12 March 2024
Hill & Smith PLC
Full Year Results for the year ended 31 December 2023
Record results with strong progress and positive M&A momentum
Hill & Smith PLC ("Hill & Smith" or "the Group"), the international provider of sustainable infrastructure products and services, announces its preliminary results for the year ended 31 December 2023.
Financial Results
| | Underlying* | Change | Statutory | |||||
| | 31 December2023 | 31 December 2022 (1) | Reported % | Constant Currency % | OCC ^% | 31 December2023 | 31 December 2022 (1) | Change% |
Continuing Operations (1) | | | | | | | | |
Revenue | £829.8m | £732.1m | +13% | +14% | +5% | £829.8m | £732.1m | +13% |
Operating profit | £122.5m | £97.1m | +26% | +26% | +12% | £103.8m | £78.5m | +32% |
Operating margin | 14.8% | 13.3% | +150bps | | | 12.5% | 10.7% | +180bps |
Profit before tax | £111.9m | £87.9m | +27% | | | £93.2m | £69.3m | +34% |
Earnings per share | 105.4p | 85.4p | +23% | | | 86.0p | 66.7p | +29% |
| | | | | | | | | |
Total Group (1) | | | | | | | | |
Earnings per share | 105.4p | 91.9p | +15% | | | 86.0p | 71.0p | +21% |
Dividend per share | 43.0p | 35.0p | +23% | | | 43.0p | 35.0p | +23% |
(1) Continuing operations exclude France Galva, which was divested in October 2022 and was accounted for as a discontinued operation in the prior year comparatives. Total Group includes both continuing and discontinued operations.
Highlights:
· Record trading performance
o Revenue up 14% and underlying operating profit up 26% on a constant currency basis
o Underlying operating margin increased by 150bps to 14.8%, reflecting volume growth and improved portfolio mix
o Strong momentum across US businesses with standout performance in composites and electrical utility businesses
o US representing 76% of 2023 underlying operating profit
o Resilient performance in our UK businesses given market conditions
· Positive momentum on M&A
o £48m invested in growth and margin accretive acquisitions in 2023
o All recent acquisitions trading in line or ahead of expectations
o Further £11.6m investment across two acquisitions, 2024 year to date
o Strong M&A pipeline
· Strong cash generation and enhanced ROIC
o Cash conversion 115% (2022: 51%)
o ROIC 22.0% (2022: 19.2%)
o Covenant leverage at 0.4 times, providing significant capacity for investment in organic and inorganic growth
· Final dividend proposed of 28.0p, up 27%, making a total dividend of 43.0p
· Well-positioned in infrastructure markets with attractive structural growth drivers. Expect to make further progress in 2024 and beyond
Alan Giddins, Executive Chair, said:
"This is a record set of results for the Group, with significant progress against our strategic goals. We expect this good momentum to continue into 2024. Over the medium term, we see significant opportunities as a result of the Group's exposure to infrastructure markets with strong structural growth drivers, particularly in the US, and through our ability to use selective M&A to acquire complementary technologies and access both new customers and end markets."
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 10am, hosted at Numis, 45 Gresham St, London EC2V 7BF, 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 4 to the Financial Statements and described in the Financial Review. References to an underlying profit measure throughout this announcement are made on this basis. Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a proper understanding of the underlying performance of the business. Underlying measures are deemed alternative performance measures ("APMs") under the European Securities and Markets Authority guidelines and a reconciliation to the closest IFRS equivalent measure is detailed in note 3 to the financial statements. They are presented on a consistent basis over time to assist in comparison of performance.
^ Where we 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.4,400 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.
2023 Review
We are pleased to report that the Group delivered another record performance in 2023. This impressive achievement reflects strong momentum in our US businesses, which are focused on structurally growing infrastructure markets, and a resilient performance in our UK businesses, underpinned by the leading positions they hold in their respective niche markets. The results are also testament to the talent and commitment of our local teams and the effectiveness of our agile, decentralised operating model.
Revenue increased by 14% and underlying operating profit increased by 26% on a constant currency basis. Group underlying operating margin increased by 150bps to 14.8%, reflecting the benefits of volume growth and evolving portfolio mix. 2023 also benefitted from the strong performance of our recent acquisitions, contributing c.£74m of revenue and c.£13m of underlying operating profit in the year, at a margin above the Group average.
The Engineered Solutions division delivered an excellent performance with all businesses trading well. In particular, the US composite business saw high demand for its range of composite solutions and our business supplying structural steel products into the US electrical transmission and distribution market also performed strongly.
In Galvanizing Services, our US business delivered record revenue and operating profit, underpinned by strong volume growth across a range of infrastructure end markets. As expected, our UK business experienced more challenging end markets, with lower volumes and operating profit compared to 2022, which was a strong comparator period.
While Roads & Security benefited from buoyant demand at National Signal, our US off-grid solar lighting solutions business, and a robust performance in our core UK roads businesses, underlying operating profit and margin declined compared to 2022. This reflects the impact of one-off operational improvement costs taken in our US Roads business, as previously guided, together with non-recurring charges relating to certain UK businesses, including our loss making car park solutions business, which we exited at the end of 2023.
The Group continues to be highly cash generative, with cash conversion in the year of 115%. Year end net debt was 0.4 times EBITDA on a covenant basis. The strong balance sheet and consistent cash generation provides the Group with the opportunity to continue to invest in organic and inorganic growth opportunities.
Strategic update
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 2023, the Group delivered significant progress against all elements of this framework with strong revenue growth, operating margin expansion and high levels of cash conversion.
Portfolio Management
Growth through value enhancing acquisitions is a key element of the Group's strategy. We have made good progress in delivering on our M&A strategy and in building a strong pipeline of future opportunities.
In 2023 we invested c.£48m in three principal acquisitions, together with making a small bolt-on acquisition to our US seismic protection solutions business.
Two of these acquisitions accelerate our strategy in the exciting and fast growing US composites market. In February 2023, we acquired Enduro Composites, a designer and manufacturer of engineered composite solutions based in Houston, Texas for £28.7m. Trading since acquisition has been ahead of expectations. In November 2023, we acquired United Fiberglass, a specialist in composite pipe, conduit, and bridge drain infrastructure systems located in Springfield, Ohio for £11.8m. The business has started 2024 with a record order book. Both acquisitions expand our existing customer base and product range, while also providing additional manufacturing capability and purchasing synergies.
In March 2023, we acquired Korns Galvanizing based in Johnstown, Pennsylvania for £9.4m, strengthening our US galvanizing market presence. The business has traded ahead of expectations following a well managed integration process and we are starting to see the benefits of both cross-selling to our existing customers and purchasing synergies.
Our M&A momentum continues into 2024 and we have made two highly complementary acquisitions in the year to date. In January 2024, we acquired Capital Steel Service for £5.0m. Located in Trenton, New Jersey, the business supplies structural steel products and services into the high growth electrical transmission and distribution market and will be integrated into our existing electricity substation business. In March 2024, we acquired FM Stainless, based in Ellijay, Georgia, for £6.6m. 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 Board takes a disciplined approach to portfolio management with targeted divestments. In April 2023 we completed the disposal of the final part of our loss making Swedish roads business, and in October 2023 we divested the trade and certain assets of Berry Systems, a small, loss making car park solutions business. Both disposals will have a positive impact on our Roads & Security margins in 2024.
Sustainability
The growth of our business is naturally aligned to our sustainability agenda: our products and services make infrastructure more sustainable and increase transport safety.
Our Group sustainability strategy encompasses seven priority areas including our commitment to reduce greenhouse gas ('GHG') emissions. Our full scope 3 GHG emissions have now been successfully baselined and received limited assurance validation in June 2023. This enabled us to submit near and long term targets to the Science Based Target initiative (SBTi) in July 2023 and we are pleased to report that these were approved in December 2023, with an overarching target to reach net zero GHG emissions across the value chain by 2050. This sits alongside our commitment to reach net zero for our Scope 1 and 2 emissions by 2040. Our Head of Sustainability continues to work with our local teams to drive local energy saving initiatives and explore decarbonisation technology options to underpin our GHG reduction plan.
We also continue to make progress across our other sustainability priority areas. In health & safety our focus has been on accident prevention, and we have enhanced the Group health and safety organisational structure to bring regional support to our core geographies. While there is more work to do, these efforts have resulted in a 61% reduction in the Lost Time Incident Rate to 0.43 (2022: 1.11).
Talent development and engagement are critical to the success of our autonomous operating model and are key focus areas for our sustainability strategy. Within this, senior level succession has been a particular focus, including the development of high potential individuals within our operating companies, and manager and supervisor training and development.
As an organisation we aim to employ the best people for the job, and we know that we can only do this by considering talented people from the whole community. Our most recent employee survey highlighted that we have made positive progress with diversity and inclusion. We have also made significant progress with our apprenticeship programme in the UK, and now have 60 apprentices, a 9% increase compared to 2022.
Board updates
In May 2023, Alan Giddins formally assumed the role of Executive Chair for an expected period of 12 to 18 months. In January 2024, the Group announced the appointment of Hooman Caman Javvi, as Chief Operating Officer, reporting to Alan Giddins. In this role Hooman has taken on a wider responsibility for the Group's operations, talent development and medium-term strategy.
Annette Kelleher stepped down from the Board as a Non-executive Director in May 2023 after a tenure of nine years, and we thank her for her significant contribution during this time. In January 2024 we were delighted to appoint Carol Chesney as a Non-executive Director. Carol will take over from Mark Reckitt as Chair of the Audit Committee following the AGM in May 2024.
Results from continuing operations
The Group has delivered a very strong set of results for 2023. Revenue was £829.8m (2022: £732.1m), an increase of 13% on a reported basis. OCC revenue growth was 5%. Constant currency revenue growth was 14%, reflecting a strong trading performance in National Signal and Enduro, our two larger recent US acquisitions. Underlying operating profit was £122.5m (2022: £97.1m), an increase of 26% on a reported basis. OCC operating profit growth was 12% and constant currency growth was 26%. Operating margins improved to 14.8% (2022: 13.3%). Underlying profit before taxation was £111.9m (2022: £87.9m). Reported operating profit was £103.8m (2022: £78.5m) and reported profit before tax was £93.2m (2022: £69.3m). Underlying earnings per share increased to 105.4p (2022: 85.4p) and reported earnings per share was 86.0p (2022: 66.7p).
