6th Sep 2005 07:01
Hill & Smith Hldgs PLC06 September 2005 INTERIM RESULTS FOR THE PERIOD OF SIX MONTHS ENDED 30 JUNE 2005 The board of Hill & Smith Holdings PLC announces record profits for the period of six months ended 30 June 2005, reflecting a further significant improvement in the group's financial performance. The statements for the half year have been prepared for the first time in accordance with international financial reporting standards and comparative figures have been restated accordingly. HIGHLIGHTS: Profit before taxation £8.5m (2004: £6.2m) up by 36.6 per cent Operating profit before financing costs £10.4m (2004: £7.8m) up by 32.6 per cent Revenue £143.4m (2004: £131.0m) up by 9.4 per cent Adjusted earnings per share+ 9.47p (2004: 7.01p) up by 35.1 per cent Dividend per share 2.60p (2004: 2.25p) up by 15.6 per cent Dividend cover+ 3.6 times (2004: 3.1 times) Underlying net debt++ £33.3m (2004: £38.8m) + based on profits before reorganisation and restructuring costs++ excluding the cost of investing £23.4m in Zinkinvent Gmbh Apart from record profits and higher dividends, underlying cash flow has been strong, supporting the group's continuing investment in its core businesses. Though some additional benefits have been achieved by the successful integrationof acquisitions, the period under review was notable for strong organic growth. Chairman David Winterbottom said: "Further substantial progress has been achieved by the group, resulting in another significant improvement in the group's financial performance. "The level of activity in our building, construction and infrastructure markets continues to increase and we are well placed to take advantage of the many projects available. "We continue to focus on our capital expenditure and product development programmes alongside our innovative and entrepreneurial approach in order to provide high levels of customer service. "These are important elements of our business strategy as is our drive to be thelowest cost producer in the key markets we supply. "We remain confident of achieving another satisfactory performance for the full year, subject to a continuation of the current economic and market conditions." Copies of the interim report will be posted to shareholders on 7 September 2005. Further information: Hill & Smith Holdings PLC 0121 704 7430David Grove, Chief Executive 07973 325667 Quantum Freshwater UK 0121 633 7775Edward Carter 07770 378097 CHAIRMAN'S STATEMENT Further substantial progress has been achieved by the Group during the six monthperiod ending 30 June 2005, resulting in another significant improvement in theGroup's financial performance. Revenue for the period was £143.4m, representing a 9.4% increase over the sameperiod in 2004 (£131.0m). Operating profit improved by 32.6% to £10.4m (2004:£7.8m) and profit before taxation was 36.6% ahead at £8.5m (2004: £6.2m). Basicearnings per share for the period increased by 48.4% to 10.49p (2004: 7.07p)whilst adjusted earnings per share grew by 35.1% to 9.47p (2004: 7.01p). Theseresults are the first to be prepared in accordance with International FinancialReporting Standards, and comparative numbers have been restated accordingly. Operations The level of activity in our building, construction and infrastructure marketscontinues to increase and we are well placed to take advantage of the manyprojects available. We continue to focus on our capital expenditure and productdevelopment programmes alongside our innovative and entrepreneurial approach inorder to provide high levels of customer service. These are important elementsof our business strategy as is our drive to be the lowest unit cost producer inthe key markets we supply. Our capital expenditure in the period againsubstantially exceeded the depreciation charge Most of the period's increase in profits was the result of organic like for likegrowth and margin improvement, although there was also a valuable contributionfrom Lionweld Kennedy which we acquired for £2.5m in November 2004 and itsmanagement team has done an excellent job. Zinkinvent GmbH Investment In May 2005 the Group invested €25m in cash to acquire a 33% shareholding inZinkinvent GmbH ("Zinkinvent")and also advanced to Zinkinvent an interestbearing loan of €10m. Zinkinvent is an investment company controlling 86% of aBelgian company, Vista NV. Vista NV is a galvanizing and lighting polefabricating business with significant operations in Benelux, France and the USA,with many similarities to our existing galvanizing and IPG businesses in the UK.Subject to further detailed negotiation, we have the opportunity, under anexclusivity agreement which runs to the end of the current year, to acquire theremaining 67% of Zinkinvent. Further announcements can be expected before theend of the current financial year. The investment is being accounted for on anequity basis as an associate company. Cash Net debt increased to £56.7m (30 June 2004: £38.8m) principally as a result ofnew borrowings taken on to finance the Zinkinvent transaction described above.Excluding these, like for like net debt reduced by £4.6m during the period. Dividend An interim dividend of 2.60p (2004: 2.25p) has been declared by the Board whichrepresents a 15.6% increase over the previous year. This level of dividend iscovered 3.6 times, based on adjusted earnings per share. This is furtherevidence of the progressive dividend policy we have maintained in recent years. Acquisition after the period end In August 2005 we acquired for £0.9m the business and certain assets of TechspanLimited, a subsidiary of Jarvis PLC, which manufactures and supplies electronicinformation display signs for the road, rail and airport markets. This