8 August 2024
Hill & Smith
PLC
Half Year Results
(unaudited) for the six months ended 30 June 2024
Strong H1 results: Further
margin expansion, positive M&A momentum
Hill & Smith PLC ("Hill &
Smith" or "the Group"), the international provider of sustainable
infrastructure products and services, announces its unaudited
results for the six months ended 30 June 2024 ("the
period").
Financial Results
|
Underlying*
|
Change
|
Statutory
|
|
30 June
2024
|
30 June 2023
|
Reported %
|
Constant Currency %
|
OCC ^ %
|
30 June
2024
|
30 June 2023
|
Change %
|
Revenue
|
£422.7m
|
£420.8m
|
+0.4%
|
+2%
|
-3%
|
£422.7m
|
£420.8m
|
+0.4%
|
Operating profit
|
£68.4m
|
£62.5m
|
+9%
|
+12%
|
+4%
|
£63.0m
|
£53.5m
|
+18%
|
Operating margin
|
16.2%
|
14.9%
|
+130bps
|
|
|
14.9%
|
12.7%
|
+220bps
|
Profit before tax
|
£63.2m
|
£57.2m
|
+10%
|
|
|
£57.8m
|
£48.2m
|
+20%
|
Earnings per share
|
58.3p
|
53.6p
|
+9%
|
|
|
53.2p
|
43.5p
|
+22%
|
Dividend per share
|
16.5p
|
15.0p
|
+10%
|
|
|
16.5p
|
15.0p
|
+10%
|
Key Highlights:
· Strong H1 trading
performance
o Revenue
up 2% and underlying operating profit up 12% on a constant currency
basis against strong 2023 comparators, driven by strong performance
in Engineered Solutions and Galvanizing Services
o Further
expansion in operating margin to 16.2%, an increase of 130 basis
points, reflecting the benefits of improved portfolio mix and US
volume growth
o Continuing strong infrastructure demand in the US offsetting
more challenging UK market backdrop
· Positive momentum on
M&A
o Three
complementary acquisitions completed year to date for a total
initial consideration of £22.3m
o Includes acquisition of Trident Industries since period end
for £10.6m
o H1
acquisitions of Capital Steel and FM Stainless successfully
onboarded and trading ahead of expectations
o Continue to see a strong M&A pipeline
· Good cash generation and
ROIC
o Cash
conversion 83% (H1 2023: 87%)
o ROIC
22.5% (H1 2023: 21.3%), an increase of 120 bps, as a result of
strong growth in our larger, less capital intensive US
businesses
o Covenant leverage at 0.4 times (31 December 2023: 0.4 times),
providing significant capacity for investment in organic and
inorganic growth
· EPS up 9% to 58.3p, interim
dividend up 10% at 16.5p
· Positive
FY24 outlook,
operating profit expected to be in line with the recently upgraded
market expectations† excluding any adjustments for the
benefits of the acquisition announced today
· Group is well-positioned in
structurally growing infrastructure markets, providing confidence
for medium term growth outlook
Alan Giddins, Executive Chair,
said:
"Hill & Smith has delivered
another good first half performance, underpinned by continuing
strong demand for our products and services in the US and the
strong performance from our most recent acquisitions. We expect
this momentum to continue into the second half in line with our
recently upgraded expectations.
"In the medium to longer term, the
Group is well positioned in infrastructure markets with attractive
structural growth drivers. This strong position, together with our
ability to use M&A to access new customers, markets and
adjacent technologies, and the benefits of our agile operating
model, underpins our confidence in the Group's positive trading
outlook."
† The current company
compiled analyst consensus expectation for FY24 is for underlying
operating profit of £137.4m with a range of
£135.9m-£145.1m.
For
further information, please contact:
Hill & Smith PLC
Alan Giddins, Executive
Chair
Tel: +44 (0)121 704 7434
Hannah Nichols, Chief Financial
Officer
MHP
Reg Hoare/Rachel
Farrington/Catherine Chapman
Tel: +44 (0)7801
894577
Email:
hillandsmith@mhpgroup.com
There
will be an in-person presentation for analysts and institutional
investors this morning at 10.15am, hosted at MHP
Group, 60 Great Portland Street, London,
W1W 7RT, as well as a webcast and conference call with a facility
for Q&A.
To register for the webcast, please use this link. For conference call dial in details, please contact hugo.harris@mhpgroup.com.
A copy of the presentation will be made available at https://hsgroup.com/investors/reports-and-presentations/.
* All underlying measures
exclude certain non-underlying items, which are as detailed in
note 6 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 5 to the
financial statements. They are presented on a consistent basis over
time to assist in comparison of performance.
^ Where we refer to organic constant currency (OCC)
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 PLC is a leading provider of sustainable
infrastructure products and services. The Group employs c.4,500
people worldwide with the majority employed by its autonomous,
agile, customer focussed operating businesses based in the UK, USA,
Australia and India. The Group office is in the UK and Hill &
Smith PLC is quoted on the London Stock Exchange (LSE:
HILS.L).
The Group's operating businesses are organised into three
main business divisions:
Galvanizing Services: increasing the sustainability and
maintenance free life of steel products including structural steel
work, lighting, bridges and other products for industrial and
infrastructure markets.
Engineered Solutions: supplying engineered steel and
composite solutions for a wide range of infrastructure markets
including power 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.
Roads & Security: supplying products and services to
support road and highway infrastructure including temporary and
permanent road safety barriers, intelligent traffic solutions,
street lighting columns and bridge parapets. In addition, the
division includes two businesses which are market leaders in the
provision of off-grid solar lighting and power solutions. The
security portfolio includes hostile vehicle mitigation solutions,
high security fencing and automated gate
solutions.
H1 2024 Review
The Group has delivered a strong
first half performance, underpinned by continuing buoyant demand
for infrastructure products and services in the US and enhanced by
the strong performance of our most recent acquisitions. As
expected, our UK businesses experienced a more challenging market
backdrop, with reduced demand across certain public sector
customers.
Revenue in the first half was up
2% and underlying operating profit was up 12% on a constant
currency basis against a strong prior period comparator. Group
underlying operating margin increased by 130 basis points to 16.2%,
driven by an improved portfolio mix with good volume growth seen in
our higher margin US businesses within Engineered Solutions and
Galvanizing Services. Acquisitions contributed c.£22m revenue and
c.£5m underlying operating profit in the period.
Engineered Solutions delivered
strong revenue, profit growth and margin expansion against a record
H1 2023. Demand for our products and services remained buoyant
across our US businesses, which face into a range of attractive
structural growth markets including electricity transmission and
distribution and infrastructure construction.
Galvanizing Services delivered a
record first half performance reflecting strong momentum in our
higher margin US business, which delivered an 8% increase in
volumes. Volumes in the UK were slightly lower than the same period
last year, due to the more subdued market backdrop.
As
expected, first half results in Roads & Security were lower
than 2023, mainly attributable to an anticipated softening in Q1
demand within our US off grid solar lighting business. We also
experienced a challenging UK market backdrop in a number of our
businesses.
The Group
continues to be highly cash generative and deliver strong returns,
with cash conversion in the first half of 83% and return on
invested capital (ROIC) of 22.5%. The Group balance sheet remains
robust at 0.4 times covenant leverage with significant capacity to
support future organic and inorganic growth
opportunities.
Strategic progress
update
Continued progress against our
financial framework
In March 2023, we set out a
recalibrated medium term financial framework with
annual performance targets:
· organic revenue growth: 5% -7%
· total revenue growth including acquisitions: 10%+
· underlying operating profit margin (by end 2024):
15%
· return on invested capital: 18%+
· underlying cash conversion: 80%+
· covenant leverage: 1 to 2 times
In the first half, the
Group continued to deliver against this
framework with further operating margin expansion, strong cash
conversion, expanded return on invested capital and leverage below
our target range. The softer organic revenue growth in the first
half was due to the anticipated slowdown in our US off grid solar
lighting business, and a challenging UK market backdrop, where we
have also seen lower prices for certain products given input cost
reductions. We expect to see improved organic revenue growth in the
second half.
Portfolio Management
We are continuing to successfully
execute against our M&A strategy and have developed an active
pipeline of future opportunities. All potential acquisitions are
tightly evaluated to ensure they fit with our strategic and
financial criteria and once acquired, we implement a rigorous and
detailed integration plan.
In the year to date we have made
three complementary acquisitions for a total initial consideration
of £22.3m. All businesses fit well into our existing US Engineered
Solutions portfolio and were acquired outside a competitive
process:
In January, we acquired Capital
Steel for £5.0m. Located in Trenton, New Jersey, the business
supplies structural steel products and services into the high
growth electricity transmission and distribution market. Capital
Steel is being integrated into our existing structural steel
utilities business and trading since acquisition has been ahead of
expectations.
In March, we acquired FM
Stainless, based in Ellijay, Georgia, for £6.7m. The business
manufactures stainless steel pipe supports and fasteners, serving a
range of growth end markets including water and wastewater
treatment and is highly complementary to our existing engineered
supports business. The integration of the business is going well
and the first few months of trading are very encouraging
In July,
we acquired Trident Industries ('Trident') for an initial
consideration of £10.6m and further cash consideration of up to
£25.6m, payable based on future revenues over the five years
post-acquisition. Located in Greater St Louis, Illinois, Trident is
a designer and supplier of highly resilient, single and multi-layer
composite utility poles, serving utility company needs across North
America and the Caribbean. The business has a long-term outsourced
manufacturing relationship with Enduro Composites, and will become
part of the Creative Composites Group, within the Engineered
Solutions division.
Sustainability
Sustainability underpins the
Group's growth strategy. As part of this, talented people are
critical to our success - the record first half performance is
a testament to our excellent local teams
and the agility of our autonomous operating model. During the first
half, we strengthened our Executive Board through the introduction
of a regional Group President structure to enable a closer focus on
geographic end markets and growth opportunities. We also launched a
high potential programme, a first for the Group, with the aim of
developing and nurturing individuals who we have identified as
prospective future leaders.
Our focus on carbon reduction
continues, with our SBTi targets being validated in December last
year. In the first half, our US companies started the transition to
renewable electricity contracts, with our UK companies already
fully transitioned. In the second half, we will be engaging
with decarbonisation consultancies to help identify additional
energy efficiency and carbon reduction opportunities.
Alongside this, the health and
safety of our people remains a key priority. During the period, we successfully implemented a
new Group health & safety management system
to make incident and near miss reporting easier for our people and
to improve root cause analysis. We have also launched targeted
safety campaigns around certain activities which have been
identified as higher risk.
Recent board update
In May 2024, Mark Reckitt stepped
down from the Board as Non-executive Director after a tenure of
nine years and we thank him for his significant contribution during
this time. Carol Chesney has now taken over from Mark as Chair of
the Audit Committee.
