11th Mar 2008 07:01
Hill & Smith Hldgs PLC11 March 2008 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Hill & Smith Holdings PLC announces record revenue and profits for the yearended 31 December 2007. HIGHLIGHTS • Record revenue and profits• Underlying earnings per share increased by 34.3%• Dividends up by 20% for the third consecutive year• Acquisition of controlling interest in Zinkinvent GmbH• Banking Facilities renewed through to 2012• Continued strong market demand and organic growth RESULTS Year ended Year ended % 31 December 31 December Change 2007 2006 Revenue £402.1m £306.0m + 31.4 Underlying profit before taxation* £32.9m £18.5m + 77.8Underlying earnings per share* 27.8p 20.7p + 34.3Dividends per share 8.7p 7.2p + 20.8 * excludes the effect of business reorganisation costs, property items and amortisation of acquisition intangibles Commenting on the results David Grove, Chairman, said: "We are now seeing the benefits from the substantial investments made in capital projects and product development in recent years. This is the third consecutive year we have delivered an increase of 20% in our full year dividend. We shall continue to make investments in our product development and, where appropriate, to grow through selective acquisitions." "The current year has started well with strong demand from our core markets and the benefits arising from our organic growth strategy. I look forward to being able to report further progress in 2008." Further information: Freshwater UKEdward Carter/Anna McNeil0121 633 777507770 378097 CHAIRMAN'S STATEMENT Introduction I congratulate the Hill & Smith team, which now spans three continents, ondelivering an excellent performance in 2007. Our core businesses achieved recordlevels of profit from strong organic growth and improved profit margins. Theproduct development programme continues to drive growth and we enhanced ourpotential for overseas earnings by increasing our shareholding in ZinkinventGmbH in July 2007 to 68.2% (previously 33.3%). From that date Zinkinvent GmbHhas been treated as a subsidiary and not as an associate, as was the case in thefirst half of 2007. Financial Overview Revenue from continuing operations in the year to 31 December 2007 increased by31.4% to £402.1m (2006: £306.0m). Profit before taxation in the period increasedby 87.3% to £32.4m (2006: £17.3m). The Group regards its underlying results, which exclude business reorganisationcosts, property items and amortisation of acquisition intangibles, as a moreconsistent and appropriate measure of its financial performance. Underlyingprofit before taxation increased by 77.8% to £32.9m (2006: £18.5m). Basicearnings per share increased by 49.0% to 29.5p (2006: 19.8p) whereas underlyingearnings per share were 34.3% ahead of last year at 27.8p (2006: 20.7p). It is worth noting that the Group has increased its underlying earnings pershare by an average of 28% per annum compound over the last three years. Dividends The Directors are proposing a final dividend of 5.1p (2006: 4.2p) making a totaldividend for the year of 8.7p (2006: 7.2p). This continues our progressivedividend policy under which the dividend has been increased by 20% in each ofthe last three years. The dividend is covered 3.2 times by underlying earningsper share. Operations Following the acquisition of the additional shareholding in Zinkinvent, theGroup is now organised into three divisions namely Infrastructure Products,Galvanizing Services and Building and Construction. The Review of 2007 dealswith the details of individual business units. However, the followingsignificant events are worthy of mention. The Infrastructure Products division powered ahead in the year benefitting fromour focused investment in previous years in capital projects and productdevelopment. Also, our pipe supports company in Thailand successfully executed anumber of overseas contracts which were won as a result of our new low costfactory supplying components for a number of large LNG (Liquid Natural Gas)plants being built across the world. Profits in our galvanizing division were also significantly ahead with a firstfull year contribution from Metnor Galvanizing (acquired November 2006) . Asfrom July 2007, when we acquired a majority interest in Zinkinvent, there was afurther contribution from the galvanizing plants within this group. The volatilezinc price during the year was well managed and we are already improvingefficiencies by benchmarking best practice between plants in the UK, mainlandEurope and the USA. In the Building and Construction Products division there was a flat performance.On the plus side it is pleasing to report that our reinforcing bar businesscontinued its improved performance and produced a satisfactory operating profitduring the year. On the minus side there were one-off losses at Ash & LacyPerforators which were a direct result of the rationalisation of our twoproduction facilities onto a single site. The benefits of a single siteoperation will be evidenced in the future. Finance In June 2007 we successfully restructured our financing arrangements for afurther five years based on a new multicurrency facility, which together withour other sources of finance, provides us with total funding facilities inexcess of £200m. Acquisitions The only significant acquisition during the year was of a further 34.9% of theshares in Zinkinvent GmbH for €26m in July. Disposals During 2007 we continued to review our non-core businesses and Ash & LacyPressings was sold in August. In February 2008 we also disposed of D&J Steels.Both sales were concluded at a small discount to net asset value. Board Changes There have been a number of planned changes to the Board composition during theyear and our succession planning process has been well executed. David Winterbottom retired as our Chairman in May 2007 after ten years' serviceand it is sad to report that he unexpectedly passed away in November. Hisvaluable contribution to where the Group is today should not be underestimated. In May 2007 Derek Muir was promoted to Group Chief Executive after twenty years'service in many roles within the Group and I was appointed Chairman. Also in May2007 I was pleased to welcome Clive Snowdon to the Board as a non-executivedirector. He has already made a valuable contribution to the Group. Chris Burr will be retiring from the Board today. Chris has been the GroupFinance Director since November 2000, and, including his role as Group FinanceDirector of Ash & Lacy PLC, has been with the Group for 17 years. I would liketo personally thank Chris for the part he has played in the success of the Groupand for his unstinting support during my period as Chief Executive, and morerecently, as Chairman. Our best wishes go to Chris for a long and happyretirement. Mark Pegler is a very experienced finance director and I welcome him to theBoard as our new Group Finance Director. We now have young but very experienced executive teams at both Group andsubsidiary levels. The future development of the Group on a global basis is ingood hands. Employees The Group has faced many challenges during the year and it is a credit to ouremployees that these exceptional financial results have been achieved. Outlook The current year has started well with strong demand from our core markets andthe benefits arising from our organic growth strategy. Our product developmentincubator is a vital part of the future growth of the Group together with sometargeted acquisitions which are always under evaluation. I look forward toreporting another year of progress in 2008. D L GroveChairman11th March 2008 REVIEW OF 2007 Operational Performance 2007 was another successful year for the Group during which we were able todeliver our strategy of growth. Expanding our overseas operations and commitmenthas enabled us to develop as an international Group. Following the acquisition of Zinkinvent in July, and the consequent increasedactivity in galvanizing, the Group was reorganised into three business segments;Infrastructure Products, Galvanizing Services and Building and ConstructionProducts. Annualised Group revenue is made up approximately as follows: 