is anexcellent fit with our IPG businesses, particularly in respect of the roadmarket in the UK and the strategy of reducing congestion and increasing safetyon our road network. Outlook Early indications in the second half of the year suggest a continuation of theexcellent performance of the first six months. Although our second half isusually slightly weaker than the first half, due largely to the effect of thesummer and Christmas holiday periods, we nevertheless remain confident ofachieving another satisfactory performance for the full year, subject to acontinuation of the current economic and market conditions. D S WinterbottomChairman 6th September 2005 CONSOLIDATED INCOME STATEMENT6 months ended 30 June 2005 6 months ended 6 months ended Year ended 30 June 2005 30 June 2004 31 December 2004 Before Before Before reorganisation Reorganisation reorganisation reorganisation and and and and restructuring restructuring restructuring restructuring costs costs Total costs Total costs Total Notes £000 £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------------------------------------Revenue 1 143,374 - 143,374 131,013 131,013 268,652 268,652========================================================================================================================Profit from operations 10,249 - 10,249 7,828 7,828 15,084 15,084Income from associated companies 132 - 132 - - - -Business reorganisations 2 - (2,397) (2,397) - (209) - (1,460)Special bonuses and associated costs - - - - - - (424)Profit on sale of properties - 2,424 2,424 - 187 - 187------------------------------------------------------------------------------------------------------------------------Operating profit before financing costs 1 10,381 27 10,408 7,828 7,806 15,084 13,387Financial income 230 - 230 271 271 597 597Financial expenses (2,127) - (2,127) (1,890) (1,890) (3,874) (3,874)------------------------------------------------------------------------------------------------------------------------Profit before taxation 8,484 27 8,511 6,209 6,187 11,807 10,110Tax on profit 3 (2,545) 614 (1,931) (1,869) (1,806) (3,554) (2,563)------------------------------------------------------------------------------------------------------------------------Profit for the period 5,939 641 6,580 4,340 4,381 8,253 7,547 ========================================================================================================================Attributable to:Equity holders of the parent 6,580 4,381 7,555Minority interest - - (8)------------------------------------------------------------------------------------------------------------------------Profit for the period 6,580 4,381 7,547========================================================================================================================Basic earnings per share 4 10.49p 7.07p 12.17pDiluted earnings per share 4 10.17p 7.03p 11.65p======================================================================================================================== CONSOLIDATED BALANCE SHEETAs at 30 June 2005 30 June 30 June 31 December 2005 2004 2004 Notes £000 £000 £000--------------------------------------------------------------------------------Non current assetsIntangible assets 28,657 27,415 28,144Property, plant and equipment 44,022 41,505 44,431Investments 23,566 25 25--------------------------------------------------------------------------------Non current assets 96,245 68,945 72,600-------------------------------------------------------------------------------- Current assetsAssets held for resale 630 1,097 1,746Inventories 26,418 26,160 27,004Trade and other receivables 62,189 62,221 57,977Cash and cash equivalents 5 12,154 11,502 9,901--------------------------------------------------------------------------------Current assets 101,391 100,980 96,628--------------------------------------------------------------------------------Total assets 1 197,636 169,925 169,228================================================================================ Current liabilitiesTrade and other current payables (75,792) (72,778) (75,596)Tax liabilities (3,872) (3,752) (2,471)Obligations under finance leases 5 (1,295) (1,101) (1,070)Bank overdrafts and loans 5 (9,966) (5,875) (10,736)--------------------------------------------------------------------------------Current liabilities (90,925) (83,506) (89,873)--------------------------------------------------------------------------------Net current assets 10,466 17,474 6,755================================================================================ Non current liabilitiesProvisions for liabilities and charges (3,237) (4,818) (2,632)Retirement benefit obligation (6,222) (3,297) (6,642)Obligations under finance leases 5 (2,675) (2,786) (2,246)Bank loans 5 (54,891) (40,500) (33,757)--------------------------------------------------------------------------------Non current liabilities (67,025) (51,401) (45,277)--------------------------------------------------------------------------------Total liabilities 1 (157,950) (134,907) (135,150)================================================================================Net assets 39,686 35,018 34,078 ================================================================================ EquityShare capital 15,826 15,516 15,519Share premium 4,024 3,513 3,519Capital redemption reserve 238 238 238Revaluation reserve 425 517 479Other reserves 4,313 4,313 4,313Equity reserves 14,810 10,879 9,960 --------------------------------------------------------------------------------Equity attributable to equity holdersof the parent 39,636 34,976 34,028Minority interests 50 42 50--------------------------------------------------------------------------------Total