Hill & Smith profits fall as board talks up resilience

Infrastructure products and galvanizing services provider Hill & Smith Holdings reported a 9% improvement in revenue in its final results on Wednesday, to £637.9m, or a 10% rise at constant currency.

The FTSE 250 company said its underlying operating profit was down 1% year-on-year at £80.1m, while its underlying operating margin was 130 basis points lower at 12.6%.

Its underlying profit before tax was down 3% on the prior year at £76.3m, while underlying earnings per share were 3% higher at 77.8p.

On a reported basis, operating profit fell 12% to £65.2m, with profit before tax falling 15% to £59.8m, and basic earnings per share sliding 13% to 59.9p.

Net debt widened to £132.9m during the year, from £99m at the end of the prior year.

Hill & Smith said it returned to growth in the second half of the year ended 31 December, after a “disappointing” first half.

Performance in the US and other international businesses was described as “robust”, which the board said was driven by significant investment in new and replacement infrastructure.

UK performance improved in the second half, despite a cautious investment environment.

The company completed seven acquisitions in 2018 and early 2019, which the directors said extended its infrastructure product range and addressable markets.

Hill & Smith said its operating cash flow was “strong”, with the net debt figure of £132.9m being 1.3x underlying EBITDA, despite acquisition spend of £45.8m and capital investment of £32.8m in the year.

The board proposed a 6% increase in the final dividend to 21.8p, which would lead to a 6% rise in the full-year dividend to 31.8p - the 16th successive year of increases.

“We returned to growth in the second half, a testament to our resilient business model, our leading positions in markets with clear long-term growth dynamics, and our ability to create our own growth opportunities by broadening and enhancing the range of products that we can offer,” said Hill & Smith chief executive officer Derek Muir.

“We do this both through internal product development and by targeting complementary acquisitions, and 2018 has been a busy and successful year in this regard.”

Muir said the company’s UK and US businesses, which represented the bulk of its activities, would continue to benefit from the “significant” ongoing investment in replacement and new infrastructure in those countries.

“In particular, the UK government's confirmed long-term commitment to increased investment in the roads network is very encouraging for our UK roads business, and our US businesses will benefit from the US administration's 'Buy American' policy for federally funded infrastructure projects.

“Despite all the current well-documented political and macroeconomic uncertainty, we are confident that our leading market positions, business model and financial strength put us in a strong position to take advantage of market opportunities as they present themselves,” Derek Muir explained.

“Whilst we continue to experience some short term uncertainty in the UK, we have reasonable expectations that 2019 will be a year of progress for the group."

Hill & Smith also announced on Wednesday that group finance director Mark Pegler would step down from the board and leave the group at the end of April.

It said the move reflected the outcome of the board's long term succession planning, alongside Pegler’s personal plans for the future, with a search for his successor said to be underway.