Hill & Smith Plc · LSE:HILS
Hill & Smith — FY2020 Earnings Presentation
33 slides from Hill & Smith's earnings presentation, Mar 10, 2021
Slide 1: 2020 Preliminary Results
2020 Preliminary Results Creating sustainable infrastructure and safe transport through innovation 10 March 2021
Slide 2: Key messages
Key messages • Safety, health and wellbeing of our employees remain our key priority • Robust trading performance • Good recovery in H2, approaching H2 2019 trading levels • US businesses performed well throughout the year • Security businesses continue to face challenges • Strong cash generation •
Slide 3: Results summary
Results summary Reported Organic^ 2020 2019 +/- +/- Revenue (£m) 660.5 694.7 -5% -7% Operating profit (£m) 69.9 86.3 -19% -20% Operating margin 10.6% 12.4% -180bps -180bps Profit before tax (£m) 62.6 79.4 -21% -22% Earnings per share (p) 63.2 80.7 -22% -23% Dividend (p) 26.7 10.6 +152% Net Debt (£m)
Slide 4: 2020 at a glance
H1 2020 2020 at aatglance a glance By segment 19% 28% 40% Operating Revenue £660.5m 53% 51% Profit £69.9m 30% Roads & Security 32% Utilities Galvanizing By end market geography By plant location 3% 3% 17% 26% 41% Operating Revenue US Profit £660.5m UK £69.9m Rest of Europe 71% 39% Rest of World FY20
Slide 5: Roads & Security
Roads & Security Organic Operating 2020 2019* Change £m Revenue Profit Revenue (£m) 263.4 275.3 -10% 2019* 275.3 23.2 Operating profit (£m) 13.2 23.2 -45% F/X 0.6 - M&A 16.0 0.5 Operating margin 5.0% 8.4% Organic (28.5) (10.5) UK Roads 2020 263.4 13.2 • UK Government confirmed commitment to RIS 2 sp
Slide 6: Utilities
Utilities Organic Operating 2020 2019* Change £m Revenue Profit Revenue (£m) 211.2 222.3 -2% 2019* 222.3 21.3 Operating profit (£m) 20.9 21.3 -4% F/X (0.4) - M&A (5.4) 0.4 Operating margin 9.9% 9.6% Organic (5.3) (0.8) UK 2020 211.2 20.9 • Building products business temporarily closed in March, reop
Slide 7: Galvanizing
Galvanizing Organic Operating 2020 2019 Change £m Revenue Profit Revenue (£m) 185.9 197.1 -6% 2019 197.1 41.8 Operating profit (£m) 35.8 41.8 -14% F/X 0.5 - Organic (11.7) (6.0) Operating margin 19.3% 21.2% 2020 185.9 35.8 Overall • H1 trading impacted by COVID-19 related closure and slowdown in dem
Slide 8: Cash generation and financial position
Cash generation and financial position £m FY 2020 FY 2019 • Strong cash generation in period Underlying Operating Profit 69.9 86.3 Depreciation and amortization 33.7 31.3 • Underlying cash conversion 139% Underlying EBITDA 103.6 117.6 • Working capital inflow £18.2m (2019: £12.9m outflow) Working ca
Slide 9: Outlook
Outlook Short term • Expect good overall recovery in 2021 • Mindful of ongoing COVID-19 uncertainty • FX and raw material price headwinds • Smart motorway schemes expected to start in H2 2021 Medium to long term • Outlook for infrastructure spend remains positive • Potential for significant US infra
Slide 10: Strategy update
Strategy update Creating sustainable infrastructure and safe transport through innovation 10 March 2021
Slide 11: Strengths and Opportunities
Strengths and Opportunities Strong fundamentals Opportunities • Resilient markets – strong growth drivers • Become more sustainable led by our purpose • Impressive footprint • Increase the focus on organic growth • Entrepreneurial autonomous operating model • Target higher margin applications • Exce
Slide 12: Our strategy
Our strategy Why? Where? How? What? Autonomous operating model • Autonomy/agility/proximity 1 Macro drivers Increasing population, to market organic Urbanisation, Climate • Premium on talent growth change, increasing Health & • Innovation Safety regulations Portfolio management Creating sustainable
Slide 13: Attractive markets
Attractive markets Market Trend Opportunities for H&S Galvanizing • Protects, extends and enhances critical infrastructure • US growth higher than Europe due to lower market penetration and US infrastructure spend • Develop / acquire technology utilising our domain knowledge Roads & • Awaiting Presi
Slide 14: Examples of US organic growth
Examples of US organic growth 1. Novia • High value engineered HVAC restraint • Regional player – capacity constrained • Expand manufacturing capacity ($3.6m) and sales coverage 2. V&S Utilities • Electricity distribution market • $1.5m investment in additional Ohio plant 3. H&S Inc • $11m investmen
Slide 15: Portfolio management
Portfolio management Continue strategy of thoughtful acquisitions and selective disposals Preferred Application Characteristics Business Performance • Fits purpose • Gross margins at or above Group average • Strong long term market drivers • Credible plan to deliver organic profit growth • Market ni
Slide 16: Organising for growth