The principal reconciling items between underlying and reported operating profit are non-cash charges including the amortisation of acquisition related intangibles of £8.4m and losses on disposal of non-core operations of £4.2m. Note 4 of the financial statements provides further details on the Group's non-underlying items.
Dividend
Given the strong trading performance and confidence in the Group's prospects, the Board is recommending a final dividend of 28.0p per share, making a total dividend for the year of 43.0p per share (2022: 35.0p). The final dividend, if approved, will be paid on 5 July 2024 to shareholders on the register on 31 May 2024.
Outlook
The Group is well-positioned in infrastructure markets with attractive medium and long term growth drivers and is weighted towards faster growing US end markets, which accounted for 76% of Group underlying operating profit in 2023. These factors, alongside the strong trading performance, the quality of our M&A pipeline and the benefits of our agile operating model, provide the Board with confidence that the Group will continue to make good progress in 2024, including a recovery in Roads & Security, and with a modest second half weighting, in line with historic trends.
Operational Review
| Engineered Solutions
| £m |
Reported % |
Constant currency % |
OCC % | |
|
| 2023 | 2022 | |||
| Revenue | 367.0 | 289.9 | +27 | +27 | +15 |
| Underlying operating profit (1) | 64.4 | 35.0 | +84 | +84 | +69 |
| Underlying operating margin % (1) | 17.5% | 12.1% | | | |
| Statutory operating profit | 59.7 | 34.1 | | | |
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.
Our Engineered Solutions division provides steel and composite solutions for a wide range of infrastructure markets including energy generation and distribution, marine, rail and housing. The division also supplies engineered supports for the water, power and liquid natural gas markets, and seismic protection solutions for commercial construction.
The division delivered an impressive performance in 2023, with 27% revenue and 84% underlying operating profit growth on a constant currency basis. This reflects buoyant demand seen across our higher margin US businesses, with our composites and electrical transmission and distribution businesses delivering particularly strong growth. Underlying operating margins increased significantly to 17.5% (2022: 12.1%), due to the improved portfolio mix and volume growth.
US
The US businesses delivered 20% OCC revenue growth and record underlying operating profit.
Our composites group achieved another record trading year supported by continued growth in demand for its range of engineered composite solutions including utility poles, waterfront protection, cooling towers and mass transit infrastructure. The business delivered enhanced operating margins in 2023 due to excellent commercial execution, operational gearing and a favourable product mix.
The outlook for our US composites group is very positive with our focus end markets expected to benefit from unprecedented levels of government investment, ongoing power grid modernisation and onshoring. The business is also seeing increasing adoption of innovative composite solutions, supported by legacy material availability, lower lifecycle cost and improved sustainability considerations.
During the year, we made two acquisitions in composites in the US, strengthening our presence in this attractive niche market. In February 2023 we acquired Enduro Composites for £28.7m. Located in Houston, Texas, Enduro is a designer and manufacturer of engineered composite solutions and has traded ahead of expectations since acquisition. During 2023 we invested in expanding Enduro's capacity to support future growth in demand. In November 2023 we acquired United Fiberglass, located in Springfield, Ohio, for a consideration of £11.8m. The business focuses on composite pipe, conduit, and bridge drain infrastructure systems and enters 2024 with a record order book. Both businesses are being integrated into our existing US composite group.
Our business supplying structural steel components into the electricity substation market achieved record revenue and operating profit in 2023. The business enters 2024 with a strong order book supported by high project demand to expand and upgrade ageing power infrastructure. Given the attractive market demand, we are making strategic capital investments to increase our existing capacity, and in January 2024 the business also acquired Capital Steel Service for a headline consideration of £5.0m. Based in Trenton, New Jersey, the company supplies structural steel products and services into the electrical transmission and distribution market across the US East Coast. The acquisition will expand our geographical customer base, generate significant cross selling opportunities and provide additional manufacturing capability.
Our two US engineered supports businesses also delivered record results underpinned by a number of large infrastructure build projects for electric vehicle, semiconductor and battery plants, wastewater treatment, power generation and a buoyant HVAC market. Both businesses enter 2024 with record order books. In December 2023 we acquired the business and selected assets of Conn-Fab Sales, Inc. for an initial consideration of £0.3m which expands our market reach and strengthens our position in the buoyant roof curb market. In March 2024 we acquired FM Stainless for an initial consideration of £6.6m. The business is highly complementary to our existing engineered supports business and will expand our geographical customer base and manufacturing capacity.
The growth prospects for all our US Engineered Solutions businesses continue to be very encouraging. We expect market demand to be supported by investment to modernise the ageing electric grid and solutions to protect against extreme weather. The outlook is further supported by multi-year planned government spending on infrastructure via the Infrastructure Investment and Jobs Act ('IIJA') and the CHIPS Act, and private investment from US manufacturers and producers to onshore vital components.
UK and India
Our UK businesses delivered a resilient performance with revenue 6% lower and underlying operating profit at a similar level to 2022. The building products business experienced lower volumes, reflecting a slowdown in UK residential new build and repair, maintenance and improvement sectors, however this was offset by higher selling prices which, together with a focus on cost management, resulted in operating profit ahead of prior year. The outlook for 2024 is likely to remain challenging and the business is focused on gaining market share and further operational efficiencies. The industrial flooring business delivered a robust performance, with buoyant project pipeline demand from data centre, battery plant and oil & gas markets.
Our engineered supports business in India delivered a record result, underpinned by strong international LNG project demand and we have invested modestly in capacity expansion to support the growth strategy. The business enters 2024 with a strong order book and good medium term growth prospects.
Galvanizing Services
| | £m | Reported % | Constant currency % | OCC % | |
| Continuing Operations (2) | 2023 | 2022 | |||
| Revenue | 196.7 | 180.7 | +9 | +9 | +5 |
| Underlying operating profit (1) | 45.7 | 44.0 | +4 | +4 | - |
| Underlying operating margin % (1) | 23.2% | 24.3% | | | |
| Statutory operating profit | 43.8 | 42.7 | | | |
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.
(2) Continuing operations exclude France Galva, which was reported as a discontinued operation in the prior year.
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 end markets including road and bridge and other infrastructure, construction, and transportation.
The division delivered a robust performance in 2023, with 9% revenue and 4% underlying operating profit growth on a constant currency basis. The division continues to deliver superior margins with underlying operating margin at 23.2%, reflecting the value-add service provided to customers. The results are attributable to strong volume growth in the US, offset by a volume decline in the more challenging UK market.
US
With plants strategically located in the northeast and midwest of the country, the US galvanizing business delivered a good performance, with 9% OCC revenue growth and record underlying operating profit against a strong 2022 comparator. The growth is attributable to an 8% organic increase in production volumes with focused pricing action taken to offset higher labour and raw material costs. As a result, the business continued to deliver superior operating margins, with customers valuing the excellent service levels provided by our local teams.
In support of our US galvanizing growth strategy, we acquired Korns Galvanizing in March 2023 for a headline consideration of £9.4m. Located in Johnstown, Pennsylvania, Korns specialises in spin galvanizing and expands our production capacity in the key northeastern market, broadening the range of galvanizing services we can offer to our existing customer base. Korns is now fully integrated into our existing business and trading since acquisition has been ahead of expectations.
In the medium to longer term, the outlook for US galvanizing is positive. The business is well placed to benefit from high levels of industrial expansion activity in the US supported by the IIJA, investment in technology and a more general move to the onshoring of certain activities. We have started to see some IIJA related projects and expect to see incremental demand from bridge and highway and renewable energy projects in 2024.
UK
In UK galvanizing, revenue was broadly flat on an organic basis, with a 15% decline in production volumes offset by pricing actions taken to cover higher energy and labour costs. The volume decline reflects an overall downturn in the UK galvanizing market and the impact of certain key customers delaying projects, with volumes stabilising in the second half of the year. As a result, underlying operating profit and underlying operating margin were lower than last year's record performance. Widnes Galvanising, acquired in September 2022, has been successfully integrated and delivered results ahead of expectations in 2023.
Our market leading UK galvanizing business benefits from serving a diversified customer base. While we expect end markets to continue to be challenging in 2024, the business is focusing on building volume in niche growth sectors such as cable management which, coupled with an expected improved demand from certain key accounts, is anticipated to support a resilient trading performance. We have also taken proactive steps to strengthen the senior management team to deliver our expectations for the business.
Roads & Security
| | £m | Reported % | Constant currency % | OCC % | |
| Continuing Operations (2) | 2023 | 2022 | |||
| Revenue | 266.1 | 261.5 | +2 | +2 | -5 |
| Underlying operating profit (1) | 12.4 | 18.1 | -31 | -31 | -71 |
| Underlying operating margin % (1) | 4.7% | 6.9% | | | |
| Statutory operating profit | 0.3 | 1.7 | | | |
(1) Underlying measures are set out in note 3 to the Financial Statements and exclude certain non-underlying items, which are detailed in note 4 to the Financial Statements.
(2) Continuing operations exclude the French lighting column business, which was reported as a discontinued operation in the prior year.
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.
The division delivered a disappointing performance with 2% revenue growth and a 31% underlying operating profit decline on a constant currency basis. The results reflect strong trading in National Signal, our US off-grid solar lighting business, and resilient trading in our core UK roads businesses, however this was offset by certain non-recurring charges in the UK and one-off operational improvement costs in our US roads business. As a result, underlying operating margin was 4.7% and we expect a gradual improvement in 2024.
