Hill & Smith : Half Year Results Report 2023

2023

Creating sustainable infrastructure and safe transport through innovation.

Half year results for the six months ended 30 June 2023

Stock Code HILS

Contents

1. Financial Results

1. Business Review

1. Financial Review

1. Financial Statements

1. Notes to the Financial Statements

1. Financial Calendar

1. Dividend Reinvestment Plan
2. Directors, Contacts & Advisors

Half year results for the six months ended 30 June 2023

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Hill & Smith PLC

Half Year Results (unaudited) for the six months ended 30 June 2023

Record results, strong outlook

Hill & Smith PLC ("Hill & Smith" or "the Group"), the international provider of sustainable infrastructure products and services, announces its unaudited results for the six months ended 30 June 2023 ("the period").

Financial Results

	Underlying*		Change			Statutory
	30 June	30 June	Reported	Constant		30 June	30 June	Change
	2023	2022 (1)	%	Currency %	OCC ^ %	2023	2022 (1)	%
Continuing Operations (1)
Revenue	£420.8m	£349.9m	+20%	+17%	+9%	£420.8m	£349.9m	+20%
Operating profit	£62.5m	£43.6m	+43%	+38%	+20%	£53.5m	£34.8m	+54%
Operating margin	14.9%	12.5%	+240bps			12.7%	9.9%	+280bps
Profit before tax	£57.2m	£40.2m	+42%			£48.2m	£31.4m	+54%
Earnings per share	53.6p	38.7p	+39%			43.5p	29.3p	+48%
Total Group (1)
Earnings per share	53.6p	43.2p	+24%			43.5p	32.7p	+33%
Dividend per share	15.0p	13.0p	+15%			15.0p	13.0p	+15%

1. Continuing operations exclude France Galva, which was divested in October 2022 and was accounted for as a discontinued operation in the prior year comparatives. Total Group includes both continuing and discontinued operations. Refer to note 9 to the financial statements.

Key Highlights:

• Record trading performance
  o Group revenue up 9% and operating profit up 20% on an organic constant currency basis
  o Operating margin increased by 240bps to 14.9%, with improved product mix and operational gearing
  o Strong momentum in our US businesses focused on structurally growing infrastructure markets, representing 73% of H1 operating profit
  o Resilient performance in our UK businesses
• Continued focus on delivering value enhancing acquisitions
  o Completed acquisitions of Enduro and Korns Galvanizing in H1 (deploying £38.5m in aggregate)
  o All recent acquisitions trading well with Enduro and National Signal ahead of expectations. Contribution from acquisitions: £41m revenue, £8m operating profit
  o Continued progress on building M&A pipeline
• Strong cash generation with H1 cash conversion at 87% o Covenant leverage at 0.7 times
• Interim dividend up 15% at 15p
• FY23 operating profit expected to be modestly ahead of current market consensus †
• We will be hosting an investor seminar covering the growth strategy for our composites business at the end of November. Further details of the event will follow.

Half year results for the six months ended 30 June 2023

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Alan Giddins, Executive Chair, said:

"Hill & Smith has delivered a record first half performance, reflecting the strong performance of our US businesses and the resilient performance of those in the UK. This strong trading has been evidenced across the Group, in particular through a standout performance in our Engineered Solutions division as well as a strong contribution from recently acquired businesses. The record results are testament to the benefits of our autonomous operating model. I would also like to thank all of our employees for their considerable commitment and contribution.

"The full year outlook is now expected to be modestly ahead of market expectations. The geographic mix of the portfolio has also evolved and there is now a heavier weighting towards faster growing US end markets, which accounted for 73% of Group profits. Longer term, we remain confident about our prospects given our structural end market growth drivers, the quality of our operating businesses and strong balance sheet, all of which will allow us to accelerate our growth further."

• The current company compiled analyst consensus expectation for FY23 is for underlying operating profit of £111.8m with a range of £110.2m-£112.8m.

For further information, please contact:
Hill & Smith PLC
Alan Giddins, Executive Chair	Tel: [phone]
Hannah Nichols, Chief Financial Officer
MHP
Reg Hoare/Rachel Farrington/Catherine Chapman	Tel: [phone]

• All underlying measures exclude certain non-underlying items, which are as detailed in note 6 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 5 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.

