Half Yearly Report

RNS Number : 8944L

Hill & Smith Hldgs PLC

08 August 2011

 



08 August 2011

Hill & Smith Holdings PLC

INTERIM RESULTS (UNAUDITED) FOR

6 MONTHS ENDED 30 JUNE 2011

Hill & Smith Holdings PLC, the international group with leading positions in the supply of infrastructure products and galvanizing services to global markets, announces its interim results for the 6 months ended 30 June 2011.

Financial results

	30 June 2011	30 June 2010	Change
Revenue	£195.1m	£193.5m	+0.8%
Underlying operating profit*	£18.2m	£23.5m	-22.6%
Underlying profit before taxation*	£16.2m	£21.5m	-24.7%
Underlying earnings per share*	15.0p	19.2p	-21.9%
Dividend per share	5.4p	5.2p	+3.8%
Net debt increased to £113.9m, compared to the year end level of £70.6m, mainly due to acquisitions.

*Underlying profit measures exclude Non-Underlying items which represent business reorganisation costs, property items, acquisition related expenses, amortisation of acquisition intangibles, impairments, losses on disposal of available for sale financial assets, change in the value of financial instruments and net financing returns on pension obligations.  References to an underlying profit measure throughout this Interim Report are defined on this basis.

Key points:

·      Group performance broadly in line with the Board's expectations:

-      Good performance from Galvanizing Services in US and France

-      Challenging and highly competitive conditions in certain key Infrastructure markets, particularly in the UK 

·      Over 69% of operating profit is now generated from international operations

·      Acquisition of The Paterson Group positions the Group for growth in global power generation markets

·      Acquisition of ATA provides entry into Scandinavian roads market

·      Exit from Building and Construction Products leaves the Group wholly focused on two higher added value divisions - Infrastructure Products and Galvanizing Services

·      New five year £210m banking facility enhances financial flexibility and underpins growth strategy

·      Interim dividend increased by 3.8% to 5.4p per share

Derek Muir, Chief Executive, said:

"We have made important strategic progress since the start of the year, further enhancing our international capabilities with two acquisitions in the US and Scandinavia, and disposing of the last of our major Building and Construction businesses. 

"The Group as a whole traded broadly in line with our expectations in the first half, with reasonable activity levels overall but with operating margins, as expected, being impacted by the highly competitive market conditions and rising material costs, particularly in the infrastructure arena. 

"Whilst we enter the second half of the year with a strong order book in our utilities business, greater international diversity and with the benefit of the recent acquisitions, the Board remains cautious given the difficult economic conditions and competitive pressures in certain of our markets.  Against that background, we are clearly focused on managing the business and its cost base very tightly, taking proactive measures where necessary." 

For further information, please contact:

Hill & Smith Holdings PLC	Tel:  [phone]
Derek Muir, Group Chief Executive
Mark Pegler, Group Finance Director
MHP Communications	Tel:  [phone]
Barnaby Fry / Vicky Watkins
Investec	Tel:  [phone]
Chris Treneman

Notes to Editors

Hill & Smith Holdings PLC is an international group with leading positions in the design, manufacture and supply of infrastructure products and galvanizing services to global markets.  It serves its customers from facilities principally in the UK, France, USA, Thailand, Sweden and China.

The Group's operations are organised into two main business segments:

Infrastructure Products For the core markets of road and utilities, supplying products and services such as permanent and temporary road safety barriers, street lighting columns, bridge parapets, gantries, temporary car parks, "GRP" railway platforms, variable road messaging solutions, traffic data collection systems, plastic drainage pipes, pipe supports for the power and liquid natural gas markets, energy grid components, industrial flooring, handrails, access covers and security fencing.

Galvanizing Services which provides zinc and other coatings for a wide range of products including fencing, lighting columns, structural steel work, bridges, agricultural and other products for the infrastructure and construction markets.

Headquartered in the UK and quoted on the London Stock Exchange (LSE: HILS.L), Hill & Smith Holdings PLC employs some 3,500 staff across 50 sites, principally in 6 countries.  In the year to 31 December 2010, it generated revenues of £374.2m.

Business Review

Introduction

The Group has delivered a performance in the first half of 2011 in line with the outlook given at the time of the full year results in March.

This outcome reflects a good performance from the Galvanizing Services division in the US and France offset by the well publicised challenges in some of the key markets for our Infrastructure Products division, particularly in the UK.  Whilst we have purposefully and significantly reduced our exposure to UK Government expenditure in recent years, the marked reduction in activity in this area, particularly in roads spend, has impacted the Group as anticipated.

During the period, we made two important acquisitions that have further extended our market offering and increased our international footprint, such that over 69% of our operating profits now come from outside the UK.  In March we acquired The Paterson Group, the US manufacturer and distributor of pipe supports to the power generation, commercial and industrial markets and in May, we acquired ATA, a Swedish road safety products company. 

More recently, in July we disposed of the only business in the Building and Construction Products division, Ash and Lacy Building Systems.  This disposal follows our action earlier in the year when the industrial flooring businesses were refocused to provide access solutions for large infrastructure projects in both the UK and overseas markets.  These businesses are now included and managed within the Infrastructure Products division and their results incorporated into the Infrastructure Products segment, including re-stated comparatives.  Accordingly, the Building and Construction Products division will cease to exist from the end of this financial year.

As a result, the Group is now wholly focused on two core higher added value divisions - Infrastructure Products and Galvanizing Services.  Both divisions have a significant international presence and long term growth dynamics.

