Final Results

Hill & Smith Hldgs PLC 08 March 2006 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Hill & Smith Holdings PLC ('the Group') announces a 33.0 per cent rise in underlying* pre tax profits and a 20 per cent increase in dividends. The Group reports that profit before taxation rose by 56.5% to Â£15.8 million (2004: Â£10.1m) and underlying profit before taxation rose 33.0% to Â£15.7m (Â£11.8m). Underlying earnings per share increased by 34.7% to 17.92p (2004: 13.30p). The proposed final dividend is 3.40p (2004: 2.75p) resulting in total dividends for the year of 6.00p (2004: 5.00p). The total dividend for the year is covered by underlying earnings 3.0 times (2004: 2.7 times). Highlights Year ended Year ended 31 December 2005 31 December 2004 Sales Â£277.3m Â£268.7m Profit before taxation Â£15.8m Â£10.1m Underlying profit before taxation* Â£15.7m Â£11.8m Basic earnings per share 22.52p 12.16p Underlying earnings per share* 17.92p 13.30p Dividends per share 6.00p 5.00p Net debt Â£47.3m Â£37.9m Underlying net debt+ Â£22.6m Â£37.9m * Results stated before reorganisation costs and profit on property disposals. + Excluding Â£24.7m of borrowings relating to Zinkinvent investment. Underlying profits advanced in all three of the Group's divisions with a particularly strong performance from the Infrastructure Products (IPG) businesses. Both Lionweld Kennedy, which was acquired in 2004, and the Group's new investment in Zinkinvent made good contributions to the trading results. Chief executive David Grove said: 'Our programme of capital investment and product development continues to pay off, and much of our profit improvement this year has come from organic growth and productivity gains. We will continue to invest in order to build and sustain competitive advantages in growing markets.' Further information: Hill & Smith Holdings PLC David Grove, Chief Executive 0121 704 7430 07973 325667 Quantum Freshwater UK Edward Carter 0121 633 7775 07770 378097 Anna McNeil 0121 633 7775 CHAIRMAN'S STATEMENT General I am pleased to report on what has been an outstanding year for the Group. In the year ended 31 December 2005 underlying operating profit increased by 29.7% to Â£19.6 million (2004: Â£15.1 million) on sales of Â£277.3 million (2004: Â£268.7 million). Underlying profit before taxation increased by 33.0% to Â£15.7 million (2004: Â£11.8 million). The benefits of a capital investment programme of Â£20 million over the last two years against a corresponding depreciation charge of Â£12 million have come through in an improvement in underlying operating margins in the current year to 7.1% compared with 5.6% in 2004. Underlying earnings per share advanced by 34.7% to 17.92p in 2005 (2004: 13.30p). Dividends A final dividend of 3.40p (2004: 2.75p) is proposed. If approved by shareholders, the total dividend for the year will therefore be 6.00p (2004: 5.00p), which represents an increase of 20% on the previous year. Dividend payments and dividend cover have improved consistently over the last five years and the current year dividend is now three times covered by underlying earnings. Operations The majority of our profit improvement in 2005 came from organic growth fuelled by our capital expenditure and cost reductions programmes, which are highly focused on improving the financial returns of the Group. Both Lionweld Kennedy, which was acquired in 2004, and our new investment in Zinkinvent made good contributions to the trading results. Underlying profits advanced in all three of our divisions with a particularly strong performance from the Infrastructure Products (IPG) businesses. The Building and Construction Products and Industrial Products operations recorded more modest rises in profitability. Zinkinvent GmbH Investment In May 2005 the Group invested â‚¬25 million in cash to acquire a 33% shareholding in Zinkinvent GmbH ('Zinkinvent') and also advanced to Zinkinvent a loan of â‚¬10 million. Zinkinvent is a German investment company owning 86% of a Belgian Company, Vista NV. Vista NV is a galvanizing and lighting pole fabricating business with significant operations in Benelux, France and the USA with many similarities to our existing galvanizing and IPG businesses in the UK. We have representation on both the Zinkinvent and Vista Boards and we are gaining an in depth knowledge of these companies at first hand. I am pleased to report that the Zinkinvent performance in the second half of 2005 was slightly ahead of our expectations. This investment is being accounted for on an equity basis as an associate company. As previously announced, we have been carrying out extensive due diligence on Zinkinvent and Vista with a view to acquiring the remaining 67% of the issued share capital of Zinkinvent. The due diligence process, which is now substantially complete, has identified a number of environmental and other issues on which the Hill & Smith Board wishes to be satisfied before asking shareholders to approve the acquisition of the outstanding shares. The Board's objective remains the acquisition of the whole of Zinkinvent and discussions with the vendors continue to be actively progressed. Acquisitions In August 2005 we acquired the