Results
The Group has delivered a strong
set of results for the first half of 2024. Revenue was £422.7m
(2023: £420.8m), flat on a reported basis. Revenue was 3% lower on
an OCC basis but 2% higher on a constant currency basis, the
organic revenue decline mainly attributable to expected lower
demand in our US solar lighting business, and a slowdown in demand
in certain UK end markets, where we have also seen lower prices for
certain products given input cost reductions. Underlying operating
profit was £68.4m (2023: £62.5m), an increase of 9% on a reported
basis. OCC operating profit growth was 4% and constant currency
growth was 12%. Operating margins improved to 16.2% (2023: 14.9%)
reflecting the benefits of an improved portfolio mix and the volume
growth in our higher margin US businesses. Underlying profit before
taxation was £63.2m (2023: £57.2m). Reported operating profit was
£63.0m (2023: £53.5m) and reported profit before tax was £57.8m
(2023: £48.2m). Underlying earnings per share increased to 58.3p (2023:
53.6p) and reported earnings per share was 53.2p (2023:
43.5p).
The principal reconciling item
between underlying and reported operating profit is the
amortisation of acquisition intangibles of £4.3m.
Note 6 to the financial statements provides
further details on the Group's non-underlying items.
Dividend
Our aim is to provide sustainable
and progressive dividend growth. Given the strong H1 performance
and our confidence in the Group's prospects, we have declared an
interim dividend for FY24 of 16.5p per share, an increase of 10%
(2023: 15.0p). The interim dividend will be paid on 7 January 2025
to shareholders on the register on 29 November 2024.
Outlook
The Group has exposure to a range
of structurally growing US infrastructure markets, with the US
representing 77% of Group profit in the first half. We expect
trading in our US businesses to remain strong throughout the second
half, underpinned by bipartisan government support and private
investment to upgrade infrastructure, accelerate onshoring and
support technology change.
The second half outlook for our UK
businesses is likely to remain challenging given budgetary
pressures in the public sector, however we
are cautiously optimistic for some level of recovery in
2025. We continue to see attractive growth
opportunities in our Indian business.
We expect
that the Group's good trading momentum will continue and that FY24
underlying operating profit will be in line with the recently
upgraded market expectations, with an even
weighting to the year's performance, excluding any adjustment for the benefits of the Trident
acquisition announced today.
In the medium to longer term, the
Group is well-positioned in infrastructure markets with attractive
structural growth drivers. This strong position, together with our
proven M&A strategy and the benefits of our agile operating
model, provides confidence that the Group
will continue to make good progress, in line with our strategic and
financial framework.
Operational Review
|
Engineered Solutions
|
£m
|
Reported
%
|
Constant
currency
%
|
OCC
%
|
|
|
2024
|
2023
|
|
Revenue
|
205.0
|
181.7
|
+13
|
+15
|
+3
|
|
Underlying operating profit
(1)
|
37.6
|
30.9
|
+22
|
+25
|
+10
|
|
Underlying operating margin
% (1)
|
18.3%
|
17.0%
|
|
|
|
|
Statutory operating
profit
|
35.1
|
28.5
|
|
|
|
(1)
Underlying measures are set out in note 5 to the
Financial Statements and exclude certain non-underlying items,
which are detailed in note 6 to the Financial
Statements.
Our Engineered Solutions division
provides a range of composite and steel solutions for
infrastructure construction including energy transmission 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 a strong
performance, with 15% revenue and 25% profit growth on a constant
currency basis, reflecting strong volume growth across our US
businesses and the positive contribution from recent acquisitions.
As a result, underlying operating margin increased by 130 bps to
18.3% (2023: 17.0%).
US
The US portfolio delivered 5% OCC
revenue growth and record operating margin in the first half
against a strong prior period comparator.
Our composites business continued
to see strong demand for innovative composite solutions across a
range of infrastructure end markets including electrical grid
infrastructure, industrial construction, water and mass transit
infrastructure. As a result, revenue and operating profit
were ahead of H1 2023, with margins benefiting from product mix and
volume growth. United Fiberglass, acquired in November 2023, has
been successfully integrated into the existing business and
prospects for future growth are encouraging.
At the end of July, we completed
the acquisition of Trident for an initial consideration of £10.6m
with further consideration of up to £25.6m payable based on future
revenues over the five years post-acquisition. Located in Greater
St Louis, Illinois, Trident is a designer and supplier of highly
resilient single and multi-layer composite utility poles, serving
utility company needs across North America and the Caribbean. The
business has a long-term outsourced manufacturing relationship with
Enduro Composites, which we acquired in February 2023, and
will be integrated into our existing
business. The acquisition is highly
complementary to our existing composite utility pole offering and
will further accelerate our strategy in the attractive US
electricity transmission and distribution market.
Our
business supplying structural steel products for electrical grid
infrastructure delivered an excellent performance and enters the
second half with a record order book. We view the US electrical transmission and
distribution market as very attractive in the medium term with
growth driven by the need to upgrade ageing infrastructure,
supported by government investment, and increasing demands on the
electric grid driving capacity expansion.
Given
this, we have made focused investments to help realise the growth
potential. In January 2024 we acquired Capital Steel, based in
Trenton, New Jersey for consideration of £5.0m. The business serves
the buoyant electrical transmission and distribution market and is
being integrated into our existing business, providing access to
new geographies and customers and significant cross selling
opportunities. Capital Steel's trading since acquisition has
been ahead of our expectations. We have also completed the
expansion of our existing facility at Burton, Ohio which provides
additional manufacturing capacity.
Our engineered supports business
delivered a record performance, driven by robust demand from
industrial and infrastructure projects including clean water,
battery plant and semiconductor construction. This more than offset
some softness in the commercial construction sector and the
business enters the second half with a record order book. The
integration of FM Stainless, acquired in March 2024, is progressing
well with trading benefiting from strong water treatment and
infrastructure project demand.
Overall prospects for future
growth in all our US Engineered Solutions businesses remain very
positive. We expect market growth to be supported by investment to
modernise the ageing electric grid and multi-year government
funding to upgrade infrastructure alongside private investment from
US manufacturers and producers to onshore vital
components.
UK and India
As
expected, our UK businesses, which represented 19% of the
divisional revenue, saw revenue decline by 13%, partly due to
pricing reflecting lower steel input costs, and as a result profit
was lower than H1 2023. The industrial flooring business continued
to see buoyant demand for data centre projects, however demand from
smaller order customers has been more subdued. The business enters
the second half with a healthy project orderbook and is cautiously
optimistic. Our
building products business experienced a continuation of lower
demand levels, reflecting the slowdown in housing construction. The
business expects the second half to remain challenging with
a return to growth in 2025 in line
with a recovery in residential construction.
Our engineered supports business
in India saw good growth in the period, underpinned by
international demand for LNG projects. The business enters the
second half with a robust order book and good medium term growth
prospects.
Galvanizing Services
|
|
£m
|
Reported
%
|
Constant
currency %
|
OCC
%
|
|
|
2024
|
2023
|
|
Revenue
|
99.0
|
99.6
|
-1
|
+1
|
-
|
|
Underlying operating profit
(1)
|
24.7
|
22.6
|
+9
|
+11
|
+10
|
|
Underlying operating margin %
(1)
|
24.9%
|
22.7%
|
|
|
|
|
Statutory operating
profit
|
24.2
|
21.7
|
|
|
|
(1)
Underlying measures are set out in note 5 to the
Financial Statements and exclude certain non-underlying items,
which are detailed in note 6 to the Financial
Statements.
The Galvanizing Services division
offers hot-dip galvanizing and powder coating services with
multi-plant facilities in the US 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 a range of infrastructure end markets including
industrial construction, road and bridges and
transportation.
The division delivered a strong
performance in the first half. While revenue was flat, underlying
operating profit was up 11% on a constant currency basis, which
reflects the strong volume growth in our US business, partly offset
by the expected volume decline in the more challenging UK
market. The operating margin increased by 220 bps to 24.9%
due to the favourable geographical mix given the superior margins
generated by our US business.
US
Our US galvanizing business
delivered an excellent first half performance, with 5% OCC revenue
growth and record operating profit. The strong growth is
attributable to an 8% organic increase in production volumes,
partly offset by pricing to reflect lower input costs, with buoyant
demand from a range of projects including data centre and battery
plant construction, airport expansion and bridge construction. As a
result, the business saw margin expansion in the period and
continues to deliver superior operating margins, with customers
valuing the excellent quality of service provided by our local
teams.
In the medium to longer term, the
outlook for US galvanizing remains positive. The business is well
placed to benefit from multi-year, bipartisan government investment
to support industrial expansion and technology change, as well as a
more general move to the onshoring of certain
activities.
UK
In the
UK, galvanizing revenue was 7% below the same period last year,
impacted by a weaker market for certain infrastructure related
customers in transport, street furniture and structural steel.
Volumes were in line with H2 2023 run rates and were 3% lower than
the same period last year. While end markets remain price
sensitive, the outlook for the second half and into 2025 is more
positive as we see the benefits of the management changes made at
the start of the year, with a focus on customer service and cost
control.
Roads & Security
|
|
£m
|
Reported
%
|
Constant
currency %
|
OCC
%
|
|
|
2024
|
2023
|
|
Revenue
|
118.7
|
139.5
|
-15
|
-14
|
-13
|
|
Underlying operating profit
(1)
|
6.1
|
9.0
|
-32
|
-32
|
-32
|
|
Underlying operating margin
% (1)
|
5.1%
|
6.5%
|
|
|
|
|
Statutory operating
profit
|
3.7
|
3.3
|
|
|
|
(1)
Underlying measures are set out in note 5 to the
Financial Statements and exclude certain non-underlying items,
which are detailed in note 6 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. In
addition, the division includes two businesses which are market
leaders in the provision of off-grid solar
lighting and power solutions.
Results for the first half were
lower than the same period last year with revenue 14% lower and
operating profit 32% lower on a constant currency basis. The
decline was mainly attributable to an expected softness in our US
off grid solar lighting business, coupled with an uncertain UK
market backdrop. As a result, the first
half operating margin was below 2023 however we are forecasting
some improvement in the second half.
UK Roads
As expected, both revenue and
underlying operating profit were lower than the same period last
year. Revenue and profit in our
rental barrier business were ahead of H1 2023, underpinned by high
levels of operations activity and favourable performance on scheme
completions. Visibility of the rental scheme pipeline is much
diminished compared to previous years, partly driven by the UK
general election and ongoing delays to the release of Road
Investment Strategy 3. The performance of the wider UK roads
portfolio was impacted by reduced demand and inactivity seen in
certain central and local government customers. We expect the
project outlook for the second half to remain challenging given
budgetary pressures, however we are cautiously optimistic for some
level of recovery in 2025.
