.

• Impairment charges in respect of tangible or intangible fixed assets, or right-of-use assets.

• Changes in the fair value of derivative financial instruments.

• Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material changes in the terms of the schemes.

The non-underlying tax charge or credit comprises the tax effect of the above non-underlying items.

Details in respect of the non-underlying items recognised in the current and prior year are set out in note 4.

2.  Segmental information

Business segment analysis

The Group has three reportable segments which are Roads & Security, Utilities and Galvanizing Services. The Group's internal management structure and financial reporting systems differentiate between these segments, and, in reporting, management have taken the view that they comprise a reporting segment on the basis of the following economic characteristics:

· The Roads & Security segment contains a group of businesses supplying products designed to ensure the safety and security of roads and other national infrastructure, many of which have been developed to address national and international safety standards, to customers involved in the construction of that infrastructure;

· The Utilities segment contains a group of businesses supplying products characterised by a degree of engineering expertise, to public and private customers involved in the construction of facilities serving the utilities markets; and

· The Galvanizing Services segment contains a group of companies supplying galvanizing and related materials coating services to companies in a wide range of markets including construction, agriculture and infrastructure.

Corporate costs are allocated to reportable segments in proportion to the revenue of each of those segments.

Segmental Income Statement

	2021			2020
	Revenue £m	Reported operating profit £m	Underlying operating profit* £m	Revenue £m	Reported operating profit £m	Underlying operating profit* £m
Roads & Security	283.0	(5.7)	19.7	263.4	5.6	13.2
Utilities	223.7	26.3	26.8	211.2	20.1	20.9
Galvanizing Services	198.3	36.4	39.5	185.9	17.1	35.8
Total Group	705.0	57.0	86.0	660.5	42.8	69.9
Net financing costs		(6.1)	(6.1)		(7.3)	(7.3)
Profit before taxation		50.9	79.9		35.5	62.6
Taxation		(16.7)	(17.8)		(11.5)	(12.4)
Profit after taxation		34.2	62.1		24.0	50.2

*  Underlying operating profit is stated before non-underlying items as defined in note 1   and is the measure of segment profit used by the Chief Operating Decision Maker, who is the Chief Executive. The reported operating profit columns are included as additional information.

Transactions between operating segments are on an arm's length basis similar to transactions with third parties. Galvanizing Services sold £6.5m (2020: £5.2m) of products and services to Roads & Security and £1.6m (2020: £1.7m) of products and services to Utilities. Utilities sold £3.0m (2020: £2.2m) of products and services to Roads & Security. Roads & Security sold £nil (2020: £0.2m) of products and services to Utilities. These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.

In the following tables, revenue from contracts with customers is disaggregated by primary geographical market, major product/service lines and timing of revenue recognition. Revenue by primary geographical market is defined as the end location of the Group's product or service. The table also includes a reconciliation of the disaggregated revenue with the Group's reportable segments.

	Roads & Security		Utilities		Galvanizing		Total
Primary geographical markets	2021 £m	2020 £m	2021 £m	2020 £m	2021 £m	2020 £m	2021 £m	2020 £m
UK	165.2	140.7	72.0	59.6	69.6	59.2	306.8	259.5
Rest of Europe	52.8	53.9	6.0	6.0	56.5	50.9	115.3	110.8
North America	56.8	58.0	137.3	138.2	72.2	75.8	266.3	272.0
The Middle East	3.2	5.2	0.6	1.4	-	-	3.8	6.6
Rest of Asia	0.6	0.8	7.1	5.4	-	-	7.7	6.2
Rest of the world	4.4	4.8	0.7	0.6	-	-	5.1	5.4
	283.0	263.4	223.7	211.2	198.3	185.9	705.0	660.5
Major product/service lines
Manufacture, supply and installation of products	260.7	240.4	223.7	211.2	-	-	484.4	451.6
Galvanizing services	-	-	-	-	198.3	185.9	198.3	185.9
Rental income	22.3	23.0	-	-	-	-	22.3	23.0
	283.0	263.4	223.7	211.2	198.3	185.9	705.0	660.5
Timing of revenue recognition
Products and services transferred at a point in time	223.2	201.6	120.2	107.9	198.3	185.9	541.7	495.4
Products and services transferred over time	59.8	61.8	103.5	103.3	-	-	163.3	165.1
	283.0	263.4	223.7	211.2	198.3	185.9	705.0	660.5

