Hill & Smith Holdings PLC

 

AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

 

Record results

 

Hill & Smith Holdings PLC, the international group with leading positions in the manufacture and supply of infrastructure products and galvanizing services to global markets, announces its audited results for the year ended 31 December 2017.

 

Financial results

			Change
	31 December 2017	31 December 2016	Reported %	Constant ** currency %
Revenue	£585.1m	£540.1m	+ 8	+ 5
Underlying*:
Operating profit	£81.3m	£70.6m	+15	+12
Operating margin	13.9%	13.1%	+80bps	+80bps
Profit before taxation	£78.5m	£68.0m	+15	+12
Earnings per share	75.9p	65.9p	+15	+12
Reported:
Operating profit	£74.1m	£51.8m	+43
Profit before taxation	£70.2m	£48.3m	+45
Basic earnings per share	68.6p	43.0p	+60
Dividend per share	30.0p	26.4p	+14
Net debt	£99.0m	£112.0m

 

Key points:

 

·      Record revenue and underlying earnings performance

·      Consistent and proven strategy driving returns:

-       Underlying operating margin 13.9%, up 80bps on prior year

-       Return on invested capital increased to 20.2%

·      Underlying profit before taxation up 15% to £78.5m:

-       Strong growth in International Roads

-       Continued margin progression in Utilities

-       Wider infrastructure investment supporting good performances across all three geographies in Galvanizing

·      Net debt £99.0m, 1x underlying EBITDA

·      Proposed 15% increase in final dividend of 20.6p giving a full year dividend of 30.0p, up 14% and the fifteenth successive year of increases

 

Derek Muir, Chief Executive, said:

 

"Hill & Smith has delivered its best ever trading performance in 2017 with good organic revenue and profit growth, supported by targeted bolt-on acquisitions and the restructuring of under-performing assets, improving overall returns and shareholder value.

 

"Our performance remains underpinned by our consistent and proven strategy of international diversity combined with the leading positions our businesses hold in their respective markets. Prospects in our core US and UK infrastructure markets as well as the other geographies in which we operate continue to be positive for 2018 and beyond.

 

"Overall, despite political and macro-economic uncertainties, we remain well positioned to again deliver another year of progress."

 

 

For further information, please contact:

 

Hill & Smith Holdings PLC

Derek Muir, Group Chief Executive                                                  Tel:  +44 (0)121 704 7430

Mark Pegler, Group Finance Director

 

MHP Communications

Andrew Jaques / Ollie Hoare / Vera Prokhorenko                        Tel:  +44 (0)20 3128 8100

 

 

* All underlying measures exclude certain non-underlying items, which are as detailed in note 3 and described in the Operational and Financial Review. References to an underlying profit measure throughout this announcement are made on this basis and, in the opinion of the Directors, aid the understanding of the underlying business performance as they exclude items that are either unlikely to recur in future periods or represent non-cash items that distort the underlying performance of the business. Underlying measures are presented on a consistent basis over time to assist in comparison of performance.

 

** Where we make reference to constant currency amounts, these are prepared using exchange rates which prevailed in the current year rather than the actual exchange rates that applied in the prior year. Where we make reference to organic measures we exclude the impact of currency translation movements, acquisitions, disposals and closures of subsidiary businesses. In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year.

 

 

Notes to Editors

Hill & Smith Holdings PLC is an international group with leading positions in the design, manufacture and supply of infrastructure products and galvanizing services to global markets. It serves its customers from facilities principally in the UK, France, USA, Sweden, Norway, India and Australia.

 

The Group's operations are organised into three main business segments:

 

Infrastructure Products - Roads , supplying products and services such as permanent and temporary road safety barriers, hostile vehicle mitigation products, street lighting columns, bridge parapets, temporary car parks and variable road messaging solutions.

 

Infrastructure Products - Utilities , supplying products and services such as pipe supports for the power and liquid natural gas markets, energy grid components, composite "GRP" products, plastic drainage pipes, industrial flooring, handrails, access covers and security fencing.

 

Galvanizing Services which provides zinc and other coatings for a wide range of products including fencing, lighting columns, structural steel work, bridges, agricultural and other products for the infrastructure and construction markets.

 

Headquartered in the UK and quoted on the London Stock Exchange (LSE: HILS.L), Hill & Smith Holdings PLC employs some 4,150 staff, principally in 7 countries.

 

 

Chairman's Statement

 

Overview

In my first statement as Chairman, I am delighted to report another year of progress in 2017. Our focused strategy of developing businesses with market leading positions in international growth markets continues to deliver good organic revenue and profit progression and improved capital returns.

 

In 2017, organic revenue growth of 4% helped lift our total revenue by 8% to £585.1m (2016: £540.1m). Underlying operating profit increased by 15% to £81.3m (2016: £70.6m), or 12% at constant currency. Underlying operating margin improved by 80 basis points to 13.9% (2016: 13.1%). Underlying earnings per share of 75.9p were 15% higher (2016: 65.9p).  Reported operating profit increased by 43% to £74.1m, resulting in a reported operating margin of 12.7% (2016: 9.6%).  Basic earnings per share of 68.6p were 60% higher than the prior year (2016: 43.0p). Return on invested capital was 20.2% (2016: 19.4%).

 

Continuation of our proven strategy of active portfolio management resulted in us completing two acquisitions, one disposal and the closure of one non-core business during 2017:

 

·    In March, we completed the acquisition of the trade and assets of Kenway Corporation ('Kenway') for an aggregate cash consideration of £6.1m. Kenway is a specialist in technologically advanced composite design, manufacturing and field service work across a broad range of industries including marine, power, pulp and paper, transportation and renewable energy. Integrated into our existing composite business, Creative Pultrusions, Kenway is trading in line with our expectations.

 

·    In August, we completed the acquisition of the trade and assets of Tower Tech Inc. ("Tower Tech"), a manufacturer of modular build, high efficiency composite cooling towers which offer ease of installation, low operating costs and longevity. Cash consideration of £2.4m was paid at completion. Tower Tech is performing as expected and is being integrated into our composites business, a long time supplier to Tower Tech. The acquisition furthers our strategy of enhancing our product offering to end users within infrastructure markets.

 

·    In April, we completed the disposal of CA Traffic Limited, a non-core traffic data collection business, to TagMaster AB for a net consideration of £2.5m.

 

·    In December 2016, following a review of the returns available, we announced a plan to close and exit our roads business in India. Following the execution of a licensing agreement with a local manufacturer, the closure process was completed in the third quarter of 2017.

 

After the year end, on 1 January 2018, we completed the small bolt-on acquisition of D Gibson Road & Quarry Services Limited for a cash consideration of £0.3m. Supplying road signs and ancillary products into UK contractors, the business has been absorbed into our existing Mallatite operation.

 

We welcome the employees of the acquired companies, which provide exciting growth opportunities for the Group.

 

Dividends

In view of the strong performance the Board is recommending an increase of 15% in the final dividend to 20.6p per share (2016: 17.9p per share) making a total dividend for the year of 30.0p per share (2016: 26.4p per share), an increase of 14% on the prior year. Underlying dividend cover remains a healthy 2.5 times (2016: 2.5 times). Reported dividend cover is 2.3 times (2016: 1.6 times).

 

Our performance gives us confidence to maintain a progressive dividend policy which has resulted in fifteen years of uninterrupted dividend growth. The final dividend, if approved, will be paid on 2 July 2018 to those shareholders on the register at the close of business on 25 May 2018.

 

Governance and the Board

Honest, open and accountable management of our businesses is key to the effective governance of the Group, which underpins our strategy and the sustainability of our performance.

 

In this year's Annual Report we set out explanations of our business model, strategy, viability statement, risk management and activities of the Board and its Committees. We also discuss within our Corporate Responsibility report how our businesses are encouraged to contribute within the communities in which they operate.

 

It is the responsibility of every Board to ensure that there is an appropriate succession planning process in place across the business, including the Board of Directors. During the year, both the Board and the Nomination Committee reviewed their plans for succession planning. As previously announced, in May 2017, Bill Whiteley retired and I was appointed as your Chairman.  On 3 October 2017, Alan Giddins joined the Board as a Non-executive Director and became the Group's Senior Independent Director. With significant board experience he is already providing a valuable and fresh perspective to the Board.

 

Brexit

It remains too early to assess with any certainty the impact of the decision by the United Kingdom to leave the European Union. We have not experienced any material positive or negative impact since the referendum result and we are confident that our strategy of international diversification along with market leading positions in key infrastructure investment markets will help limit any potential negative impact on the Group. However, we are not complacent, remain vigilant and will react with our customary speed as necessary.

 

AGM

We will hold our AGM on 17 May 2018 and it is an excellent opportunity for shareholders to meet the Board and certain senior executives of the Group. If you can attend my colleagues and I will be delighted to see you.

 

People

Good results can only be delivered through the efforts and dedication of a loyal and strong workforce. In my time on the Board, and latterly as Chairman, I have been immensely impressed by the skill and dedication of all our employees. On behalf of the Board, I would like to thank them for their continued hard work and for rising to the opportunities and challenges they meet.

 

Outlook

The industrial and geographical spread of the Group's markets and businesses not only provide a resilient base, but also opportunities for growth. With 80% of revenue and 85% of underlying operating profit deriving from its UK and US activities, the Group mainly operates in niche infrastructure markets with positive outlooks.