As expected, our off-grid solar
energy business had a challenging start to the year with a reduced
opening order book and significantly lower revenue, however the
opportunity pipeline is showing some signs of improvement across
key end markets of facilities management, defence and
construction.
US Roads
Our US Roads portfolio comprises
two businesses: our off-grid solar lighting solutions business and
our roadside safety products business.
As previously highlighted, revenue
and profit in our off grid solar lighting business were
significantly below H1 2023, a strong comparator, with an
anticipated softening in demand from our largest customer as they
realigned inventory levels. The medium term outlook for the
business remains positive, underpinned by
a drive toward sustainable solutions. The planned move to a larger
leased facility successfully took place in June and positions the
business well to deliver against its medium term growth
strategy. We expect to see an improved
performance in H2.
Performance in the road traffic
safety product business was ahead of the same period last year,
with focused pricing and cost transformation actions being taken in
line with the business improvement plan. While improvement
actions continue into the second half, the outlook for the core
business is moderately positive, with demand supported by increased levels of state and federal
investment to upgrade US road infrastructure and the introduction
of new safety standards.
UK Security
Our UK security businesses provide
a range of perimeter security solutions including hostile vehicle
mitigation (HVM) to both UK and international markets and
represented 6% of Group revenue in the first half. While revenue
declined by 5%, underlying operating profit was ahead of H1 2023.
This reflects a good performance in our HVM business and robust
demand for security barrier operations, partly offset by continuing
challenges seen in our perimeter access security business. The
outlook for our security portfolio remains mixed with a current
focus on the higher quality growth opportunities including security
barrier operations and data centre perimeter security.
Financial Review
Cash generation
The Group continues to be highly
cash generative and delivered 83% cash conversion in the first
half. We expect the Group to deliver strong cash conversion in
2024, in line with our target level of 80%+ and consistent with
historic levels. The calculation of our underlying cash conversion
ratio can be found in note 5 to the financial
statements.
Operating cash flow before
movement in working capital was £83.6m (2023: £77.4m). The working
capital outflow in the period was £13.1m (2023: £7.2m outflow) with
a continued focus on working capital efficiency. Working capital as a percentage of
annualised sales was 16.4% (2023: 17.5%) and debtor days were 58
days (2023: 55 days).
Capital expenditure of £9.8m
(2023: £12.7m) represents a multiple of depreciation and
amortisation of 0.9 times (2023: 1.2 times).
Net financing costs for the period
were £5.2m (2023: £5.3m). The net cost of pension fund financing
under IAS 19 was £0.1m (2023: £0.2m), and the amortisation of costs
relating to refinancing activities was £0.3m (2023:
£0.3m).
The Group generated £43.5m of free
cash flow in the period (2023: £38.7m), providing funds to support
our acquisition strategy and dividend policy.
Net debt and financing
Net debt at the end of the period
amounted to £101.6m (31 December 2023: £108.4m). Outflows in the
period included £12.0m for the 2023 interim dividend and £13.8m on
M&A activity, principally the acquisitions of Capital Steel and
FM Stainless. Net debt at the period end includes lease liabilities
under IFRS 16 of £50.2m (31 December 2023: £43.7m).
The Group's principal financing
facilities comprise a £250m revolving credit facility, which
expires in November 2027 and $70m senior unsecured notes with
maturities in June 2026 and June 2029, together with a further
£6.7m of on-demand local overdraft arrangements. Throughout the
year the Group has operated well within these facilities and at 30
June 2024, the Group had £261.2m of headroom (£254.5m committed,
£6.7m on demand). Approximately 50% of the Group's drawn debt at 30
June 2024 is subject to fixed interest rates, providing a hedge
against recent market movements.
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 30 June 2024 was 0.4 times (31 December 2023: 0.4
times) and interest cover was 18.7 times (31 December 2023: 17.3
times).
Return on Invested Capital
We use
return on invested capital (ROIC) to measure our overall capital
efficiency, with a target of achieving returns in excess of 18%,
above the Group's cost of capital, through the cycle. The Group
continued to deliver strong returns achieving a ROIC of 22.5% for
the period to 30 June 2024 (2023: 21.3%), the increase reflecting
the faster growth in our larger US businesses which are typically
lower in capital intensity.
Tax
The underlying effective tax rate
for the period for continuing operations was 25.8% (FY 2023:
24.6%). The tax charge
for the period was £15.0m (2023:
£13.4m) and
includes a £1.3m credit
(2023: £0.9m
credit) in respect of non-underlying
items, principally relating to the amortisation of acquisition
intangibles. Cash tax paid in the period was £10.6m (2023: £14.9m).
Exchange rates
The Group is exposed to movements
in exchange rates when translating the results of its overseas
operations into Sterling. Retranslating 2023 half year revenue and
underlying operating profit using average exchange rates for 2024
would have reduced revenue by £6m and underlying operating profit
by £1.3m, mainly due to Sterling's depreciation against the US
Dollar. A one cent movement in the average US Dollar rate currently
results in an adjustment of approximately £4.0m to the Group's annual revenues
and £1.0m to
annual underlying operating profit.
Non-underlying items
The total non-underlying items
charged to operating profit from continuing operations in the
Consolidated Income Statement amounted to £5.4m (2023: £9.0m). The
items were mainly non-cash related and included the
following:
· Amortisation of acquired intangible assets of
£4.3m
· Expenses related to acquisitions and disposals of £1.1m,
including £0.5m accrued deferred consideration relating to the
National Signal acquisition.
Further details are set out in
note 6 to the Financial Statements.
Pensions
The Group operates defined benefit
pension plans in the UK and the USA. The IAS 19 deficit of these
plans at 30 June 2024 was £3.1m, a reduction of £1.0m from 31
December 2023 (£4.1m). The deficit of the UK scheme, the largest
employee benefit obligation in the Group, was £2.3m (31 December
2023: £3.4m), the reduction mainly due to the Group's deficit
recovery payments in the period.
The Group continues to be actively
engaged in dialogue with the UK schemes' Trustees with regards to
management, funding and investment strategies.
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 31
December 2025. 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 December 2025, 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 31
December 2024, 30 June 2025 and 31 December 2025.
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 31 December 2025. The Directors do not
consider the resulting performance levels to be plausible given the
Group's strong trading performance in the period and the resilience
of the end markets in which we operate.
Principal risks and
uncertainties
The Group has a process for
identifying, evaluating and managing the principal risks and
uncertainties that it faces, and the Directors have reviewed these
principal risks and uncertainties during the period. It is the
Directors' opinion that the principal risks set out on pages 60 to
65 of the Group's Annual Report for the year ended 31 December
2023, remain applicable to the current financial year.
The key consideration relating to
the review of principal risks and uncertainties during the period
is set out below:
|
Principal Risk
|
Considerations
|
|
Reduction in US Infrastructure
spending
|
US Election impact
The Group's growth is supported by
multi-year planned government spending to upgrade US
infrastructure. While we note that the US presidential elections
are due to take place in November 2024, we do not expect that the
election result will have a significant adverse impact on
spending plans
given the levels of bipartisan support for core infrastructure
investment and the overarching requirement to upgrade ageing
infrastructure. As a result, the Board believe there has been no change in
this risk during the first half of the year.
|
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 contained in
UK-adopted IFRS;
· 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 2024 and is available on the
Company's website (www.hsgroup.com).
Alan
Giddins
Hannah
Nichols
Executive Chair
Group Chief Financial Officer
Financial Statements
Condensed Consolidated Income
Statement
Six months ended 30 June
2024
|
|
6 months ended 30 June
2024
|
6
months ended 30 June 2023
|
Year
ended 31 December 2023
|
|
Notes
|
Underlying
£m
|
Non-underlying*
£m
|
Total
£m
|
Underlying £m
|
Non-underlying*
£m
|
Total
£m
|
Underlying £m
|
Non-underlying* £m
|
Total
£m
|
|
Revenue
|
4
|
422.7
|
-
|
422.7
|
420.8
|
-
|
420.8
|
829.8
|
-
|
829.8
|
|
Cost of sales
|
|
(255.1)
|
-
|
(255.1)
|
(254.9)
|
-
|
(254.9)
|
(513.1)
|
-
|
(513.1)
|
|
Gross profit
|
|
167.6
|
-
|
167.6
|
165.9
|
-
|
165.9
|
316.7
|
-
|
316.7
|
|
Distribution costs
|
|
(13.2)
|
-
|
(13.2)
|
(17.3)
|
-
|
(17.3)
|
(24.7)
|
-
|
(24.7)
|
|
Administrative expenses
|
|
(86.2)
|
(5.4)
|
(91.6)
|
(86.6)
|
(9.0)
|
(95.6)
|
(169.9)
|
(18.7)
|
(188.6)
|
|
Other operating income
|
|
0.2
|
-
|
0.2
|
0.5
|
-
|
0.5
|
0.4
|
-
|
0.4
|
|
Operating profit
|
4,
5
|
68.4
|
(5.4)
|
63.0
|
62.5
|
(9.0)
|
53.5
|
122.5
|
(18.7)
|
103.8
|
|
Financial income
|
7
|
0.2
|
-
|
0.2
|
0.2
|
-
|
0.2
|
0.5
|
-
|
0.5
|
|
Financial expense
|
7
|
(5.4)
|
-
|
(5.4)
|
(5.5)
|
-
|
(5.5)
|
(11.1)
|
-
|
(11.1)
|
|
Profit before taxation
|
|
63.2
|
(5.4)
|
57.8
|
57.2
|
(9.0)
|
48.2
|
111.9
|
(18.7)
|
93.2
|
|
Taxation
|
8
|
(16.3)
|
1.3
|
(15.0)
|
(14.3)
|
0.9
|
(13.4)
|
(27.6)
|
3.2
|
(24.4)
|
|
Profit for the year attributable to the owners of the
parent
|
|
46.9
|
(4.1)
|
42.8
|
42.9
|
(8.1)
|
34.8
|
84.3
|
(15.5)
|
68.8
|
|
Basic earnings per share
|
9
|
|
|
53.2p
|
|
|
43.5p
|
|
|
86.0p
|
|
Diluted earnings per
share
|
9
|
|
|
52.7p
|
|
|
43.3p
|
|
|
85.0p
|
* The Group's definition of
non-underlying items and further details of the amounts included
are set out in note 6.