Total assets by geography

	2021 £m	2020 £m
UK	290.8	288.2
Rest of Europe	90.7	96.0
North America	273.2	245.7
Asia	13.6	12.7
Rest of the world	5.0	4.1
Total Group	673.3	646.7

3.  Alternative Performance Measures

The Group presents Alternative Performance Measures ("APMs") in addition to its statutory results. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority. The principal APMs are:

· Underlying profit before taxation;

· Underlying operating profit;

· Underlying operating profit margin;

· Organic measure of change in revenue and underlying operating profit;

· Underlying cash conversion ratio;

· Capital expenditure to depreciation and amortisation ratio;

· Covenant net debt to EBITDA ratio; and

· Underlying earnings per share. A reconciliation of statutory earnings per share to underlying earnings per share is provided in note 7.

All underlying measures exclude certain non-underlying items, which are detailed in note 4. References to an underlying profit measure are made on this basis and, in the opinion of the Directors, aid the understanding of the underlying business performance as they exclude items whose quantum, nature or volatility gives further information to obtain a fuller understanding of the underlying performance of the business. APMs are presented on a consistent basis over time to assist in comparison of performance.

Reconciliation of underlying to reported profit before tax

		2021 £m	2020 £m
Underlying profit before tax		79.9	62.6
Non-underlying items included in operating profit (note 4)		(29.0)	(27.1)
Reported profit before tax		50.9	35.5

Reconciliation of underlying to reported operating profit

	Roads & Security		Utilities		Galvanizing		Total
	2021 £m	2020 £m	2021 £m	2020 £m	2021 £m	2020 £m	2021 £m	2020 £m
Underlying operating profit	19.7	13.2	26.8	20.9	39.5	35.8	86.0	69.9
Non-underlying items:
Amortisation of acquisition intangibles	(4.5)	(4.3)	(0.5)	(0.7)	(1.1)	(1.1)	(6.1)	(6.1)
Business reorganisation costs	(4.5)	-	-	-	-	-	(4.5)	-
Impairment of assets	(16.0)	(2.8)	-	-	-	(17.5)	(16.0)	(20.3)
Expenses related to acquisitions and disposals	-	(0.3)	-	-	(2.0)	-	(2.0)	(0.3)
Pension past service expense	-	(0.2)	-	(0.1)	-	(0.1)	-	(0.4)
Loss on disposal of Technocover	(0.4)	-	-	-	-	-	(0.4)	-
Reported operating profit	(5.7)	5.6	26.3	20.1	36.4	17.1	57.0	42.8

Calculation of underlying operating profit margin

	Roads & Security		Utilities		Galvanizing		Total
	2021 £m	2020 £m	2021 £m	2020 £m	2021 £m	2020 £m	2021 £m	2020 £m
Underlying operating profit	19.7	13.2	26.8	20.9	39.5	35.8	86.0	69.9
Revenue	283.0	263.4	223.7	211.2	198.3	185.9	705.0	660.5
Underlying operating profit margin (%)	7.0%	5.0%	12.0%	9.9%	19.9%	19.3%	12.2%	10.6%

Organic measure of change in revenue and underlying operating profit

Organic measures exclude the impact of currency translation movements, acquisitions, disposals and closures of subsidiary businesses. In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year.

	Roads & Security		Utilities		Galvanizing		Total
	Revenue £m	Underlying operating profit £m	Revenue £m	Underlying operating profit £m	Revenue £m	Underlying operating profit £m	Revenue £m	Underlying operating profit £m
2020	263.4	13.2	211.2	20.9	185.9	35.8	660.5	69.9
Impact of exchange rate movements	(4.6)	(0.3)	(10.6)	(1.5)	(6.8)	(2.2)	(22.0)	(4.0)
2020 translated at 2021 exchange rates (A)	258.8	12.9	200.6	19.4	179.1	33.6	638.5	65.9
Acquisitions and disposals	2.7	1.2	-	-	-	-	2.7	1.2
Organic growth (B)	21.5	5.6	23.1	7.4	19.2	5.9	63.8	18.9
2021	283.0	19.7	223.7	26.8	198.3	39.5	705.0	86.0
Organic growth % (B divided by A)	8.3%	43.4%	11.5%	38.1%	10.7%	17.6%	10.0%	28.7%