 

In Utilities, our UK and US activities continue to benefit from the significant investment in replacing ageing infrastructure and new infrastructure projects in those countries. In Galvanizing, wider market conditions remain favourable and we expect our businesses to consolidate their strong market positions and continue to take advantage of opportunities.

 

In the UK, the implementation of the Department of Transport's Road Investment Strategy is entering the fourth year of the initial five year plan, which provides certainty of funding through to 2019/20.  We are encouraged that recent announcements by Highways England indicate further investment plans through into 2025 are under discussion. We therefore have confidence the Group's road product portfolio will continue to benefit from increased investment in the UK's road infrastructure.

 

In the US, the administration has prioritised spending on US infrastructure, including building and repairing roads and bridges, and our businesses are well positioned to benefit from any increased investment.

 

Overall, despite political and macro-economic uncertainties, we remain well positioned to again deliver another year of progress.

 

Jock Lennox

Chairman

 

7 March 2018

 

 

 

Operational and Financial Review

 

2017 overview

Hill & Smith delivered a record trading performance in the twelve months to 31 December 2017. Infrastructure investment in our key UK and US markets remained strong which, combined with our focused active portfolio management strategy, resulted in our highest ever revenue, profitability and operating margin.

 

Our performance remains underpinned by our proven strategy of international diversity combined with the leading positions our businesses hold in their respective markets. Our US and UK operations benefitted from rising spending on infrastructure in our chosen end markets, and together they represented 80% of revenue and 85% of underlying operating profit. Organic profit growth was supported by targeted bolt-on acquisitions and the restructuring of underperforming assets to improve overall returns and shareholder value. Prospects in our core US and UK infrastructure markets as well as the other geographies in which we operate continue to be positive for 2018 and beyond.

 

			Change %
	2017	2016	Reported	Constant currency
Revenue	£585.1m	£540.1m	+ 8	+ 5
Underlying(1):
Operating profit	£81.3m	£70.6m	+ 15	+ 12
Profit before tax	£78.5m	£68.0m	+ 15	+ 12
Earnings per share	75.9p	65.9p	+ 15	+ 12
Reported:
Operating profit	£74.1m	£51.8m	+ 43
Profit before tax	£70.2m	£48.3m	+ 45
Basic earnings per share	68.6p	43.0p	+ 60

 

⁽¹⁾ Underlying measures exclude certain non-underlying items, which are detailed in note 3 to the Financial Statements.

 

Annual revenue increased by 8% to £585.1m (2016: £540.1m), of which translational currency benefits contributed £14.4m or 3%. After adjusting for additional revenue of £23.6m from acquisitions, reduced revenue from the prior year restructuring of the non-US Pipe Supports businesses of £14.8m and disposals of £2.5m, organic revenue growth was £24.3m or 4%. Underlying operating profit improved by 15% to £81.3m (2016: £70.6m), including a positive currency translation of £2.1m. Acquisitions contributed £2.3m and the benefit of the non-US Pipe Supports restructuring actions a further £1.0m. The organic improvement in underlying operating profit was 7%. Underlying operating margin improved by 80bps to 13.9% (2016: 13.1%) despite absorbing significantly higher zinc raw material costs. Underlying profit before taxation was 15% higher at £78.5m (2016: £68.0m). Reported operating profit was £74.1m (2016: £51.8m), an increase of 43% on the prior year.  Reported profit before tax was £70.2m (2016: £48.3m).

 

Infrastructure Products

	£m		+/- %	Constant Currency %
	2017	2016
Revenue	402.8	375.7	+ 7	+ 5
Underlying operating profit	40.4	32.6	+24	+22
Underlying operating margin %	10.0	8.7
Reported operating profit	34.4	14.9

 

The division supplies engineered products to the roads and utilities markets in geographies where there is sustained long term investment in infrastructure. In 2017 the division accounted for 69% (2016: 70%) of the Group's revenue and 50% (2016: 46%) of the Group's underlying operating profit. Revenues increased 7% to £402.8m (2016: £375.7m) including an £8.1m positive impact from exchange rate movements. Acquisitions and disposals contributed a net £21.1m and there was £14.8m of lower revenue from the restructured non-US Pipe Supports operations. Organic revenue growth was £12.7m, or 3%. Underlying operating profit was £40.4m (2016: £32.6m), an increase of £7.8m, with a positive currency translation benefit of £0.6m. Acquisitions contributed £2.3m and the non-US Pipe Supports restructuring an additional £1.0m. Underlying operating margin improved to 10.0% (2016: 8.7%). Reported operating profit was £34.4m (2016: £14.9m) and included costs of £2.8m (2016: £10.5m) relating to restructuring actions taken during the year.

 

 

Roads

	£m		+/- %	Constant Currency %
	2017	2016
Revenue	187.1	168.1	+11	+ 9
Underlying operating profit	23.6	19.6	+20	+20
Underlying operating margin %	12.6	11.7
Reported operating profit	20.9	10.9

 

Our Roads segment designs, manufactures and installs temporary and permanent safety products for the roads market. We principally serve the UK market, with an international presence in selected geographies where there is a growing demand for innovative tested safety products. Roads represented 29% (2016: 28%) of the Group's underlying operating profit and 32% (2016: 31%) of revenue in 2017. Revenues increased by 11% to £187.1m (2016: £168.1m), an organic increase of 6% after a currency benefit of £3.3m, contribution from acquisitions of £8.1m less the impact of disposals of £2.5m. Underlying operating profit of £23.6m was £4.0m higher than the prior year (2016: £19.6m), including £0.1m from positive currency translations and £1.0m from acquisitions.

 

Reconciliation of Reported to Underlying operating profit	£m
	2017	2016
Reported operating profit	20.9	10.9
Restructuring actions	1.8	2.7
Impairment charges	-	4.1
Profit on disposal of subsidiary	(0.6)	-
Acquisition costs and amortisation	1.5	1.9
Underlying operating profit	23.6	19.6

 

UK

The Government's Road Investment Strategy ('RIS') is entering its fourth year of an initial five-year plan. The RIS aims to provide certainty of investment funding for the period 2015/16 to 2019/20, improve the connectivity and condition of the existing road network and, importantly, increase capacity, with projects that will deliver 1,300 additional lane miles. Core to the drive to add capacity will be additional 'Smart', or managed motorways, which are at the heart of the Group's product offering in the UK. We are encouraged that in December 2017 Highways England published its Strategic Road Network Initial Report ('SRNIR') setting out its vision and priorities for the second road investment period, covering 2020-2025. Subject now to public consultation, the SRNIR reaffirms the priority on building a Smart Motorway spine across the UK, connecting major cities in the most cost-efficient manner. Acceleration of the roll-out of expressways also remains a focus. The publication of RIS 2 covering investment spending across 2020-2025 is due in 2019.

 

Demand for our rental temporary safety barrier was good in the first half of the year as three Smart Motorways were in construction. Utilisation in the second half was lower, in line with expectations and as previously flagged, as the start of the next significant phase of Smart Motorways was delayed into 2018. We anticipate a significant improvement in the utilisation of our rental fleet as we progress throughout the first half of the current year and for the second half to be stronger year on year. We are also experiencing growing interest from UK and International third parties in purchasing our proven safety product for road and hostile vehicle mitigation applications.

 

The increased threat of terrorism in the UK has intensified the demand for deployment of our range of hostile vehicle mitigation products, including temporary and permanent, steel and concrete applications in key locations across the country. With a market leading range of solutions, and the ability to respond swiftly, we have completed projects to protect bridges in London, as well as sports and other high profile events. Discussions are being held with security agencies outside the UK and we expect this market to continue to grow.

 

In line with our expectations, as the initial phase of Smart Motorways nears completion, demand for our permanent safety barrier has been stronger year on year. The wider road improvement programme outside the core Smart Motorway work was also much improved towards the end of the year and we anticipate a stronger start to 2018. The market for bridge parapets remains positive as local authorities and Network Rail upgrade ageing bridge infrastructure to protect the rail and road network from potential hostile and accidental vehicle damage. Exports of Brifen, our wire rope safety barrier system, and Bristorm, our high containment anti-terrorist perimeter barrier, experienced strong volumes in the second half of the year and, although lower than the record prior year, both revenue and profitability remained strong. Bristorm remains the product of choice for protecting many power, desalination and chemical plants in the Middle East.

 

Our Variable Message Sign ('VMS') business performed well in the year with strong sales of new Remotely Operable Temporary Traffic Management ('ROTTM') signs, which Highways England are deploying to improve road worker safety where no hard shoulder exists on Smart Motorways. The higher sales of ROTTM more than offset lower revenue from maintenance activities as a historic ten-year 'supply and maintain' contract with Highways England completed. In June we announced a proposal to commence the rationalisation of the VMS business that will result in the closure of two UK sites and consolidation into our existing facility in the north east. The restructuring is progressing to plan with completion expected in the first half of 2018 at a cost of £1.4m.

 

On 27 April 2017, we completed the disposal of CA Traffic Limited, a traffic data collection business, to TagMaster AB for a net consideration of £2.5m. Non-core, and unable to deliver the returns that we target from our businesses, in the year to 31 December 2016 CA Traffic Limited reported revenue of £3.9m and an operating loss of £0.2m.

 

Operating with a lower cost base following the rationalisation completed at the end of 2016, our lighting column business continues to perform well, supplying aluminium and passive safety products to projects such as the M8/M74 upgrade in Scotland and the Manchester M60 Smart Motorway. With its enhanced product offering following the acquisition of Signature last year, the business is capitalising on cross selling opportunities into the local authority and contractor markets.