35%infrastructure products 28% galvanizing services and 37% building andconstruction. Infrastructure Products Group (IPG) Revenue increased by 41.9% to £145.2m in 2007 (2006: £102.3m) and underlyingoperating profit, which excludes business reorganisation costs, property itemsand amortisation of acquisition intangibles, improved by 56.3% to £18.6m (2006:£11.9m). Hill & Smith Ltd delivered an excellent performance with its strong position inthe highway maintenance and road widening sectors into which it supplied the newrange of "Flexbeam" vehicle restraint systems. During the year we continued toincrease our Varioguard rental fleet and demand remains strong for 2008. The integrated approach of Varley & Gulliver, providing a fully tested parapetand crash-barrier system, enhanced our market leadership and we were able tomaximise our cross-selling opportunities. The steel and aluminium parapetdivisions had a successful year and a number of large contracts were won in2007, including the parapets on the palm island in Dubai. We enter the currentyear in good shape. Berry Systems continued to develop innovative solutions for its off-highwaycustomers with the launch of our rental fleet of "TopDeck", a temporary modularparking solution to cope with congestion at airports, railway stations,hospitals and retail developments. Interest in this product has been veryencouraging and early success in 2008 has confirmed this will be a growth marketfor the future. We anticipate "TopDeck" will have a similar business model toVarioguard with a combination of sales and rentals. In the year we completed a number of rail tunnel structures in corrugated steeland won our first project with the concrete Bebo Arch System, emphasising oursuccess in providing solutions in a variety of materials. The IPG technology division continued to concentrate on developing prototypesfor the large Highways Agency Variable Message Signage contract won during theyear. Initial orders under this contract have now been received and this willsignificantly improve the performance of the Techspan operation in 2008. CA Traffic (Counters & Accessories) commenced development of an Automatic NumberPlate Recognition System to target the Department of Transport requirement forinformation on journey times. We are positioning our products in this divisionin line with the Highways Agency's strategy of, "getting the best from thenetwork" and "informing drivers ". Barkers Engineering again performed strongly in its traditional fencing marketsand also made significant progress in developing its products for the growinghomeland security market. Mallatite's relocation was completed in March and the benefits of improved andmore efficient production facilities were reflected in the performance in thesecond half of the year. During the year we won the Derby PFI contract for thesupply of lighting columns for the next five years. Conimast International joined IPG as part of the Zinkinvent acquisition. It isthe second largest manufacturer in France of tapered decorative lighting columnsfor the French market and fits our production strategy of having galvanizing andmanufacturing on one site. Its performance in 2007 was above our expectations. Asset International was awarded its largest ever contract for the supply offeeder pipes to the Glendoe Hydro Electric Scheme in Scotland. This, togetherwith the legislative requirement for additional storage within drainage systemsto prevent flooding, proved an excellent market for our storm water attenuationtanks. Envirotanks successfully completed a number of large contracts including anorder for 32 vertical tanks for a company relocating off the site to accommodatethe 2012 Olympics. Pipe Supports' profit achievement was one of the highlights of 2007. Its successin supplying pipe supports for the growing number of Liquid Natural Gas (LNG)plants around the world was a major contributor to an outstanding performance.This market will be strong for the foreseeable future as the requirement for thesupply of gas increases in the developing countries of India and China. We arealso looking to expand our presence in the USA in 2008. V&S Utilities, part of the Zinkinvent acquisition, has three businesses in theUS energy market, supplying transmission poles, substation structures andcomponents. There is currently a significant replacement programme for theageing energy infrastructure in the US leaving us in a position to extractenhanced profitability from the combined benefits these three businessesprovide. Galvanizing Services Revenue increased by 173.5% to £84.8m in 2007 (2006: £31.0m) and underlyingoperating profit improved by 126.5% to £15.4m (2006: £6.8m). Tonnages in all the three divisions increased year on year: UK by 26.8%; Franceby 3.1%; USA by 14.0%. The UK plants performed well with the full benefits ofthe Metnor Galvanzing acquisition being realised. We secured a number of largecontracts for structural steel for LNG plants where the long bath facility atMetnor was an influential factor. France Galva had an excellent performancewith record profits. The V&S Inc. operation located in the Mid West and East Coast of the USAproduced an outstanding result. In 2008 we will be building a new plant thatwill further increase our available capacity. The V&S management team areworking well with the IPG in developing manufacturing opportunities for ourrange of highway safety products for the US market. Building and Construction Revenue fell by 0.3% to £172.1m in 2007 (2006: £172.7m) and underlying operatingprofit improved by 17.5% to £4.7m (2006: £4.0m). The industrial flooring division of Redman Fisher, Lionweld Kennedy and AccessEngineering continued to trade well, producing another record performance. Thenew composite product range made an increased profit contribution and showsgreat potential for growth. Other growth markets in 2007 were in the AMP4 watertreatment, power, rail and LNG sectors. Express, our concrete reinforcing and mesh business, achieved an impressiveprofit turnaround despite lower volumes. We enter 2008 with a good order bookand with measures in place to manage any volatility in the steel prices. Profitability improved in the steel lintel and residential doors division ofBirtley Building Products, which services the UK housing market. The bolt-onacquisition of HM Doors will further strengthen the competitive position of thisdivision. Ash & Lacy Building Systems increased turnover and profitability particularlyfor the Ashtech range of rainscreen cladding products. National coverage wasincreased with the expansion of its depot network. The Ash & Lacy Perforators operation at Hayle, Cornwall, was closed during theyear and production transferred to the Smethwick site. This relocation hamperedthe overall performance in the year, but will provide a solid base to improvethe profits in 2008 as a result of the reduced overhead. Bromford Iron & Steel, our specialist steel rolling mill, had a steadyperformance in 2007. It now exports over 25% of its products around the world. FINANCIAL PERFORMANCE Overview 2007 was another successful year for the Group in which we again achieved, fromour continuing operations, record levels of revenue and profitability. Revenueincreased by 31.4% to £402.1m (2006: £306.0m), underlying profit before taxationgrew by 77.8% to £32.9m (2006: £18.5m) and underlying earnings per share were34.3% higher at 27.8p (2006: 20.7p). Finance costs Net financing costs increased by £1.6m, reflecting the additional borrowingstaken on in connection with the Zinkinvent acquisition. Net interest cover basedupon underlying profits increased to 6.6 times (2006: 5.4 times). Tax The effective tax rate on both underlying and total profit was higher than thestandard UK rate of 30% reflecting the higher rates applicable to our newoverseas operations. Full details are set out in note 5. Cash generation and financing The large increase in retained profits enabled net assets to grow during theyear by £21.0m to £98.0m (2006: £77.0m). Year end net borrowings increased to£117.8m (2006: £46.1m). £71.0m of this increase was due to acquisitions duringthe year. Operating cash flow increased to £29.8m despite an increase in workingcapital during the year of £12.6m which was necessary to support the highercosts of raw materials and the growth in revenue. We again continued ourprogramme of capital expenditure and product development, investing a total of£19.9m, £10.1m in excess of the depreciation and amortisation charge. We alsogenerated £10.4m from the sale of properties, mostly towards the end of theyear. During the year we successfully reorganised our debt financing arrangements byentering into a new five year £150m Term and Revolving Credit Facility with agroup of six leading banks. The fact that the refinancing was for the first timeon an unsecured basis, on better terms than previously and oversubscribed bytendering banks, illustrates the excellent financial position and credit ratingof the company. Despite the current uncertainties in financial markets, oursyndicate banks continue to express their confidence in us and our plans for thefuture. Along with our other sources of finance, this new facility provides uswith total facilities in excess of £200m. Pensions Our year end retirement obligation reduced by £0.8m, despite the inclusion forthe first time of obligations relating to Zinkinvent. The deficit on the UKpension schemes reduced by £1.9m as lower than expected net investment returnswere more than offset by higher long term bond rates and £0.7m of additionaldeficit contributions. Acquisitions and disposals Zinkinvent GmbH was the major acquisition of the year. In July we increased ourshareholding to 68.2%, having previously held 33.3%. We subsequently took theopportunity to acquire minority shareholdings of certain Zinkinvent subsidiaryoperations, namely; the 10% shareholding in Voigt & Schweitzer Inc for $5m andafter the year end holdings in V&S Schuler Engineering Inc, V&S ClarkSubstations LLC and V&S Schuler Tubular LLC all for a total consideration of$4m. We continued our programme of divestment of non-core businesses with the sale ofAsh & Lacy Pressings Ltd in August 2007 and in February 2008 we sold D&J SteelsLtd, both at a small discount to their net asset value. Market Outlook Government commitment to maintain and improve an ageing infrastructure,increasing legislation, health and safety and regulatory requirements, alongwith the effects of climate change, combine to offer us exciting opportunitieswithin global infrastructure markets. We will continue to develop our marketpresence and products to benefit from such opportunities. Our diverse range of galvanizing operations, comprising 35 plants across fourcountries and two continents, enables us to service all sectors and spread therisk of any peaks and troughs of demand within any particular area of themarket. Our building and construction companies operate in specialist sectors oftenworking closely with designers to provide unique cost saving solutions. Many ofour products are also supplied into the building infrastructure market; theseinclude safety products, water treatment schemes, and railway platforms,generally areas of essential spend. With supportive shareholders and a committed and creative workforce, we are wellpositioned to take advantage of opportunities that will improve the performanceof the Group. Derek MuirChief Executive11th March 2008 Consolidated Income StatementYear ended 31 December 2007 Year ended 31 December 2007 Year ended 31 December 2006 Non- Non- Underlying Underlying* Total Underlying Underlying* Total Notes £000 £000 £000 £000 £000 £000________________________________________________________________________________________________________________________ Revenue 1 402,050 - 402,050 306,042 - 306,042========================================================================================================================________________________________________________________________________________________________________________________ Trading profit 35,644 - 35,644 19,470 - 19,470Share of profits from associate 9 3,105 - 3,105 3,191 - 3,191Amortisation of acquisition intangibles - (360) (360) - (6) (6)Business reorganisation costs 3 - (3,204) (3,204) - (2,175) (2,175)Profit on sale of properties 3 - 3,124 3,124 - 1,025 1,025________________________________________________________________________________________________________________________ Operating profit 1 38,749 (440) 38,309 22,661 (1,156) 21,505Financial income 4 6,077 - 6,077 4,413 - 4,413Financial expense 4 (11,951) - (11,951) (8,602) - (8,602)________________________________________________________________________________________________________________________ Profit before taxation 32,875 (440) 32,435 18,472 (1,156) 17,316Taxation 5 (11,569) 1,095 (10,474) (4,861) 605 (4,256)________________________________________________________________________________________________________________________ Profit for the year from continuing operations 21,306 655 21,961 13,611 (551) 13,060===================================================================== =====================Discontinued operations 2 634 -________________________________________________________________________________________________________________________ Profit for the year 22,595 13,060======================================================================================================================== Attributable to:Equity holders of the parent 22,301 13,056Minority interest 294 4________________________________________________________________________________________________________________________ Profit for the year 22,595 13,060======================================================================================================================== Continuing basic earnings per share 6 28.7p 19.8pBasic earnings per share 6 29.5p 19.8pContinuing diluted earnings per share 6 28.3p 19.3pDiluted earnings per share 6 29.1p 19.3p Dividend per share - Interim 7 3.6p 3.0pDividend per share - Final proposed 7 5.1p 4.2p________________________________________________________________________________________________________________________ Total 7 8.7p 7.2p======================================================================================================================== * Represents business reorganisation, property items and amortisation of acquisition intangibles. Consolidated Statement of Recognised Income and ExpenseYear ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 Notes £000 £000_______________________________________________________________________________________________________________________ Exchange differences on translation of foreign operations 2,371 110Share of exchange differences on translation of foreign operations in associate (102) (275)Actuarial gain on defined benefit pension schemes 492 1,522Taxation on items taken directly to equity 5 (58) (318)________________________________________________________________________________________________________________________ Net income recognised directly in equity 2,703 1,039Profit for the year 22,595 13,060________________________________________________________________________________________________________________________ Total recognised income and expense for the year 25,298 14,099======================================================================================================================== Attributable to:Equity holders of the parent 25,004 14,095Minority interest 294 4________________________________________________________________________________________________________________________ Total recognised income and expense for the year 25,298 14,099======================================================================================================================== Consolidated Balance SheetAs at 31 December 2007 31 December 2007 31 December 2006 Notes £000 £000________________________________________________________________________________________________________________________ Non-current assetsIntangible assets 8 92,651 39,845Property, plant and equipment 92,553 51,007Investment in associate 9 - 27,163Available for sale financial assets 10 5,712 -Deferred tax asset - 