Notes to Editors

Hill & Smith PLC is a leading provider of sustainable infrastructure products and services. The Group employs c.4,250 people worldwide with the majority employed by its autonomous, agile, customer focussed operating businesses based in the UK, USA, Australia and India. The Group office is in the UK and Hill & Smith PLC is quoted on the London Stock Exchange (LSE: HILS.L).

The Group's operating businesses are organised into three main business divisions:

Galvanizing Services: increasing the sustainability and maintenance free life of steel products including structural steel work, lighting, bridges and other products for industrial and infrastructure markets.

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

Roads & Security: supplying products and services to support road and highway infrastructure including temporary and permanent road safety barriers, intelligent traffic solutions, street lighting columns and bridge parapets. In addition, the division includes two businesses which are market leaders in the provision of off-grid solar lighting and power solutions. The security portfolio includes hostile vehicle mitigation solutions, high security fencing and automated gate solutions.

Half year results for the six months ended 30 June 2023

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H1 2023 Review

The Group has delivered a record first half performance, reflecting strong momentum in our US businesses focused on structurally growing infrastructure markets. Alongside this, our UK businesses delivered a resilient performance, supported by the leading positions they hold in their respective niche markets. The record results are also testament to the benefits of our autonomous operating model and the commitment of our talented local teams.

Revenue in the first half was up 9% and operating profit was up 20% on an organic constant currency basis with Group operating margin increasing by 240 basis points to 14.9%, the margin expansion attributable to improved portfolio mix and the benefits of operational gearing. Acquisitions contributed c.£41m revenue and c.£8m operating profit in the period.

The Engineered Solutions division delivered an exceptional performance, driven by increasing demand for composite solutions in the US. Our business supplying structural steel substation components also saw robust demand, underpinned by the ongoing requirement to modernise the US electric grid.

In Galvanizing Services, our US business delivered record revenue and operating profit, underpinned by strong volume growth across a range of infrastructure end markets. As expected, operating profit in the UK galvanizing business was lower than H1 2022, a record first half, with the impact of lower volumes and higher energy costs, partly offset through pricing and an improved product mix.

The Roads & Security division delivered good constant currency revenue and profit growth, attributable to buoyant demand in National Signal, our US off grid solar lighting solutions business, which has traded ahead of expectations since acquisition in October 2022. The division saw profit decline on an organic basis which mainly reflects the impact of further restructuring actions taken in our US Roads business. Our UK Roads & Security portfolio delivered revenue and profit lower than H1 2023, reflecting the more challenging UK economic backdrop.

The Group continues to be highly cash generative, with cash conversion in the first half of 87% and net debt remaining at 0.7 times EBITDA on a covenant basis. The strong balance sheet underpins the resilience of the Group and provides us with flexibility to continue to invest in growth opportunities including acquisitions, where we have an increasingly strong M&A pipeline.

Strategic progress update

Portfolio Management

Acquisitions form a key part of the Group's growth strategy. In the first half we have made good progress in building our M&A pipeline, with a continued focus on high quality businesses with attractive organic growth potential. All potential acquisitions are tightly evaluated to ensure they fit with our strategic and financial criteria. Once acquired, we implement a rigorous and detailed integration plan.

In the year to date, we have acquired two high quality businesses for a total headline consideration of £38.5m. In February 2023, the Group acquired Enduro Composites, a designer, manufacturer and supplier of engineered composite solutions based in Houston, Texas for £29.0m. Enduro is highly complementary to our existing US composites business and will further accelerate our strategy in the exciting and growing composites market. Trading since acquisition has been ahead of our expectations.

In March 2023, we acquired Korns Galvanizing based in Johnstown, Pennsylvania for £9.5m, strengthening our US galvanizing market presence. The site operations have been successfully integrated within V&S Galvanizing and trading since acquisition has been in line with expectations.

In April 2023 we completed the disposal of the final part of our loss making Swedish roads business.

Half year results for the six months ended 30 June 2023

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