Interim Results

Hill & Smith Hldgs PLC 12 September 2006 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 The Board of Hill & Smith Holdings PLC announces increased profits for the six months ended 30 June 2006, reflecting a further significant improvement in the Group's trading performance. FINANCIAL HIGHLIGHTS: • Profit before taxation £10.9m (2005: £8.5m) + 28.0 per cent • Underlying profit before taxation* £9.9m (2005: £8.5m) + 16.5 per cent • Underlying earnings per share* 11.32p (2005: 9.47p) + 19.5 per cent • Dividend per share 3.00p (2005: 2.60p) + 15.4 per cent • Dividend cover* 3.8 times (2005: 3.6 times) * Based on profits before reorganisation and property items Chairman David Winterbottom said: 'The Group's core Infrastructure Products businesses performed ahead of expectations in the period, with operating profits of £8.8m being achieved (2005: £6.3m), including an excellent contribution of £1.4m from the Group's associated company Zinkinvent. The ongoing infrastructure spending in the UK continues to provide opportunities to generate additional revenue from our product portfolio, which is continually being expanded by rolling out new products.' Results include a first time contribution from Counters & Accessories Limited acquired in February. The Group has also announced today that it is raising £28.0m before expenses by a Placing and Open Offer of new ordinary shares to provide further finance for acquisitions and investment. Mr Winterbottom added 'The Group is continuing to trade in line with our expectations and, in the absence of unforeseen circumstances, we anticipate being able to report another good performance for the year as a whole.' Copies of the interim report and the prospectus in relation to the Placing and Open Offer are being posted to shareholders today. Further information: Hill & Smith Holdings PLC David Grove, Chief Executive 0121 704 7430 - 07973 325667 Freshwater UK Edward Carter 0121 633 7775 - 07770 378097 Chairman's Statement Six Months ended 30 June 2006 I am pleased to report a further improvement in the financial performance of the Group during the six months to 30 June 2006. Sales for the period were £147.4m, representing a 2.8% increase over the same period in 2005 (£143.4m). Underlying operating profit improved by 13.9% to £11.8m (2005: £10.4m) and underlying profit before taxation was 16.5% ahead at £9.9m (2005: £8.5m). Basic earnings per share for the period increased by 23.2% to 12.92p (2005: 10.49p) whilst underlying earnings per share grew by 19.5% to 11.32p (2005: 9.47p). Operations Infrastructure Products Group The Infrastructure Products Group performed ahead of expectations in the period, with operating profits of £8.8m being achieved (2005: £6.3m). The underlying operating profit performance of £7.4m (2005: £6.2m) was enhanced with an excellent contribution of £1.4m (2005: £0.1m) from our 33% investment in Zinkinvent GmbH ('Zinkinvent'), which is accounted for as an associated company. Our UK based businesses continued to improve margins and maximise, where possible, opportunities arising from our capital expenditure programme. Further investment was made in our temporary vehicle restraint system rental fleet and we gained our largest ever contract on the major road widening scheme on the M1. The new range of permanent crash barriers launched under the Flexbeam brand has been well received in the market as another example of our ability to provide innovative solutions to customer requirements. The ongoing infrastructure spend in the UK continues to provide opportunities to generate additional revenue from our product portfolio, which is continually being expanded by rolling out new products. During the period there were significant price increases in the raw materials we purchase, particularly steel and zinc, together with substantial rises in energy costs. By working with our supply chain partners and customers, we have mitigated the impact of these increases on the Group's result. Building and Construction Products The Building and Construction Products division's profits were significantly lower during the period at £2.1m compared to the previous year (2005: £3.1m). This reduction in profits is wholly attributable to the performance of our reinforcing bar business where margins were much reduced, principally because of difficulties in passing on the escalating input costs to our customers. This issue is being addressed through cost reduction and other management initiatives. Our building products and industrial flooring businesses again performed well during the period and further improved their returns on capital. Industrial Products The Industrial Products division produced profits of £0.9m which were marginally lower than the previous year (2005: £1.0m). The new production facility for Pipe Supports in Thailand incurred some start up costs but is now fully operational and has a substantially increased order book. Working Capital and Financing The Group has consistently held a very tight rein on working capital and