business and certain of the assets of Techspan Systems Limited, which manufactures and supplies electronic information display signs for the road, rail and airport markets. This is an excellent fit with our IPG businesses, particularly in respect of the road market in the UK and the strategy of reducing congestion and increasing safety on the national road network. As anticipated, Techspan incurred a loss during 2005 but its order book is now increasing and it has re-established itself on a number of public sector tender lists from which it was previously excluded. Since the year end, we have also acquired Counters & Accessories Limited, which supplies traffic data recording equipment and which will complement the Techspan business. Employees I would like to thank all our employees for their valuable contribution to the Group's performance in 2005. Outlook We will continue our strategy of growth by investing in our existing businesses and by acquisition in our core competences where above average growth can be anticipated. The current trading period has started in line with our expectations and subject to market conditions remaining favourable, I look forward to another good performance in 2006. David Winterbottom Chairman 8 March 2006 OPERATIONAL REVIEW In my operational review accompanying the 2004 accounts I commented that, 'The significant advance in profitability in 2004 vindicates our investment strategy in recent years.' The record level of profits in 2005 clearly indicates that the Group's investment strategy continues to deliver shareholder value. Our consistent and well-documented strategy remains unchanged and is very focused going forward into 2006. Infrastructure Products Sales increased by 12.2% in 2005 to Â£107.4 million (2004: Â£95.7 million) and underlying operating profit increased by 42.8% to Â£13.0 million (2004: Â£9.1 million), with a number of companies recording record profits. A number of new products were launched during the year and investments in automating our production processes and reducing our unit costs of production have led to a substantial improvement in the levels of profitability. A number of major contracts were won during the year and exports were at a record level. Hill & Smith Limited introduced a new range of vehicle restraint barrier systems during the year and its new 'Flexbeam' is already regarded as the industry standard. With increasing emphasis on health and safety on the road network in the UK our new crash cushion has been well-received as an innovative product responding to market needs. The Brifen wire rope business also made further progress in the year, with an additional four new countries selling our product. Further investment in our Varioguard temporary crash barrier rental fleet was required during the year in response to an expanding market driven by health and safety requirements. Large contracts on the M25 around London and the M7 in Ireland were the highlights of the year. Berry Systems, which specialises in vehicle restraint systems in car parks, had an excellent year and extended its market penetration and product portfolio. Varley & Gulliver introduced its new steel and aluminium parapet vehicle restraint systems and again recorded an excellent result. Barkers Engineering improved its financial performance following significant capital investment; there was a further extension to its product range during the year with the introduction of a new mesh system. Mallatite's performance was also significantly ahead of the previous year, with major contracts involving the supply of lighting columns for PFI projects in Sunderland, Manchester and Islington. Despite a slow start to the year, Asset International was one of the companies to register a record operating profit, helped by its recent investment in new tooling which has increased production capacity. Continued investment in the nation's water infrastructure should provide further growth opportunities for this business. The Joseph Ash Galvanizing business had to contend with substantial increases in zinc prices and escalating energy costs during the year. We continue to concentrate our production and service on our more modern and efficient plants and this resulted in the closure during the year of the facilities at Birmingham and Hartlepool. Although we incurred substantial one-off costs as a result we believe these closures will have a beneficial effect on our galvanizing business in future years. Building and Construction Products Underlying operating profit increased by 6.7% to Â£4.8 million (2004: Â£4.5 million) whereas sales reduced by 1.7% to Â£131.8 million (2004: Â£134.1 million). There was an excellent performance from Ash & Lacy Building Systems as a result of increased sales of new products and improved cross-selling of our product portfolio. Further new product launches are in the pipeline. The industrial flooring and fabricating activities of Redman Fisher responded well to the management changes and restructuring which took place in 2004. Lionweld Kennedy, which was acquired in November 2004 and has a well-known brand image, made an excellent contribution to the group's profits in 2005 representing a very