Hill & Smith : 2022 Annual Report & Financial Statements

2022

Creating sustainable infrastructure and safe transport through innovation.

Hill & Smith PLC

Annual Report for the year ended 31 December 2022

Stock Code HILS

INVESTMENT CASE

Structural tailwinds in attractive markets

Opportunity to grow market share in meaningful high return markets that are backed by infrastructure investment and long term growth drivers.

Read more on Our Market Place on pages 8 to 9.

Strong execution track record

Hill & Smith's autonomous model has delivered strong performance over the long term. Our agile business model has been key to mitigating challenges around supply chain, labour and COVID.

Our model is scalable and supported by an ambitious management team.

Read more in our Operational and Financial

Review on pages 22 to 31.

Focus on high value niche applications

Our increasing focus on high value, fast growing niche markets fuels organic growth and generates higher gross margins and strong cash conversion.

Read more on Our Divisions on pages 3 and 13.

Portfolio management

Our structured and disciplined approach to acquisitions and disposals means we are increasing the quality of the operating companies that make up the Group and ensuring that they are each aligned to long term growth drivers.

Active management within our operating companies drives gross margin improvement and allows reinvestment in areas of talent and innovation.

Read more on Our Business Model on pages 10 to 11.

Purpose and sustainability

We have a clear and well-understood purpose. Our products are focused on increasing the sustainability of infrastructure and making transport safer.

Read more on Our Sustainability Plan on pages 32 to 57.

Strong balance sheet and cash generation

High and improving returns convert into strong cash generation, allowing investment to further grow the business and deliver a sustainable, progressive dividend policy.

Read more in our Operational and Financial

Review on pages 30 to 31.

FIVE-YEAR TRACK RECORD

Revenue1 (£m)

	617.2	588.4	625.2	732.1
564.2

2018 2019 2020 2021 2022

Underlying operating profit1 (£m)

97.1

74.4	80.3	64.7	77.3

2018 2019 2020 2021 2022

1 Continuing operations

Underlying earnings per share (p)

77.8	80.7	77.9	91.9
		63.2

2018 2019 2020 2021 2022

Dividend per share (p)

31.8		26.7	31.0	35.0
	10.6
2018	2019	2020	2021	2022

Scope 1 & 2 Carbon emissions (market-based consumption) (tonnes)

80,918	73,281	66,774	64,597
		58,305
2018	2019	2020	2021	2022

CONTENTS

STRATEGIC REPORT
Highlights	02
Group at a Glance	03
Interim Executive Chair's Letter	04
Our Purpose and Strategy	06
Our Market Place	08
Our Business Model	10
Our Stakeholders	12
Our Divisions	13
Our Products	15
Measuring Our Performance	20
Operational and Financial Review	22
Our Approach to Sustainability	32
Stakeholder Engagement	58
Risk Management	60
Group Principal Risks	64
Non-financial Information Statement	69
GOVERNANCE
Board of Directors	70
Introduction to Governance	72
Governance Report	74
Nomination Committee Report	84
Audit Committee Report	86
Remuneration Committee Report	92
Directors' Remuneration Policy	105
Directors' Report	114
Statement of Directors' Responsibilities	116
FINANCIALS
Independent Auditor's Report	118
Consolidated Income Statement	126
Consolidated Statement of Financial Position	128
Consolidated Statement of Changes in Equity	129
Consolidated Statement of Cash Flows	130
Notes to the Consolidated Financial Statements	131
Company Balance Sheet	181
Company Statement of Changes in Equity	182
Notes to the Company Financial Statements	183
Five year summary	193
SHAREHOLDER INFORMATION
Financial Calendar	194
Shareholder Information	195
Principal Group Businesses	196
Directors, Contacts and Advisors	199
Shareholder Notes	200

Composite rail platform, by CCG,

Annadale Station, Staten Island, NYC

STRATEGIC REPORT

Stock Code HILS

01

HIGHLIGHTS

GROUP HIGHLIGHTS:

	Underlying*		Change		Statutory	Change
	31	31		Constant		31	31
	December	December	Reported	Currency		December	December	Reported
	2022	2021(1)	%	%	OCC ^ %	2022	2021(1)	%
Continuing Operations (1)
Revenue	£732.1m	£625.2m	+17%	+12%	+14%	£732.1m	£625.2m	+17%
Operating profit	£97.1m	£77.3m	+26%	+17%	+14%	£78.5m	£48.9m	+61%
Operating margin	13.3%	12.4%	+90bps			10.7%	7.8%	+290bps
Profit before tax	£87.9m	£71.2m	+23%			£69.3m	£42.8m	+62%
Earnings per share	85.4p	70.0p	+22%			66.7p	35.8p	+86%
Total Group (1)
Earnings per share	91.9p	77.9p	+18%			71.0p	43.0p	+65%
Dividend per share	35.0p	31.0p	+13%			35.0p	31.0p	+13%

1 Continuing operations exclude France Galva, which has been accounted for as a discontinued operation as explained in note 10 to the financial statements. The prior year comparatives have been restated accordingly. Total Group includes both continuing and discontinued operations.