UK
Revenue was 3% lower and underlying operating profit was significantly lower than 2022 on an organic basis. Our barrier rental business delivered good profit growth, with an increased level of average fleet utilisation and a focus on cost control. Our wider UK roads portfolio experienced challenges, with inflationary and budgetary pressures across central government and local authority customers. While end markets continue to be challenging, with a possible slow down of project activity in anticipation of the Road Investment Strategy 3 period (2025-2030), our expectation is that the core UK roads business will deliver a resilient performance in 2024.
Our UK off-grid solar business experienced a slowdown in construction end markets during the year and is turning its focus to the more resilient facilities management sector. At the end of the year the business identified an issue with the historical installation of certain products and is taking appropriate remedial action. While some of these installations occurred prior to our acquisition of the business, we have absorbed the rectification costs into the Group's underlying results.
During the year we also took action to improve the quality of our UK roads portfolio and divested the trade and certain assets of Berry Systems, a small, loss making car park solutions business. An underlying charge has been taken in relation to future losses expected on a small number of legacy contracts where we retain economic liability.
US
Our US Roads portfolio comprises two businesses: National Signal, our off-grid solar lighting solutions business acquired in October 2022, and our roadside safety products business.
Trading in National Signal was very strong, particularly in the first three quarters of 2023, supported by a high order backlog and buoyant demand from rental companies. While we have seen a slight softening in demand coming into the first half of 2024, the medium term outlook for the business remains very positive, underpinned by a drive toward sustainable solutions and an expected boom in large scale infrastructure projects. The business is expecting to move into a larger leased facility during H1 2024, in line with its medium term growth strategy.
Revenue in the road traffic safety product business was lower than 2022 and underlying operating profit was significantly impacted by one-off operational improvement costs, mainly associated with re-engineering the trailer product line. The business is implementing a comprehensive business improvement plan and we expect the business to make progress in 2024. The medium term outlook for the business remains positive, with demand supported by the introduction of new safety standards and increased levels of state and federal investment to upgrade US road infrastructure.
Other International Roads
In April 2023 we completed the disposal of the final part of our loss making Swedish roads business. Our Australian roads business performed in line with expectations.
UK Security
Our UK security businesses provide a range of perimeter security solutions including hostile vehicle mitigation to both UK and international markets. Revenue declined by 6% and underlying operating profit was also below last year. This reflects lower levels of utilisation in our UK security barrier rental business compared to a record 2022 and continuing challenges in our perimeter access security business. In the second half of the year, we were pleased to renew the contract for the UK security barrier with the UK Government. The outlook for our security portfolio remains mixed, however we expect that our quality product offering and a focus on more resilient end markets such as data centres will support further progress.
Financial Review
Capital allocation
The Group follows a disciplined approach to capital allocation. As a priority, we allocate capital to support organic growth, with a focus on higher return, structurally growing infrastructure markets. We require our operating companies to manage working capital efficiently, considering their respective growth rates, and we invest in capital projects and innovation to support future organic growth, with around £15m of 2023 capex allocated to growth investments.
Secondly, we allocate capital to make high quality acquisitions, with a focus on businesses which have a clear alignment with our purpose and have good long-term growth potential. We follow a structured approach to acquisitions based on a clear set of financial criteria and expect acquisitions to achieve returns above our Group cost of capital within a three-year timeframe. Based on our highly cash generative model, we are targeting to reinvest around £50m - £70m each year on value enhancing acquisitions. In 2023 we invested £48.4m across four acquisitions. Our acquisition pipeline is strong, and is focused on high quality, strategically aligned opportunities.
We also aim to provide sustainable and progressive dividend growth, with a target dividend cover of 2.5 times underlying earnings. We understand the importance of providing consistent and growing returns to our shareholders as part of our overall capital allocation framework, and the Group's strong levels of cash generation allow us to invest in organic and inorganic growth while paying a progressive dividend.
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. We are pleased to report that the Group's ROIC in 2023 increased to 22.0% (2022: 19.2%), the improvement reflecting the strong trading and our disciplined approach to capital allocation which more than offset the impact of acquisitions in the year.
Cash generation
The Group was highly cash generative in 2023 with underlying cash conversion of 115%. We expect the Group to continue to deliver strong cash conversion in 2024, in line with our financial framework and consistent with historical levels. The calculation of our underlying cash conversion ratio can be found in note 3 to the financial statements.
Operating cash flow before movement in working capital was £151.4m (2022: £129.8m). The working capital inflow in the year was £22.8m (2022: £42.6m outflow), the inflow attributable to a tight focus on working capital efficiency and the benefits of lower raw material costs. Working capital as a percentage of annualised sales was 15.9%. Debtor days were in line with expectations at 58 days (2022: 60 days).
Capital expenditure of £31.8m (2022: £31.5m) represents a multiple of depreciation and amortisation of 1.5 times (2022: 1.5 times). Growth investments in the year included £4m to support capacity expansion in our US composite business and £1.5m on an automated kettle line for the recently acquired Korns Galvanizing in the US.
Net financing costs for the year were £10.6m (2022: £9.2m). The net cost of pension fund financing under IAS 19 was £0.3m (2022: £0.1m), and the amortisation of costs relating to refinancing activities was £0.6m (2022: £2.4m).
The Group generated £104.8m of free cash flow in the year (2022: £30.4m), providing funds to support our acquisition strategy and dividend policy.
Net debt and financing
Net debt at the end of the year amounted to £108.4m (31 December 2022: £119.7m). Outflows in the year included £28.0m for the 2022 interim and final dividends and £50.7m on 2023 acquisitions (including £2.3m of acquired lease liabilities). Net debt at the year end includes lease liabilities under IFRS 16 of £43.7m (2022: £39.3m).
The Group's principal financing facilities comprise a £250m revolving credit facility, which expires in November 2027 following the one year extension agreed during the year, and $70m senior unsecured notes with maturities in June 2026 and June 2029, together with a further £6.6m of on-demand local overdraft arrangements. Throughout the year the Group has operated well within these facilities and at 31 December 2023, the Group had £247.2m of headroom (£240.6m committed, £6.6m on demand). Approximately 55% of the Group's drawn debt at 31 December 2023 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 31 December 2023 was 0.4 times (31 December 2022: 0.7 times) and interest cover was 17.3 times (31 December 2022: 21.6 times). The Board considers that the ratio of covenant net debt to EBITDA is a key metric from a capital management perspective and targets a ratio of 1.0 to 2.0 times.
Tax
The underlying effective tax rate for the period for continuing operations was 24.6% (2022: 22.4%), the increase reflecting the rise in the UK rate to 25% from April 2023 and the increasing proportion of profits generated in our US operations. The reported tax charge for the year was £24.4m (2022: £16.0m) and includes a £3.2m credit (2022: £3.7m) in respect of non-underlying items, principally relating to the amortisation of acquisition intangibles. Cash tax paid in the period was £31.7m (2022: £15.5m), the increase reflecting higher profitability, the phasing of payments in the US, and our decision to carry forward taxable UK losses to be used in future periods.
Exchange rates
The Group is exposed to movements in exchange rates when translating the results of its overseas operations into Sterling. Retranslating 2022 revenue and underlying operating profit from continuing operations using average exchange rates for 2023 would have reduced revenue by £1.1m with no impact on underlying operating profit. 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 £18.7m (2022: £18.6m). The items were mainly non-cash related and included the following:
· Amortisation of acquired intangible assets of £8.4m
· Loss on disposal of businesses of £4.2m relating to the disposals of the Swedish roads and UK car park solutions operations
· Expenses related to acquisitions and disposals of £5.3m, including £1.8m accrued deferred consideration relating to the National Signal acquisition
· Net business restructuring costs of £0.2m relating to actions taken in prior years
The non-cash element of these charges was £12.5m. Further details are set out in note 4 of 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 31 December 2023 was £4.1m, a reduction of £3.1m from 31 December 2022 (£7.2m). The deficit of the UK scheme, the largest employee benefit obligation in the Group, was lower than the prior year end at £3.4m (31 December 2022: £6.5m) due to the Group's deficit recovery payments.
The Group continues to be actively engaged in dialogue with the UK scheme's Trustees with regards to management, funding and investment strategies including buy-in options.
Going concern
After making enquiries, the Directors have reasonable expectations that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and for the period to 30 June 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 June 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 30 June 2024, 31 December 2024 and 30 June 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 30 June 2025. The Directors do not consider the resulting performance levels to be plausible given the Group's strong trading performance in the year and the resilience of the end markets in which we operate.
Alan Giddins Hannah Nichols
Executive Chair Group Chief Financial Officer
Consolidated Income Statement
| Notes |
2023 |
2022 | |||||
|
Underlying £m | Non-underlying* £m |
Total £m |
Underlying £m | Non- underlying* £m |
Total £m | ||
| Continuing Operations | |
|
|
| | | |
| Revenue | 2 | 829.8 | - | 829.8 | 732.1 | - | 732.1 |
| Cost of sales | | (513.1) | - | (513.1) | (461.6) | - | (461.6) |
| Gross profit |
| 316.7 | - | 316.7 | 270.5 | - | 270.5 |
| Distribution costs | | (24.7) | - | (24.7) | (31.7) | - | (31.7) |
| Administrative expenses | | (169.9) | (18.7) | (188.6) | (142.0) | (18.6) | (160.6) |
| Other operating income | | 0.4 | - | 0.4 | 0.3 | - | 0.3 |
| Operating profit |
2, 3 | 122.5 | (18.7) | 103.8 | 97.1 | (18.6) | 78.5 |
| Financial income | 5 | 0.5 | - | 0.5 | 0.5 | - | 0.5 |
| Financial expense | 5 | (11.1) | - | (11.1) | (9.7) | - | (9.7) |
| Profit before taxation | | 111.9 | (18.7) | 93.2 | 87.9 | (18.6) | 69.3 |
| Taxation | 6 | (27.6) | 3.2 | (24.4) | (19.7) | 3.7 | (16.0) |
| Profit for the year from continuing operations | 84.3 | (15.5) | 68.8 | 68.2 | (14.9) | 53.3 | |
| Discontinued Operations |
|
|
| | | | |
| Profit from discontinued operations | | - | - | - | 5.2 | (1.8) | 3.4 |
| Profit for the year attributable to the owners of the parent | 84.3 | (15.5) | 68.8 | 73.4 | (16.7) | 56.7 | |
| Basic earnings per share | 7 |
|
| 86.0p | | | 71.0p |
| Basic earnings per share - continuing | 7 |
|
| 86.0p | | | 66.7p |
| Diluted earnings per share | 7 |
|
| 85.0p | | | 70.4p |
| Diluted earnings per share - continuing | 7 |
|
| 85.0p | | | 66.2p |
* The Group's definition of non-underlying items is included in note 1 and further details on non-underlying items are included in note 4.