positive turnaround from its performance prior to its acquisition. Express Reinforcements had a disappointing year and a demanding restructuring programme has been put into effect in order to respond to market dynamics and the conclusion of the Terminal Five contract. Birtley Building Products fell a little short of our expectations during the year but nevertheless performed with much credit in a volatile market where we are developing a first-class portfolio to our customer base. The challenge in this division is to improve its operating margins from their current low levels. Industrial Products Underlying operating profit improved by 19.2% to Â£1.8 million (2004: Â£1.5 million). All the businesses in this division made a positive contribution during the year with the exception of Ash & Lacy Pressings where action has been taken to redress the problem. Pipe Supports' results demonstrated a significant improvement over the previous year following commencement of production from the new factory in Thailand in January. The success of this facility has led us to open a second factory to take advantage of the lower costs of production for our products which are sold world-wide, particularly into the rapidly-expanding LNG market. Our stockholding operations performed satisfactorily during the year; despite difficult market conditions we continue to examine product opportunities for enhancing the returns from these businesses. Zinkinvent As expected at the time of the original investment, the Group is now beginning to derive commercial benefits from its association with Zinkinvent. Zinkinvent is the holding company of the Vista group which has galvanizing and fabricating operations in Benelux, France and the USA. Negotiations are actively continuing with a view to acquiring the 67% of Zinkinvent which we do not already own. In the meantime, the Group has two representatives on the boards of both Zinkinvent and Vista and during the period of our investment we have gained a good understanding of the operations of this business. Acquisitions In August 2005 we acquired the operations of Techspan Systems Limited and in February 2006 we completed the purchase of Counters & Accessories Limited. These businesses are involved in the manufacture of electronic highway information and vehicle logging and detection systems. In common with our more traditional fabricated product businesses, both these companies supply customers for the road and infrastructure markets. This marketplace is showing significant growth and we are likely to add to this portfolio in the future as we develop the necessary technology to supply the demands of the market. Shareholder Value Over the five years to 31 December 2005, the share price of Hill & Smith ordinary shares has risen from 65p to 217p, an increase of 233%. This compares with a decline over this period of 4% in the FTSE All Share Index and an increase of 2% in the FTSE Small Cap Index. Over the same period total shareholder return, including dividends, has matched or outperformed both these indices in four of the five years. The Future We will continue to invest in opportunities which will enhance shareholder value both organically and by acquisition. Our product development programme is being energetically pursued and new product launches will be evident in 2006. Our major customers are very active in the infrastructure and construction markets and we are increasingly focusing on products aimed at the health and safety and security demands of this market. Our management teams remain very focused on delivering high-quality innovative products to our customers and providing value-for-money solutions. David Grove Chief Executive 8 March 2006 FINANCIAL REVIEW Basis of consolidation The results cover the twelve months to 31 December 2005. They include a first full year's trading of the Lionweld Kennedy operation which we acquired towards the end of 2004. They also include a seven month contribution from our Zinkinvent investment which is being accounted for as an associate. The financial statements, including the prior year comparatives, are presented for the first time in accordance with International Financial Reporting Standards. Summary of Results The Group's 2005 results represent another record year with sales, profits and earnings per share all at their highest ever levels. The rapid rise in the cost of our major raw material prices that we saw in 2004 abated somewhat, although some of our businesses were affected this year by the significant increase in energy costs. Nevertheless, and despite volatile market conditions for some of our businesses, we were able to improve overall operating margins significantly, due in large part to the benefits arising from our programmes of capital investment, business reorganisation and new product development over the past few years Sales and Operating Profit Group sales increased by 3.2% to Â£277.3 million (2004: Â£268.7 million). Adjusting for the first full year contribution from Lionweld Kennedy, like-for-like growth was 0.5%. Underlying sales in the Industrial Products division were flat but fell by 1.7% in the Building and Construction division, substantially all of