equity 39,686 35,018 34,078 ================================================================================ CONSOLIDATED STATEMENT OF CASH FLOWS6 months ended 30 June 2005 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 Notes £000 £000 £000--------------------------------------------------------------------------------Operating profit before financing costs 10,408 7,806 13,387Adjustments for: Depreciation 3,049 2,818 5,522 Amortisation of intangible assets 71 26 63 (Gain)/loss on disposal of property, plant and equipment (2,279) (135) (223)--------------------------------------------------------------------------------Operating cash flows before movements in working capital 11,249 10,515 18,749 --------------------------------------- (Increase)/decrease in inventories 586 (2,519) (2,613) (Increase)/decrease in receivables (4,212) (14,995) (10,284) Increase/(decrease) in payables 1,740 12,015 12,245 --------------------------------------- (1,886) (5,499) (652)--------------------------------------------------------------------------------Cash generated by operations 9,363 5,016 18,097Income taxes paid (324) (332) (2,258)Interest paid (2,127) (1,639) (4,341)--------------------------------------------------------------------------------NET CASH FROM OPERATING ACTIVITIES 6,912 3,045 11,498--------------------------------------------------------------------------------Investing activitiesInterest received 230 20 95Purchase of property, plant and equipment (4,584) (3,237) (7,098)Proceeds on disposal of property, plant and equipment 4,555 583 812Acquisitions of subsidiaries and associates 6 (23,533) - (2,533)--------------------------------------------------------------------------------NET CASH USED IN INVESTING ACTIVITIES (23,332) (2,634) (8,724)--------------------------------------------------------------------------------Financing activitiesIssue of new shares 812 182 191Dividends paid (3,142) (1,326) (2,846)New loans 23,391 - 1,500Repayments of loans (2,250) (2,000) (4,250)Repayment of loan notes (158) (576) (827)New obligations under finance leases 1,275 1,542 1,542Repayment of obligations under finance leases (621) (532) (1,102)Increase/(decrease) in borrowings (634) (522) (1,404)--------------------------------------------------------------------------------NET CASH (USED IN)/FROM FINANCING ACTIVITIES 18,673 (3,232) (7,196)--------------------------------------------------------------------------------NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2,253 (2,821) (4,422)CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 9,901 14,323 14,323================================================================================CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 5 12,154 11,502 9,901================================================================================ CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE6 months ended 30 June 2005 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2005 2004 2004 £000 £000 £000--------------------------------------------------------------------------------Exchange differences on translation of foreign operations - - 34Actuarial gain on defined benefit pension schemes - - (3,920)Tax on items taken directly to equity - - 1,176--------------------------------------------------------------------------------Net income recognised directly in equity - - (2,710)Profit for the period 6,580 4,381 7,547--------------------------------------------------------------------------------Total recognised income and expense for the period 6,580 4,381 4,837================================================================================Attributable to:Equity holders of the parent 6,580 4,381 4,845Minority interest - - (8)--------------------------------------------------------------------------------Total recognised income and expense for the period 6,580 4,381 4,837================================================================================ ACCOUNTING POLICIES Adoption of IFRS EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of Hill & Smith Holdings PLC, for the year ending 31December 2005, be prepared in accordance with International Financial ReportingStandards (IFRSs) adopted for use in the EU, i.e., "adopted IFRSs".This interim financial information has been prepared on the basis of therecognition and measurement requirements of IFRSs in issue that either areendorsed by the EU and effective (or available for early adoption) at 30 June2005 or are expected to be endorsed and effective (or available for earlyadoption) at 31 December 2005, the Group's first annual reporting date at whichit is required to use adopted IFRSs. Based on these adopted and unadopted IFRSs,the directors have made assumptions about the accounting policies expected to beapplied, which are as set out below, when the first annual IFRS financialstatements are prepared for the year ending 31 December 2005.In particular, the directors have assumed that the following IFRSs issued by theInternational Accounting Standards Board and IFRIC Interpretations issued by theInternational Financial Reporting Interpretations Committee will be adopted bythe EU in sufficient time that they will be available for use in the annual IFRSfinancial statements for the year ending 31 December 2005: • IAS19 Employee benefits In addition, the adopted IFRSs that will be effective or available for earlyadoption in the annual financial statements for the year ending 31 December 2005are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 December 2005. Basis of preparation The accounting policies applied in the preparation of this consolidatedfinancial information are set out below. These