this continues to be the case. However, the escalation in the raw material cost of steel and zinc inevitably resulted in the Group having to invest in higher levels of working capital. Approximately half of the £11.9m increase will remain as long as input prices stay at their present level. The remainder of the increase in the period is due to seasonal variations and should reduce in the second half. Net debt increased to £61.2m (December 2005: £47.3m) after funding additional working capital, capital expenditure of £8.2m and the acquisition of Counters & Accessories Limited for £5.3m. Dividend An interim dividend of 3.00p (2005: 2.60p) has been declared by the Board, which represents a 15.4% increase on the previous year. This level of dividend is covered 3.8 times (2005: 3.6 times) based on underlying earnings per share. This continues the progressive dividend policy we have maintained in previous years. Acquisitions In February 2006 we acquired Counters & Accessories Limited which designs and manufactures road traffic data recording equipment and electronic signs. As we anticipated, the company made an excellent first time contribution to the Group's results, working in co-operation with the Techspan Systems business which was acquired in 2005. Placing and Open Offer The Company has today announced that it is proposing to raise approximately £28.0m (£26.8m net of expenses) by means of a Placing and Open Offer of 12,280,702 New Ordinary Shares at 228 pence per share. Full details are set out in the Prospectus which is being sent to shareholders today. The strengthened capital base of the Company, together with the committed borrowing facilities which are already available to it, will enable the Group to take advantage of suitable acquisition opportunities and will also provide funding for the organic expansion of the Group's existing businesses. Over the past three and a half years, the Group has invested some £67m in capital expenditure, product development and the acquisition of other businesses. This has been funded by internally generated resources and bank borrowings. The Company has identified a number of potential new investment opportunities to provide further sales and profit growth over the medium term. These include new product development and other organic expansion projects, particularly within its core Infrastructure Products division, as well as corporate acquisitions. The Company's plan is to broaden both its product offering and its geographical focus. Zinkinvent GmbH Since the initial investment last year the Company has carried out extensive due diligence which has identified specific issues which have been, and are continuing to be, the subject of protracted discussions with the vendors. Although no firm conclusion has been reached, the Directors are exploring with the vendors the possibility of the Company acquiring part of the Vista group (Zinkinvent's principal subsidiary) whilst retaining its 33% holding in Zinkinvent. The Directors are continuing to pursue a resolution which is in the best interests of the Group and are confident that although this has taken longer to achieve than originally anticipated, they will find satisfactory solutions to the outstanding issues. Metnor Galvanizing The Company announced in February 2006 that it had signed non-binding Heads of Agreement with Metnor Group PLC for the acquisition, for £10.0 m, of Metnor Galvanizing. The Heads of Agreement are subject to a number of conditions, including prior regulatory approval, which, as announced in May 2006, has been given by the Office of Fair Trading. Due Diligence on Metnor Galvanizing is now progressing and the Company is currently in the process of evaluating the findings. Management I announced at the Company's recent Annual General Meeting that it is my intention to retire from the Board at the next AGM in May 2007. I also announced that following my retirement David Grove, the current Group Chief Executive, will become Executive Chairman of the Company. We have recently announced the appointment of Derek Muir to the Board as an executive director. Derek is the managing director of the Group's core Infrastructure Products Group, which has been a key driver of our profit growth in recent years. The Board is also looking to appoint a new non-executive director in the coming months. Outlook Since the period end, the Group has continued to trade in line with the Board's expectations and, in the absence of unforeseen circumstances, the Board anticipates being able to report another good performance when it announces results for the year as a whole. On this basis the Board currently expects that it will be recommending a final dividend of 3.9 pence per share which, together with the interim dividend of 3.0 pence per share announced today, amounts to a total dividend of 6.9 pence per share for the full year. This represents a 15.0% increase on the total dividend of 6.0 pence per share paid in the previous year. D S Winterbottom Chairman CONSOLIDATED INCOME STATEMENT Six months ended 