Organising Organisingfor forgrowth growth - Executive board Key changes to drive growth: • Executive board formed January 2021 • Group President Role • Scalability • Supports Operating Companies with organic growth Paul Simmons Hannah Nichols Andrew Park • Accountable for the delivery of M&A proposa
Slide 17: Sustainability
Sustainability Sustainability is central to revenue growth and the way we operate • H2 2021 major refresh of sustainability priorities Environmental • Our products & services reduce resource usage and emissions e.g. galvanizing and composites • Opportunities to reduce environmental impact across eac
Slide 18: Summary
Summary • Robust profit and cash performance demonstrates the resilience of our markets and our operational execution • A clear purpose that aligns with long term drivers and medium term market stimuli • Solid platform for consistent growth, based on proven operating and financial models • Increased
Slide 19: Slide 19
Slide 20: Appendices
Appendices FY20 Results 10 March 2021
Slide 21: Where we operate
Where we operate 1. USA: Eight galvanizing facilities mainly in the north east, several Utilities sites manufacturing composite solutions and electricity distribution products, our Roads business based in Ohio and a network of locations for the manufacture and distribution of 4 Pipe Support products
Slide 22: Our sustainable growth model
Our sustainable growth model Sustainability Strong financial controls Targeted M&A in higher growth niches Portfolio High cash management conversion, strong balance sheet Shareholder returns Operational Enhancing excellence, organic growth Talent innovation, Management development driving operating
Slide 23: Financial framework
Financial framework An organic and acquisitive growth strategy that maintains a strong margin and cash performance Strong cash Capital allocation to generation Acquisitions to Progressive earnings higher growth and & sustainable enhance growth and dividend growth return markets financial leverage A
Slide 24: Capital allocation and dividends
Capital allocation and dividends Effective deployment of capital to support growth ambitions Organic Growth Acquisitions Progressive Dividend • Allocation of capital to higher • Continued financial capacity • 2020 dividend: 26.7p per share return, higher growth markets for acquisitions given strong
Slide 25: Off-grid solar solutions
Off-grid solar solutions Why did we acquire Prolectric? • A clear fit with our purpose • Backed by strong macro drivers (increasing population, urbanisation, climate change) and market drivers (decarbonisation, infrastructure safety, enabling technology) • Strong historical profit growth, clear and
Slide 26: Financial guidelines
Financial guidelines >3% Organic revenue growth 12%-15% Group operating margin >17% Return on invested capital >90% Underlying cash conversion 1.5 -2x Net Debt to EBITDA FY20 Results 10 March 2021 26
Slide 27: Operating Margin
Operating Margin Margin 2020 2019* Expected % % Range % Roads & Security 5.0 8.4 9 – 13 Utilities 9.9 9.6 8 – 11 Galvanizing 19.3 21.2 19 – 22 Group 10.6 12.4 12 – 15 • Group 2020 margin impacted by operational leverage on lower revenues • Significant decline in Roads & Security margin mainly as a r
Slide 28: Segment analysis
Segment analysis £m 2020 Organic M&A FX 2019* Roads & Security Revenue 263.4 (28.5) 16.0 0.6 275.3 Underlying operating profit 13.2 (10.5) 0.5 - 23.2 Margin 5.0% 8.4% Utilities Revenue 211.2 (5.3) (5.4) (0.4) 222.3 Underlying operating profit 20.9 (0.8) 0.4 - 21.3 Margin 9.9% 9.6% Galvanizing Revenu
Slide 29: Non-underlying items
Non-underlying items £m 2020 2019 Operating items Business reorganisation costs - (1.9) Acquisition costs (0.3) (1.8) Amortisation of acquisition intangibles (6.1) (6.2) Impairment of acquisition intangibles/other assets (20.3) (7.0) Pension past service expense (0.4) - Loss on sale of Weholite Limi
Slide 30: Return on Invested Capital
Return on Invested Capital Divisional (%) 2020 2019* Roads & Security 5.5 10.8 Utilities 19.3 18.8 ROIC is defined as underlying operating profit divided by average invested capital. Galvanizing 17.4 19.7 Invested capital is defined as net assets excluding current and Group 2020 2019 deferred tax, n
Slide 31: Availability and usage of debt facilities
Availability and usage of debt facilities Maturity On 2021 to Dec 2026 / £m Net Debt Facility demand 2022 2023 2029 Committed 137.4 328.3 0.8 276.0 51.5 On demand 1.6 13.8 13.8 Cash (22.0) - Net borrowings 117.0 342.1 £225.1m total headroom IFRS 16 32.4 - IFRS 9 (3.2) - Net Debt by currency (exc. IF
Slide 32: Foreign exchange sensitivities
Foreign exchange sensitivities 2020 2019 Change Average rates Euro 1.13 1.14 1% US$ 1.28 1.28 No change Closing rates Euro 1.11 1.18 6% US$ 1.36 1.32 3% Revenue +ve £0.7m or 0.1% Impact on FY 2020 No impact Operating profit Ready reckoner for translation impact of FX rates movement Sensitivity
Slide 33: 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 number