policies have been appliedconsistently to all the periods presented, unless otherwise stated, and inpreparing an opening International Financial Reporting Standards (IFRS) balancesheet at 1 January 2004 for the purposes of transition to IFRS. See note 7 andthe appendices for further details. This financial information has been prepared under the historical costaccounting rules, modified to include the revaluation of certain land andbuildings. Basis of consolidation The consolidated financial information is made up to 30 June 2005. Theacquisition method of accounting has been adopted. Under this method, theresults of subsidiary undertakings acquired or disposed of in the period areincluded in the consolidated income statement from the date of acquisition or upto the date of disposal. Where a group company is party to a jointly controlled entity, the Groupaccounts for its proportion of the income and expenditure, assets, liabilitiesand cash flows on consolidation. Where the Group have associated interests in other entities, the net results ofthe associated interest have been equity accounted into the results of the Groupfrom the date the interest is acquired to the date that interest ceases. Intangible assets Goodwill on acquisition comprises the excess of fair value of the considerationplus any associated costs for the investment in subsidiary undertakings andjoint ventures over the Group's share of the fair value of the net identifiableassets acquired. Hill & Smith Holdings PLC has elected not to apply IFRS3 retrospectively.Goodwill prior to 1 October 1998 was written off to reserves. Goodwill from 1October 1998 to 31 December 2003 was amortised in line with UK GAAP. Goodwillfrom 1 January 2004 is subject to annual impairment testing. Gains and losses on the disposal of an entity include the carrying amount ofgoodwill relating to the entity sold. Customer lists have been valued on acquisition and are amortised over theirestimated useful life on an item by item basis. Where research and development expenditure meets the criteria laid out in IAS38Intangible assets, it has been capitalised and is amortised over its estimateduseful life on an item by item basis. Property, plant and equipment and depreciation Depreciation is provided to write-off the cost or valuation less the estimatedresidual value of property, plant and equipment by equal instalments over theirestimated useful economic lives as follows: •Freehold buildings 50 years•Leasehold land and buildings life of lease•Plant, machinery and vehicles 4 to 20 years No depreciation is provided on freehold land. Hill & Smith Holdings PLC has chosen to take the first time adoption exemptionavailable under IFRS 1 to use a previous revaluation for an item of PPE as itsdeemed cost at the transition date. Investments In this financial information investments are stated at cost, less amountswritten off for impairment. Assts held for resale Resale properties are valued at the lower of fair value less cost to sell andtheir carrying amount. Any surplus, deficit or impairment arising is credited orcharged to the income statement for the period. These assets are classed ascurrent assets in line with IFRS5, which was adopted early to give meaningfulcomparatives. Inventories Inventories are stated at the lower of cost and net realisable value. Indetermining the cost of raw materials, consumables and goods purchased forresale, the FIFO method is used. Cost for work in progress and finished goodscomprises of direct materials, direct labour and an appropriate proportion ofattributable overheads. Long term contracts The profit attributable to the stage of completion of a long term contract isrecognised when the outcome of the contract can be reliably estimated. Turnoverfor such contracts is stated as cost appropriate to their stage of completionplus attributable profits, less amounts recognised in previous periods.Provision is made for losses as soon as they are foreseen. Contract work in progress is stated at costs incurred, less those transferred tothe income statement, after deducting foreseeable losses and payments on accountnot matched with turnover. Amounts recoverable on contracts are included in debtors and represent turnoverrecognised in excess of payments on account. Financial Instruments Financial assets and liabilities are recognised on the Group's balance sheetwhen the Group becomes a party to the contractual provisions of the instrument. Trade receivables are stated at their nominal value as reduced by appropriateallowances for estimated irrecoverable amounts. Trade payables are stated at their nominal value. Derivative financial instruments of the Group are used to hedge its exposure tointerest rate risks arising from operational, financing and investmentactivities. In accordance with its treasury policy, the Group does not hold or issuederivative financial instruments for trading purposes. However, derivatives thatdo not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at cost, if any.Subsequent to initial recognition, derivative financial instruments are statedat fair value. The gain or loss on remeasurement to fair value is recognisedimmediately in the income statement. The fair value of interest rate swaps is the estimated amount that the Groupwould receive or pay to terminate the swap at the balance sheet date, takinginto account current interest rates and the current creditworthiness of the swapcounterparties. Interest-bearing borrowings are recognised initially at fair value lessattributable transaction costs. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. Cash and cash equivalents For the purposes of the consolidated statement of cash flows, cash and cashequivalents comprise balances with less than three months maturity from the dateof acquisition, including cash and non restricted balances with central banks. Foreign currencies Transactions in foreign currencies are recorded using the rate of exchangeruling at the date of the transaction. Any gain or loss on translation arisingfrom a movement in exchange rates subsequent to the date of a transaction isincluded as an exchange gain or loss in the income statement. The assets and liabilities of overseas subsidiary undertakings are translated atthe closing exchange rate. Income statements of such undertakings areconsolidated at the average exchange rate during the period and the adjustmentto period end rates is taken directly to reserves. Net investment hedges for exchange differences arising on the retranslation ofthe opening net assets of foreign subsidiaries are offset against the exchangedifferences on foreign currency loans designated to fund them. The ineffectiveportion of the hedge is recognised in the income statement for the period. The Group has not taken advantage of the option to zero the translation effectsof foreign currencies as allowed in IFRS1 First time adoption of InternationalAccounting Standards. Provisions A provision is recognised in the balance sheet when the Group has a presentlegal or constructive obligation as a result of a past event and it is probablethat an outflow of economic benefits will be required to settle the obligation.If the effect is material, provisions are determined by discounting the expectedfuture cash flows at a pre-tax rate that reflects current market assessments ofthe time value of money and, when appropriate, the risks specific to theliability. A provision for restructuring is recognised when the Group has approved adetailed and formal restructuring plan, and the restructuring either hascommenced or has been announced publicly. Future operating costs are notprovided for. A provision for site restoration in respect of contaminated land is recognisedwhen the land is identified as contaminated and the Group has a liability.The estimated cost of returning properties held under leases to their originalcondition in accordance with the terms of specific lease contracts is recognisedas soon as such costs are able to be reliably estimated. Impairment of assets The carrying amount of the Group's assets is reviewed at each balance sheet dateto determine whether there is an indication of impairment. If such an indicationexists, the asset is written down to its estimated recoverable amount. For goodwill, assets that have an indefinite life and intangible assets not yetavailable for use, therecoverable amount is estimated at each balance sheet date. An impairment loss is recognised for the amount by which the asset's carryingamount exceeds its recoverable amount. Impairment losses are recognised in theincome statement. Leases Assets acquired under finance leases where the Group has substantially all therisks and rewards of ownership are capitalised. The outstanding future leaseobligations are shown in creditors. Operating lease rentals are charged to theincome statement on a straight-line basis over the period of the lease. Revenue Except for work completed under long term contracts (see above), revenuerepresents the amount (excluding value added tax) invoiced to third partycustomers following the delivery of goods or provision of services. Segmental reporting The primary segmental analysis provided represents the whole of the Group'soperations. The secondary geographical analysis is regarded by the management asunnecessary as substantially all of the Group's operations are performed in theUK. Government grants Government grants are included within accruals and deferred income in thebalance sheet and credited to operating profit over the estimated usefuleconomic life or the length of employment specified in the grant. Retirement benefit costs The Group operates a number of pension schemes under which contributions byemployees and by the sponsoring companies are held in trust funds separated fromthe Group's finances. Obligations for contributions to defined contribution pension schemes arerecognised as an expense in the income statement as incurred. The Group's net obligation in respect of defined benefit pension schemes iscalculated separately for each scheme by estimating the amount of future benefitthat employees have earned in return for their service in the current and priorperiods; that benefit is discounted to determine its present value, and the fairvalue of any scheme assets is deducted. The discount rate is the yield at thebalance sheet date on AA rated bonds that have maturity dates approximating tothe terms of the Group's obligations. The calculation is performed by aqualified actuary using the projected unit method. Scheme assets are valued atbid price. Current and past service costs are recognised in operating profit and netfinancing costs include interest on pension scheme liabilities and expectedreturn on assets. All actuarial gains and losses in calculating the Group's obligation in respectof a scheme are recognised annually in reserves and reported in the Statement OfRecognised Income and Expense (SORIE). Share based payment transactions The fair value of shares/options granted is recognised as an employee expense,with a corresponding increase in equity reserves. The fair value is recognisedat the grant date and spread over the period the employees becomeunconditionally entitled to the shares/options. The fair value is based onmarket value. In accordance with IFRS2 transitional allowance, no expense is recorded forequity settled options granted prior to 7 