 

Non-UK

In Scandinavia, our Swedish and Norwegian operations both performed well, particularly in the second half of the year. Recent investment in the temporary safety barrier rental fleet is paying dividends and utilisation was high. Major upgrades to the wider road network in both geographies are ongoing and further opportunities remain.

 

In France, our lighting column business operates in a competitive market which was also impacted negatively by disruption due to the national Presidential election in the first half of the year. Profitability improved in the second half of the year, but overall fell short of the prior year performance.

 

Employing both a rental and a direct sales approach, exciting progress continues to be made in promoting our temporary safety barrier in both the USA and Australia. In the USA, acceptance of our temporary steel barrier, Zoneguard, as an alternative to concrete is now well established in a number of States and continues to gain recognition elsewhere, including Canada where we have appointed a local distributor to drive sales. A record volume of safety barriers were sold during the year. In Australia, revenue rose to a record level as we delivered 16km of Zoneguard and 8km of ancillary products for a road project in Queensland. We also secured a 12km Zoneguard project for supply into New Zealand in the first half of 2018. Both the USA and Australia improved profitability against the same period prior year, establishing new benchmarks for each business.

 

In December 2016, following an assessment of the local market and outlook, we announced a plan to close and exit our manufacturing and sales facility in India. Following the execution of a licensing agreement with a local manufacturer, the closure process was completed in the third quarter of 2017.

 

Utilities

	£m		+/- %	Constant Currency %
	2017	2016
Revenue	215.7	207.6	+  4	+ 2
Underlying operating profit	16.8	13.0	+29	+24
Underlying operating margin %	7.8	6.3
Reported operating profit	13.5	4.0

 

Our Utilities segment provides industrial flooring, plastic drainage pipes, security fencing, steel and composite products for a wide range of infrastructure markets including energy creation and distribution, rail, water and house building. The requirements for new power generation in emerging economies and replacement of ageing infrastructure in developed countries provide excellent opportunities for the Group's utilities businesses. Revenues increased by 4% to £215.7m (2016: £207.6m). Benefits from currency translation of £4.8m and a £15.5m contribution from recent acquisitions were partly offset by the prior year restructuring and closure programme of our non-US Pipe Supports business (£14.8m lower revenue year on year). Organically, revenue was 1% higher than the prior year. Underlying operating profit was £16.8m (2016: £13.0m) including a positive currency impact of £0.5m, first time contribution from acquisitions of £1.3m and a £1.0m benefit from the non-US Pipe Supports restructuring.

 

Reconciliation of Reported to Underlying operating profit	£m
	2017	2016
Reported operating profit	13.5	4.0
Restructuring actions	1.0	7.8
Impairment charges	0.4	-
Acquisition costs and amortisation	1.9	1.2
Underlying operating profit	16.8	13.0

 

In the US, our power transmission substation business performed well but fell short of the prior year's strong comparatives. Day to day, the packaging together of structural steel with electrical components through framework agreements with key US utilities remains strong but an absence of larger contracts, notably in the first half of the year, reduced revenue and profitability. As expected, the second half of the year experienced improved order intake and we carry a higher order book into 2018. Investment in US electricity distribution looks set to continue over the medium term and opportunities for growth remain.

 

Following a subdued first half performance, our composite materials business delivered a much stronger second half, delivering larger projects into OEM customers which had been absent in the previous year. Consequently, the business performed well with revenue and profitability ahead of the prior year. Development of new products direct to end users within infrastructure markets continues to be the focus. On 24 March 2017, we completed the acquisition of the trade and assets of Kenway Corporation ('Kenway'), a specialist in technologically advanced composite design, manufacturing and field service work across a broad range of industries including marine, power, pulp and paper, transportation and renewable energy. Cash consideration of £5.5m was paid at acquisition with a further £0.6m due in 2018. On 15 August, we completed the acquisition of the trade and assets of Tower Tech Inc. ('Tower Tech'), a manufacturer of modular build, high efficiency composite cooling towers which offer ease of installation, low operating costs and longevity. Cash consideration of £2.4m was paid at completion. Kenway has been, and Tower Tech is being, integrated into our Creative Pultrusions business, a long time supplier to Tower Tech, furthering our strategy of enhancing our product offering to end users within infrastructure markets.

 

The market for engineered pipe supports in the US remains robust and we completed projects with EPC contractors supplying a new build natural gas power plant and bio-solid water treatment plant, as well as the modernisation of petrochemical facilities. Following the restructuring and consolidation of the branch network serving the north east market in the middle of the year, our industrial hangers business benefitted from a lower cost base. The market remains competitive but the benefits of a more focused, efficient operation assisted in improving profitability and margin year on year despite lower revenue.

 

In India we successfully completed the expansion of our pipe supports facility and the business performed ahead of our expectations. The increased capacity enables us to service our international customers, with global supply agreements for the supply of engineered pipe supports into major power projects in geographies such as Japan, Malaysia and Egypt, as well as our domestic customers in the Indian market. Our strategic partnership with a Saudi Arabian manufacturer enables us to have local manufactured content when supplying pipe supports projects in the Middle East. We are encouraged by the market outlook in India and the Far East, both of which remain strong with a large programme to build both coal and gas fired power stations, petrochemical plants and LNG terminals.

 

UK

In the UK the performance of our utilities businesses was mixed and, overall, results were below the prior year. Our plastic pipe business benefited from a strong UK housing market where flood alleviation on new build sites remains a key focus. Continual delays in the Asset Management Period 6 ('AMP6') order cycle continued to frustrate the business in the first half of the year. Order intake increased in the second half of the year with projects focussing on improvements to the quality of drinking water as well as foul water management. The industry's current focus on off-site build and modular construction plays well into the strengths of the business and significant opportunities remain.

 

The industrial flooring business completed a wide array of infrastructure projects including rail maintenance depots, energy from waste plants, rail platforms and wind farms, utilising both steel and composite material. Oil and gas activity remains subdued but day to day business was much improved on the back of increased UK infrastructure investment.

 

Despite the delays in the AMP6 programme, our security access covers business enjoyed a strong first half of the year. Order intake slowed in the third quarter before steadily improving towards the end of the year and overall results were in line with expectations. With just two years remaining on the AMP6 cycle, and much of the investment programme still to be carried out, further progress is expected.

 

The protection of critical infrastructure sites continues to produce good volumes for our security fencing operation with a wide range of installations including protection of data centres, power generation sites and the UK rail network.

 

Demand for solar frames was materially lower than the record performance last year, as developers adapt their return model away from reliance on the now removed tax credits under the UK Renewable Obligation Scheme to one of battery storage and timed release of the stored power into the national grid. Once technology is proven and sold to investors we expect further orders to recommence.

 

A strong UK housing market aided our building products business and demand for composite residential doors, steel lintels and builders' metalwork reached record levels. Supplying national and independent housebuilders, in addition to national merchants, minimises geographical risks in demand patterns whilst maximising our exposure to both retail and social housing sectors.

 

 

Galvanizing Services

	£m		+/- %	Constant Currency %
	2017	2016
Revenue	182.3	164.4	+11	+ 7
Underlying operating profit	40.9	38.0	+ 8	+ 4
Underlying operating margin %	22.4	23.1
Reported operating profit	39.7	36.9

 

The Galvanizing Services division offers corrosion protection services to the steel fabrication industry with multi-plant facilities in the USA, France and the UK. The division accounts for 31% (2016: 30%) of the Group's revenue and 50% (2016: 54%) of the Group's underlying operating profit. Revenue increased by 11% to £182.3m (2016: £164.4m) including positive currency translation of £6.3m. Organic revenue growth was 7%. Underlying operating profit of £40.9m (2016: £38.0m) included a £1.5m currency benefit. The organic improvement in profitability was £1.4m. Underlying operating margin was 22.4%, marginally below the prior year record of 23.1%.

 

Reconciliation of Reported to Underlying operating profit	£m
	2017	2016
Reported operating profit	39.7	36.9
Acquisition amortisation	1.2	1.3
Other items	-	(0.2)
Underlying operating profit	40.9	38.0

 

USA

Located in the north east of the country, Voigt & Schweitzer is the market leader with seven plants offering local services and extensive support to fabricators and product manufacturers involved in highways, construction, utilities and transportation.

 

As expected, and against strong comparatives, volumes were 9% below the prior year, principally due to a large LNG project which ran throughout the first three quarters of 2016. Alternative energy demand was also materially lower year on year, particularly with respect to solar frames as the industry awaited a clear direction with regard to US energy policy and import tariffs. Day to day infrastructure demand remains strong and despite first half volumes being similar to the prior year, second half volumes increased by 8% against the same period the year before with strong contributions from utility, bridge & highway and OEM manufacturers. Continued focus on smaller, higher margin infrastructure jobs together with operational excellence and customer service once again resulted in record profitability despite the lower volumes. Operating margins were similar to the prior year despite significantly higher zinc input costs. Recent US administration pronouncements on the strategic importance of additional investment in US infrastructure, including building and repairing roads and bridges, are supportive to the galvanizing industry and we are well positioned to benefit should this increased spend materialise.

 

France

France Galva has ten strategically located galvanizing plants each serving a local market. We act as a key part of the manufacturing supply chain in those markets and have delivered a high level of service and quality to maintain our position as market leaders.