We have a very sound balance sheet and the new £210m five year credit facility, announced in May 2011, further enhances our financial flexibility and underpins our growth strategy.

Results

Revenue increased 0.8% to £195.1m (2010: £193.5m) after taking account of an adverse currency translation impact of £1.6m.  Adjusting for revenue of £11.2m, arising from acquisitions, underlying revenue reduced by £8.0m to £183.9m (a 5.0% reduction).  Underlying operating margin reduced to 9.3% (2010: 12.1%), resulting in a decrease in underlying operating profit of 22.6% to £18.2m (2010: £23.5m). Acquisitions contributed £0.6m underlying operating profit.

Underlying profit before taxation at £16.2m was 24.7% behind the previous year (2010: £21.5m).  Profit before taxation declined to £4.6m (2010: £20.2m).

Underlying earnings per share at 15.0p reduced by 21.9% compared to the previous year (2010: 19.2p).  Basic earnings per share was 1.7p (2010: 18.0p).

Dividend

The Board has declared an interim dividend of 5.4p per share (2010: 5.2p), representing a 3.8% increase on the corresponding period last year.  The dividend is covered 2.8 times (2010: 3.7 times) by underlying earnings per share.  The interim dividend will be paid on 6 January 2012 to the shareholders on the register on 25 November 2011.

Operational Review

Infrastructure Products 

Overall revenues were down 1.3% to £123.6m (2010: £125.2m) with no material impact from exchange movements.  Adjusting for acquisitions, revenues reduced by £12.8m.  This, along with lower margins at 6.1% (2010:  9.3%), resulted in underlying operating profits being 35.9% lower at £7.5m (2010: £11.7m).  Acquisitions accounted for £0.6m of underlying operating profit.

Roads

As previously stated, in our November 2010 Interim Management Statement, the reduction in roads spend together with the delay in the UK's Managed Motorway Programme has reduced the revenue and profitability in our roads businesses.  Techspan, the electronic signage business, won an order for £4m from the Scottish Office for signage for the new Forth Bridge Crossing, however, this did not replace the large order supplied to the Highways Agency as a result of the stimulus spend in the same period for the previous year.

Our temporary vehicle restraint system, Varioguard, achieved consistent rental utilisation but rental rates came under pressure due to excessive capacity in the market.  More recently, whilst larger projects remain in place, we have been experiencing a lack of demand for "everyday" deployment.  However, with the introduction of the Managed Motorway Programme in the last quarter of 2011, we expect our utilisation to improve again.

The UK lighting column operation performed well, benefiting from the long term PFI orders gained in 2010.  Profitability remained similar to last year despite a marked reduction in Local Authority spending.

In France, lighting column volumes increased, however the competitive environment has led to similar profits to 2010.  The new in-house powder coating facility started production in June and the benefits of lower production costs will be seen in the second half.

We continue to make progress in the USA with Zoneguard, our temporary steel vehicle restraint system which offers an alternative to the traditional established concrete wall system.  Market penetration has however, proved more difficult than anticipated with excess capacity in the market, mainly due to the lack of a long term US highway bill and a reduced number of State contract lettings compared to 2010.

The acquisition of ATA, the road safety products company in Sweden, provides us with an attractive platform to enter the Scandinavian market with tested vehicle restraint systems.  The first weeks of trading since acquisition in May 2011 have seen revenues and profit ahead of our expectations and we are confident of a strong performance from this business in the second half of 2011.

Utilities

The requirement for new power generation in emerging economies and the replacement of power generation infrastructure in developed countries provides us with an excellent opportunity for the Group's utilities businesses.

The Group's pipe supports business supplies large industrial pipe supports for petrochemical, gas, coal and nuclear power plants around the world.  Whilst there is currently a hiatus in the build programme of nuclear power plants, the overall demand for power generation over the medium to long term has not changed and new plants should continue to be built whether using gas, fossil or nuclear fuels.

The £9m orders won at the end of 2010 for power plants in India began shipping in April and will be completed by November this year.  Whilst the performance in the first half has been impacted by longer than anticipated lead times, the  robust order book which stood at £15m at the end of June, driven by demand in emerging markets, means that we expect stronger revenues in the second half of 2011.  Rising material costs and competitive pressures will however impact margins. 

The Paterson Group, acquired in March this year, has now been integrated with our existing business to become a global supplier in this marketplace, under the well established Bergen Pipe Supports brand.  Synergies in the enlarged pipe supports business have been explored and a number of the opportunities identified are being implemented.

The UK water industry's AMP5 (Asset Management Programme) continued to gain momentum in the first half and orders for the supply of interconnecting pipework, storm water attenuation and access systems will enable a strong second half performance.

Rationalisation of the sites in the USA utility fabrication business at the end of 2010 produced a better result compared with the first half of 2010 and orders for the second half are strong.  However, this market is also under competitive pressures due to excess capacity and this will affect margins.

Our USA based GRP business, Creative Pultrusions, had an excellent start to the year securing orders for rail platforms, sheet piling and materials for the growth markets of gas exploration and renewable energy in the USA.  The business enters the second half with a strong order book which will produce an excellent improvement in profitability year on year.

Galvanizing Services

Revenue increased by 4.7% to £59.9m (2010: £57.2m).  Underlying operating profit reduced by 10.0% to £10.8m (2010: £12.0m).  Overall volumes were similar to 2010 with favourable comparatives in the USA and France offset by that of the UK.  As expected, overall margins returned to a more normal level of 18.0% (2010: 21.0%).