November 2002, but not vested by 1January 2005. Income tax Income tax on the profit or loss for the year represents the sum of the taxcurrently payable and deferred tax. Income tax is recognised in the incomestatement except to the extent that it relatesto items recognised directly in equity, in which case it is recognised inequity. Current tax is the expected tax payable on the taxable profit for the year.Taxable profit differs from net profit as reported in the income statementbecause it excludes items of income or expense that are taxable or deductible.The Group's liability for current tax is calculated using tax rates enacted orsubstantially enacted at the balance sheet date, and any adjustments to taxpayable in respect of previous years. Deferred taxation Deferred tax is provided in full using the balance sheet liability method. It isthe tax expected to be payable or recoverable on the temporary differencesbetween the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for taxation purposes. The following temporarydifferences are not provided for: goodwill not deductible for tax purposes, theinitial recognition of assets and liabilities that affect neither accounting ortaxable profit, and differences relating to investments in subsidiaries to theextent that they will not reverse in the foreseeable future. The amount ofdeferred tax provided is based on the expected manner of realisation orsettlement of the carrying amount of assets and liabilities, using tax ratesenacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. The carrying amount of deferred tax assets are reviewed at eachbalance sheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the asset tobe recovered. Additional income taxes that arise from the distribution of dividends arerecognised at the same time as the liability to pay the related dividend. Deferred tax assets and liabilities are offset when they relate to income taxeslevied by the same taxation authority and the Group intends to settle itscurrent tax assets and liabilities on a net basis. NOTES TO THE CONSOLIDATED INTERIM FINANCIAL INFORMATION 1. Segmental information Income Statement 6 months ended 6 months ended 12 months ended 30 June 2005 30 June 2004 31 December 2004 Operating Operating Operating Profit Profit Profit before before before financing financing financing Revenue costs* Revenue costs* Revenue costs* £000 £000 £000 £000 £000 £000 ----------------------------------------------------------------------------- Infrastructure products 52,638 6,340 47,613 4,616 95,729 9,103 Building and construction products 71,270 3,087 64,512 2,707 134,120 4,512 Industrial products 19,466 954 18,888 505 38,803 1,469 ----------------------------------------------------------------------------- Total Group 143,374 10,381 131,013 7,828 268,652 15,084 =============================== ======= ======= Net financing costs (1,897) (1,619) (3,277) -------- ------- ------- Profit before taxation 8,484 6,209 11,807 ======== ======= ======= * Operating profit before financing costs is stated before reorganisation and restructuring costs. Balance Sheet 6 months ended 6 months ended 12 months ended 30 June 2005 30 June 2004 31 December 2004 Total Total Total Total Total Total assets liabilities assets liabilities assets liabilities £000 £000 £000 £000 £000 £000 Infrastructure products 62,817 (23,485) 34,403 (8,687) 45,568 (19,195) Building and construction products 72,190 (37,390) 77,514 (49,159) 67,058 (39,701) Industrial products 22,764 (13,180) 20,108 (12,016) 20,660 (12,774) ---------------------------------------------------------------------------------------------------- Total operations 157,771 (74,055) 132,025 (69,862) 133,286 (71,670) Tax and dividends (6,612) (8,847) (7,400) Other provisions (8,456) (5,936) (8,271) Net debt (note 5) 12,154 (68,827) 11,502 (50,262) 9,901 (47,809) Goodwill 27,711 26,398 26,041 ---------------------------------------------------------------------------------------------------- Total Group 197,636 (157,950) 169,925 (134,907) 169,228 (135,150) ==================================================================================================== Net assets 39,686 35,018 34,078 ==================================================================================================== 2. Business reorganisation costs The charge relates primarily to the costs of relocating galvanizing production from the Digbeth operation of Joseph Ash Limited to alternative locations. 3. Taxation Tax has been provided on the profit before reorganisation and restructuring costs at the estimated effective rate for the full year. 4. Earnings per share The weighted average number of shares in issue during the period was 62,736,490, diluted for the effect of outstanding share options 64,695,734 (six months ended 30 June 2004: 61,933,559, and 62,325,994 diluted). Earnings per share have been calculated on profits of £6,580,000 (six months ended 30 June 2004: earnings of £4,381,000) and earnings per share before reorganisation and restructuring costs on earnings of £5,939,000 (six months ended 30 June 2004: earnings of £4,340,000). Earnings per share before reorganisation and restructuring costs are as shown below. The Directors consider that this measurement of earnings gives a more meaningful indication of the underlying performance of the Group: 30 June 2005 30 June 2004 Adjusted earnings per share 9.47p 7.01p Adjusted diluted earnings per share 9.18p 6.96p 5. Analysis of Net Debt 30 June 2005 30 June 2004 31 December 2004 £000 £000 £000 ----------------------------------------------------------------------------- Cash and cash equivalents 12,154 11,502 9,901 Debt due within one year (9,966) (5,875) (10,736) Debt due after one year (54,891) (40,500) (33,757) Finance leases (3,970) (3,887) (3,316) ------------------------------------------------------------------------------ Net debt (56,673) (38,760) (37,908) ================================== ==================================== Less Debt raised for Zinkinvent investment (note 6) 23,391 -------- Underlying net debt (33,282) ======== 6. Acquisition of subsidiaries and associates In May 2005 the Group invested €35m in Zinkinvent GmbH, a German holding company that owns 86% of Vista NV, a Belgium company that operates a galvanizing and lighting pole fabrication business in Benelux, France and the United States of America. The results of this business are being equity accounted into the results of the Group. There is an exclusivity agreement that offers the Group the opportunity to enter into negotiations to acquire the remaining 67% of Zinkinvent GmbH later this year. In August 2005, the Group acquired from Jarvis PLC, the business and certain assets of Techspan Limited, a sign display manufacturer, for £0.9m. 7. Financial information The results for the half years ended 30 June 2005 and 2004 are unaudited and do not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2004 has been extracted from the statutory accounts for that year which have been filed with the Registrar of Companies and on which the auditors have given an unqualified opinion, subject to the restatement as per note 8 and the appendices. 8. Prior year restatement Following the European Union Regulation issued in 2002, Hill & Smith Holdings PLC must report its consolidated figures under IFRSs (as adopted by the European Union) from 1 January 2005. The Group's first annual report under IFRS will be for the year ending 31 December 2005. The half year financial information presented in this report includes restated figures for 2004 (details of which can be seen in the Appendices to this financial information) and represents the first IFRS results to be announced. There are a number of presentational changes which have no effect on the profit or the net assets, as well as no cash impact from IFRS adjustments and the impact of IAS7 Cashflow statements merely has a presentational effect on the statement of cash flows. Transitional arrangements On transition to IFRS, an entity is generally required to apply IFRS retrospectively, except where an exemption is available under IFRS1 First-time adoption of International Financial Reporting Standards. The following is a summary of the key elections from IFRS1 that were made by the Group: • The Group has elected to adopt the IFRS1 exemption in relation to business combinations and will only apply IFRS3 Business combinations prospectively from 1 January 2004. As a result, the balance of goodwill under UK GAAP as 31 December 2003 will be deemed the cost of goodwill at 1 January 2004. • Hill & Smith Holdings PLC has chosen to take the first time adoption exemption available under IFRS 1 to use a previous revaluation for an item of PPE as its deemed cost at the transition date. • The Group has elected not to adopt the IFRS 1 option to reset foreign currency cumulative translation reserves to zero on transition to IFRS. Furthermore, the Group has adopted the exemption in IFRS1 not to prepare comparative information in accordance with IAS32 Financial Instruments: Disclosure and Presentation and IAS39 Financial Instruments: Recognition and Measurement. These standards will therefore only apply from 1 January 2005 and in the comparative figures for the year ended 31 December 2004, financial instruments have been accounted for on a UK GAAP basis. The Group has also elected to adopt IFRS5 Non-current Assets Held for Sale and Discontinued Operations from 1 January 2005. Principal areas of impact The main areas of impact for Hill & Smith Holdings PLC are discussed below: IFRS2 Share based payment In accordance with IFRS2 transitional allowance, no expense is recorded for equity settled options granted prior to 7 November 2002, but not vested by 1 January 2005. In the current period an annualised charge against the operating profit of £186,000 resulting from the fair value adjustment SAYE options granted in January 2005. The effect of this charge has a corresponding increase in equity reserves. IFRS3 Business combinations Goodwill is no longer amortised. The IFRS1 adoption applied is as explained in the transitional arrangements above. IAS10 Events after the Balance Sheet date Dividends declared after the balance sheet are not recognised as a liability. The Directors have declared an interim dividend for the current year of 2.6p per share (six months to 30 June 2004: 2.25p) which will be paid on 13 January 2006 to shareholders on the register on 9 December 2005. IAS12 Income taxes IAS12 requires all temporary differences rather than just timing differences (as required under UK GAAP) to be provided in deferred tax. The main impact for Hill & Smith Holdings PLC relates to the deferred tax provided on revalued properties. IAS19 Employee benefits As a result of adopting FRS17 Retirement Benefits last year, the impact of IAS19 is minimal. The differential between mid and bid price valuations resulted in an immaterial variance to the fund valuation, and as such has not been reflected in this report. The only change is a Balance Sheet reclassification for the deferred tax, which under FRS17 was netted against the pension liability, but under IAS19 this has been transferred to deferred tax. While the unendorsed amendment to IAS19 to allow the full actuarial gain and loss to be taken to equity rather than the income statement for the period has no effect on this interim