572________________________________________________________________________________________________________________________ 190,916 118,587________________________________________________________________________________________________________________________ Current AssetsAssets held for sale 2 51,820 -Inventories 55,679 33,248Trade and other receivables 102,171 72,935Cash and cash equivalents 11 41,328 14,176________________________________________________________________________________________________________________________ 250,998 120,359________________________________________________________________________________________________________________________ Total assets 1 441,914 238,946======================================================================================================================== Current liabilitiesLiabilities held for sale 2 (32,076) -Trade and other liabilities (104,162) (87,142)Current tax liabilities (8,114) (2,798)Interest bearing borrowings 11 (38,510) (7,893)________________________________________________________________________________________________________________________ (182,862) (97,833)________________________________________________________________________________________________________________________ Net current assets 68,136 22,526======================================================================================================================== Non-current liabilitiesOther liabilities 12 (15,168) (420)Provisions for liabilities and charges (4,794) (810)Deferred tax liability (10,744) -Retirement benefit obligation (9,718) (10,503)Interest bearing borrowings 11 (120,651) (52,341)________________________________________________________________________________________________________________________ (161,075) (64,074)________________________________________________________________________________________________________________________ Total liabilities 1 (343,937) (161,907)======================================================================================================================== Net assets 1 97,977 77,039======================================================================================================================== EquityShare capital 18,895 18,887Share premium 27,843 27,803Capital redemption reserve 238 238Other reserves 4,313 4,313Translation reserve 2,066 (203)Retained earnings 43,119 25,989________________________________________________________________________________________________________________________ Equity attributable to equity holders of the parent 96,474 77,027Minority interest 1,503 12________________________________________________________________________________________________________________________ Total equity 97,977 77,039======================================================================================================================== Consolidated Statement of Cash FlowsYear ended 31 December 2007 Year ended Year ended 31 December 2007 31 December 2006 Notes £000 £000 £000 £000________________________________________________________________________________________________________________________ Profit before tax 32,435 17,316Add back net financing costs 4 5,874 4,189 __________ __________ Operating profit 1 38,309 21,505Adjusted for non-cash items Income from associated company 9 (3,105) (3,191) Share-based payment 290 152 Fair value of forward contracts (142) 145 Loss on disposal of subsidiaries 3 75 144 Loss on remeasurement as held for sale 2 316 - Gain on disposal of property, plant and equipment (3,154) (1,137) Depreciation 8,809 6,404 Amortisation of intangible assets 1,013 395 ========== ========== 4,102 2,912 ___________ __________ Operating cash flow before movement in working capital 42,411 24,417Increase in inventories (844) (8,406)Decrease/(Increase) in receivables 1,190 (11,351)(Decrease)/Increase in payables (11,727) 7,783Decrease in provisions and employee benefits (1,197) (1,549) ========== ==========Net movement in working capital (12,578) (13,523) ___________ __________ Cash generated by operations 29,833 10,894Income taxes paid (8,233) (2,720)Interest paid (7,473) (3,848)________________________________________________________________________________________________________________________ Net cash from operating activities 14,127 4,326 Interest received 1,554 684Proceeds on disposal of property, plant and equipment 10,408 3,129Purchase of property, plant and equipment (14,491) (17,456)Purchase of intangible assets (1,260) (1,559)Disposal of subsidiaries 3 375 359Deferred consideration received in respect of disposals 200 -Deferred consideration paid in respect of acquisitions (683) -Acquisitions of minority interests (2,612) (59)Acquisitions of subsidiaries and associates 8 (9,440) (10,452) ========== ==========Net cash used in investing activities (15,949) (25,354) Issue of new shares 48 26,855Dividends paid 7 (5,441) (3,793)New loans raised 147,264 4,812Repayments of loans (112,986) (7,250)Repayment of loan notes (54) (40)Repayment of obligations under finance leases (2,454) (1,693) ========== ==========Net cash from financing activities 26,377 18,891________________________________________________________________________________________________________________________ Net increase/(decrease) in cash from continuing operations 24,555 (2,137) Cashflow from discontinued operations 1,201 -________________________________________________________________________________________________________________________ Net increase/(decrease) in cash 25,756 (2,137) Cash at the beginning of the year 14,176 16,313Effect of exchange rate fluctuations 1,396 -________________________________________________________________________________________________________________________ Cash at the end of the year 11 41,328 14,176======================================================================================================================== Notes to the Consolidated Financial Statements 1. Segmental information Business segment analysis During the year the Group acquired a controlling stake in Zinkinvent GmbH. This acquisition has resulted in a fundamental change in the focus and scope of the Group's operations. The basis of the Group's segmental information has been revised to reflect this change and to provide the most relevant analysis of the Group's operational performance. The main segmental changes are the introduction of a new Galvanizing Services segment (previously included within Infrastructure Products) and the inclusion of the former Industrial Products segment into the Building and Construction Products segment. In addition, the Pipe Supports division has been transferred to the Infrastructure Products segment. Comparatives have been restated accordingly. All the information given below is based on continuing operations. The discontinued operations are subsidiaries held exclusively with a view to resale and only relates to the current year (note 2). Were these continuing operations they would have been included in the Galvanizing Services and the Rest of Europe. Income Statement Year ended 31 December 2007 Year ended 31 December 2006 Underlying Underlying Segment Segment segment Segment Segment segment revenue result result* revenue result result* £000 £000 £000 £000 £000 £000 _____________________________________________________________________________________________________________________ Infrastructure Products 145,210 18,459 18,628 102,255 10,087 11,846 Galvanizing Services+ 84,724 15,550 15,448 31,036 7,149 6,807 Building and Construction Products^ 172,116 4,300 4,673 172,751 4,269 4,008 _____________________________________________________________________________________________________________________ Total Group 402,050 38,309 38,749 306,042 21,505 22,661 ================================================================ ========= Net financing costs (5,874) (5,874) (4,189) (4,189) ___________________ ____________________ Continuing operations profit before taxation 32,435 32,875 17,316 18,472 Taxation (10,474) (11,569) (4,256) (4,861) _____________________________________________________________________________________________________________________ Continuing operations profit