 

Overall volumes were 1% ahead of the prior year. In the first half the disruption of the national Presidential elections inevitably impacted the wider environment and volumes were 2% down year on year. Normality and confidence increasingly returned throughout the second half of the year and volumes were a creditable 5% ahead of the same period prior year and whilst competition remains strong, the business delivered improved profitability at similar margins despite significantly higher zinc input costs.

 

UK

Our galvanizing businesses are located on ten sites, four of which are strategically adjacent to our Infrastructure Products manufacturing facilities.

 

Overall volumes were 4% higher year on year. Internal or 'own work' volumes from our UK Utilities business and road safety barrier were similar to the prior year. Despite continued low levels of larger structural steel projects, ongoing general infrastructure investment remains strong across a wide, and growing, customer base. Our strategy of focusing on lower volume, higher margin work in addition to investment in our key galvanizing facilities resulted in record profitability. Operating margin was broadly similar to the record prior year despite significantly higher zinc input costs.

 

Financial review

 

Income statement phasing

	First half	Second half	Full year
2017
Revenue £m	291.8	293.3	585.1
Underlying operating profit £m	38.8	42.5	81.3
Underlying operating margin %	13.3	14.5	13.9
Reported operating profit £m	35.4	38.7	74.1
2016
Revenue £m	259.3	280.8	540.1
Underlying operating profit £m	32.0	38.6	70.6
Underlying operating margin %	12.3	13.7	13.1
Reported operating profit £m	21.2	30.6	51.8

 

The phasing of revenue and to a greater extent underlying operating profit was marginally second half weighted in 2017, principally reflecting strength in the Group's US operations and the impact of acquisitions together with a normal degree of seasonality across the Group's portfolio of businesses.

                                                                                                                                             

Reported revenue of £585.1m was 8% ahead of the prior year. The acquisitions and disposals completed during both the current and prior year resulted in a net revenue increase of £21.1m and a £2.3m benefit to underlying operating profit, while the prior year restructuring of the Group's non-US Pipe Supports businesses reduced current year revenues by £14.8m, but delivered an improvement in underlying operating profit of £1.0m. The translation impact arising from changes in exchange rates, principally the US Dollar and Euro, increased revenue by £14.4m and underlying operating profit by £2.1m. Organic revenue improvement was £24.3m and underlying operating profit growth was £5.3m, or 4% and 7% respectively. Further details of the performance of the Group are provided in the Operational Review.

 

£m	Revenue	Underlying operating profit
2016	540.1	70.6
Acquisitions & disposals	21.1	2.3
Restructuring actions	(14.8)	1.0
Currency	14.4	2.1
Organic growth	24.3	5.3
2017	585.1	81.3

 

Cash generation and financing

The Group once again demonstrated its cash generating abilities with strong operating cash flow of £76.5m (2016: £78.2m). 

 

The increase in working capital in the year was £19.1m (2016: increase of £0.1m), including an increase in inventories of £13.8m.  The increase in inventories includes £6.7m in relation to zinc held by the Group's galvanizing operations, resulting from a c.20% rise in zinc commodity prices during 2017, and £6.1m of additional inventory build in anticipation of projects to be delivered in Q1 2018.  Working capital as a percentage of annualised sales increased to 17.4% at 31 December 2017 (2016: 14.2%), however excluding the impact of the zinc price increases the ratio is 16.2%.  Debtor days were in line with the prior year at 61 days.

 

Capital expenditure at £20.7m (2016: £21.7m) represents a multiple of depreciation and amortisation of 1.1 times (2016: 1.2 times). Significant items of expenditure in the current year included £2.9m of Zoneguard temporary safety barrier investment to meet demand in our US, Australian and Scandinavian operations, £1.1m investment in further expansion of manufacturing facilities at our Pipe Supports centre in India, and £1.3m of product development spend reflecting the continued innovation within the Group's suite of products, particularly for the roads markets. The Group continues to invest in organic growth opportunities where returns exceed internal benchmarks and its cost of capital.

                                                

The Group measures its operating cash flow performance based on its underlying cash conversion rate, defined as the ratio of underlying operating cash flow less capital expenditure to underlying operating profit. In 2017 the Group achieved an underlying cash conversion rate of 78% (2016: 93%), or 87% excluding the impact of zinc prices rises during the year. Over the past nine years the Group has achieved an average rate of 90%.

 

 

			Non-
		Pensions &	Underlying
	Reported £m	provisions £m	Items £m	Underlying £m
Operating profit	74.1	-	7.2	81.3
Non-cash items	24.7	-	(3.7)	21.0
Change in:
Working capital	(19.1)	-	-	(19.1)
Pensions/provisions	(3.2)	3.2	-	-
Cash generated by operations	76.5	3.2	3.5	83.2
Capital expenditure	(20.7)	-	-	(20.7)
Asset sale proceeds	2.3	-	(1.1)	1.2
Adjusted cash flow	58.1	3.2	2.4	63.7
Operating profit	74.1	-	7.2	81.3
Cash conversion %	78%			78%

 

The Group's strong operating cash flow provides the funds to invest in growth, both organic and acquisitive, to restructure underperforming businesses where appropriate, to service debt, pension and tax obligations and to maintain a growing dividend stream, while a sound balance sheet provides a platform to take advantage of future growth opportunities.

 

Group net debt at 31 December 2017 was £99.0m, representing a year on year reduction of £13.0m including favourable exchange rate movements of £3.3m principally reflecting the strengthening in Sterling against the US Dollar towards the end of the year. The Group's net debt includes 41% denominated in US Dollars and 8% denominated in Euros, which act as a hedge against the net asset investments in overseas businesses.

 

Change in net debt

	2017 £m	2016 £m
Operating profit	74.1	51.8
Depreciation and amortisation*	23.2	21.0
Working capital movement	(19.1)	(0.1)
Pensions and provisions	(3.2)	-
Other items	1.5	5.5
Operating cash flow	76.5	78.2
Tax paid	(16.7)	(15.7)
Interest paid (net)	(2.8)	(2.8)
Capital expenditure	(20.7)	(21.7)
Sale of fixed assets	2.3	3.6
Free cash flow	38.6	41.6
Dividends	(20.7)	(16.2)
Acquisitions & disposals	(5.8)	(37.4)
Amortisation of refinancing costs	(0.4)	(0.4)
Net issue of shares	(2.0)	(1.2)
Change in net debt	9.7	(13.6)
Opening net debt	(112.0)	(91.5)
Exchange	3.3	(6.9)
Closing net debt	(99.0)	(112.0)

 

* includes £4.0m (2016: £2.6m) in respect of acquisition intangibles.

 

The Group's principal debt facility consists of a headline £210m multicurrency revolving credit agreement maturing in April 2021, providing the Group with significant headroom against its expected future funding requirements.

 

Maturity profile of debt facilities

	2017			2016
On demand	£9.5m		On demand	£12.2m
2018-2020	£0.7m		2017-2020	£0.6m
2021	£227.1m		2021	£234.3m

 

At the year end the Group had committed debt facilities available of £227.8m and a further £9.5m in overdrafts and other on-demand facilities.

 

The principal debt facility is subject to covenants which are tested biannually on 30 June and 31 December. The covenants require that the ratio of EBITDA (adjusted profit before interest, tax, depreciation and amortisation as defined in the facility agreement) to net interest costs exceeds four times and require the ratio of net debt to EBITDA to be no more than three times.

 

 

The results of the covenant calculations at 31 December 2017 were:

 

                                                Actual                    Covenant

Interest Cover                       37.1 times              > 4.0 times

Net debt to EBITDA               1.0 times               < 3.0 times

 

Appropriate monitoring procedures are in place to ensure continuing compliance with banking covenants and, based on our current estimates, we expect to comply with the covenants for the foreseeable future.

 

Net finance costs

		2017 £m		2016 £m
Underlying net cash interest:
Bank loans/overdrafts		2.8		2.6
Non underlying:
Net pension interest	0.7		0.5
Costs of refinancing	0.4	1.1	0.4	0.9
		3.9		3.5

 

Net financing costs in the year were £3.9m (2016: £3.5m). The net cost from pension fund financing under IAS19 was £0.7m (2016: £0.5m) which, given its non-cash nature, continues to be treated as 'non-underlying' in the Consolidated Income Statement. Non-underlying financing costs also include £0.4m relating to the Group's amendments of the terms of its principal banking facilities in 2014 and 2016, reflecting the amortisation of the costs capitalised against the loans in accordance with IAS39. The underlying cash element of net financing costs increased by £0.2m to £2.8m (2016: £2.6m), the marginal change reflecting interest rate rises in the UK and US during 2017. Underlying operating profit covered net cash interest 29.0 times (2016: 27.2 times). Reported operating profit covered total reported interest 19.0 times (2016: 14.8 times).

 

Return on invested capital ('ROIC')

The Group aims to maintain ROIC above its pre-tax weighted average cost of capital (currently c.11%), with a target return of 20%. In 2017, ROIC increased to 20.2% (2016: 19.4%) largely as a result of improvements in underlying operating margins, tight control over capital investment outflows and active management of the portfolio. The Group measures ROIC as the ratio of underlying operating profit to average invested capital. Invested capital is defined as net assets excluding current and deferred tax, net debt, provisions, retirement benefit obligations and derivative financial instruments, and therefore includes goodwill and other acquired intangible assets. On a reported basis, ROIC was 18.4% (2016: 14.3%).