Margins in the USA and France remained strong due to the increased volumes improving utilisation and therefore offsetting increased operating costs.  UK volumes were significantly down in the period due to a combination of a reduction in volumes from our own Infrastructure Products businesses and a continued reduction in larger construction projects.  This reduced volume had a significant impact on the performance in the UK.

We expect these overall trends in our galvanizing markets to continue in the second half of the year.

Building and Construction Products

The division comprised solely the business of Ash & Lacy Building Systems Limited which was sold on 22 July 2011.  Revenues rose slightly to £11.6m (2010: £11.1m) and the underlying loss of £0.1m was marginally improved from a loss of £0.2m in 2010.   Following the disposal, the division will cease to exist from the end of this financial year.

Financial Review

Cash generation and financing

Cash generated from operations during the period was £12.6m (2010: £25.0m) which was lower than normally experienced due to a £9.5m (2010: £4.1m) cash outflow in respect of additional working capital requirements.  Higher inventory values created by stronger steel prices, higher zinc bath values and specific investment in project build programmes ahead of customer call offs were the principal drivers of the increased investment. Capital expenditure amounted to £7.3m (2010: £6.4m) which, as a multiple of depreciation and amortisation, was 1.0 times (2010: 0.9 times). Full year capital expenditure is expected to be c.£16m, around 1.0 times depreciation and amortisation.

In May the Group completed a refinancing of its revolving credit facilities, securing a new £210m five year multi currency facility on competitive terms with five leading banks.  At 30 June 2011, the Group had committed facilities available of £224.2m and a further £12.7m in other on demand facilities.  The facilities at the Group's disposal provide significant headroom against its expected funding requirements.

Change in net debt

	6 months ended 30 June 2011 £m	6 months ended 30 June 2010 £m	Year ended 31 December 2010 £m
Operating profit Non-cash items	9.9 13.8	22.3 8.1	39.6 15.7
Operating cash flow before movement in working capital Net movement in working capital Change in provisions and employee benefits	23.7 (9.5) (1.6)	30.4 (4.1) (1.3)	55.3 (1.3) (2.3)
Operating cash flow Tax paid Net financing costs paid Capital expenditure Proceeds on disposal of non-current assets	12.6 (2.6) (5.0) (7.3) -	25.0 (3.1) (2.5) (6.4) -	51.7 (9.4) (3.4) (15.2) 0.9
Free cash flow Dividends paid (Note 10) Purchase of shares for employee benefit trust Disposals Acquisitions Issue of new shares	(2.3) (4.0) (0.8) - (35.2) 0.1	13.0 (3.6) (0.4) 0.3 - 0.8	24.6 (8.8) (0.4) 0.3 (0.2) 0.8
Net debt (increase)/decrease Effect of exchange rate fluctuations Net debt at the beginning of the period	(42.2) (1.1) (70.6)	10.1 1.1 (87.6)	16.3 0.7 (87.6)
Net debt at the end of the period	(113.9)	(76.4)	(70.6)

The net debt to EBITDA* ratio under the key banking covenant is 1.9 times (covenant 3.0 times) compared to 1.2 times at 30 June 2010 and 1.2 times at 31 December 2010. The increase in the ratio since the year end is principally due to the expenditure on the two acquisitions completed during the period. Interest cover was 14.9 times (covenant 4.0 times). 

Tax

The tax charge for the period was £3.3m (2010: £6.4m). The underlying effective tax rate for the period was 29.0% (2010: 31.4%) which is our estimated effective rate for the full year.

Finance Costs

Net financing costs increased by £3.2m to £5.3m including a one time charge of £2.5m associated with the costs of the new revolving credit facility, which are required to be expensed in accordance with IAS39 (Revised), rather than capitalised and amortised over the life of the facility. Net underlying financing costs amounted to £2.0m (2010: £2.0m). Underlying operating profit covered net underlying finance costs 9.1 times (2010: 11.8 times).

*  Rolling 12 months

Principal Risks and Uncertainties

The Group has a process for identifying, evaluating and managing the principal risks it faces.  Details of these principal risks are contained on pages 14 and 15 of the Group's Annual Report and Accounts for the year ended 31 December 2010.  It is the Directors' opinion that these are the risks that could impact on the performance of the Group and that they are also applicable to the current financial year.

The Directors have continued with their strategy of increased geographical diversity (primarily through acquisitions) and providing higher value added infrastructure products to niche markets to limit the potential impact of lower Government expenditure on major projects.  In addition the Group is increasing its capabilities to service customers in emerging markets such as China and India.

Subject to the foregoing, for the six months ended 30 June 2011, there has been no significant change in the overall scope of the principal risks referred to above.  As in previous years such risks are being managed and their anticipated impact mitigated where possible.  The Directors do not therefore, envisage any significant effect of these changes upon the expected performance of the Group for the remainder of 2011, notwithstanding the continuing uncertainty in the general economic environment.

Going Concern

The Group meets its day to day working capital and other funding requirements through a combination of long term funding and short term overdraft borrowings.  The Group's principal financing facility is an amortising £210m multi currency facility which expires in 2016.

The Group actively manages its strategic, commercial and day to day operational risks and through its Treasury function operates Board approved financial policies, including hedging policies, that are designed to ensure the Group maintains an adequate level of funding headroom and effectively mitigates foreign exchange and other financial risks.

After making enquiries, the Directors have reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and therefore adopt the going concern principle.

Outlook

The Board remains cautious in its outlook for the second half due to the difficult economic conditions and competitive pressures in our markets.