after taxation 21,961 21,306 13,060 13,611 ===================================================================================================================== * Underlying segment result is stated before business reorganisation, property items and amortisation of acquisition intangibles + Includes £3.1m (2006: £3.2m) share of profits from associate (net of tax). ^ Includes loss on remeasurement as held for sale £0.3m (2006: £nil). Galvanzing Services provided £6.4m revenues to Infrastructure Products (2006: £5.3m) and £1.3m (2006: £1.1m) revenues to Building and Construction Products. Building and Construction Products provided £1.3m (2006: £1.1m) revenues to Infrastructure Products. These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation. Balance Sheet 31 December 2007 31 December 2006 Total Total Total Total assets liabilities assets liabilities £000 £000 £000 £000 _____________________________________________________________________________________________________________________ Infrastructure Products 95,330 (14,862) 65,147 (16,648) Galvanizing Services+ 187,579 (78,518) 75,149 (11,351) Building and Construction Products 65,857 (23,229) 83,902 (57,296) _____________________________________________________________________________________________________________________ Total segment assets/(liabilities) 348,766 (116,609) 224,198 (85,295) Tax and dividends - (21,579) 572 (5,065) Provisions and retirement benefits - (14,512) - (11,313) Net debt 41,328 (159,161) 14,176 (60,234) _____________________________________________________________________________________________________________________ 390,094 (311,861) 238,946 (161,907) Assets and liabilities held for sale (note 2) 51,820 (32,076) - - _____________________________________________________________________________________________________________________ Total Group 441,914 (343,937) 238,946 (161,907) ===================================================================================================================== Net assets 97,977 77,039 ===================================================================================================================== + 2006 includes £27.2m investment in associate. Geographical segment analysis Detailed below is the analysis of continuing operations revenue by geographical market, irrespective of origin. Revenues Year ended Year ended 31 December 2007 31 December 2006 £000 £000 _____________________________________________________________________________________________________________________ UK 302,818 276,606 Rest of Europe 55,421 17,538 USA 24,681 814 Asia 15,409 8,351 Rest of World 3,721 2,733 _____________________________________________________________________________________________________________________ Total 402,050 306,042 ===================================================================================================================== 2. Discontinued operations and assets held for sale Discontinued operations Following the acquisition on 2 July 2007 of Zinkinvent GmbH the Group decided that it did not wish to retain the Benelux and German trading operations of that company. Since that time the Group has been actively seeking a purchaser of these businesses and discussions with a potential purchaser are continuing. It is anticipated that the sale will be completed in the near future. Accordingly, these businesses have been accounted for as a discontinued operation from the date of acquisition. Their assets and liabilities have been separately included in the Balance Sheet as held exclusively with a view to resale. The results of the discontinued operations are as follows: Income Statement Period ended 31 December 2007 £000 _____________________________________________________________________________________________________________________ Operating profit 1,741 Net financing charges (note 4) (243) _____________________________________________________________________________________________________________________ Profit before taxation 1,498 Taxation (note 5) (864) _____________________________________________________________________________________________________________________ Discontinued operations profit for the year 634 ===================================================================================================================== Assets held for sale Subsequent to the year end, the Group sold one of its non-core activities, D & J Steels Limited. This business does not meet the criteria of a discontinued operation and its results are included in continuing operations. In the Balance Sheet the assets and liabilities have been reclassified into assets held for sale at the lower of their carrying amount and their estimated fair value. This has resulted in a loss on remeasurement as held for sale which is included in non-underlying items (note 3), as follows: Assets and liabilities reclassified as held for sale Year ended 31 December 2007 £000 _____________________________________________________________________________________________________________________ Property, plant and equipment 453 Inventories 503 Current assets 819 Current liabilities (771) _____________________________________________________________________________________________________________________ Net assets 1,004 Fair value less cost to sell (688) ===================================================================================================================== Loss on remeasurement as held for sale 316 ===================================================================================================================== The fair value of the assets and liabilities of these disposal groups are shown below: 31 December 2007 £000 _____________________________________________________________________________________________________________________ Operations held exclusively with a view to resale 50,045 D & J Steels held for sale 1,775 _____________________________________________________________________________________________________________________ Total assets 51,820 ===================================================================================================================== Operations held exclusively with a view to resale (30,989) D & J Steels held for sale (1,087) _____________________________________________________________________________________________________________________ Total liabilities (32,076) ===================================================================================================================== At acquisition on 2 July 2007, the Directors estimated the fair value of the operations of Zinkinvent GmbH acquired exclusively with a view to resale to be £16.9m (see note 8). The profit for the period of these discontinued operations of £0.6m and the favourable translation difference arising on the assets of £1.6m have been added to assets and liabilities held for sale, resulting in a net year-end carrying value of £19.1m. In accordance with the Group's accounting policy for such assets and liabilities, the Directors compared this carrying value to the fair value of these net assets as at 31 December 2007 to assess whether any impairment was required, which concluded no such impairment was necessary. 3. Non-underlying items Business reorganisation costs The 2007 costs include £1.0m relating to the relocation and factory closures of the production facilities of Ash & Lacy Perforators Limited and the newly acquired H M Doors business. Also included is £0.4m in respect of losses incurred on the disposal of Ash & Lacy Pressings Limited and loss on remeasurement as held for sale on D & J Steels Limited (note 2), two non-core Group businesses. A further £0.7m relates to relocation costs of other Group operations. There is also a charge of £1.1m relating to the changes in the contractual agreement of Directors. Profit on sale of properties The profit in 2007 relates to the sale of two properties located in Hayle and Levenshulme and the sale and leasebacks of one operating property. In 2006 the profit relates to the sale of two vacant properties located in Glasgow and Hartlepool and the sale and leasebacks of five operating properties. In both years no tax liability arose on these sales due to the availability of indexation allowances and capital losses for offset. 