 

                                                                Group ROIC           Reported ROIC

Operating profit (£m)                         81.3                        74.1

Average invested capital (£m)          403.1                      403.1

ROIC %                                                   20.2%                     18.4%

 

Exchange rates

Given its international operations and markets the Group is exposed to movements in exchange rates when translating the results of international operations into Sterling. Retranslating 2016 revenue and underlying operating profit using 2017 average exchange rates would have increased the prior year revenue by £14.4m and increased underlying operating profit by £2.1m, the movements primarily reflecting the impact of Sterling's depreciation against the US Dollar compared with the prior year. Exchange rates continue to move in line with worldwide events and currency flows and hence are inherently difficult to predict, but will continue to have an impact on the translation of overseas earnings in 2018. Retranslating 2017 revenue and underlying operating profit using exchange rates at 23 February 2018 (inter alia £1 = $1.40 and £1 = €1.14) would reduce the revenue and underlying operating profit by £15.6m (3%) and £3.3m (4%) respectively. For the US Dollar, a 1 cent movement results in a £1.3m adjustment to revenue and a £0.3m adjustment to underlying operating profit, while the equivalent impacts for a 1 cent movement in the Euro are £0.6m and £0.1m respectively.

 

Non-underlying items

The total non-underlying items charged to operating profit in the Consolidated Income Statement amounted to £7.2m (2016: £18.8m) and were made up of the following:

 

	Income statement charge £m	Cash in the year £m	Future cash £m	Non-cash £m
Business reorganisation costs	(2.8)	(0.1)	(1.8)	(0.9)
Impairment of assets held for sale	(0.4)	-	-	(0.4)
Amortisation of acquisition intangibles	(4.0)	-	-	(4.0)
Acquisition expenses	(0.6)	(0.6)	-	-
Profit on disposal of subsidiary	0.6	2.5	-	(1.9)
	(7.2)	1.8	(1.8)	(7.2)

 

·      Business reorganisation costs relate to a number of restructuring actions taken by the Group during the current and prior year.

 

-       In June 2017 the Group initiated a rationalisation of its Variable Message Signs business that will result in the closure of two of its operating sites and the consolidation of activities into the remaining site in Hebburn, UK. The business has been operating across three sites since the acquisitions of VMS and Tegrel in 2014/15 and expects to take advantage of cost savings and efficiencies as a result. The anticipated cost of the rationalisation is £1.4m and the relocation is expected to be completed in the first half of 2018.

-       Following a strategic review of the US Pipe Supports business, in March 2017 the Group completed a rationalisation of its branch structure resulting in the closure of three of the seven existing branches and the consolidation of their operations into one strategically located service centre between New York and Philadelphia, serving the eastern region. The cost of this programme was £0.4m.

-       Following the acquisition of Tower Tech in August 2017, the Group has commenced a programme to close Tower Tech's existing facility in Oklahoma and relocate the business to our Creative Pultrusions site in Pennsylvania. The cost of this programme, which is expected to be completed in the second half of 2018, is £0.4m.

-       In December 2016, having reassessed the prospects in the market, the Group announced the closure of its roads business in India.  Total costs of £2.3m include a further £0.4m charge in 2017.

-       In March 2016 the Group announced the closure of its non-US Pipe Supports operations.  Whilst substantially completed in the prior year, additional costs of £0.2m have been incurred in the current year on finalisation of the closure.

                                                    

·      In April 2017 the Group sold its traffic data collection business, CA Traffic Limited, to TagMaster AB for a consideration of £2.6m (after costs). Net assets disposed were £2.0m resulting in a profit on disposal of £0.6m.

                                            

·      Non-cash amortisation of acquired intangible fixed assets was £4.0m (2016: £2.6m), the increase reflecting the acquisitions made by the Group during the current and prior year.

 

·      Acquisition related expenses of £0.6m (2016: £1.8m) reflect costs associated with acquisitions expensed to the Consolidated Income Statement in accordance with IFRS3 (Revised).

 

·      An impairment charge of £0.4m (2016: £nil) has been recognised in respect of a property reported within assets held for sale, reflecting a reassessment of its likely realisable value.

 

The net cash impact of the above items was an inflow of £1.8m in the year, a £1.8m outflow expected in 2018 and a non-cash element therefore amounting to £7.2m. The Directors continue to believe that the classification of these items as 'non-underlying' aids the understanding of the underlying business performance.

 

Tax

The Group's tax charge for the year was £16.3m (2016: £14.5m). The underlying effective tax rate for the Group was 24.0% (2016: 24.0%), which is lower than the weighted average mix of tax rates in the jurisdictions in which the Group operates as a result of the benefit of tax efficient financing arrangements, the successful conclusion of tax uncertainties related to prior years and the impact on the Group's deferred tax liabilities of forthcoming reductions in tax rates contained in the US Tax Cuts and Jobs Act passed in December 2017. Cash tax paid was £16.7m (2016: £15.7m), with the increased spend reflecting the growth in the Group's profits. Tax paid was broadly in line with the current tax charge for the year of £18.2m.

 

The Group's net deferred tax liability is £5.6m (2016: £7.8m).  Following the enactment of changes to US tax legislation, deferred tax balances relating to the Group's US businesses as at 31 December 2017 have been recalculated based on the revised US tax rates resulting in a £1.9m reduction in the Group's net deferred tax liability. A £6.7m (2016: £8.9m) deferred tax liability is provided in respect of brand names, customer relationships and other contractual arrangements acquired, while a further £0.9m (2016: £1.1m) is provided on the fair value revaluation of French properties acquired as part of the Zinkinvent acquisition in 2007. These liabilities do not represent future cash tax payments and will unwind as the brand names, customer relationships, contractual arrangements and properties are amortised.

 

The Group expects that the significant tax reforms contained in the US Tax Cuts and Jobs Act will benefit its future post tax earnings.  Although partly offset by an adverse impact from other changes, it is expected that the future reduction in the US corporate income tax rate from 35% to 21% will reduce the Group's future overall effective percentage tax rate by around 1-2 percentage points.

 

Earnings per share

The Board believes that underlying earnings per share ('UEPS') gives the best reflection of performance in the year as it strips out the impact of non-underlying items (as described in note 3). UEPS for the period under review increased by 15% to 75.9p (2016: 65.9p), driven by organic revenue growth in the Group's core markets, continuing improvements in underlying operating margins, currency translation benefits and the impact of active management of the Group's portfolio. The diluted UEPS was 74.8p (2016: 65.1p). Basic earnings per share was 68.6p (2016: 43.0p). The weighted average number of shares in issue was 78.6m (2016: 78.5m) with the diluted number of shares at 79.6m (2016: 79.3m) adjusted for the outstanding number of dilutive share options.

 

Dividends

Dividends paid in the year were £20.7m. The proposed final dividend is 20.6p per share (2016: 17.9p per share) resulting in a total dividend for the year of 30.0p per share (2016: 26.4p per share), a 14% increase on the prior year. Underlying dividend cover remains at 2.5 times (2016: 2.5 times).

 

The Board is committed to a long-term sustainable dividend policy. Ordinary dividends will grow broadly in line with underlying earnings, targeting dividend cover of between 2x and 2.5x underlying earnings per share over the medium term.

 

Pensions

The Group operates a number of defined contribution and defined benefit pension plans both in the UK and overseas. The IAS19 deficit of the defined benefit plans as at 31 December 2017 was £25.6m, marginally lower than the £27.3m reported at 31 December 2016. The reduction in the overall deficit relates principally to the UK scheme and was largely driven by a strong asset performance and deficit recovery payments made during the year, offsetting the impact of a 20 basis point reduction in the discount rate in line with movements in corporate bond yields. 

 

The Group's UK defined benefit pension scheme, The Hill & Smith 2016 Pension Scheme (the 'Scheme'), remains the largest employee benefit obligation within the Group.  In common with many other UK companies, the Scheme is mature having significantly more pensioners and deferred pensioners than active participating members and is closed to new members. The IAS19 deficit of the Scheme as at 31 December 2017 was £20.8m (2016: £22.4m).   The gross assets and liabilities of the Scheme were each reduced by £10.0m during the year as a result of transfer values taken by a number of members. 

 

The Group remains actively engaged in dialogue with the Scheme's Trustees with regard to management, funding and investment strategy and, in May 2017, an update to the investment strategy was agreed.  A formal actuarial valuation of the Scheme as at April 2016 was also finalised during the year, following which the Group agreed a deficit recovery plan with the Trustees that requires cash contributions amounting to £2.5m per annum until September 2027. 

              

Acquisitions

In March 2017 the Group completed the acquisition of the trade and assets of Kenway Corporation, a specialist in technologically advanced composite design, manufacturing and field service work across a broad range of industries including marine, power, pulp & paper, transportation and renewable energy.  Consideration for the acquisition was £6.1m and intangible assets arising amounted to £5.1m, comprising goodwill of £3.7m, customer relationships of £0.7m and brand valuation of £0.7m. The acquired business has been integrated into Creative Pultrusions, our existing US composites operation.

 

In August 2017 the Group acquired the trade and assets of Tower Tech, Inc., a US manufacturer of modular build, high efficiency composite cooling towers for a net cash consideration of £2.4m, resulting in goodwill of £0.4m. In 2018 the acquired business will be relocated from its current facility in Oklahoma to our Creative Pultrusions facility in Pennsylvania.

 

On 1 January 2018 we acquired the trade and assets of D. Gibson Road & Quarry Services Limited for a cash consideration of £0.3m.  Based in Scotland, the business will be integrated with Mallatite Limited, our UK lighting column and traffic signage business, further expanding our product offering in that market.