30 June 2006 6 months ended 6 months ended Year ended 30 June 2006 30 June 2005 31 December 2005 Reorganisation and Underlying property Underlying Underlying results items Total results Total results Total Notes £000 £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------------------------------------ Sales 1 147,449 - 147,449 143,374 143,374 277,296 277,296 ------------------------------------------------------------------------------------------------------------------------ Trading profit 10,458 - 10,458 10,249 10,249 18,893 18,893 Income from associated company 1,361 - 1,361 132 132 677 677 Business reorganisation costs - - - - (2,397) - (4,260) Profit on sale of properties - 1,015 1,015 - 2,424 - 4,389 ------------------------------------------------------------------------------------------------------------------------ Operating profit 1 11,819 1,015 12,834 10,381 10,408 19,570 19,699 Financial income 2 2,032 - 2,032 1,833 1,833 4,294 4,294 Financial expense 2 (3,968) - (3,968) (3,730) (3,730) (8,166) (8,166) ------------------------------------------------------------------------------------------------------------------------ Profit before taxation 9,883 1,015 10,898 8,484 8,511 15,698 15,827 Taxation 3 (2,727) - (2,727) (2,545) (1,931) (4,397) (1,631) ------------------------------------------------------------------------------------------------------------------------ Profit for the peiord 7,156 1,015 8,171 5,939 6,580 11,301 14,196 ======================================================================================================================== Attributable to: Equity holders of the parent - - 8,169 - 6,580 - 14,176 Minority interest - - 2 - - - 20 ------------------------------------------------------------------------------------------------------------------------ Profit for the period - - 8,171 - 6,580 - 14,196 ======================================================================================================================== Basis earnings per share 4 - - 12.92p - 10.49p - 22.52p Diluted earnings per share 4 - - 12.54p - 10.17p - 21.82p Dividend per share - Interim - - 3.00p - 2.60p - - CONSOLIDATED BALANCE SHEET As at 30 June 2006 30 June 30 June 31 December 2006 2005 2005 Notes £000 £000 £000 -------------------------------------------------------------------------------- Non-current assets Intangible assets 34,276 28,657 29,727 Property, plant and equipment 45,792 44,022 40,972 Investment in associated company 26,488 23,566 24,832 Deferred tax asset 2,411 - 2,407 -------------------------------------------------------------------------------- 108,967 96,245 97,938 ================================================================================ Current assets Assets held for sale - freehold land - 630 631 Inventories 31,793 26,418 24,804 Trade and other receivables 74,003 62,189 61,057 Cash and cash equivalents 5 15,317 12,154 16,313 -------------------------------------------------------------------------------- 121,113 101,391 102,805 -------------------------------------------------------------------------------- Total assets 1 230,080 197,636 200,743 ================================================================================ Current liabilities Trade and other liabilities (87,476) (75,792) (79,528) Current tax liabilities (4,539) (3,872) (2,088) Interest bearing borrowings 5 (22,002) (11,261) (8,162) -------------------------------------------------------------------------------- (114,017) (90,925) (89,778) -------------------------------------------------------------------------------- Net current assets 7,096 10,466 13,027 ================================================================================ Non-current liabilities Trade and other liabilities (409) - (427) Provisions for liabilities and charges (1,221) (3,237) (833) Retirement benefit obligation (13,451) (6,222) (13,885) Interest bearing borrowings 5 (54,511) (57,566) (55,408) -------------------------------------------------------------------------------- (69,592) (67,025) (70,553) -------------------------------------------------------------------------------- Total liabilities 1 (183,609) (157,950) (160,331) ================================================================================ Net assets 46,471 39,686 40,412 ================================================================================ Equity Share capital 15,814 15,776 15,799 Share premium 4,060 4,024 4,036 Capital redemption reserve 238 238 238 Revaluation reserve - 425 - Other reserves 4,313 4,313 4,313 Translation reserve (30) - (38) Equity reserves 22,066 14,860 15,994 -------------------------------------------------------------------------------- Equity attributable to equity holders of the parent 46,461 39,636 40,342 Minority interests 10 50 70 -------------------------------------------------------------------------------- Total equity 46,471 39,686 40,412 ================================================================================ Consolidated Statement of Cash Flows Six months ended 30 June 