Hill & Smith Plc · LSE:HILS
Hill & Smith — H1 2023 Earnings Presentation
26 slides from Hill & Smith's earnings presentation, Aug 9, 2023
Slide 1: H1 2023 Interim Results
H1 2023 Interim Results 9 August 2023 for the six months ended 30 June 2023
Slide 2: Highlights
HIGHLIGHTS Record H1 trading performance • Reflects strong momentum in our US businesses • Revenue +9%, operating profit +20% on an organic constant currency basis • Operating margin +240bps to 14.9% Value enhancing acquisitions • £38.5m deployed on two acquisitions • 2022/23 acquisitions performing
Slide 3: H1 2023 Results: A Record First Half Performance
H1 2023 RESULTS A RECORD FIRST HALF PERFORMANCE Constant 2023 2022 Reported Currency OCC Continuing Operations Revenue £420.8m £349.9m +20% +17% +9% Operating profit £62.5m £43.6m +43% +38% +20% Operating margin 14.9% 12.5% +240 bps Profit before tax £57.2m £40.2m +42% Earnings per share 53.6p 38.7p
Slide 4: Group Overview: Increasing Importance of US End Markets
GROUP OVERVIEW INCREASING IMPORTANCE OF US END MARKETS By geography 3% 2% 25% ▪ US OPERATING 41% REVENUE £420.8m 56% ▪ UK PROFIT £62.5m ▪ Rest of World 73% By division 14% 24% 33% ▪ Engineered 36% Solutions OPERATING REVENUE PROFIT £420.8m ▪ Galvanizing £62.5m Services ▪ Roads & 50% 43% Security 202
Slide 5: Engineered Solutions
ENGINEERED SOLUTIONS Constant By geography 2023 2022 Currency OCC Revenue (£m) 181.7 136.5 +29% +17% 3% US +27% OCC Operating profit (£m) 30.9 14.1 +106% +89% 25% UK -4% OCC Operating margin 17.0% 10.3% REVENUE £181.7m India +56% OCC Highlights 72% • Standout performance driven by US growth • Operat
Slide 6: Galvanizing Services
GALVANIZING SERVICES Constant By geography 2023 2022 Currency OCC Revenue (£m) 99.6 84.5 +14% +10% Operating profit (£m) 22.6 21.4 +1% -2% Operating margin 22.7% 25.3% US + 18% OCC 44% REVENUE 56% £99.6m UK + 1% OCC Highlights • Robust performance supported by US growth • Division continues to deliv
Slide 7: Roads & Security
ROADS & SECURITY Constant By geography 2023 2022 Currency OCC Revenue (£m) 139.5 128.9 +7% -2% 2% UK Operating profit (£m) 9.0 8.1 +15% -49% Roads -5% OCC 35% Security -3% OCC Operating margin 6.5% 6.3% REVENUE US +2% OCC £139.5m Highlights 63% • Growth driven by strong trading in National Signal Ro
Slide 8: Cash Generation and Financial Position
CASH GENERATION AND FINANCIAL POSITION £m H1 2023 H1 2022 Strong H1 cash conversion at 87% Total Group* operating profit 62.5 48.4 • Improved working capital efficiency Depreciation and amortisation 15.1 15.7 Underlying EBITDA 77.6 64.1 • Capital investment to maintain and grow: £12.3m Working capit
Slide 9: ESG Focus Areas
ESG FOCUS AREAS PLANS PROGRESSING Sustainability is a structural growth driver for our business PROTECTING THE WORLD Our commitment to Net Zero ESG FOCUS AREAS: UN SDGs 1. Greenhouse gas emissions and energy • Successful baseline and validation of Scope 3 emissions efficiency • Submission of near an
Slide 10: Financial Framework
FINANCIAL FRAMEWORK THROUGH THE CYCLE FRAMEWORK FY 2022 H1 2023 ORGANIC REVENUE GROWTH 5 5-7% 14% 5 9% 5 TOTAL REVENUE GROWTH 10%+ 17% 20% OPERATING PROFIT MARGIN 15% 13.3% 14.9% RETURN ON INVESTED CAPITAL 18%+ 19.2% 21.3% CASH CONVERSION 80%+ 51% 87% COVENANT LEVERAGE 1-2x 0.7x 0.7x 10 2023 Interim
Slide 11: US Industrial Expansion
US INDUSTRIAL EXPANSION ACCELERATING END MARKET DEMAND Hill & Smith is exceptionally well placed to benefit Federal/Infrastructure Investment and Jobs Act from US industrial expansion • $1.2 trillion with $550 billion of new federal spending Key drivers of activity: to be allocated to infrastructure
Slide 12: M&A Update
M&A UPDATE RECENT ACQUISITIONS PERFORMING WELL National Signal Enduro Composites • Acquired in October 2022: $25m • Acquired in February 2023: $35m • The market leader in solar lighting towers in US • A market leader in the design and manufacture of composite products and solutions • 180 day integra