the decrease arising in our steel reinforcing operations where the Heathrow T5 contract wound down in line with expectations. The main area of organic growth was in our core Infrastructure Products Group (IPG) division where sales grew by 12.2%, with only a minor contribution from the recently acquired Techspan business. Underlying operating margins improved in all divisions but particularly in IPG, where they increased from 9.5% to 12.1% and absolute underlying operating profit grew by 42.8%, fuelled by efficiency improvements, new product launches and strong market demand both domestically and abroad. The other divisions overall delivered broadly unchanged like for like performances with most of the profit improvement attributable to the new Lionweld Kennedy Flooring business. Group underlying operating profit increased by 29.7% to Â£19.6 million (2004: Â£15.1 million). Net reorganisation and property items at operating profit level amounted to Â£0.1 million. These include the cost of relocating galvanizing production at both Birtley Building Products and Joseph Ash, which involved the closures of factories at Hartlepool and Digbeth, and a reorganisation at Express Reinforcements where we carried out a major management and operational restructuring, including the closure of their Rainham depot. These costs were offset by profits on various property transactions, mainly the sale of the vacant sites at Wombwell and Digbeth and three sale and leaseback transactions covering five Group operating properties. These transactions generated total net proceeds of Â£13.8 million which will be used to help finance the Group's investment and acquisition programmes. Taken together with the resultant interest savings, these transactions will have a broadly neutral effect on annual future earnings. Income from our investment in Zinkinvent GmbH amounted to Â£0.7 million which, in accordance with the requirements of international accounting standards, is stated after interest and tax even though included at the operating profit level. Taking into account the interest cost on the related new borrowings, this investment made a small net contribution to the year's earnings. Financing costs Net financing costs increased by Â£0.6 million, primarily as a result of the borrowings we took on to finance the Zinkinvent investment and the heavy capital investment programme. The sale and leaseback transaction came too late in the year to have any material effect on the year's interest costs. Underlying net interest cover improved to 5.1 times (2004: 4.6 times). Profit before taxation Underlying profit before taxation rose by 33.0 % to a record Â£15.7 million (2004: Â£11.8 million). Including the effect of the net reorganisation and property items, profit before taxation increased by 56.5% to Â£15.8 million (2004: Â£10.1 million). Taxation The effective tax rate on underlying profits was 28.0% compared to the standard rate of 30%. This was due mainly to the benefit of tax relief on employee share option gains and the inclusion of the Zinkinvent post tax profits at the pre tax level. There was also a very significant overall tax credit arising on the net reorganisation and property items where we were able to shelter the profits arising on the property transactions. Financing Year end net borrowings increased to Â£47.3 million (2004: Â£37.9 million). The main cause of the increase was the Â£24.7 million of new Euro denominated debt which we took on to finance the investment in our associated company, Zinkinvent GmbH. Excluding these new borrowings, underlying net debt reduced by Â£15.3 million during the year. We took out an interest swap to fix the borrowing costs on these new borrowings until 30 June 2007 pending conclusion of negotiations with the vendors. We continued our vigorous programme of capital expenditure, investing a total of Â£12.3 million, including Â£1.5 million on new product development costs. Property transactions during the year generated Â£13.8 million and tight management of working capital enabled us to generate a further Â£3.0 million, although this was impacted by a decrease during the year in the level of advance payments received in connection with our Terminal 5 Joint Venture. Pensions In line with the experience of most UK companies, there was an increase in the level of our year end net retirement benefit obligation. Although investment returns during the year exceeded expectations they were outweighed by improved mortality rates and the significant reduction in long term interest rates. Earnings per share Underlying earnings per share amounted to 17.92p, an increase of 34.7% over last year and the highest ever achieved by the Group. Basic earnings per share grew by 85.2% to 22.52p which was also a record. Dividends In line with our progressive dividend policy, we again propose to increase the level of the distribution to shareholders. The recommended final dividend, together with the interim dividend already paid, makes a total for the year of 6.00p per share, an increase of 20.0% over last year. Based on underlying earnings, this level of dividend is covered 3.0 times (2004: 2.7 times). Chris Burr Finance Director 8 March 2006 