 

The level of headroom that the Group maintains in its principal banking facilities enables us to continue to seek opportunities for acquisitive growth where potential returns exceed the Group's benchmark performance targets.

 

Treasury management

All treasury activities are co-ordinated through a central treasury function, the purpose of which is to manage the financial risks of the Group and to secure short and long term funding at the minimum cost to the Group. It operates within a framework of clearly defined Board-approved policies and procedures, including permissible funding and hedging instruments, exposure limits and a system of authorities for the approval and execution of transactions. It operates on a cost centre basis and is not permitted to make use of financial instruments or other derivatives other than to hedge identified exposures of the Group. Speculative use of such instruments or derivatives is not permitted. Liquidity, interest rate, currency and other financial risk exposures are monitored weekly. The overall indebtedness of the Group is reported on a daily basis to the Group Finance Director.

 

 

Derek Muir                                           Mark Pegler

Group Chief Executive                        Group Finance Director

 

7 March 2018

 

 

 

Consolidated Income Statement

Year ended 31 December 2017

 

			2017			2016
	Notes	Underlying  £m	Non- underlying* £m	Total £m	Underlying  £m	Non- underlying* £m	Total £m
Revenue	2	585.1	-	585.1	540.1	-	540.1
Trading profit		81.3	-	81.3	70.6	-	70.6
Amortisation of acquisition intangibles	3	-	(4.0)	(4.0)	-	(2.6)	(2.6)
Business reorganisation costs	3	-	(2.8)	(2.8)	-	(10.5)	(10.5)
Pension settlement gains	3	-	-	-	-	0.2	0.2
Impairment of assets	3	-	(0.4)	(0.4)	-	(4.1)	(4.1)
Acquisition costs	3	-	(0.6)	(0.6)	-	(1.8)	(1.8)
Profit on disposal of subsidiary	3	-	0.6	0.6	-	-	-
Operating profit	2	81.3	(7.2)	74.1	70.6	(18.8)	51.8
Financial income	4	0.6	-	0.6	0.4	-	0.4
Financial expense	4	(3.4)	(1.1)	(4.5)	(3.0)	(0.9)	(3.9)
Profit before taxation		78.5	(8.3)	70.2	68.0	(19.7)	48.3
Taxation	5	(18.9)	2.6	(16.3)	(16.3)	1.8	(14.5)
Profit for the year attributable to owners of the parent		59.6	(5.7)	53.9	51.7	(17.9)	33.8
Basic earnings per share	6	75.9p		68.6p	65.9p		43.0p
Diluted earnings per share	6	74.8p		67.7p	65.1p		42.5p
Dividend per share - Interim	7			9.4p			8.5p
Dividend per share - Final proposed	7			20.6p			17.9p
Total				30.0p			26.4p

 

* The Group's definition of non-underlying items is included in Note 1 to the Financial Statements

 

Consolidated Statement of Comprehensive Income

Year ended 31 December 2017

 

	Notes	2017 £m	2016 £m
Profit for the year		53.9	33.8
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of overseas operations		(11.3)	36.5
Exchange differences on foreign currency borrowings denominated as net investment hedges		4.9	(9.5)
Transfers to the income statement on cash flow hedges		-	0.2
Taxation on items that may be reclassified to profit or loss		-	-
Items that will not be reclassified subsequently to profit or loss
Actuarial loss on defined benefit pension schemes		-	(14.1)
Taxation on items that will not be reclassified to profit or loss	5	(0.2)	2.1
Other comprehensive (expense)/income for the year		(6.6)	15.2
Total comprehensive income for the year attributable to owners of the parent		47.3	49.0

 

 

 

Consolidated Statement of Financial Position

Year ended 31 December 2017

 

	Notes	2017 £m	2016 £m
Non-current assets
Intangible assets		163.9	166.5
Property, plant and equipment		145.1	149.7
		309.0	316.2
Current assets
Assets held for sale		0.7	1.1
Inventories		84.6	71.6
Trade and other receivables		116.5	112.9
Cash and cash equivalents	9	16.4	15.6
		218.2	201.2
Total assets	1	527.2	517.4
Current liabilities
Trade and other liabilities		(104.8)	(105.1)
Current tax liabilities		(11.7)	(11.2)
Provisions for liabilities and charges		(2.1)	(2.6)
Interest bearing borrowings	9	(0.3)	(0.3)
		(118.9)	(119.2)
Net current assets		99.3	82.0
Non-current liabilities
Other liabilities		(0.5)	(0.4)
Provisions for liabilities and charges		(2.9)	(3.2)
Deferred tax liability		(5.6)	(7.8)
Retirement benefit obligation		(25.6)	(27.3)
Interest bearing borrowings	9	(115.1)	(127.3)
		(149.7)	(166.0)
Total liabilities		(268.6)	(285.2)
Net assets		258.6	232.2
Equity
Share capital		19.7	19.7
Share premium		34.1	33.5
Other reserves		4.9	4.8
Translation reserve		22.9	29.3
Retained earnings		177.0	144.9
Total equity		258.6	232.2

 

Consolidated Statement of Changes in Equity

Year ended 31 December 2017

 

	Notes	Share capital £m	Share  premium £m	Other reserves† £m	Translation  reserves £m	Hedge reserves £m	Retained  earnings £m	Total equity £m
At 1 January 2016		19.6	32.8	4.6	2.3	(0.2)	139.4	198.5
Comprehensive income
Profit for the year		-	-	-	-	-	33.8	33.8
Other comprehensive income for the year		-	-	-	27.0	0.2	(12.0)	15.2
Transactions with owners recognised directly in equity
Dividends	7	-	-	-	-	-	(16.2)	(16.2)
Credit to equity of share-based payments		-	-	-	-	-	1.1	1.1
Satisfaction of long term incentive awards		-	-	-	-	-	(1.4)	(1.4)
Own shares held by employee benefit trust		-	-	-	-	-	(0.6)	(0.6)
Transfers between reserves		-	-	0.2	-	-	(0.2)	-
Tax taken directly to the Consolidated Statement of Changes in Equity	5	-	-	-	-	-	1.0	1.0
Shares issued		0.1	0.7	-	-	-	-	0.8
At 31 December 2016		19.7	33.5	4.8	29.3	-	144.9	232.2
Comprehensive income
Profit for the year		-	-	-	-	-	53.9	53.9
Other comprehensive income for the year		-	-	-	(6.4)	-	(0.2)	(6.6)
Transactions with owners recognised directly in equity
Dividends	7	-	-	-	-	-	(20.7)	(20.7)
Credit to equity of share-based payments		-	-	-	-	-	1.3	1.3
Satisfaction of long term incentive awards		-	-	-	-	-	(2.5)	(2.5)
Own shares held by employee benefit trust		-	-	-	-	-	(0.1)	(0.1)
Transfers between reserves		-	-	0.1	-	-	(0.1)	-
Tax taken directly to the Consolidated Statement of Changes in Equity	5	-	-	-	-	-	0.5	0.5
Shares issued		-	0.6	-	-	-	-	0.6
At 31 December 2017		19.7	34.1	4.9	22.9	-	177.0	258.6

 

† Other reserves represent the premium on shares issued in exchange for shares of subsidiaries acquired and £0.2m (2016: £0.2m) capital redemption reserve.

 

At 31 December 2016 the Group had purchased 103,246 of its own shares, which were held in an employee benefit trust for the purpose of settling awards granted to employees under equity-settled share based payment plans. The cost of these shares, amounting to £1.0m, was included within retained earnings at that date. In March 2017, these shares were issued in settlement of awards to employees. A further 84,225 shares were purchased in 2017 at a cost of £1.1m and are held at 31 December 2017.

 

Consolidated Statement of Cash Flows

Year ended 31 December 2017

 

	2017		2016
	£m	£m	£m	£m
Profit before tax		70.2		48.3
Add back net financing costs		3.9		3.5
Operating profit		74.1		51.8
Adjusted for non-cash items:
Share-based payments	1.8		1.6
Gain on disposal of subsidiary	(0.6)		-
Gain on disposal of non-current assets	(0.1)		(0.2)
Depreciation	18.2		17.3
Amortisation of intangible assets	5.0		3.7
Impairment of assets held for sale	0.4		-
Impairment of non-current assets	-		4.1
		24.7		26.5
Operating cash flow before movement in working capital		98.8		78.3
Increase in inventories	(13.8)		(4.3)
Increase in receivables	(5.3)		(0.6)
Increase in payables	-		4.8
Decrease in provisions and employee benefits	(3.2)		-
Net movement in working capital		(22.3)		(0.1)
Cash generated by operations		76.5		78.2
Income taxes paid		(16.7)		(15.7)
Interest paid		(3.4)		(3.2)
Net cash from operating activities		56.4		59.3
Interest received	0.6		0.4
Proceeds on disposal of non-current assets	2.3		3.6
Purchase of property, plant and equipment	(19.4)		(19.9)
Purchase of intangible assets	(1.3)		(1.8)
Acquisitions of businesses	(7.9)		(36.9)
Deferred consideration in respect of prior year acquisitions	(0.4)		(0.5)
Disposal of subsidiary	2.5		-
Net cash used in investing activities		(23.6)		(55.1)
Issue of new shares	0.6		0.8
Purchase of shares for employee benefit trust	(2.6)		(2.0)
Dividends paid	(20.7)		(16.2)
Costs associated with refinancing of revolving credit facility	-		(1.0)
New loans and borrowings	32.9		46.1
Repayment of loans and borrowings	(41.3)		(31.7)
Net cash used in financing activities		(31.1)		(4.0)
Net increase in cash		1.7		0.2
Cash at the beginning of the year		15.6		12.9
Effect of exchange rate fluctuations		(0.9)		2.5
Cash at the end of the year		16.4		15.6

 

 

Notes to the Consolidated Financial Statements

 

1.     Basis of preparation

Hill & Smith Holdings PLC is a company incorporated in the UK.