Consolidated Statement of Comprehensive Income
| Notes | 2023 £m | 2022 £m | |
| Profit for the year | 68.8 | 56.7 | |
| Items that may be reclassified subsequently to profit or loss | | | |
| Exchange differences on translation of overseas operations | | (19.4) | 27.4 |
| Exchange differences on foreign currency borrowings designated as net investment hedges | | 4.2 | (4.8) |
| Items that will not be reclassified subsequently to profit or loss | | | |
| Actuarial loss on defined benefit pension schemes | | (0.4) | (2.8) |
| Taxation on items that will not be reclassified to profit or loss | 6 | 0.1 | 0.7 |
| Other comprehensive (loss)/income for the year | (15.5) | 20.5 | |
| Total comprehensive income for the year attributable to owners of the parent | 53.3 | 77.2 | |
Consolidated Statement of Financial Position
|
Notes | 2023 £m | 2022 £m | |
| Non-current assets | | | |
| Intangible assets | | 205.7 | 182.6 |
| Property, plant and equipment | | 184.4 | 186.3 |
| Right-of-use assets | | 41.8 | 38.7 |
| Corporation tax receivable | | 1.6 | 1.6 |
| Deferred tax assets | 6 | 0.4 | 0.1 |
| | 433.9 | 409.3 | |
| Current assets | | | |
| Assets held for sale | | 2.5 | 1.8 |
| Inventories | | 106.1 | 113.8 |
| Trade and other receivables | | 137.3 | 144.3 |
| Current tax assets | | 0.8 | 0.3 |
| Cash and cash equivalents | 10 | 34.4 | 24.8 |
| | 281.1 | 285.0 | |
| Total assets |
2 | 715.0 | 694.3 |
| Current liabilities | | | |
| Trade and other liabilities | | (119.6) | (120.8) |
| Current tax liabilities | | (3.9) | (8.6) |
| Provisions | | (6.6) | (3.7) |
| Lease liabilities | | (8.0) | (8.7) |
| Loans and borrowings | 10 | (1.4) | (0.3) |
| | (139.5) | (142.1) | |
| Net current assets | 141.6 | 142.9 | |
| Non-current liabilities | | | |
| Other liabilities | | (1.0) | (0.2) |
| Provisions | | (2.6) | (2.7) |
| Deferred tax liabilities | | (9.9) | (11.6) |
| Retirement benefit obligations | | (4.1) | (7.2) |
| Lease liabilities | | (35.7) | (30.6) |
| Loans and borrowings | 10 | (97.7) | (104.9) |
| | (151.0) | (157.2) | |
| Total liabilities | (290.5) | (299.3) | |
| Net assets | | 424.5 | 395.0 |
| Equity | | | |
| Share capital | | 20.0 | 20.0 |
| Share premium | | 44.6 | 42.8 |
| Other reserves | | 4.9 | 4.9 |
| Translation reserve | | 22.9 | 38.1 |
| Retained earnings | | 332.1 | 289.2 |
| Total equity | 424.5 | 395.0 | |
Consolidated Statement of Changes in Equity
| | Notes | Share capital £m | Share premium £m | Other reserves? £m | Translation reserve £m | Retained earnings £m | Total equity £m |
| At 1 January 2022 | | 20.0 | 40.9 | 4.9 | 15.5 | 258.3 | 339.6 |
| Comprehensive income | | | | | | | |
| Profit for the year | | - | - | - | - | 56.7 | 56.7 |
| Other comprehensive income for the year | | - | - | - | 22.6 | (2.1) | 20.5 |
| Transactions with owners recognised directly in equity | | | | | | | |
| Dividends | 8 | - | - | - | - | (24.7) | (24.7) |
| Credit to equity of share-based payments | | - | - | - | - | 2.4 | 2.4 |
| Own shares held by employee benefit trust | | - | - | - | - | 0.5 | 0.5 |
| Satisfaction of long-term incentive and deferred bonus awards | | - | - | - | - | (0.9) | (0.9) |
| Tax taken directly to the Consolidated Statement of Changes in Equity | 6 | - | - | - | - | (1.0) | (1.0) |
| Shares issued | | - | 1.9 | - | - | - | 1.9 |
| At 31 December 2022 | | 20.0 | 42.8 | 4.9 | 38.1 | 289.2 | 395.0 |
| Comprehensive income | | | | | | | |
| Profit for the year | | - | - | - | - | 68.8 | 68.8 |
| Other comprehensive income for the year | | - | - | - | (15.2) | (0.3) | (15.5) |
| Transactions with owners recognised directly in equity | | | | | | | |
| Dividends | 8 | - | - | - | - | (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 | 6 | - | - | - | - | 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 (2022: £0.2m) capital redemption reserve.
Consolidated Statement of Cash Flows
|
Notes | 2023 | 2022 | |||
| £m | £m | £m | £m | ||
| Profit before tax from continuing operations | | 93.2 | 69.3 | ||
| Profit before tax from discontinued operations | | - | 4.9 | ||
| Add back net financing costs | 5 | 10.6 | 9.3 | ||
| Operating profit - Total Group | 2, 3 | | 103.8 | | 83.5 |
| Adjusted for non-cash items: | | |
| | |
| Share-based payments | | 4.1 |
| 2.0 | |
| Loss on disposal of subsidiaries | | 4.2 |
| 1.4 | |
| Loss on disposal of non-current assets | | 0.2 |
| 0.3 | |
| Gain on disposal of assets held for sale | | (0.7) |
| - | |
| Depreciation of owned assets | | 19.7 |
| 19.1 | |
| Amortisation of intangible assets | | 9.6 |
| 8.3 | |
| Right-of-use asset depreciation | | 9.3 |
| 8.8 | |
| Gain on lease termination | | (0.1) |
| - | |
| Impairment of non-current assets | | 1.3 |
| 6.4 | |
| | | 47.6 | | 46.3 | |
| Operating cash flow before movement in working capital |
| 151.4 | | 129.8 | |
| Decrease/(increase) in inventories | 15.0 |
| (21.0) | | |
| Decrease/(increase) in receivables | 8.0 |
| (19.1) | | |
| Decrease in payables | (0.2) |
| (2.5) | | |
| Decrease in provisions and employee benefits | (0.8) |
| (4.3) | | |
| Net movement in working capital | | 22.0 | | (46.9) | |
| Cash generated by operations | 173.4 | 82.9 | |||
| Purchase of assets for rental to customers | (2.3) | (10.6) | |||
| Income taxes paid | (31.7) | (15.5) | |||
| Interest paid | (8.9) | (6.4) | |||
| Interest paid on lease liabilities | (1.3) | (0.8) | |||
| Net cash from operating activities | | | 129.2 | | 49.6 |
| Interest received | | 0.5 | | 0.5 | |
| Proceeds on disposal of non-current assets | | 0.8 | | 0.4 | |
| Proceeds on disposal of assets held for sale | | 2.5 | | - | |
| Purchase of property, plant and equipment | | (26.7) | | (18.4) | |
| Purchase of intangible assets | | (2.8) | | (2.5) | |
| Acquisitions of subsidiaries | 9 | (48.4) | | (24.6) | |
| Deferred consideration in respect of prior year acquisition | | (2.8) | | - | |
| Disposals of subsidiaries | 4 | (0.2) | | 58.6 | |
| Net cash used in investing activities | | | (77.1) | | 14.0 |
| Issue of new shares | | 1.8 | | 1.9 | |
| Purchase of shares for employee benefit trust | | (2.6) | | (0.4) | |
| Dividends paid | 8 | (28.0) | | (24.7) | |
| Costs associated with refinancing | | (0.5) | | (2.1) | |
| Repayment of lease liabilities | | (9.4) | | (9.5) | |
| New loans and borrowings | | 73.9 | | 160.8 | |
| Repayment of loans and borrowings | | (76.3) | | (184.8) | |
| Net cash used in financing activities | | (41.1) | | (58.8) | |
| Net increase in cash and cash equivalents net of bank overdraft | 11.0 | 4.8 | |||
| Cash and cash equivalents net of bank overdraft at the beginning of the year | 24.8 | 18.1 | |||
| Effect of exchange rate fluctuations | (1.4) | 1.9 | |||
| Cash and cash equivalents net of bank overdraft at the end of the year | | 34.4 | 24.8 | ||
1. Group Accounting Policies
Hill & Smith PLC is a company incorporated in the UK.
Basis of preparation
The consolidated financial statements comprise the financial statements of the Company, Hill & Smith PLC, and its subsidiaries as at 31 December 2023. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of subsidiaries are included in the Group Financial Statements from the date that control commences until the date that control ceases.
In preparing the consolidated financial statements, management has considered the impact of climate change, taking into account the relevant disclosures in the Strategic Report, including those made in accordance with the recommendations of the Taskforce on Climate-related Financial Disclosures. This included an assessment of assets with indefinite and long lives and how they could be impacted by measures taken to address global warming. Physical climate change presents a relatively low risk to the Group's future business operations and transition risks are also expected to have a relatively low impact when considered together with the mitigating actions that the Group intends to take. As such, no issues were identified that would impact the carrying values of such assets or have any other impact on the financial statements.
Measurement convention
The Group Financial Statements are prepared on the historical cost basis except where the measurement of balances at fair value is required as explained below. The Group Financial Statements are presented in Sterling and all values are stated in million (£m) rounded to one decimal place, except where otherwise indicated.