The UK roads infrastructure businesses anticipate a stronger fourth quarter as the first Managed Motorway schemes are expected to start.

We enter the second half with a strong order backlog in our utilities businesses although the timing of some of these projects, whilst currently planned for delivery in this period, may be subject to delays.

Overall volumes in galvanizing are expected to remain similar to 2010 and we continue to see strong activity in the USA and France offsetting any volume and margin weakness in the UK market.

Against that background, we are clearly focused on managing the business and its cost base very tightly, taking proactive measures where necessary. 

The Group is now wholly focused on the transport and utilities infrastructure markets and on galvanizing services in the US, France and UK.  We anticipate that operating profit from overseas operations for the year will be in excess of 63% and UK Government spend, now expected to represent just 14% of Group revenue for the full year, continues to reduce as a proportion of our overall business.  We remain confident that our business model and strategy for international expansion will deliver attractive growth and value in the medium and longer term.

Directors' Responsibility Statement

We confirm that to the best of our knowledge:

•    The condensed set of financial statements has been prepared in accordance with IAS 34: Interim Financial Reporting as adopted by the EU;

•    The interim management report includes a fair review of the information required by:

a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period including any changes in the related party transactions described in the last annual report that could do so.

This report was approved by the Board of Directors on 8 August 2011 and is available on the Company's website (www.hsholdings.com).

By order of the Board

W H Whiteley       D W Muir              M Pegler

Chairman             Group                   Group

                            Chief Executive     Finance Director

8 August 2011

Condensed Consolidated Income Statement

Six months ended 30 June 2011

Notes		6 months ended 30 June 2011			6 months ended 30 June 2010			Year ended 31 December 2010
		Underlying  results £m	Non- Underlying items* £m	Total £m	Underlying results £m	Non- Underlying items* £m	Total £m	Underlying results £m	Non- Underlying items* £m	Total £m
Revenue	4, 5	195.1	-	195.1	193.5	-	193.5	374.2	-	374.2
Trading profit Amortisation of acquisition intangibles Business reorganisation costs Acquisition costs Loss on remeasurement as held for sale	6 6 6	18.2 - - - -	0.1 (0.9) (1.6) (0.6) (5.3)	18.3 (0.9) (1.6) (0.6) (5.3)	23.5 - - - -	0.1 (0.4) (0.9) - -	23.6 (0.4) (0.9) - -	45.9 - - - -	- (0.9) (4.4) (1.0) -	45.9 (0.9) (4.4) (1.0) -
Operating profit Financial income Financial expense	4, 5 7 7	18.2 0.4 (2.4)	(8.3) 1.8 (5.1)	9.9 2.2 (7.5)	23.5 0.2 (2.2)	(1.2) 1.7 (1.8)	22.3 1.9 (4.0)	45.9 0.6 (4.3)	(6.3) 3.4 (4.0)	39.6 4.0 (8.3)
Profit before taxation Taxation	8	16.2 (4.7)	(11.6) 1.4	4.6 (3.3)	21.5 (6.8)	(1.3) 0.4	20.2 (6.4)	42.2 (12.2)	(6.9) 1.5	35.3 (10.7)
Profit for the period attributable to the equity holders of the parent		11.5	(10.2)	1.3	14.7	(0.9)	13.8	30.0	(5.4)	24.6
Basic earnings per share Diluted earnings per share	9 9	15.0p		1.7p 1.7p	19.2p		18.0p 17.9p	39.0p		32.0p 31.7p
Dividend per share  - interim	10			5.4p			5.2p

* Non-Underlying items represent business reorganisation costs, property items, acquisition related expenses, amortisation of acquisition intangibles, impairments, losses on disposal of available for sale financial assets, change in the value of financial instruments and net financing return on pension obligations.

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2011

	6 months ended 30 June 2011 £m	6 months ended 30 June 2010 £m	Year ended 31 December 2010 £m
Profit for the period	1.3	13.8	24.6
Exchange differences on translation of overseas operations Exchange differences on foreign currency borrowings denominated as net investment hedges Effective portion of changes in fair value of cash flow hedges Actuarial gain on defined benefit pension schemes Taxation on items taken directly to other comprehensive income	0.5 (0.5) 0.8 - (0.1)	1.1 1.3 (0.6) - 0.2	0.3 1.1 (0.3) 4.6 (1.4)
Other comprehensive income for the period	0.7	2.0	4.3
Total comprehensive income for the period attributable to the equity holders of the parent	2.0	15.8	28.9