CONSOLIDATED INCOME STATEMENT Year ended 31 December 2005 Year ended 31 December 2005 Year ended 31 December 2004 Reorganisation Reorganisation Underlying and property Underlying and property results items Total results items Total Notes Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ------------------------------------------------------------------------------------------------------------------------ Sales 1 277,296 - 277,296 268,652 - 268,652 ======================================================================================================================== Trading profit 18,893 - 18,893 15,084 - 15,084 Income from associated company 2 677 - 677 - - - Business reorganisation costs 3 - (4,260) (4,260) - (1,460) (1,460) Special bonus and associated costs - - - - (424) (424) Profit on sale of properties 3 - 4,389 4,389 - 187 187 ------------------------------------------------------------------------------------------------------------------------ Operating profit 1 19,570 129 19,699 15,084 (1,697) 13,387 Financial income 4,294 - 4,294 3,493 - 3,493 Financial expense (8,166) - (8,166) (6,770) - (6,770) ------------------------------------------------------------------------------------------------------------------------ Profit before taxation 15,698 129 15,827 11,807 (1,697) 10,110 Taxation 4 (4,397) 2,766 (1,631) (3,554) 991 (2,563) ------------------------------------------------------------------------------------------------------------------------ Profit for the year 11,301 2,895 14,196 8,253 (706) 7,547 ======================================================================================================================== Attributable to: Equity holders of the parent - - 14,176 - - 7,539 Minority interest - - 20 - - 8 ------------------------------------------------------------------------------------------------------------------------ Profit for the year - - 14,196 - - 7,547 ======================================================================================================================== Basic earnings per share 5 - - 22.52p - - 12.16p Diluted earnings per share 5 - - 21.82p - - 11.63p Dividend per share - Interim 6 - - 2.60p - - 2.25p Dividend per share - Final proposed 6 - - 3.40p - - 2.75p ------------------------------------------------------------------------------------------------------------------------ Total 6 - - 6.00p - - 5.00p ======================================================================================================================== CONSOLIDATED BALANCE SHEET As at 31 December 2005 31 December 31 December 2005 2004 Notes Â£000 Â£000 -------------------------------------------------------------------------------- Non-current assets Intangible assets 29,727 28,144 Property, plant and equipment 40,972 44,431 Investments in associates 2 24,832 - Deferred tax asset 2,407 - -------------------------------------------------------------------------------- 97,938 72,575 -------------------------------------------------------------------------------- Current assets Assets held for sale - freehold land 631 1,746 Inventories 24,804 27,004 Trade and other receivables 61,057 58,002 Cash and cash equivalents 7 16,313 9,901 -------------------------------------------------------------------------------- 102,805 96,653 -------------------------------------------------------------------------------- Total assets 1 200,743 169,228 ================================================================================ Current liabilities Trade and other liabilities (79,528) (75,596) Current tax liabilities (2,088) (2,471) Interest bearing borrowings 7 (8,162) (11,806) -------------------------------------------------------------------------------- (89,778) (89,873) -------------------------------------------------------------------------------- Net current assets 13,027 6,780 ================================================================================ Non-current liabilities Trade and other liabilities (427) - Provisions for liabilities and charges (833) (1,629) Deferred tax liability - (797) Retirement benefit obligation (13,885) (6,642) Interest bearing borrowings 7 (55,408) (36,003) -------------------------------------------------------------------------------- (70,553) (45,071) -------------------------------------------------------------------------------- Total liabilities 1 (160,331) (134,944) ================================================================================ Net assets 1 40,412 34,284 ================================================================================ Equity Share capital 15,799 15,519 Share premium 4,036 3,519 Capital redemption reserve 238 238 Other reserves 4,313 4,313 Translation reserve (38) (56) Equity reserves 15,994 10,701 -------------------------------------------------------------------------------- Equity attributable to equity holders of the parent 40,342 34,234 Minority interests 70 50 -------------------------------------------------------------------------------- Total equity 40,412 34,284 ================================================================================ CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Notes Â£000 Â£000 Â£000 Â£000 ------------------------------------------------------------------------------------------------------------------------ Operating profit 1 - 19,699 - 13,387 Adjusted for non cash items Income from associated company (677) - - - Share-based payment 100 - - - Gain on disposal of property, plant and equipment (4,396) - (223) - Depreciation 6,012 - 5,522 - Amortisation of intangible assets 183 - 63 - ======== ======== - 1,222 - 5,362 -------- - -------- Operating cash flow before movement in working capital - 20,921 18,749 Decrease/(Increase) in inventories 2,616 - (2,438) - Increase in receivables (2,195) - (10,667) - Increase in payables 2,591 - 11,842 - ======== ======== Net movement in working capital - 3,012 - (1,263) -------- -------- Cash generated by operations 1 - 23,933 - 17,486 Income taxes - (2,727) - (2,259) Interest paid - (4,676) - (3,603) ------------------------------------------------------------------------------------------------------------------------ Net cash from operating activities - 16,530 - 11,624 Interest received 455 - 95 - Proceeds on disposal of property, plant and equipment 13,788 - 526 - Purchase of property, plant and equipment (10,776) - (7,814) - Purchase of intangible assets (1,506) - (432) - Acquisitions of subsidiaries and associates (25,219) - (2,533) - ======== ======== Net cash used in investing activities - (23,258) - (10,158) Issue of new shares 797 - 191 - Dividends paid (3,134) - (2,846) - New loans raised 25,516 - 2,946 - Repayments of loans (7,750) - (4,250) - Repayment of loan notes (1,030) - (827) - Repayment of obligations under finance leases (1,259) - (1,102) - ======== ======== Net cash from/(used in) financing activities - 13,140 - (5,888) ------------------------------------------------------------------------------------------------------------------------ Net increase/(decrease) in cash - 6,412 - (4,422) Cash at the beginning of the year - 9,901 - 14,323 ------------------------------------------------------------------------------------------------------------------------ Cash at the end of the year 7 - 16,313 - 9,901 ======================================================================================================================== CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended 31 December 2005 Year ended Year ended 31 December 31 December 2005 2004 Â£000 Â£000 -------------------------------------------------------------------------------- Exchange differences on translation of foreign operations 18 34 Actuarial loss on defined benefit pension schemes (8,094) (3,920) Deferred tax on items taken directly to equity 2,173 904 Current tax on items taken directly to equity 255 272 -------------------------------------------------------------------------------- Net expense recognised directly in equity (5,648) (2,710) Profit for the year 14,196 7,547 -------------------------------------------------------------------------------- Total recognised income and expense for the year 8,548 4,837 ================================================================================ Attributable to: Equity holders of the parent 8,528 4,829 Minority interest 20 8 -------------------------------------------------------------------------------- Total recognised income and expense for the year 8,548 4,837 ================================================================================ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Segmental information The Group is currently organised into three main operating segments which represents its primary segment information. All operations are continuing: Income Statement Year ended 31 December 2005 Year ended 31 December 2004 Underlying Underlying Operating operating Operating operating Sales profit profit* Sales profit profit* Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ------------------------------------------------------------------------------------------------------------------------ Infrastructure Products + 107,414 11,872 13,003 95,729 8,274 9,103 Building and Construction Products 131,797 4,353 4,816 134,120 3,834 4,512 Industrial Products 38,085 3,474 1,751 38,803 1,279 1,469 --------------------------------------------------------------------------------------------------------------------- Total Group 277,296 19,699 19,570 268,652 13,387 15,084 ========================================================= ========= Net financing costs (3,872) (3,872) (3,277) (3,277) ------------------- ------------------- Profit before taxation 15,827 15,698 10,110 11,807 Taxation (1,631) (4,397) (2,563) (3,554) -------------------------------------------------------------------------------------------------------------------- Profit after taxation 14,196 11,301 7,547 8,253 ==================================================================================================================== * Underlying operating profit is stated before reorganisation and property items. + Includes Â£677,000 income from associated company Balance Sheet Year ended 31 December 2005 Year ended 31 December 2004 Total Total Total Total assets liabilities assets liabilities Â£000 Â£000 Â£000 Â£000 --------------------------------------------------------------------------------------------------------------------- Infrastructure Products + 94,993 (20,918) 69,916 (21,535) Building and Construction Products 55,289 (33,973) 58,671 (33,571) Industrial Products 31,741 (18,050) 30,740 (16,564) --------------------------------------------------------------------------------------------------------------------- Total operations 182,023 (72,941) 159,327 (71,670) Tax and dividends 2,407 (9,102) - (7,194) Non-current items - (14,718) - (8,271) Net debt 16,313 (63,570) 9,901 (47,809) --------------------------------------------------------------------------------------------------------------------- Total Group 200,743 (160,331) 169,228 (134,944) ===================================================================================================================== Net assets - 40,412 - 34,284 ===================================================================================================================== + Includes Â£24.8m investment in associated company Cash Flows Year ended 31 December 2005 Year ended 31 December 2004 Underlying Underlying Cash flow cash flow* Cash flow cash flow* Â£000 Â£000 Â£000 Â£000 --------------------------------------------------------------------------------------------------------------------- Infrastructure Products 10,826 12,846 10,133 10,956 Building and Construction Products 10,087 11,282 5,112 5,794 Industrial Products 3,020 3,346 2,241 2,427 --------------------------------------------------------------------------------------------------------------------- Cash generated by operations 23,933 27,474 17,486 19,177 ===================================================================================================================== * Underlying cash flow is stated before reorganisation and property items. 2. Income from associated company In May 2005 the Group invested â‚¬35 million (â‚¬25 million to acquire 33% of the ordinary shares and a â‚¬10 million loan) in Zinkinvent GmbH, a German holding company which owns 86% of Vista NV, a Belgian company with galvanizing and lighting pole fabrication businesses in Benelux, France and the United States of America. The results of this business are being equity accounted into the results of the Group. The Group's share of the post acquisition profit of Zinkinvent GmbH for the year ended 31 December 2005, which is stated net of local income tax, was Â£677,000 (2004: Â£Nil). 3. Reorganisation and property items Business reorganisation costs These relate primarily to the costs of relocating galvanizing production from the Digbeth operation of Joseph Ash Limited and the Hartlepool operation of Birtley Building Products Limited to alternative locations, and the costs arising from the restructuring of Express Reinforcements Limited including the closure of its Rainham depot. Profit on sale of properties These relate to the sale of two vacant properties and the sale and leasebacks of five other operating properties. No tax liability arises on the profit on these sales due to the availability of indexation allowances and capital losses. There is a deferred tax benefit of Â£1,363,000 relating to the grant of subordinate lease interests. 4. Tax on profit Year ended Year ended 31 December 31 December 2005 2004 Â£000 Â£000 -------------------------------------------------------------------------------- Current tax UK corporation tax at 30% (2004: 30%) 2,519 2,558 Adjustments in respect of prior periods (30) - Foreign tax at prevailing local rates 110 39 -------------------------------------------------------------------------------- 2,599 2,597 Deferred tax Current year (980) 128 Adjustments in respect of prior periods 12 (162) -------------------------------------------------------------------------------- Tax on profit in the Income Statement 1,631 2,563 ================================================================================ The tax charge for the period is lower than the standard rate of corporation tax in the UK. The differences are explained below: Year ended Year ended 31 December 31 December 2005 2004 Â£000 Â£000 -------------------------------------------------------------------------------- Profit before taxation 15,827 10,110 ================================================================================ Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% 4,748 3,033 Expenses not deductible for tax purposes 360 301 Deductible employee share option gains not charged against profit (309) (412) Income from associated companies already taxed (203) - Capital profits less losses and write downs not subject to tax (1,526) (98) Deferred tax benefit arising from asset disposals (1,363) (110) Overseas profits taxed at lower rates (58) (35) Overseas losses not relieved - 46 Adjustments in respect of previous periods (18) (162) ------------------------------------------------------------------------------- Tax charge 1,631 2,563 ------------------------------------------------------------------------------- In addition to the deferred tax credit in the Income Statement deferred tax of Â£63,000 (2004: Â£Nil) has been credited direct to equity relating to share based payments. 