Slide 13: Our M&A Strategy in Action
OUR M&A STRATEGY IN ACTION BUILDING A US MARKET LEADER 2022 Acquired in 2023 Revenue Complementary $105m product portfolio, providing access to Acquired in 2018 US Gulf Coast market Large-part infusion Acquired in 2017 moulding Proforma revenue Market leading capability including Enduro: Acquired in
Slide 14: Investment Case
INVESTMENT CASE DELIVERING LONG TERM STAKEHOLDER VALUE • Structural growth underpinned by the need for infrastructure investment in our core markets • Market leader, with a strong track record, in attractive niches with high barriers to entry • Sustainability at the core of our business model • Entr
Slide 15: Positive Outlook
POSITIVE OUTLOOK CONFIDENT OF MAKING FURTHER PROGRESS IN 2023 Short term • FY 2023 operating profit modestly ahead of current market expectations, despite the macroeconomic and FX headwinds: o Year to be first half weighted o Well positioned in a range of infrastructure markets with attractive struc
Slide 16: Appendices
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Slide 17: Modelling Guidance
2023 MODELLING GUIDANCE Capex Interest2 c.£30m c.£10m Maintenance spend c.£20m Cash conversion H1/H2 weighting c.85-90% Profit H1 weighted due to project timing and expected H2 FX headwinds Effective tax rate1 Translation impact of c.24-25% FX rate movements Cash tax payments H1 weighted +/- FY FY 1
Slide 18: Divisional Analysis
DIVISIONAL ANALYSIS £m H1 2023 Organic M&A FX H1 2022 Galvanizing Services Revenue 99.6 8.7 3.9 2.5 84.5 Operating profit 22.6 (0.4) 0.6 1.0 21.4 Operating margin 22.7% 25.3% Engineered Solutions Revenue 181.7 24.5 15.9 4.8 136.5 Operating profit 30.9 13.3 2.6 0.9 14.1 Operating margin 17.0% 10.3% R
Slide 19: Our Purpose and Strategy
OUR PURPOSE AND STRATEGY WHY? WHERE? HOW? ORGANIC GROWTH WHAT?? 1 MACRO DRIVERS • Autonomous operating model • Increasing population • Agility/proximity to market Creating • Urbanisation • Climate change • Premium on talent • Innovation • Increasing health and safety sustainable regulations PORTFOLI
Slide 20: Portfolio Management: Acquisition Heat Map
PORTFOLIO MANAGEMENT ACQUISITION HEAT MAP 20 2023 Interim Results
Slide 21: Capital Allocation
CAPITAL ALLOCATION Effective deployment of capital to support growth ambitions H1 2023 ROIC: 21.3% Organic growth Acquisitions Progressive dividend • Focus on higher • Focus on quality and long- • Focus on maintaining return, higher growth term growth sustainable and markets progressive dividend • S
Slide 22: Financial Capacity
FINANCIAL CAPACITY FACILITIES AND USAGE Principal debt facilities £m Net debt Facility • Revolving credit facility: £250m maturing H2 2026 with one-year extension option Committed 117.0 305.5 • Senior notes: $70m unsecured notes mature 2026/29 On demand - 7.1 • c.50% of drawn debt at period end subj
Slide 23: Return on Invested Capital
RETURN ON INVESTED CAPITAL CONTINUING OPERATIONS Group H1 2023 H1 2022 ROIC is defined as underlying operating profit for the last 12 months, divided by average invested capital. Operating profit (£m) 116.0 83.1 Invested capital is defined as the sum of intangible assets, Average invested capital (£
Slide 24: Non-Underlying Items
NON-UNDERLYING ITEMS CONTINUING OPERATIONS £m H1 2023 H1 2022 Business reorganisation costs 0.7 (1.6) Costs relating to acquisitions and disposals (2.2) (1.1) Amortisation of acquisition intangibles (4.3) (2.9) Impairment of goodwill/other assets - (2.5) Loss on disposal of subsidiaries (3.2) (0.7)
Slide 25: Disclaimer
DISCLAIMER Cautionary statement This presentation contains forward looking statements which are made in good faith based on the information available at the time of its publication. It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a numbe
Slide 26: VAS
VAS \\ NN Hill & Smith PLC