Going concern and liquidity risk
In determining the appropriate basis of preparation of its financial statements, the Directors are required to assess whether the Group can continue in operational existence for the foreseeable future. When making this assessment, the Group considers whether it will be able to maintain adequate liquidity headroom above the level of its borrowing facilities and to operate within the financial covenants on those facilities.
At 31 December 2023, the Group had £307.3m of committed borrowing facilities, of which only £2.1m matures before June 2026 at the earliest, and a further £6.6m of on-demand facilities. During the year the Group extended the maturity of its core £250m revolving credit facility by one year to November 2027. The Group also holds $70m of Senior Unsecured Notes, and other local committed borrowing facilities of £2.1m. The amount drawn down under these committed facilities at 31 December 2023 was £101.1m, which together with cash and cash equivalents of £34.4m gave total headroom of £247.2m (£240.6m committed, £6.6m on demand). The Group has not made any changes to its principal borrowing facilities between 31 December 2023 and the date of approval of these financial statements. The only significant changes to liquidity headroom during that period were the acquisitions of Capital Steel, which the Group completed in January 2024 for an initial consideration of £5.0m, and FM Stainless, which the Group acquired in March 2024 for £6.6m. Substantial headroom against borrowing facilities remains in place post these acquisitions.
The principal borrowing facilities are subject to covenants that are measured biannually in June and December, being net debt to EBITDA of a maximum of 3.0x and interest cover of a minimum of 4.0x, based on measures as defined in the facilities agreements which are adjusted from the equivalent IFRS amounts. The ratio of net debt to EBITDA at 31 December 2023 was 0.4 times and interest cover was 17.3 times.
The Group has carefully modelled its cash flow outlook for the period to 30 June 2025. The assessment included a review of both divisional and Group financial forecasts, financial instruments and hedging arrangements for the 18 months from the balance sheet date. Major assumptions have been compared to external reference points such as infrastructure spend forecasts across the Group's chosen market sectors, government spending plans on road and other infrastructure, zinc and steel prices, and economic growth forecasts. In this 'base case' scenario, the forecasts indicate significant liquidity headroom will be maintained above the Group's borrowing facilities and financial covenants will be met throughout the period, including the covenant tests at 30 June 2024, 31 December 2024 and 30 June 2025.
The Group has carried out stress tests against the base case to determine the performance levels that would result in a breach of covenants or a reduction of headroom against its borrowing facilities to nil. For a breach of covenants to occur during the relevant period, the Group would need to experience a sustained revenue reduction of 27% compared with current expectations throughout the 18 month period ending 30 June 2025. A reduction in headroom against borrowing facilities to nil would occur if the Group experienced a sustained revenue reduction of 31% compared with current expectations for the 18 month period ending 30 June 2025. The Directors do not consider any of these scenarios to be plausible given the generally positive outlook across the infrastructure markets in which the Group operates. The Directors also noted the Group's ability to continue its operations throughout the COVID-19 pandemic, noting that revenues fell by only 22% in the second quarter of 2020, the worst-affected period. Furthermore, the Group has several mitigating actions under its control including minimising capital expenditure to critical requirements, reducing levels of discretionary spend, rationalising its overhead base and curtailing future dividend payments which, although not forecast to be required, could be implemented in order to be able to meet the covenant tests and to continue to operate within borrowing facility limits.
After making these assessments, the Directors have reasonable expectation that the Company and its subsidiaries have adequate resources to continue in operational existence for the foreseeable future and for a period of at least 12 months following the approval of these financial statements. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.
New IFRS standards and interpretations adopted during 2023
The following amendments and interpretations apply for the first time in 2023, and therefore were adopted by the Group:
? Amendments to IAS 8 - Definition of Accounting Estimates
? Amendments to IAS 1 - Disclosure of Accounting Policies
? Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction
? Amendments to IAS 12 - International Tax Reform - Pillar Two Model Rules
The amendments noted above have not had a material impact on the financial statements.
The principal exchange rates used were as follows:
| |
2023 |
2022 | ||
| Average |
Closing |
Average |
Closing | |
| Sterling to US Dollar (£1 = USD) | 1.24 | 1.27 | 1.24 | 1.20 |
| Sterling to Indian Rupee (£1 = INR) | 102.68 | 106.08 | 97.01 | 99.41 |
| Sterling to Australian Dollar (£1 = AUD) | 1.87 | 1.87 | 1.78 | 1.77 |
Non-underlying items
Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a fuller understanding of the underlying performance of the business. The following are included by the Group in its assessment of non-underlying items:
? Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations
? Amortisation of intangible fixed assets arising on acquisitions, which can vary depending on the nature, size and frequency of acquisitions in each financial period
? Expenses associated with acquisitions and disposals, comprising professional fees incurred, any consideration which, under IFRS 3 (Revised) is required to be treated as a post-acquisition employment expense, and changes in contingent consideration payable on acquisitions
? Impairment charges in respect of tangible or intangible fixed assets, or right-of-use assets
? Changes in the fair value of derivative financial instruments
? Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material changes in the terms of the schemes.
The non-underlying tax charge or credit comprises the tax effect of the above non-underlying items.
Details in respect of the non-underlying items recognised in the current and prior year are set out in note 4.
2. Segmental information
Business segment analysis
The Group has three reportable segments which are Roads & Security, Engineered Solutions and Galvanizing Services. The Group's internal management structure and financial reporting systems differentiate between these segments, and, in reporting, management have taken the view that they comprise a reporting segment on the basis of the following economic characteristics:
· The Roads & Security segment contains a group of businesses supplying products designed to ensure the safety and security of roads and other national infrastructure, many of which have been developed to address national and international safety standards, to customers involved in the construction of that infrastructure;
· The 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; and
· The Galvanizing Services segment contains a group of companies supplying galvanizing and related materials coating services to companies in a wide range of markets including construction, agriculture and infrastructure.
Corporate costs are allocated to reportable segments in proportion to the revenue of each of those segments.
Segmental Income Statement - continuing operations
| | 2023 | 2022 | ||||
|
Revenue £m | Reported operating profit £m | Underlying operating profit* £m |
Revenue £m | Reported operating profit £m | Underlying operating profit* £m | |
| Roads & Security | 266.1 | 0.3 | 12.4 | 261.5 | 1.7 | 18.1 |
| Engineered Solutions | 367.0 | 59.7 | 64.4 | 289.9 | 34.1 | 35.0 |
| Galvanizing Services | 196.7 | 43.8 | 45.7 | 180.7 | 42.7 | 44.0 |
| Group | 829.8 | 103.8 | 122.5 | 732.1 | 78.5 | 97.1 |
| Net financing costs | | (10.6) | (10.6) | | (9.2) | (9.2) |
| Profit before taxation | | 93.2 | 111.9 | | 69.3 | 87.9 |
| Taxation | | (24.4) | (27.6) | | (16.0) | (19.7) |
| Profit after taxation | | 68.8 | 84.3 | | 53.3 | 68.2 |
* Underlying operating profit is stated before non-underlying items as defined in note 1 and is the measure of segment profit used by the Chief Operating Decision Maker, who is 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. Galvanizing Services sold £5.2m (2022: £6.8m) of products and services to Roads & Security and £2.5m (2022: £2.0m) of products and services to Engineered Solutions. Engineered Solutions sold £0.6m (2022: £1.9m) of products and services to Roads & Security. These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation.
In the following tables, revenue from contracts with customers is disaggregated by primary geographical market, major product/service lines and timing of revenue recognition. Revenue by primary geographical market is defined as the end location of the Group's product or service. The table also includes a reconciliation of the disaggregated revenue with the Group's reportable segments.
| Continuing operations | Roads & Security | Engineered Solutions | Galvanizing | Total | ||||
| Primary geographical markets | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m |
| UK | 155.0 | 163.5 | 80.6 | 87.2 | 83.9 | 81.8 | 319.5 | 332.5 |
| Rest of Europe | 11.0 | 16.7 | 8.2 | 8.7 | - | - | 19.2 | 25.4 |
| North America | 90.4 | 70.3 | 259.2 | 187.1 | 112.8 | 98.9 | 462.4 | 356.3 |
| The Middle East | 1.9 | 4.9 | 12.5 | 2.4 | - | - | 14.4 | 7.3 |
| Rest of Asia | 0.7 | 1.9 | 5.5 | 3.9 | - | - | 6.2 | 5.8 |
| Rest of the world | 7.1 | 4.2 | 1.0 | 0.6 | - | - | 8.1 | 4.8 |
| | 266.1 | 261.5 | 367.0 | 289.9 | 196.7 | 180.7 | 829.8 | 732.1 |
| Major product/service lines | | | | | | | | |
| Manufacture, supply and installation of products | 241.2 | 240.3 | 367.0 | 289.9 | - | - | 608.2 | 530.2 |
| Galvanizing services | - | - | - | - | 196.7 | 180.7 | 196.7 | 180.7 |
| Rental income | 24.9 | 21.2 | - | - | - | - | 24.9 | 21.2 |
| | 266.1 | 261.5 | 367.0 | 289.9 | 196.7 | 180.7 | 829.8 | 732.1 |
|
Timing of revenue recognition | | | | | | | | |
| Products and services transferred at a point in time | 208.1 | 210.2 | 172.7 | 153.8 | 196.7 | 180.7 | 577.5 | 544.7 |
| Products and services transferred over time | 58.0 | 51.3 | 194.3 | 136.1 | - | - | 252.3 | 187.4 |
| | 266.1 | 261.5 | 367.0 | 289.9 | 196.7 | 180.7 | 829.8 | 732.1 |
Total assets by geography
| | 2023 £m | 2022 £m |
| UK | 262.8 | 280.3 |
| Rest of Europe | 3.6 | 9.8 |
| North America | 419.6 | 380.2 |
| Asia | 16.0 | 11.2 |
| Rest of the world | 13.0 | 12.8 |
| Total Group | 715.0 | 694.3 |
3. Alternative Performance Measures
The Group presents Alternative Performance Measures ("APMs") in addition to its statutory results. These are presented in accordance with the Guidelines on APMs issued by the European Securities and Markets Authority. The principal APMs are:
· Underlying profit before taxation
· Underlying operating profit
· Underlying operating 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 7.