5. Earnings per share The weighted average number of shares in issue during the year was 62,960,978 (2004: 61,999,081), diluted for the effects of outstanding share options 64,968,617 (2004: 64,805,705). Underlying earnings per share have been shown because the Directors consider that this gives a more meaningful indication of the underlying performance of the Group. Year ended Year ended 31 December 2005 31 December 2004 Pence per Pence per Share Â£000 Share Â£000 --------------------------------------------------------------------------------------------------------------------- Basic earnings 22.52 14,176 12.16 7,539 Less effect of reorganisation and property items 4.60 2,895 (1.14) (706) --------------------------------------------------------------------------------------------------------------------- Underlying earnings 17.92 11,281 13.30 8,245 ===================================================================================================================== Diluted earnings 21.82 14,176 11.63 7,539 Less effect of reorganisation and property items 4.46 2,895 (1.09) (706) --------------------------------------------------------------------------------------------------------------------- Underlying diluted earnings 17.36 11,281 12.72 8,245 ===================================================================================================================== 6. Dividends Dividends declared after the balance sheet date are not recognised as a liability, in accordance with IAS10. The Directors have recommended a final dividend for the current year, subject to shareholder approval, as shown below. The Directors feel it is important that this information be disclosed even though the recommended figure no longer forms part of the financial statements under International Accounting Standards. Year ended Year ended 31 December 2005 31 December 2004 Pence per Pence per Share Â£000 Share Â£000 --------------------------------------------------------------------------------------------------------------------- Equity shares: Interim 2.60 1,643 2.25 1,397 Final proposed 3.40 2,149 2.75 1,737 --------------------------------------------------------------------------------------------------------------------- Total 6.00 3,792 5.00 3,134 ==================================================================================================================== 7. Cash and borrowings Year ended Year ended 31 December 31 December 2005 2004 Â£000 Â£000 -------------------------------------------------------------------------------- Cash Cash and bank balances 2,271 7,322 Call deposits 14,042 2,579 -------------------------------------------------------------------------------- 16,313 9,901 Interest bearing loans and borrowings Amounts due within one year (8,162) (11,806) Amounts due after more than one year (55,408) (36,003) -------------------------------------------------------------------------------- Net debt (47,257) (37,908) Add back borrowings taken on to finance the investment in Zinkinvent GmbH 24,654 - -------------------------------------------------------------------------------- Underlying net debt (22,603) (37,908) ================================================================================ 8. Adoption of International Financial Reporting Standards In accordance with the European Union Regulation issued in 2002, the Company's consolidated results for the year ending 31 December 2005, including the prior year comparatives, have been prepared on the basis of International Financial Reporting Standards. 9. Subsequent events In February 2006 the Group acquired the entire share capital of Counters & Accessories Limited for a cash consideration of Â£5 million. Notes 1. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2005 or 2004. Statutory accounts for 2004, which were prepared under UK GAAP, have been delivered to the registrar of companies, and those for 2005, prepared under accounting standards adopted by the EU, will be delivered in due course. The auditors have reported on those accounts; their reports were (i) unqualified, (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports, and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. The proposed final dividend will be paid on 12 July 2006 to shareholders on the register on 9 June 2006 (ex-dividend date 7 June 2006). 3. The Annual Report will be posted to shareholders on 6 April 2006, and will be displayed on the Company's website at www.hsholdings.co.uk. Copies of the Annual Report will also be available from the Registered Office at 2 Highlands Court, Cranmore Avenue, Shirley, Solihull, B90 4LE. 4. The Annual General Meeting will be held at The Balcony Suite, The National Motorcycle Museum, Solihull at 10.30 a.m. on Friday 12 May 2006. Financial calendar: Annual General Meeting 12 May 2006 Payment of proposed final dividend 12 July 2006 Interim results announcement for the period to 30 June 2006 September 2006 Payment of interim dividend January 2007 5. This preliminary announcement of results for the year ended 31 December 2005 was approved by the Directors on 8 March 2006. This information is provided by RNS The company news service from the London Stock Exchange

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