Condensed Consolidated Statement
of Comprehensive Income
Six months ended 30 June
2024
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30
June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Profit for the period
|
42.8
|
34.8
|
68.8
|
|
Items that may be reclassified subsequently to profit or
loss
|
|
|
|
|
Exchange differences on
translation of overseas operations
|
2.7
|
(19.5)
|
(19.4)
|
|
Exchange differences on foreign
currency borrowings denominated as net investment hedges
|
(0.5)
|
4.5
|
4.2
|
|
Items that will not be reclassified subsequently to profit or
loss
|
|
|
|
|
Actuarial (loss)/gain on defined
benefit pension schemes
|
(0.7)
|
0.5
|
(0.4)
|
|
Taxation on items that will not be
reclassified to profit or loss
|
0.2
|
(0.1)
|
0.1
|
|
Other comprehensive income/(expense) for the
period
|
1.7
|
(14.6)
|
(15.5)
|
|
Total comprehensive income for the period attributable to
owners of the parent
|
44.5
|
20.2
|
53.3
|
Condensed Consolidated Statement
of Financial Position
Six months ended 30 June
2024
|
Notes
|
30 June
2024
£m
|
30
June
2023
£m
|
31
December
2023
£m
|
|
Non-current assets
|
|
|
|
|
Intangible assets
|
|
|
212.0
|
202.2
|
205.7
|
|
Property, plant and
equipment
|
|
184.2
|
177.0
|
184.4
|
|
Right-of-use assets
|
|
48.1
|
38.5
|
41.8
|
|
Corporation tax
receivable
|
8
|
1.6
|
1.6
|
1.6
|
|
Deferred tax assets
|
0.4
|
0.1
|
0.4
|
|
|
446.3
|
419.4
|
433.9
|
|
Current assets
|
|
|
|
|
|
Assets held for sale
|
|
2.5
|
-
|
2.5
|
|
Inventories
|
|
108.2
|
115.1
|
106.1
|
|
Trade and other
receivables
|
|
159.7
|
163.5
|
137.3
|
|
Current tax assets
|
|
-
|
-
|
0.8
|
|
Cash and cash
equivalents
|
13,
14
|
55.8
|
22.3
|
34.4
|
|
|
326.2
|
300.9
|
281.1
|
|
Total assets
|
772.5
|
720.3
|
715.0
|
|
Current liabilities
|
|
|
|
|
|
Trade and other
liabilities
|
|
(127.2)
|
(127.6)
|
(119.6)
|
|
Current tax liabilities
|
|
(7.5)
|
(7.2)
|
(3.9)
|
|
Provisions
|
|
(4.7)
|
(2.6)
|
(6.6)
|
|
Lease liabilities
|
13,
14
|
(8.5)
|
(8.2)
|
(8.0)
|
|
Loans and borrowings
|
13,
14
|
(0.7)
|
(0.2)
|
(1.4)
|
|
|
(148.6)
|
(145.8)
|
(139.5)
|
|
Net current assets
|
177.6
|
155.1
|
141.6
|
|
Non-current liabilities
|
|
|
|
|
|
Other liabilities
|
|
(1.5)
|
-
|
(1.0)
|
|
Provisions
|
|
(2.4)
|
(3.0)
|
(2.6)
|
|
Deferred tax
liabilities
|
|
(9.8)
|
(13.2)
|
(9.9)
|
|
Retirement benefit
obligations
|
|
(3.1)
|
(5.0)
|
(4.1)
|
|
Lease liabilities
|
13,
14
|
(41.7)
|
(31.0)
|
(35.7)
|
|
Loans and borrowings
|
13,
14
|
(106.5)
|
(115.0)
|
(97.7)
|
|
|
(165.0)
|
(167.2)
|
(151.0)
|
|
Total liabilities
|
(313.6)
|
(313.0)
|
(290.5)
|
|
Net assets
|
458.9
|
407.3
|
424.5
|
|
Equity
|
|
|
|
|
Share capital
|
20.1
|
20.0
|
20.0
|
|
Share premium
|
46.8
|
43.8
|
44.6
|
|
Other reserves
|
4.9
|
4.9
|
4.9
|
|
Translation reserve
|
25.1
|
23.1
|
22.9
|
|
Retained earnings
|
362.0
|
315.5
|
332.1
|
|
Total equity
|
458.9
|
407.3
|
424.5
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of
Changes in Equity
Six months ended 30 June
2024
|
|
Share
Capital
£m
|
Share
Premium
£m
|
Other
reserves†
£m
|
Translation reserves
£m
|
Retained
Earnings
£m
|
Total
equity
£m
|
|
At 1 January 2024
|
20.0
|
44.6
|
4.9
|
22.9
|
332.1
|
424.5
|
|
Comprehensive income
|
|
|
|
|
|
|
|
Profit for the period
|
-
|
-
|
-
|
-
|
42.8
|
42.8
|
|
Other comprehensive
income/(expense) for the period
|
-
|
-
|
-
|
2.2
|
(0.5)
|
1.7
|
|
Transactions with owners recognised directly in
equity
|
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
-
|
(12.0)
|
(12.0)
|
|
Credit to equity of share-based
payments
|
-
|
-
|
-
|
-
|
1.1
|
1.1
|
|
Satisfaction of long term
incentive and deferred bonus awards
|
-
|
-
|
-
|
-
|
(2.9)
|
(2.9)
|
|
Own shares held by employee
benefit trust
|
-
|
-
|
-
|
-
|
1.4
|
1.4
|
|
Shares issued
|
0.1
|
2.2
|
-
|
-
|
-
|
2.3
|
|
At 30 June 2024
|
20.1
|
46.8
|
4.9
|
25.1
|
362.0
|
458.9
|
Six months ended 30 June
2023
|
|
Share
Capital
£m
|
Share
Premium
£m
|
Other
reserves†
£m
|
Translation reserves
£m
|
Retained
Earnings
£m
|
Total
equity
£m
|
|
At 1 January 2023
|
20.0
|
42.8
|
4.9
|
38.1
|
289.2
|
395.0
|
|
Comprehensive income
|
|
|
|
|
|
|
|
Profit for the period
|
-
|
-
|
-
|
-
|
34.8
|
34.8
|
|
Other comprehensive
(expense)/income for the period
|
-
|
-
|
-
|
(15.0)
|
0.4
|
(14.6)
|
|
Transactions with owners recognised directly in
equity
|
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
-
|
(10.4)
|
(10.4)
|
|
Credit to equity of share-based
payments
|
-
|
-
|
-
|
-
|
1.9
|
1.9
|
|
Satisfaction of long term
incentive and deferred bonus awards
|
-
|
-
|
-
|
-
|
(0.9)
|
(0.9)
|
|
Own shares held by employee
benefit trust
|
-
|
-
|
-
|
-
|
0.5
|
0.5
|
|
Shares issued
|
-
|
1.0
|
-
|
-
|
-
|
1.0
|
|
At 30 June 2023
|
20.0
|
43.8
|
4.9
|
23.1
|
315.5
|
407.3
|
Year ended 31 December
2023
|
|
Share
Capital
£m
|
Share
Premium
£m
|
Other
reserves†
£m
|
Translation reserves
£m
|
Retained
Earnings
£m
|
Total
equity
£m
|
|
At 1 January 2023
|
20.0
|
42.8
|
4.9
|
38.1
|
289.2
|
395.0
|
|
Comprehensive income
|
|
|
|
|
|
|
|
Profit for the period
|
-
|
-
|
-
|
-
|
68.8
|
68.8
|
|
Other comprehensive expense for
the period
|
-
|
-
|
-
|
(15.2)
|
(0.3)
|
(15.5)
|
|
Transactions with owners recognised directly in
equity
|
|
|
|
|
|
|
|
Dividends
|
-
|
-
|
-
|
-
|
(28.0)
|
(28.0)
|
|
Credit to equity of share-based
payments
|
-
|
-
|
-
|
-
|
3.7
|
3.7
|
|
Own shares held by employee
benefit trust
|
-
|
-
|
-
|
-
|
(1.6)
|
(1.6)
|
|
Satisfaction of long term
incentive and deferred bonus awards
|
-
|
-
|
-
|
-
|
(1.0)
|
(1.0)
|
|
Tax taken directly to the
Consolidated Statement of Changes in Equity
|
-
|
-
|
-
|
-
|
1.3
|
1.3
|
|
Shares issued
|
-
|
1.8
|
-
|
-
|
-
|
1.8
|
|
At 31 December 2023
|
20.0
|
44.6
|
4.9
|
22.9
|
332.1
|
424.5
|
† Other reserves represent 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
2024
|
Notes
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Profit before tax
|
57.8
|
48.2
|
93.2
|
|
Add back net financing
costs
|
5.2
|
5.3
|
10.6
|
|
Operating profit
|
63.0
|
53.5
|
103.8
|
|
Adjusted for non-cash
items:
|
|
|
|
|
Share-based payments
|
1.1
|
2.1
|
4.1
|
|
Loss on disposal of
subsidiaries
|
-
|
3.2
|
4.2
|
|
(Gain)/loss on disposal of
non-current assets
|
(0.4)
|
(0.8)
|
0.2
|
|
Gain on disposal of assets held
for sale
|
-
|
-
|
(0.7)
|
|
Depreciation of owned
assets
|
10.4
|
9.8
|
19.7
|
|
Amortisation of intangible
assets
|
4.8
|
4.8
|
9.6
|
|
Right-of-use asset
depreciation
|
5.1
|
4.8
|
9.3
|
|
Impairment of non-current
assets
|
-
|
-
|
1.3
|
|
Gain on lease
termination
|
(0.4)
|
-
|
(0.1)
|
|
|
20.6
|
23.9
|
47.6
|
|
Operating cash flow before
movement in working capital
|
83.6
|
77.4
|
151.4
|
|
Decrease in inventories
|
1.8
|
5.0
|
15.0
|
|
(Increase)/decrease in
receivables
|
(18.0)
|
(19.8)
|
8.0
|
|
Increase/(decrease) in
payables
|
3.1
|
7.6
|
(0.2)
|
|
Decrease in provisions and
employee benefits
|
(3.9)
|
(2.6)
|
(0.8)
|
|
Net movement in working capital
and provisions
|
(17.0)
|
(9.8)
|
22.0
|
|
Cash generated by
operations
|
66.6
|
67.6
|
173.4
|
|
Purchase of assets for rental to
customers
|
(0.2)
|
(0.6)
|
(2.3)
|
|
Income taxes paid
|
(10.6)
|
(14.9)
|
(31.7)
|
|
Interest paid
|
(3.8)
|
(4.5)
|
(8.9)
|
|
Interest paid on lease
liabilities
|
(1.0)
|
(0.6)
|
(1.3)
|
|
Net cash from operating activities
|
51.0
|
47.0
|
129.2
|
|
Interest received
|
0.2
|
0.3
|
0.5
|
|
Proceeds on disposal of
non-current assets
|
0.9
|
0.4
|
0.8
|
|
Proceeds on disposal of assets
held for sale
|
-
|
2.5
|
2.5
|
|
Purchase of property, plant and
equipment
|
(7.2)
|
(10.5)
|
(26.7)
|
|
Purchase of intangible
assets
|
(2.4)
|
(1.6)
|
(2.8)
|
|
Deferred consideration paid in
respect of past acquisitions
|
(1.4)
|
(2.7)
|
(2.8)
|
|
Acquisitions of
subsidiaries
|
|
(11.7)
|
(36.7)
|
(48.4)
|
|
Disposals of
subsidiaries
|
|
-
|
0.4
|
(0.2)
|
|
Cash paid on early termination of
leases
|
|
(0.1)
|
-
|
-
|
|
Net cash used in investing activities
|
|
(21.7)
|
(47.9)
|
(77.1)
|
|
Issue of new shares
|
|
2.3
|
1.0
|
1.8
|
|
Purchase of shares for employee
benefit trust
|
|
(1.5)
|
(0.4)
|
(2.6)
|
|
Dividends paid
|
10
|
(12.0)
|
(10.4)
|
(28.0)
|
|
Costs associated with refinancing
during the year
|
|
-
|
-
|
(0.5)
|
|
Repayments of lease
liabilities
|
|
(4.4)
|
(4.6)
|
(9.4)
|
|
New loans and
borrowings
|
|
18.9
|
50.5
|
73.9
|
|
Repayments of loans and
borrowings
|
|
(11.3)
|
(36.6)
|
(76.3)
|
|
Net cash used in financing activities
|
(8.0)
|
(0.5)
|
(41.1)
|
|
Net increase/(decrease) in cash and cash equivalents net of
bank overdraft
|
21.3
|
(1.4)
|
11.0
|
|
Cash and cash equivalents net of
bank overdraft at the beginning of the period
|
34.4
|
24.8
|
24.8
|
|
Effect of exchange rate
fluctuations
|
0.1
|
(1.2)
|
(1.4)
|
|
Cash and cash equivalents net of bank overdraft at the end of
the period
|
13
|
55.8
|
22.2
|
34.4
|
Notes to the Financial Statements
1. Basis of preparation
Hill & Smith PLC is
incorporated in the UK. The Condensed Consolidated Interim
Financial Statements of the Company have been prepared on the basis
of the UK-adopted International Financial Reporting Standards
('IFRSs') and in accordance with IAS 34: 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
2023 (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 2023).