2006 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 Notes £000 £000 £000 -------------------------------------------------------------------------------- Operating activities Operating profit 12,834 10,408 19,699 Adjustments for non-cash items: Income from associated company (1,361) (132) (677) Share based payments 57 186 100 Gain on disposal of property, plant and equipment (1,026) (2,279) (4,396) Depreciation 3,154 3,049 6,012 Amortisation of intangible assets 151 71 183 -------------------------------------------------------------------------------- Operating cash flows before movements in working capital 13,809 11,303 20,921 Net movement in working capital: (Increase)/decrease in inventories (6,562) 586 2,616 (Increase) in receivables (12,994) (4,212) (2,195) Increase in payables 7,633 233 2,591 ---------------------------------- (11,923) (3,393) 3,012 -------------------------------------------------------------------------------- Cash generated by operations 1,886 7,910 23,933 Income taxes paid (800) (324) (2,727) Interest paid (2,269) (2,127) (4,676) -------------------------------------------------------------------------------- Net cash (used in)/from operating activities (1,183) 5,459 16,530 -------------------------------------------------------------------------------- Investing activities Interest received 212 230 455 Proceeds on disposal of property, plant and equipment 2,166 4,555 13,788 Purchase of property, plant and equipment (8,199) (3,638) (10,776) Purchase of intangible assets (366) (946) (1,506) Acquisitions of subsidiaries and associates 6 (5,278) (23,401) (25,219) -------------------------------------------------------------------------------- Net cash used in investing activities (11,465) (23,200) (23,258) -------------------------------------------------------------------------------- Financing activities Issue of new shares 39 762 797 Dividends paid (1,643) (1,405) (3,134) New loans raised 16,612 24,666 25,516 Repayments of loans (2,500) (3,250) (7,750) Repayment of loan notes (40) (158) (1,030) Repayment of obligations under finance leases (816) (621) (1,259) -------------------------------------------------------------------------------- Net cash from financing activities 11,652 19,994 13,140 -------------------------------------------------------------------------------- Net (decrease)/increase in cash (996) 2,253 6,412 Cash at the beginning of the period 16,313 9,901 9,901 -------------------------------------------------------------------------------- Cash at the end of the period 5 15,317 12,154 16,313 -------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Six months ended 30 June 2006 6 months 6 months Year ended ended ended 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 -------------------------------------------------------------------------------- Exchange differences on translation of foreign operations 8 - 18 Actuarial loss on defined pension schemes - - (8,094) Deferred tax on items taken directly to equity - - 2,173 Current tax on items taken directly to equity - - 255 -------------------------------------------------------------------------------- Net income/(expense) recognised directly in equity 8 - (5,648) Profit for the period 8,171 6,580 14,196 -------------------------------------------------------------------------------- Total recognised income and expense for the period 8,179 6,580 8,548 ================================================================================ Attributable to: Equity holders of the parent 8,177 6,580 8,528 Minority interest 2 - 20 -------------------------------------------------------------------------------- Total recognised income and expense for the period 8,179 6,580 8,548 ================================================================================ NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1. Segmental information 6 months ended 6 months ended 12 months ended Income Statement 30 June 2006 30 June 2005 31 December 2005 Underlying Underlying Underlying operating operating operating Sales Profit Sales Profit* Sales Profit* £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------------------------------ Infrastructure Products + 58,503 8,816 52,638 6,340 107,414 13,003 Building and Construction Products 70,503 2,114 71,270 3,087 131,797 4,816 Industrial Products 18,762 889 19,466 954 38,085 1,751 ------------------------------------------------------------------------------------------------------------------ Total Group 147,449 11,819 143,374 10,381 277,296 19,570 ============================================ ======= ======= Net financing costs (1,936) (1,897) (3,972) ------------------------------------------------------------------------------------------------------------------ Underlying profit before taxation 9,883 8,484 15,698 ================================================================================================================== *Underlying operating profit is stated before reorganisation and property items. +Includes income from associated company. Balance