Condensed Consolidated Balance Sheet

As at 30 June 2011

	Notes	30 June 2011 £m	30 June 2010 £m	31 December 2010 £m
Non-current assets Intangible assets Property, plant and equipment Other receivables		132.3 106.4 -	109.8 102.4 1.0	109.7 102.9 -
		238.7	213.2	212.6
Current assets Assets held for sale Inventories Trade and other receivables Cash and cash equivalents	6 11	11.1 58.1 87.8 10.1	- 48.5 82.2 37.1	- 46.4 74.9 27.0
		167.1	167.8	148.3
Total assets		405.8	381.0	360.9
Current liabilities Liabilities held for sale Trade and other liabilities Current tax liabilities Provisions for liabilities and charges Interest bearing borrowings	6 11	(5.2) (82.8) (9.1) (0.5) (5.1)	- (79.0) (11.3) - (26.8)	- (72.2) (7.6) (0.8) (27.0)
		(102.7)	(117.1)	(107.6)
Net current assets		64.4	50.7	40.7
Non-current liabilities Other liabilities Provisions for liabilities and charges Deferred tax liability Retirement benefit obligation Interest bearing borrowings	11	(0.2) (4.0) (19.8) (10.6) (118.9)	(0.2) (4.8) (12.4) (15.5) (86.7)	(0.2) (3.6) (15.9) (10.9) (70.6)
		(153.5)	(119.6)	(101.2)
Total liabilities		(256.2)	(236.7)	(208.8)
Net assets		149.6	144.3	152.1
Equity Share capital Share premium Other reserves Translation reserve Hedge reserve Retained earnings		19.2 29.2 4.5 6.6 (0.2) 90.3	19.2 29.1 4.5 7.6 (1.2) 85.1	19.2 29.1 4.5 6.6 (0.9) 93.6
Total equity attributable to equity holders of the parent		149.6	144.3	152.1

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2011

	Share  capital £m	Share premium £m	Other reserves † £m	Translation reserve £m	Hedge reserve £m	Retained earnings £m	Total equity £m
Opening balance Profit for the year Other comprehensive income for the period Dividends Credit to equity of share-based payments Satisfaction of long term incentive plan Shares issued	19.2 - - - - - -	29.1 - - - - - 0.1	4.5 - - - - - -	6.6 - - - - - -	(0.9) - 0.7 - - - -	93.6 1.3 - (4.0) 0.2 (0.8) -	152.1 1.3 0.7 (4.0) 0.2 (0.8) 0.1
Closing balance	19.2	29.2	4.5	6.6	(0.2)	90.3	149.6

Six months ended 30 June 2010

	Share  capital £m	Share premium £m	Other reserves † £m	Translation reserve £m	Hedge reserve £m	Retained earnings £m	Total equity £m
Opening balance Profit for the year Other comprehensive income for the period Dividends Credit to equity of share-based payments Satisfaction of long term incentive plan Shares issued	19.0 - - - - - 0.2	28.5 - - - - - 0.6	4.5 - - - - - -	5.2 - 2.4 - - - -	(0.6) - (0.6) - - - -	74.8 13.8 0.2 (3.6) 0.3 (0.4) -	131.4 13.8 2.0 (3.6) 0.3 (0.4) 0.8
Closing balance	19.2	29.1	4.5	7.6	(1.2)	85.1	144.3

Year ended 31 December 2010

	Share  capital £m	Share premium £m	Other reserves † £m	Translation reserve £m	Hedge reserve £m	Retained earnings £m	Total equity £m
Opening balance Profit for the year Other comprehensive income for the period Dividends Credit to equity of share-based payments Satisfaction of long term incentive plan Shares issued	19.0 - - - - - 0.2	28.5 - - - - - 0.6	4.5 - - - - - -	5.2 - 1.4 - - - -	(0.6) - (0.3) - - - -	74.8 24.6 3.2 (8.8) 0.2 (0.4) -	131.4 24.6 4.3 (8.8) 0.2 (0.4) 0.8
Closing balance	19.2	29.1	4.5	6.6	(0.9)	93.6	152.1

† Other reserves represents the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m capital redemption reserve.

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2011

	Notes	6 months ended 30 June 2011 £m		6 months ended 30 June 2010 £m		Year ended 31 December 2010 £m
Profit before tax Add back net financing costs Operating profit Share-based payments Movement in fair value of forward contracts Loss on remeasurement as held for sale Loss on disposal of property, plant and equipment Depreciation Amortisation of intangible assets Impairment of non-current assets Adjustment for non-cash items	4, 5 6	4.6 5.3 0.2 (0.1) 5.3 0.3 6.6 1.5 -	9.9 13.8	20.2 2.1 0.3 (0.1) - 0.3 6.6 1.0 -	22.3 8.1	35.3 4.3 0.2 - - 0.1 12.9 2.1 0.4	39.6 15.7
Operating cash flows before movement in working capital Increase in inventories (Increase)/decrease in receivables Increase/(decrease) in payables Decrease in provisions and employee benefits Net movement in working capital		(8.4) (10.3) 9.2 (1.6)	23.7 (11.1)	(5.2) (6.1) 7.2 (1.3)	30.4  (5.4)	(3.2) 2.8 (0.9) (2.3)	55.3 (3.6)
Cash generated by operations Income taxes paid Interest paid		12.6 (2.6) (2.3)		25.0 (3.1) (2.8)		51.7 (9.4) (4.1)
Net cash from operating activities		7.7		19.1		38.2
Interest received Proceeds on disposal of non-current assets Purchase of property, plant and equipment Purchase of intangible assets Deferred consideration received in respect of disposals Payments in respect of acquisitions of subsidiaries and associates		0.5 - (7.2) (0.1) - (35.2)		0.3 - (5.7) (0.3) 0.3 -		0.7 0.9 (13.5) (1.3) 0.3 (0.2)
Net cash used in investing activities		(42.0)		(5.4)		(13.1)
Issue of new shares Purchase of shares for employee benefit trust Dividends paid New loans raised Payment of transaction costs related to new loans raised Costs of terminating financial instruments Repayments of loans Repayment of obligations under finance leases	10	0.1 (0.8) (4.0) 118.0 (2.5) (0.4) (91.1) (1.9)		0.8 (0.4) (3.6) 8.5 - - (21.0) (2.1)		0.8 (0.4) (8.8) 14.0 - - (41.0) (4.0)
Net cash from/(used in) financing activities		17.4		(17.8)		(39.4)
Net decrease in cash Cash at the beginning of the period Effect of exchange rate fluctuations		(16.9) 27.0 -		(4.1) 41.1 0.1		(14.3) 41.1 0.2
Cash at the end of the period	11	10.1		37.1		27.0

Notes to the Condensed Consolidated Interim Financial Statements

1. Basis of preparation

Hill & Smith Holdings PLC is incorporated in the UK.  The Condensed Consolidated Interim Financial Statements of the Company have been prepared on the basis of International Financial Reporting Standards, as adopted by the EU ('Adopted IFRSs') that are effective at 8 August 2011 and in accordance with IAS34: Interim Financial Reporting, comprising the Company, its subsidiaries and its interests in jointly controlled entities (together referred to as the 'Group').