All underlying measures exclude certain non-underlying items, which are detailed in note 4. References to an underlying profit measure are made on this basis and, in the opinion of the Directors, aid the understanding of the underlying business performance as they exclude items whose quantum, nature or volatility gives further information to obtain a fuller understanding of the underlying performance of the business. APMs are presented on a consistent basis over time to assist in comparison of performance.
Reconciliation of underlying to reported profit before tax from continuing operations
| | 2023 £m | 2022 £m |
| Underlying profit before tax from continuing operations | 111.9 | 87.9 |
| Non-underlying items included in operating profit (note 4) | (18.7) | (18.6) |
| Reported profit before tax from continuing operations | 93.2 | 69.3 |
Reconciliation of underlying to reported operating profit from continuing operations by segment
| | Roads & Security | Engineered Solutions | Galvanizing | Total | ||||
| | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m |
| Underlying operating profit from continuing operations | 12.4 | 18.1 | 64.4 | 35.0 | 45.7 | 44.0 | 122.5 | 97.1 |
| Non-underlying items: |
| |
| |
| |
| |
| Amortisation of acquisition related intangibles | (4.2) | (4.6) | (3.0) | (0.5) | (1.2) | (0.9) | (8.4) | (6.0) |
| Business reorganisation costs | (0.2) | (2.9) | - | - | - | - | (0.2) | (2.9) |
| Impairment of assets | (0.6) | (6.4) | - | - | - | - | (0.6) | (6.4) |
| Expenses related to acquisitions and disposals | (2.9) | (1.5) | (1.7) | (0.4) | (0.7) | (0.4) | (5.3) | (2.3) |
| Loss on disposal of subsidiaries | (4.2) | (1.0) | - | - | - | - | (4.2) | (1.0) |
| Reported operating profit from continuing operations | 0.3 | 1.7 | 59.7 | 34.1 | 43.8 | 42.7 | 103.8 | 78.5 |
Calculation of underlying operating margin from continuing operations
| | Roads & Security | Engineered Solutions | Galvanizing | Total | ||||
| Continuing operations | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m |
| Underlying operating profit | 12.4 | 18.1 | 64.4 | 35.0 | 45.7 | 44.0 | 122.5 | 97.1 |
| Revenue | 266.1 | 261.5 | 367.0 | 289.9 | 196.7 | 180.7 | 829.8 | 732.1 |
| Underlying operating margin (%) | 4.7% | 6.9% | 17.5% | 12.1% | 23.2% | 24.3% | 14.8% | 13.3% |
Measures of organic and constant currency change in revenue and underlying operating profit from continuing operations
Organic constant currency measures exclude the impact of currency translation movements, acquisitions, disposals and closures of subsidiary businesses. In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year. Constant currency amounts are prepared using exchange rates which prevailed in the current year.
| | Roads & Security | Engineered Solutions | Galvanizing | Total | ||||
| Continuing operations | Revenue £m | Underlying operating profit £m | Revenue £m | Underlying operating profit £m | Revenue £m | Underlying operating profit £m | Revenue £m | Underlying operating profit £m |
| 2022 | 261.5 | 18.1 | 289.9 | 35.0 | 180.7 | 44.0 | 732.1 | 97.1 |
| Impact of exchange rate movements from 2022 to 2023 | (0.7) | - | (0.4) | - | - | - | (1.1) | - |
| 2022 translated at 2023 exchange rates (A) | 260.8 | 18.1 | 289.5 | 35.0 | 180.7 | 44.0 | 731.0 | 97.1 |
| Acquisitions, disposals and closures | 17.2 | 7.2 | 35.1 | 5.1 | 7.8 | 1.5 | 60.1 | 13.8 |
| Organic growth/(decline) (B) | (11.9) | (12.9) | 42.4 | 24.3 | 8.2 | 0.2 | 38.7 | 11.6 |
| 2023 (C) | 266.1 | 12.4 | 367.0 | 64.4 | 196.7 | 45.7 | 829.8 | 122.5 |
| Organic growth % (B divided by A) | -4.6% | -71.3% | 14.6% | 69.4% | 4.5% | 0.5% | 5.3% | 11.9% |
| Constant currency change % ((C-A) divided by A) | 2.0% | -31.5% | 26.8% | 84.0% | 8.9% | 3.9% | 13.5% | 26.2% |
Calculation of underlying cash conversion ratio
| |
| 2023 £m | 2022 £m |
| Underlying operating profit: |
|
| |
| Continuing operations |
| 122.5 | 97.1 |
| Discontinued operations |
| - | 6.8 |
| |
| 122.5 | 103.9 |
| Calculation of adjusted operating cash flow: |
|
| |
| Cash generated by operations |
| 173.4 | 82.9 |
| Less: Purchase of assets for rental to customers |
| (2.3) | (10.6) |
| Less: Purchase of property, plant and equipment |
| (26.7) | (18.4) |
| Less: Purchase of intangible assets |
| (2.8) | (2.5) |
| Less: Repayments of lease liabilities |
| (9.4) | (9.5) |
| Add: Proceeds on disposal of non-current assets and assets held for sale |
| 3.3 | 0.4 |
| Add back: Defined benefit pension scheme deficit payments |
| 3.7 | 3.7 |
| Add back: Cash flows relating to non-underlying items |
| 1.9 | 6.5 |
| Adjusted operating cash flow |
| 141.1 | 52.5 |
| Underlying cash conversion (%) |
| 115% | 51% |
Calculation of capital expenditure to depreciation and amortisation ratio
| |
| 2023 £m | 2022 £m |
| Calculation of capital expenditure: |
|
| |
| Purchase of assets for rental to customers |
| 2.3 | 10.6 |
| Purchase of property, plant and equipment |
| 26.7 | 18.4 |
| Purchase of intangible assets |
| 2.8 | 2.5 |
| |
| 31.8 | 31.5 |
| Calculation of depreciation and amortisation: |
|
| |
| Depreciation of property, plant and equipment |
| 19.7 | 19.1 |
| Amortisation of development costs |
| 1.0 | 1.1 |
| Amortisation of other intangible assets |
| 0.2 | 1.0 |
| |
| 20.9 | 21.2 |
| Capital expenditure to depreciation and amortisation ratio |
| 1.5x | 1.5x |
Calculation of covenant net debt to EBITDA ratio
| |
| 2023 £m | 2022 £m |
| Reported net debt |
| 108.4 | 119.7 |
| Lease liabilities |
| (43.7) | (39.3) |
| Amounts related to refinancing under IFRS 9 |
| 2.0 | 2.2 |
| Covenant net debt (A) |
| 66.7 | 82.6 |
| Underlying operating profit |
| 122.5 | 103.9 |
| Depreciation of owned assets |
| 19.7 | 19.1 |
| Right-of-use asset depreciation |
| 9.3 | 8.8 |
| Amortisation of development costs |
| 1.0 | 1.1 |
| Amortisation of other intangible assets |
| 0.2 | 1.0 |
| Underlying EBITDA |
| 152.7 | 133.9 |
| Adjusted for: |
|
| |
| Lease payments |
| (10.4) | (10.3) |
| Share-based payments expense |
| 4.1 | 2.0 |
| Annualised EBITDA of subsidiaries acquired/disposed |
| 3.5 | (3.7) |
| Covenant EBITDA (B) |
| 149.9 | 121.9 |
| Covenant net debt to EBITDA (A divided by B) |
| 0.4 | 0.7 |
4. Non-underlying items
Included in operating profit
| |
| 2023 £m | 2022 £m |
| Loss on disposal of subsidiaries (a) |
| (4.2) | (1.4) |
| Business reorganisation costs (b) |
| (0.2) | (2.9) |
| Impairment of assets (c) |
| (0.6) | (6.4) |
| Amortisation of acquisition related intangibles |
| (8.4) | (6.2) |
| Expenses related to acquisitions and disposals |
| (5.3) | (3.5) |
| Total non-underlying items |
| (18.7) | (20.4) |
|
|
|
| |
| Total non-underlying items - continuing operations |
| (18.7) | (18.6) |
| Total non-underlying items - discontinued operations |
| - | (1.8) |
Notes:
a) In April 2023, the Group completed the disposal of the remaining part of its Swedish roads business, and in October 2023, we sold the business and assets of Berry Systems, a small UK car park solutions operation. Aggregated details of these disposals are set out below:
| Disposal of Swedish roads and Berry Systems businesses | £m |
| Property, plant and equipment | 0.1 |
| Intangible assets | 0.7 |
| Right-of-use assets | 0.3 |
| Inventories | 1.9 |
| Current assets | 2.9 |
| Current liabilities | (1.2) |
| Lease liabilities | (0.3) |
| Net assets disposed | 4.4 |
| Consideration received | 0.5 |
| Cumulative exchange differences | (0.3) |
| Loss on disposal | 4.2 |
The Group also incurred legal fees and other project completion costs relating to the disposals of £1.0m, which are included within 'expenses related to acquisitions and disposals' in the table above.
In 2022, the loss on disposal of £1.4m related to the sales of France Galva, the Group's French galvanizing and lighting column operation, and the first part of the Swedish roads business.
b) In May 2022, the Group exited the low-margin plastic products operations that formed part of our US roads business, recognising a charge of £2.9m in 2022 comprising business reorganisation costs of £1.1m and asset impairment charges of £1.8m. In March 2023 we sold the property that was vacated on closure, which was reported as an asset held for sale at 31 December 2022, recognising a profit of £0.7m. In addition, following the closure of the Group's variable message sign (VMS) business in 2021, the Group has incurred a further £1.5m of costs in 2023 in relation to vacant leasehold properties and the completion of legacy contracts, comprising restructuring costs of £0.9m and a right-of-use asset impairment of £0.6m.