Calculation of underlying cash conversion ratio

		2021 £m	2020 £m
Underlying operating profit		86.0	69.9
Calculation of adjusted operating cash flow:
Cash generated by operations		103.1	118.3
Less: Purchase of assets for rental to customers		(16.7)	(3.1)
Less: Purchase of property, plant and equipment		(17.8)	(15.5)
Less: Purchase of intangible assets		(1.4)	(1.8)
Less: Repayments of lease liabilities		(10.3)	(11.1)
Add: Proceeds on disposal of non-current assets		3.7	6.5
Add back: Defined benefit pension scheme deficit payments		3.7	3.6
Add back: Cash flows relating to non-underlying items		2.7	0.6
Adjusted operating cash flow		67.0	97.5
Underlying cash conversion (%)		78%	139%

Calculation of capital expenditure to depreciation and amortisation ratio

		2021 £m	2020 £m
Calculation of capital expenditure:
Purchase of assets for rental to customers		16.7	3.1
Purchase of property, plant and equipment		17.8	15.5
Purchase of intangible assets		1.4	1.8
		35.9	20.4
Calculation of depreciation and amortisation:
Depreciation of property, plant and equipment		20.9	21.9
Amortisation of development costs		1.1	1.2
Amortisation of other intangible assets		0.3	0.2
		22.3	23.3
Capital expenditure to depreciation and amortisation ratio		1.6x	0.9x

Calculation of covenant net debt to EBITDA ratio

		2021 £m	2020 £m
Reported net debt (note 10)		144.7	146.2
Lease liabilities		(40.6)	(32.4)
Amounts related to refinancing under IFRS 9		2.5	3.4
Covenant net debt (A)		106.6	117.2
Underlying operating profit		86.0	69.9
Depreciation of owned assets		20.9	21.9
Right-of-use asset depreciation		10.3	10.4
Amortisation of development costs		1.1	1.2
Amortisation of other intangible assets		0.3	0.2
Underlying EBITDA		118.6	103.6
Adjusted for:
Lease payments		(11.1)	(11.9)
Share-based payments expense		2.8	0.8
Annualised EBITDA of subsidiaries acquired/disposed		0.4	-
Covenant EBITDA (B)		110.7	92.5
Covenant net debt to EBITDA (A divided by B)		1.0x	1.3x

4.  Non-underlying items

Included in operating profit

		2021 £m	2020 £m
Amortisation of acquisition intangibles		(6.1)	(6.1)
Business reorganisation costs a		(4.5)	-
Impairment of assets b		(16.0)	(20.3)
Expenses related to acquisitions and disposals c		(2.0)	(0.3)
Loss on disposal of the Group's access cover business, Technocover Limited d		(0.4)	-
Pension past service expense e		-	(0.4)
		(29.0)	(27.1)

Notes:

a)  Business reorganisation costs of £4.5m represent the costs of closing the UK variable message sign business, following the strategic decision taken by the Group in March 2021. £1.3m of this charge represents cash costs during the year, with a provision of £3.2m for costs expected to be incurred in 2022, principally in respect of remaining contractual and property-related obligations. Non-cash impairment charges of £2.8m relating to the assets of the business were recognised in 2020 and are included within 'impairment of assets' in the table above.

b)  In 2021, goodwill and intangible asset impairment charges of £10.8m in respect of ATG Access Limited ('ATG') and £5.2m in respect of Parking Facilities Limited ('Parking Facilities'), two of the Group's UK Security businesses, have been recognised.

ATG operates in niche security markets, manufacturing and distributing hostile vehicle mitigation and related products that protect both public and private developments such as transport hubs, commercial buildings and infrastructure sites from the threat of attack. The COVID pandemic has had two significant impacts on ATG's markets: firstly, the restrictions on public gatherings across the world and secondly, a constraint on customer budgets resulting in them de-prioritising significant security projects. Following a challenging trading period in 2020, results in 2021 remained well below previous expectations leading the Board to reassess the business's future prospects. This reassessment concluded that the pace of ATG's recovery is likely to be slower than had previously been anticipated, mainly due to an expectation of prolonged inactivity in several of its key sectors and also reflecting increased competition in the market.  Consequently, the impairment review concluded that ATG's expected future cash flows were not sufficient to support its carrying value, resulting in an impairment of the acquisition goodwill.

Parking Facilities manufactures and sells a range of perimeter access security products, predominantly to specialist security installers in the UK.  Similar to ATG, the COVID pandemic resulted in a weak trading period in 2020 as several customer contracts were cancelled or postponed.  Whilst the business saw a marginal improvement in revenue and profitability in 2021, ongoing constraints on customer budgets continue to weigh on demand.  The Board's reassessment of the future outlook for Parking Facilities, which also took into account the impact on gross margins of recent changes in the competitive landscape, concluded that there was a limited prospect of the business returning to the levels of profitability anticipated at the time of its acquisition and therefore that the expected future cash flows were not sufficient to support the carrying value.  The resulting impairment charge of £5.2m comprises £1.6m in respect of goodwill, £3.3m in respect of acquired customer lists and £0.3m in respect of acquired brand names.