As required by the Disclosure and Transparency Rules of the Financial Services Authority, the Condensed Consolidated Interim Financial Statements have been prepared applying the accounting policies and presentation that were applied in the preparation of the Company's published Consolidated Financial Statements for the year ended 31 December 2010 (these statements do not include all of the information required for full annual financial statements and should be read in conjunction with the full annual report for the year ended 31 December 2010), except for the following which became effective and were adopted by the Group:

·      IAS24 (Revised) - Related Party Transactions (effective for annual periods beginning on or after 1 January 2011)

·      Amendments to IFRIC14 - Prepayments of a minimum funding requirement (effective for annual periods beginning on or after 1 January 2011)

·      IFRIC19 - Extinguishing Financial Liabilities with Equity Insurers (effective for annual periods beginning on or after 1 July 2010)

The adoption of these standards and interpretations has not had a significant impact on the results for the period.

The comparative figures for the financial year ended 31 December 2010 are not the Company's statutory accounts for that financial year.  Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies.  The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

These Condensed Consolidated Interim Financial Statements have not been audited or reviewed by auditors pursuant to the Auditing Practices Board's Guidance on Financial Information.

The financial statements are prepared on the going concern basis.  This is considered appropriate given that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future.

2. Financial risks, estimates, assumptions and judgements

The preparation of the Condensed Consolidated Interim Financial Statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense.  Actual results may differ from estimates.

In preparing these Condensed Consolidated Interim Financial Statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the Consolidated Financial Statements as at and for the year ended 31 December 2010.

3. Exchange rates

The principal exchange rates used were as follows:

	6 months ended 30 June 2011		6 months ended 30 June 2010		Year ended 31 December 2010
	Average	Closing	Average	Closing	Average	Closing
Sterling to Euro (£1 = €) Sterling to US Dollar (£1 = $) Sterling to Thai Baht (£1 = Baht) Sterling to Yuan (£1 = CNY)	1.15 1.62 49.47 10.60	1.11 1.61 49.30 10.38	1.15 1.52 49.62 10.36	1.22 1.50 48.51 10.15	1.17 1.54 48.83 10.43	1.17 1.57 47.00 10.32

4. Segmental information

The Group has three reportable segments, which are Infrastructure Products, Galvanizing Services and Building and Construction Products.  Several operating segments that have similar economic characteristics have been aggregated into these reporting segments. 

Following the recent restructuring of the industrial flooring businesses and the subsequent disposal of a non-core subsidiary since the period end, the segmental analysis has been realigned to better reflect the core activities of the Group.  The Chief Operating Decision Maker believes that by rationalising the industrial flooring businesses, they now focus on infrastructure markets and, as such, have been represented within the Infrastructure Products segment. Ash & Lacy Building Systems Limited (which is held for sale at 30 June 2011 (Note 6)) is the only business remaining in the Building and Construction Products segment.  The comparatives in this Note have been restated accordingly. 

The acquisitions detailed in Note 12 both fall into the Infrastructure Products segment.

Income Statement

	6 months ended 30 June 2011			6 months ended 30 June 2010 (restated)
	Revenue £m	Result £m	Underlying Result* £m	Revenue £m	Result £m	Underlying Result* £m
Infrastructure Products Galvanizing Services Building and Construction Products	123.6 59.9 11.6	5.9 10.3 (6.3)	7.5 10.8 (0.1)	125.2 57.2 11.1	11.4 11.1 (0.2)	11.7 12.0 (0.2)
Total Group	195.1	9.9	18.2	193.5	22.3	23.5
Net financing costs		(5.3)	(2.0)		(2.1)	(2.0)
Profit before taxation		4.6	16.2		20.2	21.5

	Year ended 31 December 2010 (restated)
	Revenue £m	Result £m	Underlying Result* £m
Infrastructure Products Galvanizing Services Building and Construction Products	237.0 115.4 21.8	16.2 23.7 (0.3)	21.2 25.0 (0.3)
Total Group	374.2	39.6	45.9
Net financing costs		(4.3)	(3.7)
Profit before taxation		35.3	42.2

* Underlying result is stated before Non-Underlying items as defined on the Condensed Consolidated Income Statement, and is the measure of segment profit used by

the Chief Operating Decision Maker, who is the Chief Executive.  The Result columns are included as additional information.

Galvanizing Services provided £3.3m revenues to Infrastructure Products (six months ended 30 June 2010: £4.3m, the year ended 31 December 2010: £7.9m).  Building and Construction Products provided £0.1m revenues to Infrastructure Products (six months ended 30 June 2010: £0.1m, the year ended 31 December 2010: £0.5m).  These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.