Business restructuring costs of £2.9m in 2022 comprised £2.6m relating to the actions described above and a further £0.3m relating to restructuring in the Swedish road business.
c) The impairment charge of £0.6m in 2023 relates to the VMS closure as explained above. Impairment charges of £6.4m in 2022 comprised a charge of £4.4m in respect of acquisition intangible assets relating to Parking Facilities, one of the Group's UK security businesses, and £2.0m relating to the portfolio management actions in our US and Swedish roads businesses.
Included in taxation
The tax effect of the above items is a credit to the income statement of £3.2m (2022: £3.7m).
5. Net financing costs - continuing operations
| |
2023 £m |
2022 £m |
| Interest on bank deposits | 0.5 | 0.5 |
| Financial income | 0.5 | 0.5 |
| Interest on loans and borrowings | (8.9) | (6.4) |
| Interest on lease liabilities | (1.3) | (0.8) |
| Financial expenses related to refinancing activities | (0.6) | (2.4) |
| Interest cost on net pension scheme deficit | (0.3) | (0.1) |
| Financial expense | (11.1) | (9.7) |
| Net financing costs | (10.6) | (9.2) |
6. Taxation
| | 2023 £m | 2022 £m |
| Current tax | | |
| UK corporation tax | 4.1 | 4.1 |
| Overseas tax at prevailing local rates | 20.7 | 14.2 |
| Adjustments in respect of prior years | 1.3 | 1.8 |
|
| 26.1 | 20.1 |
| Deferred tax | | |
| UK deferred tax | 1.1 | 0.3 |
| Overseas tax at prevailing local rates | (0.4) | 0.3 |
| Adjustments in respect of prior years | (2.4) | (3.2) |
|
| (1.7) | (2.6) |
| Tax on profit in the Consolidated Income Statement | 24.4 | 17.5 |
|
Deferred tax | | |
| Relating to defined benefit pension schemes | (0.1) | (0.7) |
| Tax on items taken directly to other comprehensive income | (0.1) | (0.7) |
|
Current tax Relating to share-based payments Deferred tax Relating to share-based payments |
-
(1.3) |
(0.2)
1.2 |
| Tax taken directly to the Consolidated Statement of Changes in Equity | (1.3) | 1.0 |
The tax charge in the Consolidated Income Statement for the period is higher (2022: higher) than the standard rate of corporation tax in the UK. The differences are explained below:
| | 2023 £m | 2022 £m |
| Profit before taxation from continuing operations | 93.2 | 69.3 |
| Profit before taxation from discontinued operations | - | 4.9 |
| Profit before taxation - total Group | 93.2 | 74.2 |
| Profit before taxation multiplied by the effective rate of corporation tax in the UK of 23.5% (2022: 19.0%) | 21.9 | 14.1 |
| Expenses not deductible/income not chargeable for tax purposes | 2.3 | 1.2 |
| Benefits from international financing arrangements - current and prior years | (0.1) | (0.3) |
| Local tax incentives | (0.1) | (0.4) |
| Overseas profits taxed at higher rates | 1.5 | 3.6 |
| Overseas losses not relieved | - | 0.7 |
| Adjustments in respect of prior years | (1.1) | (1.4) |
| Tax charge | 24.4 | 17.5 |
| Tax charge attributable to continuing operations | 24.4 | 16.0 |
| Tax charge attributable to discontinued operations | - | 1.5 |
|
| 24.4 | 17.5 |
In October 2017, the European Commission opened a state aid investigation into the Group Financing Exemption in the UK Controlled Foreign Company ('CFC') legislation, 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. In August 2022, the UK Government and several multinationals, including the Group, appealed against the General Court's decision. The UK / taxpayer appeal was heard by the Court of Justice of the European Union ('CJEU') on 10 January 2024, and we are currently awaiting the Advocate General's non-binding opinion which should be received in April 2024, followed by the CJEU's final decision later this year. Having taken expert advice, we have concluded that there are strong grounds for appeal and 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.
7. Earnings per share
The weighted average number of ordinary shares in issue during the year was 80.0m (2022: 79.9m), diluted for the effects of the outstanding dilutive share options 81.0m (2022: 80.5m). Diluted earnings per share takes account of the dilutive effect of all outstanding share options, calculated using the treasury share method. Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.
| | 2023 | 2022 | ||
| Pence per share |
£m | Pence per share |
£m | |
| Basic earnings |
|
| | |
| - continuing | 86.0 | 68.8 | 66.7 | 53.3 |
| - discontinued | - | - | 4.3 | 3.4 |
| Total basic earnings | 86.0 | 68.8 | 71.0 | 56.7 |
| Non-underlying items* |
|
| | |
| - continuing | 19.4 | 15.5 | 18.7 | 14.9 |
| - discontinued | - | - | 2.2 | 1.8 |
| Total non-underlying items | 19.4 | 15.5 | 20.9 | 16.7 |
| Underlying earnings |
|
| | |
| - continuing | 105.4 | 84.3 | 85.4 | 68.2 |
| - discontinued | - | - | 6.5 | 5.2 |
| Total underlying earnings | 105.4 | 84.3 | 91.9 | 73.4 |
| Diluted earnings |
|
| | |
| - continuing | 85.0 | 68.8 | 66.2 | 53.3 |
| - discontinued | - | - | 4.2 | 3.4 |
| Total diluted earnings | 85.0 | 68.8 | 70.4 | 56.7 |
| Non-underlying items* |
|
| | |
| - continuing | 19.1 | 15.5 | 18.5 | 14.9 |
| - discontinued | - | - | 2.2 | 1.8 |
| Total non-underlying items | 19.1 | 15.5 | 20.7 | 16.7 |
| Underlying diluted earnings |
|
| | |
| - continuing | 104.1 | 84.3 | 84.7 | 68.2 |
| - discontinued | - | - | 6.4 | 5.2 |
| Total underlying diluted earnings | 104.1 | 84.3 | 91.1 | 73.4 |
* Non-underlying items as detailed in note 4.
8. Dividends
Dividends paid during the year
| | 2023 | 2022 | ||
| Pence per share |
£m | Pence per share |
£m | |
| Interim dividend paid in relation to year-ended 31 December 2021 | - | - | 12.0 | 9.6 |
| Final dividend paid in relation to year-ended 31 December 2021 | - | - | 19.0 | 15.1 |
| Interim dividend paid in relation to year-ended 31 December 2022 | 13.0 | 10.4 | - | - |
| Final dividend paid in relation to year-ended 31 December 2022 | 22.0 | 17.6 | - | - |
| Total | 35.0 | 28.0 | 31.0 | 24.7 |
Dividends declared in respect of the year
| | 2023 | 2022 | ||
| Pence per share |
£m | Pence per share |
£m | |
| Interim dividend declared in relation to year-ended 31 December 2022 | - | - | 13.0 | 10.4 |
| Final dividend declared in relation to year-ended 31 December 2022 | - | - | 22.0 | 17.6 |
| Interim dividend declared in relation to year-ended 31 December 2023 | 15.0 | 12.0 | - | - |
| Final dividend proposed in relation to year-ended 31 December 2023 | 28.0 | 22.5 | - | - |
| Total | 43.0 | 34.5 | 35.0 | 28.0 |
The final dividend for 2023 was proposed after the year end date and was not recognised as a liability at 31 December 2023, in accordance with IAS 10.
9. Acquisitions
Enduro Composites, Inc.
On 17 February 2023 the Group acquired 100% of the share capital of Enduro Composites, Inc. ("Enduro") for a cash consideration after working capital adjustments of £28.7m. Enduro, located in Houston, Texas, is a designer, manufacturer and supplier of engineered composite solutions focused on industrial and infrastructure market segments. Enduro will become part of the Group's Engineered Solutions division, is highly complementary to our existing northeastern and midwestern US composite businesses and will further accelerate our strategy in this exciting and growing market.
Details of the acquisition are set out below:
| | Pre-acquisition carrying amount £m | Policy alignment and fair value adjustments £m | Total £m |
| Intangible Assets | | | |
| Brands | - | 1.0 | 1.0 |
| Customer lists | - | 9.9 | 9.9 |
| Order backlog | - | 1.6 | 1.6 |
| Property, plant and equipment | 2.7 | (0.2) | 2.5 |
| Right-of-use assets | - | 2.3 | 2.3 |
| Inventories | 4.5 | (0.5) | 4.0 |
| Current assets | 6.5 | (0.1) | 6.4 |
| Deferred tax asset | 1.4 | - | 1.4 |
| Cash and cash equivalents | 1.8 | - | 1.8 |
| Total assets | 16.9 | 14.0 | 30.9 |
| Lease Liabilities | - | (2.3) | (2.3) |
| Current liabilities | (4.8) | (0.3) | (5.1) |
| Corporation tax | - | (0.2) | (0.2) |
| Deferred tax liability | - | (2.9) | (2.9) |
| Total liabilities | (4.8) | (5.7) | (10.5) |
| Net assets | 12.1 | 8.3 | 20.4 |
| Consideration | | | |
| Total consideration | | | 28.7 |
| Goodwill | | | 8.3 |
| Cash flow effect | | | |
| Consideration in the year | | | 28.7 |
| Cash acquired with the business | | | (1.8) |
| Net cash consideration shown in the Consolidated Statement of Cash Flows | | | 26.9 |
Brands, customer lists and an order backlog have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which has been allocated to the Engineered Solutions segment, primarily represents the highly skilled workforce, future technological advantages and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been made to align the accounting policies of the acquired business with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. In respect of leases, the Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the terms of the leases relative to market terms. The fair value of the current assets acquired includes £5.8m of trade receivables, which have a gross value of £6.2m.
Post-acquisition the acquired business has contributed £34.4m revenue and £5.0m underlying operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2023, the Group's results for the period would have shown revenue of £835.7m, underlying operating profit of £123.4m and reported operating profit of £104.7m. The Group incurred expenses of £0.9m relating to the acquisition, which are included in non-underlying costs in the year (see note 4).
Korns Galvanizing Company Inc.