In 2020, an impairment charge of £17.5m was made in respect of goodwill relating to France Galva SA following a reassessment of the outlook for the business.  A further £2.8m impairment charge was made in relation to the closure of the variable message signs business as explained in a) above.

c)  Expenses related to acquisitions and disposals of £2.0m (2020: £0.3m) comprise professional fees and other similar costs in respect of acquisitions and disposals that the Group either concluded or considered during the year, including £0.4m relating to the acquisition of Prolectric Services Limited ('Prolectric') in March 2021 and £0.4m relating to the disposal of Technocover Limited in June 2021. The net cost also includes a credit of £0.9m in respect of contingent consideration relating to the Prolectric acquisition. The agreement for the acquisition included contingent consideration, dependent on Prolectric's adjusted operating profit for the 12-month period to 31 March 2022.  As at the acquisition date, the fair value of the contingent consideration was estimated to be £0.9m, calculated on a probability-weighted basis.  At 31 December 2021, despite a positive contribution from Prolectric since acquisition the Group has reassessed the fair value of the contingent consideration to be £nil.

d)      On 15 June 2021 the Group completed the disposal of Technocover Limited, our small, loss-making security access covers business, at a loss of £0.4m. Details of the disposal are set out below.

Disposal of Technocover	£m
Property, plant and equipment	1.7
Right-of-use assets	0.1
Inventories	0.5
Trade debtors	1.9
Cash	0.6
Lease liabilities	(0.1)
Trade creditors and accruals	(2.1)
Net assets disposed	2.6
Consideration
Consideration received	2.2
Loss on disposal	(0.4)
Cash flow effect
Consideration received	2.2
Cash disposed of	(0.6)
Net cash consideration shown in the Consolidated Statement of Cash Flows	1.6

e)  In October 2018, the High Court handed down a judgement requiring businesses with defined benefit pension schemes to equalise historical Guaranteed Minimum Pensions ('GMPs') between male and female members. The Group's results in 2018 included a non-underlying charge of £1.0m in respect of the likely cost to be incurred in equalising GMPs arising in prior years. In 2020 there was a further hearing in relation to members who have transferred out of schemes, which concluded that schemes do need to revisit historical transfers for GMP equalisation. The Group took professional advice as to the impact of this judgement and recognised a further cost of £0.4m in 2020.

Included in taxation

The tax effect of the above items is a credit to the income statement of £1.1m (2020: £0.9m). 

5.  Net financing costs

	2021 £m	2020 £m
Interest on bank deposits	0.6	0.6
Financial income	0.6	0.6
Interest on loans and borrowings	(4.9)	(6.0)
Interest on lease liabilities	(0.8)	(0.8)
Financial expenses related to refinancing	(0.8)	(0.8)
Interest cost on net pension scheme deficit	(0.2)	(0.3)
Financial expense	(6.7)	(7.9)
Net financing costs	(6.1)	(7.3)

6.  Taxation

	2021 £m	2020 £m
Current tax
UK corporation tax	4.1	2.0
Overseas tax at prevailing local rates	11.1	10.1
Adjustments in respect of prior years	(1.8)	(1.8)
	13.4	10.3
Deferred tax
UK deferred tax	0.1	(0.5)
Overseas tax at prevailing local rates	0.2	1.1
Adjustments in respect of prior years	0.6	(0.2)
Effects of changes in tax rates and laws	2.4	0.8
	3.3	1.2
Tax on profit in the Consolidated Income Statement	16.7	11.5
Deferred tax
Relating to defined benefit pension schemes	-	(0.8)
Tax on items taken directly to other comprehensive income	-	(0.8)
Current tax
Relating to share-based payments	(0.2)	(0.1)
Deferred tax
Relating to share-based payments	(0.8)	-
Tax taken directly to the Consolidated Statement of Changes in Equity	(1.0)	(0.1)

The tax charge in the Consolidated Income Statement for the period is higher (2020: higher) than the standard rate of corporation tax in the UK. The differences are explained below:

	2021 £m	2020 £m
Profit before taxation	50.9	35.5
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 19.0% (2020: 19.0%)	9.7	6.7
Expenses not deductible/income not chargeable for tax purposes	0.9	0.6
Non-deductible goodwill impairment	2.4	4.9
Benefits from international financing arrangements - current and prior years	(0.5)	(1.2)
Local tax incentives	(0.6)	(0.1)
Overseas profits taxed at higher rates	3.3	1.8
Recognition of losses	(0.1)	(0.6)
Overseas losses not relieved	0.5	0.6
Impacts of rate and law changes	2.3	0.8
Adjustments in respect of prior years	(1.2)	(2.0)
Tax charge	16.7	11.5

In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK Controlled Foreign Company ('CFC') legislation. On 2 April 2019, the Commission announced that it believed that in certain circumstances the UK's CFC regime constituted state aid. In common with other UK-based international companies, the Group may be affected by the outcome of this case.  In January 2021 the Group received a charging notice from HMRC requiring it to pay £1.6m in respect of state aid that HMRC considers had been unlawfully received in previous years. The amount was paid in full in February 2021. Based on the current status of the case in both the UK and EU jurisdictions, we have concluded that it is appropriate to recognise this amount as a tax receivable at 31 December 2021.

7.  Earnings per share

The weighted average number of ordinary shares in issue during the year was 79.6m (2020: 79.5m), diluted for the effects of the outstanding dilutive share options 80.6m (2020: 79.9m). Diluted earnings per share takes account of the dilutive effect of all outstanding share options, calculated using the treasury share method. Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

	2021		2020
	Pence per share	£m	Pence per share	£m
Basic earnings	43.0	34.2	30.2	24.0
Non-underlying items *	34.9	27.9	33.0	26.2
Underlying earnings	77.9	62.1	63.2	50.2
Diluted earnings	42.5	34.2	30.0	24.0
Non-underlying items *	34.6	27.9	32.9	26.2
Underlying diluted earnings	77.1	62.1	62.9	50.2

*  Non-underlying items as detailed in note 4.

8.  Dividends

Dividends paid during the year

	2021		2020
	Pence per share	£m	Pence per share	£m
Interim dividend paid in relation to year-ended 31 December 2019*	-	-	10.6	8.4
Interim dividend paid in relation to year-ended 31 December 2020	9.2	7.3	-	-
Final dividend paid in relation to year-ended 31 December 2020	17.5	13.9	-	-
Total	26.7	21.2	10.6	8.4

* A final dividend for 2019 of 23.0p per share was proposed but was withdrawn and not paid.

Dividends declared in respect of the year

	2021		2020
	Pence per share	£m	Pence per share	£m
Interim dividend declared in relation to year-ended 31 December 2020	-	-	9.2	7.3
Final dividend declared in relation to year-ended 31 December 2020	-	-	17.5	13.9
Interim dividend declared in relation to year-ended 31 December 2021	12.0	9.6	-	-
Final dividend proposed in relation to year-ended 31 December 2021	19.0	15.1	-	-
Total	31.0	24.7	26.7	21.2

9.  Acquisition of Prolectric Services Limited

On 1 March 2021 the Group acquired 100% of the share capital of Prolectric Services Limited ("Prolectric") and its dormant subsidiaries for an initial consideration of £12.0m. Further consideration of up to £5.7m is payable depending on Prolectric's achievement of financial performance targets in the 12-month period to 31 March 2022. Prolectric, located in Clevedon, North Somerset, is a UK market leader in off-grid solar energy solutions, aligning closely with the Group's purpose of creating sustainable infrastructure and providing new technology that the Group can leverage in its existing markets. Details of the acquisition are set out below:

	Pre-acquisition carrying amount £m	Policy alignment and fair value adjustments £m	Total £m
Intangible Assets
Brands	-	0.7	0.7
Customer lists	-	3.0	3.0
Contracts, licences and other assets	0.1	1.5	1.6
Property, plant and equipment	2.6	(1.5)	1.1
Right-of-use assets	-	2.4	2.4
Inventories	0.4	-	0.4
Current assets	1.9	-	1.9
Cash	0.2	-	0.2
Total assets	5.2	6.1	11.3
Lease Liabilities	-	(1.8)	(1.8)
Current liabilities	(1.0)	-	(1.0)
Current interest bearing liabilities	(1.2)	1.2	-
Deferred tax	(0.1)	(1.0)	(1.1)
Total liabilities	(2.3)	(1.6)	(3.9)
Net assets	2.9	4.5	7.4
Consideration
Consideration in the year			12.0
Fair value of contingent consideration due within one year			0.9
Goodwill			5.5
Cash flow effect
Consideration in the year			12.0
Cash acquired within the business			(0.2)
Net cash consideration shown in the Consolidated Statement of Cash Flows			11.8

Brands, customer lists, contracts, licences and other assets have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which has been allocated to the Roads & Security segment, primarily represents the highly skilled workforce, future technological advantages and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been made to align the accounting policies of the acquired business with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. In respect of leases, the Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the terms of the leases relative to market terms. The fair value of the current assets acquired includes £1.3m of trade receivables, which have a gross value of £1.3m.