The Group presents the analysis of continuing operations revenue by geographical market, irrespective of origin:

	6 months ended 30 June 2011 £m	6 months ended 30 June 2010 £m	Year ended 31 December 2010 £m
UK Rest of Europe North America Asia and the Middle East Rest of the World	95.4 48.8 40.2 7.2 3.5	113.6 43.8 27.6 5.4 3.1	207.9 85.9 61.0 12.2 7.2
Total Group	195.1	193.5	374.2

5. Operating Profit

	6 months ended 30 June 2011 £m	6 months ended 30 June 2010 £m	Year ended 31 December 2010 £m
Revenue Cost of sales	195.1 (131.7)	193.5 (127.6)	374.2 (248.1)
Gross profit Distribution costs Administrative expenses Loss on sale of non-current assets Loss on remeasurement Other operating income	63.4 (10.8) (37.9) (0.3) (5.3) 0.8	65.9 (10.4) (33.2) (0.3) - 0.3	126.1 (20.2) (66.9) (0.1) - 0.7
Operating profit	9.9	22.3	39.6

6. Non-Underlying items

Six months ended 30 June 2011

Subsequent to the period end the Group disposed of one of its non-core businesses, Ash & Lacy Building Systems Limited.  This business does not meet the criteria of a discontinued operation and accordingly its results are included in continuing operations.  In the Balance Sheet the assets and liabilities have been reclassified into assets and liabilities held for sale at the lower of their carrying amount and their estimated fair value.  This has resulted in a loss on remeasurement as held for sale which is included in Non-Underlying items as follows:

	30 June 2011 £m
Intangible assets Property, plant and equipment Inventories Current assets Current liabilities Deferred tax	5.0 1.0 3.5 6.0 (5.2) 0.1
Net assets Fair value	10.4 5.1
Loss on remeasurement as held for sale	5.3

Costs and indemnities incurred as part of the sale and purchase agreement amounting to £0.6m increased the overall loss on disposal of Ash & Lacy Building Systems Limited to £5.9m.  Provision for the costs and indemnities is included in the reorganisation costs noted below. 

The fair values of the assets and liabilities of the Ash & Lacy Building Systems Limited disposal group are as follows:

	30 June 2011 £m
Assets held for sale Liabilities held for sale	10.3 (5.2)
Net assets held for sale	5.1

The Group also holds for sale a property in one of its US subsidiaries, V&S LLC, at a fair value of £0.8m.  Therefore, assets held for sale totalled £11.1m at the balance sheet date.  The US property was disposed of in July 2011 at its fair value.

Non-Underlying items included in operating profit also include the following:

•         Business reorganisation and redundancy costs of £1.6m.

•         Acquisition related expenses of £0.6m in respect of the Group's acquisitions detailed in Note 12.

•         Amortisation of acquired intangible fixed assets of £0.9m.

•         Gains of £0.1m arising from movements in the fair value of foreign currency forward contracts.

Amounts included within financial income and expense are the net financing cost on pension obligations of £0.1m.  Costs associated with the Group's refinancing of its revolving credit facility, amounting to £3.2m, are also included within financial expense.

Year ended 31 December 2010

Non-underlying items in the year ended 31 December 2010 included in operating profit comprise the following:

·      Business reorganisation costs of £5.7m, principally relating to the closure of three manufacturing plants, two in the UK and one in the USA, and other redundancy costs.  Included is an asset impairment charge of £0.4m.

·      Release of environmental provisions of £1.3m.  A review of environmental issues and provisions principally relating to the 2007 acquisition of Zinkinvent GmbH identified that the Group was carrying provisions for potential issues which have either been remedied or for which spend is expected to be lower than that originally provided for.

·      Amortisation of acquired intangible fixed assets of £0.9m.

·      Acquisition related expenses of £1.0m, which prior to revisions to IFRS3, adopted for the first time in 2010, would have been capitalised upon the successful acquisition of the target investment.

Amounts included within financial income and expense represent the net financing return on pension obligations of £0.6m.

7. Net financing costs

	6 months ended 30 June 2011 £m	6 months ended 30 June 2010 £m	Year ended 31 December 2010 £m
Interest on bank deposits Expected return on pension scheme assets	0.4 1.8	0.2 1.7	0.6 3.4
Financial income	2.2	1.9	4.0
Interest on bank loans and overdrafts Interest on finance lease and hire purchase contracts Interest on other loans	2.2 0.2 -	1.9 0.3 -	3.8 0.4 0.1
Total interest expense Financial expenses relating to refinancing Expected interest cost on pension scheme obligations	2.4 3.2 1.9	2.2 - 1.8	4.3 - 4.0
Financial expense	7.5	4.0	8.3
Net financing costs	5.3	2.1	4.3

8. Taxation

Tax has been provided on the underlying profit at the estimated effective rate of 29.0% (2010: 31.4%) for existing operations for the full year.

9. Earnings per share

The weighted average number of ordinary shares in issue during the period was 76.9m, diluted for the effect of outstanding share options 77.8m (six months ended 30 June 2010: 76.8m and 77.2m diluted, the year ended 31 December 2010: 76.9m and 77.6m diluted).