New IFRS standards, interpretations and amendments adopted
during 2024
The following amendments apply for
the first time in 2024, but do not have an impact on the Condensed
Consolidated Interim Financial Statements of the Group.
· Amendments to IAS 1 - Classification of Liabilities as
Current or Non-current and Non-current Liabilities with
Covenants
· Amendments to IFRS 16 - Lease liability in a Sale and
Leaseback
· Amendments to IAS 7 and IFRS 7 - Supplier Finance
Arrangements
The Condensed Consolidated Interim
Financial Statements do not constitute statutory financial
statements as defined in section 434 of the Companies Act 2006. The
comparative figures for the financial year ended 31 December 2023
are derived from the Group's statutory accounts for that year.
Those accounts have been reported on by the Company's auditor and
delivered to the Registrar of Companies. The report of the auditor
(i) was unqualified, (ii) did not include a reference to any
matters to which the auditor 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
an auditor pursuant to the Auditing Practices Board's Guidance on
Financial Information.
The Condensed Consolidated Interim
Financial Statements are prepared on the going concern basis, as
explained in the Financial Review.
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 2023, relating to
actuarial assumptions on pension obligations, impairment of
goodwill and other indefinite life intangible assets, and
liabilities for uncertain tax positions.
3. Exchange rates
The principal exchange rates used
were as follows:
|
|
6 months
ended
30 June
2024
|
6
months ended
30 June
2023
|
Year
ended
31
December 2023
|
|
Average
|
Closing
|
Average
|
Closing
|
Average
|
Closing
|
|
Sterling to US Dollar (£1 =
USD)
|
1.26
|
1.26
|
1.23
|
1.27
|
1.24
|
1.27
|
|
Sterling to Indian Rupee (£1 =
INR)
|
105.27
|
105.37
|
101.36
|
104.33
|
102.68
|
106.08
|
|
Sterling to Australian Dollar (£1
= AUD)
|
1.92
|
1.89
|
1.82
|
1.91
|
1.87
|
1.87
|
4. Segmental information
The Group has three reportable
segments which are Engineered Solutions, Galvanizing Services and
Roads & Security. 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 Engineered Solutions 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
and other infrastructure markets;
• 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;
and
• 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.
Corporate costs are allocated to
reportable segments in proportion to the revenue of each of those
segments.
Segmental Income Statement
|
|
6 months ended 30 June
2024
|
6
months ended 30 June 2023
|
|
Revenue
£m
|
Reported
operating
profit
£m
|
Underlying
Operating
profit*
£m
|
Revenue
£m
|
Reported
operating
profit
£m
|
Underlying
operating
profit*
£m
|
|
Engineered Solutions
|
205.0
|
35.1
|
37.6
|
181.7
|
28.5
|
30.9
|
|
Galvanizing Services
|
99.0
|
24.2
|
24.7
|
99.6
|
21.7
|
22.6
|
|
Roads & Security
|
118.7
|
3.7
|
6.1
|
139.5
|
3.3
|
9.0
|
|
Group
|
422.7
|
63.0
|
68.4
|
420.8
|
53.5
|
62.5
|
|
Net financing costs
|
|
(5.2)
|
(5.2)
|
|
(5.3)
|
(5.3)
|
|
Profit before taxation
|
|
57.8
|
63.2
|
|
48.2
|
57.2
|
|
Taxation
|
|
(15.0)
|
(16.3)
|
|
(13.4)
|
(14.3)
|
|
Profit after taxation
|
|
42.8
|
46.9
|
|
34.8
|
42.9
|
|
|
Year
ended 31 December 2023
|
|
|
Revenue
£m
|
Reported
operating
profit
£m
|
Underlying
operating
profit*
£m
|
|
Engineered Solutions
|
367.0
|
59.7
|
64.4
|
|
Galvanizing Services
|
196.7
|
43.8
|
45.7
|
|
Roads & Security
|
266.1
|
0.3
|
12.4
|
|
Group
|
829.8
|
103.8
|
122.5
|
|
Net financing costs
|
|
(10.6)
|
(10.6)
|
|
Profit before taxation
|
|
93.2
|
111.9
|
|
Taxation
|
|
(24.4)
|
(27.6)
|
|
Profit after taxation
|
|
68.8
|
84.3
|
*Underlying operating profit is an alternative performance
measure which is stated before non-underlying items as defined in
note 6 and is the measure of segment profit used by the Chief
Operating Decision Maker, who is currently
the Executive Chair. 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. The only significant transactions during the period
related to Galvanizing Services, which sold £1.6m of products and
services to Engineered Solutions (six months ended 30 June 2023:
£1.2m, year ended 31 December 2023: £2.5m) and £2.7m of products
and services to Roads & Security (six months ended 30 June
2023: £2.7m, year ended 31 December 2023: £5.2m). These internal
revenues, along with revenues generated within each segment, 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.
|
|
Engineered
Solutions
|
Galvanizing
Services
|
Roads &
Security
|
Total
|
|
Primary geographical markets
|
6 months ended
30 June 2024
£m
|
6 months
ended
30 June 2023
£m
|
6 months ended
30 June 2024
£m
|
6 months
ended
30 June 2023
£m
|
6 months ended
30 June 2024
£m
|
6 months
ended
30 June 2023
£m
|
6 months ended
30 June 2024
£m
|
6 months
ended
30 June 2023
£m
|
|
UK
|
36.6
|
41.9
|
41.1
|
44.1
|
73.1
|
80.1
|
150.8
|
166.1
|
|
Rest of Europe
|
4.5
|
4.4
|
-
|
-
|
5.8
|
4.9
|
10.3
|
9.3
|
|
North America
|
154.0
|
129.4
|
57.9
|
55.5
|
38.3
|
50.0
|
250.2
|
234.9
|
|
The Middle East
|
5.5
|
3.1
|
-
|
-
|
0.1
|
1.0
|
5.6
|
4.1
|
|
Rest of Asia
|
4.0
|
2.3
|
-
|
-
|
0.2
|
0.3
|
4.2
|
2.6
|
|
Rest of the world
|
0.4
|
0.6
|
-
|
-
|
1.2
|
3.2
|
1.6
|
3.8
|
|
|
205.0
|
181.7
|
99.0
|
99.6
|
118.7
|
139.5
|
422.7
|
420.8
|
|
Major product/service lines
|
|
|
|
|
|
|
|
|
|
Manufacture, supply and
installation of products
|
205.0
|
181.7
|
-
|
-
|
107.3
|
126.9
|
312.3
|
308.6
|
|
Galvanizing services
|
-
|
-
|
99.0
|
99.6
|
-
|
-
|
99.0
|
99.6
|
|
Rental income
|
-
|
-
|
-
|
-
|
11.4
|
12.6
|
11.4
|
12.6
|
|
|
205.0
|
181.7
|
99.0
|
99.6
|
118.7
|
139.5
|
422.7
|
420.8
|
|
Timing of revenue recognition
|
|
|
|
|
|
|
|
|
|
Products and services transferred
at a point in time
|
92.9
|
87.8
|
99.0
|
99.6
|
86.9
|
110.4
|
278.8
|
297.8
|
|
Products and services transferred
over time
|
112.1
|
93.9
|
-
|
-
|
31.8
|
29.1
|
143.9
|
123.0
|
|
|
205.0
|
181.7
|
99.0
|
99.6
|
118.7
|
139.5
|
422.7
|
420.8
|
|
|
Year
ended 31 December 2023
|
|
|
Engineered Solutions
£m
|
Galvanizing
Services
£m
|
Roads
& Security
£m
|
Total
£m
|
|
Primary geographical markets
|
|
|
|
|
|
UK
|
80.6
|
83.9
|
155.0
|
319.5
|
|
Rest of Europe
|
8.2
|
-
|
11.0
|
19.2
|
|
North America
|
259.2
|
112.8
|
90.4
|
462.4
|
|
The Middle East
|
12.5
|
-
|
1.9
|
14.4
|
|
Rest of Asia
|
5.5
|
-
|
0.7
|
6.2
|
|
Rest of the world
|
1.0
|
-
|
7.1
|
8.1
|
|
|
367.0
|
196.7
|
266.1
|
829.8
|
|
Major product/service lines
|
|
|
|
|
|
Manufacture, supply and
installation of products
|
367.0
|
-
|
241.2
|
608.2
|
|
Galvanizing services
|
-
|
196.7
|
-
|
196.7
|
|
Rental income
|
-
|
-
|
24.9
|
24.9
|
|
|
367.0
|
196.7
|
266.1
|
829.8
|
|
Timing of revenue recognition
|
|
|
|
|
|
Products and services transferred
at a point in time
|
172.7
|
196.7
|
208.1
|
577.5
|
|
Products and services transferred
over time
|
194.3
|
-
|
58.0
|
252.3
|
|
|
367.0
|
196.7
|
266.1
|
829.8
|
5. 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 tax
·
Underlying operating profit
·
Underlying operating profit margin
·
Organic and constant currency measures 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
·
Underlying earnings per share.