On 8 March 2023 the Group acquired the business and assets of Korns Galvanizing Company Inc. ("Korns") for a cash consideration of £9.4m. Korns, located in Johnstown, Pennsylvania, has a single site specialising in spin galvanizing and has a customer base spread across a wide range of infrastructure related end markets, including commercial construction, fire protection, oil & gas and utilities.
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 | - | 1.6 | 1.6 |
| Property, plant and equipment | 1.2 | - | 1.2 |
| Inventories | 0.5 | (0.1) | 0.4 |
| Current assets | 0.3 | - | 0.3 |
| Total assets | 2.0 | 1.5 | 3.5 |
| Current liabilities | (0.2) | (0.1) | (0.3) |
| Total liabilities | (0.2) | (0.1) | (0.3) |
| Net assets | 1.8 | 1.4 | 3.2 |
| Consideration | | | |
| Total consideration | | | 9.4 |
| Goodwill | | | 6.2 |
| Cash flow effect | | | |
| Consideration in the year | | | 9.4 |
| Cash acquired with the business | | | - |
| Net cash consideration shown in the Consolidated Statement of Cash Flows | | | 9.4 |
Customer lists have been recognised as a specific intangible asset as a result of the acquisition. The residual goodwill arising, which has been allocated to the US Galvanizing CGU within the Galvanizing Services segment, primarily represents the highly skilled workforce and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been made to align the accounting policies of the acquired business with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. The fair value of the current assets acquired includes £0.3m of trade receivables, which have a gross value of £0.3m.
Post-acquisition the acquired business has contributed £4.8m revenue and £1.0m underlying operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2023, the Group's results for the period would have shown revenue of £830.5m, underlying operating profit of £122.6m and reported operating profit of £103.9m. The Group incurred expenses of £0.4m relating to the acquisition, which are included in non-underlying costs in the year (see note 4).
United Fiberglass of America Inc.
On 16 November 2023 the Group acquired the business and assets of United Fiberglass of America Inc. ("United Fiberglass") for a cash consideration of £11.8m, plus £0.6m relating to post completion working capital adjustments payable early in 2024. United Fiberglass, located in Springfield, Ohio, is a designer, manufacturer and supplier of composite pipe, conduit and bridge drain infrastructure systems. The business has become part of Creative Composites Group, within our Engineered Solutions division. The business is highly complementary to our existing composite activities and will further accelerate our strategy in this exciting and growing market, expanding our customer base and product range, while also providing additional manufacturing capability.
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 | - | 0.3 | 0.3 |
| Customer lists | - | 4.0 | 4.0 |
| Order backlog | - | 0.4 | 0.4 |
| Property, plant and equipment | 0.6 | 2.2 | 2.8 |
| Inventories | 1.8 | - | 1.8 |
| Current assets | 1.2 | (0.1) | 1.1 |
| Total assets | 3.6 | 6.8 | 10.4 |
| Current liabilities | (0.7) | - | (0.7) |
| Total liabilities | (0.7) | - | (0.7) |
| Net assets | 2.9 | 6.8 | 9.7 |
| Consideration | | | |
| Total consideration | | | 12.4 |
| Goodwill | | | 2.7 |
| Cash flow effect | | | |
| Consideration in the year | | | 11.8 |
| Cash acquired with the business | | | - |
| Net cash consideration shown in the Consolidated Statement of Cash Flows | | | 11.8 |
Brands, customer lists and an order backlog have been recognised as specific intangible assets as a result of the acquisition. The residual goodwill arising, which has been allocated to the Engineered Solutions segment, primarily represents the highly skilled workforce, future technological advantages and potential for geographical expansion afforded to the Group. Policy alignment and fair value adjustments have been made to align the accounting policies of the acquired business with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. The fair value of the current assets acquired includes £1.1m of trade receivables, which have a gross value of £1.2m.
Post-acquisition the acquired business has contributed £0.7m revenue and £0.1m underlying operating profit, which are included in the Group's Consolidated Income Statement. If the acquisition had been made on 1 January 2023, the Group's results for the period would have shown revenue of £836.9m, underlying operating profit of £124.2m and reported operating profit of £105.5m. The Group incurred expenses of £0.5m relating to the acquisition, which are included in non-underlying costs in the year (see note 4).
Conn-Fab Sales, Inc.
In December 2023, we acquired the equipment, inventory, customer lists, order book and intellectual property of Conn-Fab Sales, Inc. ("Conn-Fab"), which specialises in adapter curbs, rails, and other customised rooftop seismic support solutions. The acquisition supports the expansion of our existing product portfolio and geographical reach across the US and southern Canada. Consideration in the year was £0.3m, with a further £0.5m being payable over the following 18 months once the qualifying accepted order value (as agreed at acquisition date) has converted to sale. As the fair value of assets acquired was minimal, the total consideration of £0.8m has been allocated to customer lists acquired.
Given the December acquisition, Conn-Fab's contribution to revenue and underlying operating profit in the Group's 2023 results is less than £0.1m. If the acquisition had been made on 1 January 2023, the Group's results for the period would have shown revenue of £831.4m, underlying operating profit of £123.1m and reported operating profit of £104.4m.
10. Cash and borrowings
| | 2023 £m | 2022 £m |
| Cash and cash equivalents in the Consolidated Statement of Financial Position Cash and cash equivalents | 34.4 | 24.8 |
| Bank overdraft | - | - |
| Cash and cash equivalents net of bank overdraft | 34.4 | 24.8 |
| Interest bearing loans and other borrowings |
| |
| Amounts due within one year | (1.4) | (0.3) |
| Amounts due after more than one year | (97.7) | (104.9) |
| Lease liabilities due within one year | (8.0) | (8.7) |
| Lease liabilities due after more than one year | (35.7) | (30.6) |
| Net debt | (108.4) | (119.7) |
|
Change in net debt Operating profit: |
| |
| - from continuing operations | 103.8 | 78.5 |
| - from discontinued operations | - | 5.0 |
| Total Group operating profit | 103.8 | 83.5 |
| Non-cash items | 47.6 | 46.3 |
| Operating cash flow before movement in working capital | 151.4 | 129.8 |
| Net movement in working capital | 22.8 | (42.6) |
| Changes in provisions and employee benefits | (0.8) | (4.3) |
| Operating cash flow | 173.4 | 82.9 |
| Tax paid | (31.7) | (15.5) |
| Net financing costs paid | (8.4) | (5.9) |
| Capital expenditure | (31.8) | (31.5) |
| Proceeds on disposal of non-current assets and assets held for sale | 3.3 | 0.4 |
| Free cash flow | 104.8 | 30.4 |
| Dividends paid (note 8) | (28.0) | (24.7) |
| Acquisitions of subsidiaries (note 9) | (53.5) | (25.6) |
| Disposals of subsidiaries (note 4) | (0.2) | 58.6 |
| Amortisation of costs associated with refinancing activities (note 5) | (0.6) | (2.4) |
| Purchase of shares for employee benefit trust | (2.6) | (0.4) |
| Issue of new shares | 1.8 | 1.9 |
| Lease additions, terminations and remeasurements | (12.6) | (9.0) |
| Leases disposed of (note 4) | 0.3 | 2.8 |
| Loans and borrowings disposed of | - | 0.3 |
| Interest on lease liabilities | (1.3) | (0.8) |
| Net debt decrease | 8.1 | 31.1 |
| Effect of exchange rate fluctuations | 3.2 | (6.1) |
| Net debt at the beginning of the year | (119.7) | (144.7) |
| Net debt at the end of the year | (108.4) | (119.7) |
| Reconciliation of movements in financial liabilities to cash flows arising from financing activities |
| |
| | 2023 £m | 2022 £m |
| Interest bearing loans and other borrowings and lease liabilities | | |
| At 1 January | 144.2 | 162.6 |
| New loans and borrowings | 73.9 | 160.8 |
| Repayments of loans and borrowings | (76.3) | (184.8) |
| Payment of lease liabilities | (9.4) | (9.5) |
| Costs of refinancing during the year | (0.5) | (2.1) |
| Cash flows used in financing activities | (12.3) | (35.6) |
| Other changes | | |
| Effect of exchange rate fluctuations | (3.2) | 6.9 |
| Amortisation of costs associated with refinancing activities (note 5) | 0.6 | 2.4 |
| Loans and borrowings disposed of | - | (0.3) |
| Lease changes: | | |
| Effect of exchange rate fluctuations | (0.7) | 1.0 |
| New leases | 14.6 | 9.1 |
| Terminations | (2.4) | (0.2) |
| Re-measurement | - | 0.1 |
| Acquisitions of subsidiaries | 2.3 | 1.0 |
| Disposals of subsidiaries | (0.3) | (2.8) |
| Interest expense | 1.3 | 0.8 |
| Interest paid | (1.3) | (0.8) |
| At 31 December | 142.8 | 144.2 |
Notes
1. The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2023 or 2022 but is derived from those accounts. Statutory accounts for 2022 have been delivered to the registrar of companies, and those for 2023 will be delivered in due course. The auditors have reported on those accounts; their report was:
i. unqualified;
ii. did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and
iii. did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.
2. The Annual Report will be posted to shareholders on or around 16 April 2024 and will be displayed on the Company's website at www.hsgroup.com. Copies of the Annual Report will also be available from the registered office at Westhaven House, Arleston Way, Solihull, B90 4LH.
3. Events Calendar:
i. The Annual General Meeting will be held at Cranmore Park Conference, Event & Exhibition Centre, Cranmore Avenue, Shirley, West Midlands, B90 4LF on Thursday 23 May 2024.
ii. The proposed final dividend for 2023 will be paid on 5 July 2024 to shareholders on the register on 31 May 2024 (ex-dividend date 30 May 2024).
iii. The last date for receipt of Dividend Reinvestment Plan elections is 14 June 2024.
iv. Interim results announcement for the period to 30 June 2024 due 8 August 2024.
v. Payment of the 2024 interim dividend due 3 January 2025.
4. This preliminary announcement of results for the year ended 31 December 2023 was approved by the Directors on 11 March 2024.
Cautionary Statement
This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profits forecast.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.