Underlying earnings per share are shown below as the Directors consider that this measurement of earnings gives valuable information on the underlying performance of the Group:

	6 months ended 30 June 2011		6 months ended 30 June 2010		Year ended 31 December 2010
	Pence per share	£m	Pence per share	£m	Pence per share	£m
Basic earnings Non-Underlying items	1.7 13.3	1.3 10.2	18.0 1.2	13.8 0.9	32.0 7.0	24.6 5.4
Underlying earnings	15.0	11.5	19.2	14.7	39.0	30.0
Diluted earnings Non-Underlying items	1.7 13.0	1.3 10.2	17.9 1.2	13.8 0.9	31.7 7.0	24.6 5.4
Underlying diluted earnings	14.7	11.5	19.1	14.7	38.7	30.0

10. Dividends

Dividends paid in the period were the prior year's interim dividend of £4.0m (2010: £3.6m). The final dividend for 2010 of £5.8m (2010: £5.3m) was paid on 8 July 2011. Dividends declared after the Balance Sheet date are not recognised as a liability, in accordance with IAS10. The Directors have proposed an interim dividend for the current year of £4.2m, 5.4p per share (2010: £4.0m, 5.2p per share).

11. Analysis of net debt

	30 June 2011 £m	30 June 2010 £m	31 December 2010 £m
Cash and cash equivalents Interest bearing loans and borrowings due within one year Interest bearing loans and borrowings due after one year	10.1 (5.1) (118.9)	37.1 (26.8) (86.7)	27.0 (27.0) (70.6)
Net debt	(113.9)	(76.4)	(70.6)

	30 June 2011 £m	30 June 2010 £m	31 December 2010 £m
Change in net debt Operating profit Non-cash items	9.9 13.8	22.3 8.1	39.6 15.7
Operating cash flow before movement in working capital Net movement in working capital Change in provisions and employee benefits	23.7 (9.5) (1.6)	30.4 (4.1) (1.3)	55.3 (1.3) (2.3)
Operating cash flow Tax paid Net financing costs paid Capital expenditure Proceeds on disposal of non-current assets	12.6 (2.6) (5.0) (7.3) -	25.0 (3.1) (2.5) (6.4) -	51.7 (9.4) (3.4) (15.2) 0.9
Free cash flow Dividends paid (Note 10) Purchase of shares for the employee benefit trust Disposals Acquisitions Issue of new shares	(2.3) (4.0) (0.8) - (35.2) 0.1	13.0 (3.6) (0.4) 0.3 - 0.8	24.6 (8.8) (0.4) 0.3 (0.2) 0.8
Net debt (increase)/decrease Effect of exchange rate fluctuations Net debt at the beginning of the period	(42.2) (1.1) (70.6)	10.1 1.1 (87.6)	16.3 0.7 (87.6)
Net debt at the end of the period	(113.9)	(76.4)	(70.6)

12. Acquisitions

On 16 March 2011 Hill & Smith (USA) Limited acquired, on a debt free cash free basis, 100% of the issued share capital of The Paterson Group, Inc. and its related companies for US$45m in cash, a leading manufacturer and distributor of pipe supports and hangers to the power generation, commercial and industrial markets in North America.

Table of The Paterson Group acquisition	Pre acquisition carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets Brands Customer lists Patents and Licences Property, plant and equipment Inventories Current assets Cash and cash equivalents	- - - 3.6 5.8 5.5 2.8	5.8 5.7 1.1 - (1.0) (0.1) -	5.8 5.7 1.1 3.6 4.8 5.4 2.8
Total assets	17.7	11.5	29.2
Current liabilities Deferred tax Non current liabilities	(2.6) 0.7 (0.1)	(1.1) (3.5) (1.1)	(3.7) (2.8) (1.2)
Total liabilities	(2.0)	(5.7)	(7.7)
Net assets	15.7	5.8	21.5
Consideration			29.1
Goodwill			7.6
Cash flow effect Consideration Cash and cash equivalents received in the business Deferred consideration			29.1 (2.8) (1.0)
Net cash consideration shown in the Consolidated Statement of Cash Flows			25.3

Post acquisition The Paterson Group contributed £8.8m revenue and £0.2m profit, which is included in the Group's Consolidated Income Statement.

On 19 May 2011 Hill & Smith Sweden AB acquired, on a debt free cash free basis, 100% of the issued share capital of ATA Bygg-och Markprodukter AB for 100m SEK in cash, a distributor of road safety barriers and manufacturer and distributor of road signage to the infrastructure market in Sweden.

Table of the ATA acquisition	Pre acquisition carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets Brands Customer lists Property, plant and equipment Inventories Current assets	- - 1.0 2.1 2.4	0.3 4.5 - (0.6) (0.1)	0.3 4.5 1.0 1.5 2.3
Total assets	5.5	4.1	9.6
Current liabilities Deferred tax	(2.3) -	- (1.1)	(2.3) (1.1)
Total liabilities	(2.3)	(1.1)	(3.4)
Net assets	3.2	3.0	6.2
Consideration			10.0
Goodwill			3.8
Cash flow effect Consideration Deferred consideration			10.0 (0.1)
Net cash consideration shown in the Consolidated Statement of Cash Flows			9.9

Post acquisition ATA contributed £1.8m revenue and £0.3m profit, which is included in the Group's Consolidated Income Statement.

Brand names, customer relationships and patents and licences have been recognised as specific intangible assets as a result of the acquisitions.  The remaining goodwill is mainly represented by the assembled workforce and the geographical advantages afforded to the Group.  Brand names and trademarks relating to The Paterson Group have been valued at £5.8m and are considered to have indefinite lives.

Policy alignment and fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the provisional application of fair values on acquisition.

If the above acquisitions had occurred on 1 January 2011 the continuing results of the Group for the period would have shown revenue of £210.7m and a profit for the period of £2.2m.

 

END

 

 

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