A reconciliation of statutory earnings per share to underlying
earnings per share is provided in note 9.
All underlying measures exclude
certain non-underlying items, which are detailed in note 6.
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
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Underlying profit before
tax
|
63.2
|
57.2
|
111.9
|
|
Non-underlying items:
|
|
|
|
|
Amortisation of acquisition
intangibles
|
(4.3)
|
(4.3)
|
(8.4)
|
|
Business reorganisation
costs
|
-
|
0.7
|
(0.2)
|
|
Expenses related to acquisitions
and disposals
|
(1.1)
|
(2.2)
|
(5.3)
|
|
Loss on disposal of
subsidiaries
|
-
|
(3.2)
|
(4.2)
|
|
Impairment of assets
|
-
|
-
|
(0.6)
|
|
Reported profit before tax
|
57.8
|
48.2
|
93.2
|
Reconciliation of underlying to
reported operating profit by segment
|
|
Engineered
Solutions
|
Galvanizing
Services
|
Roads &
Security
|
Total
|
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
|
Underlying operating profit
|
37.6
|
30.9
|
24.7
|
22.6
|
6.1
|
9.0
|
68.4
|
62.5
|
|
Non-underlying items:
|
|
|
|
|
|
|
|
|
|
Amortisation of acquisition
intangibles
|
(1.9)
|
(1.5)
|
(0.5)
|
(0.5)
|
(1.9)
|
(2.3)
|
(4.3)
|
(4.3)
|
|
Business reorganisation
costs
|
-
|
-
|
-
|
-
|
-
|
0.7
|
-
|
0.7
|
|
Expenses related to acquisitions
and disposals
|
(0.6)
|
(0.9)
|
-
|
(0.4)
|
(0.5)
|
(0.9)
|
(1.1)
|
(2.2)
|
|
Loss on disposal of
subsidiaries
|
-
|
-
|
-
|
-
|
-
|
(3.2)
|
-
|
(3.2)
|
|
Reported operating profit
|
35.1
|
28.5
|
24.2
|
21.7
|
3.7
|
3.3
|
63.0
|
53.5
|
|
|
|
|
|
Year
ended 31 December 2023
|
|
|
Engineered Solutions
£m
|
Galvanizing
Services
£m
|
Roads
& Security
£m
|
Total
£m
|
|
Underlying operating profit
|
64.4
|
45.7
|
12.4
|
122.5
|
|
Non-underlying items:
|
|
|
|
|
|
Amortisation of acquisition
intangibles
|
(3.0)
|
(1.2)
|
(4.2)
|
(8.4)
|
|
Business reorganisation
costs
|
-
|
-
|
(0.2)
|
(0.2)
|
|
Impairment of assets
|
-
|
-
|
(0.6)
|
(0.6)
|
|
Expenses related to acquisitions
and disposals
|
(1.7)
|
(0.7)
|
(2.9)
|
(5.3)
|
|
Loss on disposal of
subsidiaries
|
-
|
-
|
(4.2)
|
(4.2)
|
|
Reported operating profit
|
59.7
|
43.8
|
0.3
|
103.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of underlying operating
profit margin
|
|
Engineered
Solutions
|
Galvanizing
Services
|
Roads &
Security
|
Total
|
|
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
|
Underlying operating
profit
|
37.6
|
30.9
|
24.7
|
22.6
|
6.1
|
9.0
|
68.4
|
62.5
|
|
Revenue
|
205.0
|
181.7
|
99.0
|
99.6
|
118.7
|
139.5
|
422.7
|
420.8
|
|
Underlying operating profit margin (%)
|
18.3%
|
17.0%
|
24.9%
|
22.7%
|
5.1%
|
6.5%
|
16.2%
|
14.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 31 December 2023
|
|
|
Engineered Solutions
£m
|
Galvanizing
Services
£m
|
Roads
& Security
£m
|
Total
£m
|
|
Underlying operating
profit
|
64.4
|
45.7
|
12.4
|
122.5
|
|
Revenue
|
367.0
|
196.7
|
266.1
|
829.8
|
|
Underlying operating profit margin (%)
|
17.5%
|
23.2%
|
4.7%
|
14.8%
|
Measures of organic and constant
currency change in revenue and underlying operating profit from
continuing operations
|
|
Engineered
Solutions
|
Galvanizing
Services
|
Roads &
Security
|
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
|
|
2023
|
181.7
|
30.9
|
99.6
|
22.6
|
139.5
|
9.0
|
420.8
|
62.5
|
|
Impact of exchange rate
movements from 2023 to
2024
|
(3.4)
|
(0.8)
|
(1.3)
|
(0.4)
|
(1.3)
|
(0.1)
|
(6.0)
|
(1.3)
|
|
2023 translated at 2024 exchange rates (A)
|
178.3
|
30.1
|
98.3
|
22.2
|
138.2
|
8.9
|
414.8
|
61.2
|
|
Acquisitions and
disposals
|
21.1
|
4.6
|
1.1
|
0.3
|
(2.0)
|
-
|
20.2
|
4.9
|
|
Organic growth/(decline)
(B)
|
5.6
|
2.9
|
(0.4)
|
2.2
|
(17.5)
|
(2.8)
|
(12.3)
|
2.3
|
|
2024 (C)
|
205.0
|
37.6
|
99.0
|
24.7
|
118.7
|
6.1
|
422.7
|
68.4
|
|
Organic change % (B divided by A)
|
3.1%
|
9.6%
|
(0.4%)
|
9.9%
|
(12.7%)
|
(31.5%)
|
(3.0%)
|
3.8%
|
|
Constant currency change % ((C-A) divided by
A)
|
15.0%
|
24.9%
|
0.7%
|
11.3%
|
(14.1%)
|
(31.5%)
|
1.9%
|
11.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Calculation of underlying cash
conversion ratio
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Underlying operating profit
|
68.4
|
62.5
|
122.5
|
|
Calculation of adjusted operating
cash flow:
|
|
|
|
|
Cash generated by
operations
|
66.6
|
67.6
|
173.4
|
|
Less: Purchase of assets for
rental to customers
|
(0.2)
|
(0.6)
|
(2.3)
|
|
Less: Purchase of property, plant
and equipment
|
(7.2)
|
(10.5)
|
(26.7)
|
|
Less: Purchase of intangible
assets
|
(2.4)
|
(1.6)
|
(2.8)
|
|
Less: Repayments of lease
liabilities
|
(4.4)
|
(4.6)
|
(9.4)
|
|
Add: Proceeds on disposal of
non-current assets and assets held for sale
|
0.9
|
2.9
|
3.3
|
|
Add back: Defined benefit pension
scheme deficit payments
|
1.9
|
1.9
|
3.7
|
|
Add back/(deduct): Cash flows
relating to non-underlying items
|
1.9
|
(0.6)
|
1.9
|
|
Adjusted operating cash flow
|
57.1
|
54.5
|
141.1
|
|
Underlying cash conversion (%)
|
83%
|
87%
|
115%
|
|
Calculation of capital expenditure
to depreciation and amortisation ratio
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Calculation of capital
expenditure:
|
|
|
|
|
Purchase of assets for rental to
customers
|
0.2
|
0.6
|
2.3
|
|
Purchase of property, plant and
equipment
|
7.2
|
10.5
|
26.7
|
|
Purchase of intangible
assets
|
2.4
|
1.6
|
2.8
|
|
|
9.8
|
12.7
|
31.8
|
|
Calculation of depreciation and
amortisation:
|
|
|
|
|
Depreciation of property, plant
and equipment
|
10.4
|
9.8
|
19.7
|
|
Amortisation of development
costs
|
0.5
|
0.5
|
1.0
|
|
Amortisation of other intangible
assets
|
-
|
-
|
0.2
|
|
|
10.9
|
10.3
|
20.9
|
|
Capital expenditure to depreciation and amortisation
ratio
|
0.9x
|
1.2x
|
1.5x
|
Calculation of net debt to EBITDA
ratio
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Reported net debt
|
101.6
|
132.1
|
108.4
|
|
Lease liabilities
|
(50.2)
|
(39.2)
|
(43.7)
|
|
Amounts related to refinancing
under IFRS 9
|
1.8
|
1.9
|
2.0
|
|
Covenant net debt (A)
|
53.2
|
94.8
|
66.7
|
|
Underlying operating
profit
|
68.4
|
62.5
|
122.5
|
|
Depreciation of property, plant
and equipment
|
10.4
|
9.8
|
19.7
|
|
Right-of-use asset
depreciation
|
5.1
|
4.8
|
9.3
|
|
Amortisation of development
costs
|
0.5
|
0.5
|
1.0
|
|
Amortisation of other intangible
assets
|
-
|
-
|
0.2
|
|
Underlying EBITDA
|
84.4
|
77.6
|
152.7
|
|
Adjusted for:
|
|
|
|
|
Lease payments
|
(5.4)
|
(4.6)
|
(10.4)
|
|
Share-based payments
expense
|
1.1
|
2.1
|
4.1
|
|
Annualised EBITDA of subsidiaries
disposed/acquired
|
2.9
|
4.2
|
3.5
|
|
Prior period H2 EBITDA
|
70.9
|
65.7
|
n/a
|
|
Covenant EBITDA (B)
|
153.9
|
145.0
|
149.9
|
|
Covenant net debt to EBITDA (A divided by
B)
|
0.4
|
0.7
|
0.4
|
6. Non-underlying items
Non-underlying items are disclosed
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 period and prior
year are set out below.