 

New IFRS standards and interpretations adopted during 2017

In 2017 the following amendments had been endorsed by the EU, became effective and therefore were adopted by the Group:

-       Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12

-       Disclosure Initiative - Amendments to IAS7

-       Annual Improvements to IFRSs - 2014-2016 Cycle.

The adoption of these standards and amendments has not had a material impact on the Group's Financial Statements.

 

The following standards and interpretations which are not yet effective or endorsed by the EU and have not been early adopted by the Group will be adopted in future accounting periods:

-       IFRS 15 'Revenue from Contracts with Customers' (effective 1 January 2018).

-       IFRS 9 'Financial Instruments' (effective 1 January 2018).

-       IFRS 16 'Leases' (effective 1 January 2019).

 

IFRS 16 replaces IAS 17 'Leases' and requires lessees to recognise a lease liability reflecting the future lease payments and a right-of-use asset for all lease contracts. Upon adoption of IFRS 16, the most significant impact will be the present value of the operating lease commitments (£36.6m at 31 December 2017) being shown as a liability in the statement of financial position together with a right of use asset, which are unwound and amortised to the income statement over the life of the lease. There will be no impact on cash flows although the presentation of the cash flow statement will change. Management is currently working on the new processes and systems that will be required to comply with this accounting standard.

 

None of the other standards or amendments above are expected to have a material impact on the Group.

 

Exchange rates

The principal exchange rates used were as follows:

 

	2017		2016
	Average	Closing	Average	Closing
Sterling to Euro (£1 = EUR)	1.14	1.13	1.22	1.17
Sterling to US Dollar (£1 = USD)	1.29	1.35	1.35	1.23
Sterling to Swedish Krona (£1 = SEK)	11.00	11.08	11.57	11.14
Sterling to Indian Rupee (£1 = INR)	83.90	86.30	90.96	83.48
Sterling to Australian Dollar (£1 = AUD)	1.68	1.73	1.82	1.70

 

Non-underlying items

Non-underlying items are disclosed separately in the Consolidated Income Statement where the quantum, nature or volatility of such items would otherwise distort the underlying trading performance of the Group. The following are included by the Group in its assessment of non-underlying items:

 

-       Gains or losses arising on disposal, closure, restructuring or reorganisation of businesses that do not meet the definition of discontinued operations.

-       Amortisation of intangible fixed assets arising on acquisitions.

-       Expenses associated with acquisitions.

-       Impairment charges in respect of tangible or intangible fixed assets.

-       Changes in the fair value of derivative financial instruments.

-       Significant past service items or curtailments and settlements relating to defined benefit pension obligations resulting from material changes in the terms of the schemes.

-       Net financing costs or returns on defined benefit pension obligations.

-       Costs incurred as part of significant refinancing activities.

 

The tax effect of the above is also included.

 

Details in respect of the non-underlying items recognised in the current and prior year are set out in note 3 to the Financial Statements.

 

2.     Segmental information

Business segment analysis

The Group has three reportable segments which are Infrastructure Products - Utilities, Infrastructure Products - Roads and Galvanizing Services. Several operating segments that have similar economic characteristics have been aggregated into these reporting segments. The Group's internal management structure and financial reporting systems differentiate between these segments on the basis of the following economic characteristics:

-       The Infrastructure Products - Utilities segment contains a group of businesses supplying products characterised by a degree of engineering expertise, to public and private customers involved in the construction of facilities serving the Utilities markets or in the maintenance of such facilities;

-       The Infrastructure Products - Roads segment contains a group of companies supplying permanent and temporary safety products to customers involved in the construction or maintenance of national roads infrastructure; and

-       The Galvanizing Services segment contains a group of companies supplying galvanizing and related materials coating services to companies in a wide range of markets including construction, agriculture and infrastructure.

 

Income Statement

 

	2017			2016
	Revenue £m	Result £m	Underlying result* £m	Revenue £m	Result £m	Underlying result* £m
Infrastructure Products - Utilities	215.7	13.5	16.8	207.6	4.0	13.0
Infrastructure Products - Roads	187.1	20.9	23.6	168.1	10.9	19.6
Infrastructure Products - Total	402.8	34.4	40.4	375.7	14.9	32.6
Galvanizing Services	182.3	39.7	40.9	164.4	36.9	38.0
Total Group	585.1	74.1	81.3	540.1	51.8	70.6
Net financing costs		(3.9)	(2.8)		(3.5)	(2.6)
Profit before taxation		70.2	78.5		48.3	68.0
Taxation		(16.3)	(18.9)		(14.5)	(16.3)
Profit after taxation		53.9	59.6		33.8	51.7

 

* Underlying result is stated before non-underlying items as defined in note 1, and is the measure of segment profit used by the Chief Operating Decision Maker, who is the Chief Executive. The Result columns are included as additional information.

 

Galvanizing Services provided £6.6m (2016: £4.7m) revenues to Infrastructure Products - Roads and £1.9m (2016: £1.4m) revenues to Infrastructure Products - Utilities. Infrastructure Products - Utilities provided £5.6m (2016: £5.4m) revenues to Infrastructure Products - Roads. These internal revenues, along with revenues generated from within their own segments, have been eliminated on consolidation .

 

Geographical analysis

Revenue (irrespective of origin)

 

	2017 £m	2016 £m
UK	288.6	264.5
Rest of Europe	99.9	89.1
North America	168.0	156.9
The Middle East	6.2	8.1
Asia	8.3	11.5
Rest of World	14.1	10.0
Total Group	585.1	540.1

 

Total assets

	2017 £m	2016 £m
UK	217.6	217.4
Rest of Europe	119.4	106.1
North America	173.4	173.1
Asia	14.3	16.4
Rest of World	2.5	4.4
Total Group	527.2	517.4

 

 

3.     Non-underlying items

Non-underlying items included in operating profit comprise the following:

 

-       Business reorganisation costs of £2.8m (2016: £10.5m) relating to various restructuring actions taken by the Group during the current and prior year.

-       In June 2017, the Group initiated a rationalisation of its Variable Message Signs business that will result in the closure of two of its operating sites and the consolidation of activities into the remaining site in Hebburn, UK. The business had been operating across three sites since the acquisitions of VMS and Tegrel in 2014/15 and expects to take advantage of cost savings and efficiencies as a result of the rationalisation. The anticipated cost of the exercise is £1.4m.

-       Following a strategic review of the US Pipe Supports business, in March 2017 the Group completed a rationalisation of its branch structure resulting in the closure of three of the seven existing branches and the consolidation of their operations into one strategically located service centre between New York and Philadelphia, serving the eastern region. The cost of this programme was £0.4m.

-       Following the acquisition of Tower Tech in August 2017, the Group has commenced a programme to close Tower Tech's existing facility in Oklahoma City and relocate the business to our Creative Pultrusions site in Pennsylvania. The cost of this programme, which is expected to be completed in 2018, is £0.4m.

-       In December 2016 the Group announced the closure of its roads business in India having reassessed the prospects in that market. The prior year results included a charge of £1.9m in respect of the closure. A further charge of £0.4m has been recognised in 2017 representing additional closure costs that have been incurred.

-       In March 2016 the Group announced the closure of its non-US Pipe Supports operations. Whilst substantially completed in the prior year, additional costs of £0.2m have been incurred in the current year on completion of the closure.

 

·      Amortisation of acquired intangible fixed assets of £4.0m (2016: £2.6m).

·      Acquisition expenses of £0.6m (2016: £1.8m) relating to the two acquisitions completed during the year.

·      An impairment charge of £0.4m in respect of assets held for sale, reflecting a reduction in the expected realisable value of that property.

·      In April 2017 the Group sold its traffic data collection business, CA Traffic Limited, to TagMaster AB for net consideration of £2.6m. Net assets disposed were £2.0m resulting in a profit on disposal of £0.6m. The detail of the disposal is set out below:

 

	£m
Capitalised development costs	0.6
Inventories	1.4
Current assets	0.8
Cash and cash equivalents	0.1
Current liabilities	(0.8)
Deferred tax	(0.1)
Net assets	2.0
Consideration	2.8
Less costs of disposal	(0.2)
Gain on disposal	0.6
Cash flow effect
Consideration less costs of disposal	2.6
Cash and cash equivalents disposed of	(0.1)
Net cash received shown in the Consolidated Statement of Cash Flows	2.5

 

Non-underlying items included in financial expense represent the net financing cost on pension obligations of £0.7m (2016: £0.5m) and a £0.4m (2016: £0.4m) charge in respect of amortisation of costs associated with refinancing.