• All underlying measures exclude certain non-underlying items, which are as detailed in note 5 to the Financial Statements and described in the Financial Review. References to an underlying profit measure throughout this announcement are made on this basis. Non-underlying items are presented separately in the Consolidated Income Statement where, in the Directors' judgement, the quantum, nature or volatility of such items gives further information to obtain a proper understanding of the underlying performance of the business. Underlying measures are deemed alternative performance measures (῾APMs') under the European Securities and Markets Authority guidelines and a reconciliation to the closest IFRS equivalent measure is detailed in note 4 to the financial statements. They are presented on a consistent basis over time to assist in comparison of performance.

• Where we refer to organic constant currency (῾OCC') movements, these exclude the impact of currency translation effects and acquisitions, disposals and closures of subsidiary businesses. In respect of acquisitions, the amounts referred to represent the amounts for the period in the current year that the business was not held in the prior year. In respect of disposals and closures of subsidiary businesses, the amounts referred to represent the amounts for the period in the prior year that the business was not held in the current year. Constant currency amounts are prepared using exchange rates which prevailed in the current year.

KEY HIGHLIGHTS:

• Record trading performance	• Significant progress on portfolio
− 14% organic constant currency	management
− Announcement of two value
revenue and profit growth
− Growth significantly driven by US	enhancing acquisitions in
October 2022:
businesses which represented 64% of
Group operating profit	− National Signal, a high growth US
− Operating margin increased by 90bps	off grid solar lighting business,
for £24.2m
to 13.3%, reflecting strong operational
performance, pricing actions and	− Widnes Galvanising, expanding
portfolio evolution	our galvanizing footprint in the
− Strong performance highlights the	UK, for £3.9m
resilience of our chosen long term	− Acquisition of Enduro Composites
end markets and focus on higher	in February 2023 for £28.7m further
growth businesses	accelerating our US composites
	growth strategy
	− Acquisition of Korns Galvanizing in
	March 2023 for £9.4m, supporting
	growth in attractive US galvanizing
	market
	− Disposal of France Galva in October
	2022 for £62.0m reduces our
	exposure to lower growth, lower
	margin French galvanizing market

• Refreshed financial framework reflecting Group's growth potential
• Improved cash generation in second half, with year-end covenant leverage at 0.7 times
• Final dividend of 22p proposed, a
  16% increase on 2021, in line with the Group's sustainable and progressive dividend policy
• Well-positionedin structurally growing end markets and expect to make further progress in 2023, despite macro- economic uncertainties

02 Hill & Smith PLC ⸳ Annual Report and Accounts 2022

GROUP AT A GLANCE

STRATEGIC REPORT

GROUP SUMMARY

Our porfolio: As at 31 December 2022, the Group consisted of 30 companies operating from 57 sites in five countries, through which we aim to deliver high levels of organic growth and strong cash conversion. These companies are supported by a head office team who offer support and leadership in areas including capital allocation, M&A, health & safety, tax, legal and sustainability.

Our operating framework: We operate a decentralised autonomous operating model, which benefits from high accountability, agility and customer intimacy, and helps us to attract talented people who want to make a difference.

Sustainability built in: Our products and services help transport become safer and infrastructure become more sustainable, with our customers benefitting through the value that our products and services provide.

ROADS &	ENGINEERED	GALVANIZING
SECURITY	SOLUTIONS	SERVICES

Supplying products and services to support road and highway infrastructure including temporary and permanent road safety barriers, renewable energy lighting and power solutions, intelligent traffic solutions, street lighting columns and bridge parapets. The security portfolio includes hostile vehicle mitigation solutions, high security fencing and automated gate solutions.

Supplying engineered steel and composite solutions with low embodied energy for a wide range of infrastructure markets including energy generation and distribution, marine, rail and housing. The division also supplies seismic protection solutions and engineered pipe supports for the water, power and liquid natural gas markets.

Supplying a service that dramatically increases the sustainability and maintenance free life of steel products. This includes structural steelwork, lighting, bridges, agricultural equipment and other products for the industrial and infrastructure markets.

	Roads & Security		Engineered Solutions	Galvanizing Services
% Group Revenue	36%			40%		24%
% Group Operating
19%		36%		45%
Profit

Stock Code HILS

03