As part of the acquisition agreement, contingent consideration has been agreed. The amount of contingent consideration is dependent on Prolectric's adjusted operating profit for the 12-month period to 31 March 2022. Below the 'trigger' (as defined in the Share Purchase Agreement), no additional consideration is due. If the 'trigger' is achieved, additional consideration of £2.2m becomes payable. Above this level, there are several targets between which the additional consideration increases linearly. Should Prolectric achieve the 'cap' (as defined in the Share Purchase Agreement), a maximum additional consideration of £5.7m will become payable. As at the acquisition date, the fair value of the contingent consideration was estimated to be £0.9m, calculated on a probability-weighted basis. As explained in note 4, despite a positive contribution from Prolectric since acquisition, the Group has reassessed the fair value of the contingent consideration at 31 December 2021 and determined it to be £nil, resulting in a non-underlying credit to the Consolidated Income Statement of £0.9m.

Post-acquisition the acquired business has contributed £7.0m revenue and £1.4m operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2021, the Group's results for the year would have shown revenue of £706.2m, underlying operating profit of £86.3m and reported operating profit of £57.3m.

10.  Cash and borrowings

	2021 £m	2020 £m
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and cash equivalents	18.8	22.0
Bank overdraft	(0.7)	(8.1)
Cash and cash equivalents net of bank overdraft	18.1	13.9
Interest bearing loans and otherborrowings
Amounts due within one year	(1.2)	(0.5)
Amounts due after more than one year	(121.0)	(127.2)
Lease liabilities classified as liabilities held for sale	(1.7)	-
Lease liabilities due within one year	(8.8)	(8.6)
Lease liabilities due after more than one year	(30.1)	(23.8)
Net debt	(144.7)	(146.2)
Change in net debt
Operating profit	57.0	42.8
Non-cash items	55.8	58.1
Operating cash flow before movement in working capital	112.8	100.9
Net movement in working capital	(6.8)	18.2
Changes in provisions and employee benefits	(2.9)	(0.8)
Operating cash flow	103.1	118.3
Tax paid	(15.2)	(16.5)
Net financing costs paid	(4.1)	(5.4)
Capital expenditure	(35.9)	(20.4)
Proceeds on disposal of non-current assets	3.7	6.5
Free cash flow	51.6	82.5
Dividends paid	(21.2)	(8.4)
Acquisition of subsidiary	(13.6)	(0.9)
Disposal of subsidiary	1.6	-
Amortisation of costs associated with refinancing activities	(0.8)	(0.8)
Purchase of shares for employee benefit trust	(1.8)	-
Issue of new shares	2.6	1.0
New leases and lease remeasurements	(17.1)	(3.2)
Interest on lease liabilities	(0.8)	(0.8)
Net debt decrease	0.5	69.4
Effect of exchange rate fluctuations	1.0	(0.3)
Net debt at the beginning of the year	(146.2)	(215.3)
Net debt at the end of the year	(144.7)	(146.2)

Notes

1.  The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the registrar of companies, and those for 2021 will be delivered in due course. The auditors have reported on those accounts; their report was:

i.  unqualified;

ii.  did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

iii.  did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

2.  The Annual Report will be posted to shareholders on or around 19 April 2021 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, Solihull, B90 4LH.

3.  Events Calendar:

i.  The Annual General Meeting will be held at The Village Hotel, The Green Business Park, Shirley, Solihull, B90 4GW at 11:00am on Tuesday 24 May 2022.

ii.  The proposed final dividend for 2021 will be paid on 8 July 2022 to shareholders on the register on 6 June 2022 (ex-dividend date 1 June 2022).

iii.  The last date for receipt of Dividend Reinvestment Plan elections is 17 June 2022.

iv.  Interim results announcement for the period to 30 June 2022 due 3 August 2022.

v.  Payment of the 2022 interim dividend due 6 January 2023.

4.  This preliminary announcement of results for the year ended 31 December 2021 was approved by the Directors on 9 March 2022.

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profits forecast.

 

END

 

 

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