 

4.     Net financing costs

 

	Underlying £m	Non- underlying £m	2017 £m	Underlying £m	Non- underlying £m	2016 £m
Interest on bank deposits	0.6	-	0.6	0.4	-	0.4
Financial income	0.6	-	0.6	0.4	-	0.4
Interest on bank loans and overdrafts	3.4	-	3.4	3.0	-	3.0
Total interest expense	3.4	-	3.4	3.0	-	3.0
Financial expenses related to refinancing	-	0.4	0.4	-	0.4	0.4
Interest cost on net pension scheme deficit	-	0.7	0.7	-	0.5	0.5
Financial expense	3.4	1.1	4.5	3.0	0.9	3.9
Net financing costs	2.8	1.1	3.9	2.6	0.9	3.5

 

 

5.     Taxation

	2017 £m	2016 £m
Current tax
UK corporation tax	7.6	5.4
Overseas tax at prevailing local rates	11.7	12.9
Adjustments in respect of prior periods	(1.1)	(1.6)
	18.2	16.7
Deferred tax
UK deferred tax	(0.7)	(0.4)
Overseas tax at prevailing local rates	0.7	-
Effect of change in tax rate	(1.9)	(1.8)
Tax on profit in the Consolidated Income Statement	16.3	14.5
Deferred tax
Relating to defined benefit pension schemes	-	(2.5)
Effect of change in tax rate	0.2	0.4
Tax on items taken directly to Other Comprehensive Income	0.2	(2.1)
Current tax
Relating to share-based payments	(0.3)	(0.6)
Deferred tax
Relating to share-based payments	(0.2)	(0.4)
Tax taken directly to the Consolidated Statement of Changes in Equity	(0.5)	(1.0)

 

The tax charge in the Consolidated Income Statement for the period is higher (2016: higher) than the standard rate of corporation tax in the UK. The differences are explained below:

	2017 £m	2016 £m
Profit before taxation	70.2	48.3
Profit before taxation multiplied by the effective rate of corporation tax in the UK of 19.25% (2016: 20%)	13.5	9.7
Expenses not deductible/income not chargeable for tax purposes	1.0	1.4
Non-deductible goodwill impairment	-	0.8
Non-taxable profit on disposal of UK subsidiary	(0.1)	-
Benefits from international financing arrangements	(0.8)	(1.4)
Local tax incentives	(0.9)	(0.9)
Utilisation of brought forward tax losses not recognised	-	(0.1)
Overseas profits taxed at higher/(lower) rates	6.9	6.3
Overseas losses not relieved	0.3	1.6
Withholding taxes	0.1	0.5
Impact of rate changes	(1.9)	(1.8)
Successful claim following EU challenge regarding tax on French dividends	(0.7)	-
Adjustments in respect of prior periods	(1.1)	(1.6)
Tax charge	16.3	14.5

 

6. Earnings per share

The weighted average number of ordinary shares in issue during the year was 78.6m (2016: 78.5m), diluted for the effects of the outstanding dilutive share options 79.6m (2016: 79.3m). Underlying earnings per share have been shown because the Directors consider that this provides valuable additional information about the underlying performance of the Group.

 

	2017		2017
	Pence per share	£m	Pence per share	£m
Basic earnings	68.6	53.9	43.0	33.8
Non-underlying items*	7.3	5.7	22.9	17.9
Underlying earnings	75.9	59.6	65.9	51.7
Diluted earnings	67.7	53.9	42.5	33.8
Non-underlying items*	7.1	5.7	22.6	17.9
Underlying diluted earnings	74.8	59.6	65.1	51.7

 

 

* Non-underlying items as detailed in note 3.

 

7. Dividends

Dividends paid in the year were the prior year's interim dividend of £6.7m (2016: £5.5m) and the final dividend of £14.0m (2016: £10.7m). Dividends declared after the year end date are not recognised as a liability, in accordance with IAS10. The Directors have proposed the following interim dividend and final dividend for the current year, subject to shareholder approval:

	2017		2016
	Pence per share	£m	Pence per share	£m
Equity shares
Interim	9.4	7.4	8.5	6.7
Final	20.6	16.4	17.9	14.1
Total	30.0	23.8	26.4	20.8

 

8.     Acquisitions

During the year, the Group acquired the trade and assets of two businesses:

·       On 24 March 2017 the Group acquired the trade and assets of Kenway Corporation ("Kenway"), a specialist in technologically advanced composite design, manufacturing and field service work across a broad range of industries including marine, power, pulp and paper, transportation and renewable energy.

·       On 15 August 2017 the Group acquired the trade and assets of Tower Tech Inc ("Tower Tech"), a leading provider of composite cooling towers both for permanent installations and temporary rental applications.

 

Details of these acquisitions are set out below:

	Kenway - Pre acquisition carrying amount £m	TowerTech - Pre acquisition carrying amount £m	Policy alignment and provisional fair value adjustments £m	Total £m
Intangible assets
Brands	-	-	0.7	0.7
Customer list	-	-	0.7	0.7
Property, plant and equipment	0.4	1.3	(0.3)	1.4
Inventories	1.0	2.0	(0.9)	2.1
Current assets	0.7	0.9	-	1.6
Total assets	2.1	4.2	0.2	6.5
Current liabilities	(0.3)	(1.7)	-	(2.0)
Deferred tax	-	-	(0.1)	(0.1)
Total liabilities	(0.3)	(1.7)	(0.1)	(2.1)
Net assets	1.8	2.5	0.1	4.4
Consideration
Consideration in the year				8.5
Goodwill				4.1
Cash flow effect
Cash consideration				8.5
Deferred consideration				(0.6)
Cash and cash equivalents received in the businesses				-
Net cash consideration shown in the Consolidated Statement of Cash Flows				7.9

 

Brands and customer relationships have been recognised as specific intangible assets as a result of these acquisitions. The residual goodwill arising primarily represents the assembled workforce, market share and geographical advantages afforded to the Group. Fair value adjustments have been made to better alig n the accounting policies of the acquired businesses with the Group's accounting policies and to reflect the fair value of assets and liabilities acquired. There is no difference between the gross value and fair value of acquired receivables.

Prior to the acquisition of the trade and assets of Tower Tech, the Group and Tower Tech were parties to trading arrangements on an arm's length basis. Trading between Tower Tech and fellow Group undertakings continues, on an arm's length basis, after the acquisition.

Post acquisition the acquired businesses have contributed £9.2m revenue and £0.8m underlying operating profit, which are included in the Group's Consolidated Income Statement. If the acquisitions had been made on 1 January 2017, the Group's results for the year would have shown revenue of £593.0m and underlying operating profit of £81.3m.

In addition to the above acquisitions, the Group paid a further amount of £0.4m in deferred consideration in respect of acquisitions made in the prior year.

During the year, a further £0.3m of goodwill has been recognised in relation to the finalisation of fair value adjustments on acquisitions made in 2016.

 

 

9.     Cash and borrowings

 

	2017 £m	2016 £m
Cash and cash equivalents in the Consolidated Statement of Financial Position
Cash and bank balances	16.4	15.6
Cash	16.4	15.6
Interest bearing loans and borrowings
Amounts due within one year	(0.3)	(0.3)
Amounts due after more than one year	(115.1)	(127.3)
Net debt	(99.0)	(112.0)
Change in net debt
Operating profit	74.1	51.8
Non-cash items	24.7	26.5
Operating cash flow before movement in working capital	98.8	78.3
Net movement in working capital	(19.1)	(0.1)
Changes in provisions and employee benefits	(3.2)	-
Operating cash flow	76.5	78.2
Tax paid	(16.7)	(15.7)
Net financing costs paid	(2.8)	(2.8)
Capital expenditure	(20.7)	(21.7)
Proceeds on disposal of non-current assets	2.3	3.6
Free cash flow	38.6	41.6
Dividends paid	(20.7)	(16.2)
Acquisitions	(8.3)	(37.4)
Disposals	2.5	-
Amortisation of costs associated with refinancing revolving credit facilities	(0.4)	(0.4)
Purchase of shares for employee benefit trust	(2.6)	(2.0)
Issue of new shares	0.6	0.8
Net debt decrease/(increase)	9.7	(13.6)
Effect of exchange rate fluctuations	3.3	(6.9)
Net debt at the beginning of the year	(112.0)	(91.5)
Net debt at the end of the year	(99.0)	(112.0)

 

Notes:

1.     The financial information previously set out does not constitute the Company's statutory accounts for the years ended 31 December 2017 or 2016 but is derived from those accounts. Statutory accounts for 2016 have been delivered to the registrar of companies, and those for 2017 will be delivered in due course. The auditors have reported on those accounts; their report was:

 

i.      unqualified;

ii.    did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report; and

iii.   did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

2.     The Annual Report will be posted to shareholders on or around 14 April 2018 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.

 

3.     Events Calendar:

 

i.      The Annual General Meeting will be held on Thursday 17 May 2018 at 11.00 a.m. at The Village Hotel, The Green Business Park, Shirley, Solihull, B90 4GW.

ii.    The proposed final dividend for 2017 will be paid on 2 July 2018 to shareholders on the register on 25 May 2018 (ex-dividend date 24 May 2018).

iii.   The last date for receipt of Dividend Reinvestment Plan elections is 11 June 2018.

iv.    Interim results announcement for the period to 30 June 2018 due 8 August 2018.

v.     Payment of the 2018 interim dividend due January 2019.

 

4.     This preliminary announcement of results for the year ended 31 December 2017 was approved by the Directors on

7 March 2018.

 

Cautionary Statement

This announcement contains forward looking statements which are made in good faith based on the information available at the time of its approval. It is believed that the expectations reflected in these statements are reasonable but they may be affected by a number of risks and uncertainties that are inherent in any forward looking statement which could cause actual results to differ materially from those currently anticipated. Nothing in this document should be regarded as a profits forecast.