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Loss on disposal of subsidiaries
(2023: Swedish Roads and small UK car park solutions
business)
|
-
|
(3.2)
|
(4.2)
|
|
Business reorganisation
costs
|
-
|
0.7
|
(0.2)
|
|
Impairment of assets
|
-
|
-
|
(0.6)
|
|
Amortisation of acquisition
intangibles
|
(4.3)
|
(4.3)
|
(8.4)
|
|
Expenses related to acquisitions
and disposals
|
(1.1)
|
(2.2)
|
(5.3)
|
|
Total non-underlying items
|
(5.4)
|
(9.0)
|
(18.7)
|
7. Net financing costs
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Interest on bank
deposits
|
0.2
|
0.2
|
0.5
|
|
Financial income
|
0.2
|
0.2
|
0.5
|
|
Interest on loans and
borrowings
|
(4.0)
|
(4.4)
|
(8.9)
|
|
Interest on lease
liabilities
|
(1.0)
|
(0.6)
|
(1.3)
|
|
Financial expenses related to
refinancing
|
(0.3)
|
(0.3)
|
(0.6)
|
|
Interest cost on net pension
scheme deficit
|
(0.1)
|
(0.2)
|
(0.3)
|
|
Financial expense
|
(5.4)
|
(5.5)
|
(11.1)
|
|
Net financing costs
|
(5.2)
|
(5.3)
|
(10.6)
|
8. Taxation
Tax has been provided on the
underlying profit at the estimated effective rate of 25.8% (2023:
25.0%) for existing operations for the full year.
In October 2017, the European
Commission opened a state aid investigation into the Group
Financing Exemption in the UK Controlled Foreign Company ('CFC')
legislation, announcing in April 2019 that it believed in certain
circumstances the CFC regime constituted State Aid. In 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, which was paid in full in
February 2021.
Applications to annul the
Commission's decision had been made in prior years by the UK
Government, the Group and other affected taxpayers. The EU General
Court delivered its decision on these applications in June 2022,
finding in favour of the Commission. Many of those affected,
including the Group, appealed this decision to the Court of Justice
of the EU. Having taken expert advice and considering the Advocate
General's opinion that was issued in April 2024, we have concluded
that our appeal is likely to be successful. As a result, we
continue to recognise a tax receivable of £1.6m within non-current
assets, reflecting the Group's view that the amount paid will
ultimately be recovered.
9. Earnings per share
The weighted average number of
ordinary shares in issue during the period was 80.4m, diluted for
the effect of outstanding share options 81.1m (six months ended 30
June 2023: 80.1m and 80.5m diluted; the year ended 31 December
2023: 80.0m and 81.0m 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
2024
|
6
months ended 30 June 2023
|
Year
ended 31 December 2023
|
|
Pence
per share
|
£m
|
Pence
per
share
|
£m
|
Pence
per
share
|
£m
|
|
|
|
|
|
|
|
|
|
Basic earnings
|
53.2
|
42.8
|
43.5
|
34.8
|
86.0
|
68.8
|
|
Non-underlying items*
|
5.1
|
4.1
|
10.1
|
8.1
|
19.4
|
15.5
|
|
Underlying earnings
|
58.3
|
46.9
|
53.6
|
42.9
|
105.4
|
84.3
|
|
|
|
|
|
|
|
|
|
Diluted earnings
|
52.7
|
42.8
|
43.3
|
34.8
|
85.0
|
68.8
|
|
Non-underlying
items*
|
5.1
|
4.1
|
10.0
|
8.1
|
19.1
|
15.5
|
|
Underlying diluted earnings
|
57.8
|
46.9
|
53.3
|
42.9
|
104.1
|
84.3
|
*
Non-underlying items as detailed in note
6.
10.
Dividends
Dividends paid in the period were
the prior year's interim dividend of £12.0m (2023: £10.4m).
Dividends declared after the balance sheet date are not recognised
as a liability, in accordance with IAS 10. The Directors have
proposed an interim dividend for the current year of £13.3m, 16.5p
per share (2023: £12.0m, 15.0p per share), which will be paid on 7
January 2025 to shareholders on the register on 29 November
2024.
11.
Acquisitions
Capital Steel
In January 2024 the Group acquired
the trade and assets of Capital Steel for an initial consideration
of £5.0m. Capital Steel is a structural steel electrical
infrastructure manufacturer which provides engineering and
fabrication capabilities on a range of structural steel and
substation components, principally for the electrical utility and
heavy highway construction end markets. The acquisition was a
highly strategic bolt-on acquisition opportunity for V&S
Schuler and subsequent to acquisition the business has become part
of V&S Schuler, within the Group's Engineered Solutions
division.
Details of the acquisition are set
out below:
|
|
Pre-acquisition
carrying
amount
£m
|
Provisional policy alignment
and fair
value
adjustments
£m
|
Total
£m
|
|
Intangible Assets:
|
|
|
|
|
Customer lists
|
-
|
1.9
|
1.9
|
|
Brand name
|
-
|
0.3
|
0.3
|
|
Order backlog
|
-
|
0.8
|
0.8
|
|
Property, plant and
equipment
|
0.2
|
-
|
0.2
|
|
Right-of-use assets
|
0.4
|
0.3
|
0.7
|
|
Inventories
|
2.4
|
(0.5)
|
1.9
|
|
Current assets
|
1.9
|
0.7
|
2.6
|
|
Total assets
|
4.9
|
3.5
|
8.4
|
|
Lease liabilities
|
(0.4)
|
(0.3)
|
(0.7)
|
|
Current liabilities
|
(2.9)
|
(0.2)
|
(3.1)
|
|
Total liabilities
|
(3.3)
|
(0.5)
|
(3.8)
|
|
Net assets
|
1.6
|
3.0
|
4.6
|
|
Consideration
|
|
|
|
|
Cash in the period
|
|
|
5.0
|
|
Future cash
|
|
|
1.2
|
|
Goodwill
|
|
|
1.6
|
|
Cash flow effect
|
|
|
|
|
Consideration in the
period
|
|
|
(5.0)
|
|
Net cash consideration shown in the Consolidated Statement of
Cash Flows
|
|
|
(5.0)
|
Brands, customer lists and the
order backlog have been recognised as specific intangible assets as
a result of the acquisition. The residual
goodwill is attributable to opportunities with new customers as the
business expands its product and customer base, and Capital Steel's
highly skilled workforce. Capital Steel will form part of the
V&S Utilities CGU for the purpose of annual goodwill impairment
testing. 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 £1.9m of trade receivables,
which have a gross value of £1.9m.
As part of the acquisition
agreement, contingent consideration has been agreed. The amount of
contingent consideration is dependent on revenue and adjusted
EBITDA for the two-year period ending 31 December 2025. The maximum
contingent consideration payable is £1.0m. As at the acquisition
date, the fair value of the contingent consideration was estimated
to be £0.6m, calculated on a probability-weighted basis.
Post-acquisition the acquired
business has contributed £6.9m revenue and £1.5m underlying
operating profit, which are included in the Group's Consolidated
Income Statement. If the acquisition had been made on 1 January
2024, the Group's results for the period would have shown revenue
of £422.7m, underlying operating profit of £68.4m and reported
operating profit of £63.0m.
FM
Stainless
In March 2024 the Group acquired
the trade and assets of FM Stainless for an initial consideration
of £6.7m. FM Stainless is a fabricator and distributor of
high-alloy, stainless steel engineered pipe supports, expansion
anchors and fasteners. The acquisition is a highly strategic
bolt-on acquisition opportunity for The Paterson Group ('TPG') and
subsequent to acquisition the business has become part of TPG,
within the Group's Engineered Solutions division.
Details of the acquisition are set
out below:
|
|
Pre-acquisition
carrying
amount
£m
|
Provisional policy alignment
and fair
value
adjustments
£m
|
Total
£m
|
|
Intangible Assets
|
|
|
|
|
Brands
|
-
|
0.2
|
0.2
|
|
Customer lists
|
-
|
2.6
|
2.6
|
|
Order backlog
|
-
|
0.3
|
0.3
|
|
Property, plant and
equipment
|
0.1
|
1.5
|
1.6
|
|
Inventories
|
2.0
|
(0.4)
|
1.6
|
|
Current assets
|
1.3
|
0.1
|
1.4
|
|
Total assets
|
3.4
|
4.3
|
7.7
|
|
Current liabilities
|
(0.3)
|
(0.5)
|
(0.8)
|
|
Total liabilities
|
(0.3)
|
(0.5)
|
(0.8)
|
|
Net assets
|
3.1
|
3.8
|
6.9
|
|
Consideration
|
|
|
|
|
Cash in the period
|
|
|
6.7
|
|
Future cash
|
|
|
0.5
|
|
Goodwill
|
|
|
0.3
|
|
Cash flow effect
|
|
|
|
|
Consideration in the
period
|
|
|
(6.7)
|
|
Net cash consideration shown in the Consolidated Statement of
Cash Flows
|
|
|
(6.7)
|
Brands, customer lists and the
order backlog have been recognised as specific intangible assets as
a result of the acquisition. The residual
goodwill is attributable to opportunities with new customers as the
business expands its product and customer base, opportunities for
expansion into new territories/geographies, and FM Stainless'
highly skilled workforce. 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. The fair value of the current assets acquired includes
£1.4m of trade receivables, which have a gross value of
£1.4m.
As part of the acquisition
agreement, contingent consideration has been agreed. The amount of
contingent consideration is dependent on adjusted EBIT for the
12-month period ending 31 March 2025. The maximum contingent
consideration payable is £0.4m. As at the acquisition date, the
fair value of the contingent consideration was estimated to be
£0.4m, calculated on a probability-weighted basis.
Post-acquisition the acquired
business has contributed £2.8m revenue and £0.7m underlying
operating profit, which are included in the Group's Consolidated
Income Statement. If the acquisition had been made on 1 January
2024, the Group's results for the period would have shown revenue
of £424.5m, underlying operating profit of £68.9m and reported
operating profit of £63.5m.
12.
Impairment of goodwill and indefinite life
intangible assets
IAS 36 Impairment of Assets requires the
Group to test goodwill and other indefinite life intangible assets
for impairment annually, or at other reporting period ends where
there is an indication of impairment. In determining which Cash
Generating Units (CGUs) to test at 30 June 2024, the Group
identified those where the trading performance in the first six
months of the year had fallen significantly below previous
expectations, or where impairment testing at the prior year end had
indicated a relatively low level of headroom and sensitivities to
the calculations. On this basis, impairment tests were carried out
on the Hill & Smith Inc., ATG Access and Prolectric
CGUs.
Consistent with past practice and
as disclosed in the Group's 2023 Annual Report, impairment tests on
the carrying values of goodwill are performed by comparing the
carrying value allocated to each CGU against its value in use.