financial information, the Group intends to apply this amendment in the preparation of its annual report at 31 December 2005. APPENDIX TO THE CONSOLIDATED INTERIM FINANCIAL INFORMATION Prior year restatements A) 2004 Opening Balancesi. Consolidated Balance Sheet as at 1 January 2004 IFRS3 IAS10 IAS12 IAS19 Business IFRS As published combinations Dividends Income taxes Pensions Reclassified Restated £000 £000 £000 £000 £000 £000 £000------------------------------------------------------------------------------------------------------------------------Non current assetsIntangible assets 27,240 - - - - - 27,240Property, plant and equipment 41,437 - - - - - 41,437Investments 25 - - - - - 25------------------------------------------------------------------------------------------------------------------------ 68,702 - - - - - 68,702------------------------------------------------------------------------------------------------------------------------Current assetsAssets held for resale 1,407 - - - - - 1,407Inventories 23,641 - - - - - 23,641Trade and other receivables 47,226 - - - - - 47,226Cash and cash equivalents 14,323 - - - - - 14,323------------------------------------------------------------------------------------------------------------------------ 86,597 - - - - - 86,597------------------------------------------------------------------------------------------------------------------------Current liabilitiesTrade and other current payables (64,363) - 1,514 - - - (62,849)Tax liabilities (2,405) - - - - - (2,405)Obligations under finance leases (807) - - - - - (807)Bank loans and overdrafts (9,563) - - - - - (9,563)------------------------------------------------------------------------------------------------------------------------ (77,138) - 1,514 - - - (75,624)------------------------------------------------------------------------------------------------------------------------Net current assets 9,459 - 1,514 - - - 10,973-----------------------------------------------------------------------------------------------------------------------Non current liabilitiesProvisions for liabilities and charges (4,343) - - (356) 1,101 - (3,598)Retirement benefit obligation (2,569) - - - (1,101) - (3,670)Obligations under finance leases (2,069) - - - - - (2,069)Bank loans (38,369) - - - - - (38,369)------------------------------------------------------------------------------------------------------------------------Net assets 30,811 - 1,514 (356) - - 31,969========================================================================================================================EquityCalled up share capital 15,424 - - - - - 15,424Share premium 3,423 - - - - - 3,423Capital redemption reserve 238 - - - - - 238Revaluation reserve 739 - - (222) - - 517Other reserves 4,313 - - - - - 4,313Profit and loss account 6,632 - 1,514 (134) - - 8,012------------------------------------------------------------------------------------------------------------------------Equity shareholders' funds 30,769 - 1,514 (356) - - 31,927Equity minority interests 42 - - - - - 42------------------------------------------------------------------------------------------------------------------------Total equity 30,811 - 1,514 (356) - - 31,969======================================================================================================================== B) 2004 Interim Accountsi. Consolidated Income Statement for the 6 months ended 30 June 2004 IFRS3 IAS10 IAS12 IAS19 Business IFRS As published combinations Dividends Income taxes Pensions Reclassified Restated £000 £000 £000 £000 £000 £000 £000------------------------------------------------------------------------------------------------------------------------Revenue 131,013 - - - - - 131,013------------------------------------------------------------------------------------------------------------------------Profit from operations 6,777 842 - - - 209 7,828Business reorganisations - - - - - (209) (209)Profit on sale of fixed assets 187 - - - - - 187------------------------------------------------------------------------------------------------------------------------Operating profit before financing costs 6,964 842 - - - - 7,806Interest receivable - - - - - 20 20Interest payable (1,870) - - - - (20) (1,890)Other finance income 251 - - - - - 251------------------------------------------------------------------------------------------------------------------------Profit before taxation 5,345 842 - - - - 6,187Tax on profit (1,680) (9) - (117) - - (1,806)------------------------------------------------------------------------------------------------------------------------Profit for the period 3,665 833 - (117) - - 4,381======================================================================================================================== B) 2004 Interim Accountsii. Consolidated Balance Sheet as at 30 June 2004 IFRS3 IAS10 IAS12 IAS19 Business IFRS As published combinations Dividends Income taxes Pensions Reclassified Restated £000 £000 £000 £000 £000 £000 £000------------------------------------------------------------------------------------------------------------------------Non current assetsIntangible assets 26,398 842 - - - 175 27,415Property, plant and equipment 41,680 - - - - (175) 41,505Investments 25 - - - - - 25------------------------------------------------------------------------------------------------------------------------ 68,103 842 - - - - 68,945------------------------------------------------------------------------------------------------------------------------Current assetsAssets held for resale 1,097 - - - - - 1,097Inventories 26,160 - - - - - 26,160Related Shares:
Hill & Smith