4. Net financing costs Year ended Year ended 31 December 2007 31 December 2006 Continuing Discontinued £000 £000 £000 £000 _____________________________________________________________________________________________________________________ Financial income Interest on bank deposits 709 52 761 681 Net change in fair value of financial assets and liabilities 10 - 10 - Expected return on pension scheme assets 4,382 - 4,382 3,732 Interest on other loans 976 540 1,516 - _____________________________________________________________________________________________________________________ 6,077 592 6,669 4,413 ===================================================================================================================== Financial expense Interest on bank loans and overdrafts 7,006 76 7,082 4,845 Interest on finance leases and hire purchase contracts 378 41 419 300 Net change in fair value of financial assets and liabilities 268 - 268 2 Put option discount unwind 376 - 376 - Expected interest cost on pension scheme obligations 3,825 - 3,825 3,391 Interest on other loans 98 718 816 64 _____________________________________________________________________________________________________________________ 11,951 835 12,786 8,602 ===================================================================================================================== Net financing costs 5,874 243 6,117 4,189 ===================================================================================================================== 5. Taxation Year ended Year ended 31 December 2007 31 December 2006 Continuing Discontinued £000 £000 £000 £000 _____________________________________________________________________________________________________________________ Current tax UK corporation tax at 30% 4,386 - 4,386 3,271 Adjustments in respect of prior periods (11) - (11) (174) Foreign tax at prevailing local rates 4,988 768 5,756 156 _____________________________________________________________________________________________________________________ 9,363 768 10,131 3,253 Deferred tax Current year 573 - 573 971 Adjustments in respect of prior periods 118 - 118 32 Foreign tax at prevailing local rates 420 96 516 - _____________________________________________________________________________________________________________________ Tax on profit in the Income Statement 10,474 864 11,338 4,256 ===================================================================================================================== Year ended Year ended 31 December 2007 31 December 2006 £000 £000 _____________________________________________________________________________________________________________________ Current tax Relating to defined benefit pension schemes (362) (558) Relating to share based payments (5) (2) _____________________________________________________________________________________________________________________ (367) (560) _____________________________________________________________________________________________________________________ Deferred tax Relating to defined benefit pension schemes 679 1,015 Relating to share based payments (254) (137) _____________________________________________________________________________________________________________________ 425 878 _____________________________________________________________________________________________________________________ Tax on items taken directly to equity 58 318 ===================================================================================================================== The tax charge in the Income Statement for the period is higher (2006: lower) than the standard rate of corporation tax in the UK. The differences are explained below: Year ended Year ended 31 December 2007 31 December 2006 £000 £000 _____________________________________________________________________________________________________________________ Profit from continuing operations before tax 32,435 17,316 Profit from discontinued operations before tax 1,498 - _____________________________________________________________________________________________________________________ Profit before taxation 33,933 17,316 ===================================================================================================================== Profit before taxation multiplied by the standard rate of corporation tax in the UK of 30% 10,180 5,195 Expenses not deductible for tax purposes 830 233 Deductible employee share option gains not charged against profit (5) (31) Share of profit from associate already taxed (506) (677) Capital profits less losses and write downs not subject to tax (754) (264) Deferred tax benefit arising from asset disposals (305) - Overseas profits taxed at higher/(lower) rates 914 (58) Overseas losses not relieved 1,026 - Deferred tax benefit of future reductions in UK corporation tax rates (149) - Adjustments in respect of previous periods 107 (142) _____________________________________________________________________________________________________________________ Tax charge 11,338 4,256 ===================================================================================================================== Tax charge on continuing operations 10,474 4,256 Tax charge on discontinued operations 864 - _____________________________________________________________________________________________________________________ Total tax charge 11,338 4,256 ===================================================================================================================== 6. Earnings per share The weighted average number of ordinary shares in issue during the year was 75,565,565 (2006: 65,834,026), diluted for the effects of all the outstanding dilutive share options 76,550,467 (2006: 67,604,552). Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group. Year ended Year ended 31 December 2007 31 December 2006 Pence per Pence per share £000 share £000 _____________________________________________________________________________________________________________________ Basic earnings 29.5 22,301 19.8 13,056 Discontinued business (0.8) (634) 0.0 0 _____________________________________________________________________________________________________________________ Continuing basic earnings per share 28.7 21,667 19.8 13,056 Reorganisation, property items and amortisation of acquisition intangibles (0.9) (655) 0.9 551 _____________________________________________________________________________________________________________________ Underlying earnings 27.8 21,012 20.7 13,607 ===================================================================================================================== Diluted earnings 29.1 22,301 19.3 13,056 Discontinued business (0.8) (634) 0.0 0 _____________________________________________________________________________________________________________________ Continuing diluted earnings per share 28.3 21,667 19.3 13,056 Reorganisation, property items and amortisation of acquisition intangibles (0.9) (655) 0.8 551 _____________________________________________________________________________________________________________________ Underlying diluted earnings 27.4 21,012 20.1 13,607 ===================================================================================================================== 7. Dividends Dividends paid in the year were the prior year's interim dividend of £2.2m (2006: £1.6m) and the final dividend of £3.2m (2006: £2.2m). Dividends declared after the balance sheet date are not recognised as a liability, in accordance with IAS10. The Directors have proposed a final dividend for the current year, subject to shareholder approval, as shown below: Year ended Year ended 31 December 2007 31 December 2006 Pence per Pence per share £000 share £000 _____________________________________________________________________________________________________________________ Equity shares Interim 3.6 2,710 3.0 2,267 Final proposed 5.1 3,854 4.2 3,174 _____________________________________________________________________________________________________________________ Total 8.7 6,564 7.2 5,441 ===================================================================================================================== 8. Intangible fixed assets Capitalised Customer development Goodwill Brands lists costs Licences Total £000 £000 £000 £000 £000 £000 _____________________________________________________________________________________________________________________ Cost At 1 January 2006 27,833 - 122 1,919 38 29,912 Acquisitions 8,954 - - - - 8,954 Additions internal - - - 148 - 148 Additions external - - - 1,399 12 1,411 _____________________________________________________________________________________________________________________ At 31 December 2006 36,787 - 122 3,466 50 40,425 Acquisitions 37,533 8,958 1,652 - 306 48,449 Acquisition of minority interest 658 - - - - 658 Additions internal - - - 47 - 47 Additions external - - - 962 251 1,213 Disposals (52) - - (12) (4) (68) Exchange gains/(losses) 2,562 789 142 - 27 3,520 _____________________________________________________________________________________________________________________ As at 31 December 2007 77,488 9,747 1,916 4,463 630 94,244 ===================================================================================================================== Amortisation and impairment losses At 1 January 2006 - - 7 175 3 185 Amortisation charge for the year - - 6 378 11 395 _____________________________________________________________________________________________________________________ At 31 December 2006 - - 13 553 14 580 Amortisation charge for the year - 178 182 558 95 1,013 _____________________________________________________________________________________________________________________ At 31 December 2007 - 178 195 1,111 109 1,593 ===================================================================================================================== Carrying values At 1 January 2006 27,833 - 115 1,744 35 29,727 _____________________________________________________________________________________________________________________ At 31 December 2006 36,787 - 109 2,913 36 39,845 ===================================================================================================================== At 31 December 2007 77,488 9,569 1,721 3,352 521 92,651 ===================================================================================================================== In July 2007 the Group invested a further €26.0m (£17.6m) to acquire an additional 34.9% in Zinkinvent GmbH. The original investment representing 33.3% of the ordinary shares was made in May 2005 at a cost of €25.0m. At the same time the Group advanced to Zinkinvent a €10.0m loan. Zinkinvent is a German holding company which owns 100% of Vista NV, a Belgian company with galvanzing and lighting pole fabrication businesses in Benelux, France and the United States of America. The acquisition will provide an important strategic and geographical extension of the Group's galvanizing and fabrication activities and will enable it to improve its service to its customers. Various specific intangible assets have been recognised as a result of the acquisition, notably brand names, trademarks and customer relationships, as set out above. The remaining goodwill is mainly represented by the geographical advantages afforded to the Group through this acquisition. In December 2007 Birtley Building Products Limited acquired the assets and business of H M Doors Limited, a manufacturer of doors for the UK housing market. The intangible assets arising have all been classed as Customer Lists as the key factor influencing this acquisition was the customer base. The acquisition of minority interest represents the goodwill arising on the purchase of the outstanding 10% shareholding in V&S Inc., the USA holding company within the Zinkinvent group. The £0.7m goodwill represents the excess of consideration over the carrying value of the minority interest held within reserves. The final 1.5% minority interest in Pipe Supports Asia was also acquired during the year. Details of both acquisitions are shown below: Zinkinvent pre Policy acquisition alignment carrying and fair value Zinkinvent amount Adjustments Total HM Doors Total Table of 2007 subsidiary acquisitions £000 £000 £000 £000 £000 _____________________________________________________________________________________________________________________ Intangible assets 306 10,574 10,880 36 10,916 Property, plant and equipment 29,674 7,528 37,202 66 37,268 Available for sale financial assets 5,250 - 5,250 - 5,250 Subsidiaries held exclusively with a view to resale 12,541 4,390 16,931 - 16,931 Inventories 21,441 (1,138) 20,303 219 20,522 Current assets 30,721 (425) 30,296 14 30,310 Cash and cash equivalents 8,985 - 8,985 - 8,985 Current interest bearing liabilities (35,653) 108 (35,545) - (35,545) Current liabilities (24,302) (1,684) (25,986) - (25,986) Deferred Tax (3,857) (5,576) (9,433) - (9,433) Pension liability - (1,171) (1,171) - (1,171) Non current interest bearing liabilities (29,581) 6,839 (22,742) - (22,742) Non current liabilities (502) (16,777) (17,279) (100) (17,379) _____________________________________________________________________________________________________________________ Net assets 15,023 2,668 17,691 235 17,926 Minority interest (3,039) - (3,039) - (3,039) _____________________________________________________________________________________________________________________ Shareholder's equity 11,984 2,668 14,652 235 14,887 ===================================================================================================================== Consideration Transfer from associate investment 29,167 - 29,167 Cash consideration in the year 17,635 235 17,870 Expenses 5,383 - 5,383 _____________________________________________________________________________________________________________________ Total cost 52,185 235 52,420 ===================================================================================================================== Goodwill 37,533 - 37,533 ===================================================================================================================== Cash flow effect Cash consideration 17,635 235 17,870 Cash and cash equivalents received in the business (8,985) - (8,985) Expenses incurred in the year 2,040 - 2,040 Gross return on investment (1,485) - (1,485) _____________________________________________________________________________________________________________________ Net cash consideration shown in the Consolidated Statement of Cash Flows 9,205 235 9,440 ===================================================================================================================== Post acquisition profit/(loss) for the year included in the Group's Consolidated Income Statement 4,421 (35) 4,386 ===================================================================================================================== As a result of the Zinkinvent GmbH acquisition, a put option arising from the Articles of Zinkinvent GmbH was recognised as a liability in the provisional fair values which replaces the remaining 31.8% minority interest in Zinkinvent GmbH (note 12). 9. Investment in associate Shares Loan Total £000 £000 £000 _____________________________________________________________________________________________________________________ Carrying values At 1 January 2006 17,931 6,901 24,832 Exchange adjustments (418) (167) (585) Share of profit from associate 3,191 - 3,191 Share of exchange differences on translation of foreign operations from associate (275) - (275) _____________________________________________________________________________________________________________________ At 31 December 2006 20,429 6,734 27,163 Exchange adjustments 67 22 89 Share of profit from associate 3,105 - 3,105 Share of exchange differences on translation of foreign operations from associate (102) - (102) Net investment return (1,088) - (1,088) Transfer to subsidiary investment (22,411) (6,756) (29,167) _____________________________________________________________________________________________________________________ At 31 December 2007 - - - ===================================================================================================================== An additional 34.9% of the share capital of Zinkinvent Gmbh was acquired during the year, giving a total shareholding of 68.2%. The results of this company have been equity accounted into the results of the Group up to the date of acquisition, from which date the Zinkinvent Group has been fully consolidated. 