Value in use is calculated as the net present value of that unit's
discounted future cash flows. Short-term cash flows are based on
latest management forecasts for the second half of 2024 and
strategic plans for the following four years, which are prepared
taking into account a range of factors including past experience,
the forecast future trading environment and macroeconomic
conditions in the Group's key markets. The cash flows beyond the
strategic plan period use growth rates which reflect the long-term
historical growth in GDP of the economies in which each CGU is
located, which are 2.0% for the UK and 2.5% for the US. The Board
believes the use of long-term historical growth rates is currently
the most reliable indicator of future growth rates, given the
uncertainty in any forward-looking growth projections at the
reporting date. Discount rates are derived from a market
participant's cost of capital, risk adjusted for individual CGU's
circumstances.
Based on the methodology outlined
above, the impairment reviews for H&S Inc., ATG Access and
Prolectric at 30 June 2024 concluded that no impairment charges
were required to be recorded in the period. The Group then applied
sensitivities to assess whether any reasonably possible changes in
assumptions could cause an impairment of the goodwill in each
tested CGU.
Sensitivities
H&S Inc.
H&S Inc. manufactures, sells
and rents a range of work zone protection products including crash
attenuators, trailer-mounted message boards, and temporary road
safety barriers, to construction contractors and traffic
specialists across the US roads market. While underlying market
conditions remain healthy, the business' performance over the past
two years has been impacted by operational and cost input
challenges, and whilst results were better in the first half of
2024, they remain below our longer-term expectations. The Group's
projections for H&S Inc. assume that the actions taken to
address the operational issues will be successful, and that short
to medium term revenue growth will be above long-term averages due
to the anticipated increase in federal and state highway spend from
the IIJA over the next four to five years. The main drivers of that revenue growth are expected to be
crash attenuator sales, where the business has developed a
complementary offering to its existing market-leading product that
has begun sales in H1 2024, and sales of its temporary road safety
barrier, driven by geographical expansion into new states and
portfolio enhancements. We recognise,
however, that there could be variations in the pace of improvement
and growth and therefore we have modelled a range of scenarios for
the outlook. Revenue growth, gross margins, long-term cash flow
growth and the discount rate are the key assumptions on which the
impairment calculations are most sensitive. The following table
provides information on the impact on calculated headroom of
several scenarios for each of those key assumptions (independently
in each case), the first showing the Board approved projection, the
second the assumptions that result in zero headroom, and the third
a severe but plausible downside scenario:
|
Input
|
Scenario
|
Sensitivity
applied
%
|
Headroom/
(impairment)
£m
|
|
Compound annual revenue growth
2023-2028
|
Base case
|
12.6%
|
5.0
|
|
|
Zero headroom
|
12.0%
|
-
|
|
|
H&S sensitivity
|
11.0%
|
(7.8)
|
|
Average gross profit margin
2024-28
|
Base case
|
27.3%
|
5.0
|
|
|
Zero headroom
|
26.9%
|
-
|
|
|
H&S sensitivity
|
26.0%
|
(6.6)
|
|
Annual cash flow growth 2029
onwards
|
Base case
|
2.5%
|
5.0
|
|
|
Zero headroom
|
1.1%
|
-
|
|
|
H&S sensitivity
|
0.0%
|
(3.1)
|
|
Pre-tax discount rate
|
Base case
|
16.2%
|
5.0
|
|
|
Zero headroom
|
17.2%
|
-
|
|
|
H&S sensitivity
|
18.0%
|
(3.8)
|
ATG
Access
ATG's future performance is largely
dependent on developments in global security products markets,
which are inherently dependent on both public/customer behaviour
and broader economic conditions. It is plausible that the pace of
growth could be more gradual than that assumed in the impairment
tests that have been carried out, in which case a further material
impairment could arise. Revenue growth and gross margins are the
key assumptions on which the goodwill impairment review is most
sensitive; the calculations are not particularly sensitive to
long-term growth rates or the discount rate applied. The following
table provides information on the impact on calculated headroom of
various scenarios for each of the key assumptions (independently in
each case):
|
Input
|
Scenario
|
Sensitivity
applied
%
|
Headroom/
(impairment)
£m
|
|
Compound annual revenue growth
2023-2028
|
Base case
|
8.2%
|
12.3
|
|
|
Zero headroom
|
3.2%
|
-
|
|
|
H&S sensitivity
|
0.0%
|
(7.3)
|
|
Average
gross profit margin 2024-28
|
Base case
|
34.2%
|
12.3
|
|
Zero headroom
|
28.7%
|
-
|
|
H&S sensitised
|
25.0%
|
(7.6)
|
Prolectric
Prolectric manufactures, sells and
rents a range of off-grid solar energy products including temporary
and permanent solar lighting, lighting towers and hybrid power
generators, to construction contractors, hire companies and private
businesses across the UK infrastructure markets. Following a strong
performance in 2022, its results in 2023 and the first half of 2024
have been impacted by a downturn in the UK construction market
leading to lower revenues and profitability. The Group's
projections for Prolectric result in calculated headroom of £16.8m.
These projections assume a recovery in UK construction activity
over the short to medium term, that the business's recent refocus
into the more resilient facilities management sector will further
support revenue growth, and that the niche solar lighting market in
which Prolectric operates will see strong medium term growth rates
driven by corporate sustainability initiatives. Consequently, the
projections include compound annual revenue growth of 20.3% over
the period 2023-28. We acknowledge, however, that there could be
variations in the pace of recovery in underlying UK construction
activity and in growth across Prolectric's other markets, and our
sensitivity calculations indicate that compound annual revenue
growth of 14.7% (all other assumptions in the model unchanged)
would result in zero calculated headroom, while compound growth of
12.0% would lead to an impairment of £7.9m. The calculations are
not particularly sensitive to other assumptions such as gross
margins, long term growth rates or the discount rate and we do not
believe that there are any reasonable possible changes in
assumptions for these metrics that could lead to a material
impairment.
13.
Analysis of net debt
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended
31
December 2023
£m
|
|
Cash and cash equivalents in the Condensed Consolidated
Statement of Financial Position
|
|
|
|
|
Cash and cash
equivalents
|
55.8
|
22.3
|
34.4
|
|
Bank overdrafts
|
-
|
(0.1)
|
-
|
|
Cash and cash equivalents net of bank
overdraft
|
55.8
|
22.2
|
34.4
|
|
Interest bearing loans and other borrowings
|
|
|
|
|
Amounts due within one
year
|
(0.7)
|
(0.1)
|
(1.4)
|
|
Amounts due after more than one
year
|
(106.5)
|
(115.0)
|
(97.7)
|
|
Lease liabilities due within one
year
|
(8.5)
|
(8.2)
|
(8.0)
|
|
Lease liabilities due after more
than one year
|
(41.7)
|
(31.0)
|
(35.7)
|
|
Net debt
|
(101.6)
|
(132.1)
|
(108.4)
|
|
|
6 months
ended
30 June
2024
£m
|
6 months
ended
30 June
2023
£m
|
Year
ended 31 December 2023
£m
|
|
Change in net debt
|
|
|
|
|
Operating profit
|
63.0
|
53.5
|
103.8
|
|
Non-cash items
|
20.6
|
23.9
|
47.6
|
|
Operating cash flow before
movement in working capital
|
83.6
|
77.4
|
151.4
|
|
Net movement in working
capital
|
(13.1)
|
(7.2)
|
22.8
|
|
Change in provisions and employee
benefits
|
(3.9)
|
(2.6)
|
(0.8)
|
|
Operating cash flow
|
66.6
|
67.6
|
173.4
|
|
Tax paid
|
(10.6)
|
(14.9)
|
(31.7)
|
|
Net financing costs
paid
|
(3.6)
|
(4.2)
|
(8.4)
|
|
Capital expenditure
|
(9.8)
|
(12.7)
|
(31.8)
|
|
Proceeds on disposal of
non-current assets and assets held for sale
|
0.9
|
2.9
|
3.3
|
|
Free cash flow
|
43.5
|
38.7
|
104.8
|
|
Dividends paid (note
10)
|
(12.0)
|
(10.4)
|
(28.0)
|
|
Acquisitions of
subsidiaries
|
(13.8)
|
(41.7)
|
(53.5)
|
|
Disposals of
subsidiaries
|
-
|
0.4
|
(0.2)
|
|
Amortisation of costs associated
with refinancing activities (note 7)
|
(0.3)
|
(0.3)
|
(0.6)
|
|
Purchase of shares for employee
benefit trust
|
(1.5)
|
(0.4)
|
(2.6)
|
|
Issue of new shares
|
2.3
|
1.0
|
1.8
|
|
Lease additions, terminations and
remeasurements
|
(9.9)
|
(3.2)
|
(12.6)
|
|
Leases disposed of with disposal
of subsidiary
|
-
|
0.2
|
0.3
|
|
Cash paid on early termination of
leases
|
(0.1)
|
-
|
-
|
|
Interest on lease
liabilities
|
(1.0)
|
(0.6)
|
(1.3)
|
|
Net debt decrease/(increase)
|
7.2
|
(16.3)
|
8.1
|
|
Effect of exchange rate
fluctuations
|
(0.4)
|
3.9
|
3.2
|
|
Net debt at the beginning of the
period
|
(108.4)
|
(119.7)
|
(119.7)
|
|
Net debt at the end of the period
|
(101.6)
|
(132.1)
|
(108.4)
|
14. Financial instruments
The table below sets out the
carrying value of the Group's financial assets and liabilities as
at 30 June 2024 and 31 December 2023. The Group's financial assets
and liabilities are all valued at amortised cost. The fair values
of all financial assets and liabilities are not materially
different to the carrying values set out below.
|
|
Carrying value at 30 June
2024
£m
|
Carrying
value at 31 December 2023
£m
|
|
Cash and cash equivalents net of
bank overdraft
|
55.8
|
34.4
|
|
Loans and borrowings due within
one year
|
(0.7)
|
(1.4)
|
|
Loans and borrowings due after
more than one year
|
(106.5)
|
(97.7)
|
|
Lease liabilities due within one
year
|
(8.5)
|
(8.0)
|
|
Lease liabilities due after more
than one year
|
(41.7)
|
(35.7)
|
|
Other financial assets
|
139.2
|
119.3
|
|
Other financial
liabilities
|
(121.3)
|
(107.2)
|
|
Total
|
(83.7)
|
(96.3)
|
Fair value hierarchy
There were no financial instruments
carried at fair value at 30 June 2024, 30 June 2023 or 31 December
2023.
15. Events after the reporting period
In July 2024, we acquired Trident
for an initial consideration of £10.6m and further cash
consideration of up to £25.6m, payable based on future revenues
over the five years post-acquisition. Located in Greater St Louis,
Illinois, Trident is a designer and supplier of composite utility
poles, serving utility company needs across North America and the
Caribbean. The business has a long-term outsourced manufacturing
relationship with Enduro Composites, and will become part of the
Creative Composites Group, within the Engineered Solutions
division.