Sheet 30 June 2006 30 June 2005 31 December 2005 Total Total Total Total Total Total assets liabilities assets liabilities assets liabilities £000 £000 £000 £000 £000 £000 ------------------------------------------------------------------------------------------------------------------ Infrastructure Products+ 115,781 (26,732) 89,642 (26,072) 94,993 (20,918) Building and Construction Products 70,331 (46,449) 71,122 (34,989) 55,289 (33,973) Industrial Products 26,240 (12,555) 24,718 (12,994) 31,741 (18,050) ------------------------------------------------------------------------------------------------------------------ Total operations 212,352 (85,736) 185,482 (74,055) 182,023 (72,941) Tax and dividends 2,411 (6,688) - (6,612) 2,407 (9,102) Non-current items - (14,672) - (8,456) - (14,718) Net debt (note 5) 15,317 (76,513) 12,154 (68,827) 16,313 (63,570) ------------------------------------------------------------------------------------------------------------------ Total Group 230,080 (183,609) 197,636 (157,950) 200,743 (160,331) ------------------------------------------------------------------------------------------------------------------ Net assets 46,471 39,686 40,412 ================================================================================================================== +Includes investment in associated company 2. Net Financing Costs 6 months 6 months ended ended 30 June 30 June 2006 2005 £000 £000 ----------------------------------------------------------------------------- Financial income Interest on bank deposits 99 55 Gain on interest rate swap 68 - Expected return on pension scheme assets 1,865 1,778 ----------------------------------------------------------------------------- 2,032 1,833 ============================================================================= Financial expense Interest on loans, overdrafts and hire purchase contracts 2,086 1,989 Amortisation or arrangement fees 187 138 Expected interest cost on pension scheme obligations 1,695 1,603 ----------------------------------------------------------------------------- 3,968 3,730 ============================================================================= Net financing costs 1,936 1,897 ============================================================================= 3. Taxation Tax has been provided on the profit before reorganisation and property items 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 63,227,430, diluted for the effect of outstanding share options 65,118,450 (six months ended 30 June 2005: 62,736,490, and 64,695,734 diluted). Earnings per share have been calculated on profits of £8,171,000 (six months ended 30 June 2005: earnings of £6,580,000 and earnings per share before reorganisation and property items on earnings of £7,156,000 (six months ended 30 June 2005: earnings of £5,939,000). Earnings per share before reorganisation and property items are as shown below. The Directors consider that this measurement of earnings gives a more meaningful indication of the underlying performance of the Group: 6 months 6 months ended ended 30 June 30 June 2006 2005 £000 £000 ----------------------------------------------------------------------------- Underlying earnings per share 11.32p 9.47p Underlying diluted earnings per share 10.99p 9.18p ============================================================================= 5. Analysis of net debt 30 June 30 June 31 December 2006 2005 2005 £000 £000 £000 ----------------------------------------------------------------------------- Cash and cash equivalents 15,317 12,154 16,313 Debt due within one year (22,002) (11,261) (8,162) Debt due after one year (54,511) (57,566) (55,408) ----------------------------------------------------------------------------- Net debt (61,196) (56,673) (47,257) ============================================================================= 6. Acquisition of subsidiaries and associates In February 2006 the Group acquired Counters & Accessories Limited, a manufacturer of electronic traffic counting and classifying equipment at a total cash cost of £5.3m. 7. Financial information The comparative figures for the financial year ended 31 December 2005 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The accounting policies as described in the previous Annual Report have been applied in the reuslts for the half year ended 30 June 2006. DIRECTORS AND FINANCIAL CALENDAR Directors D. S. Winterbottom FCA, FCT (Chairman) D. L. Grove BA, FCA (Deputy Chairman and Chief Executive) C. J. Burr FCA (Finance Director) D. W. Muir BSc, C.Eng, MICE (Executive) H. C. Marshall Msc, BSc (Non-Executive) R. E. Richardson FCMI (Non-Executive) Secretary J. C. Humphreys FCIS Financial Calendar Payment of interim dividend (ex dividend date 13 December 2006) 12 January 2007 Preliminary announcement of results for the year to 31 December 2006 March 2007 Annual General Meeting 2007 May 2007 This information is provided by RNS The company news service from the London Stock Exchange

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