10.Available for sale financial assets Total £000 _____________________________________________________________________________________________________________________ Fair and carrying value At 1 January 2006 - _____________________________________________________________________________________________________________________ At 31 December 2006 - Acquisitions 5,250 Exchange adjustments 462 _____________________________________________________________________________________________________________________ At 31 December 2007 5,712 ===================================================================================================================== This represents the 33.3% holding and an interest bearing loan of €1.0m held by a Group subsidiary in Neholl BV, a Dutch holding company which owns 100% of Nedcoat BV, a Dutch company with galvanizing businesses in Holland and Belgium. The Group has no representation on the Board of Neholl BV nor is it able to influence commercial or dividend policy. For this reason the Board considers it does not exert significant influence over Neholl. Accordingly, the results of this company are not being equity accounted into the results of the Group and it is being held as an available for sale financial asset. The fair value of this financial asset has been derived by the Directors from their judgement as to the future profitablity, cash flows and marketability of this minority holding. 11.Cash and borrowings 31 December 2007 31 December 2006 £000 £000 _____________________________________________________________________________________________________________________ Cash and cash equivalents in the balance sheet Cash and bank balances 35,727 6,706 Call deposits 5,601 7,470 _____________________________________________________________________________________________________________________ Cash 41,328 14,176 Interest bearing loans and borrowings Amounts due within one year (38,510) (7,893) Amounts due after more than one year (120,651) (52,341) _____________________________________________________________________________________________________________________ Net debt (117,833) (46,058) ===================================================================================================================== Change in Net Debt £000 £000 _____________________________________________________________________________________________________________________ Operating profit 38,309 21,505 Non-cash items 4,102 2,912 _____________________________________________________________________________________________________________________ Operating cash flow before movement in working capital 42,411 24,417 Net movement in working capital (12,578) (13,523) _____________________________________________________________________________________________________________________ Operating cash flow 29,833 10,894 Tax paid (8,233) (2,720) Net financing costs paid (5,919) (3,164) Capital expenditure* (19,853) (19,015) Sale of fixed assets 10,408 3,129 _____________________________________________________________________________________________________________________ 6,236 (10,876) Dividends paid (5,441) (3,793) Disposals 575 359 Acquisitions (see below) (71,022) (10,511) Issue of new shares 48 26,855 _____________________________________________________________________________________________________________________ Net debt (increase)/decrease from continuing operations (69,604) 2,034 Net cash inflow from discontinued operations 1,201 - _____________________________________________________________________________________________________________________ Net debt (increase)/decrease (68,403) 2,034 Roll up of accrued interest - (1,420) Effect of exchange rate fluctuations (3,372) 585 Net debt at the beginning of the year (46,058) (47,257) _____________________________________________________________________________________________________________________ Net debt at the end of the year (117,833) (46,058 ===================================================================================================================== Acquisitions £000 £000 _____________________________________________________________________________________________________________________ Deferred consideration paid in respect of acquisitions (683) - Acquisitions of minority interests (2,612) (59) Acquisitions of subsidiaries and associates (9,440) (10,452) Interest bearing liabilities assumed on acquisition of subsidiaries and associates (note 8) (58,287) - _____________________________________________________________________________________________________________________ Total (71,022) (10,511) ===================================================================================================================== * Capital expenditure represents additions of property, plant and equipment and intangible fixed assets 12.Non-current liabilities 31 December 2007 31 December 2006 £000 £000 _____________________________________________________________________________________________________________________ Other liabilities Deferred government grants 658 420 Put option 14,510 - _____________________________________________________________________________________________________________________ 15,168 420 ===================================================================================================================== The Articles of Association of Zinkinvent GmbH, in common with many German companies, provide all shareholders the right to require Zinkinvent to buy back their shares. This constitutes a put option under IAS 32, which is recognised as a liability in the Balance Sheet, without regard to the option actually being exercised. This liability effectively replaces the 31.8% minority interest that exists in Zinkinvent GmbH. The value of this option is calculated on the basis of the fair market value for the shares discounted back over the period over which the option value is payable, using an appropriate discount rate based on forward EURIBOR rates of a term corresponding to the payment period. The unwinding of the discount is recorded in financing costs (note 4). The liability is considered to be non-current as there is no obligation to make a payment under the option within the next 12 months. NOTES 1. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2007 or 2006 but is derived from those accounts. Statutory accounts for 2006 have been delivered to the registrar of companies, and those for 2007 will be delivered in due course. The auditors have reported on those accounts; their reports were: (i) unqualified; (ii) did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports, and (iii) did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2. The proposed final dividend will be paid on 11 July 2008 to shareholders on the register on 6 June 2008 (ex-dividend date 4 June 2008). 3. The Annual Report will be posted to shareholders on 7 April 2008, and will be displayed on the Company's website at www.hsholdings.com. Copies of the Annual Report will also be available from the Registered Office at Westhaven House, Arleston Way, Shirley, Solihull, B90 4LH. 4. The Annual General Meeting will be held at The Balcony Suite, The National Motorcycle Museum, Solihull at 11.00 a.m. on Friday 9 May 2008. • Annual General Meeting 9 May 2008 • Payment of proposed final dividend 11 July 2008 • Interim results announcement for the period to 30 June 2008 August 2008 • Payment of interim dividend January 2009 5. This preliminary announcement of results for the year ended 31 December 2007 was approved by the Directors on 11 March 2008. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Hill & Smith